<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997
Registration Statement No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
DIPLOMAT CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 5137 13-3727399
- ----------------- ------------------------- -------------------
(State or other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code)
organization)
25 Kay Fries Drive
Stony Point, New York 10980
(914) 786-5552
------------------------------------------------------------
(Address, including zip code and telephone number, including
area code, of Registrant's principal executive offices)
Consulting Agreement dated June 1, 1997
Consulting Agreement dated August 7, 1997
Consulting Agreement dated July 11, 1997
Consulting Agreement dated July 11, 1997
Settlement and Consulting Agreement dated October 23, 1997
---------------------------------------
(Full Title of the Plan)
JONATHAN ROSENBERG
President
DIPLOMAT CORPORATION
25 Kay Fries Drive
Stony Point, New York 10980
(914) 786-5552
--------------------------------------------------------
(Name, address, including zip code and telephone number,
including area code, of agent for service)
------------------
Copies To:
JAY KAPLOWITZ, ESQ.
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street, 9th Floor
New York, New York 10022
(212) 752-9700
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [x]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Title of Amount Being Proposed Maximum Proposed Amount of
Securities To Registered(1) Offering Price Per Maximum Registration
Be Registered Security(2) Aggregate Fee
Offering Price
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common
Stock, par
value $.0001
per share 275,908(3) $3.8125(4) $1,051,899.25 $318.76
- -------------------------------------------------------------------------------------------
Total
Registration
Fee $318.76
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416, the Registration Statement also relates to
an indeterminate number of additional interests to be offered or
sold pursuant to the employee benefit plan described herein.
(2) The price is estimated in accordance with Rule 457(h)(i) under the
Securities Act of 1933, as amended, solely for the purpose of
calculating the registration fee.
(3) These shares were issued or are issuable pursuant to consulting
agreements.
(4) Based on the average of the closing bid and asked prices per share
of the Common Stock as quoted by the National Association of
Securities Dealers Automated Quotation System on October 31, 1997.
(ii)
<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form S-8 relates to the registration of 275,908
shares (the "Shares") of Common Stock, par value $.0001 per share (the "Common
Stock") of Diplomat Corporation, a Delaware Corporation ("Diplomat" or the
"Company") by the Company, on behalf of consultants to the Company (the "Selling
Stockholders"). Such Shares were issued or will be issued to the Selling
Stockholders in connection with written consulting agreements with the Company
(the "Consulting Agreements"). A Prospectus has been prepared in accordance with
the requirements of Form S-3 pursuant to General Instruction C of Form S-3
relating to the Shares.
PART I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
Pursuant to the Note to Part I of the Form S-8, the information required by
Part I is not required to be filed with the Securities and Exchange Commission
(the "Commission").
The Company will provide without charge to each person to whom a copy of a
Section 10(a) Prospectus hereunder is delivered, upon the oral or written
request of such person, a copy of any document incorporated in this
Registration Statement by reference, except exhibits to such documents.
Requests for such information should be directed to Diplomat Corporation, 25
Kay Fries Drive, Stony Point, New York 10980, Attention: Secretary, telephone
number (914) 786-5552.
(iv)
<PAGE>
Subject to Completion, Dated November 5, 1997
PROSPECTUS
DIPLOMAT CORPORATION
----------
275,908 SHARES OF COMMON STOCK
Par Value, $.0001 Per Share
----------
This Prospectus relates to the offer and sale of 275,908 shares (the "Shares")
of Common Stock, par value $.0001 per share (the "Common Stock"), of Diplomat
Corporation, a Delaware corporation ("Diplomat" or the "Company"), by the
Company, on behalf of certain of the Company's stockholders (the "Selling
Stockholders") See "Selling Stockholders." The Shares (i) were issued to the
Selling Stockholders pursuant to written consulting agreements between the
Selling Stockholders and the Company (the "Consulting Agreements") or (ii) will
be issued upon exercise of options granted under the Consulting Agreements.
The Company's Common Stock is traded on the over-the-counter market on the
NASDAQ Small Cap Market ("NASDAQ"). On October 31, 1997, the closing bid and
asked quotations for the Common Stock as reported on NASDAQ were $3.8125 and
$3.8125 per share, respectively.
The Shares covered by this Prospectus may be offered and sold from time to time
directly by the Selling Stockholders or through brokers in the over-the-counter
market or otherwise at market prices prevailing at the time of such sales or in
one or more negotiated transactions at prices acceptable to each Selling
Stockholder. No specified brokers or dealers have been designated by the
Selling Stockholder and no agreement has been entered into in respect of
brokerage commissions or for the exclusive or coordinated sale of any
securities which may be offered pursuant to this Prospectus. The net proceeds
to the Selling Stockholders will be the proceeds received by each Selling
Stockholder upon such sales, less brokerage commissions, if any. The Company
will pay all expenses of preparing and reproducing this Prospectus. The
Company will not receive any proceeds from any sales by the Selling
Stockholders. The Company will however receive any proceeds received in
connection with the exercise of stock options.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THIS SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained or
incorporated by referenced herein and if given or made, such information or
representation must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy securities by anyone in any jurisdiction in which such
offering may not be lawfully be made. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company or the
information herein since the date hereof. See "Risk Factors."
------------------------------
The date of this Prospectus is , 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Commission. Such reports, proxy
statements, registration statements and other information can be examined
without charge at the public reference section maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and, upon payment of the fees
prescribed by the Commission, copies may be obtained therefrom and at certain
of the Commission's Regional Offices located at 7 World Trade Center, New York,
New York 10048, 5757 Wilshire Boulevard, Los Angeles, California 90024; and 500
West Madison Street, Northeastern Atrium Center, Suite 1400, Chicago, Illinois
60661-2511.
The Company's Common Stock is quoted on The Nasdaq Stock Market ("NASDAQ").
Reports, proxy statements, information statements, and other information
concerning the Company can be inspected at the office of the National
Association of Securities Dealers, Inc., located at 1735 K Street, N.W.,
Washington, DC 20006.
This Prospectus is part of a registration statement on Form S-8 (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") which the Company has filed with the Commission for the registration of
the securities offered by this Prospectus. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company,
reference is hereby made to such Registration Statement, exhibits and
schedules, which may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the fees prescribed by the Commission.
2
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Registration Statement on Form SB-2 (File
No. 33-66910 NY).
(2) The Company's Registration Statement on Form SB-2 (File
No. 333-23269) which became effective on March 24, 1997.
(3) Transition Report on Form 10-KSB/A-1 for the nine months
ended September 30, 1996.
(4) Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1996.
(5) Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997.
(6) Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997.
In addition to the foregoing, all documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment indicating that all of the securities
offered hereunder have been sold or deregistering all securities then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and
to be part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference in this Prospectus shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the oral or written request of such person, a
copy of any document incorporated in this Prospectus by reference, except
exhibits to such information, unless such exhibits are also expressly
incorporated by reference herein. Requests for such information should be
directed to Diplomat Corporation, 25 Kay Fries Drive, Stoney Point, New York
10980, Attention: Secretary, telephone number (914) 786-5552.
3
<PAGE>
THE COMPANY
General
The term "the Company" shall include Diplomat Corporation and its
wholly-owned subsidiary, Biobottoms, Inc. ("Biobottoms") unless otherwise
indicated. The term "Diplomat" shall refer to the operations of the Diplomat
Corporation exclusive of the Biobottoms subsidiary.
On February 9, 1996, Diplomat Corporation completed the
acquisition of Biobottoms, a California corporation located in Petaluma,
California. Biobottoms is a childrens' mail order catalog company selling
apparel and accessories in the United States for newborns through preteens.
Management of the Company believes that this business combination will
strengthen the Company's existing business by joining the manufacturing
strength and expertise of the Company with the retailing expertise of
Biobottoms.
The Company designs, develops, markets and distributes infantwear
and care products, nursery accessories and the products for infant and toddler
comfort and care. Through its wholly-owned subsidiary, Biobottoms, the Company
also sells apparel and accessories for newborns through preteens via direct
mail catalog. The Company sells primarily cloth diapers, diaper covers,
furniture covers, layette, infant and child travel products, such as infant car
seat covers, and other accessories marketed principally under the trademarks
Ecology KidsTM and BiobottomsTN. These products are marketed in the United
States and internationally. While international sales of Diplomat's products
have not been material, its products are sold in several Pacific Rim countries,
(Japan, Singapore, Taiwan and Malaysia). Biobottoms' products are sold
domestically and internationally. Biobottoms distributes a catalog in Japan and
has an 800 number which is answered in Japanese at the Petaluma office. Sales
in Japan have accounted for 20% of Biobottoms' sales since the Company acquired
it.
In November 1996, the Company restructured Diplomat's Stony Point,
New York operations by eliminating several of its unprofitable retail lines and
downsizing its distribution facility. The Company intends to focus Diplomat's
operations on its traditional core business under its Ecology KidsTM brand
name, which has historically generated the largest part of the Company's
revenue. The Company is currently in the process of acquiring the assets of Jean
Grayson's Brownstone Studios, Inc. out of bankruptcy pursuant to an acquisition
agreement and an order of bankruptcy court approving the acquisition. There can
be no assurance that the acquisition will be consummated in the near future, if
at all.
In June 1977, the Company reached an agreement in principle to
acquire Lew Magram, Ltd., a woman's fashion catalog retailer. Although the terms
have not been finalized, it is currently contemplated that the acquisition will
be for shares of the Company's convertible preferred stock. There can be no
assurance that the acquisition will be consummated on terms favorable to the
Company, if at all.
Marketing and Sales
The primary customers of Diplomat are major mass merchandisers,
including Toys 'R Us, Inc. ("Toys 'R Us") and Wal-Mart Stores, Inc.
(Wal-Mart"). The foregoing two customers represented a total of approximately
51% of the Diplomat division's total revenues during the fiscal year ended
September 30, 1996. Diplomat's products are presently carried by Wal-Mart, Toys
'R Us, Target Stores and Baby Superstores, all nationally known merchants.
Diplomat's products are also sold to drug store chains, catalog showrooms, mail
order catalogs and food and drug chains which include Publix, Winn-Dixie and
Walgreens.
Historically, Diplomat obtained substantially all of its raw
materials required for the manufacture of its products and shipped such
materials to contract manufacturers, who assembled the products in accordance
with the Company's specifications and under its supervision, either from
facilities at the Company's Rockland County, New York warehouse and
distribution facilities, or other locations in New York State.
