-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CP2gG27io+OcgZFfeFelEGISorx7MffNBn7YcGc6YF2+Lz7S1XP3l6J4NIifkfzK tLIIKtlTFS/d5KNo9J8xXw== 0000912057-97-012102.txt : 19970409 0000912057-97-012102.hdr.sgml : 19970409 ACCESSION NUMBER: 0000912057-97-012102 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 26 FILED AS OF DATE: 19970407 SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JAZZ PHOTO CORP CENTRAL INDEX KEY: 0001036699 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 22337358 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24663 FILM NUMBER: 97575667 BUSINESS ADDRESS: STREET 1: 1459 PINEWOOD STREET CITY: RAHWAY STATE: NJ ZIP: 07065 MAIL ADDRESS: STREET 1: 1459 PINEWOOD STREET CITY: RAHWAY STATE: NJ ZIP: 07065 S-1 1 S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C., 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ JAZZ PHOTO CORP. (Exact name of registrant as specified in its charter) NEW JERSEY 5134 22-337358 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification incorporation or organization) No.)
600 BLAIR ROAD, CARTERET, NEW JERSEY 07088 (908) 499-7945 (Address, including ZIP code, and telephone number, including area code, of registrant's principal executive offices) ROGER F. LORENZINI, PRESIDENT JAZZ PHOTO CORP. 600 BLAIR ROAD CARTERET, NEW JERSEY 07088 (908) 499-7945 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: STEPHEN C. KAHR, ESQ. ROBERT STEVEN BROWN, ESQ. Greenberg & Kahr DEIRDRE L. FLETCHER, ESQ. 230 Park Avenue, 26th Floor Brock, Fensterstock, Silverstein, New York, New York 10169 McAuliffe & Wade, LLC (212) 297-0130 153 East 53rd St., 56th Floor New York, New York 10022 (212) 371-2000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. 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, please check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act please check the following box and list the registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION REGISTERED REGISTERED PRICE PER SHARE (4) OFFERING PRICE (4) FEE Common Stock, $0.01 par value......... 1,150,000 shares(1) $6.00 $6,900,000 $2,299.00 Warrants to purchase shares of Common Stock, $0.01 per share 100,000 warrants(2) $0.001 $100 $1.00 Common Stock, par value $0.01 per share............................... 100,000 shares(3 ) $6.60 $660,000 $220.00 Total............................. -- -- $ 7,560,100 $ 2,520.00
(1) Includes up to 150,000 shares of Common Stock which may be purchased by the Underwriters to cover over-allotments, if any. (2) Warrants to be sold to the Representative of the several Underwriters. (3) Issuable upon exercise of Warrants. (4) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the registration fee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- JAZZ PHOTO CORP. CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY PART I OF FORM S-1
ITEM LOCATION IN FORM S-1 NO. CAPTION PROSPECTUS ----- ---------------------------------------------------------------------- ----------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Facing Page; Front Cover Page Prospectus.......................................................... 2. Inside Front and Outside Back Cover Pages of Prospectus............... Inside Front Cover Page; Outside Back Cover Page 3. Summary Information, Risk Factors, and Ratio of Earnings to Fixed Prospectus Summary: Summary Charges............................................................. Financial Information The Company; Risk Factors. 4. Use of Proceeds....................................................... Use of Proceeds 5. Determination of Offering Price....................................... Underwriting 6. Dilution.............................................................. Dilution 7. Selling Security Holders.............................................. Management: Principal and Selling Shareholder 8. Plan of Distribution.................................................. Front Cover Page Prospectus Summary: The Offering 9. Description of Securities to be Registered............................ Description of Securities 10. Interests of Named Experts and Counsel................................ Not Applicable 11. Information with Respect to the Registrant a) Description of Business............................................ Prospectus Summary: The Company; Business b) Description of Property............................................ Business--Property c) Legal Proceedings.................................................. Business--Legal Proceedings d) Market Price of and Dividends on the Registrant's Common Equity and Dividend Policy; Description of Related Stockholders Matters........................................ Securities: Shares Eligible for Future Sale; Underwriting e) Financial Statements............................................... Index to Consolidated Financial Statements: Consolidated Financial Statements f) Selected Financial Data............................................ Selected Consolidated Financial Data g) Supplementary Financial Information................................ Not Applicable h) Management's Discussion and Analysis of Financial Condition and Management's Discussion and Results of Operations............................................... Analysis of Financial Condition and Results of Operations i) Disagreements with Accountants on Accounting and Financial Not Applicable Disclosure.......................................................... j) Directors and Executive Officers................................... Management k) Executive Compensation............................................. Management l) Security Ownership of Certain Beneficial Owners and Management..... Principal and Selling Shareholders m) Certain Relationships and Related Transactions..................... Certain Transactions 12. Disclosure of Commission Position on Indemnification for Securities Not Applicable Act Liability.......................................................
PROSPECTUS SUBJECT TO COMPLETION, APRIL 7, 1997 1,000,000 SHARES [LOGO] JAZZ PHOTO CORP. COMMON STOCK JAZZ Photo Corp. (the "Company") is hereby offering 1,000,000 shares (the "Shares") of common stock, par value $.01 per share (the "Common Stock"), of the Company. Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that any such market will develop upon completion of this offering. The initial public offering price per Share is anticipated to be $5.00. The Company has applied for inclusion of the Common Stock on the Nasdaq National Market under the symbol "JAZZ " and has applied for the listing of the Common Stock on the Pacific Stock Exchange under the symbol "JAZ." For a description of the factors to be considered in determining the initial public offering price, see "Underwriting." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE 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.
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY (2) Per Share................................................ $ $ $ Total (3)................................................ $ $ $
(1) Does not include additional consideration to be received by Hampshire Securities Corporation, as the representative (the "Representative") of the several underwriters (the "Underwriters"), in the form of (a) a 3% non-accountable expense allowance and (b) warrants entitling the Representative to purchase up to 100,000 shares of Common Stock (the "Representative's Warrants"). The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting". (2) Before deducting estimated expenses of this offering payable by the Company of , including the Representative's non-accountable expense allowance. (3) The Company and a principal shareholder of the Company (the "Selling Shareholder") have granted the Representative an option, exercisable within 45 days after the date of this Prospectus, to purchase up to an aggregate of 150,000 shares of Common Stock, on the same terms as set forth above, solely to cover over-allotments, if any. If the Representative exercises such option in full, the Total Price to Public, Total Underwriting Discounts and Commissions, Total Proceeds to Company and Total Proceeds to the Principal Shareholder will be $ , $ , $ and $ respectively. See "Principal and Selling Shareholders" and "Underwriting." ------------------------------ The Shares are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to, and accepted by, them and subject to their right to reject orders in whole or in part and certain other conditions. It is expected that delivery of certificates will be made against payment therefor at the offices of Hampshire Securities Corporation on or about , 1997. ------------------------ HAMPSHIRE SECURITIES CORPORATION ---------------- The date of this Prospectus is , 1997 [inside front cover] The Company is the exclusive worldwide distributor of camera products bearing the Bell + Howell-Registered Trademark- name, a registered trademark of The Bell & Howell Company. - -------------------------------------------------------------------------------- [Photograph of Bell + Howell-Registered Trademark- and JAZZ -TM- products] - -------------------------------------------------------------------------------- An application to register the trademark JAZZ -TM- has been filed. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. All dollar ("$") amounts set forth herein are in U.S. dollars. PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THIS PROSPECTUS DOES NOT GIVE EFFECT TO (I) THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) THE REPRESENTATIVE'S WARRANTS, (III) UP TO 385,000 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF STOCK OPTIONS WHICH MAY BE GRANTED UNDER THE COMPANY'S 1997 LONG TERM INCENTIVE PLAN (THE "PLAN"), UNDER WHICH OPTIONS EXERCISABLE FOR AN AGGREGATE OF 161,000 SHARES OF COMMON STOCK HAVE BEEN GRANTED AND ARE CURRENTLY OUTSTANDING, AND (IV) 60,000 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF WARRANTS CURRENTLY OUTSTANDING. THIS PROSPECTUS GIVES RETROACTIVE EFFECT TO A RECAPITALIZATION (THE "RECAPITALIZATION") OF THE COMPANY EFFECTED ON MARCH 19, 1997. AS USED IN THIS PROSPECTUS, AND UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO THE COMPANY AND THE SUBSIDIARIES THEREOF. THE COMPANY The Company is engaged in the design, development, importation and wholesale distribution of cameras and other photographic products primarily in the United States. The Company's products, which have been designed to have pricing and features with mass consumer appeal, are marketed by the Company to (i) leading mass merchandisers, including Wal-Mart Stores ("Wal-Mart"), Sears, Roebuck & Co. ("Sears"), Hills' Department Stores ("Hill's") and Home Shopping Network ("HSN") and (ii) private label customers, such as Albertson's ("Albertson's"). The Company's current product offerings consist of (i) single use and promotionally priced reusable 35 millimeter format ("35mm") cameras marketed under the Company's JAZZ-TM- brand name and a number of private labels, (ii) higher priced multiple featured 35mm cameras marketed under the Bell + Howell-Registered Trademark- trademark pursuant to an exclusive agreement with Bell & Howell Company ("Bell & Howell") renewable through 2007, (iii) a newly-introduced family of cameras which utilizes the advanced photographic system format ("APS"), and (iv) photographic accessories, including vinyl and leather pouches and carrying cases, for its cameras marketed under the JAZZ-TM- brand name and a number of private labels. Each of the Company's products is manufactured by the Company's contract manufacturers in the People's Republic of China (the "PRC") and has been designed in accordance with Company specifications. The Company has experienced substantial growth since inception with revenues and net income (loss) increasing from $332,000 and ($260,000), respectively, for the period from June 21, 1995 (inception ) to December 31, 1995 to $7,619,000 and $667,000, respectively, for the six months ended December 31, 1996. The United States market for consumer photographic products currently is estimated by industry sources to be in excess of $12.5 billion. The single use camera segment of this market has grown at more than 15% per year in unit sales since introduction. The Company's products are designed specifically to target the single use segment, which includes newly introduced APS cameras and conventional 35mm cameras. Industry sources have estimated that the APS segment of such market will grow by 10% to 20% per year and will represent as much as 25% of the consumer photographic market by the year 2000. The Company believes that it is in an advantageous position to capitalize on the anticipated growth in its segment of the consumer photographic market for the following reasons: - SEASONED TEAM OF MARKETING PROFESSIONALS. The Company has a seasoned team of marketing professionals with substantial experience in the development and marketing of mass merchandised cameras at price points and with features that have effectively penetrated the consumer camera market; - STRATEGIC PARTNERSHIPS. The Company has developed a number of strategic partnerships with contract manufacturers which produce quality products in accordance with the Company's timing requirements and at competitive prices; and 1 - RELATIONSHIPS WITH LARGE CUSTOMERS. The Company has developed relationships with large customers, which have significantly reduced the cost of maintaining inventory domestically for the United States market. The Company's business strategy is to continue to grow and capture a larger share of its targeted segment of the consumer photographic market by (i) increasing its marketing efforts in the United States and Canadian markets; and (ii) continuing to develop cameras and related products with mass consumer appeal. The Company was incorporated under the laws of the State of New Jersey on June 21, 1995. The Company's executive offices are located at 600 Blair Road, Carteret, New Jersey 07088 and its telephone number is (908) 499-7945. The founder and former Chief Executive Officer and a former Director of the Company, Jack C. Benun, has been permanently enjoined from serving as an officer or director of a public company. Mr. Benun currently serves as a consultant to the Company. It is anticipated that, at management's request, Mr. Benun will perform substantial services for the Company in the areas of product development and sales and marketing. See "Management". Mr. Benun is the founder, and until 1994 was the Chief Executive Officer of Concord Camera Corp. ("Concord"), a public company and a direct competitor of the Company. Mr. Benun was the subject of a proceeding commenced by the Securities and Exchange Commission (the "Commission") alleging among other things, that he had misappropriated funds from Concord. The proceeding was settled in 1994 by an order (the "Order") to which Mr. Benun consented without either admitting or denying the allegations in the Commission's complaint, under which Mr. Benun paid $150,000 (the alleged amount of the misappropriation) plus interest to Concord and $150,000 to the Commission as a penalty. Mr. Benun is currently engaged in litigation with Concord relating to the Commission's allegations. See "Management--Consultant's Regulatory History and Litigation With Concord Camera Corp." Mr. Benun is a member of the family which currently owns 99.5% of the outstanding shares of Common Stock prior to this Offering and will continue to own 68.5% of such stock on completion of this offering. See "Principal and Selling Shareholders." All of the Principal Shareholders have entered into a voting agreement with the Company which precludes them from voting their shares or Common Stock in opposition to the recommendation of the Board of Directors of the Company for election or removal of directors. See "Principal and Selling Shareholders--Voting Agreement." 2 THE OFFERING Shares of Common Stock Offered hereby........ 1,000,000 shares Shares of Common Stock Outstanding prior to this Offering.............................. 2,210,000 shares Shares of Common Stock Outstanding following this Offering.............................. 3,210,000 shares Use of Proceeds.............................. To reduce dependence on short term financing of receivables and inventory, to repay certain short-term debt, and for general corporate and working capital purposes. Risk Factors and Dilution.................... The shares of Common Stock offered hereby involve a high degree of risk and immediate substantial dilution. See "Risk Factors" and "Dilution." Proposed Nasdaq [National] Market symbol..... JAZZ Proposed Pacific Stock Exchange symbol....... JAZ
3 SUMMARY FINANCIAL INFORMATION The following selected statement of operations data for the period from June 21, 1995 (inception) through June 30, 1996 and the six month period ended December 31, 1996, and the selected historical balance sheet data at December 31, 1996, are derived from the Consolidated Financial Statements of the Company and Notes thereto included elsewhere, such consolidated financial statements herein were audited by Richard A. Eisner & Company, LLP, independent auditors for the Company. The selected statement of operations data for the six months ended December 31, 1995 is derived from the unaudited Consolidated Financial Statements of the Company, which have been prepared on a basis consistent with the audited Consolidated Financial Statements of the Company and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company's financial position and results of operations. The results of operations for any interim period are not necessarily indicative of results to be expected for the entire year. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company and Notes thereto included elsewhere in this Prospectus. STATEMENT OF OPERATIONS DATA:
FROM JUNE 21,1995 SIX-MONTHS ENDED (INCEPTION) DECEMBER 31 THROUGH ------------------------ JUNE 30, 1996 1995 1996 ------------- ---------- ------------ Net sales............................................................... $ 1,166,000 $ 332,000 $ 7,619,000 Cost of goods sold...................................................... 976,000 315,000 5,835,000 ------------- ---------- ------------ Gross profit............................................................ 190,000 17,000 1,784,000 Operating expenses...................................................... 825,000 196,000 998,000 ------------- ---------- ------------ Operating income (loss)................................................. (635,000) (179,000) 786,000 Other expense, net...................................................... (164,000) (81,000) (61,000) ------------- ---------- ------------ Income (loss) before income taxes and minority interest................. (799,000) (260,000) 725,000 Provision for income taxes.............................................. -- -- 40,000 ------------- ---------- ------------ Income (loss) before minority interest.................................. (799,000) (260,000) 685,000 Minority interest....................................................... -- -- 18,000 ------------- ---------- ------------ Net income (loss)....................................................... (799,000) (260,000) 667,000 ------------- ---------- ------------ ------------- ---------- ------------ PRO FORMA SUPPLEMENTAL DATA: Net income (loss): 667,000 Pro forma executive compensation........................................ 190,000 ------------ Pro forma net income (1)................................................ 477,000 ------------ ------------ Net income (loss) per share of Common Stock and for the six months ended December 31, 1996 as adjusted to give effect to executive compensation on a pro forma basis.................................................. (0.34) (0.11) 0.20 Weighted average number of shares outstanding (2)....................... 2,349,000 2,349,000 2,349,000
- ------------------------ (1) The pro forma income statement data reflects an adjustment to the historical income statement data assuming the Company had paid compensation to its Chief Executive Officer during the six month period ended December 31, 1996. (2) Net income (loss) per share of Common Stock is based on the weighted average number of shares outstanding during each period, as modified in accordance with the rules of the Commission. Under these rules, the weighted average number of shares outstanding during each period includes the dilutive effect of options and warrants issued during the 12 month period preceding the date of the initial filing of the Registration Statement, of which this Prospectus forms a part, computed using the treasury stock method as if the shares issuable upon the exercise of such options and warrants were outstanding for all periods. 4 BALANCE SHEET DATA:
DECEMBER 31, 1996 ------------------------------------------ PRO FORMA AS HISTORICAL PRO FORMA(1) ADJUSTED(1)(2) ---------- ------------ ---------------- Cash................................................................ $ 171,000 $ 686,000 $ 3,836,000 Working capital..................................................... 507,000 1,022,000 4,172,000 Total assets........................................................ 1,611,000 2,261,000 5,326,000 Notes payable, net of current portion............................... 20,000 524,000 20,000 Notes payable - stockholder and other related parties, net of current portion................................................... 709,000 709,000 709,000 Accumulated deficit................................................. (132,000) (132,000) (313,000) Shareholders' Equity (capital deficiency)........................... (82,000) 64,000 3,633,000
- ------------------------ (1) Gives effect to the sale in March 1997 of notes (the "Notes") issued in a private placement (the "Private Placement") in the aggregate principal amount of $600,000, repayable from the proceeds of this offering, and the allocation to capital of the portion of the proceeds of such sale ($96,000) attributable to the common stock purchase warrants issued to the purchasers of the Notes in the Private Placement. (2) Adjusted to give effect to the sale of the Shares at an assumed initial public offering price of $5.00 per Share, after the deduction of underwriting discounts and commissions and estimated offering expenses and giving effect to the anticipated application of the net proceeds of $3,750,000 of this offering as set forth in "Use of Proceeds." Deferred interest applicable to the Notes ($96,000) and the estimated expenses of the Private Placement ($85,000) will be charged to operations upon the repayment of the Notes from the proceeds of this offering. 5 RISK FACTORS AN INVESTMENT IN THE SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER MATTERS REFERRED TO HEREIN, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO, THE RISK FACTORS SET FORTH BELOW. LIMITED OPERATING HISTORY; RECENT LOSSES; CAPITAL DEFICIENCY AND ACCUMULATED DEFICIT. The Company was incorporated in June 1995 and commenced operations in August 1995. During the period from June 21, 1995 (inception) through June 30, 1996, the Company recorded net sales and a net (loss) of $1,166,000 and ($799,000), respectively, and, during the six months ended December 31, 1996, the Company recorded net sales and net income of $7,619,000 and $667,000, respectively. After taking account of the pro forma effect of executive compensation during the six months ended December 31, 1996, net income would have been $477,000. At June 30, 1995 and December 31, 1996, the Company had a capital (deficiency) of ($749,000) and ($82,000), respectively, and an accumulated deficit of ($799,000) and ($132,000), respectively. Accordingly, in light of the foregoing, prospective investors have only a limited operating history by which to judge the Company and its prospects for success. The likelihood of the future success of the Company must be considered in light of such limited operating history, as well as the problems, expenses, difficulties, risks, and complications frequently encountered by developing companies. In addition, the Company's future plans are subject to known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from any future performance suggested herein. There can be no assurance that future revenues of the Company will be significant or that the Company's operations will continue to be profitable. See "Risk Factors--Possible Need for Additional Financing," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Contract Manufacturing; Quality Control." POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; MANAGEMENT OF WORKING CAPITAL. As the Company ships its products on the basis of customer purchase orders which generally are not received by the Company until immediately prior to the customer's desired shipment date, operating results in any quarter are highly dependent on orders booked and shipped in that quarter and, accordingly, may fluctuate materially from quarter to quarter. The Company's operating expense levels and production schedules are based on preliminary orders, as well as the Company's internal forecasts of future demand and not on firm customer orders. Failure by the Company to achieve these internal forecasts could result in higher expense levels and orders for larger production runs from its contract manufacturers than are justified by actual revenues, which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, based upon the timing of such events, the Company's working capital could be adversely affected, thereby limiting the Company's ability to continue to implement its expansion plans. Moreover, the Company's quarterly results may also be affected by fluctuating demand for the Company's products. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." MANAGEMENT OF GROWTH. The Company has experienced substantial growth since inception with consolidated revenues and consolidated net income (loss) increasing from $1,166,000 and ($799,000), respectively, for the period from June 21, 1995 (inception) through June 30, 1996, to $7,619,000 and $667,000, respectively, for the six months ended December 31, 1996. After taking account of the pro forma effect of executive compensation during the six months ended December 31, 1996, net income would have been $477,000. There can be no assurance that such growth will continue. While management has successfully managed such growth to date and the Company's infrastructure has been sufficient to support such growth, there can be no assurance that, if such growth continues, the Company's infrastructure will continue to be sufficient to support a larger enterprise. In the event that such growth continues, the management thereof may require expansion of the Company's management and financial controls, and could place a significant strain on the Company's resources. None of the Company's current officers (other than Roger F. Lorenzini, the Company's President, Chief Executive Officer and a Director) has had experience in managing a public company or a company that has expenditures as large as the anticipated 6 expenditures of the Company. While the Company intends to hire additional experienced personnel, there can be no assurance that these or other measures implemented by the Company will effectively increase the Company's capabilities to manage such growth in a timely and cost-effective manner. See "Risk Factors--Dependence on Key Personnel; Recruitment of Additional Personnel," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business--Employees" and "Management." POSSIBLE NEED FOR ADDITIONAL FINANCING. Based on the Company's operating and expansion plan, the Company believes that the estimated net proceeds of this offering, together with funds from operations, will be sufficient to satisfy its capital requirements and finance its plans for expansion for at least the next 18 months. This belief is based on certain assumptions, and there can be no assurance that such assumptions are correct. In addition, contingencies or opportunities may arise which would require the Company to obtain additional capital. Accordingly, there can be no assurance that the Company's financial resources will be sufficient to satisfy the Company's capital requirements for such period. After such 18 month period, the Company may require additional financing. Such financing may take the form of the issuance of common or preferred stock or debt securities, or may involve bank financing. There can be no assurance that the Company will be able to obtain such financing on a timely basis, on favorable terms or at all. See "Use of Proceeds" and "Business--Business Strategy." In any of such events, the Company may be unable to implement its current plans for expansion. CUSTOMER CONCENTRATION. During the six months ended December 31, 1996, , Wal-Mart represented approximately 75% of the Company's net sales during such period. The loss of, or substantial diminution in orders from,Wal-Mart could have a material adverse effect on the Company. None of the Company's customers has entered into any long-term minimum purchase agreements with the Company. Accordingly, purchases from the Company by such customers in any prior period may not be indicative of orders or purchases in any future period, and there can be no assurance that these companies will remain customers of the Company. Further, in the event that any one of such customers were to change the terms upon which it purchases products from the Company, the Company could be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Business--Major Customers." RISKS ASSOCIATED WITH RECYCLING CAMERAS. Single-use cameras are designed to be disposable. Approximately 95% of the single use cameras produced by the Company's contract manufacturers and purchased by the Company are made from recycled plastic camera shells. The manufacturers of single-use cameras have continually taken steps to discourage their recycling, making it increasingly difficult for the Company to utilize such components in its business. While the Company's current contract manufacturers to date have overcome barriers designed to prevent recycling of single-use cameras, there can be no assurance that the original manufacturers of the cameras will not successfully develop technologies that prevent their recycling. Moreover, because the Company's manufacturers' ability to acquire recycled cameras is dependent on a continual supply of cameras that may be recycled in a cost-efficient manner, there can be no assurance that recycled cameras will continue to be available at a reasonable cost or at all. During the six months ended December 31, 1996, net sales from single use cameras were approximately $5,161,000, representing approximately 68% of total net sales for such period. Since recycled cameras shells generally are available at substantially lower cost than newly manufactured shells, the Company's manufacturers' inability to continue to acquire recycled single-use cameras could have a material adverse affect on the Company's business. See "Business--Contract Manufacturing; Quality Assurance." DEPENDENCE ON CONTRACT MANUFACTURERS. The Company maintains no production facilities and its products are, and are anticipated to continue to be, manufactured in accordance with Company specifications by contract manufacturers headquartered in Taiwan and Hong Kong with production facilities in the PRC. Such manufacturers purchase components utilized in the manufacture of the Company's products from third parties. Consequently, the Company is dependent upon its contract manufacturers and their suppliers for timely delivery of products and quality workmanship. Delays in production or shipment, 7 quality control problems, and unavailability of components could have a material adverse effect on the Company. See "Business--Manufacturing; Quality Control." POLITICAL AND ECONOMIC DEVELOPMENTS AFFECTING HONG KONG. The Company's foreign distribution, shipping, and engineering development management and contract manufacturing management offices and several of its principal contract manufacturers and suppliers are headquartered in Hong Kong, a British Crown Colony. Consequently, the Company may be materially adversely affected by factors affecting Hong Kong's political situation and its economy or its international political and economic relations. On December 19, 1984, the governments of the PRC and Britain signed a Joint Declaration (the "Joint Declaration") regarding the future of Hong Kong. Under the Joint Declaration, China will recover sovereignty over the British Crown Colony of Hong Kong on July 1, 1997, and Hong Kong will become a Special Administrative Region (the "SAR") within China. The Joint Declaration provides that the basic policies of China regarding Hong Kong will be stipulated in a Basic Law, which was adopted April 4, 1990, (the "Basic Law"). Although the Basic Law provides that the SAR will have a high degree of legislative, judicial, and economic autonomy (except in foreign and defense affairs), and it is anticipated that the laws currently in force in Hong Kong will remain basically unchanged (the Joint Declaration contemplates that the policies expressed therein will remain in effect for a period of at least 50 years from July 1, 1997), there can be no assurance as to the continued stability of political, economic, or commercial conditions in Hong Kong or that the Company's financial condition and results of operations will not be adversely affected as a consequence of these events. For the six months ended December 31, 1996, approximately 68% of the Company's net sales to United States customers were made through Jazz (Hong Kong) Limited ("Jazz-HK"), its Hong Kong subsidiary. HONG KONG CURRENCY. A substantial portion of the Company's net sales and expenses through Jazz-HK are denominated in the Hong Kong dollar. The exchange rate between the Hong Kong dollar and the U.S. dollar currently is fixed within a narrow range. The Company has converted all Hong Kong dollars to U.S. dollars in accordance with generally accepted accounting principlesin the United States. There can be no assurance that the exchange rate of the Hong Kong dollar will not fluctuate in the future and that such fluctuations will not have a material adverse affect on the Company's business and results of operations. See "Consolidated Financial Statements and the Notes thereto." DEPENDENCE ON KEY PERSONNEL. The Company depends to a large extent on the abilities and continued participation of Jack C. Benun, formerly the President, Chief Executive Officer and a Director of the Company, and currently principal consultant to the Company, and of Roger F. Lorenzini, the current President, Chief Executive Officer and a Director of the Company. Mr. Benun resigned his offices with, and became a consultant to the Company on April 1, 1997 when Mr. Lorenzini assumed his offices with the Company. The Company's consulting agreement with Mr. Benun expires December 31, 2001 and its employment contract with Mr. Lorenzini expires December 31, 2000. The loss of the services of Mr. Benun or Mr. Lorenzini would have a material adverse effect on the Company's business. The Company has agreed with the Representative to obtain and become the sole beneficiary of a keyman life insurance policy on the life of Mr. Lorenzini in the amount of $1,000,00 and intends to obtain keyman life insurance in a comparable amount on the life of Mr. Benun. See "Management." The ability of the Company to attract and retain management and other personnel when needed is critical to the operations and expansion of the Company. The Company faces competition for such personnel from other companies and organizations, many of which have significantly larger operations and greater financial, marketing, human, and other resources than the Company. To date, the Company has been able to attract and retain the personnel necessary for its operations. However, there can be no assurance that the Company will be able to do so in the future, particularly in light of the Company's plans for expansion. If the Company is unable to attract and retain personnel with necessary skills when needed, its business and expansion plans could be materially adversely affected. COMPETITION. The consumer photographic products market is highly competitive and requires substantial capital. The Company competes with, and will compete with, numerous international and regional 8 companies, many of which have significantly larger operations and greater financial, marketing, human, and other resources than the Company. No assurance can be given that the Company will successfully compete in any market in which it conducts or may conduct operations. See "Business -- Competition." CONTINUED CONTROL BY PRINCIPAL SHAREHOLDERS; VOTING AGREEMENT. After this offering, the Principal Shareholders will beneficially own approximately 68.5% of the outstanding Common Stock. All of the Principal Shareholders have entered into a voting agreement with the Company which precludes them from voting their shares of Common Stock in opposition to the recommendation of a majority of the Board of Directors of the Company with respect to the election or removal of directors and from initiating a change in the majority of director. See "Principal and Sellling Shareholders." DEPENDENCE ON SHORT-TERM FINANCING. A substantial portion of the Company's working capital is represented by borrowings from Mr. Benun's family, the proceeds of the sale of the receivables of the Company to a commercial factoring firm and the sale of customers' negotiable letters of credit. The Company has in the past experienced difficulty in obtaining sufficient credit and has been forced to accept credit terms which the Company believes are unfavorable. The Company believes that the inability of the Company to obtain sufficient credit on competitive terms has limited the Company's operations and growth from inception. The termination of any of the Company's existing sources of credit would limit the ability of the Company to continue to implement its plans for expansion, which could have a material adverse effect on the Company. In addition, the Company could be adversely affected if its major customer, Wal-Mart, which accepts deliveries of Company products FOB Hong Kong with payment by negotiable letters of credit, were to materially change the terms of purchase by, for example, accepting delivery FOB New Jersey which would materially increase the period between payment by the Company of its contract manufacturers and payment to the Company by its customers. The Company is seeking to secure bank lines of credit in order to replace its current short-term credit arrangements. There can be no assurance that the Company will obtain any such line of credit on terms acceptable to the Company or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." EXISTENCE OF PERSONAL GUARANTEES. Currently all of the Company's third party credit and financing arrangements are personally guaranteed by Jack C. Benun, the former President, Chief Executive Officer and a Director of the Company and currently the principal consultant to the Company. There can be no assurance that Mr. Benun will be willing to guarantee any new or extended credit or financing arrangements for the Company in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." IMPORTATION OF PRODUCTS. The importation of camera products into the United States and into other jurisdictions in which the Company'intends to sell its products are subject to numerous risks, including shipping delays, fluctuation in currency exchange rates, and import duties. There can be no assurance that the United States, the PRC or Hong Kong or such other governments will not in the future impose trade restrictions which could adversely affect the Company's activities. Currently, there is a 1.2% duty on cameras imported into the United States and there are no United States import quotas on the type of products manufactured and distributed by the Company. However, there can be no assurance that quotas, taxes, or further or greater duties or taxes will not be imposed in the future. See "Business -Import Restrictions and Foreign Taxes." The United States has considered revocation of the PRC's most favored nation ("MFN") trade status, which provides the PRC with the trading privileges available generally to trading partners of the United States, and the United States and the the PRC have recently been involved in controversies relating to the protection in the PRC of intellectual property rights. Such controversies have threatened a trade war between the countries. President Clinton has extended the PRC's MFN status until July 3, 1997, and the United States and the PRC reached an agreement that averted a trade war and a United States embargo against the importation of certain products manufactured in the PRC, including electronic and audio products. While cameras were not listed among the products subject to the threatened embargo and trade 9 wars have been avoided in the past, if trade restrictions were imposed on camera products imported into the United States, the Company's ability to import camera products from the PRC or Hong Kong could be materially adversely affected. There can be no assurance that future controversies will not arise that again threaten the status quo involving trade between the United States and the PRC, or that the United States will not revoke or refuse to extend the PRC's MFN status. In either of such events, the Company would be materially adversely affected. ABILITY TO DEFER FOREIGN EARNINGS. The Company's Hong Kong subsidiary, Jazz-HK, is a controlled foreign corporation ("CFC") for United States tax purposes. Under certain circumstances, the United States shareholder of a CFC may be required to include some portion or all of the CFC's earnings in its own taxable income currently as if the CFC had distributed those earnings to the shareholder as a dividend. The inclusion of such earnings in the Company's taxable income depends on whether the income of the CFC consists of certain categories of income which are enumerated in several provisions of the Internal Revenue Code of 1986, as amended, as well as on the absence of adverse tax legislation in the future. Although the Company believes it will be able to defer the current income from the CFC in accordance with current tax laws, there can be no assurance that the Company will be able to defer United States taxation of all or some of its subsidiary's income in the future. See "Business--Possible United States Taxation of Foreign Earnings." SUBSTANTIAL PORTION OF NET PROCEEDS ALLOCATED FOR GENERAL CORPORATE AND WORKING CAPITAL PURPOSES; BROAD DISCRETION OF MANAGEMENT. Approximately $3,100,000 (82.7%) of the estimated net proceeds from the sale of the Shares at an assumed public offering price of $5.00 per Share has been allocated for general corporate and working capital purposes. Such proceeds may be utilized in the discretion of the Board of Directors. Accordingly, investors will not know in advance how the Company will utilize such estimated net proceeds and management will have broad discretion as to the allocation and use of such proceeds. See "Use of Proceeds." SUBSTANTIAL OPTIONS AND WARRANTS RESERVED. The Company has reserved 385,000 shares of Common Stock for issuance pursuant to the Plan and may reserve additional shares of Common Stock in the future. To date, options to purchase an aggregate of 161,000 shares of Common Stock have been granted pursuant to the Plan, warrants issued in the Private Placement to purchase an additional 60,000 shares. The Company also will sell to the Representative in connection with this offering, for nominal consideration, warrants to purchase an aggregate of 60,000 shares of Common Stock at a price per Share equal to 110% of the public offering price per share, subject to adjustment. The exercise of such options and warrants and subsequent sale of the underlying shares of Common Stock in the public market could adversely affect the market price of the Company's securities. The existence of the Representative's Warrants, the outstanding options issued under the Plan, and such other warrants may prove to be a hindrance to future financings, since the holders of such warrants and options may be expected to exercise them at a time when the Company would otherwise be able to obtain additional equity capital on terms more favorable to the Company. See "Risk Factors--Possible Need For Additional Capital" and "Underwriting." The holders of the Representative's Warrants will have certain demand and "piggy back" registration rights with respect to such warrants and the shares of Common Stock underlying such warrants (the "Warrant Shares") commencing one year after the date hereof. If the Representative should exercise its registration rights to effect a distribution of the Representative's Warrants or the Warrant Shares, the Representative, prior to and during such distribution, will be unable to make a market in the Company's securities, which may therefore be limited. If the Representative ceases to make a market in the Common Stock, the Company could lose the ability to list the Common Stock on the Nasdaq [Small Cap] Market because of that market's requirement of at least [three] [two] market makers, the market and market prices for the Common Stock could be materially adversely affected, and holders thereof may be unable to sell or otherwise dispose of shares of Common Stock. See "Shares Eligible For Future Sale" and "Underwriting." 10 SHARES ELIGIBLE FOR FUTURE SALE. Future sales of substantial numbers of shares of Common Stock (including shares issued upon the exercise of stock options and warrants) after this offering by the existing shareholders, the Representative, or the executive officers or directors of the Company, or the perception that such sales could occur, could adversely affect the market price for the Common Stock. In that regard, holders of approximately 68.5% of the 3,210,000 shares of Common Stock outstanding immediately after the offering and the holders of outstanding options under the Plan, including the officers and directors of the Company, have agreed not to sell publicly or otherwise dispose of any shares of Common Stock (other than the portion of the Representatives' over-allotment option to be sold by the Selling Shareholder) for a period of 18 months after the date of this Prospectus without prior written consent of the Representative. Commencing immediately following the termination of such 18 month period, all the shares of Common Stock currently owned by the Company's shareholders prior to the offering (2,210,000 shares of Common Stock) will be eligible for resale in the public market pursuant to Rule 144 under the Securities Act. In addition, the Company has granted certain parties, including the Representative (which owns Representative's Warrants to purchase 100,000 shares of Common Stock) and holders of warrants acquired in a Private Placement (exercisable for an aggregate of 60,000 shares of Common Stock) registration rights, which rights may be exercised commencing one year and 18 months, respectively, after the date of this Prospectus. See "Risk Factors--Substantial Options and Warrants Reserved" and "Shares Eligible for Future Sale--Registration Rights." DILUTION. The offering price per share of Common Stock is substantially higher than the net tangible book value per share of the Common Stock at December 31, 1996. Purchasers of Shares in this offering will experience immediate and substantial dilution of $3.91 (78.2%) in the pro forma net tangible book value per share of Common Stock assuming an initial public offering price of $5.00 per share. To the extent outstanding options and warrants to purchase shares of Common Stock are exercised, there will be further dilution. See "Dilution." DIVIDEND POLICY. The Company has never declared or paid, and is not anticipated in the foreseeable future to declare or to pay, a dividend on the Common Stock, and the Company expects that the Company's future earnings will be retained for expansion or development of the Company's business. Whether the Company will pay dividends on the Common Stock in the future will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements and surplus, the general financial condition of the Company, restrictive covenants in loan or other agreements to which the Company may become subject, and such other factors as the Board of Directors of the Company may deem relevant. The Company's agreement with its commercial factors requires the factor's prior written consent to the payment by the Company of any cash dividends. See "Dividend Policy" and "Description of Securities--Common Stock." ARBITRARY OFFERING PRICE. The initial public offering price of the Shares will be determined by negotiation between the Company and the Representative and may not be indicative of the price at which the Shares will trade after the completion of the offering. Among the factors to be considered in such negotiations are (i) an assessment of the Company's future prospects, (ii) the experience of the Company's management, (iii) the current financial position of the Company, (iv) the prevailing conditions in the securities markets, including the market value of the publicly traded common stock of companies in similar industries, (v) the market conditions for new offerings of securities and (vi) the demand for similar securities of comparable companies. See "Underwriting." NO PRIOR MARKET FOR THE COMMON STOCK. Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active trading market therefore will develop or, if any such market develops, that it will be sustained. Accordingly, purchasers of the Shares may experience difficulty selling or otherwise disposing of their shares of Common Stock. POSSIBLE VOLATILITY OF STOCK. The market prices for securities of newly public companies have historically been highly volatile. Future announcements concerning the Company or its competitors, including 11 operating results, technological innovations or new commercial products, government regulations, or foreign and other competition, could have a significant impact on the market price of the Common Stock. In addition, the stock markets in the United States have, from time to time, experienced significant price and volume fluctuations that are unrelated or disproportionate to the operating performance of individual companies. Such fluctuations could materially adversely affect the price of the Common Stock. See "Underwriting." NASDAQ ELIGIBILITY AND MAINTENANCE; POSSIBLE DELISTING OF SECURITIES FROM NASDAQ. In September 1991, the Commission approved rules that establish the currently effective criteria for initial and continued listing of securities on the Nasdaq SmallCap Market. Under such rules, for initial listing, a company must have at least $4,000,000 in total assets, at least $2,000,000 in shareholders' equity and a minimum bid price of $3.00 per share. For continued listing, a company must maintain at least $2,000,000 in total assets, at least $1,000,000 in shareholders' equity, and a minimum bid price of $1.00 per share. The Common Stock is expected to be eligible for initial listing on the Nasdaq SmallCap Market under these rules upon completion of this offering. However, in November 1996, the NASD proposed rules which revise the criteria for initial and continued listing on such market. Under the proposed rules, for initial listing, a company must have at least $4,000,000 net tangible assets, a minimum bid price of $4.00 per share, and a public float of at least $5,000,000. For continued listing, a company must maintain $2,000,000 in net tangible assets, a minimum bid price of $1.00, and a public float of at least $1,000,000. If the Company should experience losses from operations, it may be unable to maintain the standards for continued listing and the Common Stock could be subject to delisting from the Nasdaq SmallCap Market. Trading, if any, in the Common Stock would thereafter be conducted in the over-the-counter market on the OTC Bulletin Board established for securities that do not meet the Nasdaq SmallCap Market listing requirements or in what are commonly referred to as the "pink sheets." As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Shares. The Company proposes to make application for inclusion on the Nasdaq National Market. Currently, among other criteria, Nasdaq initial inclusion criteria require that the applicant have net tangible assets of $4,000,000 and net income and pre-tax earnings in two of the three last years of $400,000 and $750,000, respectively. The Company believes that it would meet these current initial inclusion criteria, however, these criteria are being amended by the Nasdaq Stock Market, Inc. to increase the required level of net tangible assets to $6,000,000, to eliminate the net income criterion and to increase the pre-tax earnings criterion to $1,000,000. In the event the Company's application to include the Common Stocks on the Nasdaq National Market is reviewed using the proposed criteria, there can be no assurance that such application will be approved. Accordingly, the Company has elected to file also for inclusion of the Common Stock on the Nasdaq SmallCap Market. RISK OF LOW-PRICED STOCKS In the event the Common Stock quoted on the Nasdaq SmallCap Market, were delisted from such market and no other exclusion from the definition of a "penny stock" under the Exchange Act were available, such securities would be subject to the penny stock rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally defined as investors with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with a spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase, and must have received the purchaser's written consent to the transaction prior to sale. Consequently, such delisting, if it were to occur, could materially adversely affect the ability of broker-dealers to sell the Shares and the ability of purchasers in this offering to sell their Shares in the secondary market. ELIMINATION OF LIABILITY FOR DIRECTORS. The Company's Certificate of Incorporation limits the liability of a director of the Company to the Company and its shareholders for monetary damages for breach of 12 fiduciary duty to the fullest extent permitted by the New Jersey Business Corporation Act ("NJBCA"). The NJBCA permits elimination of a directors' officers' and agents' personal liability for monetary damages for acts in good faith in a manner they reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to a criminal proceeding, for which such persons had no reasonable cause to believe were unlawful. As a result of such provisions, the rights of Company shareholders to recover monetary damages from directors, officers, and agents of the Company for certain breaches of their fiduciary duties may be significantly limited. See "Management." PREFERRED STOCK; NJBCA; POSSIBLE ANTI-TAKEOVER EFFECTS. The Company's Certificate of Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by shareholders, and may include, among other things, voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. At the date hereof, no shares of preferred stock are outstanding. The Company has no present plans for the issuance of any preferred stock. However, the issuance of any such preferred stock could materially adversely affect the rights of holders of Common Stock and, therefore, could reduce the value of the Common Stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict the Company's ability to merge with, or sell its assets to, a third party. The ability of the Board of Directors to issue preferred stock could discourage, delay or prevent a takeover of the Company, thereby preserving control of the Company by the current shareholders. The NJBCA restricts certain business combinations with an interested shareholder (typically a beneficial owner of 10% or more of the outstanding voting shares of the Company's capital stock, excluding certain persons) without meeting stringent conditions. This provision could discourage a third party from pursuing a takeover of the Company at a price considered attractive by many shareholders, since such provision could have the effect of delaying an acquiring party from gaining control of the Company and its Board of Directors. See "Description of Securities." 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the Shares offered hereby are estimated to be approximately $3,750,000 (approximately $3,967,000 if the Representative's over-allotment option is exercised in full) assuming an initial public offering price of $5.00 per share, after deducting Underwriters'discounts, commissions and expenses and the estimated expenses of the offering payable by the Company. The Company intends to utilize approximately $650,000 (17.3%) of the estimated net proceeds of this offering to repay the principal amount of, and accrued and unpaid interest on, the Notes issued by the Company in the Private Placement which notes bear interest at the rate of 10% per annum. The Notes mature on the closing of the offering made hereby. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources." The Company intends to utilize the remainder of the estimated net proceeds of this offering, approximately $3,100,000 (82.7%), for general corporate and working capital purposes, including maintaining inventory in finished camera products in the United States, leasehold improvements, developing new products and hiring personnel. The Company intends to utilize working capital to avoid the need to sell its receivables in order to reduce its dependence on a commercial factoring arrangement, which permits advances of up to 70% of purchased uncollected receivables at the rate of interest equal to 2.5% above the prime rate of interest plus commissions. Obligations under this facility are guaranteed by Jack C. Benun, formerly the President, Chief Executive Officer and a Director of the Company and currently a consultant to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Certain Transactions." The Company will not receive any of the proceeds from the sale of up to 100,000 shares of Common Stock by the Selling shareholder in the event the over-allotment option granted by her to the Representative is exercised. The Company intends to allocate the net proceeds from the sale of up to 50,000 shares of Common Stock sold by the Company upon the exercise of the over-allotment option for general corporate and working capital purposes. The foregoing represents the Company's best estimate of its allocation of the estimated net proceeds of the sale of the Shares based upon the Company's currently contemplated operations, the Company's business plan and current economic and industry conditions and is subject to reapportionment among the categories listed above or to new categories in response to, among other things, changes in its plans, economic and industry conditions, and future revenues and expenditures. The amount and timing of expenditures will vary depending on a number of factors, including changes in the Company's contemplated operations or business plan and changes in economic and industry conditions. Based on the Company's business plan, the Company believes that the net proceeds of this offering, together with funds generated by continuing operations, will be sufficient to permit the Company to conduct its operations as currently contemplated for at least the next months. Such belief is based on, among other things, budgeted revenues from product sales and budgeted expenses, and there can be no assurance that such resources will be sufficient for such purpose. The Company may be required to raise substantial additional capital in the future in order to expand operations. In addition, contingencies may arise which may require the Company to obtain additional capital. There can be no assurance that the Company will be able to obtain such capital from any other sources, on a timely basis, on favorable terms or at all. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Pending utilization of the net proceeds of this offering, the Company intends to invest such net proceeds in short term interest bearing securities. 14 DIVIDEND POLICY The Company has never declared or paid, and in the forseeable future is not anticipated to declare or to pay, a dividend on the Common Stock. The Company expects that the Company's future earnings will be retained for expansion or development of the Company's business. Whether the Company will pay dividends on the Common Stock in the future will be at the discretion of the Company's Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements and surplus, the general financial condition of the Company, restrictive covenants in loan or other agreements to which the Company may become subject, and such other factors as the Board of Directors of the Company may deem relevant. The Company's agreement with its commercial factors requires the factor's prior written consent to the payment by the Company of any cash dividends. See "Description of Securities--Common Stock." 15 CAPITALIZATION The following table sets forth the short term debt and capitalization of the Company at December 31, 1996 (i) on an historical basis, (ii) on a pro forma basis to reflect the Private Placement of the Notes and the Recapitalization and (iii) on a pro forma as adjusted basis, to reflect repayment of the Notes and the Recapitalization and to give effect to the receipt and application by the Company of the estimated net proceeds from the sale of the Shares. See "Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
DECEMBER 31, 1996 --------------------------------------- PRO FORMA, HISTORICAL PRO FORMA AS ADJUSTED(4) ---------- ----------- -------------- Long-term debt: Notes payable, net of current portion......................................... $ 20,000 524,000 $ 20,000 Notes payable, stockholder and related parties, net of current portion........ 709,000 709,000 709,000 Capital deficiency: Common stock, par value $.01.(2)(3) 10,000,000 shares authorized, 2,200,000 shares issued and outstanding--historical 2,210,000 shares issued and outstanding-pro forma and 3,210,000 Shares issued and outstanding--pro forma, as adjusted............. 22,000 22,100 32,100 Class A common stock, par value $.01 per share, 500,000 authorized; none issued...................................................................... -- -- -- Preferred stock par value $1.00 per share; 1,000,000 shares authorized; none issued...................................................................... -- -- Additional paid-in capital(1)................................................. 28,000 173,000 3,913,900 (Accumulated Deficit)......................................................... (132,000) (132,000) (313,000) Shareholders' Equity (capital deficiency)..................................... (82,000) 64,000 3,633,000
- ------------------------ (1) As adjusted to reflect the sale of $600,000 aggregate principal amount of Notes and warrants (the "Warrants") to purchase an aggregate of 60,000 shares of Common Stock for net proceeds of $120,000. Of the gross proceeds of such purchase, $96,000 has been allocated to the Warrants and reflected in capital for reporting and tax purposes. (2) After giving effect to the Recapitalization of the Company pursuant to which a stock split effected as a stock dividend was made to the principal shareholders who have become the owners of 2,200,000 shares of Common Stock and 10,000 shares of Common Stock purchased by Bell & Howell. See "Business -- Bell & Howell License." (3) Does not reflect the exercise of the Warrants or the exercise of options to purchase 161,000 shares of Common Stock which the Company has granted under the Plan prior to the date of this Prospectus. See "Management--1997 Long Term Incentive Plan." (4) Gives effect to the sale of the Shares, at an assumed initial public offering price per Share of $5.00 and the application of the estimated net proceeds of ($3,750,000) as set forth herein in "Use of Proceeds." The deferred interest applicable to the Notes of $96,000 and the estimated expenses of the Private Placement ($85,000) will be charged to operations upon repayment of the Notes from the proceeds of this offering. 16 DILUTION The pro forma net tangible book value (deficiency) of the Common Stock at December 31, 1996 was ($71,000) or $0.03 per share after giving effect to the Private Placement and the Recapitalization. Pro forma net tangible book value (deficiency) per share is determined by dividing the pro forma net tangible book value (deficiency) of the Company (total tangible assets less total liabilities) by the number of shares of Common Stock outstanding. Without taking into account any changes in net tangible book value after December 31, 1996, other than to give effect to the sale of the 1,000,000 shares of Common Stock offered by the Company (at an assumed public offering price of $5.00 per share) and the application of the net proceeds therefrom as described under "Use of Proceeds", the adjusted pro forma net tangible book value of the Company at December 31, 1996 would have been $3,583,000 or $1.12 per share. This represents an immediate increase in net tangible book value of $1.09 per share to existing shareholders and an immediate dilution of net tangible book value of $3.91 per share to new investors. The following table illustrates this dilution per share:
PER SHARE ---------------------- Assumed initial public offering.......................................... $ 5.00 Pro forma net tangible book value as of December 31, 1996................ $ (0.03) Increase in net tangible book value to the existing stockholders......... $ 1.12 As adjusted pro forma net tangible book value after the offering......... $ 1.09 Dilution to new investors................................................ $ 3.91
The following table sets forth, as of December 31, 1996, the number of shares of Common Stock purchased from the Company, the percentage of total shares of Common Stock purchased, the total consideration paid, the percentage of total consideration paid and the average price per share of Common Stock paid by the investors in this offering and the current shareholders of the Company:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------- PER NUMBER PERCENT AMOUNT PERCENT SHARE ---------- ----------- ------------ ----------- ----------- Existing Shareholders.............. 2,210,000 68.8% $ 50,000(1) 0.9% $ 0.02 New Investors...................... 1,000,000 31.2% $ 5,000,000 99.1% $ 5.00 ---------- --- ------------ --- Total.............................. 3,210,000 100% $ 5,050,000 100% ---------- --- ------------ --- ---------- --- ------------ ---
- ------------------------ (1) Consideration does not include a $50,000 deferred charge representing the issuance of 10,000 shares of Common Stock to Bell & Howell in consideration of modification and extension of it's licensing agreement with the Company at $0.01 per share computed at $5.00 per share See "Business -- Bell & Howell License." At April 3, 1997, there were outstanding options for 161,000 shares of Common Stock at an exercise price per share of $1.50 under the Plan and 60,000 warrants which are exercisable for shares of Common Stock (which number excludes the issuance of the Representative's Warrants to purchase 100,000 shares of Common Stock), at a weighted average conversion price or exercise price as applicable of $1.64 per share. To the extent these securities or additional securities issued after the date hereof at conversion or exercise prices below the initial public offering price per Share are exercised, there will be further dilution to new investors. See "Risk Factors," "Capitalization," and Note B(10) of "Notes To Consolidated Financial Statements." 17 SELECTED CONSOLIDATED FINANCIAL DATA The following selected statement of operations data for the period from June 21, 1995 (inception) through June 30, 1996 and the six month period ended December 31, 1996, and the historical selected balance sheet data at June 30, 1996 and December 31, 1996 are derived from the Consolidated Financial Statements of the Company and Notes thereto included elsewhere herein; such Consolidated Financial Statements were audited by Richard A. Eisner & Company, LLP, independent auditors for the Company. The selected statement of operations data for the six months ended December 31, 1995 is derived from the unaudited Consolidated Financial Statements of the Company and the Notes thereto, which have been prepared on a basis consistent with the audited Consolidated Financial Statements of the Company and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company's financial position and results of operations. The results of operations for any interim period are not necessarily indicative of results to be expected for the entire year.. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company and Notes thereto included elsewhere in this Prospectus. STATEMENTS OF OPERATIONS DATA:
FROM JUNE 21,1995 SIX-MONTHS ENDED (INCEPTION) DECEMBER 31 THROUGH -------------------------- JUNE 30, 1996 1995 1996 ------------- ------------ ------------ Net sales.............................................................. $ 1,166,000 $ 332,000 $ 7,619,000 Cost of goods sold..................................................... 976,000 315,000 5,835,000 ------------- ------------ ------------ Gross profit........................................................... 190,000 17,000 1,784,000 Selling expenses....................................................... 281,000 35,000 397,000 General and administrative expenses.................................... 544,000 161,000 601,000 Operating expenses..................................................... 825,000 196,000 998,000 ------------- ------------ ------------ Operating income (loss)................................................ (635,000) (179,000) 786,000 Other expense, net..................................................... (164,000) (81,000) (61,000) ------------- ------------ ------------ Income (loss) before income taxes and minority interest................ (799,000) (260,000) 725,000 Provision for income taxes............................................. -- -- 40,000 Minority interest...................................................... -- -- 18,000 Net income (loss)...................................................... (799,000) (260,000) 667,000 ------------- ------------ ------------ ------------- ------------ ------------ Net income............................................................. 667,000 Pro forma executive compensation....................................... (190,000) Pro forma net income(1)................................................ 477,000 ------------ ------------ Net income (loss) per share............................................ $ (0.34) $ (0.11) $ 0.20 Weighted average shares of common stock and equivalents(1)............. 2,349,000 2,349,000 2,349,000
- ------------------------ (1) The pro forma income statement data reflects an adjustment to the historical income statement data assuming the Company had paid compensation to its chief executive officer during the six month period ended December 31, 1996. (2) Net Income (loss) per share of Common Stock is based on the weighted average number of shares outstanding during each period, as modified in accordance with the rules of the Commission. Under these rules, the weighted average number of shares outstanding during each period includes options and warrants issued during the 12 month period preceding the date of the initial filing of the Registration Statement of which the Prospectus forms a part, computed using the treasury stock method as if the Shares issuable upon the exercise of such options and warrants were outstanding for all periods. 18 BALANCE SHEET DATA:
DECEMBER 31, 1996 JUNE 30, 1996 -------------------------- HISTORICAL HISTORICAL PRO FORMA(1) ------------- ------------ ------------ Cash................................................................... $ 10,000 $ 171,000 $ 686,000 Working capital (deficiency)........................................... (31,000) 507,000 1,022,000 Total assets........................................................... 1,115,000 1,611,000 2,261.000 Notes payable, net of current portion.................................. 12,000 20,000 524,000 Notes payable, stockholder and other related parties, net of current portion.............................................................. 818,000 709,000 709,000 Accumulated deficit.................................................... (799,000) (132,000) (132,000) Shareholders' Equity (capital deficiency).............................. (749,000) (82,000) 64,000
- ------------------------ (1) Gives effect to the sale in the Private Placement of the Notes in the aggregate principal amount of $600,000 repayable from the proceeds of this offering, and the allocation to capital of the portion of proceeds of such sale, $96,000, attributable to the Warrants issued to the purchasers of the Notes in the Private Placement. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is engaged in the design, development, importation, and wholesale distribution of cameras and other photographic products primarily in the United States. The Company's products, which have been designed to have pricing and features with mass consumer appeal, are marketed by the Company to (i) leading mass merchandisers, including Wal-Mart, Sears, Hills', and HSN, and (ii) private label customers, such as Albertson's. During the six months ended December 31, 1996,, Wal-Mart represented approximately 75% of net sales. None of the Company's customers has entered into any long-term minimum purchase agreements with the Company. The following table, sets forth, for the periods indicated, Statement of Operations data expressed as a percentage of net sales represented by the following expense and earnings (loss) items:
SIX MONTHS ENDED JUNE 21, 1995 (INCEPTION) DECEMBER 31, THROUGH -------------------- JUNE 30,1996 1995 1996 --------------- --------- --------- Net sales......................................................................... 100.0% 100.0% 100.0% Cost of goods sold................................................................ 83.7 94.9 76.6 ----- --------- --------- Gross profit...................................................................... 16.3 5.1 23.4 Operating expenses................................................................ 70.8 59.0 13.1 ----- --------- --------- Income (loss) from operations..................................................... (54.5) (53.9) 10.3 Financing expense................................................................. (9.5) (12.7) (1.1) Other income (expense) net........................................................ (4.5) (11.7) 0.3 ----- --------- --------- Income before provision for income taxes and minority interest.................... (68.5) (78.3) 9.5 Provision for income taxes........................................................ -- -- 0.5 ----- --------- --------- Net income (loss) before minority interest........................................ -- -- 9.0 Minority interest................................................................. -- -- 0.2 ----- --------- --------- Net income (loss)................................................................. (68.5) (78.3) 8.8 ----- --------- --------- ----- --------- --------- Net income........................................................................ 8.8 Pro forma executive compensation.................................................. 2.5 --------- Pro forma net income.............................................................. 6.3 --------- ---------
