DIPLOMAT CORP, S-8, 1997-06-20

DIPLOMAT CORP
S-8, 1997-06-20
MISCELLANEOUS FABRICATED TEXTILE PRODUCTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 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
Stoney 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 May 13, 1997
---------------------------------------
(Full Title of the Plan)

JONATHAN ROSENBERG
President
DIPLOMAT CORPORATION
25 Kay Fries Drive
Stoney 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 & Curtin, 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 100,000(3) $3.03125(4) $303,125 $100.00
- -------------------------------------------------------------------------------------------
Total
Registration
Fee $100.00
- -------------------------------------------------------------------------------------------
</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 pursuant to a consulting agreement
between the Company and Mr. Hugh Levey dated May 13, 1997.

(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 June 17, 1997.

(ii)

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DIPLOMAT CORPORATION

Cross-Reference Sheet
(Between Items of Form S-3 and Prospectus)

Form S-3 Item and Caption Prospectus Captions
- ------------------------- -------------------

1. Forepart of Registration Front Cover Page
Statement and Cover Page
of Prospectus

2. Inside Front and Outside Inside Front and Outside Back Cover
Back Cover Pages of Prospectus Page; Additional Information,
Incorporation of Certain Documents by
Reference

3. Summary Information and Risk The Company; Risk Factors
Factors

4. Use of Proceeds Use of Proceeds

5. Determination of Offering Price Inside Front Cover

6. Dilution *

7. Selling Security Holders Selling Stockholder

8. Plan of Distribution Plan of Distribution

9. Description of Securities *
to be Registered

10. Interests of Named Experts Legal Matters, Experts
and Counsel

11. Material Changes Risk Factors

12. Incorporation of Certain Incorporation of Certain Information
Information by Reference by Reference

13. Disclosure of Commission Indemnification of Officers
Position on Indemnification and Directors
for Securities Act Liabilities

* Not Applicable

(iii)

<PAGE>

EXPLANATORY NOTE

This Registration Statement on Form S-8/S-3 relates to the registration of
100,000 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 Hugh Levey (the "Selling
Stockholder"). Such Shares were issued to the Selling Stockholder in connection
with a written consulting agreement between the Selling Stockholder and the
Company, dated May 13, 1997 (the "Consulting Agreement"). 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, Stoney Point, New York 10980, Attention: Secretary, telephone
number (914) 786-5552.

(iv)

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Subject to Completion, Dated June 20, 1997

PROSPECTUS

DIPLOMAT CORPORATION

----------

100,000 SHARES OF COMMON STOCK

Par Value, $.0001 Per Share

----------

This Prospectus relates to the offer and sale of 100,000 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 Hugh Levey (the "Selling Stockholder"). The Shares were
issued to the Selling Stockholder pursuant to a written consulting agreement
between the Selling Stockholder and the Company, dated May 13, 1997 (the
"Consulting Agreement"). The Company's Common Stock is traded on the
over-the-counter market on the NASDAQ Small Cap Market ("NASDAQ"). On June 17,
1997, the closing bid and asked quotations for the Common Stock as reported on
NASDAQ were $3 and $3 1/16 per share, respectively.

The Shares covered by this Prospectus may be offered and sold from time to time
directly by the Selling Stockholder 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 the 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 Stockholder will be the proceeds received by him 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 Stockholder.

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/S-3 (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.

<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.

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.

<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.

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.

<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,

<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:

<PAGE>

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.

<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 May 20, 1997, the Company had 35 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 28 are administrative and warehouse personnel. None of the
employees are covered by a collective bargaining agreement.

<PAGE>

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 May 20, 1997, Biobottoms employed 131
employees and 134 full time equivalents (total employee and temporary hours
divided by an annual 40 hour week). 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, 1997. 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

<PAGE>

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.

On November 20, 1996, a charge of employment discrimination was
filed with the Equal Employment Opportunity Commission ("EEOC") (Charge No.
171970094) and the New Jersey Division on Civil Rights by a former employee
alleging violations of Title VII of the Civil Rights Act of 1964 and the
Americans with Disabilities Act against Diplomat Corporation. Specifically, the
former employee alleges that Diplomat and certain current and former officers
discriminated against her based on her sex, disability and in retaliation for
complaining of such discrimination. The former employee is seeking
reinstatement and back pay in the amount of $70,000. It is not possible to
anticipate a potential damages award. At this time, the EEOC is in the
investigatory stage and has yet to make a determination. The Company intends to
vigorously defend these claims.