4
<PAGE>
Biobottoms is a childrens' catalog company in the United States
selling apparel and accessories primarily for newborns through preteens. The
majority of the products offered for sale by Biobottoms are made of natural
fibers and are designed by Biobottoms with an emphasis on comfort and ease of
care. Biobottoms mailed over 9 million catalogs to its existing and prospective
customers and delivered over $18 million of merchandise in 1996. The catalog is
redesigned four times a year and is mailed as many as 13 times a year to a
combination of customers and prospective customers. The catalog is divided into
product categories, generally by the age of the child and the size of the
products being offered. Biobottoms also operates a retail store selling
overstocks and out-of-season items.
Nearly 70% of Biobottoms' products are designed to its
specifications and marketed under Biobottoms' brand name. Established national
brands, such as CONVERSE and SARA'S PRINTS round out the product offering.
Unlike other segments of the apparel industry, the demand for children's
clothing is driven by the physical growth of the child, rather than changing
fashions. As a result, staples and basics account for much of the merchandise
mix, with low return rates and low markdowns.
Biobottoms' brand products allow the Company to distinguish itself
from other catalogs and retailers. The lower cost of these goods also gives
management more pricing flexibility. Biobottoms has increased its average order
size in each of the past few years by increasing the number of items per order
while decreasing the average item price. Biobottoms has also significantly
expanded the age range of its merchandise, testifying to the appeal of the
Biobottoms brand.
The increase in the number of working women has provided a very
receptive environment for catalogers over the past two decades. The Company
understands that more than 70% of women aged 25 to 54 were working full time in
1993, versus 43% in 1965. The increasing number of dual income families and
single women in the workforce is expected to continue to fuel the growth of
direct marketing through the 1990's.
Even though the Company has shifted its emphasis to the
Biobottoms' division, it continues to market Diplomat's products. The Company's
plan is to evaluate Diplomat's business and determine which areas should be
continued. Diplomat was a party to an exclusive distribution agreement ("the
Lamaze Agreement") with Ambrose & Montgomery, doing business as "Lamaze from
AMI". Pursuant to the Lamaze Agreement, Diplomat was granted the right to
utilize the Lamaze registered trademark in conjunction with the manufacture,
advertisement, promotion, distribution and sale of various products for
infants. The Lamaze Agreement expired in July 1996 and the Company currently
has no plans to extend it. Accordingly, the Company no longer uses the Lamaze
registered trademark.
New and Planned Products
The Company's success depends in part upon the development of
strong brand identification for its current and proposed products. The primary
direction of the Company's marketing plan is to promote certain of its existing
products and develop new products under the Fresh Air Wear trademark. Achieving
and maintaining market acceptance for its products will require significant
efforts and expenditures. There can be no assurance that the Company will be
successful in effecting this plan.
Product development and selection are based upon reliability of
vendors, visual appeal,
5
<PAGE>
perceived customer value, and uniqueness of design. Biobottoms utilizes
customers feedback on products' performance and their reported preferences for
new product designs, fabrications and category expansion. Biobottoms' sales are
generated from both house file customers (persons who have either previously
purchased from Biobottoms or requested a catalog) and rented mailing lists
(names of current customers from other catalog companies). Analysis of this
segmentation allows Biobottoms to mail frequently and selectively to its most
responsive customers.
Sourcing
Biobottoms provides for manufacturing and sourcing of products in
a number of ways. Private label vendors supply some high volume basics, such as
t-shirts, play pants and knit shorts, where price competitiveness is critical.
Other manufacturers, that may be more costly, compared to private label
vendors, may be used for products requiring shorter lead times or testing
fashion trends. This provides greater flexibility for inventory management.
Biobottoms' manufacturing group provides control of the manufacturing process
by closely supervising all phases of production with local consultants and
contractors. Biobottoms' manufacturing group is a convenient source for testing
new private label product concepts. Branded merchandise from a variety of
manufacturers is the further source of products for Biobottoms.
Major Customers
For the fiscal year ended December 31, 1995, two of the Company's
customers, Toys 'R Us and Wal-Mart individually accounted for approximately 23%
and 36% respectively, of the Diplomat net sales. For the nine month period
ended September 30, 1996, such customers individually accounted for 11% and
40%, respectively, of the Diplomat division's sales. Sales to such customers
accounted for approximately 22% of the Company's sales for the nine month
period ended September 30, 1996. The Company has no written contracts with such
customers and there can be no assurance that such customers will continue to
purchase products from the Company. The loss of either of these customers would
have a materially adverse effect on the Company's business.
In addition, the Company sold its products to approximately 500
retail accounts consisting primarily of mass merchandisers and toy retailers,
and, to a lesser extent, drug store chains, catalog showrooms, mail order
operations and food store chains. In addition to Toys'R Us and Wal-Mart, the
Company's customers include Burlington Coat Factory, Kids 'R Us, Winn- Dixie
Supermarkets, American Drug Stores, Baby Superstores, Eckerd Drugs, Walgreens,
Caldor, Target Stores and Publix Supermarkets. A reduction in the number of
retail accounts from prior periods reflects a change in customer mix, with an
increased emphasis on mass merchandisers and chain stores. The decrease also
reflects general economic conditions which include a decrease generally in the
number of retailers.
Seasonality of product is generally not a factor affecting the
Company's sales. Sales fluctuations are, however, affected by special seasonal
promotional activities of the merchandise retailer.
Quality Assurance
Products developed for either Biobottoms or Fresh Air Wear and
Ecology Kids brands are chosen based upon the following criteria:
6
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o Quality
o Price/Value
o Fabric
o Fit
o Testing
o Exclusivity
o Color/Print
o Styling
o Manufacturing Responsibility
o Merchandising
Additionally, a minimum of two additional features beyond the must
have requirements that add appropriate performance or styling benefits, and are
comparable to the benchmarks, must be added. These include, but are not limited
to:
Specialized fabrications
Premium construction details
Appropriate decorative items, such as buttons
Logos, Patches and Graphics to enhance brand identification
Governmental Regulation
As a seller of infant products, the Company is subject to laws and
regulations administered by various states and the Federal Trade Commission. As
a seller of bedding products, the Company is also required to maintain licenses
in the various states where it conducts business. These licenses subject the
Company to compliance with a variety of laws and regulations regarding the
labeling and cleanliness of its products. In addition, the Company has all of
its bedding products produced to the upholstered product specifications
required by the flammability laws of the State of California, which the Company
believes to be the most stringent in the United States. The Company believes
that it complies with the laws and regulations in all material respects.
Product Liability
The Company currently has an aggregate of $2,000,000 of product
liability insurance for its current products with an umbrella policy of up to
an aggregate of $3,000,000. The Company does not intend to increase such
coverage upon commercialization of any other product under development. There
can be no assurance that the Company's existing coverage will be sufficient to
cover any liability resulting from any product liability claims or that the
Company would have funds available to pay any claims over the limit of its
insurance. Either an under insured or an uninsured claim could have a
materially adverse effect on the Company.
Trademarks, Patents and Proprietary Rights
The Company's success depends, in part, upon the development of
strong brand identification for its current and proposed products. Diplomat has
trademark protection for the name Ecology Kids(TM) and historically relied
heavily on its right to utilize the Lamaze name in accordance with its now
expired distribution agreement with AMI. Although there can be no assurance
thereof, the Company does not believe that the inability to use the Lamaze name
will have an adverse effect on the Company.
7
<PAGE>
The Company has trademark protection to utilize the name "Fresh
Air Wear" in connection with the sale of Biobottoms' products and may apply for
other trademarks as it deems appropriate. There can be no assurance that future
trademark protection will be obtained, or that if obtained, will not be
infringed upon by others. In addition, if any of the Company's trademarks are
infringed upon, there can be no assurance that the Company can successfully
challenge any alleged infringement. In the event that it became necessary to
establish recognition of alternative trademarks, the cost of such development
could be substantial, and, as a result, materially adversely affect the
Company's business and prospects.
In November 1992 the Company acquired the four-year exclusive
License to a United States patented thermochromatic process that can be
utilized with a diaper cover to indicate wetness and soiling through heat
generated color changes. This License was entered into for the purpose of
promoting an extension of the Company's diaper cover business and for use in
developing a disposable diaper pad product combination, providing the
convenience of disposable diapers, while generating significantly less solid
waste. Plans to develop the disposable diaper pad product are not being
actively pursued at this time. The License required that the Company pay fixed
annual minimum royalty payments of $50,000 in 1993, $87,500 in 1994, and
$100,000 in 1995 and 1996. All minimum royalty payments required to be paid
have been paid through 1995 and the balance of the 1996 payments are to be paid
in 1997. The Company did not exercise its right to extend the License.
Competition
There are a wide range of catalogs selling infant and childrens'
apparel in competition with Biobottoms. These vary from general catalog
merchandisers, such as JC Penney, to smaller specialty childrens' apparel
catalogs. Biobottoms believes it competes primarily with the latter, which
group includes: Hanna Anderson, Playclothes, Childrens Wear Digest, Storybook
Heirlooms, Wooden Soldier, and Lands End Kids. Companies in the catalog
business compete on price, product quality, features, benefits, brand name and
customer service. Biobottoms seeks to market a product line that is distinctive
from its competitors. Biobottoms also competes with non-mail order childrens'
clothing retailers, including specialty stores, department stores, major chains
and discount retailers. Gap Kids, Gymboree and other national retailers are
also competitors outside the direct mail industry. Although certain of these
direct competitors have greater financial and marketing resources, Biobottoms
believes that it has been able to be competitive because of its ability to
offer quality products, reasonable prices and outstanding customer service.
The infant and toddler products industries are extremely
competitive in the United States and Diplomat faces substantial competition in
each of its product lines. The Company competes in a variety of segments within
these product categories, including disposable diapers, infant and juvenile
furnishings and accessories. Competitive factors include quality, price, style,
name recognition and service. Although the Company believes that it can compete
favorably in these areas, there can be no assurance thereof.
Employees
As of October 27, 1997, the Company had 33 full time employees in
its Stony Point facility. Of such employees, three act in executive capacities,
three are full time sales and marketing personnel, one is a customer service
representative and 26 are administrative and warehouse personnel. None of the
employees are covered by a collective bargaining agreement.
8
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The Company considers its relations with the employees to be good.
Biobottoms employs permanent, full time and part time employees,
part time casual (not eligible for benefits), and temporary workers due to
seasonal increases in its sales volume. This allows for optimal employment
levels during peak and slack times. Also, it allows a portion of the work force
the option of flexible working hours. At October 27, 1997, Biobottoms employed
148 employees 83 of which are full time. None of the Biobottoms employees are
represented by any labor union.