RESULTS OF OPERATIONS JUNE 21, 1995 (INCEPTION) THROUGH JUNE 30, 1996 NET SALES. Net sales of the Company were $1,166,000 in the period from inception to June 30, 1996. These revenues resulted from shipments to customers, primarily in the United States. The Company commenced shipping its products at the end of the three months ended September 30, 1995. Approximately 40% of net sales were attributable to sales to its largest customer, Wal-Mart, in this period. Gross margin, expressed as a percentage of sales, was 16.3% for the year ended June 30, 1996. OPERATING EXPENSES. Operating expenses consisting of selling expenses of $281,000 and general and administrative expenses of $544,000, together, constituted 70.8% of net sales for the year ended June 30, 1996, reflecting the costs of commencing the operations of the Company. 20 FINANCING EXPENSES. Interest costs required to finance inventory and accounts receivable levels totalled $111,000, or 9.5% of net sales, during such period. During this period, the Company lost $86,000 from sales of marketable securities. Primarily as a result of the costs relating to the commencement of the operations of the Company. and low gross margins on products sold, the Company lost $799,000 during the period from June 21, 1995 (inception) through June 30, 1996. SIX MONTHS ENDED JUNE 30, 1996 AND 1995 NET SALES. Net sales increased by $7,287,000, or approximately 2195%, to $7,619,000 for the six months ended December 31, 1996, as compared to $332,000 for the six months ended December 31, 1995. Such increase in sales was primarily attributable to significant increases in the Company's customer base and the marketing by the Company of additional products added to the Company's product portfolio subsequent to December 31, 1995. COST OF GOODS SOLD. Cost of goods sold for the six months ended December 31, 1996 was $5,835,000, representing 76.6% of sales during such period, as compared to $315,000, representing 94.9% of sales, during the six months ended December 31, 1995. The increase in the cost of goods sold is attributable to increases in sales during the six month period ended December 31, 1996 over the comparable period in 1995, while the decrease in cost of goods sold as a percentage of sales during this period in 1996 over the comparable period in 1995 is attributable to economies of scale as a result of increased volume purchases at lower effective prices by the Company during such period and a more profitable mix of products therefore increasing gross margins. OPERATING EXPENSES. Operating expenses increased by $802,000, or approximately 409.2%, to $998,000 ($1,188,000 on a pro forma basis) for the six months ended December 31, 1996, as compared to $196,000 for the six months ended December 31, 1995. Such increase is primarily attributable to, among other things, an increase in net sales. INCOME (LOSS) FROM OPERATIONS. Income from operations increased by $965,000, to $786,000 ($596,000 on a pro forma basis) or approximately 548.3% for the six months ended December 31, 1996, as compared to a loss from operations of $179,000 for the six months ended December 31, 1995. Such increase is attributable to (i) the increase in net sales described above, (ii) a decrease in cost of sales as a percentage of sales and (iii) decreases in operating expenses as a percentage of net sales in such period in 1996 as compared to such period in 1995. FINANCING INCOME (EXPENSE), NET. Financing expenses, increased by $45,000, or approximately 107.1%, to $87,000 for the six months ended December 31, 1996, from $42,000 for the six months ended December 31, 1995. Such increase is primarily attributable to increased utilization of factoring of receivables. LIQUIDITY AND CAPITAL RESOURCES The Company had working capital (deficit) of $$507,000 and ($31,000) at December 31, 1996 and June 30, 1996, respectively. Since inception, the Company has been dependent on short-term financing from credit facilities in order to satisfy its working capital requirements. The Company has experienced difficulties in obtaining sufficient credit to satisfy its working capital requirements and has been forced to accept financing on terms which the Company believes to be unfavorable. As a result of such limited working capital, the Company's operations and growth have been limited. 21 OPERATING ACTIVITIES. For the six months ended December 31, 1996 and 1995, net cash provided by (used in) operating activities was approximately $593,000 and ($499,000), respectively, and net income (loss) was approximately $667,000 and ($260,000), respectively. The primary changes in the Company's working capital from December 31, 1995 to December 31, 1996 were: (A)(i) an increase in cash and cash equivalents by $111,000, or approximately 185%, to $171,000 at December 31, 1996, as compared to $60,000 at December 31, 1995; (ii) an increase in trade receivables by approximately $14,000, or 127%, to $25,000, at December 31, 1996, as compared to $11,000, at December 31, 1995; (iii) an increase in the balance due from the factor by approximately $46,000, or 45%, to $147,000 at December 31, 1996, as compared to $101,000 at December 31, 1995; (iv) an increase in inventories by approximately $586,000, or 234%, to $836,000 at December 31, 1996, as compared to $250,000 at December 31, 1995; (v) a decrease in prepaid expenses and other current Assets by approximately $16,000, or 18.60%, to $70,000 at December 31, 1996, as compared to $86,000 at December 31, 1995; (vi) a decrease in the loans receivable from others by approximately $86,000 or 29.5% to $204,000 at December 31, 1996 offset by (B) (i) an increase in current maturities of long-term loans by approximately $14,000 as a result of borrowing for equipment purchases as compared to -0- at December 31, 1995; (ii) an increase in trade payables, and accrued expenses by approximately $704,000 or 393.2% to $883,000 at December 31, 1996, as compared to $179,000 at December 31, 1995 and (iii) an increase in income taxes payable by approximately $40,000 at December 31, 1996, as compared to $-0- at December 31, 1995, (iv) a decrease in the current portion of the notes payable to shareholders to approximately $736,000 at December 31, 1995 as compared to $82,000 at December 31, 1996, (v) an increase in the loan from officer of $9,000 at December 31, 1996 as compared to zero at December 31, 1995. INVESTMENT ACTIVITIES. Investment activities during the six months ended December 31, 1996 and 1995 were comprised primarily of (i) purchases by the Company of fixed assets for $38,000 and $24,000, respectively, (ii) net loans to the Chief Executive Officer of the Company for $156,000 and $290,000, respectively and (iii) purchases of marketable securities for $133,000 and $986,000. FINANCING ACTIVITIES. For the six months ended December 31, 1996 and December 31, 1995, net cash provided by (used in) financing activities was ($239,000) and $1,099,000, respectively, the activity was principally comprised of loans made by shareholders to the Company which were subsequently repaid, the issuance of 2,200,000 shares of common stock par value $.01 for $50,000 and proceeds received from another note payable for $100,000. The Company has a financing arrangement with Rosenthal & Rosenthal, Inc., commercial factors, under which the Company sells its receivables without recourse to the factor and may borrow up to 70% of the face amount of the receivables accepted for sale in advance of collection. Borrowings bear interest at 2 1/2% above the prime rate of The Chase Manhattan Bank N.A. In addition, the factor receives a commission of 1.125% of the invoice of each receivable accepted for sale and at higher surcharge rates (ranging from 1% to 2 1/2%) on the receivables of certain less creditworthy customer. All advances against receivables are secured by a lien on the Company's inventory and are guaranteed by Mr. Benun. Recently, the factor has allowed advances of up to 75% of aggregate receivables purchased. In practice, the Company has found that the factor has been unwilling to approve new customer accounts on a timely basis or to factor large single customer orders at the full advance percentage. This has inhibited the Company from expanding sales. It is seeking more liberal credit terms from its factors. The Company intends to use a portion of the estimated net proceeds of this offering to reduce its dependence on its commercial factor. Jazz HK currently has an agreement for credit facility with the Hong Kong--Shanghai Bank under which the bank has agreed to purchase negotiable documentary letters of credit in amounts of up to $775,000 drawn to the Company from its customers upon shipment of product FOB Hong Kong. The bank discounts the letters of credit at a rate of 8 1/2% per annum. This credit facility is guaranteed by Mr. Benun and Ms. Szeto, Managing Director of Jazz HK. 22 The Company generally ships its products on the basis of customer purchase orders which generally are not received by the Company until immediately prior to the customer's required shipment date. The Company is often required to make payments to vendors and contract manufacturers significantly prior to the time it receives payments from its customers, and must maintain substantial inventory in the case of sales FOB New Jersey. As a result of such timing differences, the Company's working capital may be adversely affected, thereby limiting the Company's ability to continue its expansion plans. See "Risk Factors--Potential Fluctuations in Operating Results; Management of Working Capital." Based on the Company's business plan, the Company believes that the net proceeds of this offering, together with funds generated by continuing operations, will be sufficient to permit the Company to conduct its operations as currently contemplated for at least the next 18 months. Such belief is based on, among other things, budgeted revenues from product sales and budgeted expenses; but, there can be no assurance that such resources will be sufficient for such purpose. The Company may be required to raise substantial additional capital in the future in order to expand operations. In addition, contingencies may arise which may require the Company to obtain additional capital. There can be no assurance that the Company will be able to obtain such capital from any other sources on favorable terms or at all. See "Capitalization." 23 BUSINESS GENERAL The Company is engaged in the design, development, importation, and wholesale distribution of cameras and other photographic products primarily in the United States. The Company's products, which have been designed to have pricing and features with mass consumer appeal, are marketed by the Company to (i) leading mass merchandisers, including Wal-Mart, Sears, Hills', and HSN and (ii) private label customers, such as Albertson's. The Company's current product offerings consist of (i) single use and promotionally priced 35mm cameras marketed under the Company's JAZZ-TM- brand name and a number of private labels, (ii) higher priced multiple featured 35mm cameras marketed under the Bell + Howell-Registered Trademark- trademark, pursuant to an exclusive agreement with Bell & Howell Company ("Bell & Howell") renewable through 2007 (iii) a newly-introduced family of cameras utilizing the APS format, and (iv) photographic accessories, including vinyl and leather pouches and carrying cases, for its cameras marketed under the JAZZ-TM- brand name and a number of private labels. Each of the Company's products is manufactured by the Company's contract manufacturers in the PRC and has been designed in accordance with Company specifications. The Company has experienced substantial growth since inception with net sales and net income (loss) increasing from $332,000 and ($279,000) respectively, for the six months ended December 31, 1995 to $7,619,000 and $725,000, respectively, for the six months ended December 31, 1997. After taking account of the pro forma effect of executive compensation during the six months ended December 31, 1996, net income would have been $477,000. The Company conducts its operations directly and through its subsidiaries, Jazz HK and Jazz Photo Canada Corp. ("Jazz Canada"). In the United States, the Company primarily conducts marketing, sales, and administrative activities. The Company manages its contract manufacturing and product design and engineering activities, as well as its product and component inspection, quality control, and shipping activities, through Jazz HK, located in Hong Kong. The Company markets and sells its products in Canada through Jazz Canada. During the six months ended December 31, 1996, substantially all of the Company's sales were made to customers in the United States. BUSINESS STRATEGY The United States market for consumer photographic products currently is estimated by industry sources to be in excess of $12.5 billion. The single use segment of the camera market has continued to grow at more than 15% per year in unit sales since introduction. The Company's products are designed specifically to target the single use segment within such market, which includes newly introduced APS cameras and conventional 35mm cameras. Industry sources have estimated that the APS segment will grow by 10% to 20% per year and will represent as much as 25% of the consumer photographic market by the year 2000. The Company believes that it is in an advantageous position to capitalize on the anticipated growth in its segment of the consumer photographic market for the following reasons: - SEASONED TEAM OF MARKETING PROFESSIONALS. The Company has a seasoned team of marketing professionals with substantial experience in the development and marketing of mass merchandised cameras at price points and with features that have effectively penetrated the consumer camera market; - STRATEGIC PARTNERSHIPS. The Company has developed a number of strategic partnerships with contract manufacturers which produce quality products in accordance with the Company's timing requirements and at competitive prices; and - RELATIONSHIPS WITH LARGE CUSTOMERS. The Company has developed relationships with large customers, which have significantly reduced the cost of maintaining inventory domestically for the United States market. 24 The Company's business strategy is to continue to market its product lines to mass merchandisers at pricing and with features that have mass consumer appeal in order to increase its market share. Although there can be no assurance thereof, the Company believes that its excellent relationships with its contract manufacturers, the broad line of products it offers and the wide consumer recognition of the Bell & Howell name should permit growth while maintaining profit margins. PRODUCTS The Company's current product offerings consist of (i) single use and promotionally priced 35mm cameras, (ii) higher priced multiple featured 35mm cameras marketed under the Bell + Howell-Registered Trademark- trademark, pursuant to an exclusive worldwide licensing agreement with Bell & Howell renewable through 2007, (iii) a newly-introduced family of cameras utilizing the APS format, and (iv) photographic accessories for its cameras marketed under the JAZZ-TM- brand name and a number of private labels. Each of the Company's products is manufactured by the Company's contract manufacturers in the PRC and has been designed in accordance with Company specifications. See "Business--Contract Manufacturing; Quality Assurance." SINGLE USE AND PROMOTIONALLY PRICED 35MM CAMERAS. The Company's single use cameras are made from new or recycled shells and are the lowest priced cameras offered by the Company. Each of such cameras, except for outdoor-only models, include integrated electronic flash units and are priced at between $1.99 and $8.95 per unit for sale to retailers. Such cameras are marketed under the Company's JAZZ-TM- brand name and a number of private labels. Multiple Featured 35mm Bell + Howell-Registered Trademark- Cameras. Pursuant to an exclusive trademark licensing agreement with Bell & Howell renewable through 2007, the Company markets higher priced multiple featured 35mm cameras for sale under the Bell + Howell-Registered Trademark- trademark. Such cameras feature, depending on the model and price, motorized film drives, auto-focus, automatic film loading, red eye reduction, large view finders, macro close-up, and self -timing. The Company is currently adding to its Bell + Howell-Registered Trademark- line cameras with 2:1 and 3:1 power zoom at wholesale prices of between $70 and $145 per unit to retailers. See "Business--Bell & Howell License." APS CAMERAS. The Company is currently expanding its single use and promotionally priced 35 mm cameras by developing models which utilize the APS format. The APS film and camera technology was introduced by a consortium of major film and camera manufacturers in 1996. The system enables a single use camera using standard APS film to take high resolution and panoramic as well as conventional photographs. APS cameras have the capacity to record on the developed print data about the physical environment in which the film was exposed, as well as messages selected by the user. PHOTOGRAPHIC ACCESSORIES. The Company also distributes other photographic accessories and packaged camera kits which include batteries and film manufactured by Eastman Kodak Company as well as vinyl and leather pouches and carrying cases. BELL & HOWELL LICENSE The Company has entered into a trademark licensing agreement with Bell & Howell, renewable through December 31, 2007, under which the Company is authorized as exclusive distributor to market and sell cameras bearing the Bell + Howell-Registered Trademark- trademark worldwide. One year prior to the expiration of the initial term at year end 2002, the Company is required to exercise its renewal option. The channels of distribution for these cameras, the models sold and the production facilities for the cameras are subject to approval by the licensor. Under the terms of the licensing agreement, the Company is required to pay the licensor a royalty of 3% of gross revenues, as defined. To maintain the license, the Company is required to make minimum royalty payments of $300,000 for the year 2000 and $350,000 for the year 2001 and a minimum annual royalty payment of $400,000 for each of the remaining years of the Agreement. In addition, Bell & Howell may terminate its agreement with the Company if the Company fails to achieve 15% year to year growth in royalty payments or if Mr. Benun ceases to be associated with the Company. In 25 connection with the extension and modification of the agreement with Bell & Howell in March 1997, the Company agreed to sell 10,000 shares of common stock to Bell & Howell for nominal consideration. The Company believes that the wide consumer recognition of the name Bell + Howell-Registered Trademark- brand name and its association with high quality camera products has materially enhanced the marketing of the Company's products. CONTRACT MANUFACTURING; QUALITY ASSURANCE All of the Company's cameras are produced by its contract manufacturers in accordance with Company specifications. The Company currently purchases product made to its specifications from four major contract manufacturers headquartered in Hong Kong and Taiwan with production facilities in the PRC. The Company believes it is not dependent on any single manufacturer for the production of its products. Except for molds held at one contract manufacturer in the PRC, the Company does not own any of the molds, tooling, or equipment for the manufacture of its cameras or for their components. Except for film which the Company sometimes procures for delivery to its contractors, the Company's contractors purchase required components from many non-affiliated suppliers. The Company does not maintain any parts inventory for delivery to its contractors. The Company believes that its contract manufacturers are not dependent on any one or more suppliers for such components and that they could find alternate sources on short notice and at prices competitive with those they currently pay. Through Jazz HK, the Company assists its manufacturers in identifying, and in some cases negotiating for, components. The Company is constantly seeking alternate sources of supply for its camera components at prices competitive with those its manufacturers pay. The Company requires its contract manufacturers to maintain vigorous quality control operations which include inspection and testing at various stages of production of its camera products. Quality control procedures include, without limitation, testing of components and raw materials when purchased or produced, testing during the manufacturing process and final quality control testing of the finished product by independent engineering firms hired by Jazz HK. The Company's terms with most of its United States customers include the right to return defective merchandise for credit. The Company experiences returns of approximately 2%, which the Company believes is better than the industry average and is a result of its quality control programs. The Company plans to use a portion of the proceeds of this offering to finance additional finished goods inventory to be maintained in the United States.. See "Use of Proceeds." PRODUCTION SCHEDULING AND SHIPPING; CUSTOMERS' TERMS OF PURCHASE Production schedules are determined by the Company on the basis of anticipated United States sales and orders placed by the Company's large customers. Because of the distance its product must travel, the Company must initiate its overseas production from six to twelve weeks prior to receiving the finished product in the United States depending on the model and quantities. Production schedules for United States sales are determined in accordance with preliminary orders as well as the Company's evaluation of demand for its product. These schedules are updated regularly on the basis of additional information received from customers concerning changes in their anticipated needs for Company products. Often, written orders are not received by the Company until immediately prior to the customer's desired shipment date. The amount of unfilled orders at a particular time is affected by a number of factors, including the placement of firm orders, seasonal fluctuations and schedule of manufacturing and shipping of product. Accordingly, the amount of unfilled orders from period to period is not necessarily meaningful, and may not be indicative of actual shipments to be made in any future period. At December 31, 1996, the Company had unfilled written orders of approximately $2.2 Million. The Company often must make substantial advance commitments to its contract manufacturers ranging from one to three months prior to the receipt of firm orders from the Company's customers. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and 26 Capital Resources." Many of these early commitments are subject to change with respect to number, assortment or delivery dates. Generally, manufacturers require a payment of 30% of the purchase price upon placement of the order and the balance upon delivery, and in several cases, three weeks prior thereto. Where the Company has been able to do so, it has made delivery FOB Hong Kong to avoid, to the extent possible, the minimum four weeks time for shipment by sea on deliveries to United States customers, prior to delivery to customers FOB New Jersey. On occasion, to meet required deliveries on recently purchased product, the FOB New Jersey, the Company has been forced to airship product to the United States at significantly increased freight cost. Terms to customers are generally net 30 days, except on large single customer orders where the Company has negotiated better terms in exchange for volume discounts. Where necessary in order to fill key orders, the Company has shipped product to the United States by air at substantially increased cost. Substantially, all Company products sold by the Company to its large United States customers are currently sold FOB Hong Kong. The Company holds inventory for United States sales at its New Jersey warehouse. See "Business--Property and Equipment." PRODUCT DESIGN AND ADVERTISING The Company's products are developed, designed and engineered in Hong Kong and Taiwan by product engineers and technicians employed by its contract manufacturers. The Company also designs and contracts the production of packaging styles and materials for, and makes cosmetic revisions to, all camera models in accordance with the orders of specific customers. To date, the Company has not expended significant amounts on advertising and marketing and does not anticipate any significant expenditures in the foreseeable future. Except for occasional one time agreements for advertising allowances on very large orders, a small amount of direct advertising in the trade press and attendance at annual industry trade shows, the Company engages in a limited amount of advertising. COMPETITION The consumer photographic products market is highly competitive and requires substantial capital. The Company competes with, and will compete with, numerous international and regional companies, many of which have significantly larger operations and greater financial, marketing, human, and other resources than the Company. No assurance can be given that the Company will successfully compete in any market in which it conducts or may conduct operations. The Company considers Concord Camera Corp. and Unique Photo Products to be its primary competitors in the United States for its single use 35 mm and APS cameras, as well as several small Taiwanese and Hong Kong camera companies. With respect to its reusable camera business, the Company considers Seattle Film Works, Vivitar, Ansco Photo Products, and Concord Camera Corp. to be its primary competitors. The Company's higher priced multifeatured cameras compete with the cameras of very large established manufacturers with brand names such as Nikon, Olympus, and Yashica. EMPLOYEES As of December 31, 1996, the Company had 11 employees working in the United States. Of these employees, eight worked in executive, administrative or clerical capacities, two worked in merchandising and sales, and one in warehousing facilities. None of the Company's employees is represented by a union. The Company considers its working relationship with its employees to be satisfactory and has never experienced any interruption in its operations due to any kind of labor dispute. See also "Management-- Employment Agreements and Consulting Arrangements." As of December 31, 1996, Jazz HK had two full-time employees, each working in Hong Kong and both of whom work in executive, administrative or clerical capacities. The Company has entered into an employment agreement with Ms. Jessie Szeto, Managing Director of Jazz HK. See "Management-- Employment Agreement and Consulting Arrangements." 27 IMPORT RESTRICTIONS AND FOREIGN TAXES The importation of camera products into the United States and in other jurisdictions in which the Company's products are sold is subject to numerous risks including non-Company related labor strikes and shipping delays, fluctuation in currency exchange rates and import duties. There is no assurance that the United States, the PRC, Hong Kong, or such other governments will not in the future impose trade restrictions which could adversely affect the Company's operations. Jazz HK will pay a Hong Kong income tax on profits, if any, for the year ending December 31, 1997. Currently, there is a 1.2% duty on imports to the United States, but there are no United States import quotas imposed on the type of products manufactured and distributed by the Company. There can be no assurance, however, that such quotas, taxes or additional or greater taxes or duties will not be imposed in the future. POSSIBLE UNITED STATES TAXATION OF FOREIGN EARNINGS The Company's Hong Kong subsidiary, Jazz HK, is a controlled foreign corporation ("CFC") for United States tax purposes. Under certain circumstances, the United States shareholder of a CFC may be required to include some portion or all of the CFC's earnings in its own taxable income currently as if the CFC had distributed those earnings to the shareholder as a dividend. The inclusion of the subsidiary's earnings in the Company's taxable income depends on whether the income of the CFC consists of certain categories of income which are enumerated in several provisions of the Internal Revenue Code of 1986 (the "Code"), as amended, as well as on the absence of adverse tax legislation in the future. Although the Company believes it will be able to defer the current income from the CFC in accordance with current tax laws, there can be no assurance that the Company will be able to defer United States taxation of all or some of its subsidiary's income in the future. The United States Company would be taxed currently on Jazz HK's "foreign base company income" if such income were equal to or greater than $1,000,000 or 5% of such subsidiary's gross income. "Foreign base company income" is defined to include income derived from certain types of activities, including, "foreign personal holding company income" and "foreign base company sales income." The Company does not anticipate that Jazz HK will earn foreign base company sales income to the extent that its earnings are attributable to selling activities as opposed to manufacturing or production activity. Although the Company cannot foreclose the possibility that Jazz HK may have some foreign base company sales income in the future, the Company believes that even if it has such income, the income will not be a large percentage of its total income. Another provision of the Code would tax the Company currently if Jazz HK makes investments in United States property. An investment in United States property includes, among other things, ownership of tangible property in the United States or stock or obligations of United States persons or a guarantee of an obligation of a United States person. There is an exception to the rule regarding obligations of United States persons for obligations arising in connection with the sale of property if the amount of the obligation is not commercially excessive in terms of what would have been needed to carry on the sales activity between unrelated persons. The Company does not believe that its obligations to Jazz HK arising from such sale of the subsidiary's products will be in an amount or on terms such as would cause such obligations to be deemed commercially excessive, and it will attempt to secure its necessary financing without requiring Jazz HK to guarantee such debt. If Jazz HK's earnings are taxed to the Company as deemed dividends from the subsidiary, prior to the time that the earnings actually are remitted to the Company as dividends, the Company can claim a foreign tax credit on the deemed dividends just as if actual dividends had been paid. If and to the extent that the Company is subject to United States tax for any portion of Jazz HK's earnings, Jazz HK may dividend an amount equal to such previously taxed earnings without additional tax consequences to the Company. In the event that Jazz HK pays dividends to the Company, the dividends will constitute taxable income to the Company. However, the Company will be entitled to a foreign tax credit to the extent that the dividend earnings already have been subject to an income tax in Hong Kong. The Company does not intend in the foreseeable future to declare dividends on Jazz HK's ordinary shares. 28 TRADEMARKS AND PATENTS The Company has made application to the Commissioner of Patents and Trademarks for registration of the trademark JAZZ -TM- for cameras and related photographic equipment in the United States. PROPERTY AND EQUIPMENT The Company currently does not own any real property and leases its required facilities. The Company has entered a five year lease for combined office and warehouse space of approximately 23,000 square feet in Carteret, New Jersey for a monthly rental of $8,663 in the first year, to be increased to $11,455 in the fifth year, plus an operating allowance payable to the landlord of $2,887.50 per month in the first year to be increased based on the landlord's future operating expenses. The Company took occupancy of its new premises on April 1, 1997. Jazz HK leases office space in Hong Kong at a rental rate of approximately $710 per month. Such sublease terminates in August 1997. The Company believes it will have sufficient space in the United States and Hong Kong to conduct its operations currently and as it anticipates conducting them in the foreseeable future. Although the Company believes it could obtain additional space if needed on short notice, there can be no assurance that such space will be available at comparable prices to what the Company currently pays, if at all. The Company does not own or lease any material equipment for use in its business. LEGAL PROCEEDINGS The Company is not currently a party to any material litigation nor, to the knowledge of the Company, is any such material litigation threatened or contemplated. 29 MANAGEMENT The following table sets forth certain information concerning the executive officers (including a former executive officer) and a key consultant and Directors (including a Director designate and a former Director) of the Company. EXECUTIVE OFFICERS, DIRECTORS, AND CONSULTANT
NAME AGE POSITION - ----------------------------------------------------- --- ----------------------------------------------------- Roger F. Lorenzini................................... 61 President,Chief Executive Officer and a Director James Carfagno, Sr................................... 64 Executive Vice President, Direct Mail Sales Jeffrey G. Burkard................................... 37 Vice President, Operations Jerrold Cohen........................................ 43 Vice President, Sales and Marketing Jessie Szeto Suk Yee................................. 30 Managing Director of Jazz HK Elie Housman(1)...................................... 60 Director Designate Henry A. D'Ambrosio.................................. 51 Director David Mizrahi........................................ 54 Director Jack C. Benun(2)..................................... 45 Principal Consultant
- ------------------------ (1) Mr. Housman has agreed to become a Director of the Company upon the completion of this offering. (2) Mr. Benun, formerly President, Chief Executive Officer and a Director of the Company, currently is the principal consultant to the Company through his wholly-owned consulting company, JCB Consultants, Inc. See "Consulting Arrangements." Directors of the Company hold office until the next annual meeting of shareholders and until their successors are elected and qualified. Officers of the Company serve at the discretion of the Board of Directors, subject to the terms of their agreements with the Company. See "Employment Agreements." The Board of Directors is currently composed of three directors, two of whom are non-management directors. An additional non-management director will join the Board upon completion of the offering. Directors of the Company currently do not receive compensation for serving as such. Non-management Directors are reimbursed for reasonable expenses. The Company has agreed that for a period of three years following the closing of the offering made hereby, the Representative may designate an observer to attend all meetings of the Board of Directors. See "Underwriting." The Company has made application to purchase officers' and directors' liability insurance in the amount of $2 million. The following is a summary of the principal occupations and employments of each of the Directors and executive officers and of a former officer and a designated Director named above. ROGER F. LORENZINI is the President, Chief Executive Officer and a Director of the Company and has served as such since April 1, 1997. Mr. Lorenzini has held various positions at Minnesota Mining & Manufacturing Company ("3M") for more than twenty years, most recently as the Business Director of the Photo Color Systems Division in which position he directly supervised sales and marketing operations and coordinated technical service, quality functions and United States manufacturing. He also chaired the United States Management Committee and sat on the Global Operating Committee of that division when requested. In June 1996, he commenced employment with Imation Corporation ("Imation"), composed of 30 former subsidiaries of 3M engaged in film manufacturing. Mr. Lorenzini and the Company have agreed with Imation that Mr. Lorenzini will not personally solicit sales of single use cameras from specified customer accounts of Imation for a two-year period following the termination of his employment with Imation. See "Certain Transactions." JAMES CARFAGNO, SR. has served as Executive Vice President, Direct Mail Sales of the Company since March 1997 and has 35 years of experience in the photo industry in mail order, special markets and original equipment manufacturing sales. Mr. Carfagno has served as an officer of a number of corporations in the camera industry. He is currently, and has been for more than the last five years, the President and Chief Executive Officer of Affiliated Enterprises, Inc., a direct mail fulfilment company. Prior thereto, he served from 1990 to 1992 as Executive Vice President of Concord and President of the Argus Division of Concord, a manufacturer and distributor of cameras and direct competitor of the Company. Mr. Carfagno also served in executive capacities in a number of corporations which operated the business of Argus. JERROLD COHEN has served as Vice President, Sales and Marketing of the Company since December 1995. Mr. Cohen has been responsible for forming and directing the Company's independent sales force and for developing its marketing strategies. Prior to joining the Company, he served in a variety of positions in the consumer electronics industry, most recently as Vice President Sales and Marketing for the TimeX Audio Division of SDI Technology Incorporated from 1993 to 1995; National Accounts Vice President of Craig Electronics from 1992 to 1993; and a Vice President of Sales of Dynascan Corp., a public company, from 1992 to 1993. JEFFREY G. BURKARD has served as the Vice President, Operations of the Company since October 1995. Prior to joining the Company in 1995 he was employed by Concord for more than ten years in a variety of positions, most recently as manager of operations. JESSIE SZETO SUK YEE has been Managing Director of Jazz HK since its acquisition in 1996 and is primarily responsible for the operation of that subsidiary. Prior thereto, from 1985 through June 1995, Ms. Szeto served in various capacities as an employee of Concord is Hong Kong subsidiary, most recently as Assistant Managing Director since 1990. HENRY A. D'AMBROSIO has served as a director of the Company since April 1, 1997. Since 1992, he has been Vice President, Administration of Bell & Howell Operating Company and Chairman of its Investment Committee. DAVID MIZRAHI has served as a director of the Company since April 2, 1997. For more than the last five years, Mr. Mizrahi has served as the Chief Executive Officer of Fantasia Accessories, Ltd., an importer of costume jewelry. He was a director of Concord from 1988 to 1995. He is active in numerous religious and philanthropic organizations. ELIE HOUSMAN has consented to serve as a director of the Company upon completion of this offering. He has been a principal of Charterhouse Group International, Inc., investment bankers, and President of Satellite Trading Technology, Inc., a manufacturer of automobile alarm and security systems, since 1988. JACK C. BENUN is currently a principal consultant to the Company through an agreement between the Company and JCB Consulting, Inc., an affiliate of Mr. Benun. Mr. Benun served as President, Chief Executive Officer and a Director of the Company and was employed full time by the Company since June 21, 1995 of the Company through March 31, 1997, and may be deemed to be the founder of the Company. Mr. Benun was also a Director of Jazz HK and Jazz Canada. Mr. Benun is the founder of Concord, a direct competitor of the Company, and until 1994 was its Chief Executive Officer. Until he founded the Company in June 1995, he was a private investor. See "Management--Consultant's Regulatory History and Litigation with Concord Camera Corp" and "Certain Transactions." Mr. Benun has over twenty years of experience in manufacturing, financing and marketing photographic products. Mr. Benun is a member of the family of the principal shareholders of the Company. See "Principal and Selling Shareholders." 31 EXECUTIVE COMPENSATION The following table sets forth all cash compensation paid or accrued by the Company for the period from June 21, 1995 (inception) to June 30, 1996 (the "Year") and for the six month period ended December 31, 1996 (the "Six Months") for each of the current and a former executive officer of the Company. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ----------------------------------- NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION COMPENSATION - --------------------------------------------- --------------- --------- --------- ------------- ------------- James Carfagno, Sr. ......................... Six Months $ 11,500(2) Executive Vice President, Year 7,000(2) Direct Mail Sales Jerrold Cohen(3)............................. Six Months 67,000 Vice President, Sales Year 50,000 and Marketing Jeffrey G. Burkard(4)........................ Six Months 51,000 Vice President, Operations Year 39,000 Jessie Szeto Suk Yee......................... Six Months(5) 38,800 Managing Director of Jazz HK Year Jack C. Benun................................ Six Months --(1) Former President and Chief Executive Year $ 25,000 Officer; Principal Consultant
- ------------------------ (1) Mr. Benun agreed to forego a salary during this period. See "Certain Transactions" and "Management--Consulting Arrangements." (2) Mr. Carfagno acted as a consultant to the Company during the periods indicated. He became an employee effective March 1, 1997 for a period of two years at an annual salary of $75,000. (3) Mr. Cohen has entered into a three-year employment agreement effective January 1, 1997, providing for an annual salary of $175,000. See "Management--Employment Agreements." (4) Mr. Burkard has entered into a three-year employment agreement effective January 1, 1997 at an annual salary of $104,000. (5) Jazz HK was acquired as of July 1, 1996. Ms. Szeto Suk Yee was paid at a rate of approximately $6,400 per month or $38,800 for the period. She has entered into an employment agreement with the Company and Jazz HK effective April 1, 1997 for an annual salary of $100,000. EMPLOYMENT AGREEMENTS The Company has entered into executive employment agreements with each of its executive officers. With the exception of Mr. Carfagno's agreement, which is effective March 1, 1997, Ms. Szeto's agreement which is effective April 1, 1997 and Mr. Lorenzini's agreement which is effective on April 1, 1997, each of the agreements is effective January 1, 1997. All except Mr. Carfagno's agreement provide for a three year term. Each of the agreements prevents the respective employee from competing with the Company for a two-year period after termination. 32 The annual salary under the agreement for Mr. Lorenzini is $315,000. In addition, Mr. Lorenzini's agreement provides for a housing allowance of $60,000 per year. See "Certain Transactions." The Company intends to make application for, be the sole beneficiary of, and be the owner of a key-man life insurance policy in the face amount of $1,000,000 on the life of Roger F. Lorenzini naming the Company as sole beneficiary. In addition to his salary, Mr. Carfagno's agreement calls for commissions on Direct mail sales from which no other agent or employee of the Company receives coupons at the rate of 2% of such sales and a 1% override commission on all direct mail sales and sales to professional photographic supply stores. CONSULTING ARRANGEMENTS Mr. Benun resigned as President, Chief Executive Officer and a Director of the Company on April 1, 1997 and became a key consultant to the Company under a five-year agreement with his wholly-owned consulting company, JCB Consultants, Inc. Under the terms of the consulting agreement, from January 1, 1997, his company would receive compensation at the rate of 2.25% of Net Sales up to $10,000,000, compensation at the rate of 4.5% of Net Sales for Net Sales which exceed $10,000,000 but which do not exceed $20,000,000 and compensation at the rate of 2.25% of Net Sales which exceed $20,000,000. Under the agreement, advances against such compensation are required at the monthly rate of $15,000 below the level of $10,000,000 of Net Sales and at the monthly rate of $25,000 above such level. In addition, the consultant is entitled to a commission of 10% of any commission revenue earned by the Company for the sale of the products of third parties to others for which such consultant is responsible. Any such compensation may not exceed $300,000 in any year of the agreement and the consulting company's compensation on Net Sales also cannot exceed 8% of Gross Profit (as defined) of the Company in any year under the agreement. CONSULTANT'S REGULATORY HISTORY AND LITIGATION WITH CONCORD CAMERA CORP. Mr. Benun, the founder, former Chief Executive Officer, President and a former Director of the Company,, has been permanently enjoined from serving as an officer or director of a public company. Mr. Benun has become a consultant to the Company. Mr. Benun was the subject of a proceeding commenced by the Commission alleging, among other things, that he had misappropriated funds from Concord. The proceeding was settled in 1994 by the Order of the Federal District Court of the District of Columbia permanently enjoining Mr. Benun, among other things, from serving as an officer or director of a public company. Mr. Benun consented to the Order without either admitting or denying the allegations in the Commission's complaint. Under the Order Mr. Benun paid $150,000 (the alleged amount of the misappropriation) plus interest to Concord and $150,000 to the Commission as a penalty. The staff of the Commission has not provided the Company or Mr. Benun with any advice as to what action, if any, it would recommend that the Commission take if the Company becomes a public company under the Company's current ownership and management structure as described herein. The Commission has, however, advised Mr. Benun, through counsel, that if he seeks to indirectly exercise authority equivalent to an officer or director, it would consider taking action to enforce the terms of the Order. Mona Benun, Mr. Benun's wife, two adult and two minor children (currently through custodianships of which Mrs. Benun is custodian) are the principal shareholders of the Company. She, together with her four children (the "Principal Shareholders"), owns 99.5% of the outstanding Common Stock of the Company. Mrs. Benun has very limited business experience and has relied on her husband's advice regarding the operation of the Company. Mr. Benun is no longer able through his former positions as an officer and director to directly control the management and policies of the Company. He may continue to exercise control of the Company through his influence on his wife and children who, as the principal shareholders, will retain the power to control the management and policies of the Company after closing of the offering made hereby. 33 Mr. Benun has disclaimed his intention to exert such influence over his wife and children and has caused the Company to enter into an agreement to employ, as President, Chief Executive Officer and a Director, Roger F. Lorenzini, a person with extensive executive experience in the camera and film industry. He and three non-management directors will serve as the directors of the Company. See "Management." In order to avoid any disruption of the management of the Company, the Principal Shareholders and the Company have entered into an agreement not to vote their shares of Common Stock in opposition to a recommendation of the Board of Directors as described in "Principal and Selling Shareholders." Mr. Benun is the founder, and until 1994 was the Chief Executive Officer of Concord, a public company, and a direct competitor of the Company. Mr. Benun is now engaged in an arbitration proceeding with Concord commenced by Concord in November 1994 seeking to recover $1.5 million which it asserts is the costs of investigation relating to Mr. Benun's alleged misappropriation and other unspecified damages. Mr. Benun has counterclaimed in that proceeding (i) for lost salary and benefits under his agreements with Concord which he asserts were breached by Concord's wrongful termination of his employment, (ii) for money he loaned to Concord, (iii) for pledged stock withheld by Concord, and (iv) for lost profits from securities positions held in a margin account he was forced by his broker to liquidate when Concord sought to interdict the transfer of Concord shares he owned and which the broker held as security. Mr. Benun has asserted that the aggregate damages he has suffered as a result of Concord's actions substantially exceed Concord's claim. Mr. Benun is also seeking to enforce a voting agreement which he asserts entitles him to nominate directors for election to Concord's Board of Directors and indemnification rights for monies expended in defending a class action relating to his activities at Concord which was dismissed for failure of prosecution. The arbitration proceedings are in their preliminary stage. Mr. Benun's original counterclaims were brought in Superior Court in New Jersey. The Court ordered that the claims be arbitrated and dismissed Mr. Benun's complaint without prejudice to the renewal of the claims if they are not disposed of in the arbitration. SHARES OF HONG KONG SUBSIDIARY As of July 1, 1996, the Company acquired 95% of the shares of Jazz HK from Jessie Szeto Suk Yee, its current Managing Director and two other persons unaffiliated with the Company. Ms. Szeto Suk Yee now owns 5% of the outstanding capital stock of Jazz HK. As such she would be entitled to a share of the subsidiary's after-tax profits if dividends were declared. The Company currently does not intend to declare any such dividends. 1997 LONG-TERM INCENTIVE PLAN In January 1997, the Board of Directors of the Company and the shareholders of the Company adopted the Plan. The Plan provides for the grant of options to purchase up to an aggregate of 385,000 shares of Common Stock and/or Class A Common Stock to officers, directors, employees and consultants of the Company. Options may be either "incentive stock options" within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options. Incentive stock options may be granted only to employees of the Company, while non-qualified stock options may be issued to non-employee directors and consultants, as well as to employees of the Company. The Plan will be administered by the Board of Directors or a committee of the Board made up of non-employee directors (as defined by Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), who will determine, among other things, the individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of Common Stock issuable upon the exercise of each option and the option exercise price. The exercise price per share of Common Stock subject to an incentive stock option may not be less than the fair market value per share of Common Stock on the date the option is granted. The exercise price per share of Common Stock subject to a non-qualified stock option may be established by the Board 34 of Directors. The aggregate fair market value (determined as of the date the option is granted) of Common Stock for which any person may be granted incentive stock options which first become exercisable in any calendar year may not exceed $100,000. No person who owns, directly or indirectly, at the time of the granting of an incentive stock option to such person, 10% or more of the total combined voting power of all classes of stock of the Company (a "10% Stockholder") shall be eligible to receive any incentive stock options under the Plan unless the exercise price is at least 110% of the fair market value of the shares of Common Stock subject to the option, determined on the date of grant. Non-qualified stock options are not subject to such limitation. No stock option may be transferred by an optionee other than by will or the laws of descent and distribution, and, during the lifetime of an optionee, the option will be exercisable only by the optionee, unless otherwise determined by the Board of Directors or committee. In the event of termination of employment other than by death or disability, the optionee will have no more than three months after such termination during which the optionee shall be entitled to exercise the option, unless otherwise determined by the Board of Directors or committee. Upon termination of employment of an optionee by reason of death or disability, such optionee's options remain exercisable for one year thereafter to the extent such options were exercisable on the date of such termination, unless otherwise determined by the Board of Directors or committee. Options under the Plan must be issued within ten years from the effective date of the Plan, which is March 19, 1997. Stock options granted under the Plan cannot be exercised more than ten years from the date of grant. Incentive stock options issued to a 10% Stockholder are limited to five-year terms. Options granted under the Plan provide for the payment of the exercise price in cash or, with the approval of the Board of Directors or committee, provide for the payment of the exercise price by delivery to the Company of shares of Common Stock already owned by the optionee having a fair market value equal to the exercise price of the options being exercised. Therefore, such optionee may be able to tender shares of Common Stock to purchase additional shares of Common Stock and may theoretically exercise all of his stock options with no additional investment other than the purchase of his original shares. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the Company become available again for issuance under the Plan. Under the terms of the Plan, substantially all of the employees of the Company have been granted non-incentive stock options to purchase 350,000 shares of Common Stock or Class A Common Stock at an exercise price of $1.50 per share, vesting at the rate of one third of the shares subject thereto per year. Messrs. Lorenzini, Carfagno, Cohen, Burkard and Ms. Szeto Suk Yee have been granted non-incentive stock options for 70,000, 15,000, 15,000, 15,000 and 20,000 shares, respectively. 35 CERTAIN TRANSACTIONS Since its inception, members of Mr. Benun's family, including Mr. Benun's wife, Mona, who together with her four children own substantially all of the outstanding Common Stock, have made demand loans to the Company. These loans bear interest at 12% per annum. Approximately $700,000 of these loans currently are subordinated as to principal to other indebtedness of the Company, including obligations to its commercial factor. At December 31, 1996, the Principal Shareholder and her children were owed $800,000 by the Company. At year end, the family lenders agreed to defer making demand for payment of the principal in the amount of $709,000 until January 1, 1998. In March 1997, the lenders accepted notes accruing interest at the rate of 12% per annun evidencing the Company's obligations to them maturing on July 1, 1998. In addition, the Company has made loans to Mr. Benun from time to time. Mr. Benun has owed the Company as much as $400,000 during the six months ended December 31, 1996. As of December 31, 1996, Mr. Benun's loan balance was $200,000. At March 26, 1997, Mr. Benun's loan balance was $380,000. The Company currently occupies warehouse and office space located at 1459 Pinewood Street, Rahway, New Jersey on a month to month basis. It subleases approximately 5,000 square feet at the sublessor's cost in a combined office and warehouse space. The sublessor is controlled by Mr. Benun. For the period from June 21, 1995 (inception) through June 30, 1996, and for the six months ended December 31, 1996, the Company's rent was approximately $20,000. Substantially all of the Company's financing arrangements have been secured in part or in whole by the personal guarantees of Mr. Benun. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company intends to reduce its dependence on its commercial factor with a portion of the proceeds of this offering and to thereby decrease the Company's dependence on these personal guarantees. See "Use of Proceeds". The Company from time to time has sold excess products from private label orders to Milecrest Corp. ("Milecrest"), a corporation owned by Mr. Benun's brother, Morris C. Benun. The Company has always sold its products to Milecrest at prices and terms equivalent to those it gives other companies, and Milecrest purchases excess products produced by the Company under private label at prices equivalent to those which other purchasers have paid. In addition from time to time the Company has advanced funds to Milecrest for the purchase of photographic products which Milcrest has then resold and remitted the proceeds to the Company and has paid and received commission income from Milecrest for the sale and purchase of product. See Note H to "Notes to Consolidated Financial Statements." Mr. Lorenzini has entered into a month-to-month lease of a house, on property adjacent to Mr. Benun's, owned by a daughter of Mr. Benun's. Mr. Benun and the Company believe the rental is on terms no more favorable to Mr. Benun's daughter nor terms less favorable to the Company than could have been obtained from an unaffiliated third party. In connection with the release of Mr. Lorenzini from certain of his non-competition obligations to Imation, his former employer, the Company has agreed to purchase five million rolls of color print film from Imation in each of the next two years on terms to be negotiated, but not to exceed terms on available in the open market. Mr. D'Ambrosio is an officer of Bell & Howell company with which the Company has a major licensing agreement. He was not associated with the Company at the time the agreement was negotiated and will not participate on behalf of the Company in any matters relating to this agreement. In consideration of a recent extension and modification of the licensing agreement with Bell &Howell, the Company sold to Bell & Howell 10,000 shares of Common Stock at $0.01 per share. Future transactions, if any, between the Company and its officers, directors or principal stockholders, or affiliates of any of them, will be on terms no less favorable to the Company than can be obtained from unaffiliated third parties and will be approved by a majority of the disinterested directors of the Company. 36 PRINCIPAL AND SELLING SHAREHOLDERS Mona Benun, the wife of Jack C. Benun, with her four children are the Principal Shareholders of the Company. They own 2,200,000 shares representing 99.5% of the outstanding Common Stock, the only class of capital stock currently outstanding. The following table sets forth the beneficial ownership of shares of Common Stock and the percentage represented by the ownership of each of the Principal Shareholders before and after completion of this offering.
PERCENTAGE OF OUTSTANDING COMMON NUMBER OF STOCK BENEFICIALLY SHARES OWNED OF COMMON STOCK -------------------------- NAMES AND ADDRESS OF BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER (1) OWNED(2) OFFERING OFFERING (3) - ------------------------------------------------------------------------ ---------------- ----------- ------------- Mona Benun.............................................................. 1,601,600 72.3 49.7 Rebecca J. Benun........................................................ 149,600 6.8 4.7 Sabrina J. Benun........................................................ 149,600 6.8 4.7 Mona Benun custodian for Vanessa J. Benun, under the New Jersey Uniform 149,600 Gift to Minors Act ("NJUGMA");........................................ 6.8 4.7 Mona Benun, custodian for Jasmine J. Benun, under the NJUGMA............ 149,600 6.8 4.7 ---------------- ----- ----- Principal Shareholders as a group....................................... 2,200,000 99.5% 68.5%
- ------------------------ * Less than one percent. (1) Unless otherwise noted, the address for each beneficial owner is c/o Jazz Photo Corp., 600 Blair Road, Carteret, New Jersey, 07088. (2) Except as otherwise noted, each individual or entity has sole voting and investment power with respect to the shares listed. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. In accordance with Commission rules, shares of the Common Stock which may be acquired upon exercise of stock options which are currently exercisable or which become exercisable within 60 days of March 31, 1997 are deemed beneficially owned by the optionee. Except as indicated by footnote, and subject to community property and equitable distribution laws where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. See "Voting Agreement" below. (3) Assumes no exercise of the Underwriters' over-allotment option. In the event such option is exercised in full, Mona Benun will sell 100,000 shares of Common Stock and will beneficially own 2,100,000 shares of Common Stock, representing 64.4% of the outstanding Common Stock After giving effect to the offering made hereby, the Principal Shareholders will own 68.5% of the outstanding Common Stock. Assuming the exercise by the Representative of 100,000 shares of Common Stock or more of the over-allotment option, 100,000 shares of Common Stock will be purchased from Mrs. Benun. In such event, members of the Benun family would continue to own 64.4% of such stock. As such owners, they would continue to control the management and policies of the Company after the offering and would have the power acting without the approval of other shareholders, to approve or disapprove any action requiring or permitting a shareholder vote. To avoid disruption of the management of the Company the Principal Shareholders have entered into the Voting Agreement with the Company described below. In the event the Representative exercises its over-allotment option and purchases 100,000 shares of Common Stock from her, Mrs. Benun would receive $435,000 after payment of Underwriter's discounts and commissions. The directors and executive officers of the Company do not own any shares of Common 37 Stock. For information with respect to options granted to executive officers, see "Management--1997 Long Term Incentive Plan." VOTING AGREEMENT The shares of Common Stock owned by the Principal Shareholders are subject to a voting agreement entered into by them and the Company on April 4, 1997 pursuant to which none of such shares will be voted in opposition to, (i) the election of nominees for election to the Board of Directors of the Company recommended by a majority of the current directors or their successors so recommended or (ii) the removal of a director recommended by a majority of such current or successor directors. In addition, such shareholders may not commence any action the result of which is, or is designed to cause, a change in the majority of the Board of Directors. The voting agreement will be in effect for a period of five years terminating on the earliest of (i) April 2, 2002, (ii) the date on which Jack C. Benun is no longer enjoined from serving as an officer or director of a public company, and (iii) the date on which the Principal Shareholders shall own less than 20% of the outstanding Common Stock. When and if Jack C. Benun ceases to be subject to the Order and may again serve as an officer or director of a public company, the Principal Shareholders shall grant him an irrevocable proxy enforceable under New Jersey law to vote the Shares. 38 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have 3,210,000 shares of Common Stock outstanding (3,260,000 shares if the Representative's over-allotment option is exercised in full) and 385,000 shares of Common Stock reserved for issuance upon the exercise of options that may be granted under the Plan, under which options to acquire 161,000 shares have been granted and are currently outstanding, and 60,000 shares of Common Stock issuable upon the exercise of the Warrants currently outstanding. The 1,000,000 shares of Common Stock sold in this offering will be freely tradeable without restriction under the Securities Act, except for any shares purchased by an "affiliate" of the Company (as that term is defined under the rules and regulations of the Securities Act), which will be subject to the resale limitations of Rule 144 under the Securities Act. Of the currently outstanding shares of Common Stock, 2,200,000 shares are, and 60,000 shares issuable upon the exercise of the Warrants will be, "restricted securities" for purposes of Rule 144 and may not be resold in a public distribution, except in compliance with the registration requirements of the Securities Act or pursuant to a valid exemption from registration, including Rule 144. In general, under Rule 144(e), as currently in effect, a shareholder (or shareholders whose shares are aggregated), including an affiliate, who has beneficially owned for at least one year shares of Common Stock that are treated as "restricted securities", would be entitled to sell publicly, within any two month period, up to the greater of 1% of the then outstanding shares of Common Stock (3,210,000 shares immediately after the completion of this offering) or the average weekly reported trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of sale is given, provided certain requirements are satisfied. In addition, affiliates of the Company must comply with additional requirements of Rule 144, in order to sell shares of Common Stock (including shares acquired by affiliates in this offering). Under Rule 144, a shareholder deemed not to have been an affiliate of the Company at any time during the 90 days preceding a sale by him, and who has beneficially owned for at least two years shares of Common Stock that are treated as "restricted securities", would be entitled to sell those shares without regard to the foregoing requirements. The Company and certain shareholders of the Company, including all directors and officers who hold options to purchase Common Stock, who after this offering will own 2,200,000 shares of Common Stock (2,100,000 if the Underwriters exercise the over-allotment option in full) are subject to lock-up agreements with Hampshire Securities Corporation, under which these shares and options to purchase 350,000 shares of Common Stock may not be sold publicly during the 18 month period commencing on the date of this Prospectus without the prior written consent of Hampshire Securities Corporation. Then and soon thereafter, all those shares will become eligible for sale under Rule 144 and may be resold in the public market only in compliance with the registration requirements of the Securities Act, pursuant to a valid exemption from registration or pursuant to Rule 144. In addition the Representative has the right and Warrant holders have the right, exercisable after such 18 month period to have their shares registered under the Securities Act in certain circumstances. See "Registration Rights." REGISTRATION RIGHTS In connection with this offering, the Company has agreed to sell to the Representative, individually and not as representative of the several Underwriters, for $100, warrants to purchase an aggregate of 100,000 shares of Common Stock. The Company has agreed to file a registration statement with respect to the shares of Common Stock to be acquired upon the exercise of the Representative's Warrants (the "Warrant Shares"). See "Underwriting." The Company has agreed to use its best efforts to cause such registration statement to be declared effective under the Securities Act. In addition, commencing 18 months after the closing of the offering made hereby, the Company has agreed to give advance notice to holders of outstanding Warrants to purchase 60,000 shares of Common Stock and the underlying Common Stock of its intention to file a registration statement, and in such case, holders of the outstanding Warrants and the underlying Common Stock will have the right to require the Company to include the underlying Common Stock in such registration statement filed prior to the expiration date of the Warrants at the Company's expense, exclusive of Underwriter's discounts and commissions and counsel fees. 39 DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 11,500,000 shares of capital stock, 10,000,000 of which are Common Stock, par value $.01 per share, 500,000 of which are Class A nonvoting Common Stock, par value $.01 per share, and 1,000,000 of which are Preferred Stock, par value $1.00 per share. On March 31, 1997, there were 2,210,000 shares of Common Stock outstanding; no shares of Class A Common Stock or Preferred Stock currently are outstanding. COMMON STOCK Each share of Common Stock entitles the holder thereof to one vote on all matters submitted to a vote of shareholders, including the election of directors. There is no cumulative voting in the election of directors; consequently, the holders of a majority of the outstanding shares of Common Stock can elect all of the directors then standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. Holders of Common Stock have no conversion, redemption or preemptive rights to subscribe to any securities of the Company. All outstanding shares of Common Stock are validly authorized and issued, fully paid and nonassessable. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after provision for payment of liabilities to creditors and the preferences, if any, of holders of preferred stock. The rights, preferences and privileges of holders of Common Stock are subject to the rights of the holders of any shares of Preferred Stock which the Company may issue in the future. CLASS A COMMON STOCK The rights of the holders of the Class A Common Stock are identical to the rights of the holders of the Common Stock, except that the shares of Class A Common Stock do not entitle the holder to vote on matters submitted to a vote of shareholders, except as may otherwise be required by law. PREFERRED STOCK The Board of Directors is authorized to provide for the issuance of shares of preferred stock, in one or more series, and to fix by resolution and to the extent permitted by the NJBCA, the terms and conditions of such series. The Company believes that the availability of the Preferred Stock issuable in series will provide it with increased flexibility in structuring financings and acquisitions and in meeting other corporate needs which might arise. Although the Board of Directors has no present intention to do so, it could issue a series of preferred stock that could, depending on its terms, either impede or facilitate the completion of a merger, tender offer or other takeover attempt. CERTAIN CERTIFICATE OF INCORPORATION AND NEW JERSEY BUSINESS CORPORATION ACT PROVISIONS Applicable New Jersey law includes provisions which are designed to help assure fair and equitable treatment of the Company's shareholders in the event that a person or group should seek to gain control of the Company in the future in a multi-step acquisition and thereby encourages the potential acquirer to engage in arms-length negotiations with the Board of Directors. Such provisions, which are discussed below, may make a takeover attempt or change in control more difficult, whether by tender offer or otherwise. Accordingly, such provisions may be viewed as disadvantageous to shareholders inasmuch as they might diminish the likelihood that a potential acquirer would make an offer for the Common Stock (perhaps at an attractive premium over the market price) or impede a transaction favorable to the interests of the shareholders. 40 BUSINESS COMBINATIONS. Sections 14A:10A-1 to 6 of the NJBCA regulates "business combinations", a term covering a broad range of transactions between "resident domestic corporations" (as defined, which term would include the Company) and an "interested stockholder", which is defined as any person beneficial owning 10% or more of the outstanding voting stock of the resident domestic corporation or any affiliate or associate of that owner. Under the statute, a resident domestic corporation may not engage in any business combination with any interested shareholder, unless (a) if the business combination is to occur within five years of the date the shareholder acquired 10% or more ownership, either the business combination or the stock acquisition was previously approved by the Board of Directors, or (b) the business combination is approved by two thirds of the outstanding voting stock (not including shares owned by the interested stockholder), which approval may not be effectively given until approximately five years after the interested stockholder first attained 10% ownership (the "Stock Acquisition Date"), or (c) the business combination occurs five years after the interested stockholder's Stock Acquisition Date and the consideration paid to the non-interested stockholder meets certain conditions imposed by Section 14A:10A-5 of the BCA. Section 14A:10A 1-6 of the BCA may discourage other persons from making a tender offer for, or acquisition of, a number of shares of Common Stock. This could have the incidental effect of inhibiting changes in management and also may prevent temporary fluctuations in the market price of the Common Stock that often result from actual or rumored takeover attempts. ELIMINATION OF DIRECTOR LIABILITY. In addition, the limited liability provisions in the Company's Certificate of Incorporation with respect to directors, officers and agents and the indemnification provisions in the Company's By-laws may discourage shareholders from bringing a lawsuit against directors for breach of their fiduciary duty and also may have the effect of reducing the likelihood of derivative litigation against directors, officers and agents even though such an action, if successful, might otherwise have benefitted the Company and its shareholders. Furthermore, a shareholder's investment in the Company may be adversely affected to the extent the Company pays the costs of settlement and damage awards against the Company's directors and officers pursuant to the indemnification provisions in the Company's By-laws. WARRANTS OUTSTANDING WARRANTS. In connection with the sale of Notes in the Private Placement, the Company sold to investors Warrants to purchase 100,000 shares of Common Stock at $2.00 per share. The Warrants are exercisable for a period beginning 18 months after the closing of the offering made hereby and expiring five years from issuance. Warrant holders have a one time right to include the Common Stock underlying such warrants in a registration statement at the Company's expense, except for underwriter discounts and commissions and such holder's counsel fees. The Warrants contain antidilution provisions providing for adjustment of the exercise price upon the occurrence of certain events, including stock dividends, stock splits, recapitalization and sales of Common Stock below the then current exercise price. The holders of the Warrants have no voting, dividend or other rights as shareholders of the Company with respect to shares of Common Stock underlying the Warrants except to the extent the outstanding Warrants shall have been exercised. DILUTIVE EFFECT. While any of the Warrants are exercisable, a warrant holder will have the opportunity to profit from a rise in the market price of the Common Stock, with a resulting dilution in the interest of other shareholders. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Continental Stock Transfer & Trust Company, New York, New York. 41 UNDERWRITING The Underwriters named below, for which Hampshire Securities Corporation is acting as Representative, have severally, and not jointly, agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase, and the Company has agreed to sell, the Shares offered hereby in the amounts set forth opposite their respective names below.