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.

Other than the above claims, the Company has no notice of any
pending or threatened material litigation.

<PAGE>

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 March 31, 1997, the Company had an accumulated
deficit of approximately $8,077,336.

2. Default under Biobottoms Agreement; 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 and obligations to pay certain installments due with
respect to the acquisition of Biobottoms. As of March 31, 1997, the aggregate
borrowings by Diplomat and Biobottoms from its institutional lender was
$3,248,682. As of the date hereof, Diplomat and Biobottoms have borrowed the
maximum amounts available under the terms of the credit facilities. The Company
was obligated to make payments aggregating $1,125,000 to the former
shareholders of Biobottoms which payments are currently in default. The former
shareholders of Biobottoms have put the Company on notice of such default,
rendering the entire principal amount of $1.5 million plus accrued interest
immediately due and payable. Under a standstill agreement, they have agreed to
take no action to enforce the default prior to December 31, 1997. In the event
that the total obligation of $1.5 million plus interest to former shareholders
of Biobottom is not paid by December 31, 1997, the former Biobottoms'
shareholders can, under said standstill agreement, commence an enforcement
action concerning the default. Furthermore, failure to pay the obligations to
the former shareholders of Biobottoms by October 1, 1997 would constitute a
default under the Company's and Biobottom's commercial credit facilities with
Congress Financial Corporation ("Congress Financial"), which would permit
Congress Financial to declare any of those facilities in default and require
immediate repayment of the Congress Financial loans. Should either Congress or
the former Biobottoms shareholders seek enforcement of their respective
defaults, such enforcement will have a material adverse effect on the Company.
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 $11,310,000.
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."

<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 May 22, 1997, Mr.
Robert M. Rubin, a director and principal shareholder of the Company,
beneficially owns approximately 55.14% 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, (ii) the former
Biobottoms' stockholders with a limited guarantee related to the Company's
indebtedness to such shareholders, and (iii) 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

<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

<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 May 22, 1997, the Company's principal shareholders, directors
and officers beneficially own approximately 62.54% 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 May 22, 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

<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 shares of Common Stock
currently outstanding, 2,186,000 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. As of May 22, 1997,
1,091,000 shares of Common Stock, held by beneficial owners, are eligible for
sale pursuant to Rule 144. 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 and Class A Warrants are 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
$1,000,000 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.

Recently, a proposal has been made to increase the
criteria for continued listing on the Nasdaq SmallCap Market. If implemented as
proposed, stricter criteria for continue delisting on The Nasdaq SmallCap
Market would be imposed, including the implementation of a $2,000,000 net
tangible assets test, higher public float and market value of public float
criteria and the implementation of new corporate governance rules. No assurance
can be given that such proposal will be adopted or if adopted, that it will be
adopted in its current form.

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

<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.

<PAGE>

USE OF PROCEEDS

The Company will not receive any proceeds from the Selling
Stockholder's sale of shares of Common Stock.

<PAGE>

SELLING STOCKHOLDER

The Selling Stockholder acquired the Shares in connection with the Consulting
Agreement.

The following table sets forth the (a) the name of the Selling Stockholder, (b)
the number of shares of Common Stock beneficially owned by the Selling
Stockholder as of June 20, 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
- ----------- --------- -------------- --------------

Hugh Levey 100,000 100,000 0

<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.

<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 & Curtin, LLP, 101 East 52nd Street, New
York, New York 10022. Mr. Wesley C. Fredericks, Jr., a member of Gersten,
Savage, Kaplowitz, Fredericks & Curtin, LLP has been appointed as a director of
the Company effective July 1, 1997. Three partners of the firm, including Mr.
Fredericks, own an aggregate of 350,000 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.

<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.

<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. . . . . . . . . . . . 2
Incorporation of Certain
Documents by Reference . . . . . . . . . . 3
The Company. . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . 11
Use of Proceeds. . . . . . . . . . . . . . . 17
Selling Stockholder. . . . . . . . . . . . . 18
Indemnification of
Officers and Directors . . . . . . . . . . 19
Plan of Distribution . . . . . . . . . . . . 20
Legal Matters . . . . . . . . . . . . . . . 21
Experts . . . . . . . . . . . . . . . . . . 22

==============================================================================

DIPLOMAT CORPORATION

100,000 shares of
Common Stock

June ____, 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.

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 & Curtin, 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 350,000 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 May 13, 1997 between the Company and
Hugh Levey.