Properties and Facilities
In December 1992, Loshell Realty Corporation ("Loshell"), owner of
the real estate and buildings housing the Company's warehouse and distribution
facilities located at 25 Kay Fries Drive, Stony Point, New York (the
"Facilities"), transferred to the Company a fee interest in the Facilities,
subject to purchase money mortgage indebtedness. The Facilities consist of five
buildings aggregating approximately 40,000 square feet, located on
approximately seven acres. The Facilities had an adjusted basis of $1,984,857
when transferred to the Company. Approximately 6,000 square feet of the
Facilities are utilized by the Company's contract manufacturers located at the
premises. Sheldon R. Rose, the Company's former President and Chief Executive
Officer and his wife are the sole shareholders of Loshell. In connection
therewith, the Company assumed purchase money mortgage indebtedness of Loshell
aggregating approximately $1,799,000 ($1,101,000 with respect to a first
mortgage note due August 2010, bearing interest at an initial rate of $11.75%
adjusted every three years, commencing July 1993 (currently 8.375%) and
$698,000 with respect to a subordinated mortgage note originally due July 1995,
but extended to January 1998, bearing interest at an initial rate of 11.5% per
annum. Mr. Rose and his wife have personally guaranteed payment of the first
mortgage, and Mr. Rose and Loshell are co-makers of the subordinated mortgage
note. The Company pays approximately $26,000 per month for both mortgage
payments and real estate taxes.
Biobottoms leases approximately 17,600 square feet of office space
and 18,700 square feet of warehouse space in Petaluma, California. In addition,
Biobottoms leases 1,700 square feet of retail space in Petaluma, California.
Total fixed monthly payments (exclusive of any applicable common area
maintenance charges) currently under these leases is $28,632 and the lease
agreements provide for fixed annual increases. The office lease and warehouse
leases expire on July 1, 1998. No determination has been made as to whether
either or both of these leases will be renewed. These properties are adequate
for current planned operations. Other suitable facilities are available at
competitive prices and terms. The retail lease for Petaluma renews bi-
annually.
Legal Proceedings
In September 1996, the Company was named as a defendant in an
action brought in the
9
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Supreme Court of the State of New York, County of Rockland (Richard Tracy and
Anne Tracy v. Insulx Product Corporation, Consolidated Rail Corporation,
Diplomat Corporation and Bruce M. Smith Contracting Corporation). Mr. Tracy
alleges that the defendants negligent maintenance of a railroad crossing
adjacent to the Company's property caused him to collide with a train. Mr.
Tracy is seeking $10,000,000 in damages for his injuries, and Mrs. Tracy is
seeking an additional $1,000,000 in damages for loss of Mr. Tracy's services.
The Company and its insurance carrier intend to vigorously defend against these
claims. The ultimate outcome of this litigation cannot presently be determined.
Accordingly, no provision for the liability has been made in the accompanying
financial statements. Additionally, the Company maintains $1,000,000 of
insurance coverage which could be applied to any liability posed by this
matter.
In February 1997, Francine Nichols, a former consultant to the
Company, commenced and action against the Company in the Supreme Court of the
State of New York, New York County, to recover approximately $240,000 allegedly
due under a consulting agreement between Ms. Nichols and the Company. The
Company disputed each claim and intends to vigorously defend against them.
However, should the claimant prevail, the result may have a material adverse
affect on the Company.
In July 1997, Federal Express commenced an action against
Biobottoms claiming approximately $180,000 in unpaid delivery invoices.
Biobottoms has disputed this claim and has filed a counter claim on several
basis, one of which is nonperformance. Although Biobottoms intends to
vigorously defend against the claim, should the claimant prevail, the result
may have a material adverse affect an Biobottoms and the Company.
Other than the above claims, the Company has no notice of any
pending or threatened material litigation.
10
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RISK FACTORS
Prospective investors should carefully consider the following
factors, in addition to the other information contained in this Memorandum, in
connection with investments in the shares of Common Stock offered hereby. This
Memorandum contains certain forward- looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Memorandum. An investment
in the securities offered hereby involves a high degree of risk.
1. Recent Losses. During the fiscal years ended September
30, 1996 and December 31, 1995, the Company reported net losses of
approximately $7,225,000 (including non-recurring costs of approximately
$1,739,000 related to the restructuring of the Company's business) and
$720,878, respectively. In November 1996, the Company changed its fiscal year
end to September 30. There can be no assurance that the Company will operate
profitably in the future. As of June 30, 1997, the Company had an accumulated
deficit of approximately $8,027,183.
2. Possible Need For Additional Financing. Diplomat's
principal secured commercial credit facility and that of Biobottoms, together
with funds from operations, do not provide the Company with sufficient capital
resources to fund adequately its working capital obligations. As of September
30, 1997, the aggregate borrowings by Diplomat and Biobottoms from its
institutional lender was $2,042,981. As of the date hereof, Diplomat and
Biobottoms have borrowed the maximum amounts available under the terms of the
credit facilities. As such, the Company may be required to seek financing or
curtail its business operations. There can be no assurance that such financing
will be available or that it will be available on terms acceptable to the
Company.
3. Litigation. The Company has three pending claims
against it which represent potential liability, based on damages alleged and
sought by the plaintiffs, in the aggregate amount of approximately $11,420,000.
The Company disputes each of the three claims and intends to defend them
vigorously. A negative ruling in any or all of these may have a material
adverse effect on the operations of the Company. See "The Company - Legal
Proceeding."
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<PAGE>
4. New and Planned Products. The Company's success
depends, in part, upon the development of strong brand identification for its
current and proposed products. The primary direction of the Company's marketing
plan is to promote certain of its existing products and develop new products
marketed under its trademarks. Achieving and maintaining market acceptance for
its products will require significant efforts and expenditures. There can be no
assurance that the Company will be successful in effecting this plan.
5. Trademarks, Patents and Proprietary Technology.
Although Diplomat has trademark protection for the name Ecology Kids, it has
historically relied heavily on its rights to utilize the Lamaze name pursuant
to a distribution agreement with AMI. The agreement expired in July 1996 and
has not been extended. There can be no assurance that the inability to use the
Lamaze name will not have an adverse effect on the Company. In addition, the
Company currently has trademark protection to utilize the name "Fresh Air Wear"
in connection with the sale of Biobottoms' products and may apply for other
trademarks as it deems appropriate. There can be no assurance that any future
trademark registrations will be issued to the Company, that others will not
infringe upon the Company's trademarks, or that the Company can successfully
challenge any infringement. In the event that it becomes necessary to establish
recognition of alternative trademarks, the cost of such development could be
substantial, and as a result, have a material adverse effect on the Company's
business and prospects.
6. Possible Adverse Effects of Security Interests in the
Company's Assets. All of the Company's assets (with the exception of its real
estate which is also subject to mortgages), are pledged as collateral to secure
(i) the Company's term loan indebtedness, (ii) obligations to a principal
stockholder, and (iii) indebtedness incurred in connection with the acquisition
of Biobottoms. Unless these security interests are released, such assets will
not be available to secure future indebtedness, and as such may adversely
affect the Company's ability to borrow money in the future. Moreover, in the
event of a default by the Company on any of its obligations (which default is
not waived), including with respect to the financial covenants contained in the
credit agreement between the Company and Congress Financial (as such term is
hereinafter defined), such lender could foreclose on the Company's assets. In
addition, the Company's real estate is subject to two mortgage liens; default
by the Company of either mortgage lien could result in the loss of the
Company's real estate and its principal place of business.
7. Possible Conflicts of Interest. As of October 27, 1997,
Mr. Robert M. Rubin, a director and principal shareholder of the Company,
beneficially owns approximately 50% of the voting power of the Company's
voting stock. See "Principal Stockholders" and "Description of Securities." Mr.
Rubin has also provided (i) Congress Financial with a limited guaranty related
to the Company's indebtedness to Congress Financial, and (ii) a $200,000 loan
to the Company to help fund inventory. In addition, the Company has reached an
agreement in principle to acquire Lew Magram, Ltd., a woman's fashion catalogue
retailer. Mr. Rubin is a principal stockholder of Lew Magram, Ltd. There can
be no assurance that Mr. Rubin's relationships with the Company, as a creditor,
principal stockholder and a director, or Mr. Rubin's relationship as a principal
stockholder of Lew Magram, will not give rise to conflicts with respect to
future transactions by the Company. If such conflicts arise, there can be no
assurance that they will be resolved in favor of the Company.
8. Dependence Upon Primary Customers. For the fiscal year
ended December 31, 1995 and nine months ended September 30, 1996, two of
Diplomat's customers, Toys R Us and Wal-Mart, accounted for 23% and 36% and 11%
and 40%, respectively, of the Diplomat division's net sales. The Company has no
written contracts with either Toys R Us or Wal-Mart and there can be no
12
<PAGE>
assurance that such customers will continue to purchase products from Diplomat.
The loss of either of these customers could have a materially adverse effect on
the Company's business.
9. Substantial Competition. The infant and toddler
products and children's apparel industry segments in which the Company competes
are extremely competitive. The Company faces substantial competition in each of
its product categories. Diplomat competes in a variety of segments within these
categories, including disposable diapers, cloth diapers, infant's and juvenile
furnishings, infantwear and accessories. Diplomat's primary competition in the
cloth diaper market is Gerber Products Company ("Gerber") and Dundee Mills
("Dundee"). Diplomat faces additional competition from foreign manufacturers
with respect to cloth diapers. The United States infant disposable diaper
market is led by nationally recognized branded product leaders Proctor & Gamble
and Kimberly-Clark. In addition, Gerber produces layette and infantwear
products competitive with Diplomat's layette and infantwear products and
produces a diaper cover product which also competes generally with the diaper
covers sold by Diplomat.
There are numerous infant and children's apparel catalogs
in competition with Biobottoms, ranging from general catalog merchandisers,
such as J.C. Penney, to smaller specialty children's apparel catalogs.
Biobottoms believes that it competes primarily with the smaller specialty
catalogs, including Hanna Anderson, Playclothes, Children's Wear Digest,
Storybook Heirlooms, Wooden Soldier, and Land's End Kids. Biobottoms also
competes with non-mail order children's clothing retailers, including specialty
stores, department stores, major chains and discount retailers. Gap Kids,
Gymboree and other national retailers are also competitors outside the direct
mail industry.
Many of the Company's competitors have substantially
greater financial, distribution, marketing and other resources and have
achieved significant name recognition and goodwill for their brand names. There
can he no assurance that either Diplomat or Biobottoms will be able to compete
successfully with its competitors.
10. Product Liability. The Company currently has an
aggregate of $2,000,000 of product liability insurance for its current products
with an umbrella policy up to an aggregate of $3,000,000. There can be no
assurance that the Company's existing coverage will be sufficient to cover any
liability resulting from any product liability claims or that the Company would
have funds available to pay any claims over the limit of its insurance. Either
an under insured or an uninsured claim could have a material adverse effect on
the Company.