NUMBER OF NAME SHARES - --------------------------------------------------------------------------------- ---------- Hampshire Securities Corporation................................................. 1,000,000 ---------- ----------
A copy of the Underwriting Agreement has been filed as an exhibit to the Registration Statement, to which reference is hereby made. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions. The Underwriters shall be obligated to purchase all the shares, if any are purchased. Through the Representative, the Underwriters have advised the Company that they propose to offer the Shares to the public at the public offering price set forth on the cover page of this Prospectus and that they may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. ("NASD") and to certain foreign dealers, concessions not in excess of $0. per share, of which a sum not in excess of $0. per share may be reallowed by such dealers to other dealers who are members of the NASD and to certain foreign dealers. After the commencement of this offering, the concessions and reallowances may be changed by the Representative. The Company and, if the Representative's over-allotment option is exercised the Selling Shareholder, on the one hand, and the Underwriters, on the other hand, have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that they may be required to make in respect thereof. The Company has agreed to pay the Representative an expense allowance, on a non-accountable basis, equal to 3% of the gross proceeds derived from the sale of 1,000,000 shares in this offering (and any shares sold upon the exercise of the over-allotment option). The Company has paid $50,000 as an advance on that allowance. The Company also has agreed to pay certain of the Representative's expenses in connection with this offering, including expenses in connection with qualifying the Shares for sale under the laws of the states the Representative may designate. The holders of all of the 2,210,000 shares of Common Stock currently outstanding and all the option holders under the Plan and the holder of the warrants (to purchase 60,000 shares of Common Stock) have agreed (i) not to publicly sell, or otherwise dispose of, any shares of Common Stock or shares of Common Stock issuable upon exercise of options or warrants for a period of 18 months from the date of this offering without the Representative's prior written consent and (ii) not to privately sell or otherwise dispose of any such shares during such period unless the proposed transferee agrees to be bound by such restrictions on transfer. In addition, for a period of 18 months after the date of this Prospectus, the Company has agreed that, without the Representative's prior consent, it will not sell any shares of Common Stock or grant any options or warrants to purchase Common Stock other than (i) the Representative's Warrants, (ii) options 42 which may be granted under the Plan, (iii) shares of Common Stock issued in connection with the exercise of any such options or the Warrants, (iv) shares of Common Stock issued upon the exercise of options and warrants outstanding on the date hereof and (v) shares of Common Stock issued in connection with an acquisition by the Company. Prior to this offering, there has been no public trading market for shares of Common Stock. The initial public offering price for the Common Stock was determined by negotiation between the Company and the Representative. Among the factors considered in such negotiations were prevailing market conditions, the results of operations of the Company in recent periods, the market capitalization and stage of development of the Company, estimates of the business potential of the Company, the present state of the Company's management team and other factors deemed relevant. The Underwriters do not intend to confirm sales of Common Stock offered by this Prospectus to any accounts over which they exercise discretionary authority. The Company and the Selling Shareholder have granted the Representative an option, exercisable during the 45-day period commencing on the date of this Prospectus, to purchase at the public offering price per share less the Underwriters' discounts and commissions up to 50,000 and 100,000 shares of Common Stock, respectively, for the sole purpose of covering over-allotments, if any. If the Representative's over-allotment option is exercised up to the first 100,000 shares of Common Stock will be purchased from the Selling Shareholder. After the commencement of this offering, the Representative may confirm sales of shares of Common Stock subject to this over-allotment option. Purchases of shares of Common Stock upon exercise of the over-allotment option will result in the realization of additional compensation by the Representative. In connection with this offering, the Company has agreed to sell to the Representative, individually and not as representative of the several Underwriters, for $100, warrants to purchase 100,000 shares of Common Stock. The Representative's Warrants are exercisable for four years, commencing one year from the date of this Prospectus, at a price per share (the "Exercise Price") equal to 110% of the public offering price per share. The Representative's Warrants may not be sold, transferred, assigned, pledged or hypothecated for 12 months from the date of this Prospectus, except to members of the selling group and to officers and partners of the Representative or members of the selling group. The Representative's Warrants contain antidilution provisions providing for adjustment of the Exercise Price and the number of shares of Common Stock issuable upon the exercise thereof upon the occurrence of certain events, including stock dividends, stock splits, recapitalization and sales of Common Stock below the then current market price (as defined). The holders of the Representative's Warrants have no voting, dividend or other rights as shareholders of the Company with respect to shares of Common Stock underlying the Representative's Warrants, except to the extent the Representative's Warrants shall have been exercised. The Company has agreed that, at the request of the holders of a majority of the Representative's Warrants and underlying shares of Common Stock ("Warrant Shares") (and on no more than one occasion), the Company will file a registration statement under the Securities Act for an offering of the Warrant Shares during the four-year period beginning on the first anniversary of the date of this Prospectus; and the Company has agreed to use its best efforts to cause such registration statement to be declared effective under the Securities Act and to remain effective for a period of at least nine months (12 months if such registration statement is on Form S-3). In addition, the Company has agreed to give advance notice to holders of the Representative's Warrants and Warrant Shares of its intention to file a registration statement, holders of the Representative's Warrants and the Warrant Shares will have the right to require the Company to include the Warrant Shares in such registration statement at the Company's expense. While the Representative's Warrants are exercisable, the Representative and any transferee will have the opportunity to profit from a rise in the market price of the Common Stock, with a resulting dilution in the interest of other shareholders. In addition, during that period, the terms of which the Company will be 43 able to obtain additional capital may be adversely affected since the Representative is likely to exercise its warrants at a time when the Company would, in all likelihood, be able to obtain capital by a new offering of securities on terms more favorable than those provided in the Representative's Warrants. The Company has agreed that, until May , 2000, Hampshire Securities Corporation may appoint an observer to attend all meetings of the Company's Board of Directors. The observer has the right to receive notice of all meetings of the Board of Directors and to attend such meetings. The observer will be entitled to reimbursement for out-of-pocket expenses for attendance at those meetings. In addition, the observer will be entitled to indemnification, to the same extent as the Company's directors. Hampshire Securities Corporation has advised the Company that its initial designee will be an officer of Hampshire Securities Corporation. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Greenberg & Kahr, New York, New York. Certain legal matters will be passed upon for the Underwriters by Brock Fensterstock Silverstein McAuliffe & Wade LLC, New York, New York. EXPERTS The audited consolidated Financial Statements in this Prospectus have been audited by Richard A. Eisner & Company, LLP, independent auditors, as indicated in their reports with respect to those financial statements, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, as permitted by the rules and regulations of the Commission. For further information with resect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document that has been filed as an exhibit to the Registration Statement are qualified in their entirety by reference to such exhibits for a complete statement of their terms and conditions. The Registration Statement may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549 or at certain of the regional offices of the Commission located a 7 World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission. Copies of such material may be obtained from the Public Reference section of the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, at prescribed rates. The Commission also maintains a Web site (http://www.sec.gov) through which the Registration Statement and the Company's periodic reports and other information can be retrieved. As a result of the filing of the Registration Statement and the Commission, the Company will become subject to the periodic reporting and other informational requirements of the Exchange Act, as amended, and in accordance therewith will be required to file reports and other information with the Commission. Such reports and other information can be inspected and copied at the public reference facilities maintained by the Commission at its principal offices. In addition, as the Common Stock has been approved for quotation on the Nasdaq national market under the symbol "JAZZ," reports and other information concerning the Company may be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C. 10006. 44 REPORT OF INDEPENDENT AUDITORS To the Stockholders Jazz Photo Corp. Carteret, New Jersey We have audited the accompanying balance sheet of Jazz Photo Corp. as at June 30, 1996 and the consolidated balance sheet of Jazz Photo Corp. and subsidiaries as at December 31, 1996 and their respective statements of operations, capital deficiency and cash flows for the period from June 21, 1995 (inception) through June 30, 1996 and for the six months ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements enumerated above present fairly, in all material respects, the financial position of Jazz Photo Corp. as at June 30, 1996 and the consolidated financial position of Jazz Photo Corp. and subsidiaries as at December 31, 1996 and the results of their operations and cash flows for the respective periods then ended, in conformity with generally accepted accounting principles. Richard A. Eisner & Company, LLP New York, New York March 26, 1997 With respect to Notes K[2] and K[5] April 3, 1997 F-1 JAZZ PHOTO CORP. AND SUBSIDIARIES BALANCE SHEETS
JUNE 30, DECEMBER 31, 1996 1996 ------------ ------------- (CONSOLIDATED) ASSETS Current assets: Cash.............................................................................. $ 10,000 $ 171,000 Accounts receivable (net of allowance for doubtful accounts of $5,000 at June 30, 1996 and $6,000 at December 31, 1996)........................................... 25,000 Due from factor................................................................... 100,000 147,000 Inventories....................................................................... 833,000 836,000 Loans receivable--officer and stockholder......................................... 48,000 204,000 Prepaid expenses and other current assets......................................... 12,000 70,000 ------------ ------------- Total current assets.......................................................... 1,003,000 1,453,000 Property and equipment, net......................................................... 112,000 158,000 ------------ ------------- T O T A L..................................................................... $ 1,115,000 $ 1,611,000 ------------ ------------- ------------ ------------- LIABILITIES AND CAPITAL DEFICIENCY Current liabilities: Notes payable--current portion.................................................... $ 21,000 $ 14,000 Notes payable and accrued interest--stockholders current portion.................. 274,000 82,000 Accounts payable and accrued expenses............................................. 637,000 801,000 Income taxes payable.............................................................. 40,000 Customer and other deposits....................................................... 102,000 Loan payable--officer............................................................. 9,000 ------------ ------------- Total current liabilities..................................................... 1,034,000 946,000 Notes payable....................................................................... 12,000 20,000 Notes payable and accrued interest--stockholders.................................... 818,000 709,000 ------------ ------------- Total liabilities............................................................. 1,864,000 1,675,000 ------------ ------------- Minority interest................................................................... 18,000 ------------- Other matters Capital deficiency: Preferred stock--$1 par value, 1,000,000 shares authorized; none issued........... Class A nonvoting common stock--$.01 par value, 500,000 shares authorized, none issued.......................................................................... Common stock--$.01 par value, 10,000,000 shares authorized, 2,200,000 shares issued and outstanding.......................................................... 22,000 22,000 Additional paid-in capital........................................................ 28,000 28,000 (Deficit)......................................................................... (799,000) (132,000) ------------ ------------- Total (capital deficiency).................................................... (749,000) (82,000) ------------ ------------- T O T A L..................................................................... $ 1,115,000 $ 1,611,000 ------------ ------------- ------------ -------------
The accompanying notes to financial statements are an integral part hereof. F-2 JAZZ PHOTO CORP. AND SUBSIDIARIES STATEMENTS OF OPERATIONS
JUNE 21, 1995 JUNE 21, 1995 SIX MONTHS (INCEPTION) (INCEPTION) ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, JUNE 30, 1996 1996 1995 ------------- ------------- ------------- (CONSOLIDATED) (UNAUDITED) Net sales............................................................ $ 1,166,000 $ 7,619,000 $ 332,000 Cost of goods sold................................................... 976,000 5,835,000 315,000 ------------- ------------- ------------- Gross profit......................................................... 190,000 1,784,000 17,000 ------------- ------------- ------------- Operating expenses: Selling expense.................................................... 281,000 397,000 35,000 General and administrative expenses................................ 544,000 601,000 161,000 ------------- ------------- ------------- Total operating expenses......................................... 825,000 998,000 196,000 ------------- ------------- ------------- Income (loss) from operations........................................ (635,000) 786,000 (179,000) ------------- ------------- ------------- Other income (expenses): Realized and unrealized losses on marketable securities............ (86,000) (26,000) (65,000) Interest (expense)................................................. (111,000) (87,000) (42,000) Other income....................................................... 33,000 52,000 26,000 ------------- ------------- ------------- Other expense (net).................................................. (164,000) (61,000) (81,000) Income (loss) before provision for income taxes and minority interest........................................................... (799,000) 725,000 (260,000) Provision for income taxes........................................... 40,000 ------------- ------------- ------------- Income (loss) before minority interest............................... (799,000) 685,000 (260,000) Minority interest.................................................... 18,000 ------------- ------------- ------------- NET INCOME (LOSS).................................................... $ (799,000) $ 667,000 $ (260,000) ------------- ------------- ------------- ------------- ------------- ------------- Net income........................................................... $ 667,000 Pro forma executive compensation..................................... 190,000 ------------- Pro forma net income................................................. $ 477,000 ------------- ------------- Net (loss) earnings per share of common stock and, for the six months ended December 31, 1996, as adjusted to give effect to executive compensation on a pro forma basis.................................. $ (.34) $ .20 $ (.11) ------------- ------------- ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding................. 2,349,000 2,349,000 2,349,000 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes to financial statements are an integral part hereof. F-3 JAZZ PHOTO CORP. AND SUBSIDIARIES STATEMENT OF CAPITAL DEFICIENCY FOR THE PERIOD BEGINNING JUNE 21, 1995 (INCEPTION) THROUGH JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
COMMON STOCK $.01 PAR VALUE 10,000,000 ADDITIONAL SHARES PAID-IN (CAPITAL AUTHORIZED CAPITAL (DEFICIT) DEFICIENCY) ----------- ----------- ----------- ------------------ Issuance of 2,200,000 shares of common stock............. $ 22,000 $ 28,000 $ 50,000 Net (loss) for the period June 21, 1995 (inception) through June 30, 1996.................................. $ (799,000) (799,000) ----------- ----------- ----------- -------- Balance--June 30, 1996................................... 22,000 28,000 (799,000) (749,000) Net income for the six months ended December 31, 1996.... 667,000 667,000 ----------- ----------- ----------- -------- BALANCE--DECEMBER 31, 1996............................... $ 22,000 $ 28,000 $ (132,000) $ (82,000) ----------- ----------- ----------- -------- ----------- ----------- ----------- --------
The accompanying notes to financial statements are an integral part hereof. F-4 JAZZ PHOTO CORP. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS
JUNE 21, 1995 JUNE 21, 1995 SIX MONTHS (INCEPTION) (INCEPTION) ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, JUNE 30, 1996 1996 1995 ------------- ------------- ------------- (CONSOLIDATED) (UNAUDITED) Cash flows from operating activities: Net (loss) income.................................................. $ (799,000) $ 667,000 $ (260,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities, net of effects from purchase of Jazz Photo (Hong Kong) Limited: Provision for doubtful accounts................................ 5,000 1,000 4,000 Depreciation................................................... 12,000 16,000 2,000 Minority interest.............................................. 18,000 Realized and unrealized losses on marketable securities........ 86,000 26,000 65,000 Changes in operating assets and liabilities: (Increase) in accounts receivable............................ (5,000) (26,000) (15,000) (Increase) in due from factor, net........................... (100,000) (47,000) (101,000) (Increase) in inventories.................................... (833,000) (3,000) (250,000) (Increase) in prepaid expenses and other current assets...... (12,000) (52,000) (86,000) Increase in accounts payable and accrued expenses............ 637,000 55,000 176,000 Increase in income taxes payable............................. 40,000 Increase (decrease) in customer and other deposits........... 102,000 (102,000) ------------- ------------- ------------- Net cash provided by (used in) operating activities........ (907,000) 593,000 (465,000) ------------- ------------- ------------- Cash flows from investing activities: Cash received from purchase of Jazz Photo (Hong Kong) Limited...... 30,000 Proceeds from sales of marketable securities....................... 1,266,000 104,000 726,000 Investment in marketable securities................................ (1,352,000) (133,000) (986,000) Net loans made to officer and stockholder.......................... (48,000) (156,000) (290,000) Purchase of property and equipment................................. (106,000) (38,000) (24,000) ------------- ------------- ------------- Net cash (used in) investing activities.................... (240,000) (193,000) (574,000) ------------- ------------- ------------- Cash flows from financing activities: Decrease in bank overdraft......................................... (7,000) Loan received from officer......................................... 9,000 Loans from stockholders............................................ 1,156,000 (221,000) 949,000 Principal payments on other notes and loans payable................ (171,000) (20,000) Proceeds from notes payable........................................ 122,000 100,000 Issuance of common stock for cash.................................. 50,000 50,000 ------------- ------------- ------------- Net cash provided by (used in) financing activities........ 1,157,000 (239,000) 1,099,000 ------------- ------------- ------------- NET INCREASE IN CASH................................................. 10,000 161,000 60,000 Cash--beginning of period............................................ -0 - 10,000 -0 - ------------- ------------- ------------- CASH--END OF PERIOD.................................................. $ 10,000 $ 171,000 $ 60,000 ------------- ------------- ------------- ------------- ------------- ------------- Supplemental disclosure of cash flow information: Cash paid during the period for interest........................... $ 30,000 $ 70,000 $ 15,000 Supplemental disclosures of noncash investing and financing activities: In May 1996, the Company purchased an automobile for $23,000 which was financed, in part, by a note payable of $18,000. In July 1996, the Company purchased another automobile for $23,000 which was financed, in part, by a note payable of $20,000. In July 1996, the Company purchased 95% of the outstanding common stock of Jazz Photo (Hong Kong) Limited for $5,000. In conjunction with the acquisition, net assets were acquired as follows:
Fair value of assets acquired....................... $ 146,000 Liabilities assumed................................. 143,000 --------- Net assets.......................................... $ 3,000 --------- ---------
The accompanying notes to financial statements are an integral part hereof. F-5 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE A)--ACQUISITION OF JAZZ PHOTO (HONG KONG) LIMITED AND FORMATION OF JAZZ PHOTO CANADA CORP.: Effective July 1, 1996, Jazz Photo Corp. ("JPC") acquired, for a nominal amount, (which approximated the equity interest) 95% of the outstanding stock of Fordteam Limited ("Fordteam"), a company incorporated in Hong Kong engaged in the sale of cameras which are either manufactured by subcontractors located in Hong Kong or purchased as finished goods. Immediately following the acquisition, Fordteam changed its name to Jazz Photo (Hong Kong) Limited ("JPHK"). JPHK's revenue and net assets prior to its acquisition by JPC were not material. In addition JPC incorporated Jazz Photo Canada Corp. ("JPCC") in November 1996; it has not commenced operations. (NOTE B)--ORGANIZATION, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES: [1] THE COMPANY: JPC was incorporated in the State of New Jersey on June 21, 1995 and commenced operations in August 1995. On March 19, 1997, the Company amended its certificate of incorporation increasing the authorized number of shares of common stock and creating the following additional classes of stock: Class A nonvoting common stock--$.01 par value, 500,000 shares authorized Preferred stock--$1 par value, 1,000,000 shares authorized Contemporaneously, the Company declared a 4,399 for 1 common stock split effected as a dividend. All applicable amounts and disclosures included in the accompanying financial statements give retroactive effect to this split. Effective July 1, 1996, the Company changed its reporting year from June 30 to December 31. Jazz Photo Corp. and subsidiaries (collectively, the "Company") is primarily a wholesaler of single use and 35mm cameras which it sells to chain stores and photo specialty shops under the "Jazz" private label. The Company also has an exclusive license to market a new line of 35mm cameras in the United States. [2] INVENTORIES: Inventories, consisting principally of finished goods, are valued at the lower of cost (first-in, first-out method) or market. Inventories (including goods in transit) physically situated outside the United States amount to approximately $242,000 and $340,000 at June 30, 1996 and December 31, 1996, respectively. The Company granted a security interest in its inventory as collateral for uncollected factored receivables (Note C). [3] PROPERTY AND EQUIPMENT: Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets (5 to 7 years). F-6 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE B)--ORGANIZATION, BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) [4] USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [5] STOCK BASED COMPENSATION: The Company intends to account for stock based compensation based on the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25. Statement of Financial Accounting Standards No. 123 which became effective in 1996 requires additional disclosures for stock based compensation as if such compensation was measured at fair value on the date the awards were granted. The Company intends to make such disclosure, when applicable. [6] CARRYING VALUE OF NONCURRENT ASSETS: The Company periodically evaluates the carrying value of long-lived assets for impairment. Measurement of the amount of impairment loss, if any, is based upon the difference between the carrying value of the asset and its estimated fair value. No such losses have been recorded by the Company. [7] MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK: The Company's sales have been derived from a limited number of customers, the largest of which comprises 75% of sales for the six months ended December 31, 1996. For the period ended June 30, 1996 a customer accounted for 40% of the Company's sales. [8] SOURCES OF SUPPLY: Substantially all merchandise purchases are supplied by a limited number of vendors and contract manufacturers located in the Far East. [9] FOREIGN CURRENCY TRANSLATION: JPHK's financial statements were translated to U.S. dollars in accordance with SFAS No. 52 "Foreign Currency Translation". The foreign currency translation adjustment at December 31, 1996 was not material. [10] EARNINGS (LOSS) PER SHARE OF COMMON STOCK: Earnings (loss) per share of common stock has been based on the weighted average number of shares outstanding and include, as outstanding for all periods in accordance with the requirements of the Securities and Exchange Commission, the dilutive effect of options and warrants issued within twelve months of the Company's contemplated initial public offering (computed using the treasury stock method). See (Note K[3]). F-7 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE C)--FACTORING ARRANGEMENTS: In July 1995, JPC entered into an arrangement with a factor whereby it sells its eligible accounts receivable without recourse. Advances received under this arrangement are payable with variable interest approximating the prime rate (as defined) plus 2 1/2% and, among other matters, are limited to 70% of the uncollected factored receivables. As additional collateral to the factor, JPC granted the factor a security interest in its inventory and JPC's Chief Executive Officer has personally guaranteed JPC's obligations to the factor. The factor has also made letters of credit available to JPC under this facility. There were no open letters of credit at June 30, 1996 or December 31, 1996. This arrangement is automatically renewable annually, each July. (NOTE D)--PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
JUNE 30, DECEMBER 31, 1996 1996 ---------- ------------- (CONSOLIDATED) Machinery and equipment........................................... $ 46,000 $ 60,000 Automobiles....................................................... 35,000 58,000 Furniture and fixtures............................................ 34,000 48,000 Computers......................................................... 9,000 20,000 ---------- ------------- 124,000 186,000 Less accumulated depreciation..................................... 12,000 28,000 ---------- ------------- Total....................................................... $ 112,000 $ 158,000 ---------- ------------- ---------- -------------
Automobiles which were purchased in 1996 for $46,000 and $2,000 of other equipment are collateral for the notes payable described in Note F. Approximately $40,000 of equipment used in the assembly of cameras is located on the premises of a vendor in China. (NOTE E)--ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following:
JUNE 30, DECEMBER 31, 1996 1996 ---------- ------------- (CONSOLIDATED) Trade accounts payable............................................ $ 553,000* $ 714,000 Accrued professional fees......................................... 45,000 20,000 Other............................................................. 39,000 67,000 ---------- ------------- $ 637,000 $ 801,000 ---------- ------------- ---------- -------------
- ------------------------ * Includes $158,000 owed to JPHK prior to being acquired by JPC on July 1, 1996. F-8 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE F)--NOTES PAYABLE: Notes payable consist of the following:
JUNE 30, DECEMBER 31, 1996 1996 --------- ------------- (CONSOLIDATED) Note to bank, payable in monthly installments of approximately $600 through April 1999 including interest at 9.5%.................... $ 18,000 $ 15,000 Notes for equipment purchases, payable in varying monthly installments of up to $800 through July 1999 including interest at rates varying from 11.1% to 14.9%, respectively............... 19,000 Note payable--other, repaid in August 1996......................... 15,000 --------- ------------- Total........................................................ 33,000 34,000 Less current portion............................................... 21,000 14,000 --------- ------------- Noncurrent portion................................................. $ 12,000 $ 20,000 --------- ------------- --------- -------------
Payments due on outstanding notes payable at December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31, - ----------------------------------------------------------------------------------- 1997............................................................................... $ 14,000 1998............................................................................... 13,000 1999............................................................................... 7,000 --------- $ 34,000 --------- ---------
(NOTE G)--NOTES PAYABLE--STOCKHOLDERS: Notes payable to the stockholders bear interest at the rate of 12% per annum. Interest expense on these notes amounted to approximately $100,000, $89,000 and $38,000 for the periods ended June 30, 1996, December 31, 1996 and December 31, 1995, respectively. Approximately $800,000 and $700,000 of the principal amount of these notes at June 30, 1996 and December 31, 1996, respectively, are subordinated to amounts due to the factor. In March 1997, the terms of the above notes were modified. Under the modified terms, the principal balance of the notes are payable on demand after July 1, 1998. Accordingly, the notes have been classified as noncurrent in the December 31, 1996 balance sheet. (NOTE H)--INCOME TAXES: JPC has a net operating loss carryover from June 1996 of approximately $600,000 which is available to offset future taxable income, if any, through 2010 and a capital loss carryover of approximately $86,000 which expires in 2000. A 100% valuation allowance (approximately $300,000 at June 30, 1996 and $50,000 at December 31, 1996) has been established against the deferred tax asset resulting from the net operating F-9 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE H)--INCOME TAXES: (CONTINUED) loss carryover since there is no assurance that the tax benefits will be realized in the future. The change in the valuation allowance is attributable to the utilization of net operating loss carryovers which completely offset the portion of taxes attributable to JPC's income for the six months ended December 31, 1996. Accordingly, the current tax provision represents foreign income taxes attributable to the operations of JPHK. (NOTE I)--OTHER MATTERS: [1] JPC entered into an exclusive licensing agreement (as amended) to market a line of APS, 35mm and single use cameras worldwide for an initial term extending through 2002. The licensing agreement requires JPC, among other matters, to pay royalties at a specified rate, and for minimum royalties of $300,000, $350,000 and 400,000 for the years 2000, 2001 and 2002, respectively in order to maintain the license. [2] JPC subleases its office space and warehouse facility on a month-to-month basis from a primary tenant who is a related party. The monthly rent of approximately $2,000 is the same as provided for in the primary lease which expires in May 1998. Rent expense amounted to approximately $20,000 for each of the periods ended June 30, 1996 and December 31, 1996, respectively and $8,000 for the period ended December 31, 1995. [3] Sales to related parties amounted to $176,000, $33,000 and $144,000 for the periods ended June 30, 1996, December 31, 1996 and December 31, 1995, respectively. In addition, the Company earned commission income from a related party in the amount of $33,000, $23,000 and $26,000 in the periods ended June 30, 1996, December 31, 1996 and December 31, 1995, respectively and paid commission of $43,000 to a related party during the period ended December 31, 1996. During the period ended December 31, 1995 the Company purchased merchandise amounting to approximately $95,000 from a related party. [4] Operations for the period ended June 30, 1996 included $25,000 of compensation expense for JPC's Chief Executive Officer; said Officer agreed to forego compensation entirely for the six months ended December 31, 1996. [5] JPHK has a credit facility with a Hong Kong bank whereby it may sell, without recourse, up to $775,000 in letters of credit received from customers discounted at a rate of 8.5% per annum. This facility is personally guaranteed by the former Chief Executive Officer of JPC and the minority shareholder of JPHK. F-10 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE J)--FOREIGN OPERATIONS: Summarized data for the Company's foreign operations, which are located in Hong Kong are as follows:
SIX MONTHS ENDED DECEMBER 31, 1996 ------------ Net sales principally to an unaffiliated customer in the United States.......... $5,215,000 Sales to JPC.................................................................... 1,840,000 ------------ Total sales............................................................. $7,055,000 ------------ ------------ Income from operations.......................................................... $ 207,000* Assets.......................................................................... 856,000
- ------------------------ * After deduction of commission expense to JPC of $917,000. On July 1, 1997 the political sovereignty of Hong Kong will revert to the People's Republic of China. (NOTE K)--SUBSEQUENT EVENTS: [1] LOAN RECEIVABLE--OFFICER: In March, 1997, the Company extended an additional loan to its Chief Executive Officer in the amount of approximately $180,000 payable on demand. [2] BRIDGE FINANCING: In April, 1997, the Company received proceeds of $600,000 from a private placement offering of 12 units each consisting of a 10% note in the principal amount of $50,000 and a warrant to purchase 5,000 shares of common stock at an exercise price of $2.00 per share of common stock. The notes, with accrued interest, are due on the earlier of July 31, 1998 or the closing of an initial public offering ("IPO") of the Company's common stock (See [3](below)). The warrants expire in April, 2002 and may only be exercised commencing eighteen months after issue, but only if an IPO of the Company's stock has been consummated. The Company incurred approximately $85,000 of expenses in connection with the offering. [3] PROPOSED INITIAL PUBLIC OFFERING: The Board of Directors has authorized the Company to file a registration statement for a proposed offering in which the Company expects to offer approximately 1,000,000 shares of its common stock. There is no assurance that such offering will be consummated. [4] STOCK OPTION PLAN: In March 1997, the Company adopted a long-term incentive plan. Under the plan, the Company may grant eligible individuals (as defined) incentive and nonqualified stock options to purchase up to an aggregate of 385,000 shares of the Company's common stock and/or Class A nonvoting common stock plus other forms of stock-based compensation. The exercise price of incentive stock options may not be less than the fair market value of the stock at the date of grant. The exercise price of nonqualified stock options F-11 JAZZ PHOTO CORP. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION WITH RESPECT TO THE PERIOD JUNE 21, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 IS UNAUDITED) (NOTE K)--SUBSEQUENT EVENTS: (CONTINUED) may be fixed by the Board of Directors at the date of grant. All awards vest over a three-year period and may be exercised for a period of up to ten years following the date of grant. Contemporaneously, the Company granted its employees nonqualified stock options to purchase up to an aggregate of 161,000 shares of common stock at $1.50 per share. [5] EMPLOYMENT AND CONSULTING AGREEMENTS: The Company has entered into employment agreements with five of its executive officers, including a new chief executive officer providing, among other matters for aggregate annual compensation of approximately $770,000. In addition, the Company's former chief executive officer resigned his position with the Company, and became a consultant to it under a five-year agreement providing, among other matters for compensation, based on a formula related to Net Sales (as defined) and 10% of commission revenue up to a maximum of $300,000 annually. [6] LEASE COMMITMENT: In March 1997 the Company entered into a five-year noncancellable operating lease for office space and warehouse facilities beginning April 1, 1997 and expiring March 31, 2002. Future minimum rental payments under this lease, exclusive of the Company's pro rata share of operating expenses, are as follows:
YEAR ENDING DECEMBER 31, ------------- 1997.............................................................................. $ 60,000 1998.............................................................................. 117,000 1999.............................................................................. 129,000 2000.............................................................................. 135,000 2001.............................................................................. 137,000 2002.............................................................................. 35,000 ---------- Total....................................................................... $ 613,000 ---------- ----------
F-12 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH JURISDICTION. 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 SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED. ------------------------ TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................... 1 Risk Factors..................................... 6 Use of Proceeds.................................. 14 Dividend Policy.................................. 15 Capitalization................................... 16 Dilution......................................... 17 Selected Consolidated Financial Data............. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations............ 20 Business......................................... 24 Management....................................... 30 Certain Transactions............................. 36 Principal and Selling Shareholders............... 37 Shares Eligible for Future Sale.................. 39 Description of Securities........................ 40 Underwriting..................................... 42 Legal Matters.................................... 44 Experts.......................................... 44 Available Information............................ 44
------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 1,000,000 SHARES [LOGO] JAZZ PHOTO CORP. COMMON STOCK --------------------- PROSPECTUS --------------------- HAMPSHIRE SECURITIES CORPORATION , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of the Common Stock being registered hereby. All amounts are estimates except the SEC registration fee and the NASD filing fee.
SELLING REGISTRANT SHAREHOLDERS ----------- ------------ SEC Registration Fee.................................................................... 2,520.00 NASD Filing Fee......................................................................... 1,257.00 *Printing and Engraving Fees and Expenses............................................... *Accounting Fees and Expenses........................................................... *Blue Sky Filing Fees and Expenses...................................................... *Legal Fees and Expenses................................................................ *Transfer Agent and Registrar Fees and Expenses......................................... *Premium Cost of Directors and Officers Liability Insurance Policy...................... *Miscellaneous.......................................................................... Total............................................................................... $ $ ----------- ------------ ----------- ------------
- ------------------------ * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The New Jersey Business Corporation Act ('NJBCA") permits a corporation to indemnify its directors and officers against reasonable expenses (including attorney's fees), judgments, fines and amounts paid in settlement incurred by them in connection with any action or proceeding brought by third parties, if such directors or officers acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal proceeding, had no reasonable cause to believe their conduct was unlawful. In a derivative action (i.e., one by or in the right of the corporation), indemnification may be made only for reasonable expenses (including attorneys' fees) incurred by directors and officers in connection with the defense or settlement of such action if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation unless and only to the extent that the Superior Court or the court in which such proceeding was brought determines upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses that the Superior Court or such other court deems proper. The NJBCA further provides that, to the extent any director or officer has been successful on the merits or otherwise in defense of any action or proceeding referred to in this paragraph or in defense of any claim, issue or matter therein, such person shall be indemnified against reasonable expenses (including attorneys' fees) incurred by him in connection therewith. Pursuant to Article 9, of the registrant's Certificate of Incorporation, as amended, the registrant will indemnify its corporate agents (as defined in the NJBCA) to the fullest extent permitted by Section 14A:3-5 of the NJBCA and pursuant to such Article of the registrant's Certificate of Incorporation, as II-1 ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED) amended, the personal liability of the directors and officers is limited to the fullest extent permitted by Section 14A:1-7(3) of the NJBCA. The registrant has entered into a certain indemnity agreement with Mrs. Mona Benun in order to induce her to permit the public offering registered by this Registration Statement to be effected. Pursuant to such agreement, Mrs. Benun is indemnified and held harmless by the registrant to the fullest extent permitted by the NJBCA (as described herein) against all expenses reasonably incurred or suffered in any action, suit or proceeding involving Mrs. Benun by reason of the fact that she is a controlling shareholder of the registrant: The registrant has indemnification insurance under which directors, officers and agents are insured against certain liabilities that they may incur in their capacities as such. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In June 1995, Mona Benun, a principal shareholder of Registrant, acquired all of the outstanding Common Stock of Registrant for $50,000. She subsequently gave interests therein to her children in January 1997. In March 1997, Registrant effected a stock split by stock dividend resulting in the beneficial ownership of Common Stock by members of the Benun family set forth under the caption "Principal and Selling Shareholders" in the Prospectus forming a part of this registration statement. In March 1997 Registrant concluded a private offering of notes in the principal amount of $1,000,000 with warrants to purchase 100,000 shares of Common Stock. In the private offering seven purchasers subscribed for 12 units each consisting of a note in the principal amount of $50,000 with a warrant to purchase 5,000 shares of Common Stock. In March 1997 Bell & Howell Company, agreed to purchase 10,000 shares of Common Stock for $0.01 per share, or an aggregate purchase price of $100, in consideration for the negotiation of a modification and extension of a Trademark Licensing Agreement between Registrant and Bell & Howell Company. There was no underwriter involved in connection with any transaction set forth above. The issuances of the securities set forth above were deemed to be exempt pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering. In all of such transactions, the recipients of securities represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
EXHIBIT NUMBER - ----------- 1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of Registrant. 3.2 Amendment to Certificate of Incorporation of Registrant. 3.3 By-laws of Registrant. 4.1 Form of Representative's Warrant. 5.0* Opinion of Greenberg & Kahr. 9.1 Voting Agreement dated April 4, 1997 by and among Registrant and the Principal Shareholders. 10.1 Form of Indemnity Agreement between Company and Mona Benun, a Principal Shareholder. 10.2 (i) Trademark License Agreement between Registrant and Bell & Howell Company. (ii) Amendment thereto. (iii) Second Amendment thereto. 10.3 Agreement between Imation Corporation and Registrant dated March 31, 1997. 10.4 Executive Employment Agreement between Registrant and Roger F. Lorenzini dated April 1, 1997. 10.5 Executive Employment Agreement between Registrant and Jerrold Cohen dated March 18, 1997. 10.6 Executive Employment Agreement between Registrant and James Carfagno, Sr. dated February 24, 1997. 10.7 Executive Employment Agreement between Registrant and Jeffrey G. Burkard dated March 18, 1997. 10.8 Executive Employment Agreement between Registrant (and Jazz Photo (Hong Kong) Limited) and Jessie Szeto Suk Yee dated , 1997. 10.9 Consulting Agreement between Registrant and George Erfurt dated March 18, 1997. 10.10 Consulting Agreement between Registrant and JCB Consulting, Inc., dated April 1, 1997. 10.11 Lease Agreement between Registrant and Deneret Associates Limited Partnership dated March 6, 1997. 10.12 1997 Long Term Incentive Plan of the Company and Forms of Stock Option Agreements. 10.13 Agreement between Rosenthal & Rosenthal, Inc. (the "Factor") and the Company dated July 12, 1995. Guarantee by Jack C. Benun of even date. Agreements of Subordination and Assignment dated June 30, 1996 between the Principal Shareholders and the Factor. 10.14 Banking Facility letter of The Hong Kong Shanghai Banking Corporation dated March 25, 1997 and joint and several guarantees of Jack C. Benun and Jessie Szeto Suk Yee of even date. 11.0 Statement re: Computation of Per Share Earnings. 21.0 List of Subsidiaries: (i) Jazz Photo Canada Corporation (Ontario, Canada) (ii) Jazz Photo (Hong Kong) Limited (Crown Colony of Hong Kong) 23.1 Consent of Richard A. Eisner & Company, LLP. 23.2* Consent of Greenberg & Kahr. 24.0 Power of Attorney (see signature page). 27.0 Financial Data Schedule. 99.0 Consent of Elie Housman, a person named as Director.
- ------------------------ * To be supplied by amendment. II-3 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant 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 hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus 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. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on April 4, 1997. JAZZ PHOTO CORP. By: /s/ ROGER F. LORENZINI ----------------------------------------- Roger F. Lorenzini PRESIDENT POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roger F. Lorenzini and Jerrold Cohen and each of them individually, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign the Registration Statement filed herewith and any or all amendments to said Registration Statement (including post-effective amendments and registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and otherwise), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents the full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ ROGER F. LORENZINI President and Chief - ------------------------------ Executive Officer Roger F. Lorenzini (Principal Executive Officer), Chief Financial Officer (Principal Financial and Accounting Officer) and Director April 4, 1997 /s/ HENRY A. D'AMBROSIO Director April 4, 1997 - ------------------------------ Henry A. D'Ambrosio /s/ DAVID MIZRAHI Director April 4, 1997 - ------------------------------ David Mizrahi II-5 EXHIBIT INDEX
EXHIBIT NUMBER PAGE NO. - ----------- ------------- 1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation of Registrant. 3.2 Amendment to Certificate of Incorporation of Registrant. 3.3 By-laws of Registrant. 4.1 Form of Representative's Warrant. 5.0* Opinion of Greenberg & Kahr. 9.1 Voting Agreement dated April 4, 1997 by and among Registrant and the Principal Shareholders. 10.1 Form of Indemnity Agreement between Company and Mona Benun, a Principal Shareholder. 10.2 (i) Trademark License Agreement between Registrant and Bell & Howell Company. (ii) Amendment thereto. (iii) Second Amendment thereto. 10.3 Agreement between Imation Corporation and Registrant dated March 31, 1997. 10.4 Executive Employment Agreement between Registrant and Roger F. Lorenzini dated April 1, 1997. 10.5 Executive Employment Agreement between Registrant and Jerrold Cohen dated March 18, 1997. 10.6 Executive Employment Agreement between Registrant and James Carfagno, Sr. dated February 24, 1997. 10.7 Executive Employment Agreement between Registrant and Jeffrey G. Burkard dated March 18, 1997. 10.8 Executive Employment Agreement between Registrant (and Jazz Photo (Hong Kong) Limited) and Jessie Szeto Suk Yee dated , 1997. 10.9 Consulting Agreement between Registrant and George Erfurt dated March 18, 1997. 10.10 Consulting Agreement between Registrant and JCB Consulting, Inc., dated April 1, 1997. 10.11 Lease Agreement between Registrant and Deneret Associates Limited Partnership dated March 6, 1997. 10.12 1997 Long Term Incentive Plan of the Company and Forms of Stock Option Agreements. 10.13 Agreement between Rosenthal & Rosenthal, Inc. (the "Factor") and the Company dated July 12, 1995. Guarantee by Jack C. Benun of even date. Agreements of Subordination and Assignment dated June 30, 1996 between the Principal Shareholders and the Factor. 10.14 Banking Facility letter of The Hong Kong Shanghai Banking Corporation dated March 25, 1997 and joint and several guarantees of Jack C. Benun and Jessie Szeto of even date. 11.0 Statement re: Computation of Per Share Earnings. 21.0 List of Subsidiaries: (i) Jazz Photo Canada Corporation (Ontario, Canada) (ii) Jazz Photo (Hong Kong) Limited (Crown Colony of Hong Kong) 23.1 Consent of Richard A. Eisner & Company, LLP. 23.2* Consent of Greenberg & Kahr. 24.0 Power of Attorney (see signature page). 27.0 Financial Data Schedule. 99.0 Consent of Elie Housman, a person named as Director.
- ------------------------ * To be supplied by amendment. EX-1.1 2 FORM OF U/A Exhibit 1.1 DRAFT 033197A 1,000,000 SHARES JAZZ PHOTO CORP. UNDERWRITING AGREEMENT _____________, 1996 Hampshire Securities Corporation As Representative of the several Underwriters named in Schedule I attached hereto 640 Fifth Avenue New York, New York 10019 Gentlemen: The undersigned, Jazz Photo Corp., a New Jersey corporation (the "Company"), and the selling shareholders of the Company indentified in Schedule II hereto (the "Selling Shareholders") hereby confirm their agreement with Hampshire Securities Corporation (individually, "Hampshire," and, as representative (the "Representative") of the several underwriters named in Schedule I hereto (the "Underwriters")), and the Underwriters as follows: 1. INTRODUCTION. (a) The Company proposes to issue and sell to the Underwriters an aggregate of 1,000,000 shares of common stock, par value $.01 per share, of the Company (the "Common Stock"). Such shares of Common Stock are hereinafter referred to as the "Firm Stock". (b) Solely for the purpose of covering over-allotments, if any, the Company proposes to grant to Hampshire, individually and not as Representative, an option (the "Company Over-allotment Option") to purchase from it, in the aggregate, up to an additional 50,000 shares of Common Stock. Such shares of Common Stock are hereinafter referred to as the "Company Additional Stock." The Firm Stock and the Additional Stock are hereinafter referred to as the "Company Stock." (c) Solely for the purpose of covering over-allotments, if any, the Selling Shareholders propose to grant to Hampshire, individually and not as Representative, an option (the "Shareholder Over-allotment Option") to purchase from them, in the aggregate, up to an additional 100,000 shares of Common Stock as set forth in Schedule II hereto. Such shares of Common Stock are hereinafter referred to as the "Shareholder Additional Stock." The Company Additional Stock and the Company Additional Stock are hereinafter referred to as the "Additional Stock." The Firm Stock and the Additional Stock are hereinafter referred to as the "Stock." (d) The Company proposes to sell to Hampshire, individually and not as Representative, 100,000 warrants (the "Representative's Warrants") to purchase up to an aggregate of 100,000 shares of Common Stock (the "Warrant Shares") for an aggregate purchase price of $100.00. The Representative's Warrants shall be substantially in the form filed as an exhibit to the Registration Statement (as hereinafter defined). The Representative's Warrants and the Warrant Shares are hereinafter referred to collectively as the "Representative's Securities." The Stock and the Representative's Securities are hereinafter referred to collectively as the "Securities." -2- 2. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and warrants to, and agrees with, the several Underwriters that: (1) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and may have filed one or more amendments thereto, on Form S-1 (Registration No. 333-_______), including in such registration statement and each such amendment a related preliminary prospectus, for the registration of the Securities under the Securities Act of 1933, as amended (the "Securities Act"). As used in this Agreement, the term "Registration Statement" shall refer to such registration statement referred to in the first sentence of this Section 2(a), as amended, on file with the Commission at the time such registration statement is declared by the Commission to be effective under the Securities Act (including the prospectus, financial statements, and exhibits filed as a part thereof, provided, however, that such registration statement, at the time it is declared by the Commission to be effective under the Securities Act, may omit such information as is permitted to be omitted from such registration statement when it becomes effective under the Securities Act pursuant to Rule 430A of the General Rules and Regulations of the Commission under the Securities Act (the "Regulations"), which information (the "Rule 430A Information") shall be deemed to be included in such registration statement when a final prospectus is filed with the Commission in accordance with Rules 430A and 424(b)(1) or (4) of the Regulations); the term "Preliminary Prospectus" shall refer to each prospectus included in the Registration Statement, or any amendments thereto, before the Registration Statement is declared by the Commission to be effective under the Securities Act, the form of prospectus omitting Rule 430A Information included in the Registration Statement -3- when the Registration Statement becomes effective under the Securities Act, if applicable (the "Rule 430A Prospectus"), and any prospectus filed by the Company with the consent of the Representative pursuant to Rule 424(a) of the Regulations; and the term "Prospectus" shall refer to the final prospectus forming a part of the Registration Statement in the form first filed with the Commission pursuant to Rule 424(b)(1) or (4) of the Regulations or, if no such filing is required, the form of final prospectus forming a part of the Registration Statement. (2) When the Registration Statement becomes effective under the Securities Act, and at all times subsequent thereto up to and including the Closing Date (as defined in Section 3(a) hereof) and each Additional Closing Date (as defined in Section 3(b) hereof), and during such longer period as the Prospectus may be required to be delivered in connection with sales by the Underwriters or a dealer, and during such longer period until any post-effective amendment thereto shall become effective under the Securities Act, the Registration Statement (and any post-effective amendment thereto) and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement to the Registration Statement or the Prospectus) will contain all statements which are required to be stated therein in accordance with the Securities Act and the Regulations, will comply with the Securities Act and the Regulations, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no event will have occurred which should have been set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not then been set forth in such an amendment or supplement; if a Rule 430A Prospectus is included in the Registration Statement at the time it is declared by the Commission to be effective under the Securities Act, the -4- Prospectus filed pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all Rule 430A Information and all statements which are required to be stated therein in accordance with the Securities Act or the Regulations, will comply with the Securities Act and the Regulations, and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and each Preliminary Prospectus, as of the date filed with the Commission, contained all statements required to be stated therein in accordance with the Securities Act and the Regulations, complied with the Securities Act and the Regulations, and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; except that no representation or warranty is made in this Section 2(a)(2) with respect to statements or omissions made in reliance upon, and in conformity with, written information furnished to the Company as stated in Section 8(b) with respect to any Underwriter by, or on behalf of, such Underwriter through the Representative expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or with respect to statements or omissions made in reliance upon, and in conformity with, written information furnished to the Company as stated in Section 8(c) with respect to any Selling Shareholder by, or on behalf of, such such Selling Shareholder expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto. (3) Neither the Commission nor the "blue sky" or securities authority of any jurisdiction has issued an order (a "Stop Order") suspending the effectiveness of, or preventing or suspending the use of, the Registration Statement, any Preliminary Prospectus, the -5- Prospectus, or any amendment or supplement thereto, refusing to permit the effectiveness of the Registration Statement, or suspending the registration or qualification of the Securities nor has any of such authorities instituted or threatened to institute any proceedings with respect to a Stop Order. (4) Any contract, agreement, instrument, lease, or license required to be described in the Registration Statement or the Prospectus has been properly described therein. Any contract, agreement, instrument, lease, or license required to be filed as an exhibit to the Registration Statement has been filed with the Commission as an exhibit to the Registration Statement. (5) The following corporations are the only subsidiaries (as defined in the Regulations) of the Company: Jazz Photo (Hong Kong) Limited, a Hong Kong corporation, and Jazz Photo Canada Limited, Ontario, Canada corporation (collectively, the "Subsidiaries"). The Company and each of the Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its respective jurisdiction of incorporation, with full power and authority, and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with, all federal, state, local, and other governmental authorities and all courts and other tribunals, to own, lease, license, and use its properties and assets and to conduct its business in the manner described in the Prospectus. The Company and each Subsidiary is duly qualified to do business as a foreign corporation and is in good standing as such in every jurisdiction in which its ownership, leasing, licensing, or use of property and assets or the conduct of its business makes such qualification necessary, except where the failure to so qualify will not have a material adverse effect on the Company's business, properties, or financial condition on a consolidated basis. -6- (6) The authorized capital stock of the Company consists of 15,000,000 shares of Common Stock, of which 4,000,000 shares are outstanding, and 5,000,000 shares of preferred stock, par value $.01 per share, of which none are outstanding. Each outstanding share of Common Stock is validly authorized and issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, has not been issued and is not owned or held in violation of any preemptive or similar rights of shareholders. Each share of capital stock of each Subsidiary is owned of record and beneficially by the Company. There is no commitment, plan, or arrangement to issue, and no outstanding option, warrant, or other right calling for the issuance of, any share of capital stock of the Company or any Subsidiary or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, capital stock of the Company, except as may be properly described in the Prospectus. There is outstanding no security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, capital stock of the Company or any Subsidiary, except as may be properly described in the Prospectus. The certificates evidencing the Common Stock are in due and proper form. (7) The consolidated financial statements of the Company included in the Registration Statement and the Prospectus fairly present, with respect to the Company, the financial position, the results of operations, the cash flows, and the other information purported to be shown therein at the respective dates and for the respective periods to which they apply. Such consolidated financial statements have been prepared in accordance with generally accepted accounting principles (except to the extent that certain footnote disclosures regarding any stub period may have been omitted in accordance with the applicable rules of the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) consistently applied -7- throughout the periods involved, are correct and complete in all material respects, and are in accordance with the books and records of the Company. Richard A. Eisner & Company, LLP, the accountants whose report on the audited consolidated financial statements is filed with the Commission as a part of the Registration Statement, are, and during the periods covered by their reports included in the Registration Statement and the Prospectus were, independent certified public accountants with respect to the Company within the meaning of the Securities Act and the Regulations. No other financial statements are required by Form S-1 or otherwise to be included in the Registration Statement or the Prospectus. There has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the Company on a consolidated basis from the latest information set forth in the Registration Statement or the Prospectus, except as may be properly described in the Prospectus. (8) There is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation pending, threatened, or, to the best knowledge of the Company, in prospect (or any basis therefor) with respect to the Company, any Subsidiary, or any of their respective operations, businesses, properties, or assets, except as may be properly described in the Prospectus or such as individually or in the aggregate do not now have, and will not in the future have, a material adverse effect upon the operations, business, properties, or assets of the Company and the Subsidiaries taken as a whole. To the best knowledge of the Company, neither the Company nor any Subsidiary is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment, or decree, except as may be properly described in the Prospectus or such as in the aggregate do not now have, and will not in the future have, a material adverse effect upon the operations, business, properties, or assets of the Company and the Subsidiaries -8- taken as a whole; nor is the Company or any Subsidiary currently required to take any action in order to avoid any such violation or default. (9) The Company and each Subsidiary has good and marketable title to all properties and assets which the Prospectus indicates are owned by it, free and clear of all liens, security interests, pledges, charges, encumbrances, and mortgages, except as may be properly described in the Prospectus or as are not material to the Company and the Subsidiaries taken as a whole. No real property owned, leased, licensed, or used by the Company or any Subsidiary lies in an area which is, or to the knowledge of the Company will be, subject to zoning, use, or building code restrictions which would prohibit, and no state of facts relating to the actions or inaction of another person or entity or his or its ownership, leasing, licensing, or use of any real or personal property exists or will exist which would prevent, the continued effective ownership, leasing, licensing, or use of such real property in the business of the Company and the Subsidiaries, each as presently conducted or as the Prospectus indicates it contemplates conducting, except as may be properly described in the Prospectus. (10) Neither the Company or any Subsidiary nor, to the knowledge of the Company, any other party, is now, or is expected by the Company to be, in violation or breach of, or in default with respect to, any provision of any contract, agreement, instrument, lease, license, arrangement, or understanding which is material to the Company and the Subsidiaries taken as a whole, and each such contract, agreement, instrument, lease, license, arrangement, and understanding is in full force and effect and is the legal, valid, and binding obligation of the parties thereto and is enforceable as to them in accordance with its respective terms. The Company and each Subsidiary enjoys peaceful and undisturbed possession under all leases and licenses under -9- which it is operating. Except as described in the Prospectus, neither the Company nor any Subsidiary is a party to, or bound by, any contract, agreement, instrument, lease, license, arrangement, or understanding, or subject to any charter or other restriction, which has had, or may in the future have, a material adverse effect on the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the Company and the Subsidiaries taken as a whole. Neither the Company nor any Subsidiary is in violation or breach of, or in default with respect to, any term of its respective certificate of incorporation (or other charter document) or by-laws. (11) The Company and each Subsidiary owns or possesses adequate rights to use all patents, patent rights, inventions, trade secrets, licenses, know-how, proprietary techniques, including processes and substances, trademarks, service marks, trade names, and copyrights described or referred to in the Prospectus as owned or used by it or which are necessary for the conduct of its business as currently conducted as described in the Prospectus and, to the best knowledge of the Company, its business as contemplated as described in the Prospectus. To the best knowledge of the Company, all such patents, patent rights, licenses, trademarks, service marks, and copyrights are (i) valid and enforceable, (ii) not being infringed by any third parties which infringement could, singly or in the aggregate, materially and adversely affect the business, properties, operations, condition (financial or otherwise), results of operations, income, or business prospects of the Company and the Subsidiaries taken as a whole, as presently being conducted or as proposed to be conducted as described in the Prospectus, and (iii) are uncontested by any third party. The Company has no knowledge of, nor has it received any notice of, infringement of, or conflict with, asserted rights of others with respect to any patents, patent rights, inventions, trade -10- secrets, licenses, know-how, proprietary techniques, including processes and substances, trademarks, service marks, trade names, or copyrights which, singly or in the aggregate, if the subject of an unfavorable decision, ruling, or finding could materially and adversely affect the business, properties, operations, condition (financial or otherwise), results of operations, income, or business prospects of the Company and the Subsidiaries taken as a whole, as presently being conducted or as proposed to be conducted as described in the Prospectus. (12) Neither the Company or any Subsidiary, nor, to the best knowledge of the Company, any director, officer, agent, employee, or other person associated with, or acting on behalf of, the Company or any Subsidiary, has, directly or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment. The Company's internal accounting controls and procedures are sufficient to cause the Company and each of the Subsidiaries to comply in all respects with the Foreign Corrupt Practices Act of 1977, as amended. (13) The Company has all requisite power and authority to execute, deliver, and perform each of this Agreement and the Representative's Warrants. All necessary corporate proceedings of the Company have been duly taken to authorize the execution, delivery, and performance by the Company of this Agreement and the Representative's Warrants. This Agreement has been duly authorized, executed, and delivered by the Company, is the legal, valid, and binding obligation of the Company. The Representative's Warrants have been duly authorized -11- by the Company and, when executed and delivered by the Company, will be legal, valid, and binding obligations of the Company, each enforceable as to the Company in accordance with its terms. No consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any federal, state, local, or other governmental authority or any court or other tribunal is required by the Company or any Subsidiary for the execution, delivery, or performance by the Company of this Agreement or the Representative's Warrants, except filings under the Securities Act which have been or will be made before the Closing Date, and consents consisting only of consents under "blue sky" or securities laws which have been obtained at or prior to the date of this Agreement. No consent of any party to any contract, agreement, instrument, lease, license, arrangement, or understanding to which the Company or any Subsidiary is a party, or to which any of its properties or assets are subject, is required for the execution, delivery, or performance of this Agreement and the Representative's Warrants; and the execution, delivery, and performance of this Agreement and the Representative's Warrants will not violate, result in a breach of, conflict with, result in the creation or imposition of any lien, charge, or encumbrance upon any properties or assets of the Company or any Subsidiary pursuant to the terms of, or, with or without the giving of notice or the passage of time or both, entitle any party to terminate or call a default under, any such contract, agreement, instrument, lease, license, arrangement, or understanding, or violate, result in a breach of, or conflict with any term of the certificate of incorporation (or other charter document) or by-laws of the Company, or violate, result in a breach of, or conflict with, any law, rule, regulation, order, judgment, or decree binding on the Company or any Subsidiary or to which any of their respective operations, businesses, properties, or assets are subject. -12- (14) The Firm Stock is validly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not be issued in violation of any preemptive or similar rights of shareholders, and the Underwriters will receive good title to the shares of Firm Stock purchased by them, respectively, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. The Company Additional Stock is validly authorized and, when issued in accordance with the terms hereof, will validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not issued in violation of any preemptive or similar rights of shareholders. The Shareholder Additional Stock is validly authorized and issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and was not issued in violation of any preemptive or similar rights of shareholders. The Company Additional Stock has been duly and validly reserved for issuance. The Stock conforms to all statements relating thereto contained in the Registration Statement and the Prospectus. (15) The Warrant Stock is validly authorized and has been duly and validly reserved for issuance and, when issued and delivered upon exercise of the Representative's Warrants in accordance with the terms thereof, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not be issued in violation of any preemptive or similar rights of shareholders; and the holders of the Representative's Warrants will receive good title to the securities purchased by them upon the exercise of the Representative's Warrants, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. The Representative's Securities -13- conform to all statements relating thereto contained in the Registration Statement and the Prospectus. (16) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as may otherwise be properly described in the Prospectus, neither the Company nor any Subsidiary has (i) issued any securities or incurred any material liability or material obligation, primary or contingent, for borrowed money, (ii) entered into any material transaction not in the ordinary course of business, (iii) declared or paid any dividend on its capital stock, except dividends by a Subsidiary to the Company, or (iv) experienced any adverse changes or any development which may materially adversely effect the condition (financial or otherwise), net assets or shareholders' equity, results of operations, business, key personnel, assets, or properties of the Company and the Subsidiaries taken as a whole. (17) Neither the Company or any Subsidiary nor any of their respective officers, directors, or affiliates (as defined in the Regulations), has taken or will take, directly or indirectly, prior to the termination of the offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which has caused or resulted in, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Firm Stock or the Additional Stock. (18) The Company has obtained from each of its directors, officers, and shareholders, other than the Selling Shareholders with respect to the Shareholder Additional Stock, a written agreement, in form and substance satisfactory to counsel for the Underwriters, that, for -14- a period of 18 months from the date on which the Registration Statement is declared by the Commission to be effective under the Securities Act, he, she, or it will not, without the prior written consent of the Representative, publicly offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, shares of Common Stock or other securities of the Company, including, without limitation, any shares of Common Stock issuable pursuant to the terms of any employee stock options; provided, however, that such persons may offer, sell, contract to sell, grant an option for the sale of, or otherwise dispose of all or any part of his, her, or its shares of Common Stock or other such security or instrument of the Company during such period if such transaction is private in nature and the transferee of such shares of Common Stock or other securities or instruments agrees, prior to such transaction, to be bound by all of the provisions of such agreement. (19) The Company is not, and does not intend to conduct its business in a manner in which it would be required to register as, an "investment company" as defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the rules and regulations promulgated thereunder. (20) No person or entity has the right to require registration of shares of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement, which right has not been waived. (21) Except as may be set forth in the Prospectus, the Company has not incurred any liability for a fee, commission, or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement. -15- (22) Neither the Company or any Subsidiary, nor any of their respective affiliates, is presently doing business with the government of Cuba or with any person or affiliate located in Cuba. If, at any time after the date on which the Registration Statement is declared by the Commission to be effective under the Securities Act or with the Florida Department of Banking and Finance (the "Florida Department"), whichever is later, and prior to the end of the period referred to in the first clause of Section 2(a)(2) hereof, the Company and any Subsidiary commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba, the Company will so inform the Florida Department within 90 days after such commencement of business in Cuba, and, during the period referred to in Section 2(a)(2) hereof, will inform the Florida Department within 90 days after any change occurs with respect to previously reported information. (23) No officer, director, or shareholder of the Company has any affiliation or association with the National Association of Securities Dealers, Inc. (the "NASD") or any member thereof. (24) Except as disclosed in the Prospectus, the Company and each of the Subsidiaries has filed all necessary federal, state, local, and foreign income and franchise tax returns and other reports required to be filed and has paid all taxes shown as due thereon; and there is no tax deficiency which has been, or, to the knowledge of the Company, might be, asserted against the Company or any Subsidiary. (25) To the best knowledge of the Company, none of the activities or business of the Company or any Subsidiary is in violation of, or will cause the Company or any Subsidiary to violate, any law, rule, regulation, or order of the United States, any state, county, or locality, or of any agency or body of the United States or of any state, county, or -16- locality, the violation of which would have a material adverse effect upon the condition (financial or otherwise), business, property, prospective results of operations, or net worth of the Company and the Subsidiaries taken as a whole. (26) The Common Stock has been approved for quotation on the Nasdaq [National][SmallCap] Market [and the Pacific Stock Exchange]. (b) Each of the Selling Shareholders severally and not jointly represents and warrants to, and agrees with, the several Underwriters that: (1) Such Selling Shareholder has (i) caused a negotiated certificate or negotiated certificates representing the number of shares of Shareholder Additional Stock set forth opposite the name of such Selling Shareholder in Schedule II hereto to be delivered to Abrams & Garfinkel, attorney-at-law (the "Custodian"), duly endorsed in blank or together with blank stock powers duly executed, with such Selling Shareholder's signature appropriately guaranteed by medallion guarantee, such certificate or certificates to be held by the Custodian pursuant to a letter of transmittal and custody agreement for delivery, pursuant to the provisions hereof, one or more Additional Closing Dates and (ii) granted an irrevocable power of attorney to Jack C. Benun and Stephen C. Kahr (the "Attorneys") to purchase all requisite stock transfer tax stamps, to execute this Agreement (including agreeing on the price at which the Shareholder Additional Stock is to be sold to the Underwriters) and thereafter to modify and amend this Agreement, to settle any dispute relating to the terms of this Agreement, to waive any condition to the obligations of such Selling Shareholder, and to execute all other instruments and documents and to perform all other acts necessary or desirable to carry out the provisions of this Agreement on behalf of such Selling -17- Shareholder. Such letter of transmittal and custody agreement, together with such irrevocable power of attorney, are hereinafter referred to as the "Custodial Agreement". (2) There is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or, to the best knowledge of such Selling Shareholder, investigation pending, threatened, or in prospect (or any basis therefor) with respect to such Selling Shareholder or any of such Selling Shareholder's business, properties, or assets, except as otherwise disclosed in the Registration Statement. Such Selling Shareholder is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment, or decree; nor is such Selling Shareholder required to take any action in order to avoid such violation or default. (3) Such Selling Shareholder has all requisite power and authority to execute, deliver, and perform this Agreement and the Custodial Agreement. This Agreement and the Custodial Agreement have been duly executed and delivered by such Selling Shareholder, are the legal, valid, and binding obligations of such Selling Shareholder, and are enforceable as to such Selling Shareholder in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, or other laws affecting the rights of creditors generally. To such Selling Shareholder's best knowledge, no consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any federal, state, local, or other governmental authority or any court or other tribunal is required by such Selling Shareholder for the execution, delivery, or performance of this Agreement or the Custodial Agreement, except filings under the Securities Act which have been or will be made before the Closing Date and such consents consisting only of consents under "blue sky" or securities laws which have been obtained at or prior to the date of this Agreement by such Selling Shareholder. No consent of any party to -18- any contract, agreement, instrument, lease, license, arrangement, or understanding to which such Selling Shareholder is a party, or to which any of such Selling Shareholder's properties or assets are subject, is required for the execution, delivery, or performance of this Agreement or the Custodial Agreement; and the execution, delivery, and performance of this Agreement and the Custodial Agreement will not violate, result in a breach of, conflict with, or result in the creation or imposition of any lien, charge, or encumbrance upon any properties or assets of such Selling Shareholder pursuant to the terms of, or, with or without the giving of notice or the passage of time or both, entitle any party to terminate or call a default under, any such contract, agreement, instrument, lease, license, arrangement, or understanding, or, to such Selling Shareholder's best knowledge, violate, result in a breach of, or conflict with, any law, rule, regulation, order, judgment, or decree binding on such Selling Shareholder or to which any of such Selling Shareholder's business, properties, or assets are subject. (4) Such Selling Shareholder has good title to the shares of Shareholder Additional Stock to be sold by such Selling Shareholder pursuant to this Agreement, free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements, and voting trusts (except those created by this Agreement and the Custodial Agreement and those which have been terminated prior to the execution hereof), and, when and if delivered in accordance with this Agreement, the Underwriters will receive good title to the shares of Shareholder Additional Stock purchased by them from such Selling Shareholder, free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements, and voting trusts. The Shareholder Additional Stock conforms to all statements relating thereto contained in the Registration Statement or the Prospectus. -19- (5) Neither such Selling Shareholder nor any of such Selling Shareholder's affiliates (as defined in the Regulations) has taken or will take, directly or indirectly, prior to the termination of the offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which has caused or resulted in, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Stock or the Additional Stock. (6) Such Selling Shareholder has reviewed, and is familiar with, the Registration Statement and all amendments and supplements thereto, if any, filed with the Commission prior to the date hereof, and with each Preliminary Prospectus and the Prospectus contained therein, as supplemented, if applicable, to the date hereof, and all information relating to such Selling Shareholder, such Selling Shareholder's shares of Common Stock, and any contractual or other business relationship between such Selling Shareholder and the Company that is set forth in the Registration Statement, any such amendment or supplement thereto, each Preliminary Prospectus, and the Prospectus, or any such supplement thereof, and all other information furnished or to be furnished by, or on behalf of, such Selling Shareholder for use in the Registration Statement, any such amendment or supplement thereto, any Preliminary Prospectus, and the Prospectus, or any such supplement thereto, is and, at the Closing Date and each Additional Closing Date, will be, true, correct, and complete and does not, and at the Closing Date and each Additional Closing Date, will not, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make such information not misleading. -20- (7) Such Selling Shareholder has not incurred any liability for a fee, commission, or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement. (8) Such Selling Shareholder's decision to sell the Shareholder Additional Stock has not been based upon any negative or otherwise material information with respect to the Company which is not set forth in the Prospectus. 