24.1 Consent of Feldman Radin & Co., P.C.

24.2 Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, 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/S-3 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 20 day of
June, 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, June 20, 1997
- ---------------------- President and Director
Jonathan Rosenberg

/s/ Stuart A. Leiderman Executive Vice President June 20, 1997
- ----------------------- and Director
Stuart A. Leiderman

/s/ Irwin Oringer Chief Accounting Officer June 20, 1997
- ----------------------- and Controller
Irwin Oringer

/s/ Robert M. Rubin Chairman of the Board June 20, 1997
- -----------------------
Robert M. Rubin

Director June __, 1997
- -----------------------
Howard Katz

<PAGE>

EXHIBIT INDEX

4.3 Consulting Agreement between the Company and Hugh Levey dated
May 13, 1996.

5. Opinion of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP

24.1 Consent of Feldman Radin & Co., P.C.

24.2 Consent of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP
(included in Exhibit 5)

<PAGE>
May 13, 1997

Mr. Hugh W. Levey
Gruppo, Levey & Capell, Inc.
60 East 42nd Street
Suite 3810
New York, New York 10165-0006

Re: Consulting Agreement with Diplomat Corporation

Dear Hugh:

This letter will serve to confirm our agreement on the terms
under which you will perform certain consulting services for Diplomat
Corporation (the "Company") as more particularly set forth herein. The term of
this agreement shall be of one year from the date hereof. The services you agree
to provide are consultation with management and the Board of Directors, from
time-to-time as they may reasonably request with respect to stategic planning in
connection with the Company's catalogue and direct marketing businesses
(including Biobottoms and Lew Magram catalogues). Such services will be
performed subject to your availability and only in the New York City
metropolitan area unless you agree otherwise.

All costs in connection with the performances of your services set
forth herein shall be borne by the Company. The Company hereby indemnifies and
holds you harmless with respect to any advice or recommendations made by you in
good faith in the course of the performance of your services hereunder. In the
event that during the course of the performance of your services hereunder you
(directly or through Gruppo, Levey & Capell, Inc. or any affiliate thereof)
introduce the Company to any transaction which the Company enters into during
the term of this Agreement or for a period of one year thereafter, the Company
agrees to pay you (or such affiliate) an additional fee of which you and the
Company mutually determine.

In exchange for your services, and in full consideration therefor, the
Company agrees to promptly issue to you upon the execution hereof 100,000 fully
paid non-assessable shares of its Common Stock. Such Common Stock may be held by
you or, if you elect to sell such Common Stock within a period of 60 days
hereof, the Company will promptly pay you the amount by which $250,000 exceeds
your net proceeds or, if for any reason you are prohibited or unable to sell
such shares within such 60 day period

<PAGE>

Hugh W. Levey
May 13, 1997
Page 2

the Company will promptly remit the full amount of $250,000 to you. In the event
of a sale within such 60 day period, you agree to return any proceeds above
$250,000, if so requested by the Company.

Promptly upon the delivery of the Common Stock, the Company will
undertake to file the Registration Statement or Form S-8 or such other Form as
the Company and its counsel deem appropriate with the Securities and Exchange
Commission, at the sole cost and expense of the Company, for the purpose of
registering such shares of Common Stock as foresaid. Simultaneously with the
delivery of such stock Diplomat Corporation will issue an opinion of its counsel
to the effect that shares are validly issued, fully paid and non-assessable. The
Company will advise (and render an opinion of counsel to such effect) as soon as
you are permitted to sell the Common Stock as contemplated herein.

In no event shall your lack of availability to perform the consulting
services described in the first paragraph of this Agreement or the nature or
manner of services is performed affect your right to the Common Stock and your
other rights and benefits set forth herein.

This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. If the foregoing correctly states our
understanding please execute and acknowledge a counterpart of this Agreement as
set forth below.

Very truly yours,

Diplomat Corporation

By: /s/ Jonathan Rosenberg
-----------------------
Jonathan Rosenberg
President
Agreed Accepted

By: /s/ Hugh W. Levey
--------------------
Hugh W. Levey

<PAGE>

[Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP letterhead]

June 20, 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 100,000 shares (the
"Selling Security Holder Shares") of common stock (the "Offering"), par value
$.0001 (the "Common Stock"), issued pursuant to a consulting agreement between
the Company and Mr. Hugh Levey.

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 Holder Shares 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 & Curtin, LLP

GERSTEN, SAVAGE, KAPLOWITZ
FREDERICKS & CURTIN, LLP

<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 100,000 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.
June 20, 1997