11. State and Federal Regulation. As a seller of infant
and juvenile products, the Company is subject to laws and regulations
administered by various states and the Federal Trade Commission ("FTC"). As a
seller of bedding products, Diplomat is also required to maintain licenses in
the various states where it conducts business. These licenses subject the
Company to compliance with a variety of laws and regulations regarding the
labeling and cleanliness of its products. In addition, federal and state
regulations designed to protect consumers govern the promotion and advertising
activities of the Company and other sellers of the Company's products. Although
the Company believes it is currently in compliance with all laws and
regulations where the failure thereof might materially adversely affect its
business or financial condition, changes in laws and regulations could have a
material adverse affect on the Company and require substantial costs in order
to be in compliance with such new laws and regulations.
12. Dependence Upon Key Personnel. The Company is
currently managed by a small number of key management and operating personnel,
whose efforts will largely determine
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<PAGE>
the Company's success. The loss of key management, particularly Jonathan
Rosenberg, the President and a director of the Company, and Stuart A.
Leiderman, Executive Vice President and a director of the Company, could delay
or prevent the efforts of the Company to achieve its goals and have a material
adverse effect on the Company. The Company does not currently have employment
agreements with either Mr. Rosenberg or Mr. Leiderman.
13. Control by Principal Shareholders, Officers and
Directors. As of October 27, 1997, the Company's principal shareholders,
directors and officers beneficially own in excess of 50% of the Company's voting
stock. See "Principal Stockholders." As such, the Company's principal
stockholders, officers and directors are able to exercise control over the
outcome of all matters submitted to the shareholders for approval, including
the election of directors of the Company, and as a result will be able to
control the Company's affairs and management. The Company's articles of
incorporation do not provide shareholders with cumulative voting rights.
14. Outstanding Warrants, Options and Other Convertible
Securities; Registration Rights. As of October 27, 1997, the Company has
outstanding the following warrants, options and other convertible securities:
(i) 581,175 Class A Warrants and an underwriter's unit purchase option
entitling the holder thereof to acquire 50,000 units, each unit consisting of
three shares of common stock and one common stock purchase warrant, (ii)
options entitling the holders thereof to acquire in the aggregate 150,000
shares of common stock issued pursuant to the Company's 1992 stock option plan,
(iii) options entitling the holders thereof to purchase 150,000 shares of
common stock issued pursuant to the Company's August 1996 stock option plan,
(iv) options entitling the holders thereof to purchase an aggregate of
1,185,000 shares of common stock issued pursuant to the Company's November
1996 stock option plan, (v) 100,000 shares of Series A Preferred Stock,
convertible by its terms into 1,000,000 shares of the Company's Common Stock,
(vi) 200,000 shares of Common Stock underlying options granted to two persons
pursuant to consulting agreements, and (vii) 290,000 Shares of Series B
Preferred Stock (with a liquidation value of approximately $2,900,000), and
60,000 shares of Series C Preferred Stock (with a liquidation value of
$600,000), all of which is convertible into Common Stock at 75% of the market
price for the Common Stock at the time of conversion. There is no provision
granting the Company the right to redeem any of the above-mentioned convertible
securities. To the extent that such securities are exercised, dilution to the
interest of the Company's shareholders will occur. Moreover, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of such securities can be expected to
exercise them, to the extent they are able to, at a time when the Company
would, in all likelihood, be able to obtain any needed capital on terms more
favorable to the Company than those provided in the warrants, options or
preferred stock. In addition, certain of the above mentioned securities are
subject to certain demand and/or piggyback registration rights. Such
registration rights could result in substantial expense to the Company and
adversely affect any future equity or debt financing. The sale of Common Stock
or other securities held by or issuable to the holders of registration rights or
merely the potential of such sales, could have an adverse effect on the market
price of the Company's securities.
15. No Dividend. Since terminating its election to be
taxed as an S Corporation in June 1992, the Company has not paid dividends on
its Common Stock. The Company intends to retain any future earnings to finance
its growth. Accordingly, any potential investor who anticipates the need for
current dividends from his or her investment should not purchase any of the
securities offered hereby.
16. Possible Volatility of Stock Price; Stock Market
Volatility. There have been
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<PAGE>
periods of extreme volatility in the stock market that, in many cases, were
unrelated to the operating performance of, or announcements concerning, the
issuers of affected securities. General market price declines or volatility in
the future could adversely affect the price of the Common Stock. There can be
no assurance that the Common Stock will maintain its current market price.
Short-term trading strategies of certain investors can have a significant
effect on the price of specific securities. The price of the Company's Common
Stock, in particular, has been volatile. Due to the sporadic trading and
volatility, the Company does not believe that an established trading market
exists for its Common Stock.
17. Shares Eligible for Future Sale. No assurance can be
given as to the effect, if any, that future sales of Common Stock will have on
the market price of Common Stock. Of the Company's 8,001,933 shares of Common
Stock currently outstanding, 3,495,458 are "restricted securities" as that term
is defined in Rule 144 under the Securities Act of 1933, as amended ("Act"), and
under certain circumstances may be sold without registration pursuant to that
rule. Subject to compliance with the notice and manner of sale requirements of
Rule 144 and provided that Diplomat is current in its reporting obligations
under the Securities Exchange Act of 1934, as amended, a person who beneficially
owns restricted shares for a period of at least one year is entitled to sell,
within any three month period, shares equal to the greater of 1% of the then
outstanding shares of Common Stock, or if the Common Stock is quoted on the
NASDAQ System, the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the filing of the required notice of sale with the
Securities and Exchange Commission. The Company is unable to predict the effect
that sales made under Rule 144 or otherwise may have on the market price of the
Common Stock prevailing at the time of any sales. Nevertheless, sales of
substantial amounts of the restricted shares of Common Stock in the public
market could adversely affect the then prevailing market for the Common stock
and could impair the Company's ability to raise capital through the sale of its
equity securities.
18. NASDAQ Eligibility and Maintenance Requirements;
Possible Delisting of Common Stock from NASDAQ SmallCap; Risks of Low-Priced
Stocks. The Common Stock is traded in the over-the-counter market and are quoted
on the NASDAQ SmallCap Stock Market ("NASDAQ"). For continued listing, an
issuer, among other things, must have $2,000,000 in net tangible assets,
$1,000,000 in market value of securities in the public float and a minimum bid
price of $1.00 per share. If the Company is unable to satisfy NASDAQ SmallCap's
maintenance criteria in the future, its Common Stock may be delisted from
NASDAQ, if any, in the Company's Common Stock, would thereafter be conducted in
the over the counter market in the so-called "pink sheets" or the NASD's
"Electronic Bulletin Board." As a consequence of such delisting, an investor
would likely find it more difficult to dispose of, or to obtain quotations as
to, the price of the Company's Common Stock.
19. Penny Stock Regulation. In the event that the Company
is unable to satisfy the maintenance requirements for the NASDAQ and its Common
Stock falls below the minimum bid price of $5.00 per share for the initial
quotation, trading would be conducted on the "pink
15
<PAGE>
sheets" or the NASD's Electronic Bulletin Board. In the absence of the Common
Stock being quoted on NASDAQ, or the Company's having a minimum of $2,000,000
in stockholders' equity, trading in the Common Stock would be covered by Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), for non-NASDAQ and non-exchange listed securities. Under such
rule, broker-dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale.
The Commission adopted regulations that generally define a penny
stock to be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity
security listed on NASDAQ, and an equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
If the Company's Common Stock were to become subject to the
regulations applicable to penny stocks, the market liquidity for the Common
Stock would be severely affected, limiting the ability of broker-dealers to
sell the Common Stock and the ability of purchasers in this Offering to sell
their Common Stock in the secondary market. There is no assurance that trading
in the Common Stock will not be subject to these or other regulations that
would adversely affect the market for such securities.
16
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Selling
Stockholder's sale of shares of Common Stock. The Company will receive all
proceeds from the exercise of stock options. All such proceeds will be used for
general corporate and working capital purposes.
17
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholder acquired the Shares in connection with the Consulting
Agreement.
The following table sets forth the (a) the names of each Selling Stockholder,
(b) the number of shares of Common Stock beneficially owned by the Selling
Stockholder or issuable upon exercise of options held by the Selling Stockholder
as of October 31, 1997 and (c) the number of shares of Common Stock to be
beneficially owned by the Selling Stockholder following this offering, assuming
the sale pursuant to this offering or otherwise of all shares of Common Stock
that are the subject of the Registration Statement of which this Prospectus is
a part, which shares are being registered. There is no assurance, however, that
the Selling Stockholder will sell any or all of the shares of Common Stock
offered hereunder.
Selling Beneficial Shares Shares Owned
Stockholder Ownership Offered Hereby After Offering
- ----------- --------- -------------- --------------
Shanna L. Wolf 25,000(1) 25,000 0
Marc E. Lehmann 25,000(1) 25,000 0
Robert Selame 150,000(1) 150,000 0
Joan Cooper 29,204 29,204 0
Anita Dimondstien 29,204 29,204 0
Joseph Grabowski 17,500 17,500 0
(1) These shares of Common Stock are issuable upon exercise of options held by
the Selling Stockholder.
18
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law permits Delaware corporations to eliminate
or limit the personal liability of a director to the corporation for monetary
damages arising from certain breaches of fiduciary duties as a director. The
Company's Certificate of Incorporation includes such a provision eliminating
the personal liability of directors to the Company and its stockholders for
monetary damages for any breach of fiduciary duty as a director, except (i) any
breach of a director's duty of loyalty to the Company or its stockholders; (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (iii) for any transaction from which the
director derived an improper personal benefit; or (iv) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law. Directors are also not insulated
from liability for claims arising under the federal securities laws. The
foregoing provisions of the Company's Certificate of Incorporation may reduce
the likelihood of derivative litigation against directors for breaches of their
fiduciary duties, even though such an action, if successful, might otherwise
have benefitted the Company and its stockholders.
The Company's Certificate of Incorporation also provides
that the Company shall indemnify its directors, officers and agents to the
fullest extent permitted by the Delaware General Corporation Law. The Company
does not have directors' and officers' liability insurance but may secure such
insurance in the future. Furthermore, the Company may enter into indemnity
agreements with its directors and officers for the indemnification of and
advancing of expenses to such persons to the fullest extent permitted by law.