3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE REPRESENTATIVE'S WARRANTS. (a) On the basis of the representations, warranties, covenants, and agreements of the Company herein contained, but subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the several Underwriters, and, the Underwriters, severally and not jointly, agree to purchase from the Company, the numbers of shares of Firm Stock set forth opposite the respective names of the Underwriters in Schedule I hereto. The purchase price per share of the Firm Stock to be paid by the several Underwriters shall be $__________. The initial public offering price per share of the Firm Stock shall be $_________. Payment for the Firm Stock by the Underwriters shall be made by certified or official bank check in New York Clearing House (next day) funds or by electronic wire transfer of next day funds, payable to the order of the Company, at the offices of Hampshire Securities Corporation, 640 Fifth Avenue, New York, New York 10019, or at such other place in the New York City metropolitan area as the Representative shall determine and advise the Company by at least two full days' notice in writing, upon delivery of the Firm Stock to the Representative for the respective -21- accounts of the Underwriters. Such delivery and payment shall be made at 9:00 a.m., New York City local time, on the third business day following the time of the initial public offering, as defined in Section 11(a) hereof (unless such time and date is postponed in accordance with the provisions of Section 9(c) hereof), or at such other time as shall be agreed upon between the Representative and the Company. The time and date of such delivery and payment are hereinafter referred to as the "Closing Date." Certificates representing the Firm Stock shall be registered in such name or names and in such authorized denominations as the Representative may request in writing at least two full business days prior to the Closing Date. The Company shall permit the Representative to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (b) The Selling Shareholders hereby grants to Hampshire the Shareholder Over-allotment Option to purchase up to 100,000 shares of Common Stock, allocated among the Selling Shareholders as specified in Schedule II hereto, as may be necessary to cover over-allotments, at the same purchase price per share to be paid by the several Underwriters to the Company for the Firm Stock as provided for in this Section 3 hereof. The Company hereby grants to Hampshire the Company Over-allotment Option to purchase up to 50,000 shares of Common Stock, as may be necessary to cover over-allotments, at the same purchase price per share to be paid by the several Underwriters to the Company for the Firm Stock as provided for in this Section 3 hereof. The Over-allotment Options may be exercised only to cover over-allotments in the sale of shares by Hampshire. The Company Over-allotment Option and the Shareholder Over-allotment Option shall be exercised pro rata to one another. The Over-allotment Options may be exercised by Hampshire on the basis of the representations, warranties, covenants, and agreements of the Company and the -22- Selling Shareholder herein contained, but subject to the terms and conditions herein set forth, at any time and from time to time on or before the forty-fifth day following the date on which the Registration Statement becomes effective under the Securities Act, by written notice by Hampshire to the Company and Custodian. Such notice shall set forth the aggregate number of shares of Additional Stock as to which the Over-allotment Options are being exercised, the name or names in which the certificates representing the Additional Stock are to be registered, the authorized denominations in which the Additional Stock is to be registered, and the time and date, as determined by Hampshire, when such shares of Additional Stock are to be delivered (each such time and date are hereinafter referred to as an "Additional Closing Date"); provided, however, that no Additional Closing Date shall be earlier than the Closing Date nor earlier than the second business day after the date on which the notice of the exercise of the Shareholder Over-allotment Option and the Company Over-allotment Option shall have been given nor later than the eighth business day after the date on which such notice shall have been given. In the event the Company declares or pays a dividend or a distribution on the Common Stock, whether in the form of cash, shares of Common Stock, or other consideration, prior to the Additional Closing Date, such dividend or distribution shall also be paid on the Additional Stock on the later of the Additional Closing Date and the date on which such dividend or distribution is payable. Payment for the shares of Additional Stock by Hampshire shall be made by certified or official bank check in New York Clearing House (next day) funds or by electronic wire transfer of next day funds payable to the order of the Custodian and the Company (pro rata as described above) at the offices of Hampshire Securities Corporation, 640 Fifth Avenue, New York, New York -23- 10019, or at such other place in the New York City metropolitan area as Hampshire shall determine and advise the Company by at least two full days' notice in writing, upon delivery of the shares of Additional Stock to Hampshire for its account. Certificates for the shares of Additional Stock shall be registered in such name or names and in such authorized denominations as Hampshire may request in writing at least two full business days prior to the Additional Closing Date with respect thereto. The Company shall permit Hampshire to examine and package such certificates for delivery at least one full business day prior to the Additional Closing Date with respect thereto. (c) The Company hereby agrees to issue and sell to Hampshire and/or its designees on the Closing Date the Representative's Warrants to purchase the Warrant Shares for an aggregate purchase price of $100.00. Delivery and payment for the Representative's Warrants shall be made on the Closing Date. The Company shall deliver to Hampshire, upon payment therefor, certificates representing the Representative's Warrants in the name or names and in such authorized denominations as Hampshire may request. The Representative's Warrants shall be exercisable for a period of four years commencing one year from the date on which the Registration Statement was declared effective under the Securities Act at an initial exercise price per Warrant Share equal to $_____________. (d) It is understood that the Hampshire may (but shall not be obligated to) make any and all the payments required pursuant to this Section 3 on behalf of any Underwriters whose check or checks shall not have been received by the Representative at the time of delivery of the Stock to be purchased by such Underwriter or Underwriters. Any such payment by the -24- Representative shall not relieve any such Underwriter or Underwriters of any of its or their obligations hereunder. 4. OFFERING. The Underwriters are to make a public offering of the Firm Stock as soon, on or after the date on which the Registration Statement becomes effective under the Securities Act, as the Representative deems it advisable so to do. The Firm Stock is to be initially offered to the public at the initial public offering price as provided for in Section 3(a) (such price being hereinafter referred to as the "public offering price"). After the initial public offering, the Representative may from time to time increase or decrease the public offering price, in the sole discretion of the Representative, by reason of changes in general market conditions or otherwise. 5. COVENANTS. (a) The Company covenants that it will: (1) Use its best efforts to cause the Registration Statement to become effective under the Securities Act as promptly as possible and notify the Representative and counsel to the Underwriters immediately, and confirm such notice in writing, (i) when the Registration Statement and any post-effective amendment thereto become effective under the Securities Act, (ii) of the receipt of any comments from the Commission or the "blue sky" or securities authority of any jurisdiction regarding the Registration Statement, any post-effective amendment thereto, the Prospectus, or any amendment or supplement thereto, (iii) of the filing with the Commission of any supplement to the Prospectus, and (iv) of the receipt of any notification with respect to a Stop Order or the initiation or threatening of any proceeding with respect to a Stop Order. The Company will use its best efforts to prevent the issuance of any Stop Order and, if any Stop Order is issued, to obtain the lifting thereof as promptly as possible. If the Registration Statement has become or -25- becomes effective under the Securities Act with a form of prospectus omitting Rule 430A Information, or filing of the Prospectus with the Commission is otherwise required under Rule 424(b) of the Regulations, the Company will file with the Commission the Prospectus, properly completed, pursuant to Rule 424(b) of the Regulations within the time period prescribed and will provide evidence satisfactory to the Representative of such timely filing. (2) During the time when a prospectus relating to the Firm Stock or the Additional Stock is required to be delivered hereunder or under the Securities Act or the Regulations, comply with all requirements imposed upon it by the Securities Act, as now existing and as hereafter amended, and by the Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of, or dealings in, the Stock in accordance with the provisions hereof and the Prospectus. If, at any time when a prospectus relating to the Firm Stock or the Additional Stock is required to be delivered hereunder or under the Securities Act or the Regulations, any event shall have occurred as a result of which, in the reasonable opinion of counsel for the Company or counsel for the Underwriters, the Registration Statement or the Prospectus as then amended or supplemented contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or if, in the opinion of either of such counsel, it is necessary at any time to amend or supplement the Registration Statement or the Prospectus to comply with the Securities Act or the Regulations, the Company will immediately notify you and promptly prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to the Representative and counsel to the Underwriters) which will correct such statement or -26- omission or which will effect such compliance and will use its best efforts to have any such amendment declared effective under the Securities Act as soon as possible. (3) Deliver without charge to each of the several Underwriters such number of copies of each Preliminary Prospectus as may reasonably be requested by the Underwriters and, as soon as the Registration Statement, or any amendment thereto, becomes effective under the Securities Act or a supplement is filed with the Commission, deliver without charge to the Representative two signed copies of the Registration Statement, including exhibits, or such amendment thereto, as the case may be, and two copies of any supplement thereto, and deliver without charge to each of the several Underwriters such number of copies of the Prospectus, the Registration Statement, and amendments and supplements thereto, if any, without exhibits, as the Representative may request for the purposes contemplated by the Securities Act. (4) Endeavor in good faith, in cooperation with the Representative, at or prior to the time the Registration Statement becomes effective under the Securities Act, to qualify the Securities for offering and sale under the "blue sky" or securities laws of such jurisdictions as may be designated by the Representative; provided, however, that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would be subject to service of general process or to taxation as a foreign corporation doing business in such jurisdiction to which it is not then subject. In each jurisdiction where such qualification shall be effected, the Company will, unless the Representative agrees in writing that such action is not at the time necessary or advisable, file and make such statements or reports at such times as are or may be required by the laws of such jurisdiction. -27- (5) Make generally available, within the meaning of Section 11(a) of the Securities Act and the Regulations, to its security holders as soon as practicable, but not later than November 12, 1998, an earnings statement, which need not be certified by independent certified public accountants unless required by the Securities Act or the Regulations, but which shall satisfy the provisions of Section 11(a) of the Securities Act and the Regulations, covering a period of at least 12 months beginning after the date on which the Registration Statement was declared effective under the Securities Act. (6) For a period of 18 months after the date of the Prospectus, not, without the prior written consent of the Representative, offer, issue, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock or other securities of the Company, or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, shares of Common Stock, except as contemplated by Section 3 hereof and except for (i) the issuance of stock options, or shares of Common Stock issuable upon the exercise thereof, which have been or may be granted pursuant to the Company's 1997 Long-Term Incentive Plan, up to an aggregate of _______ shares of Common Stock, all as properly described in the Prospectus, (ii) upon the exercise of warrants outstanding on the date hereof, as properly described in the Prospectus, (iii) the issuance of shares of Warrant Stock issuable upon exercise of the Representative's Warrants, and (iv) the issuance of shares of Common Stock in connection with an acquisition by the Company. (7) For a period of five years after the date on which the Registration Statement was declared effective under the Securities Act furnish you, without charge, the following: -28- (i) within 90 days after the end of each fiscal year, one copy of financial statements certified by independent certified public accountants, including a balance sheet, statement of income, and statement of changes in cash flows of the Company and its then existing subsidiaries, if any, with supporting schedules, prepared in accordance with generally accepted accounting principles, as at the end of such fiscal year and for the 12 months then ended, which may be on a consolidated basis; (ii) as soon as practicable after they have been sent to shareholders of the Company or filed with, or furnished to, the Commission or the NASD, one copy of each annual and interim financial and other report or communication sent by the Company to its shareholders or filed with, or furnished to, the Commission or the NASD; (iii) as soon as practicable, one copy of every press release and every material news item and article in respect of the Company, any Subsidiary, or their respective affairs which was released by the Company or any such Subsidiary; and (iv) such additional documents and information with respect to the Company, any Subsidiary, and their respective affairs, as the Representative may from time to time reasonably request; provided, however, that such additional documents and information shall be received by you on a confidential basis, unless otherwise disclosed to the public, and shall not be used in violation of the federal securities laws and the rules and regulations promulgated thereunder. (8) Apply the net proceeds received by the Company from the offering contemplated by this Agreement in the manner set forth under the heading "Use of Proceeds" in the Prospectus. -29- (9) Furnish to the Representative as early as practicable prior to the Closing Date and each Additional Closing Date, if any, as the case may be, but not less than two full business days prior thereto, a copy of the latest available unaudited interim financial statements of the Company which have been read by the Company's independent certified public accountants, as stated in their letters to be furnished pursuant to Section 7(f) hereof. (10) File no amendment or supplement to the Registration Statement or Prospectus at any time, whether before or after the date on which the Registration Statement was declared effective under the Securities Act, unless such filing shall comply with the Securities Act and the Regulations and unless the Representative shall previously have been advised of such filing and furnished with a copy thereof, and the Representative shall have approved such filing in writing. Until the later of (i) the completion by the Underwriters of the distribution of the Stock (but in no event more than nine months after the date on which the Registration Statement shall have been declared effective under the Securities Act) and (ii) 25 days after the date on which the Registration Statement shall have been declared effective under the Securities Act, the Company will prepare and file with the Commission, promptly upon the Representative's request, any amendments or supplements to the Registration Statement or the Prospectus which, in the sole opinion of the Representative, may be necessary or advisable in connection with the distribution of the Stock. (11) File timely with the Commission an appropriate form to register the Common Stock, includind the Stock, pursuant to Section 12(g) of the Exchange Act and comply with all registration, filing, and reporting requirements of the Exchange Act, which may from time to time be applicable to the Company. -30- (12) Comply with all provisions of all undertakings contained in the Registration Statement. (13) Prior to the later of (A) the date referred to in the second sentence of clause (10) of this paragraph (a) of this Section 5, and (B) any Additional Closing Date, issue no press release or other communication, directly or indirectly, and hold no press conference with respect to the Company, the financial condition, results of operations, business, properties, assets, liabilities of any the Company or any Subsidiary, or this offering, without the prior written consent of the Representative. (14) Make all filings required to maintain the inclusion of the Common Stock on the Nasdaq [National][SmallCap] Market [and the Pacific Stock Exchange] for a least four years from the date of this Agreement. (15) On the Closing Date, sell to the Hampshire, individually and not as Representative of the several Underwriters, at the price of $.001 per warrant, warrants to purchase the Warrant Stock, which Representative's Warrants shall be substantially in the form set forth as an exhibit to the Registration Statement. (16) Until expiration of the Representative's Warrants, keep reserved sufficient shares of Common Stock for issuance upon exercise of the Representative's Warrants. (17) Deliver to the Representative, without charge, within a reasonable period after the last Additional Closing Date or the expiration of the period during which the Representative may exercise the Over-allotment Options, five sets of bound volumes of the Registration Statement and all related materials to the individuals designated by the Representative or counsel to the Underwriters. -31- (18) For a period of three years after the effective date on which the Registration Statement is declared effective under the Securities Act, provide, at its sole expense, to the Representative copies of the Company's daily transfer sheets, if so requested by the Representative. (19) Maintain key-person life insurance payable to the Company on the life of Mr. Roger F. Lorenzini, President, Chief Executive Officer, and a Director of the Company, in the amount of at least $1,000,000, for the period of time equal to the longer of three years from the date on which the Registration Statement becomes effective under the Securities Act and the term of the employment agreement between the Company and such officer. (20) For a period of three years from the date on which the Registration Statement becomes effective under the Securities Act, the Representative shall have the right to appoint a designee as an observer of the Company's Board of Directors. Such observer will have the right to attend all meetings of the Board of Directors. Such observer shall be entitled to receive reimbursement for all out-of-pocket expenses incurred in attending such meetings, including, but not limited to, food, lodging, transportation, and any fees paid to directors for attending meetings. The Representative shall be given notice of such meetings at the same time and in the same manner as directors of the Company are informed. The Representative and such observer shall be indemnified to the same extent as the other directors. The Company will purchase directors and officers insurance in an amount of not less than $2,000,000, provided, however, that the Company shall not be required to pay more than $50,000 per year in order to maintain such insurance, and if insurance in such amount is not available at such cost, the Company shall purchase that amount of such insurance which is available at a cost of $50,000 per year. -32- (b) Each Selling Shareholder covenants that he, she, or it will not: (1) For a period of 18 months from the date on which the Registration Statement shall become effective under the Securities Act, without the prior written consent of Hampshire, offer, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock (other than the Shareholder Additional Stock upon exercise of the Shareholder Over-allotment Option) or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, shares of Common Stock or other securities of the Company, including, without limitation, any shares of Common Stock issuable pursuant to the terms of any employee stock options. (2) Take, directly or indirectly, prior to the termination of the offering contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which might in the future reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Stock. 6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses (other than fees of counsel for the Underwriters, except as provided in Section 6(c)) in connection with (a) the preparation, printing, filing, distribution, and mailing of the Registration Statement and the Prospectus and the printing, filing, distribution, and mailing of this Agreement and the Master Agreement Among Underwriters, any Master Selected Dealer Agreement and related documents, including the cost of all copies thereof and of the Preliminary Prospectuses and of the Prospectus and any amendments or supplements thereto supplied to the Underwriters in quantities as hereinabove stated, (b) the issuance, sale, transfer, and delivery (as applicable) of the Securities, -33- including any transfer or other taxes payable thereon, (c) the qualification of the Securities under state or foreign "blue sky" or securities laws, including the costs of printing and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel for the Underwriters ($35,000) and the disbursements in connection therewith, (d) the filing fees payable to the Commission, the NASD, and the jurisdictions in which such qualification is sought, (e) any fees relating to the listing of the Common Stock on the Nasdaq National Market and any other stock market or exchange, (f) the cost of printing certificates representing the shares of Common Stock, (g) the fees of the transfer agent for the Common Stock, (h) the cost of publication of "tombstone" advertisements with respect to offerings, not to exceed $30,000, and (i) a non-accountable expense allowance equal to three percent of the gross proceeds of the sale of the Firm Stock and the Company Additional Stock (less amounts, if any, previously paid to the Representative by the Company in respect of such non-accountable expense allowance) to the Representative on the Closing Date. Notwithstanding the foregoing, if the offering contemplated hereby should be terminated, the Company agrees to pay the Representative only the out-of-pocket expenses incurred by the Underwriters in connection with this Agreement or the proposed offer, sale, and delivery of the Securities. The Selling Shareholders hereby agree to pay a non-accountable expense allowance equal to three percent of the gross proceeds of the sale of any Shareholder Additional Stock (less amounts, if any, previously paid to the Representative by the Selling Shareholders in respect of such non-accountable expense allowance) to the Representative on the Closing Date or any Additional Closing Date, as applicable. 7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters to purchase and pay for the Firm Stock and the Additional Stock, as provided herein, -34- and the obligation of Hampshire to purchase and pay for the Representative's Warrants, each as provided herein, shall be subject, in the discretion of the Representative, to the continuing accuracy of the representations and warranties of the Company contained herein and in each certificate and document contemplated under this Agreement to be delivered to the Underwriters, as of the date hereof and as of the Closing Date (or any Additional Closing Date, as the case may be), to the performance by the Company and the Selling Shareholders, as applicable, of their respective obligations hereunder, and to the following conditions: (a) The Registration Statement shall have become effective under the Securities Act not later than 6:00 P.M., New York City local time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representative; on or prior to the Closing Date, or any Additional Closing Date, as the case may be, no Stop Order shall have been issued and no proceeding shall have been initiated or threatened with respect to a Stop Order; and any request by the Commission for additional information shall have been complied with by the Company to the reasonable satisfaction of counsel for the Underwriters. If required, the Prospectus shall have been filed with the Commission in the manner and within the time period required by Rule 424(b) under the Securities Act. (b) (1) At the Closing Date and any Additional Closing Date, as the case may be, you shall have received the opinion of Messrs. Greenberg & Kahr, counsel for the Company, dated the date of delivery, addressed to the Underwriters, and in form and scope satisfactory to counsel for the Underwriters, with reproduced copies or signed counterparts thereof for each of the Underwriters, to the effect that: -35- (i) the only subsidiaries (as defined in the Regulations) of the Company are the Subsidiaries. Each of the Company and each of the Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of its respective jurisdiction of incorporation, with full power and authority, and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with, all federal, state, local, and other governmental authorities and all courts and other tribunals, to own, lease, license, and use its respective properties and assets and to conduct its respective business in the manner described in the Prospectus. Each of the Company and each of the Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing as such in every jurisdiction in which its respective ownership, leasing, licensing, or use of property and assets or the conduct of its business makes such qualification necessary; (ii) the authorized capital stock of the Company consists of 10,000,000 shares of Common Stock, of which 2,210,000 shares are outstanding, 500,000 shares of Class A Common Stock, par value $.01 per share, of which none is outstanding, and 1,000,000 shares of preferred stock, par value $.01 per share, of which none is outstanding. Except as otherwise disclosed in the Prospectus, each outstanding share of capital stock of each Subsidiary is owned of record and beneficially by the Company, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. Except as disclosed in the Prospectus, each outstanding share of Common Stock and each share of capital stock of each Subsidiary is validly authorized and issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, has not been issued and is not owned or held in violation of any preemptive or similar rights of shareholders. To the knowledge of such counsel, -36- there is no commitment, plan, or arrangement to issue, and no outstanding option, warrant, or other right calling for the issuance of, any share of capital stock of the Company or any Subsidiary or any security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, capital stock of the Company or any Subsidiary, except as may be properly described in the Prospectus. There is outstanding no security or other instrument which by its terms is convertible into, or exercisable or exchangeable for, capital stock of the Company or any Subsidiary. The certificates evidencing the Common Stock are in due and proper form; (iii) to the knowledge of such counsel, there is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation pending, threatened, or in prospect (or any basis therefor) with respect to the Company or any Subsidiary or any of their respective operations, businesses, properties, or assets, except as may be properly described in the Prospectus or such as individually or in the aggregate do not now have, and will not in the future have, a material adverse effect upon the operations, business, properties, or assets of the Company. To the knowledge of such counsel, neither the Company nor any Subsidiary is in violation of, or in default with respect to, any law, rule, regulation, order, judgment, or decree, except as may be properly described in the Prospectus or such as in the aggregate do not now have and will not in the future have a material adverse effect upon the operations, business, properties, or assets of the Company; nor is the Company or any Subsidiary required to take any action in order to avoid any such violation or default; (iv) to the knowledge of such counsel, neither the Company or any Subsidiary, nor any other party is now, or is expected by the Company to be, in violation or breach of, or in default with respect to, any provision of any contract, agreement, instrument, lease, -37 license, arrangement, or understanding which is material to the Company, and, to the knowledge of such counsel, each such contract, agreement, instrument, lease, license, arrangement, or understanding is in full force and effect and is the valid, legal, and binding obligation of the parties thereto and is enforceable in accordance with its terms; (v) neither the Company nor any Subsidiary is in violation or breach of, or in default with respect to, any term of its respective certificate of incorporation (or other charter document) or by-laws; (vi) the Company has all requisite power and authority to execute, deliver, and perform this Agreement and the Representative's Warrants. All necessary corporate proceedings of the Company have been taken to authorize the execution, delivery, and performance by the Company of this Agreement and the Representative's Warrants. This Agreement has been duly authorized, executed, and delivered by the Company, is the legal, valid, and binding obligation of the Company, and, subject to applicable bankruptcy, insolvency, and other laws affecting the enforceability of creditors' rights generally, is enforceable as to the Company in accordance with its terms. The Representative's Warrants have been duly authorized by the Company and, when executed and delivered by the Company, will be legal, valid, and binding obligations of the Company, each enforceable as to the Company in accordance with its terms. No consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any federal, state, local, or other governmental authority or any court or other tribunal is required by the Company for the execution, delivery, or performance by the Company of this Agreement or the Representative's Warrants, except filings under the Securities Act which have been made prior to the Closing Date or Additional Closing Date, as the case may be, and consents consisting -38- only of consents under "blue sky" or securities laws, which have been obtained. No consent of any party to any contract, agreement, instrument, lease, license, arrangement, or understanding known to such counsel to which the Company or any Subsidiary is a party, or to which any of their respective properties or assets are subject, is required for the execution, delivery, or performance of this Agreement and the Representative's Warrants; and the execution, delivery, and performance of this Agreement and the Representative's Warrants will not violate, result in a breach of, conflict with, result in the creation or imposition of any lien, charge, or encumbrance upon any properties or assets of the Company pursuant to the terms of, or, with or without the giving of notice or the passage of time or both, entitle any party to terminate or call a default under, any such contract, agreement, instrument, lease, license, arrangement, or understanding known to such counsel, violate or result in a breach of, or conflict with any term of the certificate of incorporation (or other charter document) or by-laws of the Company, or violate, result in a breach of, or conflict with any law, rule, regulation, order, judgment, or decree binding on the Company or any Subsidiary to which any of their respective operations, businesses, properties, or assets are subject; (vii) each share of Firm Stock to be delivered on the Closing Date is validly authorized and, when issued and delivered in accordance with the terms hereof, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not issued in violation of any preemptive or similar rights of shareholders. Each share of Company Additional Stock to be delivered on the Closing Date or any Additional Closing Date, as applicable, is validly authorized and, when issued and delivered in accordance with the terms hereof, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not issued in violation of any -39- preemptive or similar rights of shareholders. The Underwriters will receive good title to the shares of Firm Stock and Company Additional Stock purchased by them, respectively, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. The Company Additional Stock has been duly and validly reserved for issuance. The Stock conforms to all statements relating thereto contained in the Registration Statement or the Prospectus; (viii) the Warrant Stock is validly authorized and has been duly and validly reserved for issuance pursuant to the terms of the Representative's Warrants. The Representative's Warrants have been duly and validly issued and delivered. The Warrant Stock, when issued and delivered in accordance with the Representative's Warrants, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and will not have been issued in violation of any preemptive rights of shareholders. The Representative, and any other holders of the Representative's Warrants, will receive good title to the securities purchased by them upon exercise of the Representative's Warrants, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. The Representative's Securities conform to all statements relating thereto contained in the Registration Statement or the Prospectus; (ix) to the knowledge of such counsel, each contract, agreement, instrument, lease, or license required to be described in the Registration Statement or the Prospectus has been properly described therein, and each contract, agreement, instrument, lease, or license required to be filed as an exhibit to the Registration Statement has been filed with the Commission as an exhibit to the Registration Statement; -40- (x) insofar as statements in the Prospectus purport to summarize the status of litigation or the provisions of laws, rules, regulations, orders, judgments, decrees, contracts, agreements, instruments, leases, or licenses, such statements have been prepared or reviewed by such counsel and accurately reflect the status of such litigation and provisions purported to be summarized and are correct in all respects; (xi) the Company is not an "investment company" as defined in the Investment Company Act and the rules and regulations thereunder and, if the Company conducts its business as set forth in the Prospectus, will not become an "investment company", and will not be required to be registered under the Investment Company Act; (xii) to the knowledge of such counsel, no person or entity has the right to require registration of shares of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement, except by entities which have waived such rights as described in the Registration Statement and the Prospectus; (xiii) there is no stamp duty, value-added tax or any similar tax or duty, payable by or on behalf of the Underwriters, the Company or any Subsidiary in Hong Kong in connection with the authorization, issuance, sale and delivery of the Securities to the Underwriters in the manner contemplated by this Agreement; and (xiv) the Registration Statement has become effective under the Securities Act, the Prospectus has been filed in accordance with Rule 424(b) of the Regulations, including the applicable time periods set forth therein, or such filing is not required. To the knowledge of such counsel, no Stop Order has been issued and no proceeding for that purpose has been instituted or threatened. On the basis of the participation of such counsel in conferences at -41- which the contents of the Registration Statement and the Prospectus and related matters were discussed, but without independent verification by such counsel of the accuracy, completeness, or fairness of the statements contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, such counsel have no knowledge that (other than financial statements and other financial data and schedules which are or should be contained therein, as to which such counsel need express no opinion): (A) the Registration Statement, any Rule 430A Prospectus, and the Prospectus, and any amendment or supplement thereto, does not appear on its face to comply as to form in all material respects with the requirements of the Securities Act and the Regulations; (B) any of the Registration Statement, any Rule 430A Prospectus, or the Prospectus, or any amendment or supplement thereto, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; or (C) since the date of effectiveness under the Securities Act of the Registration Statement, any event has occurred which should have been set forth in an amendment or supplement to the Registration Statement or the Prospectus which has not been set forth in such an amendment or supplement. In rendering such opinion, counsel for the Company may rely (A) as to matters involving the application of laws other than the laws of the United States and the laws of the State of New Jersey, to the extent counsel for the Company deems proper and to the extent specified in such opinion, upon an opinion or opinions (in form and substance satisfactory to counsel for the Underwriters) of other counsel, acceptable to counsel for the Underwriters, familiar with the applicable laws, in which case the opinion of counsel for the Company shall state that the opinion or opinions of such other counsel are satisfactory in scope, form, and substance to counsel for the -42- Company and that reliance thereon by counsel for the Company and the Underwriters is reasonable; (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company; and (C) to the extent they deem proper, upon written statements or certificates of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company; provided that copies of any such opinions, certificates, or statements shall be annexed as exhibits to the opinion of counsel for the Company. (2) At any Additional Closing Date, you shall have received the favorable opinion of Messrs. Greenberg & Kahr, counsel for the Selling Shareholders, dated the date of delivery, addressed to the Underwriters, and in form and scope satisfactory to counsel for the Underwriters, with reproduced copies or signed counterparts thereof for each of the Underwriters, to the effect that: (i) Each Selling Shareholder has all requisite power and authority to execute, deliver, and perform this Agreement and his, her or its respective Custodial Agreement. This Agreement and the Custodial Agreement have each been duly executed and delivered by each Selling Shareholder, are the legal, valid, and binding obligation of each Selling Shareholder, and are each enforceable as to each Selling Shareholder in accordance with its respective terms. (ii) To the knowledge of such counsel, there is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation pending, threatened, or in prospect (or any basis therefor) with respect to any Selling Shareholder or any of such Selling Shareholder's business, properties, or assets, which, if determined adversely to such Selling Shareholder, would have a material adverse effect on such Selling Shareholder's business, properties or assets of such Selling Shareholder. Such Selling Shareholder is not in violation of, -43- or in default with respect to, any law, rule, regulation, order, judgment, or decree; nor is such Selling Shareholder required to take any action in order to avoid such violation or default. (iii) Each share of Shareholder Additional Stock is validly authorized and issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof, and has not been issued and is not owned or held in violation of any preemptive or similar rights of shareholders. Such Selling Shareholder has good title to the shares of Shareholder Additional Stock to be sold thereby pursuant to this Agreement, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. When delivered in accordance with the terms of this Agreement, the Underwriters shall receive good title to the Shareholder Additional Stock purchased by them from the Selling Shareholders, free and clear of all liens, security interests, pledges, charges, encumbrances, shareholders' agreements, and voting trusts. In rendering such opinion, counsel for the Selling Shareholders may rely (A) as to matters involving the application of laws other than the laws of the United States and the laws of the State of Delaware, to the extent counsel for the Selling Shareholders deems proper and to the extent specified in such opinion, upon an opinion or opinions (in form and substance satisfactory to counsel for the Underwriters) of other counsel, acceptable to counsel for the Underwriters, familiar with the applicable laws, in which case the opinion of counsel for the Selling Shareholders shall state that the opinion or opinions of such other counsel are satisfactory in scope, form, and substance to counsel for the Selling Shareholders and that reliance thereon by counsel for the Selling Shareholders and counsel for the Underwriters is reasonable; and (B) as to matters of fact, to the extent proper, on certificates of responsible officers of the Company; provided, that copies -44- of any such opinions, certificates, or statements shall be annexed as exhibits to the opinion of counsel for the Selling Shareholders. (c) On or prior to the Closing Date and any Additional Closing Date, as the case may be, the Underwriters shall have been furnished such information, documents, certificates, and opinions as they may reasonably require for the purpose of enabling them to review the matters referred to in Section 7(b), and in order to evidence the accuracy, completeness, or satisfaction of any of the representations, warranties, covenants, agreements, or conditions herein contained, or as the Representative may reasonably request. (d) At the Closing Date or any Additional Closing Date, as the case may be, (i) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all statements which are required to be stated therein in accordance with the Securities Act and the Regulations, and in all material respects conform to the requirements thereof, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) there shall have been, since the respective dates as of which information is given in the Registration Statement and the Prospectus, no material adverse change, or any development involving a prospective material adverse change, in the business, properties, or condition (financial or otherwise), results of operations, capital stock, long-term or short-term debt, or general affairs of the Company or any Subsidiary from that set forth in the Registration Statement and the Prospectus, except changes which the Registration Statement and Prospectus indicate might occur after the date on which the Registration Statement becomes effective under the Securities Act, and neither the Company nor -45- any Subsidiary shall have incurred any material liabilities or entered into any agreements not in the ordinary course of business other than as referred to in the Registration Statement and Prospectus, (iii) except as set forth in the Prospectus, no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation shall be pending, threatened, or in prospect (or any basis therefor) with respect to the Company or any Subsidiary or any of their respective operations, businesses, properties, or assets which would be required to be set forth in the Registration Statement, wherein an unfavorable decision, ruling, or finding would materially adversely affect the business, property, condition (financial or otherwise), results of operations, or general affairs of the Company or such Subsidiary, and (iv) the Stock be quoted upon the Nasdaq [National][SmallCap] Market [and the Pacific Stock Exchange]. (e) At the Closing Date and any Additional Closing Date, as the case may be, you shall have received a certificate of the chief executive officer, the chief financial officer, and the chief accounting officer of the Company, dated the Closing Date or such Additional Closing Date, as the case may be, to the effect, among other things, that (i) the conditions set forth in Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this Agreement and as of the Closing Date or such Additional Closing Date, as the case may be, the representations and warranties of the Company contained herein were and are accurate and correct in all materials respects, and (iii) as of the Closing Date or such Additional Closing Date, as the case may be, the obligations to be performed by the Company hereunder on or prior to such time have been fully performed. At each Additional Closing Date, you shall have received a certificate of a duly appointed attorney-in-fact for the Selling Shareholders, dated such Additional Closing Date, that, as of the date of this Agreement and such Additional Closing Date, the representations and -46- warranties of the Selling Shareholders contained herein were and are accurate and correct in all material respects, and that as of such Additional Closing Date, the obligations to be performed by the Selling Shareholders hereunder on or prior thereto have been fully performed. (f) At the time this Agreement is executed and at the Closing Date and any Additional Closing Date, as the case may be, you shall have received a letter, addressed to the Underwriters, and in form and substance satisfactory to the Representative, with reproduced copies or signed counterparts thereof for each of the Underwriters, from Richard A. Eisner & Company, LLP, independent certified public accountants for the Company, dated the date of delivery: (i) confirming that they are, and during the period covered by their report(s) included in the Registration Statement and the Prospectus were, independent certified public accountants with respect to the Company within the meaning of the Securities Act and the published Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) stating that, in their opinion, the financial statements and schedules of the Company included in the Registration Statement examined by them comply in form in all material respects with the applicable accounting requirements of the Securities Act and the related published rules and regulations; (iii) stating that, on the basis of procedures (but not an examination made in accordance with generally accepted auditing standards) consisting of a reading of the latest available unaudited interim financial statements of the Company (with an indication of the date of the latest available unaudited interim financial statements), a reading of the latest available minutes of the shareholders and Boards of Directors of the Company and committees of such Board of -47- Directors, inquiries to certain officers and other employees of the Company responsible for financial and accounting matters, and other specified procedures and inquiries, nothing has come to their attention that caused them to believe that: (A) the unaudited financial statements and schedules of the Company included in the Registration Statement and Prospectus do not comply in form in all material respects with the applicable accounting requirements of the Securities Act and the Exchange Act and the related published rules and regulations under the Securities Act or the Exchange Act or are not fairly presented in conformity with generally accepted accounting principles (except to the extent that certain footnote disclosures regarding any stub period may have been omitted in accordance with the applicable rules of the Commission under the Exchange Act) applied on a basis consistent with that of the audited financial statements appearing therein; (B) there was any change in the capital stock or long-term debt of the Company or any decrease in the net current assets or shareholders' equity of the Company as of the date of the latest available monthly financial statements of the Company as of a specified date not more than five business days prior to the date of such letter, each as compared with the amounts shown in the June 30, 1996 and December 31, 1996 balance sheets included in the Registration Statement and Prospectus, other than as properly described in the Registration Statement and Prospectus or any change or decrease (which shall be set forth therein) which, in the sole discretion of the Representative, the Representative shall accept, or (C) there was any decrease in net sales, net earnings, or net earnings per share of Common Stock during the period from June 30, 1996 and December 31, 1996 and to the date of the latest available monthly financial statements of the Company or to a specified date not more than five business days prior to the date of such letter, each as compared with the corresponding period in 1996, other than as properly described in the Registration Statement and -48- Prospectus or any decrease (which shall be set forth therein) which, the sole discretion of the Representative, the Representative shall accept; and (iv) stating that they have compared specific numerical data and financial information pertaining to the Company set forth in the Registration Statement, which have been specified by the Representative prior to the date of this Agreement, to the extent that such data and information may be derived from the general accounting records of the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter, and found them to be in agreement. (g) All proceedings taken in connection with the issuance, sale, transfer, and delivery of the Securities shall be satisfactory in form and substance to the Representative and to counsel for the Underwriters, and the Underwriters shall have received from such counsel for the Underwriters the opinion, dated as of the Closing Date and the Additional Closing Date, as the case may be, with respect to such of the matters set forth under Section 7(b), and with respect to such other related matters, as the Representative may reasonably request. (h) The NASD, upon review of the terms of the public offering of the Stock shall not have objected to the Underwriters' participation in such offering. (i) Prior to or on the Closing Date, the Company shall have entered into the Representative's Warrants with the Representative. (j) Prior to or on the Closing Date, the Company shall have provided to you copies of the agreements referred to in Section 2(a)(18). -49- Any certificate or other document signed by any officer of the Company and delivered to the Representative or to counsel for the Underwriters shall be deemed a representation and warranty by the Company hereunder to the Underwriters as to the statements made therein. Any certificate or other document signed by, or on behalf of, the Selling Shareholders and delivered to the Underwriters or to counsel for the Representative shall be deemed a representation and warranty by the Selling Shareholders hereunder to the Underwriters as to the statement made therein. If any condition to the Underwriters' obligations hereunder to be fulfilled prior to or at the Closing Date or any Additional Closing Date, as the case may be, is not so fulfilled, the Representative may, on behalf of the several Underwriters, terminate this Agreement or, if the Representative so elects, in writing waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 8. INDEMNIFICATION AND CONTRIBUTION. (a) Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Underwriter, its officers, directors, partners, employees, agents, and counsel, each of the Selling Shareholders, and each person, if any, who controls any Underwriter or any Selling Shareholder within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against any and all loss, liability, claim, damage, and expense whatsoever (which shall include, for all purposes of this Section 8, but not be limited to, attorneys' fees and any and all expense whatsoever incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever and any and all amounts paid in settlement of any claim or litigation) as and when incurred arising out of, based upon, or in connection with, (i) any untrue statement or alleged untrue statement of a material fact contained in (A) the Registration -50- Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto or (B) any application or other document or communication (for purposes of this Section 8, collectively referred to as an "application") executed by, or on behalf of, the Company or based upon written information furnished by, or on behalf of, the Company filed in any jurisdiction in order to qualify the Securities under the "blue sky" or securities laws thereof or filed with the Commission or any securities exchange; or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company as stated in Section 8(b) with respect to any Underwriter by, or on behalf of, such Underwriter through the Representative or as stated in Section 8(c) with respect to any Selling Shareholder by, or on behalf of, such Selling Shareholder expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any application, as the case may be, or (ii) any breach of any representation, warranty, covenant, or agreement of the Company contained in this Agreement. The foregoing agreement to indemnify shall be in addition to any liability the Company may otherwise have, including liabilities arising under this Agreement. If any action is brought against an Underwriter or any of its respective officers, directors, partners, employees, agents, or counsel, any Selling Shareholder, or any controlling persons of an Underwriter or a Selling Shareholder (an "indemnified party") in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, such indemnified party or parties shall promptly notify the Company in writing of the institution of such action (but the -51- failure so to notify shall not relieve the Company from any liability it may have other than pursuant to this Section 8(a)) and the Company shall promptly assume the defense of such action, including, without limitation, the employment of counsel satisfactory to such indemnified party or parties and payment of expenses. Such indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have promptly employed counsel satisfactory to such indemnified party or parties to have charge of the defense of such action or such indemnified party or parties shall have concluded that there may be one or more legal defenses available to it or them or to other indemnified parties which are different from, or in addition to, those available to the Company, in any of which events such fees and expenses shall be borne by the Company, and the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties. Anything in this paragraph to the contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or action effected without its written consent, which consent shall not be unreasonably withheld. The Company shall not, without the prior written consent of each indemnified party that is not released as described in this sentence, settle or compromise any action, or permit a default or consent to the entry of judgment or otherwise seek to terminate any pending or threatened action, in respect of which indemnity may be sought hereunder (whether or not any indemnified party is a party thereto), unless such settlement, compromise, consent, or termination includes an unconditional release of each indemnified party from all liability in respect of such action. The Company agrees promptly to notify the Underwriters and the Selling Shareholders of the -52- commencement of any litigation or proceedings against the Company or any of its officers or directors in connection with the sale of the Securities, the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or any application. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, each Selling Shareholder, each director of the Company, each officer of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company or a Selling Shareholder within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company to the several Underwriters and the Selling Shareholders in Section 8(a), but only with respect to statements or omissions, if any, made in the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, written information furnished to the Company as stated in this Section 8(b) with respect to any Underwriter by, or on behalf of, such Underwriter through the Representative expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any application, as the case may be; provided, however, that the obligation of each Underwriter to provide indemnity under the provisions of this Section 8(b) shall be limited to the amount which represents the product of (i) the number of shares of Stock underwritten by such Underwriter hereunder and the (ii) the underwriting discount per share of Common Stock set forth on the cover page of the Prospectus. For all purposes of this Agreement, the amounts of the selling concession and reallowance and the name of each of the Underwriters, and the number of shares of Firm Stock purchased by each of the Underwriters set forth in the -53- Prospectus constitute the only information furnished in writing by, or on behalf of, such Underwriter expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended or supplemented), or any amendment or supplement thereto, or in any application, as the case may be. If any action shall be brought against the Company, the Selling Shareholders, or any other person so indemnified based on the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any application, and in respect of which indemnity may be sought against any Underwriter pursuant to this Section 8(b), such Underwriter shall have the rights and duties given to the Company, and the Company, the Selling Shareholders, and each other person so indemnified shall have the rights and duties given to the indemnified parties, by the provisions of Section 8(a). (c) The Selling Shareholders severally agrees to indemnify and hold harmless the Company, each director of the Company, each officer of the Company who shall have signed the Registration Statement, each Underwriter, each officer, director, partner, employee, agent, and counsel of each Underwriter, and each other person, if any, who controls the Company or any Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity from the Company to the several Underwriters in Section 8(a), but only with respect to (i) statements or omissions, if any, made in the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto, or in any application in reliance upon, and in conformity with, written information furnished to the Company by, or on behalf of, any Selling Shareholder expressly for inclusion in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any -54- application, as the case may be, or (ii) any breach of any representation, warranty, covenant, or agreement of any Selling Shareholder contained in this Agreement. For all purposes of this Agreement, information with respect to the Selling Shareholders set forth under "Principal and Selling Shareholders" shall constitute the only information furnished in writing with respect to the Selling Shareholders by, or on behalf of, the Selling Shareholders expressly for inclusion in any the Registration Statement, any Preliminary Prospectus, or the Prospectus (as from time to time amended or supplemented), or any amendment or supplement thereto, or in any application, as the case may be. In case any action shall be brought against the Company, any Underwriter, or any other person so indemnified based on the Registration Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or supplement thereto, or on any application, or with respect to any such breach, and in respect of which indemnity may be sought against the Selling Shareholder, the Selling Shareholders shall have the rights and duties given to the Company, and the Company, the Underwriters, and each other person so indemnified shall have the rights and duties given to the indemnified parties, by the provisions of Section 8(a). (d) To provide for just and equitable contribution, if (i) an indemnified party makes a claim for indemnification pursuant to Section 8(a), 8(b), 8(c) (subject to the limitations thereof) but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Agreement expressly provides for indemnification in such case or (ii) any indemnified or indemnifying party seeks contribution under the Securities Act, the Exchange Act, or otherwise, then the Company (including for this purpose any contribution made by, or on behalf of, any director of the Company, any officer of the Company who signed the Registration Statement, and any controlling person of the Company), as -55- one entity, the Selling Shareholders, as a second entity, and the Underwriters (including for this purpose any contribution by, or on behalf of, an indemnified party) as a third entity, shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, so that the Underwriters, in the aggregate, are responsible for the proportion thereof equal to the percentage which the underwriting discount per share of Common Stock set forth on the cover page of the Prospectus represents of the initial public offering price per share of Common Stock set forth on the cover page of the Prospectus and the Company and the Selling Shareholders are responsible for the remaining portion; provided, however, that if applicable law does not permit such allocation, then other relevant equitable considerations such as the relative fault of the Company, the Selling Shareholders, and the Underwriters in connection with the facts which resulted in such losses, liabilities, claims, damages, and expenses shall also be considered. The relative fault, in the case of an untrue statement, alleged untrue statement, omission, or alleged omission, shall be determined by, among other things, whether such statement, alleged statement, omission, or alleged omission relates to information supplied by the Company, by the Selling Shareholders, or by the Underwriters, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement, alleged statement, omission, or alleged omission. The Company, the Selling Shareholders, and the Underwriters agree that it would be unjust and inequitable if the respective obligations of the Company, the Selling Shareholders, and the Underwriters for contribution were determined by pro rata or per capita allocation of the aggregate losses, liabilities, claims, damages, and expenses (even if the Underwriters and the other indemnified parties were treated as one entity for such purpose) or by any other method of allocation that does not reflect the equitable considerations referred to in this -56- Section 8(d). No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 8(d), each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each officer, director, partner, employee, agent, and counsel of any Underwriter shall have the same rights to contribution as such Underwriter, each person, if any, who controls any Selling Shareholder within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, shall have the same rights to contribution as such Selling Shareholder, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the provisions of this Section 8(d). Anything in this Section 8(d) to the contrary notwithstanding, no party shall be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 8(d) is intended to supersede any right to contribution under the Securities Act, the Exchange Act, or otherwise. 9. DEFAULT BY AN UNDERWRITER. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Stock or Additional Stock hereunder, and if the number of shares of Firm Stock or Additional Stock to which the defaults of all Underwriters in the aggregate relate does not exceed 10% of the number of shares of Firm Stock or Additional Stock, as the case may be, which all Underwriters have agreed to purchase hereunder, then such shares of Firm Stock or Additional -57- Stock to which such defaults relate shall be purchased by the non-defaulting Underwriters in proportion to their respective commitments hereunder. (b) If such defaults exceed in the aggregate 10% of the number of shares of Firm Stock or Additional Stock, as the case may be, which all Underwriters have agreed to purchase hereunder, the Representative may, in its discretion, arrange to purchase itself or for another party or parties to purchase such shares of Firm Stock or Additional Stock, as the case may be, to which such default relates on the terms contained herein. If the Representative does not arrange for the purchase of such shares of Firm Stock or Additional Stock, as the case may be, within one business day after the occurrence of defaults relating to in excess of 10% of the Firm Stock or the Additional Stock, as the case may be, then the Company (with respect to the Firm Stock and the Company Additional Stock) and the Selling Shareholders (with respect to the Shareholder Additional Stock) shall be entitled to a further period of one business day within which to procure another party or parties satisfactory to the Representative to purchase such shares of Firm Stock or Additional Stock, as the case may be, on such terms. If the Representative or the Company (with respect to the Firm Stock and the Company Additional Stock) or the Representative or the Selling Shareholders (with respect to the Shareholder Additional Stock) do not arrange for the purchase of the shares of Firm Stock or Additional Stock, as the case may be, to which such defaults relate as provided in this Section 9(b), this Agreement may be terminated by the Representative or by the Company (with respect to the Firm Stock and the Company Additional Stock) or the Representative or the Selling Shareholders (with respect to the Shareholder Additional Stock), in each case without liability on the part of the Company or the Selling Shareholders (except that the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall survive such termination) or the several Underwriters, but -58- nothing in this Agreement shall relieve a defaulting Underwriter of its liability, if any, to the other several Underwriters and to the Company and the Selling Shareholders for any damages occasioned by its default hereunder. (c) If the shares of Stock or Additional Stock to which such defaults relate are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, the Representative or the Company (with respect to the Firm Stock and the Company Additional Stock) or the Representative or the Selling Shareholders (with respect to the Shareholder Additional Stock) shall have the right to postpone the Closing Date or the Additional Closing Date, as the case may be, for a reasonable period but not in any event more than seven business days in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements with respect to the Firm Stock or the Additional Stock, and the Company agrees to prepare and file promptly any amendment or supplement to the Registration Statement or the Prospectus which in the opinion of counsel for the Underwriters may thereby be made necessary. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 9 as if such party had originally been a party to this Agreement and had been allocated the number of shares of Firm Stock and Additional Stock actually purchased by it as a result of its original commitment to purchase Firm Stock and Additional Stock and its purchase of shares of Firm Stock or Additional Stock pursuant to this Section 9. 10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties, covenants, and agreements contained in this Agreement shall be deemed to be representations, warranties, covenants, and agreements at the Closing Date and any Additional -59- Closing Date, and such representations, warranties, covenants, and agreements of the Underwriters, the Company, and the Selling Shareholders, including the indemnity and contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by, or on behalf of, any Underwriter or any indemnified person, or by, or on behalf of, the Company, any Selling Shareholder, or any person or entity which is entitled to be indemnified under Section 8(b), and shall survive termination of this Agreement or the delivery of the Firm Stock and the Additional Stock, if any, to the several Underwriters. In addition, the provisions of Sections 5(a)(1), 6, 8, 10, 11, and 13 shall survive termination of this Agreement, whether such termination occurs before or after the Closing Date or any Additional Closing Date. Notwithstanding anything in the second sentence of Section 6 hereof to the contrary, and in addition to the obligations assumed by the Company pursuant to the first sentence of Section 6 hereof, if the offering should be terminated, the Company shall be liable to the Underwriters only for out-of-pocket expenses incurred by the Underwriters in connection with this Agreement or the proposed, offer, sale, and delivery of the Securities. 11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF. (a) This Agreement shall become effective at 9:30 A.M., New York City local time, on the first full business day following the day on which the Registration Statement becomes effective under the Securities Act or at the time of the initial public offering by the Underwriters of the Firm Stock, whichever is earlier. The time of the initial public offering shall mean the time, after the Registration Statement becomes effective under the Securities Act, of the release by the Representative for publication of the first newspaper advertisement which is subsequently published relating to the Firm Stock or the time, after the Registration Statement becomes effective -60- under the Securities Act, when the Firm Stock is first released by the Representative for offering by the Underwriters or dealers by letter or telegram, whichever shall first occur. The Representative or the Company may prevent this Agreement from becoming effective without liability of any party to any other party, except as noted below in this Section 11, by giving the notice indicated in Section 11(d) before the time this Agreement becomes effective under the Securities Act. (b) If the purchase price of the Firm Stock has not been determined as provided for in Section 3 prior to 4:30 p.m., New York City local time, on the fifth full business day after the date on which the Registration Statement becomes was declared effective under the Securities Act, this Agreement may be terminated at any time thereafter either by the Representative or by the Company by giving notice to the other unless before such termination the purchase price for the Firm Stock has been so determined. If the purchase price of the Firm Stock has not been so determined prior to 4:30 p.m., New York City local time, on the tenth full business day after the date on which the Registration Statement was declared effective under the Securities Act, this Agreement shall automatically terminate forthwith. (c) In addition to the right to terminate this Agreement pursuant to Sections 7 and 9 hereof, the Representative shall have the right to terminate this Agreement at any time prior to the Closing Date or any Additional Closing Date, as the case may be, by giving notice to the Company, and, if exercised, the Over-allotment Options, at any time prior to any Additional Closing Date, by giving notice to the Company and the Selling Shareholders, (i) if any domestic or international event, act, or occurrence has materially and adversely disrupted, or, in the opinion of the Representative, will in the immediate future materially and adversely disrupt, the securities -61- markets; or (ii) if there shall have been a general suspension of, or a general limitation on prices for, trading in securities on the New York Stock Exchange or the American Stock Exchange or in the over-the-counter market; or (iii) if there shall have been an outbreak or increase in the level of major hostilities or other national or international calamity; or (iv) if a banking moratorium has been declared by a state or federal authority; or (v) if a moratorium in foreign exchange trading by major international banks or persons has been declared; or (vi) if there shall have been a material interruption in the mail service or other means of communication within the United States; or (vii) if the Company shall have sustained a material or substantial loss by fire, flood, accident, hurricane, earthquake, theft, sabotage, or other calamity or malicious act, whether or not such loss shall have been insured, or from any labor dispute or court or government action, order, or decree, which will, in the opinion of the Representative, make it inadvisable to proceed with the offering, sale, or delivery of the Firm Stock or the Additional Stock, as the case may be; or (viii) if any material governmental restrictions shall have been imposed on trading in securities in general, which restrictions are not in effect on the date hereof; or (ix) if there shall be passed by the Congress of the United States or by any state legislature any act or measure, or adopted by any governmental body or authoritative accounting institute or board, or any governmental executive, any orders, rules, or regulations, which the Representative believes likely to have a material adverse effect on the business, financial condition, or financial statements of the Company or the market for the Common Stock; or (x) if there shall have been such material and adverse change in the market for the Company's securities or securities in general or in political, financial, or economic conditions as in the judgment of the Representative makes it inadvisable to proceed with the offering, sale, and -62- delivery of the Firm Stock or the Additional Stock, as the case may be, on the terms contemplated by the Prospectus. (d) If the Representative elects to prevent this Agreement from becoming effective, as provided in this Section 11, or to terminate this Agreement pursuant to Section 7 of this Agreement or this Section 10, the Representative shall notify the Company and the Selling Shareholders promptly by telephone, telex, or telegram, confirmed by letter. If, as so provided, the Company elects to prevent this Agreement from becoming effective or to terminate this Agreement, the Company shall notify the Representative and the Selling Shareholders promptly by telephone, telex, or telegram, confirmed by letter. (e) Anything in this Agreement to the contrary notwithstanding other than Section 11(f), if this Agreement shall not become effective by reason of an election pursuant to this Section 11 or if this Agreement shall terminate or shall otherwise not be carried out within the time specified herein by reason of any failure on the part of the Company or the Selling Shareholders to perform any covenant or agreement or satisfy any condition of this Agreement by it to be performed or satisfied, the sole liability of the Company or the Selling Shareholders to the several Underwriters, in addition to the obligations the Company and the Selling Shareholders assumed pursuant to the first sentence of Section 6, will be to reimburse the several Underwriters for such out-of-pocket expenses (including the fees and disbursements of their counsel) as shall have been incurred by them in connection with this Agreement or the proposed offer, sale, and delivery of the Securities, and, upon demand, the Company and the Selling Shareholders, severally, agrees to pay promptly the full amount thereof to the Representative for the respective accounts of the Underwriters. Anything in this Agreement to the contrary notwithstanding other than Section 11(f), -63- if this Agreement shall not be carried out within the time specified herein for any reason other than the failure on the part of the Company or the Selling Shareholders to perform any covenant or agreement or satisfy any condition of this Agreement by it to be performed or satisfied, the Company and the Selling Shareholders shall have no liability to the several Underwriters other than for obligations assumed by the Company and the Selling Shareholders pursuant to Section 6. (f) Notwithstanding any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. Notwithstanding anything in the second sentence of Section 6 hereof to the contrary, and in addition to the obligations assumed by the Company pursuant to the first sentence of Section 6 hereof, if the offering should be terminated, the Company shall be liable to the several Underwriters only for out-of-pocket expenses incurred by the several Underwriters in connection with this Agreement or the proposed, offer, sale, and delivery of the Securities. 