19
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereby are being sold by the Selling Stockholder as a
principal for his own account. The distribution of the Shares by the Selling
Stockholder may be effected from time to time in ordinary brokerage
transactions in the over-the-counter market at market prices prevailing at the
time of sale or in one or more negotiated transactions at prices acceptable to
the Selling Stockholder. The brokers or dealers through or to whom the Shares
may be sold may be deemed underwriters of the Shares within the meaning of the
Securities Act, in which event all brokerage commissions or discounts and other
compensation received by such brokers or dealers may be deemed to be
underwriting compensation. The Company will bear all expenses of the offering,
except that the Selling Stockholder will pay any applicable brokerage fees or
commissions and transfer taxes. In order to comply with the securities laws of
certain states, if applicable, the Shares will be sold only through registered
or licensed brokers or dealers. In addition, in certain states, the Shares may
not be sold unless they have been registered or qualified for sale in such
state or an exemption from such registration or qualification requirement is
available and is complied with.
20
<PAGE>
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the shares of
Common Stock offered by the Company, are being passed upon for the Company by
Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York,
New York 10022. Mr. Wesley C. Fredericks, Jr., a member of Gersten, Savage,
Kaplowitz & Fredericks, LLP is a director of the Company. Three partners of
the firm, including Mr. Fredericks, own an aggregate of 344,550 shares of the
Company's common stock and options to purchase another 250,000 shares pursuant
to the August 1996 Stock Option Plan and November 1996 Stock Option Plan.
21
<PAGE>
EXPERTS
The consolidated financial statements of the Company and its subsidiary
incorporated in this Prospectus by reference to the Company's Transitional
Report on Form 10-KSB as of September 30, 1996 and for the nine months then
ended have been audited by Feldman Radin & Co., P.C., independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
22
<PAGE>
No underwriter, dealer, salesman or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer or solicitation to any person in any juris-
diction where such offer or solicitation would be unlawful. Neither delivery of
this Prospectus nor any Common Stock sale hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS Page
- ----------------- ----
Available Information. . . . . . . . . . . .
Incorporation of Certain
Documents by Reference . . . . . . . . . .
The Company. . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . .
Selling Stockholder. . . . . . . . . . . . .
Indemnification of
Officers and Directors . . . . . . . . . .
Plan of Distribution . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . .
==============================================================================
DIPLOMAT CORPORATION
275,908 shares of
Common Stock
, 1997
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Registration Statement on Form SB-2 (File
No.33-66910 NY).
(2) The Company's Registration Statement on Form SB-2 (File
No.333-23269) which became effective on March 24, 1997.
(3) Transition Report on Form 10-KSB/A-1 for the nine months
ended September 30, 1996.
(4) Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1996.
(5) Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997.
(6) Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997.
In addition to the foregoing, all documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment indicating that all of the securities
offered hereunder have been sold or deregistering all securities then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and
to be part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference in this Prospectus shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. All information
appearing in this Prospectus is qualified in its entirety by the information
and financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
The Company will provide without charge to each person to whom a copy of this
Prospectus is delivered, upon the oral or written request of such person, a
copy of any document incorporated in this Prospectus by reference, except
exhibits to such information, unless such exhibits are also expressly
incorporated by reference herein. Requests for such information should be
directed to Diplomat Corporation, 25 Kay Fries Drive, Stoney Point, New York
10980, Attention: Secretary, telephone number (914) 786-5552.
Item 4. Description of Securities
The Common Stock of the Company is registered under Section 12 of the
Securities Exchange Act of 1934.
II-1
<PAGE>
Item 5. Interests of Named Experts and Counsel
Certain legal matters, including the legality of the issuance of the shares of
Common Stock offered by the Company, are being passed upon for the Company by
Gersten, Savage, Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York,
New York 10022. Three partners of the firm, including Wesley C. Fredericks,
Jr. who has been appointed a director of the Company, own an aggregate of
344,550 shares of the Company's common stock and options to purchase another
250,000 shares pursuant to the August 1996 Stock Option Plan and November 1996
Stock Option Plan.
Item 6. Indemnification of Directors of Officer
The Delaware General Corporation Law permits Delaware corporations
to eliminate or limit the personal liability of a director to the corporation
for monetary damages arising from certain breaches of fiduciary duties as a
director. The Company's Certificate of Incorporation includes such a provision
eliminating the personal liability of directors to the Company and its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except (i) any breach of a director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for any
transaction from which the director derived an improper personal benefit; or
(iv) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law.
Directors are also not insulated from liability for claims arising under the
federal securities laws. The foregoing provisions of the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
directors for breaches of their fiduciary duties, even though such an action,
if successful, might otherwise have benefitted the Company and its
stockholders.
The Company's Certificate of Incorporation also provides that the
Company shall indemnify its directors, officers and agents to the fullest
extent permitted by the Delaware General Corporation Law. The Company does not
have directors' and officers' liability insurance but may secure such insurance
in the future. Furthermore, the Company may enter into indemnity agreements
with its directors and officers for the indemnification of and advancing of
expenses to such persons to the fullest extent permitted by law.
Item 7. Exemption from Registration Claimed
Not Applicable.
Item 8. Exhibits
5 Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP.
10.1 Consulting Agreement dated June 1, 1997 between the Company and
Shanna L. Wolf and Marc E. Lehmann.
10.2 Amended Consulting Services Agreement dated as of July 11, 1997 by
and among the Company, Biobottoms, Inc. and Joan Cooper.
10.3 Amended Consulting Services Agreement dated as of July 11, 1997 by
and among the Company, Biobottoms, Inc. and Anita Dimondstein.
10.4 Consulting Agreement dated August 7, 1997 between the Company and
Robert Selame.
10.5 Settlement and Consulting Agreement dated October 23, 1997 between
the Company and Joseph Grabowski.
24.1 Consent of Feldman Radin & Co., P.C.
24.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP
(included in Exhibit 5).
Item 9. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this
II-2
<PAGE>
Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
in the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post- effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer, or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 4 day of
November, 1997.
DIPLOMAT CORPORATION
By: /s/ Jonathan Rosenberg
----------------------
Jonathan Rosenberg
President
Pursuant to the requirements of the Securities Act of 1933, this Form S-8/S-3
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Jonathan Rosenberg Chief Executive Officer, November 4, 1997
- ---------------------- President and Director
Jonathan Rosenberg
/s/ Stuart A. Leiderman Executive Vice President November 4, 1997
- ----------------------- and Director
Stuart A. Leiderman
/s/ Irwin Oringer Chief Accounting Officer November 4, 1997
- ----------------------- and Controller
Irwin Oringer
/s/ Robert M. Rubin Chairman of the Board November 4, 1997
- -----------------------
Robert M. Rubin
Director November 4, 1997
- -----------------------
Howard Katz
/s/ Wesley C. Fredericks, Jr. Director November 4, 1997
- -----------------------------
Wesley C. Fredericks, Jr.
<PAGE>
EXHIBIT INDEX
5. Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
10.1 Consulting Agreement dated June 1, 1997 between the Company and
Shanna L. Wolf and Marc E. Lehmann.
10.2 Amended Consulting Services Agreement dated as of July 11, 1997 by
and among the Company, Biobottoms, Inc. and Joan Cooper.
10.3 Amended Consulting Services Agreement dated as of July 11, 1997 by
and among the Company, Biobottoms, Inc. and Anita Dimondstein.
10.4 Consulting Agreement dated August 7, 1997 between the Company and
Robert Selame.
10.5 Settlement and Consulting Agreement dated October 23, 1997 between
the Company and Joseph Grabowski.
24.1 Consent of Feldman Radin & Co., P.C.
24.2 Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP
(included in Exhibit 5)
<PAGE>
[Gersten, Savage, Kaplowitz & Fredericks, LLP letterhead]
November 4, 1997
Diplomat Corporation
25 Kay Fries Drive
Stoney Point, New York 10890
Gentlemen:
You have requested our opinion, as counsel for Diplomat Corporation, a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-8 (the "Registration Statement"), under the Securities Act of 1933 (the
"Act"), being filed by the Company with the Securities and Exchange Commission.
The Registration Statement relates to an offering of 275,908 shares (the
"Selling Security Holders' Shares") of common stock (the "Offering"), par value
$.0001 (the "Common Stock"), which either (i) were issued pursuant to
consulting agreements, or (ii) are issuable upon the exercise of options granted
pursuant to consulting agreements.
We have examined such records and documents and made such examinations of law as
we have deemed relevant in connection with this opinion. It is our opinion that
the Selling Security Holders' Shares have been fully paid, validly issued and
nonassessable or, upon the exercise of any stock option and full payment of the
exercise price, will have been fully paid, validly issued and nonassessable.
No opinion is expressed herein as to any laws other than the laws of the State
of New York, of the United States and the corporate laws of the State of
Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
and of the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Gersten, Savage, Kaplowitz & Fredericks, LLP
GERSTEN, SAVAGE, KAPLOWITZ &
FREDERICKS, LLP
<PAGE>
FINANCIAL RELATIONS AGREEMENT
This Agreement, entered into as of this 1st day of June 1997, by and
between Diplomat Corporation ("Company") located at 25 Kay Fries Drive, Stony
Point, New York and Shanna L. Wolf and Marc E. Lehmann (collectively
"Consultant") with offices located at 1632 Dover Court, Teaneck, New Jersey
07666, pursuant to which Consultant will furnish to the Company financial and
investor relations as follows:
1. Consultant will perform services for the Company in all areas generally
considered to be financial and investor relations, including but not limited to
the preparation, in conjunction with the Company, review and dissemination of
financial publicity, annual and interim reports for stockholders and the
financial community, preparation and dissemination of information concerning the
Company's operations and consultation with respect to the appropriateness of
timing and content of financial communications, and arranging and attending
meetings with regard thereto. This Agreement does not include services rendered
by Consultant to the Company in the areas of private placements, other
financings, mergers or acquisitions, the compensation for which will be
negotiated separately by the Company and Consultant.
2. Information to be released by Consultant will be disseminated to
general, financial and trade media, the investment banking community, banks and
statistical organizations, shareholders and prospective shareholders of the
Company, and selected analysts, all as deemed necessary or appropriate by
Consultant and the Company.
3. All information to be disseminated through Consultant will be based upon
material furnished by the Company and will be released only after receipt by
Consultant of final approval from the Company.
4. The initial term of this Agreement shall be for six months from the date
of this Agreement. Thereafter the agreement shall be renewed for consecutive six
(6) month terms if agreed to in writing by both the Company and Consultant.
5. As compensation for the services rendered hereunder, the Company will
pay Consultant a monthly fee of $2,500, payable in advance at the beginning of
each month. In addition, Consultant shall be entitled to reimbursement for all
out-of-pocket expenses incurred in performing the above duties, including
printing, mailings, and long distance phone charges. of course, the Company
because of its in-house capability may choose to perform some of these functions
at its own expense. Reimbursable expenses shall be payable by the Company upon
submission by Consultant of invoices delineating such expenses. All
out-of-pocket expenses in excess of $50 must be itemized, and all out-of-pocket
expenses in excess of $250 must be approved in advance by the Company. In the
event of an emergency where an appropriate Company official is unavailable,
Consultant will use its best judgment in the matter but the sum may not exceed
$1,000.