12. NOTICES. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and, if sent to any Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed by letter, to such Underwriter, c/o Hampshire Securities Corporation, 640 Fifth Avenue, New York, New York 10019, Attention: Mr. Richard K. Abbe, Executive Vice President, with a copy to Brock Fensterstock Silverstein McAuliffe & Wade, LLC, One Citicorp Center, 56th Floor, York, New York 10022, Attention: Robert Steven Brown, Esq.; or if sent to the Company or the Selling Shareholders, shall be mailed, delivered, or telexed or telegraphed and confirmed by letter, to the Company, Jazz Photo Corp., 600 Blair Road, Carteret, -64- New Jersey 07088, with a copy to Greenberg & Kahr, _____ Park Avenue, New York, New York 10022, Attention: Stephen C. Kahr, Esq. All notices hereunder shall be effective upon receipt by the party to which it is addressed. 13. PARTIES. Hampshire represents that it is authorized to act as Representative on behalf of the several Underwriters named in Schedule I hereto, and the Company and the Selling Shareholders shall be entitled to act and rely on any request, notice, consent, waiver, or agreement purportedly given on behalf of the Underwriters when the same shall have been given by Hampshire on such behalf. The Selling Shareholders represent that each of the attorneys-in-fact named in the power of attorney referred to in Section 2(b)(1) hereof is authorized to act on his behalf, and the Underwriters and the Company shall be entitled to act and rely upon any request, notice, consent, waiver, or agreement purportedly given on behalf of the Selling Shareholders when the same shall have been given by either of such attorneys-in-fact. This Agreement shall inure solely to the benefit of, and shall be binding upon, the several Underwriters, the Company, and the Selling Shareholders and the persons and entities referred to in Section 8 who are entitled to indemnification or contribution, and their respective successors, legal representatives, and assigns (which shall not include any buyer, as such, of the Firm Stock or the Additional Stock), and no other person shall have, or be construed to have, any legal or equitable right, remedy, or claim under, in respect of, or by virtue of this Agreement or any provision herein contained. Notwithstanding anything contained in this Agreement to the contrary, all of the obligations of the Underwriters hereunder are several and not joint. -65- 14. CONSTRUCTION. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to conflict of laws. TIME IS OF THE ESSENCE IN THIS AGREEMENT. 15. CONSENT TO JURISDICTION. The Company irrevocably consents to the jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action or proceeding arising out of, or relating to, this Agreement, any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement, or a breach of this Agreement or any such document or instrument. In any such action or proceeding, the Company waives personal service of any summons, complaint, or other process and agrees that service thereof may be made in accordance with Section 12. Within 30 days after such service, or such other time as may be mutually agreed upon in writing by the attorneys for the parties to such action or proceeding, the Company shall appear or answer such summons, complaint, or other process. Should the Company fail to appear or answer within such 30-day period or such extended period, as the case may be, the Company shall be deemed in default and judgment may be entered against the Company for the amount as demanded in any summons, complaint, or other process so served. -66- If the foregoing correctly sets forth the understandings among the Representative, the Company, and the Selling Shareholder, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, JAZZ PHOTO CORP. BY: ------------------------------- NAME: TITLE: _____________________________________ ____________, AS ATTORNEY-IN- FACT FOR THE SELLING SHAREHOLDERS ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN IN NEW YORK, NEW YORK HAMPSHIRE SECURITIES CORPORATION* BY: ------------------------------------------ RICHARD K. ABBE, EXECUTIVE VICE PRESIDENT *ON BEHALF OF ITSELF AND THE OTHER SEVERAL UNDERWRITERS NAMED IN SCHEDULE I HERETO. -67- SCHEDULE I Total Number of Shares to be UNDERWRITER PURCHASED ----------- ---------- Hampshire Securities Corporation................................... ---------- Total.......................................................... 1,000,000 ---------- ---------- -68- SCHEDULE II NAME OF SELLING SHAREHOLDER Number of Shares --------------------------- ---------------- -69- EX-3.1 3 CERTIFICATE OF INCORPORATION (Exhibit 3.1) FILED JUN 21 1995 LONNA R. HOOKS Secretary of State CERTIFICATE OF INCORPORATION OF JAZZ PHOTO CORP. - -------------------------------------------------------------------------------- (Section 14A:2-7 of the New Jersey Business Corporation Act for use by Domestic Profit Corporation) THIS IS TO CERTIFY THAT there is hereby organized a corporation under and by virtue of the provisions of the New Jersey Business Corporation Act Title 14A, New Jersey Statutes (NJS). 1. The name of the corporation is JAZZ PHOTO CORP. 2. The purpose for which this corporation is organized is to engage in any activity within the lawful business purposes for which corporations may be organized under the New Jersey Business Corporation Act. 3. The name of the corporation's registered agent is Mona Benun. 4. The address of the corporation's registered office is 1459 Pinewood Street, Rahway, New Jersey 07065. 5. The aggregate number of shares which the corporation shall have authority to issue is 1,000 shares, having a par value of $.01 per share, all of which shall be common stock. 6. The number of directors constituting the initial board of directors of this corporation is one. The name and address of each person who is to serve as such director is: Mona Benun residing at 80 Wickapecko Drive, Allenhurst, New Jersey 07711. 7. The name and address of the incorporator is Diane L. Rose, Esq., c/o Greenberg & Kahr, 3 New York Plaza, 12th Floor, New York, New York 10004. 8. The duration of the corporation is perpetual. 9. The corporation shall, to the fullest extent permitted by Section 14A:3-5 of the New Jersey Business Corporation Act, as the same may be amended and supplemented, indemnify any and all corporate agents whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders, or otherwise, and shall continue as to a person who has ceased to be a corporate agent and shall inure to the benefit of the heirs, executors, administrators, and personal representatives of such a corporate agent. The term "corporate agent" as used herein shall have the meaning attributed to it by Section 14A:3-5 of the New Jersey Business Corporation Act and by any other applicable provision of law. 10. The personal liability of the directors and officers of the corporation is hereby limited to the fullest extent permitted by subsection 14A:2-7(3) of the New Jersey Business Corporation Act, as the same may be amended and supplemented. IN WITNESS WHEREOF, I, the individual incorporator of the above-named corporation, being over eighteen years of age, have signed this certificate this 16th day of June, 1995. /s/ Diane L. Rose ------------------------------- Diane L. Rose, Incorporator EX-3.2 4 AMENDMENT OF CERT. OF INCORP. Exhibit 3.2 CERTIFICATE OF AMENDMENT F I L E D OF THE CERTIFICATE OF INCORPORATION MAR 19 1997 JAZZ PHOTO CORP. LONNA R. HOOKS Secretary of State ----------------- Under Section 14A:9-2 of the New Jersey Business Corporation Act of the State of New Jersey ----------------- The undersigned, the duly elected and acting President of JAZZ PHOTO CORP. (the "Corporation"), a corporation organized and existing under the New Jersey Business Corporation Act of the State of New Jersey (the "Act"), does hereby certify that: FIRST: The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of New Jersey on June 21,1995 (The Certificate of Incorporation is referred to herein as the "Certificate".) SECOND: The authorized capital stock of the Corporation shall be changed by amending numbered paragraph 5 of the Certificate to read in full as follows: "5. The total number of shares of stock which the Corporation shall have the authority to issue is eleven million five hundred thousand (11,500,000) shares, of which ten million (10,000,000) shares shall be Common Stock, par value $.01 per share, five hundred thousand (500,000) shares shall be Class A Common Stock, par value $.01 per share, and one million (1,000,000) shares shall be Preferred Stock, par value $1.00 per share. The Common Stock and Class A Common Stock shall be identical except that, unless otherwise required by law, the holders of Class A Common Stock shall not have any voting rights. The Preferred Stock shall be issued in series upon authority of the Board of Directors of the Corporation in its discretion to the fullest extent permitted by, and the Board of Directors shall exercise all the authority conferred under, Section 14A:7-2 of the Act." THIRD: The aforesaid amendment to the Certificate was duly adopted by unanimous written consent of the Corporation's Board of Directors pursuant to Sections 14:6-7.1(5) of the Act and of the shareholders in accordance with the Sections 14A:56(1) of the Act. Such action was taken by Shareholders without a meeting pursuant to the unanimous written consents of the shareholders holding 500 shares of Common Stock, par value $.01 per share, representing all of the outstanding capital stock of the Corporation. 2 IN WITNESS WHEREOF, I have made and signed this Amendment to the Certificate this 6th day of January, 1997, and I affirm the statements made therein as true under the penalties of perjury. /s/ Jack C. Benun ---------------------------- Jack C. Benun, President 3 EX-3.3 5 BY-LAWS OF JAZZ PHOTO CORP. (Exhibit 3.3) BY-LAWS OF JAZZ PHOTO CORP. ARTICLE I - OFFICES The registered office of the Corporation is fixed and located at 1459 Pinewood Street, Rahway, New Jersey 07065. The Board has full power and authority to change the registered office at any time to another location within or without the State of New Jersey. The principal office of the Corporation shall be in the State of New Jersey and/or such other places within or without the State of New Jersey as the board may from time to time determine or the business of the Corporation may require. ARTICLE II- SHAREHOLDERS 1. Place of Meetings. Meetings of shareholders will be held at the principal office of the Corporation or at such place within or without the State of New Jersey as the board shall authorize. 2. Annual Meeting. The annual meeting of the shareholders will be held at noon on the third Monday in March in each year, if not a legal holiday or, if a legal holiday, then on the next business day following, at the same hour, when the shareholders shall elect a board and transact other business as may properly come before the meeting. 3. Special Meetings. Special meetings of the shareholders may be called by the board or by the president and shall be called by the president or the secretary at the request in writing of a majority of the board or at the request, in writing, by shareholders owning a majority in amount of the shares issued and outstanding. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at a special meeting shall be confined to the purposes stated in the notice. 4. Fixing Record Date. For the purpose of determining the shareholders entitled to notice of, or to vote at, any meeting of shareholders or any adjournment thereof or to express consent to, or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the board shall fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than 60 days nor less than 10 days before the date of such meeting. If no record date is fixed it shall be determined in accordance with the provisions of law. The record date to determine shareholders entitled to give a written consent may not be more than 60 days before the date fixed for tabulation of the consents or, if no date has been fixed for tabulation, no more than 60 days before the last day on which consents received may be counted. 5. Notice of Meeting of Shareholders. Written notice of each meeting of shareholders shall state the purpose or purposes for which the meeting is called, the place, date and hour of the meeting and unless it is the annual meeting, shall indicate that it is being issued by or at the direction of the person or persons calling the meeting. Notice shall be given either personally or by mall to each shareholder entitled to vote at such meeting, not less than 10 or more than 60 days before the date of the meeting. If action is proposed to be taken that might entitle shareholders to payment for their shares, the notice shall include a statement of that purpose and to that effect. If mailed, the notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the secretary a written request that notices to him be mailed to some other address, then directed to him at such other address. 6. Waivers. Notice of meeting need not be given to any shareholder who signs a waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. 7. Quorum of Shareholders. Unless the Certificate of Incorporation provides otherwise, the holders of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of any business, provided that when a specified item of business is required to be voted on by a class or classes, the holders of a majority of the shares of such class or classes shall constitute a quorum for the transaction of such specified item of business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. The shareholders present may adjourn the meeting despite the absence of a quorum. 8. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. 2 Every proxy must he signed by the shareholder or his attorney-in-fact. No proxy shall be valid after expiration of eleven months from the date thereof unless otherwise provided in the proxy, but in no event shall a proxy be valid after three years from the date of execution. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided by law. 9. Qualification of Voters. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in his name on the record of shareholders, unless otherwise provided in the Certificate of Incorporation. 10. Vote of Shareholders. Except as otherwise required by statute or by the Certificate of Incorporation; (a) directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. (b) all other corporate action shall be authorized by a majority of the votes cast. 11. Written Consent of Shareholders. Except as otherwise required by statute, any action that may be taken by vote may be taken without a meeting on unanimous written consent, setting forth the action so taken, signed by the holders of all the outstanding shares entitled to vote thereon. ARTICLE III- DIRECTORS 1. Board of Directors. Subject to any provision in the Certificate of Incorporation the business of the Corporation shall be managed by its board of directors, each of whom shall be at least 18 years of age and need not be a shareholder. 2. Number of Directors. The number of directors shall be three, except that where all of the shares of the Corporation are held by less than three shareholders, the number of directors may be less than three, but not less than the number of shareholders. The number of directors constituting the initial board of directors of this corporation is one. 3. Election and Term of Directors. 3 At each annual meeting of shareholders, the shareholders shall elect directors to hold office until the next annual meeting. Each director shall hold office until the expiration of the term for which he is elected and until his successor has been elected and qualified, or until his prior resignation or removal. 4. Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason, except the removal of directors without cause, may be filled by a vote of a majority of the directors then in office, although less than a quorum exists, unless otherwise provided in the Certificate of Incorporation. Vacancies occurring by reason of removal of directors without cause shall he filled by vote of the shareholders unless otherwise provided in the Certificate of Incorporation. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his predecessor. 5. Removal of Directors. Any or all of the directors may be removed for cause by vote of the shareholders or by action of the board. Directors may be removed without cause only by vote of the shareholders. 6. Resignation. A director may resign at any time by giving written notice to the board, the president or the secretary of the Corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective. 7. Quorum of Directors. Unless otherwise provided in the Certificate of Incorporation, a majority of the entire board shall constitute a quorum for the transaction of business or of any specified item of business. 8. Action by the Board. Unless otherwise required by law, the vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the board. Each director present shall have one vote regardless of the number of shares, if any, which he may hold. 9. Place and Time of Meetings. The board may hold its meetings at the office of the Corporation or at such other places, either within or without the State of New Jersey, as it may from time to time determine 10. Action by Written Consent. 4 Use of Telephone Communications Equipment. Any election required or permitted to be taken at any meeting of the board or of any committee of the board may be taken without a meeting, if a written consent to such action is signed by all members of the board or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or of such committee. Members of the board or any committee appointed by the board may participate in a meeting of the board or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting. 11. Regular Annual Meeting. A regular annual meeting of the board shall be held, without call or notice, immediately following the annual meeting of shareholders at the place of such annual meeting of the shareholders. 12. Notice of Meetings of the Board, Adjournment. (a) Regular meetings of the board may be held upon notice at such time and place as it shall from time to time determine. Special meetings of the board shall be held upon notice to each director either personally or by mail or wire; special meetings shall be called by the president or by the secretary in a like manner on written request of two directors. Notice shall be given at least two days before the meeting if given by cable, telegram, telecopier, or overnight messenger, and at least five days before the meeting if given by mail or in any other manner. Any notice given by mall shall be deposited with the United States Postal Service, postage prepaid and addressed to the director's last known residence or business address. The notice need not specify the business to be transacted at the meeting or its purpose. Notice of a meeting need not be given to any director who submits a waiver of notice whether before or after the meeting or who attends the meeting without protesting prior thereto or at its commencement, the lack of notice to him. (b) A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place, but not more than 10 days in any one adjournment. Notice of the adjournment shall be given all directors who were absent at the time of the adjournment and, unless such time and place are announced at the meeting, to the other directors. 13. Chairman. At all meetings of the board the president, or in his absence, a chairman chosen by the board shall preside. 14. Executive or Other Committees. 5 The board, by resolution adopted by a majority of the entire board, may designate from among its members an executive committee and other committees, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board. 15. Compensation. No compensation shall be paid to directors, as such, for their actual services, but by resolution of the board a fixed sum and expenses for actual attendance, at each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. ARTICLE IV - OFFICERS 1. Officers, Election, Term. (a) Unless otherwise provided for in the Certificate of Incorporation, the board may elect or appoint a president, one or more vice-presidents, a secretary and a treasurer, and such other officers as it may determine, who shall have such duties, powers and functions as hereinafter provided. (b) All officers shall he elected or appointed to hold office until the meeting of the board following the annual meeting of shareholders. (c) Each officer shall hold office for the term for which he is elected or appointed and qualified. 2. Removal, Resignation, Salary, Etc. (a) Any officer elected or appointed by the board may be removed by the board with or without cause. (b) In the event of the death, resignation or removal of an officer, the board in its discretion may elect or appoint a successor to fill the unexpired term. (c) Any two or more offices may he held by the same person, but no person shall execute, acknowledge or verify any instrument in more than one capacity, if such instrument is required by law to be executed, acknowledged or verified by two or more officers. (d) The salaries of all officers may be fixed by the board. (e) The directors may require any officer to give security for the faithful performance of his duties. 3. President. 6 The President shall be the chief executive officer of the Corporation; he shall be responsible for overall planning and policy of the Corporation. At all meetings of the board and all meetings of the shareholders the president, shall preside. In addition, the president shall be the chief operating officer of the Corporation, he shall conduct the day-to-day business of the Corporation and shall see that all orders and resolutions of the board are carried into effect. 4. Vice-Presidents. During the absence or disability of the president, the vice-president or if there are more than one, the executive vice-president, shall have all the powers and functions of the president. Each vice-president shall perform such other duties as the board shall prescribe. 5. Secretary. The secretary shall: (a) attend all meetings of the board and the shareholders; (b) record all votes and minutes of all proceedings in a book to be kept for that purpose; (c) give or cause to be given notice of all meetings of shareholders and of special meetings of the board; (d) keep in safe custody the seal of the Corporation and affix it to any instrument when authorized by the board; (e) when required, prepare or cause to be prepared and available at each meeting of shareholders a certified list in alphabetical order of the names of shareholders entitled to vote thereat, indicating the number of shares of each respective class held by each; (f) keep all the documents and records of the Corporation as required by law or otherwise in a proper and safe manner; (g) perform such other duties as may be prescribed by the board. 6. Assistant-Secretaries. During the absence or disability of the secretary, the assistant-secretary, or if there are more than one, the one so designated by the secretary or by the board, shall have all the powers and functions of the secretary. 7. Treasurer. 7 The treasurer shall: (a) have the custody of the corporate funds and securities; (b) keep full and accurate accounts of receipts and disbursements in the corporate books; (c) deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the board; (d) disburse the funds of the Corporation as may be ordered or authorized by the board and preserve proper vouchers for such disbursements; (e) render to the president and board at the regular meetings of the board, or whenever they require it, an account of all his transactions as treasurer and of the financial condition of the Corporation; (f) render a full financial report at the annual meeting of the shareholders if so requested; (g) be furnished by all corporate officers and agents, at his request, with such reports and statements as he may require as to all financial transactions of the Corporation; (h) perform such other duties as are given to him by these By-Laws or as from time to time are assigned to him by the board or the president. 8. Assistant-Treasurer. During the absence or disability of the treasurer, the assistant-treasurer, or if there are more than one, the one so designated by the president or the board, shall have the powers and functions of the treasurer. 9. Sureties and Bonds. In case the board shall require, any officer or agent of the Corporation shall execute to the Corporation a bond in such sum and with such surety or sureties as the board may direct, conditioned upon the faithful performance of his duties to the Corporation and including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands. ARTICLE V - CERTIFICATES FOR SHARES 1. Certificates. 8 The shares of the Corporation shall he represented by certificates which shall state that the Corporation is organized under the laws of the State of New Jersey. They shall be numbered and entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and the number of shares and shall be signed by the president or a vice-president and the treasurer or the secretary and shall bear the corporate seal. 2. Replacement Certificates. The board may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost or destroyed, or wrongfully taken upon the making of an affidavit of the fact by the person claiming the certificate has been lost, destroyed or wrongfully taken. When authorizing such issue of a new certificate or certificates, the board may in its discretion and as a condition precedent to the issuance thereof require the owner of such lost, destroyed or wrongfully taken certificate or certificates, or his legal representative, to give the Corporation a bond in such sum and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. 9 3. Transfers of Shares. (a) Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the Corporation which shall be kept at its principal office. No transfer shall be made within ten days next preceding the annual meeting of shareholders. (b) The Corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share in the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of New Jersey. 4. Closing Transfer Books. The board shall have the power to close the share transfer books of the Corporation for a period of not more than ten days during the thirty day period immediately preceding (1) any shareholders' meeting, or (2) any date upon which shareholders shall be called upon to or have a right to take action without a meeting, or (3) any date fixed for the payment of a dividend or any other form of distribution, and only those shareholders of record at the time the transfer books are closed, shall be recognized as such for the purpose of (1) receiving notice of or voting at such meeting, or (2) allowing them to take appropriate action, or (3) entitling them to receive any dividend or other form of distribution. ARTICLE VI - DIVIDENDS Subject to the provision of the Certificate of Incorporation and to applicable law, dividends on the outstanding shares of the Corporation may be declared in such amounts and at such time or times as the board may determine. Before payment of any dividend, there may be set aside out of the net profits of the Corporation available for dividends such sum or sums as the board from time to time in its absolute discretion deems proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the board shall think conducive to the interests of the Corporation, and the board may modify or abolish any such reserve. 10 ARTICLE VII- CORPORATE SEAL The seal of the Corporation shall be circular in form and bear the name of the Corporation, the year of its organization and the words "Corporate Seal, New Jersey." The seal may be used in causing it to be impressed directly on the instrument or writing to be sealed, or upon adhesive substance affixed thereto. The seal on the certificates for shares or on any corporate obligation for the payment of money may be a facsimile, engraved or printed. ARTICLE VIII - EXECUTION OF INSTRUMENTS All corporate instruments and documents shall be signed or countersigned, executed, verified or acknowledged by such officer or officers or other person or persons as the board may from time to time designate. ARTICLE IX - FISCAL YEAR The fiscal year shall begin the first day of January in each year. ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION Reference to the Certificate of Incorporation in these By-Laws shall include all amendments thereto or changes thereof unless specifically excepted. ARTICLE XI - BY-LAW CHANGES (a) Except as otherwise provided in the Certificate of Incorporation the By-Laws may be amended, repealed or adopted by vote of the holders of the shares at the time entitled to vote in the election of any directors. By-laws may also be amended, repealed or adopted by the board but any By-Law adopted by the board may be amended by the shareholders entitled to vote thereon as hereinabove provided. (b) If any By-Law regulating an impending election of directors is adopted, amended or repealed by the board, there shall be set forth in the notice of the next meeting of the shareholders for the election of directors the By-Law so adopted, amended or repealed, together with a concise statement of the changes made. 11 EX-4.1 6 FORM OF UNDERWRITERS WARRANT Exhibit 4.1 DRAFT 033197A THE SECURITIES REPRESENTED HEREBY AND ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR (III) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN. THIS WARRANT IS NOT EXERCISABLE PRIOR TO ___________, 1998. VOID AFTER 5:00 P.M. NEW YORK CITY LOCAL TIME, ___________, 2002. JAZZ PHOTO CORP. WARRANTS FOR THE PURCHASE OF 100,000 SHARES OF COMMON STOCK, NO PAR VALUE NO. IPO-1 THIS CERTIFIES that, for receipt in hand of $100.00 and other value received, HAMPSHIRE SECURITIES CORPORATION (the "Holder") is entitled to subscribe for, and purchase from, JAZZ PHOTO CORP., a New Jersey corporation (the "Company"), upon the terms and conditions set forth herein, at any time or from time to time after 12:00 A.M., New York City local time ___________, 1998 until 5:00 P.M. New York City local time on ___________, 2002 (the "Exercise Period"), up to an aggregate of 100,000 shares of common stock, par value $.01 oer share (the "Common Stock"), of the Company. This Warrant is initially exercisable at $________ per share; provided, however, that upon the occurrence of any of the events specified in Section 5 hereof, the rights granted by this Warrant, including the exercise price and the number of shares of Common Stock to be received upon such exercise, shall be adjusted as therein specified. The term "Exercise Price" shall mean, depending on the context, the initial exercise price (as set forth above) or the adjusted exercise price per share. This Warrant is the Representative's Warrant or one of the Representative's Warrants (collectively, including any Representative's Warrant issued upon the exercise or transfer of any such Representative's Warrants in whole or in part, the "Warrants") issued pursuant to the Underwriting Agreement, dated __________, 1997 (the "Underwriting Agreement"), among the Company, the selling shareholders identified in Schedule II thereto, and Hampshire Securities Corporation, as the representative (the "Representative") of the several underwriters (the "Underwriters") identified in Schedule I thereto. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. This Warrant may not be sold, transferred, assigned, or hypothecated until ______________, 1998, except that it may be transferred, in whole or in part, to (i) one or more officers or partners of the Holder (or the officers or partners of any such partner); (ii) any other underwriting firm or member of the selling group which participated in the public offering of shares of Common Stock which commenced on __________, 1997 (or the officers or partners of any such firm); (iii) a successor to the Holder, or the officers or partners of such successor; (iv) a purchaser of substantially all of the assets of the Holder; or (v) by operation of law. The term the "Holder" as used herein shall include any transferee to whom this Warrant has been transferred in accordance with the above. Each share of Common Stock issuable upon the exercise hereof shall be hereinafter referred to as a "Warrant Share". 1. This Warrant may be exercised during the Exercise Period, either in whole or in part, by the surrender of this Warrant (with the election at the end hereof duly executed) to the Company at its office at 600 Blair Road, Carteret, New Jersey 07088, Attention: President, or at such other place as is designated in writing by the Company, together with a certified or bank cashier's check payable to the order of the Company in an amount equal to the product of the Exercise Price and the number of Warrant Shares for which this Warrant is being exercised. 2. Upon each exercise of the Holder's rights to purchase Warrant Shares, the Holder shall be deemed to be the holder of record of the Warrant Shares, notwithstanding that the transfer books of the Company shall then be closed or certificates representing the Warrant Shares with respect to which this Warrant was exercised shall not then have been actually delivered to the Holder. As soon as practicable after each such exercise of this Warrant, the Company shall issue and deliver to the Holder a certificate or certificates representing the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a Warrant evidencing the right of the Holder to purchase the balance of the aggregate number of Warrant Shares purchasable hereunder as to which this Warrant has not been exercised or assigned. 3. Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a warrant register (the "Warrant Register") as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such Warrant on the part of any other person, and shall not be liable for any registration of transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration or transfer, or with the -2- knowledge of such facts that its participation therein amounts to bad faith. This Warrant shall be transferable on the books of the Company only upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his, her, or its authority shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares (or portions thereof), upon surrender to the Company or its duly authorized agent. Notwithstanding the foregoing, the Company shall have no obligation to cause Warrants to be transferred on its books to any person if, in the opinion of counsel to the Company, such transfer does not comply with the provisions of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations thereunder. 4. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company represents that all shares of Common Stock issuable upon exercise of this Warrant are duly authorized and, upon receipt by the Company of the full payment for such Warrant Shares, will be validly issued, fully paid, and nonassessable, without any personal liability attaching to the ownership thereof and will not be issued in violation of any preemptive or similar rights of stockholders. 5. (a) The Exercise Price for the Warrants in effect from time to time, and the number of shares of Common Stock issuable upon exercise of the Warrants, shall be subject to adjustment, as follows: (i) In the event that the Company shall at any time after the date hereof (A) declare a dividend on the outstanding Common Stock payable in shares of its capital stock, (B) subdivide the outstanding Common Stock, (C) combine the outstanding Common Stock into a smaller number of shares, or (D) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then, in each case, the Exercise Price per Warrant Share in effect at the time of the record date for the determination of stockholders entitled to receive such dividend or distribution or of the effective date of such subdivision, combination, or reclassification shall be adjusted so that it shall equal the price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action, and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action. Such adjustment shall be made successively whenever any event listed above shall occur and shall become effective at the close of business on such record date or at the close of business on the date immediately preceding such effective date, as applicable. -3- (ii) In the event that the Company shall fix a record date for the determination of stockholders entitled to receive issuance of rights or warrants to be issued to all holders of Common Stock entitling such stockholders to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the "Subscription Price") (or having a conversion price per share) less than the then Current Market Price (as hereinafter defined) per share of Common Stock on such record date, the Exercise Price in effect at the time of such record date shall be adjusted so that the same shall equal the price determined by multiplying such Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (or the aggregate conversion price of the convertible securities so offered) would purchase at such Current Market Price per share of the Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (iii) In the event the Company shall fix a record date for the determination of stockholders entitled to receive (including any such distribution made to the stockholders of the Company in connection with a consolidation or merger in which the Company is the continuing corporation in a distribution to all holders of Common Stock) evidences of its indebtedness, cash, or assets (other than distributions and dividends payable in shares of Common Stock), or rights, options, or warrants to subscribe for or purchase shares of Common Stock, or securities convertible into, or exchangeable for, shares of Common Stock (excluding those referred to in paragraph (ii) above) in a distribution to all holders of Common Stock, then, in each case, the Exercise Price in effect at the time of such record date shall be adjusted by multiplying the Exercise Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price per share of Common Stock on such record date, less the fair market value (as determined in good faith by the board of directors of the Company, whose determination shall be conclusive absent manifest error) of the portion of the evidences of indebtedness or assets so to be distributed, or of such rights, options, or warrants, or convertible or exchangeable securities, or the amount of such cash, applicable to one share of Common Stock, and the denominator of which shall be such Current Market Price per share of Common Stock on such record date. Such adjustment shall be made successively whenever any event listed above shall occur and become effective at the close of business on such record date. (iv) In case the Company shall issue shares of Common Stock for a consideration per share (the "Offering Price") less than the Current Market Price per share of Common Stock on the date the Company fixes the offering price of such additional shares, the Exercise Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the sum of the number of shares of -4- Common Stock outstanding immediately prior to the issuance of such additional shares and the number of shares of Common Stock which the aggregate consideration received (determined as provided in Subsection (i) below) for the issuance of such additional shares would purchase at such Current Market Price per share of Common Stock, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made. Notwithstanding anything herein to the contrary, no adjustment pursuant to this paragraph (a)(iv) of Section 5 shall take place as a result of this issuance of shares of Common Stock pursuant to an employee, officer, or director securities ownership or compensation plan duly adopted by the Board of Directors of the Company, including, but not limited to, any employee stock option plan duly adopted by the Board of Directors of the Company. (v) In case the Company shall issue any securities convertible into, or exchangeable for, Common Stock (excluding securities issued in transactions described in Subsections (ii) and (iii) above) for a consideration per share of Common Stock (the "Conversion Price") initially deliverable upon conversion or exchange of such securities (determined as provided in Subsection (i) below) less than the Current Market Price per share of Common Stock in effect immediately prior to the issuance of such securities, the Exercise Price in effect immediately prior to the date of such issuance shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received (determined as provided in Subsection (i) below) for such securities would purchase at such Current Market Price per share of Common Stock, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock deliverable upon conversion of, or in exchange for, such securities at the initial conversion or exchange price or rate. Such adjustment shall be made successively whenever such an issuance is made. Notwithstanding anything herein to the contrary, no adjustment pursuant to this paragraph (a)(v) of Section 5 shall take place as a result of the issuance of securities convertible into, or exchangeable for, shares of Common Stock pursuant to an employee, officer, or director securities ownership or compensation plan duly adopted by the Board of Directors of the Company, including, but not limited to, any employee stock option plan duly adopted by the Board of Directors of the Company. (b) The Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the 30 consecutive trading days immediately preceding the date in question. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national securities exchange (including, for purposes hereof, the Nasdaq National Market) on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the highest reported bid price for the Common Stock as furnished by the National Association of Securities Dealers, Inc. through the Nasdaq SmallCap Market or a similar organization if the Nasdaq -5- SmallCap Market is no longer reporting such information. If, on any such date, the Common Stock is not listed or admitted to trading on any national securities exchange and is not quoted on the Nasdaq SmallCap Market or any similar organization, the Current Market Price shall be deemed to be the fair value of a share of Common Stock on such date, as determined in good faith by the Board of Directors of the Company, absent manifest error. (c) All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (d) In any case in which this Section 5 shall require that an adjustment in the number of Warrant Shares be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the Holder, if the Holder exercised this Warrant after such record date, the Warrant Shares, if any, issuable upon such exercise over and above the number of Warrant Shares issuable upon such exercise on the basis of the number of shares of Common Stock outstanding or in effect prior to such adjustment; provided, however, that the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional shares of Common Stock upon the occurrence of the event requiring such adjustment. (e) Whenever there shall be an adjustment as provided in this Section 5, the Company shall within 15 days thereafter cause written notice thereof to be sent by registered or certified mail, postage prepaid, to the Holder, at its address as it shall appear in the Warrant Register, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares issuable and the Exercise Price thereof after such adjustment and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate shall be conclusive evidence of the correctness of any such adjustment absent manifest error. (f) The Company shall not be required to issue fractions of shares of Common Stock or other capital stock of the Company upon the exercise of this Warrant. If any fraction of a share of capital stock would be issuable on the exercise of this Warrant (or specified portions thereof), the Company shall purchase such fraction for an amount in cash equal to the same fraction of the Current Market Price of such share of Common Stock on the date of exercise of this Warrant. (g) No adjustment in the Exercise Price per Warrant Share shall be required if such adjustment is less than $.05; provided, however, that any adjustments which by reason of this Section 5 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (h) Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to Subsections (a)(i), (a)(ii), (a)(iii), (a)(iv), or (a)(v) above, the number of Warrant Shares issuable upon exercise of this Warrant shall simultaneously be adjusted by multiplying the number of Warrant Shares theretofore issuable upon exercise of this Warrant by the Exercise Price theretofore in effect and dividing the product so obtained by the Exercise Price, as adjusted. -6- (i) For purposes of any computation respecting consideration received pursuant to Subsections (a)(iv) and (a)(v) above, the following shall apply: (i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts, or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; (ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), the determination of which shall be a conclusive absent manifest error; and (iii) in the case of the issuance of securities convertible into, or exchangeable for, shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (i) and (ii) of this Subsection (i)). (j) Notwithstanding anything herein to the contrary, if any adjustment under this Section 5 of the Exercise Price or the number of shares of Common Stock or other securities issuable upon exercise of this Warrant shall be determined by the National Association of Securities Dealers, Inc. (the "NASD") to violate either or both of Section 44(c)(6)(B)(vi)(7) or Section 44(c)(6)(B)(vi)(8) of Article III of the Rules of Fair Practice of the NASD, and such determination shall not be subject to further appeal or review, the violative provisions or provisions shall be deemed to be amended to the minimum extent necessary to cause each such provision to comply with the applicable violated paragraph of Section 44 of the NASD Rules of Fair Practice. 6. (a) In case of any capital reorganization, other than in the cases referred to in Section 5(a) hereof, or the consolidation or merger of the Company with or into another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock or the conversion of such outstanding shares of Common Stock into shares of other stock or other securities or property), or in the case of any sale, lease, or conveyance to another corporation of the property and assets of any nature of the Company as an entirety or substantially as an entirety (such actions being hereinafter collectively referred to as "Reorganizations"), there shall thereafter be deliverable upon exercise of this Warrant (in lieu of the number of Warrant Shares theretofore deliverable) the number of shares of stock or other securities or property to which a holder of the respective number of Warrant Shares which would otherwise have been deliverable upon the exercise of this Warrant would have been entitled upon such Reorganization if this Warrant had -7- been exercised in full immediately prior to such Reorganization. In case of any Reorganization, appropriate adjustment, as determined in good faith by the Board of Directors of the Company, shall be made in the application of the provisions herein set forth with respect to the rights and interests of the Holder so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares or other property thereafter deliverable upon exercise of this Warrant. Any such adjustment shall be made by, and set forth in, a supplemental agreement between the Company, or any successor thereto, and the Holder, with respect to this Warrant, and shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The Company shall not effect any such Reorganization unless, upon or prior to the consummation thereof, the successor corporation, or, if the Company shall be the surviving corporation in any such Reorganization and is not the issuer of the shares of stock or other securities or property to be delivered to holders of shares of the Common Stock outstanding at the effective time thereof, then such issuer, shall assume by written instrument the obligation to deliver to the Holder such shares of stock, securities, cash, or other property as such holder shall be entitled to purchase in accordance with the foregoing provisions. In the event of sale, lease, or conveyance or other transfer of all or substantially all of the assets of the Company as part of a plan for liquidation of the Company, all rights to exercise this Warrant shall terminate 30 days after the Company gives written notice to the Holder and each registered holder of a Warrant that such sale or conveyance or other transfer has been consummated. (b) In case of any reclassification or change of the shares of Common Stock issuable upon exercise of this Warrant (other than a change in par value or from a specified par value to no par value, or as a result of a subdivision or combination, but including any change in the shares into two or more classes or series of shares), or in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from no par value to a specified par value, or as a result of a subdivision or combination, but including any change in the shares into two or more classes or series of shares), the Holder or holders of this Warrant shall have the right thereafter to receive upon exercise of this Warrant solely the kind and amount of shares of stock and other securities, property, cash, or any combination thereof receivable upon such reclassification, change, consolidation, or merger by a holder of the number of Warrant Shares for which this Warrant might have been exercised immediately prior to such reclassification, change, consolidation, or merger. Thereafter, appropriate provision shall be made for adjustments which shall be as nearly equivalent as practicable to the adjustments in Section 5. (c) The above provisions of this Section 6 shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales, leases, or conveyances. 7. In case at any time the Company shall propose: -8- (a) to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or (b) to issue any rights, warrants, or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any other rights, warrants, or other securities; or (c) to effect any reclassification or change of outstanding shares of Common Stock or any consolidation, merger, sale, lease, or conveyance of property, as described in Section 6; or (d) to effect any liquidation, dissolution, or winding-up of the Company; or (e) to take any other action which would cause an adjustment to the Exercise Price per Warrant Share; then, and in any one or more of such cases, the Company shall give written notice thereof by registered or certified mail, postage prepaid, to the Holder at the Holder's address as it shall appear in the Warrant Register, mailed at least 20 days prior to (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants, or other securities are to be determined, (ii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up is expected to become effective and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up, or (iii) the date of such action which would require an adjustment to the Exercise Price per Warrant Share. 8. The issuance of any shares or other securities upon the exercise of this Warrant and the delivery of certificates or other instruments representing such shares or other securities shall be made without charge to the Holder for any tax or other charge in respect of such issuance. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 9. (a) If, at any time during the seven-year period commencing on ___________, 1997, the Company shall file a registration statement (other than on Form S-4, Form S-8 or any successor form) with the Securities and Exchange Commission (the "Commission") while any Registrable Securities (as hereinafter defined) are outstanding, the Company shall give all the then -9- holders of any Registrable Securities (the "Eligible Holders") at least 45 days prior written notice of the filing of such registration statement. If requested by any Eligible Holder in writing within 30 days after receipt of any such notice, the Company shall, at the Company's sole expense (other than the fees and disbursements of counsel for the Eligible Holders and the underwriting discounts, if any, payable in respect of the Registrable Securities sold by any Eligible Holder), register or qualify all or, at each Eligible Holder's option, any portion of the Registrable Securities of any Eligible Holders who shall have made such request, concurrently with the registration of such other securities, all to the extent requisite to permit the public offering and sale of the Registrable Securities, and will use its best efforts through its officers, directors, auditors, and counsel to cause such registration statement to become effective as promptly as practicable. Notwithstanding the foregoing, if the managing underwriter of any such offering shall advise the Company in writing that, in its opinion, the distribution of all or a portion of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by the Company would materially adversely affect the distribution of such securities by the Company for its own account, then any Eligible Holder who shall have requested registration of his, her, or its Registrable Securities shall delay the offering and sale of such Registrable Securities (or the portions thereof so designated by such managing underwriter) for such period, not to exceed 90 days (the "Delay Period"), as the managing underwriter shall request, provided that no such delay shall be required as to any Registrable Securities if any securities of the Company are included in such registration statement and eligible for sale during the Delay Period for the account of any person other than the Company and any Eligible Holder unless the securities included in such registration statement and eligible for sale during the Delay Period for such other person shall have been reduced pro rata to the reduction of the Registrable Securities which were requested to be included and eligible for sale during the Delay Period in such registration. As used herein, "Registrable Securities" shall mean the Warrants and the Warrant Shares which, in each case, have not been previously sold pursuant to a registration statement or Rule 144 promulgated under the Securities Act. (b) If, on any two occasions during the four-year period commencing on ________, 1998, the Company shall receive a written request from Eligible Holders who in the aggregate own (or upon exercise of all Warrants or Warrants then outstanding would own) a majority of the total number of shares of Common Stock then included (or upon such exercises would be included) in the Registrable Securities (the "Majority Holders"), to register the sale of all or part of such Registrable Securities, the Company shall, as promptly as practicable, prepare and file with the Commission a registration statement sufficient to permit the public offering and sale of the Registrable Securities and will use its best efforts through its officers, directors, auditors, and counsel to cause such registration statement to become effective as promptly as practicable; provided, that the Company shall only be obligated to file one such registration statement pursuant to this Section 9(b) for which all expenses incurred in connection with such registration (other than the fees and disbursements of counsel for the Eligible Holders and underwriting discounts, if any, payable in respect of the Registrable Securities sold by the Eligible Holders) shall be borne by the Company. Within five business days after receiving any request contemplated by this Section 9(b), the Company shall give written notice to all the other Eligible Holders, advising each of them that the Company is proceeding with such registration and offering to include therein all or any portion -10- of any such other Eligible Holder's Registrable Securities, provided that the Company receives a written request to do so from such Eligible Holder within 30 days after receipt by him, her, or it of the Company's notice. (c) In the event of a registration pursuant to the provisions of this Section 9, the Company shall use its best efforts to cause the Registrable Securities so registered to be registered or qualified for sale under the securities or blue sky laws of such jurisdictions as the Holder or such holders may reasonably request; provided, however, that the Company shall not be required by reason of this Section 9(c) to register or qualify the Registrable Securities in any jurisdiction where, as a result thereof, the Company would be subject to service of general process or to taxation as a foreign corporation doing business in such jurisdiction to which the Company is not then subject. (d) The Company shall keep effective any registration or qualification contemplated by this Section 9 and shall from time to time amend or supplement each applicable registration statement, preliminary prospectus, final prospectus, application, document, and communication for such period of time as shall be required to permit the Eligible Holders to complete the offer and sale of the Registrable Securities covered thereby. The Company shall in no event be required to keep any such registration or qualification in effect for a period in excess of nine months from the date on which the Eligible Holders are first free to sell such Registrable Securities; provided, however, that, if the Company is required to keep any such registration or qualification in effect with respect to securities other than the Registrable Securities beyond such period, the Company shall keep such registration or qualification in effect as it relates to the Registrable Securities for so long as such registration or qualification remains or is required to remain in effect in respect of such other securities. (e) In the event of a registration pursuant to the provisions of this Section 9, the Company shall furnish to each Eligible Holder such number of copies of the registration statement and of each amendment and supplement thereto (in each case, including all exhibits), such reasonable number of copies of each prospectus contained in such registration statement and each supplement or amendment thereto (including each preliminary prospectus), all of which shall conform to the requirements of the Securities Act and the rules and regulations thereunder, and such other documents as any Eligible Holder may reasonably request to facilitate the disposition of the Registrable Securities included in such registration. (f) In the event of a registration pursuant to the provisions of this Section 9, the Company shall furnish each Eligible Holder of any Registrable Securities so registered with an opinion of its counsel (reasonably acceptable to the Eligible Holders) to the effect that (i) the registration statement has become effective under the Securities Act and no order suspending the effectiveness of the registration statement, or preventing or suspending the use of the registration statement, any preliminary prospectus, any final prospectus or any amendment or supplement thereto, has been issued, nor, to the knowledge of such counsel, has the Commission or any securities or blue sky authority of any jurisdiction instituted or threatened to institute any proceedings with respect to such an order, (ii) the registration statement and each prospectus -11- forming a part thereof (including each preliminary prospectus), and any amendment or supplement thereto, complies as to form with theSecurities Act and the rules and regulations thereunder, and (iii) such counsel has no knowledge of any material misstatement or omission in such registration statement or any prospectus, as amended or supplemented. Such opinion shall also state the jurisdictions in which the Registrable Securities have been registered or qualified for sale pursuant to the provisions of Section 9(c). (g) In the event of a registration pursuant to the provision of this Section 9, the Company shall enter into a cross-indemnity agreement and a contribution agreement, each in customary form, with each underwriter, if any, and, if requested, enter into an underwriting agreement containing conventional representations, warranties, allocation of expenses, and customary closing conditions, including, without limitation, opinions of counsel and accountants' cold comfort letters, with any underwriter who acquires any Registrable Securities. (h) The Company agrees that until all the Registrable Securities have been sold under a registration statement or pursuant to Rule 144 under the Securities Act, it shall keep current in filing all reports, statements, and other materials required to be filed with the Commission to permit holders of the Registrable Securities to sell such securities under Rule 144 under the Securities Act. 10. (a) Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless each Eligible Holder, its officers, directors, partners, employees, agents, and counsel, and each person, if any, who controls any such person within the meaning of Section 15 of theSecurities Act or Section 20(a) of the Securities ExchangeSecurities Act of 1934, as amended (the "Exchange Act"), from and against any and all loss, liability, charge, claim, damage, and expense whatsoever (which shall include, for all purposes of this Section 10, without limitation, attorneys' fees and any and all expense whatsoever incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), as and when incurred, arising out of, based upon, or in connection with, (i) any untrue statement or alleged untrue statement of a material fact contained in (A) any registration statement, preliminary prospectus, or final prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto, relating to the offer and sale of any of the Registrable Securities, or (B) any application or other document or communication (in this Section 10, referred to collectively as an "application") executed by, or on behalf of, the Company or based upon written information furnished by, or on behalf of, the Company filed in any jurisdiction in order to register or qualify any of the Registrable Securities under the securities or "blue sky" laws thereof or filed with the Commission or any securities exchange; or any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, unless such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company with respect to such Eligible Holder by, or on behalf of, such person expressly for inclusion in any registration statement, preliminary prospectus or final prospectus, or any amendment or supplement thereto, or in any application, as the case may be, or (ii) any breach of any representation, warranty, covenant, or agreement of the Company contained in this Warrant. The foregoing agreement to -12- indemnify shall be in addition to any liability the Company may otherwise have, including liabilities arising under this Warrant. If any action is brought against any Eligible Holder or any of its officers, directors, partners, employees, agents, or counsel, or any controlling persons of such person (an "indemnified party") in respect of which indemnity may be sought against the Company pursuant to the foregoing paragraph, such indemnified party or parties shall promptly notify the Company in writing of the institution of such action (but the failure so to notify shall not relieve the Company from any liability other than pursuant to this Section 10(a)) and the Company shall promptly assume the defense of such action, including, without limitation, the employment of counsel reasonably satisfactory to such indemnified party or parties) and payment of expenses. Such indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have promptly employed counsel reasonably satisfactory to such indemnified party or parties to have charge of the defense of such action or the named parties to such action include both the indemnified and the indemnifying parties and such indemnified party or parties shall have reasonably concluded that there may be one or more legal defenses available to it or them or to other indemnified parties which are different from, or in addition to, those available to the Company, which, for reasons of conflict of interest or otherwise, counsel to the Company is not in a position to assert, in any of which events such reasonable fees and expenses shall be borne by the Company and the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties. Anything in this Section 10 to the contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or action effected without its written consent, which consent shall not be unreasonably withheld. The Company shall not, without the prior written consent of each indemnified party that is not released as described in this sentence, settle or compromise any action, or permit a default or consent to the entry of judgment in, or otherwise seek to terminate, any pending or threatened action, in respect of which indemnity may be sought hereunder (whether or not any indemnified party is a party thereto), unless such settlement, compromise, consent, or termination includes an unconditional release of each indemnified party from all liability in respect of such action. The Company agrees promptly to notify the Eligible Holders of the commencement of any litigation or proceedings against the Company or any of its officers or directors in connection with the sale of any Registrable Securities or any preliminary prospectus, prospectus, registration statement, or amendment or supplement thereto, or any application relating to any sale of any Registrable Securities. (b) Each Eligible Holder severally agrees to indemnify and hold harmless the Company, each director of the Company, each officer of the Company who shall have signed any registration statement covering Registrable Securities held by such Eligible Holder, each other person, if any, who controls the Company within the meaning of Section 15 of theSecurities Act or Section 20(a) of the Exchange Act, and its or their respective counsel, to the same extent as the foregoing indemnity from the Company to the Eligible Holders in Section 10(a), but only with respect to -13- statements or omissions, if any, made in any registration statement, preliminary prospectus, or final prospectus (as from time to time amended and supplemented), or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, written information furnished to the Company with respect to any Eligible Holder by, or on behalf of, such Eligible Holder expressly for inclusion in any such registration statement, preliminary prospectus, or final prospectus, or any amendment or supplement thereto, or in any application, as the case may be. If any action shall be brought against the Company or any other person so indemnified based on any such registration statement, preliminary prospectus, or final prospectus, or any amendment or supplement thereto, or any application, and in respect of which indemnity may be sought against any Eligible Holder pursuant to this Section 10(b), such Eligible Holder shall have the rights and duties given to the Company, and the Company and each other person so indemnified shall have the rights and duties given to the indemnified parties, by the provisions of Section 10(a). (c) To provide for just and equitable contribution, if (i) an indemnified party makes a claim for indemnification pursuant to Section 10(a) or 10(b) hereof (subject to the limitations thereof), but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Warrant expressly provides for indemnification in such case, or (ii) any indemnified or indemnifying party seeks contribution under the Securities Act, the Exchange Act, or otherwise, then the Company (including for this purpose any contribution made by, or on behalf of, any director of the Company, any officer of the Company who signed any such registration statement, any controlling person of the Company, and its or their respective counsel), as one entity, and the Eligible Holders of the Registrable Securities included in such registration in the aggregate (including for this purpose any contribution by, or on behalf of, an indemnified party), as a second entity, shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, on the basis of relevant equitable considerations such as the relative fault of the Company and such Eligible Holders in connection with the facts which resulted in such losses, liabilities, claims, damages, and expenses. The relative fault, in the case of an untrue statement, alleged untrue statement, omission, or alleged omission, shall be determined by, among other things, whether such statement, alleged statement, omission, or alleged omission relates to information supplied by the Company or by such Eligible Holders, and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement, alleged statement, omission, or alleged omission. The Company and the Eligible Holders agree that it would be unjust and inequitable if the respective obligations of the Company and the Eligible Holders for contribution were determined by pro rata or per capita allocation of the aggregate losses, liabilities, claims, damages, and expenses (even if the Eligible Holders and the other indemnified parties were treated as one entity for such purpose) or by any other method of allocation that does not reflect the equitable considerations referred to in this Section 10(c). In no case shall any Eligible Holder be responsible for a portion of the contribution obligation imposed on all Eligible Holders in excess of its pro rata share based on the number of shares of Common Stock owned (or which would be owned upon exercise of all Registrable Securities) by it and included in such registration as compared to the number of shares of Common Stock owned (or which would be owned upon exercise of all Registrable Securities) by all Eligible Holders and included in such registration. No person guilty -14- of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 10(c), each person, if any, who controls any Eligible Holder within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act and each officer, director, partner, employee, agent, and counsel of each such Eligible Holders or control person shall have the same rights to contribution as such Eligible Holder or control person and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed any such registration statement, each director of the Company, and its or their respective counsel shall have the same rights to contribution as the Company, subject in each case to the provisions of this Section 10(c). Anything in this Section 10(c) to the contrary notwithstanding, no party shall be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 10(c) is intended to supersede any right to contribution under the Securities Act, the Exchange Act, or otherwise. 11. Unless registered pursuant to the provisions of Section 9 hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject to a stop transfer order and the certificate or certificates representing the Warrant Shares shall bear the following legend: THE SECURITIES REPRESENTED HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER HEREOF, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS. 12. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon receipt by the Company of reasonably satisfactory indemnification, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination. 13. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant. -15- 14. This Warrant shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed within such State, without regard to principles of conflicts of law. 15. The Holder and the Company irrevocably consent to the jurisdiction of the courts of the State of New York and of any federal court located in such State in connection with any action or proceeding arising out of, or relating to, this Warrant, any document or instrument delivered pursuant to, in connection with, or simultaneously with, this Warrant, or a breach of this Warrant or any such document or instrument. In any such action or proceeding, the Holder or the Company, as applicable, waives personal service of any summons, complaint, or other process and agrees that service thereof may be made in accordance with Section 12 of the Underwriting Agreement. Within 30 days after such service, or such other time as may be mutually agreed upon in writing by the attorneys for the parties to such action or proceeding, the Company shall appear -16- to answer such summons, complaint, or other process. Should the Company so served fail to appear or answer within such 30-day period or such extended period, as the case may be, the Company shall be deemed in default and judgment may be entered against the Company for the amount as demanded in any summons, complaint, or other process so served. Dated: ________, 1997 JAZZ PHOTO CORP. BY: -------------------------------- NAME: TITLE: [Seal] - --------------------------------- Secretary -17- FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and transfers unto _________________ a Warrant to purchase __________ shares of Common Stock, par value $.01 per share, of Jazz Photo Corp., a New Jersey corporation (the "Company"), and does hereby irrevocably constitute and appoint ___________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: ---------------- Signature ----------------------- NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. -18- ELECTION TO EXERCISE To: Jazz Photo Corp. 600 Blair Road Carteret, New Jersey 07088 The undersigned hereby exercises his, her, or its rights to purchase shares of Common Stock, par value $.01 per share ("the Common Stock"), of Jazz Photo Corp., a New Jersey corporation (the "Company"), covered by the within Warrant and tenders payment herewith in the amount of $____________ in accordance with the terms thereof, and requests that certificates for the securities constituting such shares of Common Stock be issued in the name of, and delivered to: (Print Name, Address, and Social Security or Tax Identification Number) and, if such number of shares of Common Stock shall not constitute all such shares of Common Stock covered by the within Warrant, that a new Warrant for the balance of the shares of Common Stock covered by the within Warrant shall be registered in the name of, and delivered to, the undersigned at the address stated below. Dated: Name ------------------ ------------------------ (Print) Address: ------------------------------ (Signature) -19- EX-9.1 7 EXH 9.1 - VOTING AGREEMENT DATED 4/3/97 Exhibit 9.1 VOTING AGREEMENT ---------------- VOTING AGREEMENT, dated as of April 2, 1997, among Mona Benun, individually, and as custodian for Vanessa J. Benun under the New Jersey Uniform Gift to Minors Act (the "NJUGMA") and, as custodian for Jasmine J. Benun under the NJUGMA; Sabrina J. Benun and Rebecca J. Benun (each referred to herein, individually, as a "Stockholder" and, collectively, as the "Stockholders") and Jazz Photo Corp., a New Jersey corporation (the "Company"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Stockholders are the owners of , in the aggregate, 2,200,000 shares (the "Shares") of the common stock, par value $.01 per share ("Common Stock"), of the Company in the amounts set forth opposite each such Stockholder's name on Schedule I annexed hereto and made a part hereof; and WHEREAS, the Stockholders and the Company desire to minimize any potential disruption in the management of the Company and, accordingly, wish to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. CREATION AND PURPOSE OF VOTING AGREEMENT. Subject to the terms and conditions hereof, a voting agreement with respect to the Shares is hereby created and established in accordance with New Jersey Business Act ("NJBCA") Section 14A:5-21. 2. VOTING OF THE SHARES. (a) Each Stockholder shall not vote her Shares against or withhold approval of: (i) election of a nominee in an election of directors of the Company if such person is nominated by the Board of Directors of the Company, or a Committee thereof, a majority of whose members consist of persons who are themselves directors of the Company serving as of the date hereof as directors of the Company ("Original Directors") or persons nominated directly or indirectly for election as directors or appointed to their posts as directors by the Original Directors (the "Successor Directors"). (ii) a proposal to remove a director unanimously approved by the Original and Successor Directors other than the director sought to be removed. (b) The foregoing provisions of this Section 2 shall be equally applicable to any vote effected by written consent as provided by applicable law. (c) The Stockholders shall not commence any action the result of which is, or is designed to cause, a change in the majority of the Board of Directors. 3. TERM OF VOTING AGREEMENT. The Voting Agreement created hereby shall commence on and as of the date hereof. This Voting Agreement shall terminate on the first to occur of the following: (a) The Stockholders shall in the aggregate own less than 20% of the shares of Common Stock of the Company outstanding at any time; (b) The fifth anniversary of the date hereof; (c) The Order of Final Judgment of Permanent Injunction and Other Relief as to Jack C. Benun entered in the United States District Court for the District of Columbia (Civ. No. 94 1913) shall have been vacated or otherwise modified so as to permit Jack C. Benun to serve as an officer or director of the Company. 4. TRANSFER OF SHARES. The voting restrictions contained in this Voting Agreement shall not apply to, and shall not bind, any transferee of the Shares who is not a member of the "immediate family" of any of the Stockholders. For the purposes hereof, "immediate family" shall mean the parent, sibling, child or spouse of any such Stockholder or any organization a majority of whose voting securities are owned directly or indirectly by, or which is under the control (as defined in Rule 405 under the Securities Act of 1933, as amended) of any such Stockholder. Accordingly, any transferee of the Shares who is not a member of the immediate family of any Stockholder shall be entitled to vote the Shares without any restrictions under this Agreement. 2 5. When Jack C. Benun ceases to be enjoined by the U.S. Federal District Court from serving as an officer or director of the Company, the Stockholders shall immediately grant to him an irrevocable proxy enforceable under New Jersey law to vote the Shares of the Stockholders. 6. MISCELLANEOUS. (a) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior oral or written agreements, commitments, or understandings with respect to the matters provided for herein. This Agreement shall not be amended, altered, or modified except by an instrument in writing duly executed by each of the parties hereto and consented to by Hampshire Securities Corporation. (b) This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto. This Agreement shall not be assignable by any party. This Agreement shall not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement. (c) All notices and other communications given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or on the third business day after being mailed by registered or certified mail return receipt requested, postage prepaid, or on the date delivered by courier providing confirmation of delivery, or on the dated transmitted by facsimile transmission or telex and addressed to the parties as follows: (i) If to the Stockholders: To such Stockholder as reflected on Schedule I hereto 80 Wickapecko Drive Allenhurst, New Jersey 07711 (ii) If to the Company: Jazz Photo Corp. 600 Blair Road Carteret, New Jersey 07088 Attention: President or to such other address as any of them by written notice to the other party may from time to time designate. (d) If any part of any provision of this Agreement or any other agreement, document, or writing given pursuant to, or in connection with, this Agreement shall be invalid or unenforceable under applicable law, said part shall be 3 ineffective to the extent of such invalidity only without in any way affecting the remaining part of said provision or the remaining provisions of this Agreement. (e) The headings of the Sections of this Agreement are inserted for convenience of reference only and do not form a part or affect the meaning hereof. (f) This Agreement, the rights and obligations of the parties hereto, and any claims and disputes relating thereto shall be governed by, and construed in accordance with, the laws of the State of New Jersey (not including the conflicts of law rules thereof). (g) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ----------------------------------- Mona Benun ----------------------------------- Mona Benun, as custodian for Jasmine J. Benun under the NJUGMA ----------------------------------- Mona Benun, as custodian for Vanessa J. Benun under the NJUGMA JAZZ PHOTO CORP. BY: Roger F. Lorenzini, President ----------------------------------- Sabrina J. Benun ----------------------------------- Rebecca J. Benun 4 EX-10.1 8 INDEMNITY AGREEMENT (Exhibit 10.1) INDEMNITY AGREEMENT AGREEMENT made this __ day of _____, 1997, between JAZZ PHOTO CORP., a New Jersey Corporation, with an address of 1459 Pinewood Street, Rahway, New Jersey 07065, its affiliates, subsidiaries, successors or assigns, herein collectively referred to as ("Indemnitor" or the "Company"), and MONA BENUN, a controlling shareholder of the Company, with an address of P.O. Box 288, Allenhurst, NJ 07711, herein referred to as Indemnitee. In consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. LIABILITY LOSS OR DAMAGE. Indemnitor undertakes to indemnify Indemnitee from any and all liability, loss, or damage, including but not limited to securities law violations which Indemnitee may suffer as a result of claims, demands, costs or judgments against Indemnitee arising from any actions of Indemnitor, including but not limited to, activities related to a proposed private financing and to a contemplated public offering of its securities as more fully set forth in a Letter of Intent between the Indemnitor and Hampshire Securities Corp. dated March ____, 1997. Indemnitor further agrees to indemnify Indemnitee from any and all expenses which may be incurred by Indemnitee for which payment is sought from Indemnitee arising from such Letter -1- of Intent, including any and all legal expenses which in all instances shall be paid by the Company to Indemnitee upon notice by her to the Company that she is requested to pay such expenses. Indemnitor shall indemnify the Indemnitee to the fullest extent permitted by applicable law in effect on the date hereof as such law may, from time to time, be amended (but, in the case of any such amendment, only to the extent such amendment permits Indemnitor to provide broader indemnification rights and protection as the law permitted Indemnitor to provide before such amendment). Without in any way diminishing the scope of the indemnification provided herein, the Indemnitor will indemnify the Indemnitee if, and whenever Indemnitee is, or was involved in any manner (including, without limitation, as a party or as a witness) in any threatened, pending, or completed proceeding, including, without limitation, any such proceeding brought by or in the right of the Indemnitor, by reason of the fact that the Indemnitee is or was deemed to be an agent or by reason of anything done or not done by the Indemnitee in such capacity, against expenses and liabilities incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any such proceeding, including any and all actions arising from alleged violation of securities laws. No initial finding by the Board of Directors of Jazz Photo Corp., its counsel, independent counsel, arbitrators or stockholders of the Company -2- shall be effective to deprive the Indemnitee of the protection of this indemnification nor shall a court to which the Indemnitee may apply for enforcement of this indemnity, give any weight to any such adverse finding in deciding any issue before it, as it is intended that the Indemnitee shall be paid promptly upon request by the Indemnitor, all amounts necessary to effectuate the foregoing indemnity in full. 2. DURATION. This Agreement shall continue so long as Indemnitee shall be subject to any possible proceeding by reason of the fact that the Indemnitee is or was a controlling person or affiliate of the Company or may be deemed to be an agent of the Company and shall be applicable to proceedings commenced or continued after execution of this Agreement, whether arising from acts or omissions occurring before or after such execution. 3. REQUIREMENT OF NOTICE TO INDEMNITOR. Indemnitee agrees to notify Indemnitor in writing, within twenty (20) days, by registered or certified mail, at Indemnitor's address as stated in this Agreement of any claim made against Indemnitee on the obligations indemnified against or for any pending or contemplated expense she may deem necessary for her to incur. Such payment may be made in advance of the actual expenditure. 4. ADVANCEMENT OF EXPENSES. All reasonable expenses incurred by or on behalf of the Indemnitee shall be advanced by the Indemnitor to the Indemnitee within ten (10) days after the -3- receipt by the Indemnitor of a written request for advances of expenses from time to time, whether prior to or after final disposition of a proceeding, including without limitation, any proceeding brought by or in the right of the Company. 5. OTHER RIGHTS TO INDEMNIFICATION. The Indemnitee's rights of indemnification and advancement of expenses provided by this Agreement, shall not be deemed exclusive of any other rights to which the Indemnitee may now or in the future be entitled under applicable law, the Certificate of Incorporation or By-Laws of the Company or any agreement, vote of the stockholders of the Company, or resolution of its directors or otherwise. IN WITNESS WHEREOF, the parties have executed this Agreement at ____________________________________ , the day and year first above written. ATTEST: JAZZ PHOTO CORP., Indemnitor _____________________ By /s/ Roger F. Lorenzini ---------------------- ROGER F. LORENZINI, Chief Executive Officer WITNESS: _____________________________ _____________________ MONA BENUN, ,Indemnitee -4- EX-10.2(I)(II)(III) 9 TRADEMARK/AMENDMENT/2ND AMENDMENT EXHIBIT 10.2(i) TRADEMARK LICENSE AGREEMENT I This TRADEMARK LICENSE AGREEMENT, dated the 13 day of November, 1995, by and between BELL & HOWELL COMPANY, a Delaware corporation ("Licensor") and JAZZ PHOTO CORP., a New Jersey corporation ("Licensee"). RECITALS A. Licensor owns certain trademarks (the "Trademarks") and the goodwill associated therewith, and certain registrations thereof (the "Registrations," the Trademarks and Registrations are sometimes together referred to as the "Marks") used in connection with Licensor's business; B. Licensee is in the business of marketing, selling and distributing 35 mm cameras and ancillary and related products, including film and camera carrying cases, all as more specifically described herein (the "Products") and C. Licensee desires to use the Marks in conjunction with the sale of the Products and Licensor is willing to permit such use, subject to the terms and conditions hereinafter set forth. In consideration of the foregoing, the parties agree as follows: 1. GRANT OF LICENSE 1.1 Licensor grants to Licensee an exclusive, non-transferable license to use the Marks, set forth on Schedule 1.lA, attached hereto and made a part hereof, in the Territory described below, on and in connection with the Products, as more specifically set forth on Schedule 1.lB, attached hereto and made a part hereof, subject to the following terms and conditions: 1.1.1 This license does not include the right to grant any sublicenses, other than to those production facilities identified pursuant to Section 3 of this Agreement. 1.1.2 Licensee shall have the right to distribute the Products bearing the Marks only to entities or through distribution channels approved in writing by Licensor prior to Licensee entering into any agreement or understanding, oral or written, for sale or distribution of the Products consistent with the term of this Agreement. Licensor may withhold its consent for any reason whatsoever. 1.2 Licensor represents and warrants that it has exclusive rights to use the Marks on the Products in the Territory. 1.3 Licensee accepts the License granted by Licensor on the terms and conditions set forth in subsection 1.1 hereof and such other terms and conditions set forth elsewhere in this Agreement which may otherwise limit Licensee's free use of the Marks in conjunction with the Products, including without limitation, those terms and conditions set forth in Sections 4, 5, 6, 7 and S hereof. 2. TERRITORY. This Agreement covers the entire territory described on Schedule 2 attached hereto and made a part hereof (the "Territory"). 3. TERM OF AGREEMENT. This Agreement shall continue in force and effect until January 15, 1997, unless sooner terminated as provided for herein. 4. LICENSEE'S OBLIGATIONS 4.1 Licensee acknowledges Licensor's ownership of the Marks throughout the world and the validity of the Registrations. Licensee agrees not to do anything inconsistent with such ownership. 4.2 Licensee agrees that any use of the Marks by Licensee shall inure to the benefit of, and be on behalf of Licensor. Licensee agrees that nothing in this Agreement shall give Licensee any right, tide or interest in any of the Marks other than the right to use each of the Marks in accordance with this Agreement. 4.3 Licensee agrees not to attack the tide of Licensor to any of the Marks, and not to attack the validity of the Marks, the Registration and this Agreement. 4.4 Licensee agrees not to use or register in any jurisdiction, a trademark, service mark or trade name that is confusingly similar to the Marks. 4.5 Licensee agrees to cooperate with Licensor for the purposes of securing or preserving Licensor' s rights in and to the Marks. This subsection of this Agreement shall survive any termination of this Agreement until all of the Marks are abandoned in all jurisdictions. 4.6 Licensee agrees to use its best efforts to sell Products with the Marks. In 2 that connection, Licensee agrees during the term of this Agreement not to market, sell or distribute any other 35 mm cameras with the same or similar operating features as any of the Products at a price above $25.00. 5. STANDARD OF QUALITY 5.1. Licensee agrees that the nature and quality of all goods sold by Licensee in connection with the Marks shall conform to standards set by and be under the control of Licensor. Licensee shall provide Licensor, for Licensor's approval, a detailed written description of Licensee's product development and quality control programs or those of the Manufacturer applicable to each of the Products prior to the manufacture or assembly of the Products, and to any use or depiction of the Marks in any advertising, promotional or display material or in any writing. 5.2 Licensee shall have each new Product tested by an independent testing laboratory approved in writing by Licensor prior to its introduction into the market. The independent laboratory shall be required to prepare a report in form and content satisfactory to Licensor which evidences full compliance with the specifications for the Product previously approved by Licensor in writing. No modifications may be made to any Product without Licensor's prior written approval. 5.3 Licensee shall comply with all applicable laws and regulations and obtain and maintain all appropriate government approvals pertaining to the sale, distribution and advertising of the Products covered by this Agreement, including, but not limited to those of the U.S. Consumer Product Safety Commission. 5.4 Licensee shall provide a written certification on or the last day of each calendar quarter that the Products manufactured at each Facility meet or exceed the industry standard and the standards published by Licensee for the benefit of each Manufacturer. In addition, Licensee shall advise Licensor of any product recalls or of any unusual or recurring problem with any of the Products or of any Facility. 6. PRODUCTION FACILITIES. Schedule 6 attached hereto and made a part hereof contains a list of all approved manufacturers of the Products (the "Manufacturers") and all production facilities initially to be used to manufacture the Products (the "Facilities"). Licensee shall advise Licensor in writing of any changes in the list of Manufacturers and Facilities sixty (60) days prior to any proposed change and provide a quarterly update to Licensor within twenty (20) days after the end of each calendar quarter during the term of this Agreement. Any addition or deletion from the schedule of Manufacturers must be with the concurrence of Licensor. 3 7. MAINTENANCE OF QUALITY 7.1. Licensee agrees to cooperate with Licensor to facilitate Licensor's control of the nature and quality of the Products, to permit reasonable inspection of Licensee's operation and the Facilities, and to supply Licensor with specimens of use of the Marks prior to the Marks being affixed to any of the Products or used in writing or depiction, including without limitation, any advertising, promotional or display materials, consumer operational manuals or service literature. 7.2 All Products shall be sold with not less than a one (1) year warranty of parts and labor; notwithstanding the foregoing, Licensee agrees to replace, at no cost or expense to the end user, exclusive of shipping and handling, any defective cameras returned within two (2) years of actual purchase by an end user. 7.3 Licensee shall provide to Licensor on a quarterly basis, or more frequently upon Licensor's request, the warranty and service information for each of the Products sold, including without limitation, the number of service calls, average time to make repairs or to provide a replacement product, the number of repeat callbacks and the number of returns. 7.4 Licensees or another entity or entities designated by Licensee shall provide parts and service for each of the Products purchased by consumers during the term of this Agreement and during any renewals hereof and continuing for a period of three (3) years after the end of the Product model run. Licensee shall take all reasonable steps to ensure that servicing is performed courteously, efficiently, in a timely manner and comparable to the services generally provided on high quality 35 mm cameras. For a period of not less than three (3) years after termination and as long as inventory parts are available, Licensee shall (i) continue to service or enter into and maintain agreements with national, regional or local servicers for the continuous servicing of the Products and (ii) make provision for the availability of extended warranties to customers at the point of purchase. In addition, Licensee shall provide an 800 number (or replacement) for service information. 8. MARKETING 8.1 Licensee shall distribute the Products through quality direct mail catalog companies, such as Service Merchandise, Sears and Hammacher Schlemmer, to quality credit card companies, such American Express, MasterCard and Visa and to major national gasoline companies, such as Amoco and Shell. Distribution of the Products through any direct mail catalog, credit card or selected retailers shall be subject to the prior written approval of Licensor, which may be granted in Licensor's sole discretion. 8.2 From the date hereof through December 1996, Licensee shall expend not less than $50,000 on advertising, marketing and promotional activities, exclusive of sales 4 allowances. The advertising and marketing of the Products with the Marks shall be consistent with Licensee's marketing and advertising of other equivalent or related consumer products. Licensee shall, upon request of Licensor, provide supporting documentation of such marketing and advertising expenditures. 8.3 Licensee shall recommend pricing or a price range for each of the Products and for each of the distribution venues, if appropriate, for Licensor's approval. Licensee agrees not to decrease pricing for any of the Products without Licensor's prior written approval. 9. ROYALTIES 9.1 Licensee agrees to pay a royalty to Licensor of three percent (3%) per annum on Gross Revenues, as hereinafter defined, from the sale or distribution of the Products, net of returns, allowances and discounts (the "Royalty Payment"). 9.2 For purposes of calculating the Royalty Payment, "Gross Revenues" sales shall mean for all sales permitted under subsection 1.1 of this Agreement, the price received without regard to discounts, adjustments and allowances, whether or not usual or customary in the trade. 9.3 Licensee shall provide Licensor with a monthly report of all sales activity within ten (10) days from the last business day in each month. 9.4 Licensee shall make each Royalty Payment within twenty (20) days after the end of each calendar quarter, based upon Sales made by Licensee in such calendar quarter, with a final adjustment within thirty (30) days after the expiration or earlier termination of this Agreement. 9.5 At the time of each Royalty Payment, Licensee shall provide Licensor with an audited statement by an independent certified public accounting firm certifying the number of sales of each of the Products, the Gross Revenues for each of the Products, the marketing expenditures and the calculation of Royalty Payments. 9.6 If a Royalty Payment is not made within fifteen (15) days of the due date described above, the Licensor shall be entitled to interest calculated from the due date until the date on which payment is received by Licensor, at one and one half percent (l 1/2%) over the prime rate of interest charged at the relevant time by a bank that is designated by Licensor. 9.7 Licensee's records shall be retained for three years after the end of the term to which they pertain. At the request of Licensor and at a reasonable time and place, 5 Licensee shall make these records available to Licensor, including any independent auditor retained by Licensor. 9.8 Regardless of the reason for termination, Licensee shall be obligated to pay Licensor a Royalty Payment on the sale of any of the Products which occurs or has occurred during the term of this Agreement. 10. FORM OF USE. Licensee agrees to use the Marks only in the form and manner and with appropriate legends as prescribed from time to time by Licensor, and not to use any other trade names, trademarks or service marks in combination with the Marks without prior written approval by Licensor. Licensee agrees to use the registration symbol, (R),with the Marks of the Registrations, and the legend TM where the Marks are used on any of the Products not covered by issued Registrations. Licensor agrees to renew existing registrations during the term of this Agreement. 11. INSURANCE. Licensee agrees to use reasonable efforts to have each of the manufacturers of the Products bearing the Marks keep in force adequate commercial general liability insurance, including product liability insurance, with respect to all the Products bearing the Marks sold by Licensee. Licensee shall maintain occurrence-based coverage in a combined amount not less than $2,000,000, with not more than a $50,000 deductible. Licensor shall be named as an additional insured on all such policies. Licensee shall provide or cause to be provided to Licensor certificates of insurance evidencing such coverage which shall not be cancelable without thirty (30) days prior notice to Licensor. Nothing herein shall limit Licensee's indemnification under Section 13 of this Agreement. 12. LITIGATION 12.1 Licensee agrees to notify Licensor promptly in writing of any unauthorized use of the Marks, and any litigation involving the Marks promptly as such comes to Licensee's attention. 12.2 Licensor shall have the sole right and discretion to bring or maintain litigation involving the Marks against third parties, and Licensee agrees to cooperate with Licensor in any such litigation. 12.3 if any litigation involving the Marks results in a monetary judgment against Licensor or Licensee or Licensor agrees to a settlement prior to an adjudication of a claim that the Licensor or Licensee infringed another's rights involving the Marks, then Licensor shall pay all costs, judgments or settlements of such litigation, unless Licensee's actions in 6 violation of subsection 12.1 hereof were the proximate cause of the damages claimed, in which event Licensee shall bear all costs, judgments or settlements in connection therewith. 12.4 Licensor shall be entitled to the entire monetary award in any litigation involving the Marks. 13. INDEMNIFICATION 13.1 Licensor assumes no liability to Licensee or to any third parties with respect to any of the Products and related services provided or sold by Licensee pursuant to this Agreement, except Licensor shall indemnify Licensee for all claims and losses (including the cost of defending such claims and losses as well as any alleged claims and losses) that may arise from a claim that any Mark infringes another's rights. 13.2 Licensee agrees to indemnify Licensor for any and all claims, damages, costs, expenses and losses (including the cost of defending such claims and losses as well as any alleged claims and losses) that may arise from the manufacture of any of the Products or from any of the Products and services provided or sold by Licensee or any Distributor, other than arising out of a claim that any Mark infringes another's rights. In addition, Licensee shall, in the event of Licensee's termination under Section 14.3 hereof, assign its indemnity rights from each Manufacturer of the Products. This Section 13 of this Agreement shall survive the termination. 14. TERMINATION 14.1 Licensor may terminate this Agreement, for any reason whatsoever, at any time, by giving the Licensee not less than thirty (30) days prior written notice of such election. 14.2 In the event a party to this Agreement breaches any term of this Agreement and fails to cure the breach within thirty (30) days after receiving written notice of the breach from the nonbreaching party, the nonbreaching party may immediately terminate this Agreement by written notice to the breaching party. 14.3 If Licensee files for bankruptcy, or bankruptcy is filed against Licensee and not stayed within sixty (60) days, a receiver is appointed or Licensee transfers all or substantially all of its assets, Licensor shall have the right to terminate this Agreement immediately. 7 EFFECT OF TERMINATION 15.1 Upon termination of this Agreement, other than as provided below, Licensee agrees to immediately discontinue all use of the Marks and any terms remotely or confusingly similar thereto, and at the request of the Licensor, to immediately deliver to Licensor all indicia of the goodwill associated with the Marks, including without limitation, a list of the names and addresses of all of the distributors, to cooperate with Licensor in the recording of the termination of this Agreement with appropriate government offices, and to destroy all materials bearing the marks, including without limitation, packaging, labels, containers and signage. 15.2 Upon termination of this Agreement, for any reason whatsoever, Licensee agrees that all rights in the Marks and the goodwill connected therewith shall cease and terminate; provided however, if Licensor has terminated this Agreement pursuant to Section 14.1 hereof, any Products which are in Licensee's inventory or are covered by an international letter of credit on the date of termination of this Agreement, may be sold by Licensor for a period of six (6) months from such date through the distribution channels set forth in Section 8.1 hereof. 15.3 Licensee shall provide in its contractual relationships with its distributors that those relationships with respect to the Marks will terminate; provided however, if Licensor has terminated this Agreement pursuant to Section 14.1 hereof, Licensee may fulfill the terms of any agreement it may have with direct mail catalog companies, national credit companies or selected retailers, entered into with Licensor's prior written approval pursuant to Section 1.1.2 hereof. 16. TRANSFERABILITY. This Agreement is not assignable or in any way transferable by Licensee, without the express prior written approval of Licensor, which approval may be withheld in Licensor' s sole discretion. 17. BREACHES AND WAIVERS. A waiver of a breach of this Agreement shall not constitute a waiver of any other breach of this Agreement. 18. RECORDING OF AGREEMENT. Licensee agrees to take all reasonable steps necessary to record this Agreement with appropriate government offices and to otherwise implement this Agreement, if Licensor so requests. This includes executing any documents or supplementary agreements as appropriate in the relevant jurisdiction. 8 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date written above. BELL & HOWELL COMPANY JAZZ PHOTO CORP. Signature:______________________ Signature: Name:___________________ Name: Title: Title: 10 SCHEDULE 1.1A Marks BELL+ HOWELL SCHEDULE 1.1B The Products Model BF-700 35 MM Fully Automatic(Big View Finder) Model MC-900 35 MM Fully Automatic(Mini Compact) Model MZ-1OOO 35 MM Mini Power Zoom (Tele-Wide) MODEL ML-959 35 MM Auto Focus (Computerized) MODEL PZ-850 35-55 MM Power Zoom (External Selector Panoramic/Normal) SCHEDULE 2 Territory United States only SCHEDULE 6 Production Facilities Premier Camera - Taiwan Phototec - Hong Kong 19. INTERPRETATION OF AGREEMENT. This Agreement shall be interpreted according to the laws of the State of Illinois. If Licensor sues Licensee over this Agreement, Licensor shall be entitled to attorneys fees, expenses and costs, in connection with any lawsuit or other legal action. Licensee shall be entitled to attorney's fees, expenses and costs, in connection with any lawsuit or other legal action. Licensee hereby waives its right to a jury trial. If any provision of this Agreement is found by a court of competent jurisdiction to be illegal or unenforceable, then the court may amend the Agreement in order to carry out the intentions of parties as expressed in this Agreement. Upon termination, of this Agreement, this section of the Agreement shall remain binding upon the parties. 20. INTEGRATION. This Agreement constitutes the entire agreement between the parties regarding this matter and incorporated all prior or contemporaneous oral or written understandings or agreements between the parties. This Agreement may be modified only by a document signed by a duly authorized officer of each party, except that each party may change the address at which it receives notices under this Agreement (as set forth below) merely by notifying the other party in writing. Upon termination of this Agreement, this section of this Agreement shall remain binding upon the parties. 21. NOTICES Any written notice to Licensor pursuant to this Agreement shall be addressed as follows: Bell & Howell Company 5215 Old Orchard Road Skokie, Illinois 60077-1076 Attention: Corporate Counsel Any written notice to Licensee pursuant to this Agreement shall be addressed as follows: Jazz Photo Corp. 1459 Pinewood Street Rahway, NJ 07065 9 Exhibit 10.2(ii) AMENDMENT TO TRADEMARK LICENSE AGREEMENT THIS AMENDMENT TO TRADEMARK LICENSE AGREEMENT, dated the 9th day of August, 1996, by and between BELL & HOWELL COMPANY, a Delaware corporation ("Licensor") and JAZZ PHOTO CORP., a New Jersey corporation ("Licensee"). WHEREAS, Licensor and Licensee entered into a Trademark License Agreement dated November 13, 1995 (the "Agreement"), pursuant to which Licensor granted to Licensee certain rights with respect to Licensor trademarks as therein described (the "Trademarks") and certain registrations thereof (the "Registrations," the Trademarks and Registrations are sometimes together referred to as the "Marks") used in connection with Licensor's business, to be used by Licensee in connection with its business of marketing, selling and distributing 35 mm cameras and ancillary and related products, including film and camera carrying cases, all as more specifically described therein (the "Products") and WHEREAS, the parties desire to amend the Agreement in the manner and on the terms and conditions herein described. In consideration of the foregoing, the parties agree as follows: 1. The term of the Agreement shall be extended from January 16, 1997 to December 31, 2001, unless sooner terminated as provided for herein. The initial year of the term shall be from November 13, 1995 to December 31, 1996; thereafter, each year of the term and any renewal period, as herein provided, shall be from January 1 (commencing January 1, 1997) through the next succeeding December 31. 2. Subject to Paragraph 4 hereof, during the period from January 1, 2000 to December 31, payments shall be made to Licensor, as follows: (a) Licensee shall guarantee a minimum payment to Licensor of $300,000 for the fourth year of the initial term (January 1, 2000 to December 31, 2000). (b) Licensee shall guarantee a minimum payment to Licensor of $350,000 for the fifth year of the initial term (January 1,2001 to December 31.2001). 3. The Agreement may be renewed by Licensee for an additional five (5) year period, upon not less than one year's written notice (prior to January 1, 2001), so long as Licensee is not in default of any of the provisions contained in the Agreement, as amended, either at the time of notice or upon the commencement of the renewal term. Subject to Paragraph 4 hereof, during the renewal period, Licensee shall guarantee a minimum payment to Licensor of $400,000 for each year of the renewal term. 4. Notwithstanding Paragraphs 2(a) and (b) and Paragraph 3 above, the actual payment to be made to Licensor for each year of the term commencing January 1, 2000 (and for each year of the renewal term if Licensee exercises its rights in accordance herewith) shall be the greater of the minimum payment for that year and the Royalty Payment to which Licensor would otherwise be entitled under the Agreement. 5. Paragraph 9.4 of the Agreement is deleted in its entirety and the following is substituted in its place: "9.4 Licensee shall make each Royalty Payment within twenty (20) days after the end of each calendar quarter based upon sales made by Licensee within such calendar quarter, with a final adjustment within thirty (30) days after the end of each calendar year or earlier termination of the Agreement." 6. To the extent there is any general industry increase in the term of warranty, replacement at no cost, maintenance of parts and service after the end of a Product model run, continuance of service or a maintenance agreement after termination of the Agreement, the periods provided in the Agreement shall be adjusted accordingly. 7. For each year of the term commencing January 1, 1997, Licensee shall expend such amounts for advertising, marketing and promotional activities as shall be reasonably determined by Licensee to be appropriate in order to maximize sales and profitability. 8. Commencing January 1, 1998, Licensee shall maintain occurrence-based coverage in a combined amount not less than $3,000,000 (increasing to $5,000,000 on January 1,2001), with not more than a $50,000 deductible. 9. Except as herein provided to the contrary, the terms and conditions contained in the Agreement shall be incorporated herein by reference and shall continue unabated and in full force and effect under this Amendment during the initial term and the renewal term, if any. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date written above. BELL & HOWELL COMPANY JAZZ PHOTO CORP. Signature: /s/ H.A. D'Ambrosio Signature: ___________________ ------------------- Name: ________________________ Name: H.A. D'Ambrosio Title: _______________________ Title: V.P. - Administration 3 Exhibit 10.2(iii) SECOND AMENDMENT TO TRADEMARK LICENSE AGREEMENT THIS SECOND AMENDMENT TO TRADEMARK LICENSE AGREEMENT, dated as of the 31st day of March, 1997 by and between BELL & HOWELL COMPANY, a Delaware corporation ("Licensor") and JAZZ PHOTO CORP., a New Jersey corporation ("Licensee"). WHEREAS, Licensor and Licensee entered into a Trademark License Agreement dated November 13, 1995 as amended by an Amendment (the "Amendment") to Trademark License Agreement dated August 9, 1996 (referred to herein collectively as the "Agreement"), pursuant to which Licensor granted Licensee certain rights with respect to Licensor trademarks as therein described (the "Trademarks") and certain registrations thereof (the "Registrations, the Trademarks and Registrations are sometimes together referred to as the "Marks") to be used by Licensee in connection with its business of marketing, selling and distributing 35mm cameras and ancillary and related products, including film and camera carrying cases, all as more specifically described therein (the "Products") and WHEREAS, the parties desire to further amend the Agreement in the manner and on the terms and conditions herein described. In consideration of the foregoing, the parties agree as follows: 1. The term of the Agreement shall be extended from December 31, 2001 to December 31, 2002 unless sooner terminated as provided for herein. 2. Paragraph 2 of the Amendment is further amended by adding the following subparagraph (c): (c) Licensee shall guarantee a minimum payment to Licensor of $400,000 for the sixth year of the initial term (January 1, 2002 to December 31, 2002). 3. The date in parenthesis in Paragraph 3 of the Amendment is hereby deleted. 4. Paragraph 2(c) is added to the Notwithstanding clause in Paragraph 3 of the Amendment. 5. Schedule 2 to the Agreement is amended to change the Territory to "Worldwide". 6. Schedule 1.1B to the Agreement is hereby amended as attached hereto and is hereby incorporated herein by reference. 7. The entities and distribution channels approved for the distribution and sale of the Products are set forth on Schedule 1.1.2 attached hereto and are hereby incorporated herein by reference. 8. Schedule 6 to the Agreement is hereby amended as attached hereto and is hereby incorporated herein by reference. 9. Notwithstanding anything to the contrary contained in the Agreement: (a) In any year of the initial term or the renewal period under the Agreement to the extent that Royalty Payments are defined in the Agreement in the aggregate are less than the minimum guaranteed payment for such year, Licensee may make a cash payment to Licensor to maintain the license granted by the Agreement. (b) In each year of the initial term or the renewal period under the Agreement in which a minimum guaranteed payment is required to maintain the license granted hereunder, Licensee shall pay $200,000 to Licensor on or prior to January 10 of such year as an advance against Royalty Payments for such year. (c) Licensor shall be entitled to exercise the right to terminate the Agreement under Section 14.1 thereof only upon the happening of any of the following events: (i) Licensee shall have failed to make payments as Royalty Payments in any year of the Agreement: (A) in the minimum guaranteed amounts required hereunder in respect of Products sold for Gross Revenues earned under the Agreement, or (B) which fail to equal or exceed 115% of the Royalty Payments payable to Licensor with respect to the immediately preceding year of the Agreement or (ii) Sales revenues in any year of the Agreement fail to equal or exceed 115% of gross revenues in the immediately preceding year of the Agreement, or 2 (iii) Licensee fails to maintain a relationship with Jack C. Benun, currently Chief Executive Officer of Licensee and who shall become a principal consultant to Licensee on April 1,1997, in which Mr. Benun continues to provide significant services to Licensee in the areas of product development, marketing and sales. 10. In consideration of the extension and modification of the Agreement contained in this Second Amendment to the Agreement, Licensee hereby agrees to sell to Licensor 10,000 shares of Common Stock, par value $0.01 per share, of Licensee for a purchase price of $0.01 per share or an aggregate purchase price of $100. Licensee shall promptly deliver a certificate evidencing such shares to Licensor upon receipt of payment therefor. Transfer of such shares is restricted under federal and state securities laws and the certificates evidencing such shares shall bear a restrictive legend to that effect. 11. Except as herein provided to the contrary, the terms and conditions in the Agreement shall be incorporated herein by reference and shall continue unabated and in full force and effect under this Second Amendment during the initial and the renewal term, if any. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of date written above. BELL & HOWELL COMPANY JAZZ PHOTO CORP. Signature _____________________ Signature: /s/ Jack C. Benun ------------------ Name:__________________________ Name: Jack C. Benun Title:_________________________ Title: President 3 (iii) Licensee fails to maintain a relationship with Jack C. Benun, currently Chief Executive Officer of Licensee and who shall become a principal consultant to licensee on April 1, 1997, in which Mr. Benun continues to provide significant services to Licensee in the areas of product development, marketing and sales. 10. In consideration of the extension and modification of the Agreement contained in this Second Amendment to the Agreement, Licensee hereby agrees to sell to Licensor 10,000 shares of Common Stock, par value $0.01 per share, of Licensee for a purchase price of $0.01 Per share or an aggregate purchase price of $100. Licensee shall promptly deliver a certificate evidencing such shares to Licensor upon receipt of payment therefor. Transfer of such shares is restricted under federal and state securities laws and the certificates evidencing such shares shall bear a restrictive legend to that effect. 11. Except as herein provided to the contrary, the terms and conditions in the Agreement shall be incorporated herein by reference and shall continue unabated and in full force and effect under this Second Amendment during the initial and the renewal term, if any. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as or date written above. BELL & HOWELL COMPANY JAZZ PHOTO CORP Signature /s/ H.A. D'Ambrosio Signature:_______________ ------------------- Name: H.A. D'Ambrosio Title:___________________ --------------------- Title: V.P. Administration Name: ____________________ -------------------- 3 SCHEDULE 1.1B The Products MODEL DESCRIPTION ----------- SINGLE USE CAMERAS BH 135 35MM Single Use Daylight Camera For Outdoor Use, Loaded with 27 Exposure, 400 Speed Film. BH 150 35MM Single Use Camera With Built-In Flash For Indoor /Outdoor Use Loaded with 27 Exposure, 400 Speed Film. BH 160 35MM Single Use Camera With Big View Finder, and Built-In Flash for Indoor/Outdoor Use, Loaded with 27 Exposure, 400 Speed Film. BH 170 APS Single Use Camera with Flash for Indoor/ Outdoor Use, Loaded with 25 Exposure, APS Film. 35MM CAMERAS BF 608 Kit Big View Finder, Manual 35MM Camera With Built-In Flash, Color Film and Batteries. BF 710 35MM, Big View Finder Camera, Auto Load, Auto Flash, Auto Wind, and Rewind, Red Eye Reduction, DX System. BF 905 Kit 35MM, Fully Automatic Camera, Big View Finder, Auto Focus, DX System, Red Eye Reduction, Fill Flash, With Color Film and Batteries. NP 960 35MM, Panorama Automatic Camera With LCD Panel, Auto Flash, Auto Wind and Rewind, Red Eye Reduction, and Self Timer. NP 960 D 35MM, Panorama Automatic Camera With LCD Panel, Auto Flash, Auto Wind, and Rewind, Red Eye Reduction, Self Timer, and Data Back Feature. PZ 1000 35MM, Power Zoom/Telewide 35-52MM, Motorized, Self Timer, Red Eye Reduction, Auto Flash, and DX System. The Products Page 2 PZ 2000 Fully Motorized 35MM Camera With 2 to 1 Power Zoom, Auto Focus, Red Eye Reduction, DX System Self Timer, Automatic Shut-Off, and LCD Display. PZ 3000 Fully Motorized 35MM Camera With 3 to 1 Power Zoom, Auto Focus, Red Eye Reduction, DX System, Self Timer, Automatic Shut-Off, and LCD Display. APS CAMERAS MD 200 Fixed Focus APS Camera, Auto Flash, and Red Eye Reduction. AF 1 Fully Automatic Auto Focus APS Camera, Auto Flash, LCD Display, Self Timer, Red Eye Reduction. AF 2 Fully Automatic Auto Focus APS Camera, Auto Flash, LCD Display, Self Timer, Red Eye Reduction. AF 7 Fully Automatic Auto Focus APS Camera, Auto Flash, IX System, LCD Display, Self Timer, and Red Eye Reduction. ZM 201 2 to 1 APS Zoom Camera, Fully Automatic. SCHEDULE 1.1.2 Entities and Distribution Channels Bell & Howell Confirmed Accounts Pending Bell & Howell Accounts -------------------------------- ------------------------------ Wal*Mart K-Mart Bradlees Target Hills Best Buy Caldors Service Merchandise Sun TV American Drugs Fays Drugs B. J. Damark Price Costco Meijers Fingerhut Fred Meyer Wolfe's H.S.N Ritz QVC Fedco H.H. Gregg Fry's Amway Rite Aid Drugs Nobody Beats the Wiz Ames Witmark Compu Card ABC Warehouse Shopko Snyder Drugs Arbor Drugs Ann & Hope Soars Direct Mail Montgomery Wards Direct Bennys EX-10.3 10 AGREEMENT BETWEEN IMATION & JAZZ PHOTO (Exhibit 10.3) AGREEMENT This Agreement dated the 31st day of March, 1997, is by and between Jazz Photo Corp., a New Jersey corporation, with offices at 1459 Pinewood Street, Rahway, New Jersey 07065 and its principal shareholder, Mona Benum, collectively referred to as "Jazz" and Imation Corp. ("Imation"), a Delaware corporation, with offices at 1 Imation Place, Oakdale, Minnesota 55128. Whereas, Jazz desires to hire Roger Lorenzini, a retired employee of Imation, who is bound by an Employee Agreement which restricts his employment with a Conflicting Organization as defined by the Employee Agreement ("Employee Agreement") for two (2) years from his date of retirement. The Employee Agreement is attached as Exhibit A. Whereas, Jazz is a Conflicting Organization under the definition of the Employee Agreement. Whereas, Imation agrees to release Roger Lorenzini from his obligation of Paragraph 5(F) of the Employee Agreement and agrees to waive any potential claims against Jazz for their employment of Roger Lorenzini (including specifically tortuous interference with contractual obligations) provided Jazz agrees to certain obligations as set forth herein. Therefore, the parties agree as follows: 1. Jazz agrees to restrict Roger Lorenzini's activities for two (2) years from his date of retirement from Imation so that he will not call on or otherwise contact for the purpose of soliciting sales of Single Use Cameras certain Imation accounts as set forth in attached Exhibit B. 2. In consideration for Roger Lorenzini's release from his obligations of Paragraph 5(F) of the Employee Agreement and Imation's waiver of any potential claims against Jazz for the hiring of Roger Lorenzini: A. Jazz agrees to purchase a minimum of five million (5,000,000) rolls of color print film between April 1, 1997 and March 31, 1998 and an additional five million (5,000,000) rolls of color print film between April 1, 1998 and March 31, 1999 at mutually agreed upon pricing, terms and conditions. B. Jazz agrees to refrain from purchasing competitive rolls of private label color print film or film for Single Use Cameras, without first giving Imation the right to bid on such business, for the two-year period from April 1, 1997 through March 31, 1999, except in the case when the customer specifies a competitive film. C. Jazz will use its best efforts to sell only Imation made film in Jazz's single use cameras to the accounts listed in Exhibit B for the period from April 1, 1997 through March 31, 1999. D. Jazz will refrain from making any negative statements regarding Imation, its products or employees. E. Jazz will maintain this agreement as confidential and will not disclose it or its contents to anyone except Roger Lorenzini, necessary employees and agents of Jazz and as required by applicable law including the SEC rules and regulations. 3. Jazz agrees for a two (2) year period, through March 31, 1999, to refrain from soliciting or recruiting or offering employment to any Imation employee. 4. In the event of a breach of this Agreement, the parties agree that Imation may obtain injunctive relief as well as remedies at law to enforce the provisions of this Agreement. 5. This Agreement is binding upon Jazz notwithstanding the event that Roger Lorenzini at any time terminates his employment with Jazz. 6. This Agreement contains the entire understanding between the parties and supersedes all prior agreements and understandings between Jazz and Imation relating to this subject matter. In witness whereof the parties in their individual and corporate capacities hereto set their hand on the date first written above. JAZZ PHOTO CORP. IMATION CORP. By: /s/ Jack Benum By: ---------------------------- --------------------------------- Jack Benum Clifford T. Pinder President Vice President, Operations Medical Imaging and Photo Products By: /s/ Mona Benum ---------------------------- Mona Benum Principal Shareholder of Jazz Photo Corp. -2- EX-10.4 11 EXECUTIVE EMPLOYEE AGREEMENT W/R. LORENZINI EXHIBIT 10.4 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the __ day of February, 1997 between Jazz Photo Corp., a New Jersey corporation (the "Company"), and Roger F. Lorenzini, residing at 79 Many Levels Road, White Bear Lake, Minnesota 55110 (the "Executive"). WHEREAS, the Company believes it is in the best interests of the Company to retain the Executive as an executive of the Company on the terms herein provided; and WHEREAS, the Executive is desirous of committing himself to serve the Company on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Effectiveness. This Agreement shall be effective (the "Effective Date") immediately upon the last to occur of (a) the approval by the Board of Directors of the Company of this Agreement including the express grant of the Stock Option as defined herein; (b) the execution of this Agreement by the Company and the Executive; or (c) April 1, 1997. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth herein for the period commencing on the Effective Date and expiring on the third anniversary thereof, unless such employment is sooner terminated as hereinafter set forth (such period is hereinafter sometimes referred to as the "Term of Executive's Employment"). 3. Position and Duties. During the Term of Executive's Employment hereunder, the Executive shall serve as Chief Executive Officer and a Director of the Company, reporting to the Board of Directors of the Company, and shall have supervision and control over, and responsibility for all aspects of the Company's operations, and shall have such other powers and duties as may from time to time be prescribed by the Board of Directors of the Company. The Executive shall devote his entire working time and efforts to the business and affairs of the Company. 4. Compensation. (a) Executive Base Compensation. During the Term of Executive's Employment hereunder, the Executive shall receive a base salary at the annual rate of $315,000.00 (the "Executive Base Compensation"), or such amount in excess of Executive Base Compensation as the Company shall from time to time determine in its discretion, payable at such intervals or times as shall accord with the Company's normal procedure. (b) Expenses. During the Term of his employment hereunder the Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures currently in effect for the senior executive officers of the Company) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with Company policy. 2 (c) Fringe Benefits. The Executive shall be entitled to participate in or receive benefits under any profit-sharing or pension plan, savings plan, stock option plan, stock purchase plan, life insurance and/or death benefits plan, medical and health-and-accident plans, or arrangement currently made available by the Company or to be made available in the future to its executives and key management employees, including the Company's 1997 Long-Term Incentive Plan, as currently in effect or any comparable successor plan thereto, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of Base Compensation to the Executive hereunder. (d) Perquisites. The Executive shall be entitled to receive perquisites appertaining to, and consistent with, his office in accordance with such practices as may be adopted by the Company from time to time, including, but not limited to (i) an automobile, the style and year to be chosen at the Company's discretion, for the exclusive use of Executive; and (ii) an automobile allowance in the amount of $1,000.00 per month. (e) Vacation. The Executive shall be entitled to five (5) weeks of vacation for each calendar year during the Executive's employment commencing in 1997. Executive shall be permitted to carryover a maximum of two and one-half (2 1/2) weeks of an accrued and unused vacation to the next calendar year. Any other unused vacation will be forfeited. Subject to the limitations of the preceding sentence, 3 Executive will be entitled to a payment for any accrued and unused vacation upon termination of his employment for any other reason other than cause or if Executive terminates his employment. (f) Housing Allowance. The Executive shall be entitled to receive a housing allowance from the Company for the rental of a dwelling within commuting distance of the Company's New Jersey headquarters adequate to accommodate the Executive and his family at a cost not exceeding $5,000 per month, in living arrangements comparable to those currently maintained by Executive. (g) Stock Option Grant. The Board of Directors of the Company concurrently with the execution hereof shall grant to Executive an option to purchase a total of 70,000 shares of the Class A Common Stock of the Company (the "Stock Option") in accordance with the terms and conditions of the Company's 1997 Long-Term Incentive Plan at an exercise price of $1.50 per share. (h) Moving Allowance. In consideration of the substantial expenses the Executive will incur in connection with Executive's relocation, the Company shall provide Executive with a relocation allowance of $75,000.00, such amount to be payable in full to Executive within three (3) months of the date Executive assumes his duties hereunder. Executive agrees that should he resign his employment with the Company at any time prior to thirty-six (36) months following the Effective Date, he shall reimburse the Company on the last day worked for a portion of the relocation allowance. The relocation allowance shall be prorated over thirty-six (36) months, and 4 the portion for which Executive must reimburse the Company will be payable in full upon the last day of his Employment. (i) Life Insurance Policies. (i) The Company shall provide Executive, at no expense to Executive, with a life insurance policy in the amount of $250,000, the beneficiary of which shall be at Executive's sole and exclusive discretion. (ii) At any time during the term of this Agreement, the Company shall have the right to insure the life of Executive for the Company's sole benefit, and to determine the amount of insurance and the type of policy. The Company shall be the solely liable for the payment of the premiums due on such policy, shall be the sole owner of the policy, shall be entitled at all times to its physical possession, and shall be its beneficiary and the person entitled to all its rights and privileges. Executive agrees to cooperate with the Company in making application for such policy by submitting to a physical examination, by supplying all information required by the insurance company, and by executing all necessary documents, provided that those documents do not impose upon Executive any financial obligation to the Company or the insurance company in connection with such life insurance. (j) Disability Benefits. The Company shall purchase for the benefit of Executive a disability policy in a form reasonably acceptable to the Executive with disability benefits equal to fifty percent (50%) of the Executive's Base Compensation for a term beginning with the Executive's employment and ending on April 2, 2000. 5 5. Offices; Directorships. The Executive agrees to serve on the Board of Directors of the Company without additional compensation, when elected or appointed thereto, in one or more offices in, and/or as a director of, the Company or any subsidiary or affiliate of the Company. 6. Termination. (a) Disability. If, based on independent medical advice, from a physician reasonably acceptable to the Company and Executive, the Board of Directors determines that, due to physical or mental illness, the Executive has been unable to perform his duties hereunder for six consecutive months or six non-consecutive months in any twelve month period, the Company may terminate the employment of the Executive by delivering a Notice of Termination specifying a termination date. The return of the Executive to the performance of his duties in accordance with Section 3 hereof prior to the specified termination date shall not render such notice ineffective for the purpose of terminating Executive's employment hereunder. (b) Termination by the Executive. The Executive may terminate his employment hereunder voluntarily, provided that the Executive delivers to the Company a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to the date of such Notice of Termination. (c) Termination by the Company. The Company may terminate the employment of the Executive, with or without cause, by delivering a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to such Notice of Termination, except that, in the case of a Termination for Cause (as 6 herein defined), a Notice of Termination shall be effective immediately. A "Termination Without Cause" shall mean a termination of the Executive's employment hereunder, other than a "Termination for Cause" as defined herein and other than pursuant to subsections (a), (b) or (d) hereof. A "Termination for Cause" shall mean, in the context of termination of the employment or the directorship of the Executive, any of the following events or conditions: (i) the Executive's material failure to perform (other than by reason of disability) his duties and responsibilities as an employee or director which are not remedied within 30 days after receipt of written notice thereof from the Company, (ii) fraud, embezzlement or other material dishonesty with respect to the Company, (iii) conviction of, or plea of nolo contendere to, any felony or any other crime involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have materially breached any confidentiality or non-competition agreement to which the Executive is a party with the Company directly, or (v) the Executive shall have materially breached this Agreement, provided, however, with respect to clauses (i) and (v) hereof Executive shall have received written notice from the Company and such material failure or material breach shall not have been remedied within 30 days of receipt of such notice and provided, further, that the termination of the employment of the Executive shall not be deemed to be a Termination for Cause unless (1) the written notice of termination indicates the specific termination provision relied upon and sets forth the facts and circumstances claimed to provide a basis for termination; (2) an opportunity is provided for the Executive, together with his counsel, to be heard before the Board of Directors on the matter of termination; and (3) the Executive receives a 7 letter of termination from the Board of Directors stating that in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in clauses (c), (i), (ii), (iii), (iv), or (v). (d) The Executive's employment hereunder shall terminate upon his death. (e) Any termination (1) by the Company pursuant to subsections 6(a) or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be communicated by written Notice of Termination ("Notice of Termination") to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision relied upon, and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder. (f) "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated under Section 6(a), on the date the Executive's employment is terminated by the Company in accordance with a Notice of Termination under Section 6(a), (iii) if the Executive's employment is terminated pursuant to a Notice of Termination under Section 6(c), the date upon which such termination becomes effective pursuant to this Agreement and such Notice of Termination, and (iv) the third anniversary of the Effective Date if the Executive is employed by the Company at such date. (g) Except in the case of a Termination Without Cause pursuant to Section 6(c), the Executive shall be paid all amounts earned to the Date of Termination. 8 In the case of Termination Without Cause during the Executive's employment under this Agreement pursuant to Section 6(c), the Executive shall be paid by the Company his Base Compensation for a period commencing on the day following the Date of Termination and ending on the third anniversary of the Effective Date (as defined in Section 1 of this Agreement). Executive's rights under this Subsection (g) shall survive the termination of his employment under this Agreement. 7. Confidential Information; Intellectual Property; Restricted Activities. (a) Confidential Information. Executive acknowledges that Company and its affiliates continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its affiliates and that the Executive may learn of Confidential Information during the course of employment. The Executive will comply with the policies and procedures of the Company and its affiliates for protecting Confidential Information and shall never disclose to any person or to any governmental agency or political subdivision of any government (except as required by applicable law or for the proper performance of his duties and responsibilities hereunder), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its affiliates. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. "Confidential Information" means any and all information of the Company and its affiliates that is not generally known by others with whom they compete or do business, or with whom they actively plan to compete or do business. Confidential 9 Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its affiliates, (ii) the Products, (iii) Intellectual Property; (iv) the costs, sources of supply, financial performance and strategic plans of the Company and its affiliates, (v) the identity and special needs of the customers of the Company and its affiliates; and (vi) the people and organizations with whom the Company and its affiliates have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its affiliates have received belonging to others or which was received by the Company or any of its Affiliates with any understanding, express or implied, that it would not be disclosed. (b) Intellectual Property. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive's full right, title and interest in and to all Intellectual Property. The Executive agrees to promptly and fully disclose all Intellectual Property to the Company and to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. The Executive will not charge the Company for time spent in complying with these obligations. All copyrightable works that the Executive creates shall be considered "work made for hire". 10 "Intellectual Property" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to writing by the Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during the Executive's employment that relate to either the Products or any activity of the Company or any of its Affiliates which is under active development. "Products" mean all products under active development, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its affiliates, together with all services provided or under active development by the Company or any of its affiliates, during the Term of Executive's Employment. (c) All documents, records, files, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or any of its affiliates and to their customers, prospective customers, vendors, and any other persons with whom the Company has business dealings, including, but not limited to, originals and all copies of all correspondence, soliciting materials, contracts, proposals, analyses, performance data and other written or computer software, data bases, programs and disks, in whole or in part, thereof, whether or not prepared by the Executive, are the sole and exclusive property of the Company and its affiliates ("Documents"). Upon termination of Executive's employment for any reason, whether during the period set forth in Section 2 hereof or thereafter, or at such earlier time or 11 times as the Board may specify, the Executive shall immediately turn over to the Company all Documents maintained by, or under the control or possession of, the Executive. (d) Restricted Activities. (i) While the Executive is employed hereunder and for a period of two (2) years after his employment terminates (the "Non-Competition Period"), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, coventurer or otherwise, compete with the Company or any of its affiliates within the United States or within any country in which the Company makes sales of products representing 50% or more of its revenue undertake with any third party any planning for any business competitive with the Company or any of its affiliates. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive with the business of the Company or any of its affiliates as conducted or under active development at any time during the Term of Executive's Employment. For the purposes of this Section 7, the business of the Company and its affiliates shall include all Products and the Executive's undertaking shall encompass all items, products and services that may be competitive with Products. (ii) The Executive agrees that, during his employment hereunder, he will not undertake any outside activity, whether or not competitive with the business of the Company or any of its affiliates, that could reasonably give rise to a 12 conflict of interest or otherwise interfere with his duties and obligations to the Company or any of its affiliates. (iii) The Executive further agrees that while he is employed by the Company hereunder and during the Non-Competition Period, the Executive will not hire or attempt to hire any employee of the Company or any of its affiliates, to perform services for any Person, assist in such hiring by any Person, encourage any such employee to terminate his or her relationship with, the Company or any of its affiliates, or solicit or encourage any customer or vendor of the Company or any of its affiliates to terminate or diminish its relationship with them or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its affiliates. "Person" means an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its affiliates. 8. Enforcement. The Executive recognizes that his agreement to the terms and conditions of this Section 8 represents a material inducement to the Company to employ the Executive. The Executive acknowledges that irreparable injury may result to the Company and that the Company will have no adequate remedy at law in the event that the Executive breaches any of the provisions of Section 7 hereof. Accordingly, the Executive agrees that in the event of a breach by the Executive of any of the provisions of Section 7, the Company shall, in addition to all other rights and remedies, be entitled to injunctive relief with respect to such breach and/or to a decree 13 for specific performance of the terms of such Section, in each instance without the necessity of showing any irreparable injury or special damages. 9. Successors. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) In the event Executive's employment under this Agreement shall terminate for any reason while any amounts have been earned but not paid as of the applicable Date of Termination as defined herein or are otherwise due the Executive under the terms of Section 6 hereof or by reference thereto, then the right to receive such amount shall survive and be enforceable after the termination of Executive's employment hereunder by the Executive, his successors, assigns, executors, administrators, heirs, legatees, devisees or legal representatives. 10. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed 14 to have been duly given when mailed by United States registered or certified mail, return receipt requested, postage prepaid, transmitted by facsimile transmission or delivered by messenger addressed as follows: If to the Executive: Roger F. Lorenzini 79 Many Levels Road White Bear Lake, Minnesota 55110 with a copy to: John L. Devney, Esq. Briggs and Morgan 2200 First National Bank Building Saint Paul, MN 55101 If to the Company: Jazz Photo Corp. 1459 Pinewood Street Rahway, NJ 07065 with a copy to: Stephen C. Kahr, Esq. Greenberg & Kahr 3 New York Plaza New York, New York 10004 or to such other address as any such person may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. Amendment and Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be 15 deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 12. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without reference to conflicts of laws. 13. Severability; Survivability. It is the intent of the parties hereto that in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall survive the expiration or termination of Executive's employment hereunder, whether during the period set forth in Section 2 of this Agreement or thereafter, and the termination of this Agreement. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Only Employment Agreement. From and after the Effective Date, this Agreement shall supersede any and all prior employment agreements between the parties. 16 16. Future Negotiations. If the Executive is employed by the Company six (6) months prior to the third anniversary of the Effective Date then the Company and the Executive shall commence good faith negotiations for the purpose of determining whether, and on what basis, if any, they can agree that Executive may be employed by the Company after the third anniversary of the Effective Date. The Executive shall have no obligation under this Section 16 to remain in the employ of the Company and the Company shall have no obligation hereunder to employ the Executive after the second anniversary of the Effective Date. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. JAZZ PHOTO CORP. BY: /s/ Jack Benun -------------------- Jack Benun, President /s/ Roger F Lorenzini -------------------- Roger F. Lorenzini 3-18-97 17 EX-10.5 12 EXECUTIVE EMPLOYEE AGREEMENT W/J. COHEN Exhibit 10.5 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the ___ day of February, 1997 between Jazz Photo Corp., a New Jersey corporation (the "Company"), and Jerrold Cohen, residing at 599 Correll Avenue, Staten Island, New York 10309 (the "Executive"). WHEREAS, the Company believes it is in the best interests of the Company to retain the Executive as an executive of the Company on the terms herein provided; and WHEREAS, the Executive is desirous of committing himself to serve the Company on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Effectiveness. This Agreement shall be effective as of January 1, 1997 (the "Effective Date") 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth herein for the period commencing on the Effective Date and expiring on the third anniversary thereof, unless such employment is sooner terminated as hereinafter set forth (such period is hereinafter sometimes referred to as the "Term of Executive's Employment"). 3. Position and Duties. During the Term of Executive's Employment hereunder, the Executive shall serve as Vice-president, sales and marketing of the Company, reporting to Roger F. Lorenzini, the Chief Executive Officer, and to the Board of Directors of the Company, and shall have responsibility for marketing and sales activities of the Company, and shall have such other powers and duties as may from time to time be prescribed by the Company. The Executive shall devote his entire working time and efforts to the business and affairs of the Company. 4. Compensation. (a) Executive Base Compensation. During the Term of Executive's Employment hereunder, the Executive shall receive a base salary at the annual rate of $175,000.00 (the "Executive Base Compensation"), or such amount in excess of Executive Base Compensation as the Company shall from time to time determine in its discretion or as shall otherwise be required as provided herein, payable at such intervals or times as shall accord with the Company's normal procedure. (b) Expenses. During the Term of his employment hereunder the Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures currently in effect for the senior executive officers of the Company) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with Company policy. 2 (c) Fringe Benefits. The Executive shall be eligible to participate in or receive benefits under any profit-sharing or pension plan, savings plan, stock option plan, stock purchase plan, medical and health-and-accident plans, or arrangement currently made available by the Company or to be made available in the future to its executives and key management employees, including the Company's 1997 Long-Term Incentive Plan, as currently in effect or any comparable successor plan thereto, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of Base Compensation to the Executive hereunder. (d) Perquisites. The Executive shall be entitled to receive perquisites appertaining to, and consistent with, his office in accordance with such practices as may be adopted by the Company from time to time, including, but not limited to (i) an automobile, the style and year to be chosen at the Company's discretion, for the exclusive use of Executive; and (ii) an automobile allowance in the amount of $600.00 per month. 3 (e) Life Insurance Policy. The Company shall provide Executive, at no expense to Executive, with a life insurance policy in the amount of $250,000, the beneficiary of which shall be at Executive's sole and exclusive discretion. (f) Stock Option Grant. The Board of Directors of the Company shall grant to Executive an option to purchase a total of 15,000 shares of the Class A Common Stock of the Company (the "Stock Option") in accordance with the terms and conditions of the Company's 1997 Long-Term Incentive Plan at an exercise price of $1.50 per share. 5. Termination. (a) Disability. If, based on independent medical advice, from a physician reasonably acceptable to the Company and Executive, the Board of Directors determines that, due to physical or mental illness, the Executive has been unable to perform his duties hereunder for six consecutive months or six non-consecutive months in any twelve month period, the Company may terminate the employment of the Executive by delivering a Notice of Termination specifying a termination date. The return of the Executive to the performance of his duties in accordance with Section 3 hereof prior to the specified termination date shall not render such notice ineffective for the purpose of terminating Executive's employment hereunder. (b) Termination by the Executive. The Executive may terminate his employment hereunder voluntarily, provided that the Executive delivers to the Company a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to the date of such Notice of Termination. 4 (c) Termination by the Company. The Company may terminate the employment of the Executive, with or without cause, by delivering a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to such Notice of Termination, except that, in the case of a Termination for Cause (as herein defined), a Notice of Termination shall be effective immediately. A "Termination Without Cause" shall mean a termination of the Executive's employment hereunder, other than a "Termination for Cause" as defined herein and other than pursuant to subsections (a), (b) or (d) hereof and a termination by the Executive of his employment hereunder pursuant to the provisions of Section 3(b) hereof. A "Termination for Cause" shall mean, in the context of termination of the employment or the directorship of the Executive, any of the following events or conditions: (i) the Executive's material failure to perform (other than by reason of disability) his or her duties and responsibilities as an employee or director which are not remedied within 30 days after receipt of written notice thereof from the Company, (ii) fraud, embezzlement or other material dishonesty with respect to the Company, (iii) conviction of, or plea of nolo contendere to, any felony or any other crime involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have materially breached any confidentiality or non-competition agreement to which the Executive is a party with the Company directly, or (v) the Executive shall have materially breached this Agreement. (d) The Executive's employment hereunder shall terminate upon his death. 5 (e) Any termination (1) by the Company pursuant to subsections 5(a) or (c) above or (2) by the Executive pursuant to subsection 5(b) above shall be communicated by written Notice of Termination ("Notice of Termination") to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision relied upon, and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder. (f) "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated under Section 5(a), on the date the Executive's employment is terminated by the Company in accordance with a Notice of Termination under Section 5(a), (iii) if the Executive's employment is terminated pursuant to a Notice of Termination under Section 5(c), the date upon which such termination becomes effective pursuant to this Agreement and such Notice of Termination, and (iv) the second anniversary of the Effective Date if the Executive is employed by the Company at such date. (g) Except in the case of a Termination Without Cause pursuant to Section 5(c), the Executive shall be paid all amounts earned to the Date of Termination. In the case of Termination Without Cause during the Executive's employment under this Agreement pursuant to Section 5(c), the Executive shall be paid by the Company his Base Compensation for a period commencing on the day following the Date of Termination and ending on the third anniversary of the Effective Date (as 6 defined in Section 1 of this Agreement). Executive's rights under this Subsection (g) shall survive the termination of his employment under this Agreement. 6. Confidential Information; Restricted Activities. (a) Confidential Information. Executive acknowledges that Company and its affiliates continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its affiliates and that the Executive may learn of Confidential Information during the course of employment. The Executive will comply with the policies and procedures of the Company and its affiliates for protecting Confidential Information and shall never disclose to any person or to any governmental agency or political subdivision of any government (except as required by applicable law or for the proper performance of his duties and responsibilities hereunder), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its affiliates. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. "Confidential Information" means any and all information of the Company and its affiliates that is not generally known by others with whom they compete or do business, or with whom they actively plan to compete or do business. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its affiliates, (ii) the costs, sources of supply, financial performance and 7 strategic plans of the Company and its affiliates, (iii) the identity and special needs of the customers of the Company and its affiliates; and (iv) the people and organizations with whom the Company and its affiliates have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its affiliates have received belonging to others or which was received by the Company or any of its Affiliates with any understanding, express or implied, that it would not be disclosed. (b) All documents, records, files, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or any of its affiliates and to their customers, prospective customers, vendors, and any other persons with whom the Company has business dealings, including, but not limited to, originals and all copies of all correspondence, soliciting materials, contracts, proposals, analyses, performance data and other written or computer software, data bases, programs and disks, in whole or in part, thereof, whether or not prepared by the Executive, are the sole and exclusive property of the Company and its affiliates ("Documents"). Upon termination of Executive's employment for any reason, whether during the period set forth in Section 2 hereof or thereafter, or at such earlier time or times as the Board may specify, the Executive shall immediately turn over to the Company all Documents maintained by, or under the control or possession of, the Executive. 8 (c) Restricted Activities. (i) While the Executive is employed hereunder and for a period of two (2) years after his employment terminates (the "Non-Competition Period"), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, coventurer or otherwise, compete with the Company or any of its affiliates within the United States or undertake with any third party any planning for any business competitive with the Company or any of its affiliates. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive with the business of the Company or any of its affiliates as conducted or under active development at any time during the Executive's employment. Restricted activity includes without limitation accepting employment or a consulting position with any Person who is, or at any time within twelve (12) months prior to termination of the Executive's employment has been, a customer of the Company or any of its affiliates accounting for 5% or more of the revenues of the Company or such affiliates during its last complete fiscal year. For the purposes of this Section 7, the business of the Company and its affiliates shall include all Products and the Executive's undertaking shall encompass all items, products and services that may be competitive with Products. "Products" mean all products under active development, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its affiliates, together with all services provided or 9 under active development by the Company or any of its Affiliates, during the Executive's employment. Notwithstanding the foregoing, nothing herein shall preclude Executive from being employed by a large entity which is engaged in the business of the manufacture, distribution or sale of consumer electronic products, so long as Executive is not directly engaged in the marketing, distribution or sale of products similar to the Products or which compete therewith. (ii) The Executive agrees that, during his employment hereunder, he will not undertake any outside activity, whether or not competitive with the business of the Company or any of its affiliates, that could reasonably give rise to a conflict of interest or otherwise interfere with his duties and obligations to the Company or any of its affiliates. (iii) The Executive further agrees that while he is employed by the Company hereunder and during the Non-Competition Period, the Executive will not hire or attempt to hire any employee of the Company or any of its affiliates, assist in such hiring by any Person, encourage any such employee to terminate his or her relationship with, the Company or any of its affiliates, or solicit or encourage any customer or vendor of the Company or any of its affiliates to terminate or diminish its relationship with them or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its affiliates. 10 "Person" means an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its affiliates. 7. Enforcement. The Executive recognizes that his agreement to the terms and conditions of this Section 7 represents a material inducement to the Company to continue the Executive's employment. The Executive acknowledges that irreparable injury may result to the Company and that the Company will have no adequate remedy at law in the event that the Executive breaches any of the provisions of Section 6 hereof. Accordingly, the Executive agrees that in the event of a breach by the Executive of any of the provisions of Section 6, the Company shall, in addition to all other rights and remedies, be entitled to injunctive relief with respect to such breach and/or to a decree for specific performance of the terms of such Section, in each instance without the necessity of showing any irreparable injury or special damages. 8. Successors. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the Agreement 11 provided for in this Section 8 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) In the event Executive's employment under this Agreement shall terminate for any reason while any amounts have been earned but not paid as of the applicable Date of Termination as defined herein or are otherwise due the Executive under the terms of Section 5 hereof or by reference thereto, then the right to receive such amount shall survive and be enforceable after the termination of Executive's employment hereunder by the Executive, his successors, assigns, executors, administrators, heirs, legatees, devisees or legal representatives. 9. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when mailed by United States registered or certified mail, return receipt requested, postage prepaid, transmitted by facsimile transmission or delivered by messenger addressed as follows: If to the Executive: Jerrold Cohen 599 Correll Avenue Staten Island, New York 10309 If to the Company: JAZZ Photo Corp. 1459 Pinewood Street Rahway, NJ 07065 With a copy to: Stephen C. Kahr, Esq. Greenberg & Kahr 3 New York Plaza New York, New York 10004 12 or to such other address as any such person may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 10. Amendment and Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 11. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without reference to conflicts of laws. 12. Severability; Survivability. It is the intent of the parties hereto that in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The provisions of Sections 5(g), 6, 7 and 8(b) of this Agreement shall survive the expiration or termination of Executive's employment 13 hereunder, whether during the period set forth in Section 2 of this Agreement or thereafter, and the termination of this Agreement. 13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Only Employment Agreement. From and after the Effective Date, this Agreement shall supersede any and all prior employment agreements between the parties. 