1
<PAGE>
6. Consultant as its first objective will create a corporate profile of
Diplomat and distribute same.
7. As additional compensation, the Company hereby grants to each Consultant
options (the "Stock Options") to purchase 25,000 shares of Common Stock of the
Company for a total of 50,000 shares (the "Option Shares") exercisable over a
five-year period from the date hereof regardless whether this Agreement has been
terminated. Said Stock Options shall not be transferrable or assignable, without
the prior consent of the Company. The Company and Consultant hereby agree that
the exercise price shall be $1 3/4 per share, the trading price as of April 1,
1997, the date on which Consultant and management agreed to enter this
Agreement. 5,000 shares (each shall be exercisable upon signing, 5,000 shares
(each) shall be exercisable one year from the date hereof and an additional
5,000 (each) on each of the three succeeding anniversary dates hereof. The
exercise of the shares shall be in no less than 2,500 share increments and the
right to exercise all such options shall expire five years from the date hereof,
and all unexercised options shall thereupon terminate. Subject to legal
requirements and any "lockups" or other restrictions imposed by underwriters or
the like acting on behalf of the Company, the holding period shall be no less
than 90 days after exercise. Should the Company be acquired or enter into a
merger with another entity, all unexpired options shall become fully
exercisable. Diplomat will grant "piggyback" registration rights to Consultant
with regard to the Option Shares and the right to demand registration of the
Option Shares commencing six months from the date hereof, which rights will be
set out in a separate registration rights agreement in favor of Consultant.
7.1 Stock Options may be exercised by written notice directed to the
Company or such other person as may be designated by the Company accompanied by
a bank or certified check or wire transfer to the Company in payment of the
exercise price for the Option Shares. The Company shall make immediate delivery
of the Option Shares, fully paid and nonassessable, in the name of the
respective Consultant subject to any of the above named restrictions and with
appropriate legends.
8. This Agreement may not be transferred or assigned by either party
without the prior written consent of the other. This Agreement reflects the
entire agreement between the parties and may not be modified in any way except
in writing signed by both parties. This Agreement shall be governed by the laws
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the
date first above written.
DIPLOMAT CORPORATION
------------------------------------
Jonathan Rosenberg
2
<PAGE>
Chief Executive Officer
------------------------------------
Shanna L. Wolf
------------------------------------
Marc E. Lehmann
3
<PAGE>
Amended Consulting Services Agreement
This Amended Consulting Services Agreement originally entered into on the
9th day of February, 1996, amended as of July 11, 1997, by and among Diplomat
Corporation ("Diplomat"), Biobottoms, Inc. (the "Company") and Joan Cooper (the
"Consultant"), with respect to consulting services to Diplomat.
1. This Agreement will terminate upon a minimum thirty days written notice
by any party hereto to the other parties, unless terminated earlier or extended
pursuant to Section 4 of this Agreement.
2. Consultant agrees to render consulting services ("Services") to
Diplomat, at the Consultant's convenience and subject to reasonable notice by
Diplomat, up to a maximum four (4) days per month, to Diplomat for the term of
this Agreement. Consultant's duties shall include, but are not limited to,
advising with regard to marketing, public relations, personnel and product
development and such other duties as Diplomat and the Consultant may from time
to time agree upon.
3. (a) Consultant shall be paid a minimum of $2,000 per month regardless of
the time actually provided by Consultant. For each hour spent per month over 32
hours, the Consultant shall be paid a minimum of $80 per hour, exclusive of
travel time, for time spent performing Consultant's duties under this Agreement.
Such payments shall be made no later than the tenth (10th) day of the month
following the month in which the services were performed. In addition, Diplomat
shall reimburse Consultant for reasonable long distance travel (transportation,
lodging and meals) and telephone expenses Consultant is required to incur in
providing the Services. Consultant shall provide Diplomat with invoices
detailing the expense reimbursements that Consultant believes are due under this
Agreement, and shall itemize and provide receipts for expenses upon request.
Diplomat agrees to pay approved invoices within 15 days of receipt.
(b) (i) Diplomat shall issue to Consultant 29,204 shares of its common
stock (the "Shares") and shall, within four weeks of the date hereof, file a
registration statement on Form S-8 for the purpose of registering the Shares
provided to the Consultant and Diplomat will use its best efforts to have said
registration statement declared effective as quickly as reasonably possible.
(ii) Upon effectiveness of such registration statement, the
Consultant shall be free to sell the Shares. Should Consultant elect to effect
such sale within 60 days of the effective date of the registration statement and
such sale is effected through Diplomat's market-maker EC Capital, Inc., Diplomat
shall pay Consultant the difference between the amount realized and $87,611,
should the amount realized be less. Should Consultant not be able to sell the
Shares for failure of Diplomat to obtain an effective registration thereof
within three months of the date hereof, Diplomat shall, at the request of
Consultant, repurchase the stock at an aggregate price of $87,611. Should such
failure to obtain an effective registration result from events within the
control of Diplomat, then Diplomat shall repurchase said stock at the greater of
the average trading
<PAGE>
price for the prior five trading days or $87,611.
(iii) Should Diplomat close the proposed acquisition of Lew Magram
Ltd. then, while Consultant holds the above referenced shares of Diplomat stock,
upon such closing, Diplomat shall immediately notify Consultant of such fact and
Consultant shall have 10 trading days thereafter to effect the sale of the stock
contemplated by paragraph 3(b)(ii) hereof. At the date of closing, should any
sum be due pursuant to paragraph 3(b)(ii) hereof as a result of either the
inability of the Consultant to sell said Diplomat stock because of the failure
to register said stock or because the amount realized on sale was less than an
aggregate of $87,611, then Diplomat shall, at or prior to the closing of the Lew
Magram Ltd. transaction, pay the amount due to Consultant.
4. Each of the parties to this Agreement agrees that this Agreement may be
terminated by the Consultant, for any reason, with or without cause, by giving
written notice to Diplomat; termination to be effective upon Diplomat's receipt
of notice. The parties further agree that Diplomat may not terminate this
Agreement until the later of (a) the date payment is effected pursuant to
paragraph 3(b)(ii) above or (b) if Consultant elects to hold the Shares, the
date two months from the effective date of the registration statement referred
to in paragraph 3(b)(i) above.
5. Consultant is an independent contractor and is solely responsible for
all taxes, withholdings, and other similar statutory obligations, including, but
not limited to, Workers' Compensation Insurance.
6. Consultant has no authority to act on behalf of or to enter into any
contract, incur any liability or make any representation on behalf of Diplomat.
7. Consultant's performance under this Agreement shall be conducted with
due diligence and in full compliance with the highest professional standards of
practice in the industry. Consultant shall comply with all applicable laws and
Diplomat safety rules in the course of performing the Services.
8. Consultant agrees that any dispute in the meaning, effect or validity of
this Agreement shall be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof. Consultant
further agrees that if one or more provisions of this Agreement are held to be
illegal or unenforceable under applicable California law, such illegal or
unenforceable portion(s) shall be limited or excluded from this Agreement to the
minimum extent required and the balance of the Agreement shall be interpreted as
if such portion(s) were so limited or excluded and shall be enforceable in
accordance with its terms.
9. This Agreement shall be binding upon Consultant, and inure to the
benefit of, the parties hereto and their respective heirs, successors, assigns,
and personal representations; provided, however, that it shall not be assignable
by Consultant.
10. This Agreement contains the entire understanding of the parties
regarding its
2
<PAGE>
subject matter.
11. All notices required or given therewith shall be addressed to the
parties to this Agreement at the designated addresses shown below by registered
mail, special delivery, or by certified courier service:
a. To Diplomat Corporation or Diplomat Sub:
Diplomat Corporation
25 Kay Fries Drive
Stony Point, NY 10980
With a copy to:
Gersten, Savage, Kaplowitz, Fredericks
& Curtin, LLP
101 East 52nd Street
New York, New York 10022
b. To Biobottoms, Inc.:
Biobottoms, Inc.
617-C Second Street
Petaluma, CA 94952
c. To Consultant:
333 Pleasant Street
Petaluma, California 94952
Attn: Joan Cooper
13. If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.
14. This Agreement may be executed in one or more counterparts and by fax
and when so executed by each party hereto shall comprise one agreement binding
upon the parties.
CONSULTANT HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS AND ACCEPTS
THE OBLIGATIONS WHICH IT IMPOSES UPON CONSULTANT WITHOUT RESERVATION. NO
PROMISES OR REPRESENTATIONS
3
<PAGE>
HAVE BEEN MADE TO CONSULTANT TO INDUCE CONSULTANT TO SIGN THIS AGREEMENT.
CONSULTANT SIGNS THIS AGREEMENT VOLUNTARILY AND FREELY.
------------------------------------
Consultant
Accepted and Agreed to:
DIPLOMAT CORPORATION
By:
-------------------------------
Printed Name:
---------------------
BIOBOTTOMS, INC.
By:
-------------------------------
Printed Name:
---------------------
4
<PAGE>
AMENDED CONSULTING SERVICES AGREEMENT
This Amended Consulting Services Agreement originally entered into on the
9th day of February, 1996, amended as of July 11, 1997, by and among Diplomat
Corporation ("Diplomat"), Biobottoms, Inc. (the "Company") and Anita Dimondstein
(the "Consultant"), with respect to consulting services to Diplomat.
1. This Agreement will terminate upon a minimum thirty days written notice
by any party hereto to the other parties, unless terminated earlier or extended
pursuant to Section 4 of this Agreement.
2. Consultant agrees to render consulting services ("Services") to
Diplomat, at the Consultant's convenience and subject to reasonable notice by
Diplomat, up to a maximum four (4) days per month, to Diplomat for the term of
this Agreement. Consultant's duties shall include, but are not limited to,
advising with regard to marketing, public relations, personnel and product
development and such other duties as Diplomat and the Consultant may from time
to time agree upon.
3. (a) Consultant shall be paid a minimum of $2,000 per month regardless of
the time actually provided by Consultant. For each hour spent per month over 32
hours, the Consultant shall be paid a minimum of $80 per hour, exclusive of
travel time, for time spent performing Consultant's duties under this Agreement.