15. Future Negotiations. If the Executive is employed by the Company six (6) months prior to the second anniversary of the Effective Date then the Company and the Executive shall commence good faith negotiations for the purpose of determining whether, and on what basis, if any, they can agree that Executive may be employed by the Company after the third anniversary of the Effective Date. The Executive shall have no obligation under this Section 15 to remain in the employ of the Company and the Company shall have no obligation hereunder to employ the Executive after the second anniversary of the Effective Date. 14 IN WITNESS WHEREOF, the -in have executed this Agreement as of the date and year first above written. JAZZ PHOTO CORP. BY: /s/ Jack Benun ------------------------------- Jack Benun, President /s/ Jerrold Cohen ------------------------------- Jerrold Cohen 15 EX-10.6 13 EXECUTIVE EMPLOYEE AGREEMENT W/J. CARFAGNO Exhibit 10.6 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the day of February, 1997 between Jazz Photo Corp., a New Jersey corporation (the "Company"), and James Carfagno, Sr., residing at 75 Blanche Court, North Barrington, Illinois, 60016, (the "Executive"). WHEREAS, the Company believes it is in the best interests of the Company to retain the Executive as an executive of the Company on the terms herein provided; and WHEREAS, the Executive is desirous of committing himself to serve the Company on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Effectiveness. This Agreement shall be effective as of March 1, 1997 (the "Effective Date") immediately upon the last to occur of (a) the approval by the Board of Directors of the Company of this Agreement and (b) the execution of this Agreement by the Company and the Executive. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth herein for the period commencing on the Effective Date and expiring on the second anniversary thereof, unless such employment is sooner terminated as hereinafter set forth (such period is hereinafter sometimes referred to as the "Term of Executive's Employment"). 3. Position and Duties. During the Term of Executive's Employment hereunder, the Executive shall serve as Executive Vice President, Direct Mail Sales reporting to the Chief Executive Officer of the Company and the Board of Directors of the Company, and shall have responsibility for of the Company's operations, and shall have such other powers and duties as may from time to time be prescribed by the Chief Executive Officer or by the Board of Directors of the Company. The Executive shall devote his entire working time and efforts to the business and affairs of the Company. 4. Compensation. (a) (i) Executive Base Compensation. During the Term of Executive's Employment hereunder, the Executive shall receive a base salary at the annual rate of $75,000 (the "Executive Base Compensation"), or such amount in excess of Executive Base Compensation as the Company shall from time to time determine in its discretion, payable at such intervals or times as shall accord with the Company's normal procedure. (ii) In addition to Executive's Base Compensation during the Term of his Employment he shall receive an amount equal to 2% of the direct mail sales of the Company for which no other person receives a commission payment (so called "Non-commission" or "non-repped" sales) for which he is responsible and a 1% override commission on (A) all other direct mail sales and (B) all sales to professional photographic supply stores. (b) Expenses. During the Term of his employment hereunder the Executive shall be entitled to receive reimbursement for all reasonable expenses 2 incurred by him (in accordance with the policies and procedures currently in effect for the senior executive officers of the Company) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with Company policy. (c) Fringe Benefits. The Executive shall be entitled to participate in or receive benefits under any profit-sharing or pension plan, savings plan, stock option plan, stock purchase plan, life insurance and/or death benefits plan, medical and health-and-accident plans, or arrangement currently made available by the Company or to be made available in the future to its executives and key management employees, including the Company's 1997 Long-Term Incentive Plan, as currently in effect or any comparable successor plan thereto, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of Base Compensation to the Executive hereunder. (d) Perquisites. The Executive shall be entitled to receive perquisites appertaining to, and consistent with, the office in accordance with such practices as may be adopted by the Company from time to time. (e) Stock Option Grant. The Board of Directors of the Company shall grant to Executive an option to purchase a total of 15,000 shares of the Class A Common Stock of the Company (the "Stock Option") in accordance with the terms and 3 conditions of the Company's 1997 Long-Term Incentive Plan at an exercise price of $1.50 per share. 5. Offices; Directorships. The Executive agrees to serve on the Board of Directors of the Company without additional compensation, if elected or appointed thereto, in one or more offices in, and/or as a director of, the Company or any subsidiary or affiliate of the Company. 6. Termination. (a) Disability. If, based on independent medical advice, from a physician reasonably acceptable to the Company and Executive, the Board of Directors determines that, due to physical or mental illness, the Executive has been unable to perform his duties hereunder for six consecutive months or six non-consecutive months in any twelve month period, the Company may terminate the employment of the Executive by delivering a Notice of Termination specifying a termination date. The return of the Executive to the performance of his duties in accordance with Section 3 hereof prior to the specified termination date shall not render such notice ineffective for the purpose of terminating Executive's employment hereunder. (b) Termination by the Executive. The Executive may terminate his employment hereunder voluntarily, provided that the Executive delivers to the Company a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to the date of such Notice of Termination. (c) Termination by the Company. The Company may terminate the employment of the Executive, with or without cause, by delivering a Notice of 4 Termination specifying a termination date not less than ninety (90) days subsequent to such Notice of Termination, except that, in the case of a Termination for Cause (as herein defined), a Notice of Termination shall be effective immediately. A "Termination Without Cause" shall mean a termination of the Executive's employment hereunder, other than a "Termination for Cause" as defined herein and other than pursuant to subsections (a), (b) or (d) hereof. A "Termination for Cause" shall mean, in the context of termination of the employment or the directorship of the Executive, any of the following events or conditions: (i) the Executive's material failure to perform (other than by reason of disability) his duties and responsibilities as an employee or director which are not remedied within 30 days after receipt of written notice thereof from the Company, (ii) fraud, embezzlement or other material dishonesty with respect to the Company, (iii) conviction of, or plea of nolo contendere to, any felony or any other crime involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have materially breached any confidentiality or non-competition agreement to which the Executive is a party with the Company directly, or (v) the Executive shall have materially breached this Agreement, provided. however. with respect to clauses (i) and (v) hereof Executive shall have received written notice from the Company and such material failure or material breach shall not have been remedied within 30 days of receipt of such notice. (d) The Executive's employment hereunder shall terminate upon his death. 5 (e) Any termination (1) by the Company pursuant to subsections 6(a) or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be communicated by written Notice of Termination ("Notice of Termination") to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision relied upon, and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder. (f) "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated under Section 6(a), on the date the Executive's employment is terminated by the Company in accordance with a Notice of Termination under Section 6(a), (iii) if the Executive's employment is terminated pursuant to a Notice of Termination under Section 6(c), the date upon which such termination becomes effective pursuant to this Agreement and such Notice of Termination, and (iv) the second anniversary of the Effective Date if the Executive is employed by the Company at such date. (g) Except in the case of a Termination Without Cause pursuant to Section 6(c), the Executive shall be paid all amounts earned to the Date of Termination. In the case of Termination Without Cause during the Executive's employment under this Agreement pursuant to Section 6(c), the Executive shall be paid by the Company his Base Compensation for a period commencing on the day following the Date of Termination and ending on the second anniversary of the Effective Date (as defined in 6 Section 1 of this Agreement). Executive's rights under this Subsection (g) shall survive the termination of his employment under this Agreement. 7. Confidential Information; Intellectual Property; Restricted Activities. (a) Confidential Information. Executive acknowledges that Company and its affiliates continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its affiliates and that the Executive may learn of Confidential Information during the course of employment. The Executive will comply with the policies and procedures of the Company and its affiliates for protecting Confidential Information and shall never disclose to any person or to any governmental agency or political subdivision of any government (except as required by applicable law or for the proper performance of his duties and responsibilities hereunder), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its affiliates. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. "Confidential Information" means any and all information of the Company and its affiliates that is not generally known by others with whom they compete or do business, or with whom they actively plan to compete or do business. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its affiliates, (ii) the Products, (iii) Intellectual Property; (iv) the costs, sources of supply, financial performance and strategic plans of the Company and its affiliates, (v) the 7 identity and special needs of the customers of the Company and its affiliates; and (vi) the people and organizations with whom the Company and its affiliates have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its affiliates have received belonging to others or which was received by the Company or any of its Affiliates with any understanding, express or implied, that it would not be disclosed. (b) Intellectual Property. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive's full right, title and interest in and to all Intellectual Property. The Executive agrees to promptly and fully disclose all Intellectual Property to the Company and to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. The Executive will not charge the Company for time spent in complying with these obligations. All copyrightable works that the Executive creates shall be considered "work made for hire". "Intellectual Property" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to writing by the Executive (whether alone or with others, 8 whether or not during normal business hours or on or off Company premises) during the Executive's employment that relate to either the Products or any activity of the Company or any of its Affiliates which is under active development. "Products" mean all products under active development, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its affiliates, together with all services provided or under active development by the Company or any of its affiliates, during the Term of Executive's Employment. (c) All documents, records, files, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or any of its affiliates and to their customers, prospective customers, vendors, and any other persons with whom the Company has business dealings, including, but not limited to, originals and all copies of all correspondence, soliciting materials, contracts, proposals, analyses, performance data and other written or computer software, data bases, programs and disks, in whole or in part, thereof, whether or not prepared by the Executive, are the sole and exclusive property of the Company and its affiliates ("Documents"). Upon termination of Executive's employment for any reason, whether during the period set forth in Section 2 hereof or thereafter, or at such earlier time or times as the Board may specify, the Executive shall immediately turn over to the Company all Documents maintained by, or under the control or possession of, the Executive. 9 (d) Restricted Activities. (i) While the Executive is employed hereunder and for a period of two (2) years after his employment terminates (the "Non-Competition Period"), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, coventurer or otherwise, compete with the Company or any of its affiliates within the United States or within any country in which the Company makes sales of products representing 50% or more of its revenue undertake with any third party any planning for any business competitive with the Company or any of its affiliates. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive with the business of the Company or any of its affiliates as conducted or under active development at any time during the Term of Executive's Employment. For the purposes of this Section 7, the business of the Company and its affiliates shall include all Products and the Executive's undertaking shall encompass all items, products and services that may be competitive with Products. (ii) The Executive agrees that, during his employment hereunder, he will not undertake any outside activity, whether or not competitive with the business of the Company or any of its affiliates, that could reasonably give rise to a conflict of interest or otherwise interfere with his duties and obligations to the Company or any of its affiliates. (iii) The Executive further agrees that while he is employed by the Company hereunder and during the Non-Competition Period, the Executive will not 10 hire or attempt to hire any employee of the Company or any of its affiliates to perform services for any Person, assist in such hiring by any Person, encourage any such employee to terminate his or her relationship with, the Company or any of its affiliates, or solicit or encourage any customer or vendor of the Company or any of its affiliates to terminate or diminish its relationship with them or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its affiliates. "Person" means an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its affiliates. Notwithstanding anything to the contrary contained in this paragraph (d), nothing shall preclude Executive from continuing to perform services for Affiliated Enterprises so long as it does not engage in activities different from those in which it currently engages which compete directly with the Company. 8. Enforcement. The Executive recognizes that his agreement to the terms and conditions of this Section 8 represents a material inducement to the Company to employ the Executive. The Executive acknowledges that irreparable injury may result to the Company and that the Company will have no adequate remedy at law in the event that the Executive breaches any of the provisions of Section 7 hereof. Accordingly, the Executive agrees that in the event of a breach by the Executive of any of the provisions of Section 7, the Company shall, in addition to all other rights and remedies, be entitled to injunctive relief with respect to such breach and/or to a decree 11 for specific performance of the terms of such Section, in each instance without the necessity of showing any irreparable injury or special damages. 9. Successors. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) In the event Executive's employment under this Agreement shall terminate for any reason while any amounts have been earned but not paid as of the applicable Date of Termination as defined herein or are otherwise due the Executive under the terms of Section 6 hereof or by reference thereto, then the right to receive such amount shall survive and be enforceable after the termination of Executive's employment hereunder by the Executive, his successors, assigns, executors, administrators, heirs, legatees, devisees or legal representatives. 10. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when mailed by United States registered or certified mail, 12 return receipt requested, postage prepaid, transmitted by facsimile transmission or delivered by messenger addressed as follows: If to the Executive: James Carfagno, Sr. 75 Blanche Court North Barrington, IL 60016 If to the Company: JAZZ Photo Corp. 1459 Pinewood Street Rahway, NJ 07065 with a copy to: Stephen C. Kahr, Esq. Greenberg & Kahr 3 New York Plaza New York, New York 10004 or to such other address as any such person may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. Amendment and Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 13 12. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without reference to conflicts of laws. 13. Severability; Survivability. It is the intent of the parties hereto that in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall survive the expiration or termination of Executive's employment hereunder, whether during the period set forth in Section 2 of this Agreement or thereafter, and the termination of this Agreement. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Only Employment Agreement. From and after the Effective Date, this Agreement shall supersede any and all prior employment agreements between the parties. 16. Future Negotiations. If the Executive is employed by the Company six (6) months prior to the third anniversary of the Effective Date then the Company and the Executive shall commence good faith negotiations for the purpose of determining whether, and on what basis, if any, they can agree that Executive may be employed by 14 the Company after the third anniversary of the Effective Date. The Executive shall have no obligation under this Section 16 to remain in the employ of the Company and the Company shall have no obligation hereunder to employ the Executive after the second anniversary of the Effective Date. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. JAZZ PHOTO CORP. BY: /s/ Jack Benun ---------------------------------- Jack Benun, President /s/ James Carfagno, Sr. ---------------------------------- James Carfagno, Sr. 15 EX-10.7 14 EXECUTIVE EMPLOYEE AGREEMENT W/J. BURKARD Exhibit 10.7 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the ___ day of February, 1997 between Jazz Photo Corp., a New Jersey corporation (the "Company"), and Jeffrey Burkard, residing at 102 Noddingham Drive, Eatontown, New Jersey 07724, (the "Executive"). WHEREAS, the Company believes it is in the best interests of the Company to retain the Executive as an executive of the Company on the terms herein provided; and WHEREAS, the Executive is desirous of committing himself to serve the Company on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Effectiveness. This Agreement shall be effective as of January 1, 1997 (the "Effective Date") immediately upon the last to occur of (a) the approval by the Board of Directors of the Company of this Agreement and (b) the execution of this Agreement by the Company and the Executive. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth herein for the period commencing on the Effective Date and expiring on the third anniversary thereof, unless such employment is sooner terminated as hereinafter set forth (such period is hereinafter sometimes referred to as the "Term of Executive's Employment"). 3. Position and Duties. During the Term of Executive's Employment hereunder, the Executive shall serve as Vice President, Operations reporting to the Chief Executive Officer of the Company and the Board of Directors of the Company, and shall have responsibility for of the Company's operations, and shall have such other powers and duties as may from time to time be prescribed by the Chief Executive Officer or by the Board of Directors of the Company. The Executive shall devote his entire working time and efforts to the business and affairs of the Company. 4. Compensation. (a) Executive Base Compensation. During the Term of Executive's Employment hereunder, the Executive shall receive a base salary at the annual rate of $104,000.00 (the "Executive Base Compensation"), or such amount in excess of Executive Base Compensation as the Company shall from time to time determine in its discretion, payable at such intervals or times as shall accord with the Company's normal procedure. (b) Expenses. During the Term of his employment hereunder the Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures currently in effect for the senior executive officers of the Company) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with Company policy. (c) Fringe Benefits. The Executive shall be entitled to participate in or receive benefits under any profit-sharing or pension plan, savings plan, stock option plan, stock 2 purchase plan, life insurance and/or death benefits plan, medical and health-and-accident plans, or arrangement currently made available by the Company or to be made available in the future to its executives and key management employees, including the Company's 1997 Long-Term Incentive Plan, as currently in effect or any comparable successor plan thereto, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of Base Compensation to the Executive hereunder. (d) Perquisites. The Executive shall be entitled to receive perquisites appertaining to, and consistent with, the office in accordance with such practices as may be adopted by the Company from time to time. (e) Stock Option Grant. The Board of Directors of the Company shall grant to Executive an option to purchase a total of 15,000 shares of the Class A Common Stock of the Company (the "Stock Option") in accordance with the terms and conditions of the Company's 1997 Long-Term Incentive Plan at an exercise price of $1.50 per share. 5. Offices; Directorships. The Executive agrees to serve on the Board of Directors of the Company without additional compensation, if elected or appointed thereto, in one or more offices in, and/or as a director of, the Company or any subsidiary or affiliate of the Company. 3 6. Termination. (a) Disability. If, based on independent medical advice, from a physician reasonably acceptable to the Company and Executive, the Board of Directors determines that, due to physical or mental illness, the Executive has been unable to perform his duties hereunder for six consecutive months or six non-consecutive months in any twelve month period, the Company may terminate the employment of the Executive by delivering a Notice of Termination specifying a termination date. The return of the Executive to the performance of his duties in accordance with Section 3 hereof prior to the specified termination date shall not render such notice ineffective for the purpose of terminating Executive's employment hereunder. (b) Termination by the Executive. The Executive may terminate his employment hereunder voluntarily, provided that the Executive delivers to the Company a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to the date of such Notice of Termination. (c) Termination by the Company. The Company may terminate the employment of the Executive, with or without cause, by delivering a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to such Notice of Termination, except that, in the case of a Termination for Cause (as herein defined), a Notice of Termination shall be effective immediately. A "Termination Without Cause" shall mean a termination of the Executive's employment hereunder, other than a "Termination for Cause" as defined herein and other than pursuant to subsections (a), (b) or (d) hereof. A "Termination for Cause" shall mean, in the context 4 of termination of the employment or the directorship of the Executive, any of the following events or conditions: (i) the Executive's material failure to perform (other than by reason of disability) his duties and responsibilities as an employee or director which are not remedied within 30 days after receipt of written notice thereof from the Company, (ii) fraud, embezzlement or other material dishonesty with respect to the Company, (iii) conviction of, or plea of nolo contendere to, any felony or any other crime involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have materially breached any confidentiality or non-competition agreement to which the Executive is a party with the Company directly, or (v) the Executive shall have materially breached this Agreement, provided, however, with respect to clauses (i) and (v) hereof Executive shall have received written notice from the Company and such material failure or material breach shall not have been remedied within 30 days of receipt of such notice and provided, further, that the termination of the employment of the Executive shall not be deemed to be a Termination for Cause unless (1) the written notice of termination indicates the specific termination provision relied upon and sets forth the facts and circumstances claimed to provide a basis for termination; (2) an opportunity is provided for the Executive, together with his counsel, to be heard before the Board of Directors on the matter of termination; and (3) the Executive receives a letter of termination from the Board of Directors stating that in the good faith opinion of the Board, the Executive was guilty of the conduct set forth in clauses (c), (i), (ii), (iii), (iv), and (v). 5 (d) The Executive's employment hereunder shall terminate upon his death. (e) Any termination (1) by the Company pursuant to subsections 6(a) or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be communicated by written Notice of Termination ("Notice of Termination") to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision relied upon, and shall set forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder. (f) "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated under Section 6(a), on the date the Executive's employment is terminated by the Company in accordance with a Notice of Termination under Section 6(a), (iii) if the Executive's employment is terminated pursuant to a Notice of Termination under Section 6(c), the date upon which such termination becomes effective pursuant to this Agreement and such Notice of Termination, and (iv) the third [2-second] anniversary of the Effective Date if the Executive is employed by the Company at such date. (g) Except in the case of a Termination Without Cause pursuant to Section 6(c), the Executive shall be paid all amounts earned to the Date of Termination. In the case of Termination Without Cause during the Executive's employment under this Agreement pursuant to Section 6(c), the Executive shall be paid by the Company his Base Compensation for a period commencing on the day following the Date of 6 Termination and ending on the third [second] anniversary of the Effective Date (as defined in Section 1 of this Agreement). Executive's rights under this Subsection (g) shall survive the termination of his employment under this Agreement. 7. Confidential Information; Intellectual Property; Restricted Activities. (a) Confidential Information. Executive acknowledges that Company and its affiliates continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its affiliates and that the Executive may learn of Confidential Information during the course of employment. The Executive will comply with the policies and procedures of the Company and its affiliates for protecting Confidential Information and shall never disclose to any person or to any governmental agency or political subdivision of any government (except as required by applicable law or for the proper performance of his duties and responsibilities hereunder), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its affiliates. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. "Confidential Information" means any and all information of the Company and its affiliates that is not generally known by others with whom they compete or do business, or with whom they actively plan to compete or do business. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its affiliates, (ii) the Products, (iii) Intellectual Property; (iv) the costs, sources of supply, 7 financial performance and strategic plans of the Company and its affiliates, (v) the identity and special needs of the customers of the Company and its affiliates; and (vi) the people and organizations with whom the Company and its affiliates have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its affiliates have received belonging to others or which was received by the Company or any of its Affiliates with any understanding, express or implied, that it would not be disclosed. (b) Intellectual Property. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive's full right, title and interest in and to all Intellectual Property. The Executive agrees to promptly and fully disclose all Intellectual Property to the Company and to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. The Executive will not charge the Company for time spent in complying with these obligations. All copyrightable works that the Executive creates shall be considered "work made for hire". "Intellectual Property" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, 8 developed or reduced to writing by the Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during the Executive's employment that relate to either the Products or any activity of the Company or any of its Affiliates which is under active development. "Products" mean all products under active development, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its affiliates, together with all services provided or under active development by the Company or any of its affiliates, during the Term of Executive's Employment. (c) All documents, records, files, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or any of its affiliates and to their customers, prospective customers, vendors, and any other persons with whom the Company has business dealings, including, but not limited to, originals and all copies of all correspondence, soliciting materials, contracts, proposals, analyses, performance data and other written or computer software, data bases, programs and disks, in whole or in part, thereof, whether or not prepared by the Executive, are the sole and exclusive property of the Company and its affiliates ("Documents"). Upon termination of Executive's employment for any reason, whether during the period set forth in Section 2 hereof or thereafter, or at such earlier time or times as the Board may specify, the Executive shall immediately turn over to the Company all Documents maintained by, or under the control or possession of, the Executive. 9 (d) Restricted Activities. (i) While the Executive is employed hereunder and for a period of two (2) years after his employment terminates (the "Non-Competition Period"), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, coventurer or otherwise, compete with the Company or any of its affiliates within the United States or within any country in which the Company makes sales of products representing 50% or more of its revenue undertake with any third party any planning for any business competitive with the Company or any of its affiliates. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive with the business of the Company or any of its affiliates as conducted or under active development at any time during the Term of Executive's Employment. For the purposes of this Section 7, the business of the Company and its affiliates shall include all Products and the Executive's undertaking shall encompass all items, products and services that may be competitive with Products. (ii) The Executive agrees that, during his employment hereunder, he will not undertake any outside activity, whether or not competitive with the business of the Company or any of its affiliates, that could reasonably give rise to a conflict of interest or otherwise interfere with his duties and obligations to the Company or any of its affiliates. (iii) The Executive further agrees that while he is employed by the Company hereunder and during the Non-Competition Period, the Executive will not 10 hire or attempt to hire any employee of the Company or any of its affiliates to perform services for any Person, assist in such hiring by any Person, encourage any such employee to terminate his or her relationship with, the Company or any of its affiliates, or solicit or encourage any customer or vendor of the Company or any of its affiliates to terminate or diminish its relationship with them or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its affiliates. "Person" means an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its affiliates. 8. Enforcement. The Executive recognizes that his agreement to the terms and conditions of this Section 8 represents a material inducement to the Company to employ the Executive. The Executive acknowledges that irreparable injury may result to the Company and that the Company will have no adequate remedy at law in the event that the Executive breaches any of the provisions of Section 7 hereof. Accordingly, the Executive agrees that in the event of a breach by the Executive of any of the provisions of Section 7, the Company shall, in addition to all other rights and remedies, be entitled to injunctive relief with respect to such breach and/or to a decree for specific performance of the terms of such Section, in each instance without the necessity of showing any irreparable injury or special damages. 11 9. Successors. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the Agreement provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) In the event Executive's employment under this Agreement shall terminate for any reason while any amounts have been earned but not paid as of the applicable Date of Termination as defined herein or are otherwise due the Executive under the terms of Section 6 hereof or by reference thereto, then the right to receive such amount shall survive and be enforceable after the termination of Executive's employment hereunder by the Executive, his successors, assigns, executors, administrators, heirs, legatees, devisees or legal representatives. 10. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when mailed by United States registered or certified mail, 12 return receipt requested, postage prepaid, transmitted by facsimile transmission or delivered by messenger addressed as follows: If to the Executive: Jeffrey Burkard 102 Noddingham Drive Eatontown, NJ 07724 If to the Company: JAZZ Photo Corp. 1459 Pinewood Street Rahway, NJ O7065agreement with a copy to: Stephen C. Kahr, Esq. Greenberg & Kahr 3 New York Plaza New York, New York 10004 or to such other address as any such person may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. Amendment and Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 13 12. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without reference to conflicts of laws. 13. Severability; Survivability. It is the intent of the parties hereto that in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall survive the expiration or termination of Executive's employment hereunder, whether during the period set forth in Section 2 of this Agreement or thereafter, and the termination of this Agreement. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Only Employment Agreement. From and after the Effective Date, this Agreement shall supersede any and all prior employment agreements between the parties. 16. Future Negotiations. If the Executive is employed by the Company six (6) months prior to the third anniversary of the Effective Date then the Company and the Executive shall commence good faith negotiations for the purpose of determining whether, and on what basis, if any, they can agree that Executive may be employed by 14 the Company after the third anniversary of the Effective Date. The Executive shall have no obligation under this Section 16 to remain in the employ of the Company and the Company shall have no obligation hereunder to employ the Executive after the second anniversary of the Effective Date. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. JAZZ PHOTO CORP. By: /s/ Jack Benun ------------------ Jack Benun, President /s/ Jeffrey Burkard ------------------- Jeffrey Burkard 15 EX-10.8 15 EXECUTIVE EMPLOYEE AGREEMENT W/J. SZETO Exhibit 10.8 EXECUTIVE EMPLOYMENT AGREEMENT EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") made as of the __ day of April, 1997 among Jazz Photo Corp., a New Jersey corporation ("Jazz"), Jazz Photo (Hong Kong) Limited, a corporation formed under the laws of Hong Kong (the "Company"), and Jessie Szeto, residing at 21/F, Flat C, Block II, Ho Fai Garden, Sai Lau Kok Street, Tsuen Wan, Hong Kong (the "Executive"). WHEREAS, the Company believes it is in the best interests of the Company to retain the Executive as an executive of the Company on the terms herein provided; and WHEREAS, the Executive is desirous of committing herself to serve the Company on the terms herein provided; NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. Effectiveness. This Agreement shall be effective as of April 1, 1997 (the "Effective Date") immediately upon the last to occur of (a) the approval by the Board of Directors of the Company of this Agreement and (b) the execution of this Agreement by the Company, Jazz and the Executive. 2. Employment. The Company hereby agrees to employ the Executive, and the Executive hereby accepts such employment, on the terms and conditions set forth herein for the period commencing on the Effective Date and expiring on the third anniversary thereof, unless such employment is sooner terminated as hereinafter set forth (such period is hereinafter sometimes referred to as the "Term of Executive's Employment"). 3. Position and Duties. During the Term of Executive's Employment hereunder, the Executive shall serve as Managing Director of the Company reporting to the Chief Executive Officer of Jazz, the Board of Directors of the Company and Jazz, and shall have responsibility for all aspects of the Company's operations, and shall have such other powers and duties as may from time to time be prescribed by the Chief Executive Officer or by the Board of Directors of the Company and Jazz. The Executive shall devote her entire working time and efforts to the business and affairs of the Company. 4. Compensation. (a) (i) Executive Base Compensation. During the Term of Executive's Employment hereunder, the Executive shall receive a base salary at the annual rate of HK$ 780,000 (the "Executive Base Compensation"), or such amount in excess of Executive Base Compensation as the Company shall from time to time determine in its discretion, payable at such intervals or times as shall accord with the Company's normal procedure. (b) Expenses. During the Term of her employment hereunder the Executive shall be entitled to receive reimbursement for all reasonable expenses incurred by her (in accordance with the policies and procedures currently in effect for the senior executive officers of the Company) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with Company 2 policy. Executive shall have an expense allowance of HK$8,000 per month to employ persons to provide part-time services. (c) Fringe Benefits. The Executive shall be entitled to participate in or receive benefits under any profit-sharing or pension plan, savings plan, stock option plan, stock purchase plan, life insurance and/or death benefits plan, medical and health-and-accident plans, or arrangement currently made available by the Company or Jazz or to be made available in the future to its executives and key management employees, including Jazz's 1997 Long-Term Incentive Plan, as currently in effect or any comparable successor plan thereto, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of Base Compensation to the Executive hereunder. (d) Perquisites. The Executive shall be entitled to receive perquisites appertaining to, and consistent with, the office in accordance with such practices as may be adopted by the Company from time to time. (e) Stock Option Grant. The Board of Directors of Jazz shall grant to Executive an option to purchase a total of 20,000 shares of the Class A Common Stock of the Company (the "Stock Option") in accordance with the terms and conditions of the Company's 1997 Long-Term Incentive Plan at an exercise price of $1.50 per share. 5. Offices; Directorships. The Executive agrees to serve on the Board of Directors of the Company without additional compensation, if elected or appointed 3 thereto, in one or more offices in, and/or as a director of, the Company or any subsidiary or affiliate of the Company. 6. Termination. (a) Disability. If, based on independent medical advice, from a physician reasonably acceptable to the Company and Executive, the Board of Directors determines that, due to physical or mental illness, the Executive has been unable to perform her duties hereunder for six consecutive months or six non-consecutive months in any twelve month period, the Company may terminate the employment of the Executive by delivering a Notice of Termination specifying a termination date. The return of the Executive to the performance of her duties in accordance with Section 3 hereof prior to the specified termination date shall not render such notice ineffective for the purpose of terminating Executive's employment hereunder. (b) Termination by the Executive. The Executive may terminate her employment hereunder voluntarily, provided that the Executive delivers to the Company a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to the date of such Notice of Termination. (c) Termination by the Company. The Company may terminate the employment of the Executive, with or without cause, by delivering a Notice of Termination specifying a termination date not less than ninety (90) days subsequent to such Notice of Termination, except that, in the case of a Termination for Cause (as herein defined), a Notice of Termination shall be effective immediately. A "Termination Without Cause" shall mean a termination of the Executive's employment hereunder, 4 other than a "Termination for Cause" as defined herein and other than pursuant to subsections (a), (b) or (d) hereof. A "Termination for Cause" shall mean, in the context of termination of the employment or the directorship of the Executive, any of the following events or conditions: (i) the Executive's material failure to perform (other than by reason of disability) her duties and responsibilities as an employee or director which are not remedied within 30 days after receipt of written notice thereof from the Company, (ii) fraud, embezzlement or other material dishonesty with respect to the Company, (iii) conviction of, or plea of nolo contendere to, any felony or any other crime involving fraud, dishonesty or moral turpitude, (iv) the Executive shall have materially breached any confidentiality or non-competition agreement to which the Executive is a party with the Company directly, or (v) the Executive shall have materially breached this Agreement, provided, however, with respect to clauses (i) and (v) hereof Executive shall have received written notice from the Company and such material failure or material breach shall not have been remedied within 30 days of receipt of such notice. (d) The Executive's employment hereunder shall terminate upon her death. (e) Any termination (1) by the Company pursuant to subsections 6(a) or (c) above or (2) by the Executive pursuant to subsection 6(b) above shall be communicated by written Notice of Termination ("Notice of Termination") to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision relied upon, and shall set 5 forth the facts and circumstances claimed to provide a basis for termination of the Executive's employment hereunder. (f) "Date of Termination" shall mean (i) if the Executive's employment is terminated by her death, the date of her death, (ii) if the Executive's employment is terminated under Section 6(a), on the date the Executive's employment is terminated by the Company in accordance with a Notice of Termination under Section 6(a), (iii) if the Executive's employment is terminated pursuant to a Notice of Termination under Section 6(c), the date upon which such termination becomes effective pursuant to this Agreement and such Notice of Termination, and (iv) the third anniversary of the Effective Date if the Executive is employed by the Company at such date. (g) Except in the case of a Termination Without Cause pursuant to Section 6(c), the Executive shall be paid all amounts earned to the Date of Termination. In the case of Termination Without Cause during the Executive's employment under this Agreement pursuant to Section 6(c), the Executive shall be paid by the Company her Base Compensation for a period commencing on the day following the Date of Termination and ending on the third anniversary of the Effective Date (as defined in Section 1 of this Agreement). Executive's rights under this Subsection (g) shall survive the termination of her employment under this Agreement. 7. Confidential Information; Intellectual Property; Restricted Activities. (a) Confidential Information. Executive acknowledges that Company and its affiliates continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its affiliates and that the Executive 6 may learn of Confidential Information during the course of employment. The Executive will comply with the policies and procedures of the Company and its affiliates for protecting Confidential Information and shall never disclose to any person or to any governmental agency or political subdivision of any government (except as required by applicable law or for the proper performance of her duties and responsibilities hereunder), or use for her own benefit or gain, any Confidential Information obtained by the Executive incident to her employment or other association with the Company or any of its affiliates. The Executive understands that this restriction shall continue to apply after her employment terminates, regardless of the reason for such termination. "Confidential Information" means any and all information of the Company and its affiliates that is not generally known by others with whom they compete or do business, or with whom they actively plan to compete or do business. Confidential Information includes without limitation such information relating to (i) the development, research, testing, manufacturing, marketing and financial activities of the Company and its affiliates, (ii) the Products, (iii) Intellectual Property; (iv) the costs, sources of supply, financial performance and strategic plans of the Company and its affiliates, (v) the identity and special needs of the customers of the Company and its affiliates; and (vi) the people and organizations with whom the Company and its affiliates have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its affiliates have received belonging to others or which was received by the Company or any of its Affiliates with any understanding, express or implied, that it would not be disclosed. 7 (b) Intellectual Property. The Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) the Executive's full right, title and interest in and to all Intellectual Property. The Executive agrees to promptly and fully disclose all Intellectual Property to the Company and to execute any and all applications for domestic and foreign patents, copyrights or other proprietary rights and to do such other acts (including without limitation the execution and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Intellectual Property to the Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to the Intellectual Property. The Executive will not charge the Company for time spent in complying with these obligations. All copyrightable works that the Executive creates shall be considered "work made for hire". "Intellectual Property" means inventions, discoveries, developments, methods, processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or constituting trade secrets) conceived, made, created, developed or reduced to writing by the Executive (whether alone or with others, whether or not during normal business hours or on or off Company premises) during the Executive's employment that relate to either the Products or any activity of the Company or any of its Affiliates which is under active development. "Products" mean all products under active development, researched, developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by the Company or any of its affiliates, together with all services provided or 8 under active development by the Company or any of its affiliates, during the Term of Executive's Employment. (c) All documents, records, files, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or any of its affiliates and to their customers, prospective customers, vendors, and any other persons with whom the Company has business dealings, including, but not limited to, originals and all copies of all correspondence, soliciting materials, contracts, proposals, analyses, performance data and other written or computer software, data bases, programs and disks, in whole or in part, thereof, whether or not prepared by the Executive, are the sole and exclusive property of the Company and its affiliates ("Documents"). Upon termination of Executive's employment for any reason, whether during the period set forth in Section 2 hereof or thereafter, or at such earlier time or times as the Board may specify, the Executive shall immediately turn over to the Company all Documents maintained by, or under the control or possession of, the Executive. (d) Restricted Activities. (i) While the Executive is employed hereunder and for a period of two (2) years after her employment terminates (the "Non-Competition Period"), the Executive shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, coventurer or otherwise, compete with the Company or any of its affiliates within the United States or within any country in which the Company makes sales of products representing 50% or more of its revenue undertake with any 9 third party any planning for any business competitive with the Company or any of its affiliates. Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner in any activity that is directly or indirectly competitive with the business of the Company or any of its affiliates as conducted or under active development at any time during the Term of Executive's Employment. For the purposes of this Section 7, the business of the Company and its affiliates shall include all Products and the Executive's undertaking shall encompass all items, products and services that may be competitive with Products. (ii) The Executive agrees that, during her employment hereunder, she will not undertake any outside activity, whether or not competitive with the business of the Company or any of its affiliates, that could reasonably give rise to a conflict of interest or otherwise interfere with her duties and obligations to the Company or any of its affiliates. (iii) The Executive further agrees that while she is employed by the Company hereunder and during the Non-Competition Period, the Executive will not hire or attempt to hire any employee of the Company or any of its affiliates to perform services for any Person, assist in such hiring by any Person, encourage any such employee to terminate her or her relationship with, the Company or any of its affiliates, or solicit or encourage any customer or vendor of the Company or any of its affiliates to terminate or diminish its relationship with them or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its affiliates. 10 "Person" means an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization, other than the Company or any of its affiliates. 8. Enforcement. The Executive recognizes that her agreement to the terms and conditions of this Section 8 represents a material inducement to the Company to employ the Executive. The Executive acknowledges that irreparable injury may result to the Company and that the Company will have no adequate remedy at law in the event that the Executive breaches any of the provisions of Section 7 hereof. Accordingly, the Executive agrees that in the event of a breach by the Executive of any of the provisions of Section 7, the Company shall, in addition to all other rights and remedies, be entitled to injunctive relief with respect to such breach and/or to a decree for specific performance of the terms of such Section, in each instance without the necessity of showing any irreparable injury or special damages. 9. Successors. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the Agreement 11 provided for in this Section 9 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) In the event Executive's employment under this Agreement shall terminate for any reason while any amounts have been earned but not paid as of the applicable Date of Termination as defined herein or are otherwise due the Executive under the terms of Section 6 hereof or by reference thereto, then the right to receive such amount shall survive and be enforceable after the termination of Executive's employment hereunder by the Executive, her successors, assigns, executors, administrators, heirs, legatees, devisees or legal representatives. 10. Notices. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when mailed by United States registered or certified mail, return receipt requested, postage prepaid, transmitted by facsimile transmission or delivered by messenger addressed as follows: If to the Executive: Jessie Szeto 21/F, Flat C, Block II, Ho Fai Garden Sai Lau Kok Street Tsuen Wan Hong Kong 12 If to Jazz: JAZZ Photo Corp. 1459 Pinewood Street Rahway, NJ 07065 with a copy to: Stephen C. Kahr, Esq. Greenberg & Kahr 3 New York Plaza New York, New York 10004 or to such other address as any such person may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 11. Amendment and Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. 12. Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without reference to conflicts of laws. 13. Severability; Survivability. It is the intent of the parties hereto that in case any one or more of the provisions contained in this Agreement shall, for any reason, be 13 held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. The provisions of Sections 6(g), 7, 8 and 9(b) of this Agreement shall survive the expiration or termination of Executive's employment hereunder, whether during the period set forth in Section 2 of this Agreement or thereafter, and the termination of this Agreement. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Only Employment Agreement. From and after the Effective Date, this Agreement shall supersede any and all prior employment agreements between the parties. 16. Future Negotiations. If the Executive is employed by the Company six (6) months prior to the third anniversary of the Effective Date then the Company and the Executive shall commence good faith negotiations for the purpose of determining whether, and on what basis, if any, they can agree that Executive may be employed by the Company after the third anniversary of the Effective Date. The Executive shall have no obligation under this Section 16 to remain in the employ of the Company and the Company shall have no obligation hereunder to employ the Executive after the second anniversary of the Effective Date. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. JAZZ PHOTO CORP. BY: s/ ------------------------------------ Roger F. Lorenzini, President JAZZ Photo (HONG KONG) LIMITED BY: s/ ------------------------------------ Roger F. Lorenzini /s/ Jessie Szeto ------------------------------------ Jessie Szeto 15 EX-10.9 16 CONSULTING AGREEMENT W/G. ERFURT Exhibit 10.9 CONSULTING AGREEMENT AGREEMENT made as of this _____ day of __________, 1997 by and between Jazz Photo Corp. ("JAZZ"), a corporation organized under the laws of the State of New Jersey and having its place of business at 1459 Pinewood Street, Rahway, NJ 07065, U.S.A.; and George Erfurt ("Consultant") residing at 806 Dellwood Lane, Whippany, New Jersey 07981. WITNESSETH WHEREAS, JAZZ is engaged in the design, development, marketing, distribution and sale of cameras and other photographic products worldwide; and WHEREAS, Consultant has expertise in marketing and sale of camera and related products; and WHEREAS, JAZZ wishes to retain Consultant to assist in sales and marketing on the terms and conditions hereinafter set forth; NOW, THEREFORE, it is hereby agreed by and between the parties hereto as follows: A. Consultant agrees to assist JAZZ: 1) with respect to all aspects of the marketing and sale of its products in the U.S. and other markets, designing a broad marketing plan, defining and developing plans for market sectors and in supporting sales to customers, in each case at the request of the senior executives of the Company and its Board of Directors. Consultant shall make available his services for the purpose of consulting directly in person and/or by telephone with Roger F. Lorenzini ("Lorenzini"), the Chief Executive Officer of JAZZ. Such consultations may take place in the offices of JAZZ or in the offices of Consultant or in such other location or locations as may be mutually agreed to the parties. B. Consultant will render its services as contemplated in this Agreement directly to Lorenzini or to other personnel of JAZZ who may from time to time be designated by Lorenzini or JAZZ's Board of Directors. JAZZ shall clearly identify Consultant to its customers, vendors and financing sources as its consultant, and not an employee of JAZZ. Any written disclosure by either party to persons not parties to this Agreement of its relationship to the other party will be subject to mutual approval by the parties. The parties will agree to terms and conditions with respect to oral descriptions of their relationship. In no event will Consultant be characterized as an officer, director, partner or employee of JAZZ. C. The relationship of Consultant and its employees to JAZZ shall be that of independent contractors during the term hereof. Nothing herein shall be construed to create any partnership, joint venture, employment, agency or similar relationship or subject JAZZ or Consultant to any implied duties or obligations not expressly stated herein. Consultant shall not have any right, express or implied, to assume or create any obligation or duty, on behalf of, or in the name of JAZZ, or to bind JAZZ in any respect whatsoever. 2 2. Compensation. Consultant shall be paid a consulting fee of $1,500 per week. As additional compensation for the consulting services rendered hereunder, JAZZ shall pay Consultant an amount equal to 1.00% of the Net Sales for products of JAZZ shipped during the preceding month, payable on the 10th business day of each calendar month during the term of this Agreement to customers whose names are listed on the annexed Schedule A or whose names are added thereto by mutual agreement. "Net Sales" shall mean Gross Revenues from all products and services of JAZZ less returns, discounts and allowances. In addition to the foregoing Consultant shall be reimbursed for any actual out-of-pocket expenses reasonably incurred by Consultant in connection with travel or otherwise for the performance of his consulting services hereunder. The parties may from time to time amend this Agreement with respect to additional compensation to be paid to Consultant 3. Term. This Agreement will continue in effect until December 31, 1997 (the "Term") unless sooner terminated by the Company or Consultant on thirty (30) days advance written notice by the terminating party to the other. 4. In addition to the foregoing general expense reimbursement, JAZZ shall reimburse Consultant for the costs and expenses incurred relevant to Consultant's use, operation and garaging of an automobile in connection with the performance of his duties pursuant to the terms of this Agreement. The total cost incurred by JAZZ therefor shall not exceed Six Hundred ($600.00) per month. 3 5. Exclusivity. During the term of this Agreement and, if the Agreement is terminated by JAZZ, for three months thereafter, without the prior consent of JAZZ, Consultant will not perform consulting services of the kind contemplated by this Agreement for any other entity engaged in a business which competes directly with the business of JAZZ as now or hereafter conducted. 6. Non-Solicitation. Consultant will not solicit or enable others to solicit any customers of JAZZ for Consultant or others to provide products or services to them during the term of this Agreement. 7. Confidentiality. It is understood that in the course of performing its consulting services under this Agreement, Consultant will become privy to confidential and proprietary information about the customers, vendors and business of JAZZ. Consultant agrees that such information will be kept confidential and not used by or divulged to any person except with the express prior written consent of JAZZ. 8. Assignability: Either party hereto may assign its rights and obligations under this Agreement to an entity controlled by, controlling, or under common control with such party. 9. Governing Law: Arbitration of Disputes. This Agreement is made in, and shall be interpreted in accordance with the laws of, the State of New Jersey, U.S.A. Any disputes arising under or in connection with the interpretation or performance of this Agreement shall be submitted to arbitration before a single arbitrator of the American Arbitration Association in New Jersey, in accordance with the rules thereof, unless the parties mutually agree to use some other forum for resolution of such 4 disputes. Each party hereby consents to the jurisdiction of such arbitration panel and to entry and enforcement of the final award thereof in any court of competent jurisdiction. 10. Representations and Warranties. A. JAZZ represents and warrants to Consultant that it is authorized to enter into and perform this Agreement; that its signatory is authorized to execute and deliver this document on its behalf. B. Consultant represents and warrants to JAZZ that he is under no legal disability or contractual restraint which precludes him from entering into and performing this Agreement and that he is not aware of anything which would limit or impair his ability to furnish his services to JAZZ, as contemplated hereby. 11. Miscellaneous. A. This Agreement may be executed in more than one counterpart, all of which shall be deemed to be one and the same Agreement. B. This Agreement constitutes the entire agreement of the parties hereto on the subject matter hereof, and may not be modified except by a writing signed by both parties. C. Any notice permitted or required hereunder shall be made to the address of such party as set forth at the beginning of this Agreement, or such other address as such party shall notify the other party in writing. 5 IN WiTNESS WHEREOF, the parties have signed this Agreement as of the _______ day of [Illegible}, 1997. JAZZ PHOTO CORP. By /s/ [illegible] --------------------- /s/ George Erfurt ---------------------- George Erfurt 6 EX-10.10 17 CONSULTING AGREEMENT W/JCB CONSULTING Exhibit 10.10 CONSULTING AGREEMENT AGREEMENT made as of this 2nd day of April, 1997 by and between Jazz Photo Corp. ("JAZZ"), a corporation organized under the laws of the State of New Jersey and having its place of business at 1459 Pinewood Street, Rahway, NJ 07065, U.S.A.; and JCB Consultants, Inc. ("JCB"), a corporation organized under the laws of the State of New Jersey and having its place of business at 80 Wickapecko Drive, Allenhurst, NJ 07711, U.S.A. WITNESSETH WHEREAS, JAZZ is engaged in the design, development, marketing, distribution and sale of cameras and other photographic products worldwide; and WHEREAS, JCB was recently formed for the purpose of providing to JAZZ and other businesses in the camera and photographic product business its expertise in the development and marketing of products in such businesses and the financing of such businesses; and WHEREAS, Jack C. Benun ("Benun") is the President and principal shareholder and an employee of JCB and until recently served as Chief Executive Officer and a director of JAZZ; and WHEREAS, JAZZ wishes to retain JCB to assure that the services of Benun continue to be available to it and to use the expertise of Benun, and JCB is prepared to make the services of Benun available to JAZZ as described in this Agreement, on the terms and conditions hereinafter set forth; NOW, THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Duties A. JCB agrees to assist JAZZ: 1) with respect to all aspects of the development and procurement of camera and other photographic products for marketing and sale in the U.S. and other markets, designing a broad marketing plan, defining and developing plans for market sectors and timing the introduction of new products in them, recommending potential vendors and contract manufacturers for its products and related matters; 2) in supporting sales to customers; 3) in obtaining institutional debt and equity financing; and 4) in the development of its business generally, in each case at the request of the senior executives of the Company and its Board of Directors. JCB will make available the services of Benun for at least 50 hours during each calendar month during the term of this Agreement, for the purpose of consulting directly in person and/or by telephone with Roger F. Lorenzini ("Lorenzini"), the Chief Executive Officer of JAZZ. Such consultations may take place in the offices of JAZZ or in the offices of JCB or in such other location or locations as may be mutually agreed to by the parties. B. JCB will render its services as contemplated in this Agreement directly to Lorenzini or to other personnel of JAZZ who may from time to time be 2 designated by Lorenzini or JAZZ's Board of Directors. JAZZ shall clearly identify Benun to its customers, vendors and financing sources as an employee of JCB, its consultant, and not of JAZZ. Neither JCB nor Benun will be responsible for decisions or actions taken by JAZZ or any of its officers, directors or shareholders whether or not based on consultation with JCB, Benun or any other employee of JCB. Any written disclosure by either party to persons not parties to this Agreement of its relationship to the other party will be subject to mutual approval by the parties. The parties will agree to terms and conditions with respect to oral descriptions of their relationship. In no event will Benun be characterized as an officer, director, partner or employee of JAZZ. C. The relationship of JCB and its employees to JAZZ shall be that of independent contractors during the term hereof. Nothing herein shall be construed to create any partnership, joint venture, employment, agency or similar relationship or subject JAZZ, JCB or JCB's employees, including Benun, to any implied duties or obligations not expressly stated herein. JCB and its employees, including Benun, shall not have any right, express or implied, to assume or create any obligation or duty, on behalf of, or in the name of JAZZ, or to bind JAZZ in any respect whatsoever. 2. Compensation. As compensation for the consulting services rendered hereunder, JAZZ shall pay JCB with respect to each calendar year of the term of this Agreement (i) (a) 2.25% of the Net Sales of products of JAZZ up to Ten Million Dollars ($10,000,000), (b) 4.5% of the Net Sales of products of JAZZ exceeding Ten Million Dollars ($10,000,000) (the "Threshold Amount") but not exceeding Twenty Million Dollars ($20,000,000) and (c) 2.25% of Net Sales of products of JAZZ exceeding 3 Twenty Million Dollars ($20,000,000) for such year and (ii) 10% of any commission revenue earned by JAZZ for the sale of the products of third parties to others, for which JCB is responsible. "Net Sales" shall mean Gross Revenues from all products and services of JAZZ, less returns, discounts and allowances as defined in accordance with generally accepted accounting principles. JAZZ shall make monthly advance payments hereunder of $15,000 per month. At such time as Net Sales shall exceed the Threshold Amount, JAZZ shall commence making minimum monthly payments to JCB of $25,000 per month hereunder. Payments made by JAZZ in respect of Net Sales for each full calendar year of this Agreement shall not be more than $300,000. Payments to JAZZ in respect of Net Sales with respect to any full calendar year of the term of this Agreement shall also not exceed 8% of the Gross Profit attributable to such Net Sales for such year. "Gross Profit" shall be determined in accordance with generally accepted accounting principles. In addition to the foregoing JCB shall be reimbursed for any actual out-of-pocket expenses reasonably incurred by JCB in connection with travel of its personnel or otherwise for the performance of its consulting services hereunder. The parties may from time to time amend this Agreement with respect to additional compensation to be paid to JCB. 3. Term. This Agreement shall be effective as of January 1, 1997 and shall continue until December 31, 2001 (the "Term"), unless sooner terminated by mutual 4 agreement of the parties to terminate the Agreement or as otherwise provided in Section 5 hereof. The terms hereof shall bind the parties hereto immediately upon the resignation of Benun as an officer and director of JAZZ. 4. Expenses In addition to the foregoing general expense reimbursement, JAZZ shall reimburse JCB for: (a) health benefits identical to those that until his resignation were being maintained for Benun by the JAZZ; and (b) the reasonable costs and expenses incurred by JCB for Benun's use, operation and garaging of an automobile in connection with the performance of his duties pursuant to the terms of this Agreement. Such automobile expenses shall include commutation expenses. JAZZ shall provide an automobile for Benun's use at its cost. 5. Termination - This Agreement may be terminated: 5.1 By JAZZ for Cause: JAZZ may, at any time during the Term by notice to JCB terminate the Term for "Cause". "Cause" shall mean (i) the continued failure of JCB or Benun to substantially perform its duties to JAZZ; (ii) Benun's or JCB's arrest or indictment for any felony or any crime involving moral turpitude or theft; (iii) theft, fraud or embezzlement, at JAZZ '5 expense; (iv) the material breach by JCB of this Agreement, including any failure of JCB to make Benun available to perform the services to be rendered by JCB hereunder; or (v) the inability of any employee of JCB who provides significant services to JAZZ to perform his duties as a result of his 5 addiction to alcohol or drugs, other than drugs legally prescribed and administered by a duly licensed physician. Prior to terminating the Term for Cause for any reason set forth herein, JAZZ must give JCB written notice of the facts and circumstances giving rise to Cause and provide JCB with thirty (30) days to cure, remedy or rectify the situation. 5.2 By JAZZ for Disability. During the Term, if, solely as a result of physical or mental incapacity or infirmity (other than alcoholism or drug addiction), Benun shall be unable to perform in any material respect JCB's duties under this Agreement for periods aggregating at least six months during the Term of this Agreement ("Disability Period"), Benun shall be deemed disabled (the "Disability") JAZZ, by notice to JCB, shall have the right to terminate the Agreement. Notwithstanding the foregoing, JAZZ shall be required to pay JCB during the Disability Period. 5.3 Death. The Term shall terminate on the date of Benun's death. 5.4 By JAZZ Without Cause. JAZZ may cause the Agreement to be terminated at any time, without Cause, by delivery to JCB of 30 days' prior written notice of termination. 5.5 Voluntarily by JCB. JCB may cause the Agreement to be terminated at any time, without Cause, by delivery to JAZZ of 30 days' prior written notice of termination. 5.6 Termination Payments. Upon termination of the Term pursuant to the provisions of any of paragraph 5.1, 5.2, 5.3 or 5.5 above, JCB's right to receive payments pursuant to paragraphs 2 and 4 of this Agreement shall immediately 6 terminate, except for amounts due on account of services rendered or expense incurred prior to the date of termination and payable to JCB during the Disability Period. In the event of a termination of the Term by JAZZ pursuant to the provisions of paragraph 5.4 above, JAZZ shall continue to be obligated to make the payments provided for in paragraphs 2 and 4 above through December 31, 2001. 6. Exclusivity. During the term of this Agreement and, if the Agreement is terminated by JAZZ ,for three months thereafter, without the prior consent of JAZZ, JCB will not perform, and will not permit its employees to perform, consulting services of the kind contemplated by this Agreement for any other entity engaged in a business which competes directly with the business of JAZZ as now conducted. 7. Non-Solicitation. JCB will not solicit or enable others to solicit any customers of JAZZ for JCB or others to provide products or services to them during the term of this Agreement. 8. Confidentiality. It is understood that in the course of performing its consulting services under this Agreement, JCB will become privy to confidential and proprietary information about the customers, vendors and business of JAZZ. JCB agrees that such information will be kept confidential and not used by or divulged to any person except with the express prior written consent of JAZZ. 9. Assignability: Services of Benun. Either party hereto may assign its rights and obligations under this Agreement to an entity controlled by, controlling, or under common control with such party, or which succeeds to substantially all of the 7 business of such party, provided, however, that the services of Benun are essential to the performance by JCB or its assignee of the obligations of JCB hereunder. 10. Governing Law: Arbitration of Disputes. This Agreement is made in, and shall be interpreted in accordance with the laws of, the State of New Jersey, U.S.A. Any disputes arising under or in connection with the interpretation or performance of this Agreement shall be submitted to arbitration before a single arbitrator of the American Arbitration Association in New Jersey, in accordance with the rules thereof, unless the parties mutually agree to use some other forum for resolution of such disputes. Each party hereby consents to the jurisdiction of such arbitration panel and to entry and enforcement of the final award thereof in any court of competent jurisdiction. 11. Representations and Warranties. A. JAZZ represents and warrants to JCB that it is authorized to enter into and perform this Agreement; that its signatory is authorized to execute and deliver this document on its behalf. B. JCB represents and warrants to JAZZ that all necessary corporate action has been taken to authorize JCB to enter into and perform this Agreement; that Benun is President of JCB and is duly authorized to execute and deliver this document on behalf of JCB; and that JCB is not aware of anything which would limit or impair its ability to furnish the services of its employee, Benun, as contemplated hereby. C. JCB has advised JAZZ and JAZZ hereby acknowledges such advice that Benun, JCB's President and principal shareholder, is the subject of an order 8 of Permanent Injunction issued by the Federal District Court of the District of Columbia in 1994 which prohibits Benun, among other things, from serving as an officer or director of a public company, including JAZZ, if it becomes a public company, and JAZZ acknowledges that it has been furnished with a copy of such order. 12. Benun's Compensation: Withholding: JCB shall be fully responsible for all payments due to Benun in connection with services rendered by Benun pursuant to this Agreement. JCB shall also be responsible for the payment of any withholding taxes, FICA, unemployment insurance or any other such amounts with respect to Benun. Benun and JCB agree to indemnify and hold JAZZ harmless from any claims, amounts due, penalties and/or interest related to their failure to make such payments. JAZZ acknowledges that JCB and Benun have the right to enter into other consulting agreements and to perform consulting or other business services for third parties or for themselves during the term of this Agreement, except as otherwise provided herein. 13. Miscellaneous. A. This Agreement may be executed in more than one counterpart, all of which shall be deemed to be one and the same Agreement. B. This Agreement constitutes the entire agreement of the parties hereto on the subject matter hereof, and may not be modified except by a writing signed by both parties. C. Any notice permitted or required hereunder shall be made to the address of such party as set forth at the beginning of this Agreement, or such other address as such party shall notify the other party in writing. 9 IN WITNESS WHEREOF, the parties have signed this Agreement as of the 2nd day of April 1997. JAZZ PHOTO CORP. By /s/ Roger F. Lorenzini ------------------------------------ JCB CONSULTANTS, INC. By /s/ Jack C. Benun ------------------------------------ Jack C. Benun, President 10 EX-10.11 18 LEASE AGREEMENT Exhibit 10.11 LEASE AGREEMENT Intending to be legally bound, this Agreement made the 6th day of March, 1997, by and Deneret Associates Limited Partnership or its assigns (hereinafter call "Landlord") and Jazz Photo Corp. (hereinafter called "Tenant"). 1. TERM, MINIMUM RENTAL. Landlord hereby demises and lets unto Tenant all that certain office and warehouse space comprised of approximately 23,100 square feet, in the building known as 600 Blair Road, Carteret, New Jersey to be used and occupied only as a lawful and proper office, warehouse and shipment facility for Tenant's business for the term of Sixty (60) months commencing on the 1st day of April, 1997, and terminating on the 31st day of March, 2002. The initial annual minimum rental shall be in the amount of One Hundred Three Thousand Nine Hundred Fifty and 00/XX Dollars ($103,950.00) which the Tenant covenants to pay, without any previous demand therefore, in equal monthly payments of Eight Thousand Six Hundred Sixty-Two and 50/XX Dollars ($8,662.50) on the first day of each month commencing the 1st day of June, 1997, payable to the offices of Landlord specified in this Lease, or as may be designated by the Landlord. The first month's rental obligation shall be tendered upon the signing of this Lease Agreement. If the term of this lease commences after the 1st day of the calendar month, the aforesaid first installment shall include the portion due for the first partial month as well as the succeeding month. Tenant is also responsible for any other obligation that may be due under this Lease or as specified in Addenda attached hereto. Landlord is responsible for and timely completion in a workmanlike manner of all work as set forth in Exhibit A attached hereto as well as the space plan dated ____________ ____. Occupancy shall commence when the premises are delivered to Tenant in broom clean condition with such work substantially completed as evidenced by a Certificate of Occupancy issued by the local municipality. Any finishing work shall be completed within 15 days or Tenant may complete such work and set off the reasonable costs thereof against rent payments. Landlord and Tenant shall jointly inspect the Premises immediately prior to Tenant taking possession and shall sign off on a jointly prepared list setting forth both any pre-existing conditions which a) Landlord is to repair or b) permit Landlord a set-off against the security, if caused by Tenant might otherwise require repair by Tenant. The premises shall be delivered to Tenant by March l5, 1997 and if delivered later, then the rent shall commence being paid one day later for each day of delay in the delivery of possession of the premises to Tenant. 2. SECURITY DEPOSIT. The Tenant shall pay a security deposit of Eight Thousand Six Hundred Sixty-Two and 50/XX Dollars ($8,662.50), to the Landlord as additional rent when the Tenant signs this Lease Agreement. The Landlord shall keep the security deposit with its general funds until the end of the Term. The Tenant shall not apply the term security deposit to any base rent or additional rent during the Term. Within thirty (30) days after the end of the Term, the Landlord shall return the security deposit 2 to the Tenant, without any interest excluding any amount applied to any base rent or additional rent with is outstanding at that time. The said deposit is not to be considered as the last monthly rent due under the lease. Prior to when the Tenant moves out, upon notice from Tenant, Landlord agrees to inspect the Premises and within five days provide an itemized statement of any damages to the Premises for which Landlord believes it is entitled to a set off against the deposit. Similarly, the Landlord will inspect the Premises within fifteen business days after the move out by Tenant and at that time will provide an itemized statement of any additional damages to the Premises for which it intends to apply a set off against the security deposit. 3. LICENSES, PERMITS, ETC. Prior to Tenant taking possession Landlord shall provide a Certificate of Occupancy and represents that subject to any additional requirements which result from Tenant's specific use of the Premises, the use of the space as a warehouse and distribution facility is in compliance with the Certificate of Occupancy and all applicable zoning regulations and other governmental requirements. Tenant shall be solely responsible for obtaining all special licenses or permits which relate to its specific use of the premises and which may be required in addition to the Certificate of Occupancy, by any governmental agency or authority in order for Tenant to continue to lawfully conduct its business, which Tenant shall obtain at its sole cost and expense. Landlord shall obtain such licenses permits 3 and approvals at its expense which may be required with regard to capital improvements, structural repairs and other work to be done by Landlord whether pursuant to the terms of this Lease or as a result of governmental requirements imposed during the term of this lease. If the Landlord is required by law to make capital improvements to the Premises which exceed out-of-pocket costs of $50,000 in order for Tenant to continue its business from the Premises, Landlord may terminate this lease (unless Tenant agrees to pay such excess) and the lease shall terminate 90 days after such notice and the party shall have no further rights one against the other. A change in the use of other space in the building which results in Landlord being required to make capital improvements to the Premises costing in excess of $50,000 shall not trigger Landlord's right to terminate this Lease. 