Such payments shall be made no later than the tenth (10th) day of the month
following the month in which the services were performed. In addition, Diplomat
shall reimburse Consultant for reasonable long distance travel (transportation,
lodging and meals) and telephone expenses Consultant is required to incur in
providing the Services. Consultant shall provide Diplomat with invoices
detailing the expense reimbursements that Consultant believes are due under this
Agreement, and shall itemize and provide receipts for expenses upon request.
Diplomat agrees to pay approved invoices within 15 days of receipt.
(b) (i) Diplomat shall issue to Consultant 29,204 shares of its common
stock (the "Shares") and shall, within four weeks of the date hereof, file a
registration statement on Form S-8 for the purpose of registering the Shares
provided to the Consultant and Diplomat will use its best efforts to have said
registration statement declared effective as quickly as reasonably possible.
(ii) Upon effectiveness of such registration statement, the
Consultant shall be free to sell the Shares. Should Consultant elect to effect
such sale within 60 days of the effective date of the registration statement and
such sale is effected through Diplomat's market-maker EC Capital, Inc., Diplomat
shall pay Consultant the difference between the amount realized and $87,611,
should the amount realized be less. Should Consultant not be able to sell the
Shares for failure of Diplomat to obtain an effective registration thereof
within three months of the date hereof, Diplomat shall, at the request of
Consultant, repurchase the stock at an aggregate price of $87,611. Should such
failure to obtain an effective registration result from events within the
control of Diplomat, then Diplomat shall repurchase said stock at the greater of
the average trading
<PAGE>
price for the prior five trading days or $87,611.
(iii) Should Diplomat close the proposed acquisition of Lew Magram
Ltd. then, while Consultant holds the above referenced shares of Diplomat stock,
upon such closing, Diplomat shall immediately notify Consultant of such fact and
Consultant shall have 10 trading days thereafter to effect the sale of the stock
contemplated by paragraph 3(b)(ii) hereof. At the date of closing, should any
sum be due pursuant to paragraph 3(b)(ii) hereof as a result of either the
inability of the Consultant to sell said Diplomat stock because of the failure
to register said stock or because the amount realized on sale was less than an
aggregate of $87,611, then Diplomat shall, at or prior to the closing of the Lew
Magram Ltd. transaction, pay the amount due to Consultant.
4. Each of the parties to this Agreement agrees that this Agreement may be
terminated by the Consultant, for any reason, with or without cause, by giving
written notice to Diplomat; termination to be effective upon Diplomat's receipt
of notice. The parties further agree that Diplomat may not terminate this
Agreement until the later of (a) the date payment is effected pursuant to
paragraph 3(b)(ii) above or (b) if Consultant elects to hold the Shares, the
date two months from the effective date of the registration statement referred
to in paragraph 3(b)(i) above.
5. Consultant is an independent contractor and is solely responsible for
all taxes, withholdings, and other similar statutory obligations, including, but
not limited to, Workers' Compensation Insurance.
6. Consultant has no authority to act on behalf of or to enter into any
contract, incur any liability or make any representation on behalf of Diplomat.
7. Consultant's performance under this Agreement shall be conducted with
due diligence and in full compliance with the highest professional standards of
practice in the industry. Consultant shall comply with all applicable laws and
Diplomat safety rules in the course of performing the Services.
8. Consultant agrees that any dispute in the meaning, effect or validity of
this Agreement shall be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof. Consultant
further agrees that if one or more provisions of this Agreement are held to be
illegal or unenforceable under applicable California law, such illegal or
unenforceable portion(s) shall be limited or excluded from this Agreement to the
minimum extent required and the balance of the Agreement shall be interpreted as
if such portion(s) were so limited or excluded and shall be enforceable in
accordance with its terms.
9. This Agreement shall be binding upon Consultant, and inure to the
benefit of, the parties hereto and their respective heirs, successors, assigns,
and personal representations; provided, however, that it shall not be assignable
by Consultant.
10. This Agreement contains the entire understanding of the parties
regarding its
2
<PAGE>
subject matter.
11. All notices required or given therewith shall be addressed to the
parties to this Agreement at the designated addresses shown below by registered
mail, special delivery, or by certified courier service:
a. To Diplomat Corporation or Diplomat Sub:
Diplomat Corporation
25 Kay Fries Drive
Stony Point, NY 10980
With a copy to:
Gersten, Savage, Kaplowitz, Fredericks
& Curtin, LLP
101 East 52nd Street
New York, New York 10022
b. To Biobottoms, Inc.:
Biobottoms, Inc.
617-C Second Street
Petaluma, CA 94952
c. To Consultant:
1410 Skillman Lane
Petaluma, CA 94952
Attn: Anita Dimondstein
13. If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements, in addition to
any other relief to which the party may be entitled.
14. This Agreement may be executed in one or more counterparts and by fax
and when so executed by each party hereto shall comprise one agreement binding
upon the parties.
CONSULTANT HAS READ THIS AGREEMENT CAREFULLY AND UNDERSTANDS AND ACCEPTS
THE OBLIGATIONS WHICH IT IMPOSES UPON CONSULTANT WITHOUT RESERVATION. NO
PROMISES OR REPRESENTATIONS
3
<PAGE>
HAVE BEEN MADE TO CONSULTANT TO INDUCE CONSULTANT TO SIGN THIS AGREEMENT.
CONSULTANT SIGNS THIS AGREEMENT VOLUNTARILY AND FREELY.
------------------------------------
Consultant
Accepted and Agreed to:
DIPLOMAT CORPORATION
By:
--------------------------------
Printed Name:
----------------------
BIOBOTTOMS, INC.
By:
--------------------------------
Printed Name:
----------------------
4
<PAGE>
DIPLOMAT CORPORATION
25 Kay Fries Drive
Stony Point, New York 10980
August 7, 1997
Mr. Robert Selame
268 Newbury Street
Boston, Massachusetts 02116
Dear Mr. Selame:
This will confirm the understanding and agreement (the "Agreement") between
Diplomat Corporation ("Diplomat") and Robert Selame ("Selame") as follows:
1. Diplomat hereby engages Selame (a) to provide consulting services with
regard to new product ideas and concepts in the baby and youth
products area generally, supported by sketches, plans and the like in
a number such that Diplomat might be expected reasonably to select
among them so as to be able to implement between 5 and 10 new ideas
per year during the term hereof and (b) to provide general marketing
consulting services to Diplomat.
2. Selame agrees to act as a consultant to Diplomat with respect to the
matters set forth in paragraph 1.
3. As compensation for services to be provided by Selame hereunder,
Diplomat agrees to pay Selame as follows:
(a) A 3% royalty on all net sales (defined as gross sales less
returns, discounts and the like, whenever occurring) made by
Diplomat of any products implemented or improved (as well as
product line extensions and variations) as a result of the ideas
and concepts presented by Selame pursuant to paragraph 1
("Products"). For purposes of this royalty calculation, a Product
shall be considered "sold" upon the date of payment. If a sale is
made otherwise than at arms length, the net sales for such sale
shall be based on the gross invoice price for corresponding sales
to unaffiliated parties at arm's length. Each royalty payment
made pursuant to Section 3(a) shall be made on the last day of
each month for products sold
<PAGE>
Robert Selame Associates, Inc.
August 7, 1997
Page 2
during the preceding month. All late payments under this
agreement shall bear interest at the prime rate. With respect to
sales of Products made in foreign currency, the amount of such
sales shall be converted to United States Dollars at the buying
sight rate for dollars at any internationally recognized bank in
the country of sale on the last business day of the period for
which the royalty is to be calculated.
(b) Non-cancellable options to purchase 150,000 shares of Diplomat
common stock exercisable at a price of $1 7/8 per share (the
public trading price of said shares as of the date this agreement
was reached in principle), to be registered pursuant to a Form
S-8 presently being prepared by Diplomat . Any options not
exercised, shall expire ten years from the date hereof. The
Option shall be exercised by the delivery of written notice from
Selame to Diplomat stating the number of Shares with respect to
which the Option is being exercised and accompanied by payment in
full of the aggregate exercise price ("Aggregate Exercise Price")
of such Option in immediately available funds. Such written
notice shall be delivered to Diplomat at its principal office or
at such other address as may be established by the Board of
Directors (attention: Secretary). Diplomat shall immediately
instruct its transfer agent to make delivery of such Shares. In
the event that the outstanding Shares are hereafter changed by
reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination
or exchange of Shares and the like, or dividends payable in
Shares, an appropriate adjustment shall be made by the Board of
Directors in the number of Shares and price per Share subject to
the Option granted hereunder. If Diplomat shall be reorganized,
consolidated, or merged with another corporation, or if all or
substantially all of the assets of Diplomat or any subsidiary
shall be sold or exchanged, Selame shall at the time of issuance
of the stock under such a corporate event, be entitled to receive
upon the exercise of his Option the same number and kind of
shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive upon the
occurrence of any such corporate event as if he had been,
immediately prior to such event, the holder of the number of
Shares covered by his Option. Any adjustment under this paragraph
in the number of Shares subject to the Option shall apply
proportionately to only the
<PAGE>
Robert Selame Associates, Inc.
August 7, 1997
Page 3
unexercised portion of any Option granted hereunder. If fractions
of a Share would result from any such adjustment, the adjustment
shall be revised to the next higher whole number of Shares.
(c) Options to purchase 100,000 shares shall be exercisable
immediately and options to purchase the remaining 50,000 shares
shall be exercisable in blocks of 10,000 shares, one such block
for each $1,000,000 by which the net sales of Products exceed
$2,000,000.
(d) Diplomat shall also reimburse Selame for all reasonable
out-of-pocket expenses incurred by Selame at the request of, or
with the permission of, Diplomat in connection with the services
provided hereunder.
4. The term of Agreement shall commence as of the date hereof and shall
expire on July 31, 1998 and royalties payable pursuant to Section 3(a)
hereof shall survive termination of the Agreement.
5. Selame hereby agrees, for himself and on behalf of his employees and
agents not to disclose any information or materials provided hereunder
to Diplomat by Selame or by Diplomat to Selame, without the express
written consent of Diplomat unless such information is in the public
domain or otherwise becomes public through no fault of Selame.
6. Diplomat and Selame are not, and shall not be deemed to be, partners,
joint venturers withe each other or agents of each other.
7. This Agreement is binding upon and is for the benefit of the parties
hereto and their respective successors, legal representatives, heirs
and permitted assigns. This Agreement is personal in nature and the
rights hereunder cannot be assigned, nor can the duties hereunder be
delegated, without the prior written consent of the parties hereto.
This Agreement shall not be amended or modified except by a written
agreement executed by the parties hereto.
8. This Agreement supersedes any other oral or written agreements and
understandings heretofore made relating to the subject matter hereof
and contains the entire agreement of the parties relating to the
subject matter hereof.
<PAGE>
Robert Selame Associates, Inc.
August 7, 1997
Page 4
9. Diplomat and Selame hereby warrant to each other that they have full
authority to enter into this Agreement and that they are not subject
to any restrictions which would prevent them from performing this
Agreement.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its conflict of
laws principles. The parties agree that any legal suit, action or
proceeding arising out of or relating to this Agreement may be
instituted in the state or federal court in the State of New York.
11. Diplomat represents and warrants to, and agrees with, Selame that the
manufacture, assembly, labeling, marketing, sale and delivery of
Licensed Products and all material and documentation relating thereto
shall (i) comply with the highest specifications and quality
requirements, (ii) be free from defects in material and workmanship,
(iii) be fit for their intended use, (iv) be of good merchantable
quality, and (v) comply with all applicable federal, state and local
laws, rules, regulations and executive orders. Diplomat shall maintain
at all times product liability insurance covering its operations
relating to Licensed Products in an amount of coverage at least equal
to the total amount of product liability coverage generally maintained
by Diplomat from time to time, but in no event less than $1 million
per occurrence and $2 million in the aggregate.
12. Diplomat, and its successors and assigns (each, an "Indemnifying
Party"), each hereby indemnify and agree to hold harmless the Selame
and its representatives, shareholders, officers, directors, agents and
employees and their affiliates (each, an "Indemnified Party"), against
any liability, damage, loss, fine, penalty, claim, cost or expense
(including reasonable costs of investigation and settlement and
attorneys', accountants' and other experts' fees and expenses) arising
out of any action or inaction in connection with the sale or marketing
of Products, an Indemnifying Party's sale or marketing of Products and
related materials, or the incorrectness or breach of any
representation, warranty or covenant made by any Indemnifying Party to
any Indemnified Party. An Indemnified Party shall give an Indemnifying
Party prompt notice of its receipt of any claim which is subject to
indemnification hereunder, provided, however, that the failure to give
such notice shall not affect any Indemnifying Party's obligation
hereunder except to the extent that the Indemnifying Party was
materially prejudiced by an Indemnified Party's failure to give such
notice.
<PAGE>
Robert Selame Associates, Inc.
August 7, 1997
Page 5
13. Diplomat shall keep full and complete records with respect to its
design, manufacture, inspection, testing, marketing and sale of
Products. Diplomat shall provide Selame with monthly reports along
with each royalty payment of the number of Products manufactured each
month and the amount of Products sold each month. At Selame's request,
Diplomat shall allow Selame and/or his representatives to inspect such
records, or to inspect any manufacturing facility, at all reasonable
times and otherwise make available to Selame all information as Selame
may reasonably request relating to Diplomat's design, manufacture and
marketing of Products and the performance of its obligations
hereunder. Diplomat shall keep Selame reasonably informed of, and
shall coordinate with Selame, its distribution and marketing plans for
Products. Selame's rights to receive information and inspect the
design, manufacturing and marketing of the Products, and any active
review, or inspection, shall in no way impose any liability on Selame
or reduce the responsibilities of Diplomat for the quality and
appearance of Products or relieve Diplomat from any of its obligations
hereunder or otherwise.
14. Any disputes arising between the Parties hereunder shall be submitted
to arbitration before the American Arbitration Association in New
York, New York, by one arbitrator pursuant to the American Arbitration
Association's rules for expedited proceedings.
If the foregoing correctly sets forth our understanding and agreement,
please so indicate in the space provided below. We very much look forward to
working with you.
DIPLOMAT CORPORATION
By:________________________________
Jonathan Rosenberg
President
By:______________________________
Robert Selame
Date: August ____, 1997
<PAGE>
LEW MAGRAM, INC. DIPLOMAT CORPORATION
914 Alfred Avenue 25 Kay Fries Drive
Teaneck, New Jersey Stony Point, New York
October 23, 1997
Joseph J. Grabowski
61 Hampshire Road
Great Neck, New York 11023
Re: Settlement Agreement
--------------------
Dear Mr. Grabowski:
Lew Magram, Inc. ("Magram") and Diplomat Corporation
("Diplomat"), on the one hand, and Joseph J. Grabowski ("Grabowski"), on the
other hand, by executing this letter agreement (the "Agreement"), each
represent, stipulate, covenant, and agree as follows:
1. Until his employment was terminated on August 4, 1997,
Grabowski served as President and Chief Executive Officer of Jean Grayson's
Brownstone Studio, Inc., which along with its affiliate Wilroy, Inc., is
currently the subject of a Chapter 11 Bankruptcy Proceeding pending in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") captioned as In re Jean Grayson's Brownstone Studio, Inc.,
d/b/a Brownstone Studio, Inc. and Wilroy, Inc., jointly administered Chapter 11
Case Nos. 97-B-41214 and 97 B-41215 (JLG) (the "Debtor").
2. On September 25, 1997, the Debtor filed a motion seeking
approval of an Asset Purchase Agreement between the Debtor, as seller and
Magram, as buyer, free and clear of all liens,
<PAGE>
claims, interest and encumbrances (the "Sale motion"), which is scheduled for
hearing on October 24, 1997 at 9:00 a.m.
3. On October 16, 1997, Grabowski served upon the Debtor,
Magram and the Official Committee of unsecured creditors (the "Committee") a
request for payment of Administrative Expenses in the amount of $262,843.40
("Administrative Claim"), which was filed with the Bankruptcy Court on October
17, 1997, seeking payment for inter alia, severance pay, accrued vacation pay,
unreimbursed travel and entertainment expense and other sums as more fully
delineated in the Administrative Claim.
4. On October 16, 1997, Grabowski served upon the Debtor,
Magram and the Committee a Verified Objection of Grabowski to the Sale Motion
("Objection") and Notices of Deposition and Requests for Production of Documents
upon the Debtor's principal, Kenneth Grossman, and upon Magram's principal's,
Jay M. Kaplowitz and Robert M. Rubin.
5. Magram, Diplomat and Grabowski have agreed to the following
settlement regarding the Sale Motion, the Objection and the Administrative
Claim:
a. Grabowski shall refrain from filing the Objection
prior to the Sale Hearing so long as the terms hereof are disclosed by Magram to
the Court at the Sale Hearing, but shall have until the beginning of the Sale
Hearing to file such Objection in the event of Magram's failure to comply with
the terms of this paragraph.
b. At the closing of the Asset Purchase Ageement, but
in no event later than October 31, 1997 at 5:00 p.m., Magram
2
<PAGE>
and/or Diplomat shall pay to Grabowski the sum of $12,500.00 in good and
immediately available funds by certified or bank check and deliver to him 15,000
unrestricted shares of Diplomat common stock which is publicly traded on NASDAQ.
On or before November 28, 1997, Diplomat and/or Magram shall deliver to
Grabowski an additional 2,500 unrestricted shares of publicly traded Diplomat
common stock. Upon full payment as set forth in the previous two (2) sentences,
Grabowski shall assign his Administrative Claim to Magram.
c. Grabowski shall be reasonably available on a
non-exclusive basis for a sixty (60) day period to consult with Magram
concerning the Debtor's business, so long as such consulting services do not
conflict with any other business activity engaged in by Grabowski, including,
without limitation, Grabowski's search for employment and/or the performance of
the terms of any other employment or consulting position he may obtain. In no
event shall Grabowski's search for employment and/or his performance of the
terms of any employment make him unavailable to Magram for reasonably requested
consulting services.
6. If, for any reason, whether in connection with a voluntary
or involuntary bankruptcy proceeding, or otherwise, all or any portion of
payments made pursuant to this Agreement is required to be returned by or is
disgorged from Grabowski pursuant to a Court Order, and Diplomat or Magram fail
to repay Grabowski the amount so returned or disgorged within ten days of such
return or disgorgement, then, in such event, the assignment of the
Administrative Claim to Magram shall be nullified and the Debtor
3
<PAGE>
shall continue to be obligated for the full Administrative Claim, less any
payments which have been received on the Administrative Claim and are actually
retained by Grabowski from any source.
7. In the event that any provision of this Agreement is
breached by Magram or Diplomat, Grabowski shall (a) have the right to prosecute
his Administrative Claim in its full amount, minus any payments already received
by him under the Agreement and (b) may seek to enforce the terms of this
Agreement in any appropriate forum.
8. Upon full compliance with the provisions of Paragraph 4,
Magram, Diplomat, Grabowski and the Debtor shall execute and deliver mutual
releases subject to the provisions of paragrphs 5 and 6.
9. This Agreement is only effective if Magram is the
successful purchaser at the Sale Hearing.
10. Time shall be of the essence as to each and every
obligation of Diplomat and Magram hereunder, and their failure to meet any one
such obligation shall constitute a default hereunder.
11. This Agreement is and shall be deemed to be a contract
entered into pursuant to the laws of the State of New York and shall in all
respects be governed, construed, applied and enforced in accordance with the
laws of the State of New York.
12. This Agreement is binding upon, and shall inure to the
benefit of, the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns.
4
<PAGE>
13. The provisions of this Agreement are intended to be for
the sole benefit of the parties hereto and their respective successors and
assigns, and are not intended to be, nor shall be construed to be, for the
benefit of any third party.
14. This Agreement may be executed in counterparts.
Very truly yours,
Diplomat Corporation
By:
------------------------------
Name:
Title:
Lew Magram, Inc.
By:
------------------------------
Name:
Title:
ACCEPTED AND AGREED TO:
- --------------------------------
Joseph J. Grabowski
5
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF )
On this __________ day of October, 1997, before me personally
came _______________________________________________, to me known to be the of
____________________________________________ Diplomat Corporation, who executed
the foregoing instrument on behalf of such entity, and acknowledged that he
executed the same.
__________________________________
______________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __________ day of October, 1997, before me personally
came JOSEPH J. GRABOWSKI, to me known to be the individual described in and who
executed the foregoing instrument, and acknowledged that he executed the same.
__________________________________
______________________________
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this __________ day of October, 1997, before me personally
came _______________________________________________, to me known to be the
____________________________________________ of Lew Magram, Inc., who executed
the foregoing instrument on behalf of such entity, and acknowledged that he
executed the same.
__________________________________
______________________________
Notary Public
6
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-8 for
Diplomat Corporation, relating to 275,908 of the Company's common shares, of our
report dated January 16, 1997 (February 25, 1997 as to the third and fourth
paragraphs of Note 10 and subsection (a) of Note 11), relating to the financial
statements of Diplomat Corporation as of September 30, 1996 and for the nine
months then ended and to the reference to our firm under the caption Experts in
the registration statement.
/s/ Feldman Radin & Co., P.C.
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, N.Y.
November 4, 1997