4. INABILITY TO GIVE POSSESSION. If Landlord is unable to give Tenant possession of the demised premises as herein provided, by reason of the holding over of a previous occupant or by any other reasonable cause, Landlord shall not be liable in damages to Tenant therefore, and during the period that Landlord is unable to give possession, all rights and remedies of both parties hereunder shall be suspended. This suspension shall not go into effect, and Tenant shall commence paying rent on the above referenced date, if Landlord is unable to commence interior construction immediately upon the signing of this Lease due to failure of Tenant to approve, in writing, construction specifications or particulars. 4 Notwithstanding anything contained herein to the contrary, if Tenant is not given possession of the Premises by April 31, 1997, this lease shall be void. 5. AFFIRMATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it will without demand: (a) Pay the rent and all other charges herein reserved as rent on the days and times that the same are made payable without fail, and without setoff, deduction or counter-claim. Upon written notice from Landlord and the failure of Tenant to pay within ten business days thereafter. Tenant shall pay a late charge at the rate of five (5%) percent on each dollar of rent, or any other sum collectible as rent under this lease. If Landlord shall at any time or times accept said rent or rent charges after the same shall have become due and payable, such acceptance shall not excuse delay, upon subsequent occasions, or constitute, or be construed as a waiver of any of the Landlord's rights. Tenant agrees that any charge or payment herein reserved, included or agreed to be treated or collected as rent may be proceeded for and recovered by Landlord in the same manner as rent due and in arrears. (b) Comply with all requirements of any of the constituted public authorities, and with the terms of any State or Federal statute or local ordinance or regulation applicable to 5 Tenant on its use of the demised premises, and save Landlord harmless from all penalties, fines, costs or damages resulting from Tenant's failure to do so. Expenditures for capital or structural improvements required to operate the Premises as a warehousing and distribution operation shall be the expense of Landlord. (c) Comply with the reasonable rules and regulations from time to time made by Landlord for the safety, care, upkeep and cleanliness of the demised premises and the building and appurtenances of which it is a part. Tenant agrees that such rules and regulations shall, when written notice thereof is given to Tenant, form a part of this lease. Such rules shall not unduly impair Tenant's use of the space as contemplated in this lease and shall be consistent with rules for comparable space in comparable buildings in the State of New Jersey and shall not be applied in a discriminatory manner. (d) Keep the demised premises in good order and condition, ordinary wear and tear excepted, and upon termination of this lease to deliver up to Landlord the demised premises in the same condition as Tenant has herein agreed to keep them. (e) Keep nothing which is dangerous or explosive or which might increase the risk or fire or other casualty at the Premises. 6 (f) Comply with all reasonable requirements of the Landlord's property casualty insurance carrier. (g) Keep all trash within covered dumpsters or containers. (h) Keep the walkways, which surround and serve the demised premises, free of snow and ice. (i) Give to Landlord prompt written notice of any accident, fire or damage occurring on or to the demised premises within twenty-four (24) hours of occurrence thereof. (j) Peaceably deliver up and surrender possession of the demised premises to Landlord at the expiration or sooner termination of this lease and promptly deliver to Landlord at its office all keys for the demised premises. (k) Conduct its business in the Premises during such hours as it seems fit and use the Premises without disturbing the "possession" or quiet enjoyment of any other Tenant. (1) Park its cars and cause its employees to park their cars only in those portions of the parking area as may be designated for Tenant by Landlord. Tenant shall be allocated 30 spaces as shown on Exhibit C attached hereto. 7 (m) Tenant to maintain existing window coverings, or install, at its own expense and with the written approval of Landlord, window coverings consistent with the decor of the facility. 6. OCCUPANCY AND ASSIGNMENT. Tenants shall not occupy or permit to be occupied the demised premises or any part thereof, other than as hereinbefore specified, nor shall Tenant assign, mortgage or pledge this lease, or underlet or sublet the demised premises, or any part thereof, without the written consent of Landlord. Notwithstanding anything to the contrary contained herein, commencing on the first day of the thirty-sixth month of this Lease, Tenant shall have the right to sublet the Premises upon written consent of Landlord, which consent shall not be unreasonably withheld or delayed. 7. NEGATIVE COVENANTS OF TENANT. Tenant covenants and agrees that it will do none of the following without the written consent of Landlord: (a) Place or allow to be placed upon the demised premises or on the inside or outside of the building of which the demised premises are a part any sign, projection, device, or window covering. In case of the breach of this covenant (in addition to all other remedies given to Landlord hereunder) Landlord shall have 8 the right of removing such sign, projection, device, or window covering and restoring the premises to their former condition. Subject to applicable law, Tenant will be permitted to have a free standing sign on the main road approximately 4' x 5'. Tenant shall be responsible for obtaining any required sign permits. (b) Make any alterations, improvements, or additions (hereinafter called AIA) to the demised premises except with the approval of the Landlord which shall not be unreasonably withheld or delayed. All AIA or fixtures whether installed before or after the execution of this lease, which shall remain upon the premises at the expiration or upon termination of this lease shall become the property of Landlord. Landlord shall reserve the right to request, at any time, that the Tenant, at his own expense, remove any AIA installed without the Landlord's written approval. With regard to AIA installed after Tenant takes possession, Tenant agrees that it will remove such AIA if so requested in writing by Landlord prior to surrender of the Premises. (c) Use, operate or maintain any machinery, equipment or fixture that, in Landlord's reasonable opinion, is harmful to the building and appurtenances of which the demised premises is a part or is unreasonably disturbing to the other tenants occupying any other part thereof. (d) Place any weights in any portion of the demised 9 premises beyond the safe carrying capacity of the building of which the demised premises is a part. (e) Do, cause or suffer to be done, any act, matter or thing objectionable to the fire insurance companies whereby the fire insurance or any other insurance now in force or hereafter to be placed on the demised premises, or any part thereof, or on the building of which the demised premises may be a part, shall become void or suspended, or whereby the same shall be rated as a more hazardous risk at than the date of execution of this lease. In case of a breach of this covenant (in addition to all other remedies herein given to Landlord) Tenant agrees to pay Landlord as additional rent any and all increase or increases of premiums on Insurance reasonably carried by Landlord on the demised premises, or on the building and appurtenant land of which the demised premises may be a part, resulting from such breach. (f) Store any vehicle for a period of 24 hours or longer on premises or use loading dock(s) or loading area for truck or trailer storage, except along the rear wall of the demised premises or in the parking spaces designated for Tenant herein. (g) Remove, attempt to remove or manifest an intention to remove Tenant's goods or property from or out of the demised premises otherwise than in the ordinary and usual course of business, without having first paid and satisfied Landlord for all 10 rent, costs and attorneys fees which may become due during the entire term of this lease, in addition to all sums denominated as additional rent under this lease. Notwithstanding anything to the contrary contained herein, Tenant shall be permitted to remove its goods from the demised premises if it is current on its rental payments and it provides Landlord six (6) months prior written notice of its intention to move its goods out of the demised premises and its intention sublet the demised in accordance with the terms and conditions contained elsewhere in this Lease Agreement. (h) Shall not permit the demised to be used or occupied in a congested manner. The number of people that shall use or occupy the demised premises shall be reasonable for the size of the demised premises taking into consideration the safety of the occupants, the burden that an unreasonable number of occupants will place upon the electricity, heating and air conditioning equipment, the congestion that would result in the common facilities of said building and its appurtenances such as hallway, washrooms, parking lot, etc. If in Landlord's opinion the demised premises are being used or occupied by more people than is reasonable, Tenant agrees to reduce the number thereof upon written demand of Landlord to the number that Landlord determines to be reasonable for the demised premises. Notwithstanding the foregoing, Tenant's occupancy of the space by no more than 25 persons at any one time shall not be deemed to violate this provision. 11 8. LANDLORD'S RIGHT TO ENTER. Tenant shall permit Landlord, Landlord's agents, employees or any other person(s) authorized by Landlord, during the normal work day, on reasonable notice to inspect the demised premises, and if Landlord shall so elect, for the purpose of making reasonable alterations, improvements or repairs to the building of which the demised premises are a part, or for any reasonable purpose in connection with the operation and maintenance of the building. Landlord shall have sole liability for injuries to any such persons authorized or directed to enter the Premises in accordance with the foregoing. Landlord shall make any reasonable alterations, improvements or repairs in an expeditious manner so as to minimize the negative impact on the operations of Tenant's business. All such alterations, improvements or repairs shall only be made after advance consultation with Tenant and shall be scheduled to minimize their negative impact on Tenant's business. Where such alterations, improvements or repairs will have a substantial adverse impact on Tenant's business, Landlord agrees to make such alterations, improvements or repairs when possible at a time other than during normal business hours. 9. RELEASE OF LANDLORD. Tenant shall be responsible for any and all liability by reason of any injury, loss, damage to any person or property in the demised Premises caused by it, its officers, employees, agents and invitees, whether the same be due to fire, breakage, leakage, water flow, gas, use, misuse, or 12 defects therein, or condition anywhere in the demised premises, failure of water supply or light or power or electricity, wind, lightning, storm or any other cause whatsoever, whether the loss, injury or damage be to the person or property of Tenant or any other persons. Notwithstanding anything to the contrary set forth in this Lease, it is specifically understood and agreed by Tenant that there shall be absolutely no personal liability on the part of Landlord or on the part of the partners or agents of Landlord with respect to any of the terms, covenants and conditions of the Lease, and Tenant shall look solely to the equity, if any, of Landlord in the Property in which the Demised Premises is a part for the satisfaction of each of the terms, covenants and conditions of this Lease to be performed by Landlord. This exculpation of personal liability of Landlord, its partner and agents is absolute and without any exception whatsoever. 10. FIRE OR OTHER CASUALTY. (a) If during the term of this lease or any renewal or extension thereof, the demised premises or the building of which the demised premises is a part is totally destroyed or is so damaged by fire or other casualty that the same cannot be repaired or restored within ninety (90) regular working days from the date of the happening, then this lease shall absolutely cease and terminate and the rent shall abate for the balance of the term. In 13 such case, Tenant shall pay the rent apportioned to the date of damage and Landlord may enter upon and repossess the demised premises upon notice. (b) If the damage caused by fire or other casualty can be repaired or restored within ninety (90) regular working days and said damage and the cost of repairs and restoration are fully covered by the Landlord's insurance, Landlord may exercise either of the following options by giving written notice to the Tenant within 20 days. (1) Landlord shall have the option to restore the premises. The rent shall be apportioned based on the percentage of the Tenant's normal business operations which may be effectively continued on the Premises during the time Landlord is in possession: if a dispute arises as to the amount of rent due under this clause, Tenant agrees to pay the full amount claimed by Landlord and Tenant shall have the right to proceed by law to recover the excess payment, if any. (2) Landlord shall have the option to terminate this lease by giving written notice of such termination to Tenant within 20 days and upon the giving of such notice, the lease shall expire by lapse of time after thirty (30) days and the Tenant shall vacate the demised premises. 14 (c) If the damage caused by fire or other casualty is only slight, Landlord shall repair whatever portion, if any, of the demised premises that may have been damaged by fire or other casualty and the rent accrued or accruing shall not be apportioned or suspended except to the extent that Tenant's ability to operate its business is impaired. (d) If said damage by fire or other casualty was caused by the negligence of Tenant or his agents, employees or invitees, Tenant shall not be entitled to any abatement or apportionment of the rent under 10(c). 11. INSURANCE. (a) Tenant shall obtain at its own expense and cost: (a) insurance on its own business personal property and Landlord is not responsible for damage to tenant's business personal property except as otherwise provided for in this lease, (b) commercial general liability insurance in the amount of not less than Two (2) Million Dollars. (b) The commercial general liability insurance policy shall: (a) name Landlord as additional insured, (b) contain a provision stating that the insurer shall notify the Landlord at least thirty (30) days before the effective date of any modification or termination of the insurance policy that effects 15 the Landlord, (c) contain a provision for damage insurance in the amount of no less than Five Hundred Thousand Dollars ($500,000), and (d) contain a contractual liability endorsement. (c) The insurance policy shall be issued by an insurance company authorized to do business in the State of New Jersey. By the beginning of the term, and from time to time thereafter when the insurance policy is renewed or replaced, the Tenant shall provide the Landlord with Certificate of Insurance which states that the Landlord is an additional insured party and that the insurance policy in effect is in compliance with the terms of this clause. (d) Landlord hereby represents to the Tenant and Tenant hereby represents to Landlord that each now has the right to waive and hereby does waive the subrogation rights of any insurer that presently provides property damage coverage on the building and/or the demised premises and/or the land upon which the building is constructed. 12. SERVICES. The following services and facilities shall be supplied by Landlord to Tenant in connection with Tenant's use of the demised premises Landlord represents and covenants that each such service is and when Tenant take possession and shall be in good working order: 16 (a) Heat and air conditioning equipment and facilities with separate controls for the premises. All utilities for which Tenant is charged based on usage shall be separately metered with meters installed at Landlord's expense. Water and sewage in connection with toilet facilities shall also be provided. (b) Electric and gas service for HVAC, lighting, power to operate business equipment, and meters for the measurement of tenant electric and gas usage. Tenant shall pay utility company directly for such usage. (c) Unless Landlord is the direct cause, Landlord shall have no responsibility or liability to Tenant, nor shall there be any abatement in said rent for any failure to supply any of said services and facilities that Landlord has agreed to supply hereunder during such period as the services and facilities are out of order, undergoing repair or if Landlord is prevented from providing said service or facility by reason of labor disorders, strikes, accidents or other causes beyond Landlord's control. If, in its reasonable discretion, Landlord interrupts any of said services in order to make repairs, alterations, or improvements or because of labor disturbances, strikes, accidents or causes beyond Landlord's control, Landlord may do so for the period that Landlord deems expedient and advisable without any abatement in rent or other liability to Tenant. Landlord will provide Tenant with as much notice as possible about any potential interruption. To the 17 extent possible, Landlord shall attempt to make repairs to essential services at a time other than during normal business hours if such repairs will materially interfere with the operation of Tenant's business and shall make repairs on an emergency basis if such repairs are necessary for the operation of Tenant's business. 13. REPAIRS AND MAINTENANCE. (a) The Tenants obligations for repairs as provided in Paragraph (b) of this article shall include, without limitation, repairs or replacements related to the following part of the Premises: (1) water, plumbing, sewer, and sprinkler systems, (2) electric, gas, lighting, and HVAC systems, (3) windows and frames, (4) doors and frames, (5) loading dock bumpers and seals, (6) party, demising, and interior partitions unless such repairs are required as a result of latent or other defects existing at the time of the commencement of this Lease or result from the activities of Landlord or other Tenants in which can such prompt repair shall be the responsibility of the Landlord. (b) Except as specifically otherwise provided in Paragraph (c) and (d) of this Article, Tenant, at its sole cost and expense and throughout the term of this lease, shall keep and maintain the demised premises in good order and condition, free of accumulation of dirt and rubbish, and except for structural items 18 and other items listed in (c) and (d) shall promptly make all repairs, replacements and renewals necessary to keep and maintain such good order and condition, whether such repairs, replacements and renewals are interior or exterior unless such repairs are required as a result of latent or other defects existing at the time of the commencement of this Lease or result from the activities of Landlord or other Tenants. Tenants shall not use or permit the use of any portion of the Property for outdoor storage of any kind. All repairs, replacements and renewals made by Tenant shall utilize materials and equipment which are as good or better in quality and usefulness to those originally used in constructing the building and the Premises. Tenant shall maintain all HVAC systems appurtenant to the demised premises using a service firm(s) acceptable to Landlord (which approval shall not be unreasonably withheld or delayed), which shall be hired to provide service and maintenance in accordance with the manufacturer's recommendations and shall provide a copy of the contact to Landlord. (c) Landlord, throughout the term of this lease and at Landlord's sole cost and expense, shall make all necessary repairs to the footings and foundations and the structural steel columns and girders forming a part of the Premises, unless such repairs are caused by the negligent acts of Tenant, its agents, employees, vendors, invitees or licensees: provided, however, that Landlord shall have no responsibility to make any repair unless and until Landlord receives written notice of the need for such repair. 19 (d) Landlord, throughout the term of this lease, shall make all necessary repairs to the roof, walls, exterior portions of the Premises and the Building, utility lines, equipment and other utility facilities in the Building, which serve more than one tenant of the Building, and to any driveways, sidewalks, curbs, loading, parking and landscaped areas, and other exterior improvements on the Property (collectively "Items"); provided, however, that the Landlord shall have no responsibility to make any repairs unless and until Landlord receives written notice of the need for such repair. Tenant shall pay its proportionate share of the cost of all repairs to be performed by Landlord pursuant to this Paragraph (d) as additional rent as provided for in operating Expense Addendum. When replacement of the roof or walls of the Building becomes necessary, Landlord shall perform such work at its own cost and expense. Notwithstanding anything to the contrary contained herein, any such repairs performed by the Landlord as a result of extraordinary use of the aforesaid Items by the Landlord or other Tenants which result in the need for repairs, shall not be charged back to the Tenant. Repairs which are intended to upgrade or otherwise improve the quality of the aforesaid Items shall not be charged back to Tenant unless requested by Tenant. (e) Landlord shall keep and maintain all common areas of the Property in a clean and orderly condition, free of accumulation of dirt, rubbish, snow and ice, and shall keep and maintain all landscaped areas in a neat and orderly condition. Tenant shall pay 20 its proportionate share of the cost of all work to be performed by Landlord pursuant to this Paragraph (e) as provided for in the Operating Expense Addendum. The costs for the above work shall be charged at competitive rates. 14. DEFAULT The following shall constitute events of default under this Lease: (1) failure to pay when due any installment of Rent or any other sum required to be paid by Tenant under this Lease (all such sums being deemed rent) when and as the same shall become due and payable, or any part of any of them, which failure shall continue for a period of ten (10) days or more; (2) failure in the performance of or compliance with any of the other covenants, conditions and/or terms of this Lease, which failure shall continue for more than thirty (30) days after written notice thereof to Tenant, provided, however, if the default complained of in the notice is of such nature that it could not reasonably be cured within thirty (30) days, then there shall be no default so long as Tenant (i) commences cure within thirty (30) days after the notice, (ii) pursues the cure with all due diligence, and (iii) completes the cure within no more than ninety (90) days after the notice (except if the default is of a kind that is not susceptible of being cured within such 90 day period, then the cure period shall be extended to allow a reasonable period of time for cure of that default to be complete); (3) if this Lease shall be assigned, sublet, pass to 21 or devolve upon one other than the Tenant, except as permitted in Paragraph 6; or (4) the filing by or against Tenant of any petition with respect to its own financial condition under any bankruptcy law or any amendment thereto (including, without limitation, a petition for reorganization, arrangement or extension), or under any other insolvency law or laws providing for the relief of debtors which petition, if filed against Tenant, shall not be dismissed within ninety (90) days; the appointment of a receiver, trustee, custodian, conservator or liquidator for Tenant on all or substantially all of Tenant's assets, and the underlying proceeding is not dismissed within ninety (90) days after the commencement thereof, the admission by Tenant of its insolvency, making of a general assignment for the benefit of creditors. 15. Landlord's Remedies a. Upon the occurrence of an event of default, Landlord, in addition to any and all rights and remedies it may have at law and equity, may exercise any one or more of the following remedies: 1. Landlord may give Tenant a notice (the "Termination Notice") of its election to terminate this Lease specifying a date not less than ten (10) days thereafter, upon which date this Lease, the term and estate hereto granted and all rights of Tenant hereunder shall expire and terminate. Notwithstanding the foregoing, or the election of any other rights and remedies of Landlord under this Lease or at law: (i) Tenant 22 shall remain liable for damages as hereinafter set forth, and (ii) Landlord may institute dispossess proceedings for non-payment of rent, or other proceedings to enforce the payment of rent without giving the Termination Notice. Upon any such termination or expiration of this Lease, Tenant shall peaceably quit and surrender the Demised Premises to Landlord, and Landlord may without further notice enter upon, re-enter, possess and repossess itself thereof, by force, summary proceedings, ejectment or otherwise and may have, hold and enjoy the Demised Premises and the right to receive all rental and other income of and from the same as heretofore provided. 2. Regardless of whether Landlord relets the Demised Premises, or enters or re-enters the same, whether by summary proceedings, termination or otherwise, Tenant will pay Landlord, and be liable to Landlord for the full amount of all Rent and other charges then due or thereafter to become due to Landlord hereunder less any sums collected by Landlord during the remaining term of this Lease; said amount shall be paid by Tenant to Landlord on the days originally fixed herein for payment thereof; 3. If Tenant shall fail to pay any taxes or make any other payment required to be made under this lease, or shall default in the performance of any covenant, agreement, term, provision or condition herein contained, Landlord may, without being under any obligation to do so, and without thereby waiving such default, make such payment and/or remedy such default for the account and at the sole expense of Tenant. Tenant shall pay to 23 Landlord, on demand, the amount of all sums so paid and all expenses so incurred by Landlord, together with interest, at the rate set forth in subparagraph 15(b) (4) below, on such sums and expenses from the date incurred until payment in full; 4. Interest on any sums due to Landlord from Tenant under this Lease shall accrue from the date such sums became due and payable, at a variable rate equal to two (2) percentage points above the prime interest rate as set daily by Chase Manhattan Bank, N.Y.C., N.Y. b. Tenant shall be liable for any and all reasonable attorney's fees which Landlord may incur as a result of enforcing or protecting its rights in a litigation against Tenant under this Lease provided the Landlord is more successful than not with regard to all claims in dispute. 16. RIGHT OF ASSIGNEE OF LANDLORD. The right to enforce all of the provisions of this lease may be exercised by any assignee of the Landlord's right, title and interest in this lease in its, his, her or their own name, and Tenant hereby expressly waives the requirements of any and all laws regulating the manner and/or form in which such assignments shall be executed and witnessed. Notwithstanding the foregoing, in the event of transfer of title of the building of which the Premises are a part the transferee shall be bound by the terms of this Lease. 17. REMEDIES CUMULATIVE. All of the remedies hereinbefore 24 given to Landlord and all rights and remedies given to Landlord by law and equity shall be cumulative and concurrent. No termination of this Lease or the taking or recovering of the premises shall deprive Landlord of any of its remedies or actions against Tenant for any and all sums due at the time or which, under the terms hereof, would in the future become due, nor shall the bringing of any action for rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of the right to obtain possession of the premises. 18. ATTORNMENT. In the event of the sale or assignment of Landlord's interest in the building of which the demised premises is a part or in the event of exercise of the power of sale under any mortgage made by Landlord covering the building of which the demised premises is a part, Tenant shall attorn to the purchaser and recognize such purchaser as Landlord under lease. 19. SUBORDINATION, ETC. At the option of Landlord or Landlord's permanent lender, or both of them, this lease and the Tenant's interest hereunder shall be subject and subordinate at all times to any mortgage, deed or deeds of trust, or such other security instrument or instruments, including all renewals, extensions, consolidations, assignments and refinances of the same, as well as all advances made upon the security thereof, which now or hereafter become liens upon the landlord's fee and/or leasehold interest in the demised premises, and/or any and all of the 25 buildings now and hereafter erected or at be erected and/or any and all of the land comprising the Property, provided, however, that in each such case, the holder of such other security, the trustee of such deed of trust or holder of such other security instrument shall agree that this lease shall not be divested or in any way affected by foreclosure or other default proceedings under said mortgage, deed or trust, or other instrument or other obligations secured thereby, so long as the Tenant shall not be in default under the terms of this lease; and Tenant agrees that this lease shall remain in full force and effect notwithstanding any such default proceedings. 20. EXECUTION OF DOCUMENTS. The above subordination shall be self executing, but Tenant agrees upon demand to execute such other document or documents as may be required by a mortgagee, trustee under any deed of trust, or holder of similar security interest or any party to the types of documents enumerated herein for the purpose of subordinating this lease in accordance with the foregoing. 21. ESTOPPEL AGREEMENTS. Tenant shall within five business days of the request execute an estoppel agreement in favor of any mortgagee or purchaser of Landlord's interest herein, if requested to do so by Landlord or any mortgagee provided such estoppel agreement shall be in standard form. 26 22. LITIGATION INVOLVING LANDLORD AND AGENT. In the event that Landlord or its Agent shall without fault on its part be made a party to any litigation commenced by or against Tenant, then, and to such extent Tenant shall protect and hold Landlord and Agent harmless from and against any liability arising therefrom, and shall pay all of Landlord's reasonable costs, expenses and attorney's fees. In the event the Tenant or its Agent shall without fault on its part be made a party to any litigation commenced by or against Landlord, then, and to such extent Landlord shall protect and hold Tenant and its Agent harmless from and against any liability arising therefrom, and shall pay all of Tenant's reasonable costs, expenses and attorney's fees. 23. CONDEMNATION. If the whole of the premises shall be acquired or condemned by eminent domain, then the term of this lease shall cease and terminate as of the date on which possession of the premises is required to be surrendered to the condemning authority. All rent shall be paid up to the date of termination. 24. NOTICES. All notices required to be given by either party to the other shall be in writing. All such notices shall be deemed to have been properly given if served personally or if sent United States certified mail, postage prepaid, addressed to Landlord at 171 Route 173, Suite 201, Asbury, New Jersey 08802 and addressed to Tenant at the demised premises or to such other address which either party may designate hereafter in writing and, 27 if mailed, shall be deemed effective three business days after mailing. 25. RETURN OF PREMISES. By the end of the Term, or upon rightful termination of this Lease, the Tenant, at its own expense, shall return the Premises to the Landlord in the same condition as at the beginning of the Term, excluding normal wear and tear. The Tenant shall perform all acts necessary to comply with the terms of this clause, including, without limitation: (a) removing all of the Tenant's property, including all of the Tenant's signs, (b) removing all rack bolts and restoring all affected surfaces, (c) removing all trash, and (d) leaving the Premises in broom clean condition. The tenant shall notify the Landlord two (2) weeks in advance of the termination of any utility service. If the Tenant leaves any of the Tenant's property at the Premises after the end of the Term or after the rightful termination of this Lease, then such property shall be deemed to be abandoned. The Landlord may keep and use the Tenant's abandoned property or may sell, store, or dispose of that property, in which case the costs related hereto shall be payable as additional rent. 26. BINDING EFFECT. All rights and liabilities herein given to, or imposed upon the respective parties hereto, shall extend to and bind the several and respective heirs, executors, administrators, successors and assigns of said parties. 28 27. QUIET ENJOYMENT. Provided Tenant is in compliance with the terms of this Lease and its obligations thereunder, Landlord covenants that Tenant shall have quiet enjoyment of the Premises during the term of this Lease. 28. MECHANICS' LIEN. Tenant shall promptly pay any contractors and materialmen who supply labor, work or materials to Tenant at the demised premises or the Property so as to minimize the possibility of a lien attaching to the Premises or the Property. Tenant shall take all steps permitted by law in order to avoid the imposition of any mechanic's laborer's or materialmen's lien upon the Premises the Property or the lot. Should any such lien or notice of lien be filed for work performed for Tenant other than by Landlord, Tenant shall bond against or discharge the same within forty-five (45) days after the lien or claim is filed or formal notice of said lien or claim has been issued regardless of the validity of such lien or claim. Nothing in this lease is intended to authorize tenant to do or cause any work or labor to be done or any materials to be supplied for the account of Landlord, all of the same to be solely for Tenant's account and at Tenant's risk and expense. 29. SEVERABLE TERMS. If any provision in this Lease is contrary to any law, declared unenforceable or unconstitutional, then the rest of this Lease shall remain in effect. 29 30. Environmental Compliance. Tenant's obligation to comply with the Industrial Site Recovery Act, N.J.S.A. 13:lk-6 et. seq. and the regulations promulgated thereunder ("ISRA"), as well as all other environmental laws now or hereafter enacted and applicable to the premises, are strictly limited to situations and conditions directly resulting from Tenant's, its officers', employees' agents' guests', invitees' and contractors' use of the premises, or their activities at the premises or their storage of materials at the premises (collectively Tenant's Activities) (ISRA and such other laws are collectively referred to as "Environmental Laws"). With regard to Discharges or other conditions requiring Remediation or Remediation Plans with regard to the premises caused by other tenants in the property, prior tenants of the premises or property, or any other person whose actions are not Tenant Activities (referred to collectively as "Third Party Discharges"), if and only if applicable Environmental Laws require Remediation or Remediation Plans for such Third Party Discharges, then all Remediation, Remediation Plans and any other actions imposed under Environmental Laws on Landlord and Tenant shall be the obligation of the Landlord and not the Tenant, but Tenant shall cooperate with Landlord in connection therewith. In the event Tenant Activities shall violate any Environmental Law, Tenant shall promptly give Landlord notice of such violation and Tenant shall expeditiously and diligently undertake all necessary actions to fully cure and remedy such violations within 30 the required time periods under the applicable Environmental Law. With regard to Tenant Activities which result in a Discharge on the premises, Tenant shall have the following obligations at Tenant's own expense: make all submissions to, provide all information to, and comply with all requirements of, the New Jersey Department of Environmental Protection (the "NJDEP") or such other appropriate governmental agencies charged with the administration of Environmental Laws (hereinafter collectively referred to as the "Agency"). Should the Agency determine that a Remediation plan be prepared and that Remediation or investigation be undertaken because of Tenant Activities which result in a Discharge at the Property, Tenant shall carry out or implement the approved Remediation plans and such other filings and submissions in form and substance reasonably satisfactory to Landlord. In no event shall Tenant's Remediation plans involve the deferral of any remedial action or any engineering or institutional controls, including without limitation, capping, deed notice, deed restrictions or other use restrictions. Notwithstanding provisions of any Environmental Law, in no event shall Tenant's Remediation meet standards any less stringent than (i) those for residential sites or (ii) the most stringent standards applicable for the hazardous substances or wastes at issue without regard to the actual use of the Property. If Tenant Activities result in Discharges, Tenant's 31 obligations under this Paragraph shall also arise if there is any closing, termination or transferring of operations or ownership of an industrial establishment at the Demised Premises or any other triggering event under ISRA or other Environmental Law which would necessitate compliance, irrespective of the initiator or cause of such triggering event. With regard to Remediation required as a result of Tenant Activities, Tenant shall notify Landlord of all meetings scheduled between Tenant or Tenant's representatives and any Agency, sufficiently in advance of such meeting so Landlord is afforded a reasonable opportunity to attend and Landlord and its representatives shall have the right, without the obligation, to attend and participate in all such meetings. Tenant shall deliver to Landlord, without need for prior request, all environmental documentation concerning Tenant Activities resulting in Discharges or potential Discharges, the environmental condition at the premises or its environs or concerning violations, actual or alleged, of Environmental Laws by Tenant, in the possession or under the control of Tenant, including without limitation all Remediation Plans, affidavits, sampling or testing results, reports regarding correspondence to or from any Agency, correspondence to or from Tenant's environmental consultants and experts, submissions to any Agency, notices of violation or directives from any Agency, and any approvals or disapprovals from any Agency. At no expense to Landlord, Tenant shall promptly provide all information with 32 regard to Tenant Activities resulting in Discharges and conditions resulting therefrom requested by Landlord for preparation of documents necessary to file under ISRA or any other Environmental Law and shall promptly sign affidavits and other such documents when requested by Landlord. With regard to Tenant Activities resulting in a Discharge, Tenant shall indemnify, defend and save Landlord harmless from all fines, suits, procedures, claims, losses, damages, penalties, cost, expenses, and actions of any kind, foreseen or unforeseen, including without limitation, legal, engineering and other professional or expert fees incurred by Landlord, arising out of or directly connected with (i) such Discharge at the Property; (ii) Tenant's failure to provide all information, make all submissions and take all actions required under any Environmental Law or by an Agency arising out of Tenant Activities resulting in a Discharge; or (iii) Tenant's action or inaction with regard to Tenant's obligations under this Paragraph. Tenant's failure to abide by the terms of this Paragraph shall be restrainable or enforceable by injunction. With regard to Tenant Activities resulting in a Discharge, Tenant shall effectuate and complete full compliance with ISRA and any other applicable Environmental Law, including without limitation any necessary Remediation, subject to the provisions of this Paragraph, prior to the Termination Date of this Lease, and 33 will be liable for damages to Landlord if it fails to do so, which at a minimum shall equal a per diem rental for the period after the end of the term until compliance is completed (unless the premises are rented prior to the completion of such Remediation) at the fair market rental at the end of the term. Provided Tenant has timely notice of such Discharge, Tenant shall commence its compliance with such laws in sufficient time prior to the Termination Date so as to complete its obligations under this Paragraph by no later than the Termination Date. Promptly upon completion of all required Remediation activities, Tenant shall restore the affected areas from any damage or condition caused by the work, including without limitation, closing, pursuant to law, any wells which had been installed. In the event ISRA shall apply to Tenant Activities with regard to occupancy of the Demised Premises and its termination of operations at the Demised Premises, Tenant shall deliver to Landlord a non-qualified approval of Tenant's negative declaration or non-qualified no further action letter on or before the Termination Date. Tenant's obligations under this Paragraph shall survive the termination of this Lease. 31. ENTIRE AGREEMENT. This Lease and any riders that may be attached hereto set forth all the promises, agreements, conditions and understandings between Landlord or its agents and Tenant 34 relative to the demised premises, and there are no promises, agreements, conditions or understandings, either oral or written, between them other than are herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by them. IN WITNESS WHEREOF, the parties hereto, intending to be legally bound to the terms of this Lease, have caused this lease to be executed the day and year first above written. JAZZ PHOTO CORP. DENERET ASSOCIATES LIMITED PARTNERSHIP By: /s/ [ILLEGIBLE] PRES By: /s/ [ILLEGIBLE] ------------------------- ------------------------------ Title: Title: G.P. Attest: /s/ [ILLEGIBLE] Attest: /s/ [ILLEGIBLE] --------------------- -------------------------- Title: VP Title: ---------------------- --------------------------- OPERATING EXPENSE ADDENDUM ATTACHED TO and made a part of the Commercial Lease Agreement made the 28th day of Feb., 1997, by and between Deneret Associates Limited Partnership (hereafter called "Landlord") and Jazz Photo Corp. (hereafter called "Tenant"). 35 1. PAYMENT. Tenant shall pay to Landlord an Operating Expense Allowance initially set at of Thirty Four Thousand Six Hundred Fifty and 00/XX Dollars ($34,650.00) per year in equal monthly installments of Two Thousand Eight Hundred Eighty-Seven and 50/XX Dollars ($2,887.50) payable on the first day of each month. If the term of this Lease commences other than on the first day of a calendar month, then the Operating Expense Allowance for the first calendar month of the term of this Lease shall be adjusted proportionately, and the aforesaid first installment paid by Tenant upon the execution of this Lease shall include the portion due for the first partial month as well as the succeeding month. If Landlord's Operating Expenses for any Operating Year shall be greater than the total Operating Expenses Allowance for such year, Tenant shall pay to Landlord as additional rent an amount equal to Tenant's Proportionate Share of the difference (hereinafter referred to as the "Operating Expense Adjustment".) If Tenant occupies the demised premises or a portion thereof for less than a full Operating Year, the Operating Expense Adjustment will be calculated in proportion to the amount of time in such Operating Year that Tenant occupied the demised premises. Such Operating Expenses Adjustment shall be paid in the following manner. Within one hundred twenty days (120) following the end of the first and each succeeding Operating Year, Landlord shall furnish to Tenant an Operating Expense Statement setting forth (a) the Operating Expense for the preceding Operating Year, 36 (b) the Operating Expense Allowance; and (c) Tenant's Operating Expense Adjustment for such Operating Year. Within fifteen (15) days following receipt of such Operating Expense Statement (the "Expense Adjustment Date") Tenant shall pay to Landlord as additional rent the Operating Expense Adjustment for such Operating Year. If for any year the Operating Expenses, Operating Expense Allowance and/or the Operating Expense Adjustment are recalculated with regard to the calculation of additional rent or other payments to be made by any tenant so as to reduce the payments which would otherwise be made by such tenant then Tenant's Operating Expense payment for that period shall be similarly recalculated and reduced. Commencing with the first month of the second Operating Year, Tenant shall pay to Landlord, in addition to the Operating Expense Allowance, on account of the Operating Expense Adjustment for such Operating Year, monthly installments in advance equal to one-twelfth (1/12) of the estimated Operating Expense Adjustment for such Operating year. On the next succeeding Expense Adjustment Date, Tenant shall pay to Landlord (or Landlord shall credit to Tenant) any deficiency (or excess) between the installments paid on account of the proceeding year's Operating Expense Adjustment and the actual Operating Expense Adjustment for such Operating Year. As used in this Addendum, the following words and terms shall be defined as hereinafter set forth: 37 A. "Operating Year" shall mean each calendar year, or other period of twelve (12) months as hereinafter may be adopted by Landlord as its fiscal year, occurring during the term of the Lease. B. "Operating Expense Allowance" shall mean and equal the monthly amount hereinabove set forth. C. "Operating Expense Statement" shall mean a statement in writing signed by Landlord, setting forth in reasonable detail (i) the Operating Expense for the preceding Operating Year, (ii) the Operating Expenses Allowance; and (iii) the Tenant's Operating Expense Adjustment for such Operating Year or portion thereof. The Operating Expense Statement for each Operating Year shall be available for inspection by Tenant at Landlord's office during normal business hours. D. "Operating Expense" shall mean the following expenses incurred by the Landlord in connection with the operation, repair and maintenance of the demised premises, the building of which it is a part and the land on which it is located: (i) Real estate taxes and other taxes or charges levied in lieu of such taxes, general and special public assessments amortized over the life of the improvements, charges imposed by any governmental authority pursuant to anti-pollution or environmental legislation not involving capital improvements, taxes on the rentals of the 38 building in which the demised premises are located or the use, occupancy or renting of space therein but not income taxes; (ii) premiums and fees for fire and extended coverage insurance, insurance against loss of rentals for space in the building of which the demised premises are a part as a result of fire or other damage to such building and public liability insurance, all in amounts and coverages (with additional policies against additional risks) as may be reasonably required by Landlord or the holder of any mortgage; (iii) water and sewer connection and service charges, electricity and utility charges not separately metered to tenants in the building of which the demised premises are a part except that each tenant shall be metered except for incidental use of water and sewage; (iv) all maintenance and repair costs but not the costs of improvements to all areas of the building in which the demised premises are located, including, but not limited to repairs and replacements of supplies and equipment, snow and trash removal and paving, lawn and general grounds upkeep, maintenance and repair of all mechanical equipment such as HVAC, electrical, plumbing and sprinkler equipment, and the costs of all labor, materials and supplies incidental thereto; (v) wages, salaries, fees and other compensation and payments and payroll taxes and contributions to any social security, unemployment insurance, welfare, pension or similar fund and payments for other fringe benefits required by law, union agreement or otherwise made to or on behalf of all employees of Landlord (but not including part time central office employees) rendered in connection with the operation and 39 maintenance of the building and/or land within which the demised premises are located, including, without limitation, payments made directly to or through independent contractors for performance of such services or for servicing or maintenance contracts; (vii) management fees payable to any unaffiliated managing agent for the demised premises; (viii) any and all other expenditures of Landlord incurred in connection with the operation, repair or maintenance of the demised premises and the building or land within which they are located which are properly expensed in accordance with generally accepted accounting principles consistently applied in the operation, maintenance and repair of a building operated as a warehouse distribution facility. The term "Operating Expense" shall not include depreciation on the building or equipment therein, interest, net income, franchise or capital stock taxes payable by Landlord, executive salaries, real estate broker's commissions or the cost of service provided especially for any particular tenant and not uniformly available to all tenants within the building of which the demised premises are a part nor shall it include upgrade in services on facilities. E. "Tenant's Proportionate Share" is equivalent to a fraction, the numerator of which shall be the square feet of floor area of the demised premises and the denominator of which shall be the square feet of all leasable floor area in the building of which 40 the demised premises are a part. Landlord reserves the right to determine if Tenant's usage of water, sewer, other common utility, or trash removal exceeds Tenant's pro-rata share, and assess additional operating expenses accordingly. 2. FINAL YEAR OF LEASE TERM. During the calendar year in which the term of this Lease ends, Landlord shall have the right to submit to Tenant a statement of Landlord's reasonable estimate of the Operating Expense Adjustment during the period (the "Final Period") beginning on the first day of the final Operating Year of the term or, if later, the date of the immediately preceding Operating Expense Adjustment and ending on the final day of the term of this Lease. Upon the earlier to occur of the thirtieth (30th) day following Tenant's receipt of such statement or the final day of the term of this Lease, Tenant shall pay to Landlord said estimated Operating Expense Adjustment minus the total amount of payments previously made by Tenant pursuant to Section 1 above during the general period. If requested by Tenant, Landlord shall submit to Tenant a statement setting forth the actual amount of said Operating Expense Adjustment after Landlord's final calculation of same, and within fifteen (15) days after Tenant's receipt of such statement, Tenant shall pay to Landlord any deficiency, or, as the case may be, Landlord shall refund to Tenant any overpayment occasioned by Tenant's payment of the aforesaid estimate. 41 ADDENDUM B 1. Rental Rate. For the second 12 month period of this lease term commencing April 1, 1998 the rental shall be One Hundred Twenty-One Thousand Two Hundred Seventy-Five and 00/XX Dollars, ($121,275.00). For the third 12 month period of this lease term commencing April 1, 1999 the rental shall be One Hundred Thirty-Two Thousand Eight Hundred Twenty-Five and 00/XX Dollars, ($132,825.00). For the fourth 12 month period of this lease term commencing April 1, 2000 the rental shall be One Hundred Thirty-Five Thousand One Hundred Thirty-Five and 00/XX Dollars, ($135,135.00). For the fifth 12 month period of this lease term commencing April 1, 2001 the rental shall be One Hundred Thirty-Seven Thousand Four Hundred Forty-Five and 00/XX Dollars, ($137,445.00). 2. Tenant Improvements. Landlord agrees to make the following improvements to the demised premises all to be done in a workmanlike manner prior to Tenant taking possessions: a. Paint and carpet the office space. b. c. Construct a stairway and doorway by the loading docks. d. Remove or raise some of the dropped lights. e. Install a demising wall. See Attached 43 3. Option to Renew. Tenant shall have the right to extend the Lease term for one additional term of five (5) years which if exercised would commence immediately following the expiration of the initial Lease term. Tenant may exercise said option by giving Landlord written notice of its intention to exercise no later than six (6) months prior to the end of the then current Lease term. All provisions of the Lease shall remain in full force and effect, except the rental rate shall be adjusted as follows. On the first day of the extended Lease term in 2001, and thereafter as of the first day of each successive Lease year of the extended Lease term, the rent shall be adjusted by any change in the Index now known as the United States Bureau of Labor Statistics, Consumer Price Index, for All Urban Consumers, All Items for Allentown, PA SMSA (1982/84=100), hereafter referred to as the Index. Such adjustment shall be accomplished by multiplying the aforementioned basic monthly rental by a fraction, the numerator of which shall be the most recently published monthly Index preceding the first day of the Lease year for which adjustment is made, the denominator of which fraction shall be the corresponding monthly index for the month of March 1996. If such Index shall be discontinued the parties agree to substitute with a successor or comparable successor Index and a comparable formula. Lease year shall be defined as each successive twelve (12) month period during the term 44 of this Lease, as extended, beginning with the Term Commencement Date. IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be executed the day and year first above written. JAZZ PHOTO CORP. DENERET ASSOCIATES LIMITED PARTNERSHIP By: /s/ [ILLEGIBLE] PRES By: /s/ [ILLEGIBLE] --------------------------- --------------------------------- Title: Title: General Partner Attest: /s/ [ILLEGIBLE] Attest: /s/ [ILLEGIBLE] ----------------------- ----------------------------- Title: VP Title: Secretary ----------------------- ------------------------------ 45 [LOGO] JAZZ PHOTO CORP - -------------------------------------------------------------------------------- 1459 PINEWOOD STREET, RAHWAY, NEW JERSEY 07065 USA TEL: (908) 499-7945 -- FAX: (908) 499-7348 TO: BERNIE ZIMMEL FROM: JEFF BURKARD DATE: FEBRUARY 14, 1997 RE: BUILDING AT 600 BLAIR ROAD, CARTERET, NEW JERSEY Please have the landlord agree to the following improvements. A) Paint and carpet the offices. B) Construct a stairway and doorway by the loading dock. C) Remove all dropped florescent lights. D) Install demising wall separating warehouse. E) Install a door between offices #6 & #7. F) Construct a 16' by 16' warehouse area by loading docks. Office to include: linoleum floor, dropped ceiling, 2 doors, 3 windows(2 fixed, 1 sliding). and electric outlets to code. See attached drawing. Thank you, Jeff EX-10.12 19 LONG TERM INCENTIVE Exhibit 10.12 JAZZ PHOTO CORP. 1997 LONG-TERM INCENTIVE PLAN 1. Purpose The purpose of the Jazz Photo Corn. Long-Term Incentive Plan (the "Plan") is to attract and retain and provide incentives to employees, officers, directors and consultants of, and vendors to, the Corporation, and to thereby increase overall shareholders' value. The Plan generally provides for restricted and unrestricted grants of capital stock, stock options, stock appreciation rights, or any combination of the foregoing to the eligible participants. 2. Definitions (a) "Award" includes, without limitation, stock options (including incentive stock options within the meaning of Section 422(b) of the Code) with or without stock appreciation rights, dividend equivalent rights, stock awards, restricted share awards, or other awards that are valued in whole or in part by reference to, or are otherwise based on, the Common Stock and Class A Common Stock ("other Common Stock-based Awards") all on a stand alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms and conditions of each Award made under this Plan. (c) "Board" means the Board of Directors of the Corporation. (d) "Code" means the Internal Revenue Code of 1986, (as amended from time to time.) (e) "Committee" means the Committee of the Board as may be designated by the Board from time to time to administer this Plan, the members of which shall consist solely of members of the Board who are "disinterested persons" within the meaning of Rule 16b-3 of the Exchange Act and are "outside directors" for purposes of Code Section 162(m)(4)(C) of the Code. (f) "Common Stock" means the Common Stock of the Corporation, par value $.O1 per share. "Class A Common Stock" means the Class A Common Stock of the Corporation, par value $.O1 per share. (g) "Corporation" means Jazz Photo Corp., a New Jersey corporation. (h) "Employee" means an employee of the Corporation or a Subsidiary. (i) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (j) "Fair Market Value" means the closing price for the Common Stock or Class A Common Stock, as applicable, as quoted on a national securities exchange or the quotation system of a registered national inter-dealer association, as applicable, on the relevant valuation date or, if there were no sales on the valuation date, on the next preceding date on which such closing price was recorded. If such shares are not traded on any national securities exchange or quoted in any inter-dealer market, the Committee may in the exercise of its good faith judgment adopt some other definition of Fair Market Value. (k) "Participant" means an Employee, officer, director, consultant or vendor who has been granted an Award under the Plan. (l) "Plan Year" means a twelve-month period beginning with January 1 of each year. (m) "Subsidiary" means any corporation or other entity, whether domestic or foreign, in which the Corporation has or obtains, directly or indirectly, a proprietary interest of more than 50% by reason of stock ownership or otherwise. 3. Eligibility My Employee, officer, director, consultant or vendor of the Corporation or Subsidiary selected by the Committee is eligible to receive an Award. 4. Plan Administration (a) Except as otherwise determined by the Board, the Plan shall be administered by the Committee. The Board, or the Committee, to the extent determined by the Board, shall periodically make determinations with respect to the participation of Employees, officers, directors, consultants and vendors in the Plan and, except as otherwise required by law or this Plan, the grant terms of Awards, including vesting schedules, price, restriction or option period, dividend rights, post-retirement and termination rights, payment alternatives such as cash, stock, contingent awards or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Board or the Committee deems appropriate which shall be contained in an Award Agreement with respect to a Participant. (b) The Committee shall have authority to interpret and construe the provisions of the Plan and any Award Agreement and make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons. 2 No member of the Committee shall be liable for any action or determination made in good faith, and the members shall be entitled to indemnification and reimbursement in the manner provided in the Corporation's Certificate of Incorporation, as it may be amended from time to time. (c) The Committee shall have the authority at any time to provide for the conditions and circumstances under which Awards shall be forfeited. 5. Capital Stock Subject to the Provisions of this Plan (a) The capital stock subject to the provisions of this Plan shall be shares of Common Stock and Class A Common Stock either authorized and unissued or held as treasury stock, or both. Subject to adjustment in accordance with the provisions of Section 10, and subject to Section 5(c) below, the total number of shares of Common Stock and Class A Common Stock available for grants of Awards shall not exceed _______ shares and shall consist of shares of Common Stock and Class A Common Stock in any proportion so long as the total number of shares of both such classes taken together issuable hereunder shall not exceed ________ shares. (b) Any shares ceasing to be subject to an option because of the surrender of such option in lieu of exercise shall become again available for Awards under the Plan. The grant of a restricted share Award shall be deemed to be equal to the maximum number of shares which may be issued under the Award. Awards payable only in cash will not reduce the number of shares available for Awards granted under the Plan. (c) There shall be carried forward and be available for Awards under the Plan, in addition to shares available for grant under paragraph (a) of this Section 5, all of the following: (i) any unused portion of the limit set forth in paragraph (a) of this Section 5; (ii) shares represented by Awards which are cancelled, forfeited, surrendered, terminated, paid in cash or expire unexercised; and (iii) the excess amount of variable Awards which become fixed at less than their maximum limitations. 6. Awards Under This Plan (a) Discretionary Awards. As the Board or Committee may determine, the following types of Awards and other Common Stock-based Awards may be granted under this Plan on a stand alone, combination or tandem basis: (i) Stock Option. A right to buy a specified number of shares of Common Stock or Class A Common Stock at a fixed exercise price during a specified time, all as the Committee may determine; provided that the exercise price of any option shall not be less than 100% of the Fair Market Value of the Common Stock or Class A Common Stock, as applicable, on the date of grant of the Award. 3 (ii) Incentive Stock Option. An Award in the form of a stock option which shall comply with the requirements of Section 422 of the Code or any successor section as it may be amended from time to time. Subject to adjustment in accordance with the provisions of Section 10, the aggregate number of shares which may be subject to incentive stock option Awards under this Plan shall not exceed 300,000 shares (less those shares awarded under Section 5 above). To the extent that Section 422 of the Code requires certain provisions to be set forth in a written plan, said provisions are incorporated herein by this reference. (iii) Stock Appreciation Right. A right contained in the grant of a stock option or incentive stock option to receive the excess of the Fair Market Value of a share of Common Stock or Class A Common Stock, as applicable, on the date the option is surrendered over the option exercise price contained in the Award Agreement. (iv) Restricted Shares. A transfer of Common Stock or Class A Common Stock, as applicable, to a Participant subject to forfeiture until such restrictions, terms and conditions as the Committee may determine are fulfilled. (v) Dividend or Equivalent. A right to receive dividends or their equivalent in value in Common Stock or Class A Common Stock, as applicable, cash or in a combination of both with respect to any new or previously existing Award. (vi) Stock Award. An unrestricted transfer of ownership of Common Stock or Class A Common Stock which may only be made to Employees other than Employees who are officers or directors of the Corporation for purposes of Section 16 of the Exchange Act, when the Exchange Act is applicable to the Corporation. (vii) Other Stock-Based Awards. Other Common Stock-based Awards which are related to or serve a similar function to those Awards set forth in this Section 6(a). 7. Award Agreements Each Award under the Plan shall be evidenced by an Award Agreement setting forth the terms and conditions of the Award and executed by the Corporation and Participant. 8. Other Terms and Conditions (a) Assignability. Unless provided to the contrary in any Award, no Award shall be assignable or transferable except where expressly authorized in the Award Agreement, by will and by the laws of descent and distribution. During the lifetime of a Participant, the Award shall be exercisable only by such Participant. 4 (b) Termination of Employment. The Committee shall determine the disposition of the grant of each Award in the event of the retirement, disability, death or other termination of a Participant's employment or other relationship with the Corporation or a Subsidiary (c) Rights as a Stockholder. A Participant shall have no rights as a stockholder with respect to shares covered by an Award until the date the Participant is the holder of record of the shares subject to the Award. No adjustment will be made for dividends or other rights for which the record date is prior to such date. (d) No Obligation to Exercise. The grant of an Award shall impose no obligation upon the Participant to exercise the Award. (e) Payments by Participants. The Committee may determine that Awards for which a payment is due from a Participant may be payable: (i) in U.S. dollars by personal check, bank draft or money order payable to the order of the Corporation, by money transfers or direct account debits; (ii) through the delivery or deemed delivery based on attestation to the ownership of shares of Common Stock or Class A Common Stock, as applicable, with a Fair Market Value equal to the total payment due from the Participant; (iii) pursuant to a broker-assisted "cashless exercise" program if established by the Corporation; (iv) by a combination of the methods described in (i) through (iii) above; or (v) by such other methods as the Committee may deem appropriate. (f) Withholding. Except as otherwise provided by the Committee, (i) the deduction of withholding and any other taxes required by law will be made from all amounts paid in cash and (ii) in the case of payments of Awards in shares of Common Stock or Class A Common Stock the Participant shall be required to pay the amount of any taxes required to be withheld prior to receipt of such stock, or alternatively, the Participant may transfer to the Corporation that number of shares of Common Stock and/or Class A Common Stock which have a Fair Market Value equal to the amount required to be withheld. (g) Restrictions on Sale and Exercise. With respect to officers and directors for purposes of Section 16 of the Exchange Act, from and after the date when shares of Common Stock or Class A Common Stock of the Corporation are registered under Section 12 of the Exchange Act and if required to comply with rules promulgated thereunder, (i) no Award providing for exercise, a vesting period, a restriction period or the attainment of performance standards shall permit unrestricted ownership of Common Stock by the Participant for at least six months from the date of grant, and (ii) Common Stock or Class A Common Stock, as applicable, acquired pursuant to this Plan (other than Common Stock or Class A Common Stock acquired as a result of the granting of a "derivative security") may not be sold for at least six months after acquisition. 5 (h) Maximum Awards. The maximum number of shares of Common Stock and Class A Common Stock that may be issued to any single Participant pursuant to options under this Plan is 250,000 shares. 9. Termination, Modification and Amendments (a) The Plan may from time to time be terminated, modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Corporation present or represented and entitled to vote at a duly held stockholders meeting or by written consent pursuant to Section 14A:5-6 of the Business Corporation Act of the State of New Jersey. (b) The Board may at any time terminate the Plan or from time to time make such modifications or amendments of the Plan as it may deem advisable; provided, however, that the Board shall not make any material amendments to the Plan without the approval of at least the affirmative vote of the holders of a majority of the outstanding shares of Common Stock of the Corporation present or represented and entitled to vote at a duly held stockholders meeting or by written consent pursuant to Section 14A:5-6 of the New Jersey Business Corporation Act of the State of New Jersey. (c) No termination, modification or amendment of the Plan may adversely affect the rights conferred by an Award without the consent of the recipient thereof. 10. Recapitalization The aggregate number of shares of Common Stock and Class A Common Stock as to which Awards may be granted to Participants, the number of shares thereof covered by each outstanding Award and by each option award granted or to be granted and the price per share thereof in each such Award, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock or Class A Common Stock, as applicable, resulting from a subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend or other increase or decrease in such shares, effected without receipt of consideration by the Corporation, or other change in corporate or capital structure; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. The Committee may also make the foregoing changes and any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Corporation and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction. 6 11. No Right to Employment No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of, or in the other relationship with, the Corporation or a Subsidiary. The Corporation and each Subsidiary expressly reserve the right at any time to dismiss a Participant free from any liability, or any claim under the Plan. 12. Governing Law To the extent that federal laws do not otherwise control, the Plan shall be construed in accordance with and governed by the laws of the State of New Jersey. 13. Effective Date and Term The effective date of this Plan is January 6, 1997 as amended April 2, 1997, subject to its approval by the holders of the Common Stock of the Corporation. The Plan shall terminate on January 6, 2007 as amended April 2, 1997. No awards shall be granted after the termination of the Plan. 7 JAZZ PHOTO CORP. 1997 LONG-TERM INCENTIVE PLAN INCENTIVE STOCK OPTION AGREEMENT AWARD AGREEMENT In consideration of the value of the continuing services of _____________ (hereinafter called "Optionee"), which continuing services the grant of this option is designed to secure, and in consideration of the undertakings made herein by Optionee, and pursuant to its 1997 Long-Term Incentive Plan (hereinafter called the "Plan"), Jazz Photo Corp. (the "Company") hereby grants to Optionee an option, evidenced by this option agreement (the "Agreement"), exercisable for the period and upon the terms and conditions hereinafter set out, to purchase _________________________________ (________) shares of Class A Common Stock ("Class A Common Stock") of the Company at a price of $____ per share, which price represents at least 100% of the fair market value of a share of the Class A Common Stock at the Date of Grant (as hereinafter defined). 1. Term of Option. This option is granted and dated on the date set forth next above the Company's signature on page 6 hereof (sometimes hereinafter called the "Date of Grant"), and will terminate and expire, to the extent not previously exercised, ten (10) years after the Date of Grant, or at such earlier time as may be specified in the Agreement or the Plan. 2. Subject to Plan. This option is subject to all the terms and conditions of the Plan, and specifically to the power (i) of the Committee of the Board of Directors of the Company to make interpretations of the Plan and of the Awards including options granted thereunder, and (ii) of the Board of Directors of the Company to alter, amend, suspend or discontinue the Plan subject to the limitations expressed in the Plan. By acceptance hereof, Optionee acknowledges receipt of a copy of the Plan and recognizes and agrees that all determinations, interpretations or other actions respecting the Plan may be made by a majority of the Board of Directors of the Company or of the Committee, and that such determination, interpretations or other actions are final, conclusive and binding upon all parties, including Optionee. 3. Exercise of Option. (a) Each option shall become exercisable with respect to one-third of the total number of shares subject to the option one year after the Date of Grant and with respect to an additional one-third at the end of each twelve-month period thereafter, during the succeeding two-year period. Notwithstanding the previous sentence, the options shall become exercisable immediately upon an "Exercise Event" of the Company (as defined below). For this purpose an Exercise Event shall be deemed to have occurred if: (A) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than persons who were stockholders immediately prior to the Date of Grant becomes the beneficial owner of 20% or more of the combined voting power of the Company's then outstanding securities unless the Board of Directors specifically determines that any specific acquisition or holder of securities shall not constitute an Exercise Event of the Company; (B) at any time the individuals who currently constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof. For this purpose, any individual who is (i) a current director of the Company or (ii) a director who was nominated by the Board of Directors of the Company, the majority of whom are either current directors or were nominated by persons described in clauses (i) or (ii), shall be treated as a person who is currently a member of the Board of Directors of the Company; (C) the Company shall sell Common Stock of the Company to the public in an initial public offering pursuant to an effective registration statement filed with the federal Securities and Exchange Commission or in connection with any transaction described in clause (D) below; or (D) the Company shall (i) merge or consolidate with or into another entity, in which holders of the Common Stock or Class A Common Stock of the Company immediately prior to such merger or consolidation shall not own more than 50% of the outstanding equity capitalization of the entity surviving such merger or of such consolidated entity immediately after such merger or consolidation, or (ii) sell all or substantially all of its assets to any entity in which the holders of the Common Stock and Class A Common Stock of the Company immediately prior to such sale shall not own more than 50% of the equity capitalization of the entity which purchases such assets. (b) Upon the happening of an Exercise Event (as defined above) upon exercise the Optionee shall receive Common Stock, par value $.01 per share, upon exercise on a share4or-share basis instead of Class A Common Stock. 4. Manner of Exercise. (a) Shares of Class A Common Stock purchased upon exercise of options shall at the time of purchase be paid for in full. To the extent that the right to purchase shares has accrued hereunder, options may be exercised from time to time 2 by providing written notice to the Company stating the full number of shares with respect to which the option is being exercised and the time of delivery thereof, which shall be at least fifteen days after the giving of such notice unless an earlier date shall have been mutually agreed upon. The aforesaid notice must be accompanied by full payment for the shares, which payment is to be by certified or official bank check or the equivalent thereof acceptable to the Company or by delivering Common Stock or Class A Common Stock of the Company, valued at its Fair Market Value (determined as provided in the Plan). At the time of delivery, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise the option), deliver to the Optionee (or to such other person) at the principal office of the Company, or such other place as shall be mutually agreed upon, a certificate or certificates for such shares; provided, however, that the time of delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any requirements of law. In the event the Class A Common Stock issuable upon exercise is not registered under the Securities Act of 1933 (the "Act"), then the Company at the time of exercise will require, in addition to the foregoing that the registered owner deliver an investment representation in form acceptable to the Company and its counsel and the Company will place a legend on the certificate for such Common Stock restricting the transfer of same. There shall be no obligation or duty for the Company to register under the Act at any time that Class A Common Stock is issued upon exercise of the options, or at any time thereafter. (b) Limitation of Amount. Notwithstanding any other provision of the Plan, the aggregate Fair Market Value (determined at the time an Incentive Option is granted) of the Class A Common Stock with respect to which incentive options are exercisable by the Optionee (or other person entitled to exercise the incentive option) during any calendar year shall not exceed $100,000. (c) Non-Assignability of Option Rights. No option shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of an Optionee, the option is exercisable only by the Optionee. 5. Termination of Employment. (a) In the event that Optionee's employment by the Company or a Subsidiary shall terminate, and the provisions of Sections 5(b), 5(c) or 5(e) do not apply, the option granted to Optionee pursuant to this Agreement shall terminate immediately. (b) In the event that Optionee shall die while in the employment of the Company (or a Subsidiary) or if Optionee's employment by the Company (or a Subsidiary) is terminated because Optionee has become disabled within the meaning of Section 105(d)(4) of the Code, Optionee, Optionee's estate or beneficiary shall have 3 the right to exercise Optionee's options at any time within six months from the date of death of Optionee or termination due to disability. Notwithstanding the foregoing, the provisions of this Section 5(b) shall be subject to Section 3, 5(c) and 5(e) as may earlier terminate the option. (c) In the event that any termination of employment is due to retirement with the consent of Optionee's employer, the Optionee shall have the right to exercise the option at any time within three months after such retirement to the extent he was entitled to exercise the same immediately prior to retirement. Notwithstanding the foregoing, the provisions of this Section 5(c) shall be subject to Section 3, 5(b) and 5(e) as may earlier terminate the option. (d) Adjustment of Options on Recapitalization. The aggregate number of shares of Common Stock or Class A Common Stock for which options may be granted to persons participating under the Plan, the number of shares subject to outstanding options, and the exercise price per share for each such option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock or Class A Common Stock of the Company resulting from the subdivision or consolidation of shares, or the payment of a stock dividend after the effective date of this Plan, or other increase or decrease in such shares effected without receipt of consideration by the Company; provided, however, that any options to purchase fractional shares resulting from any such adjustment shall be eliminated and provided further, that any such adjustment shall be made in a manner so as not to constitute a modification as defined in Section 425(h)(3) of the Code. (e) Dissolution of Issuer of Option Stock. In the event of the proposed dissolution or liquidation of the Company, the options granted hereunder shall terminate as of a date to be fixed by the Committee, provided that not less than thirty (30) days' prior written notice of the date so fixed shall be given to the Optionee, and the Optionee shall have the right, during the period of thirty (30) days preceding such termination, to exercise his option. Notwithstanding the foregoing, the provisions of this Section shall be subject to Section 3. (f) Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares of Common Stock or Class A Common Stock of the Company held under the option until the date of issuance of the stock certificates to Optionee or Optionee's agent or custodian for such shares. (g) Stock Legend. Certificates evidencing shares of the Company's Class A Common Stock purchased upon the exercise of any option issued under this Agreement shall be endorsed with a legend in substantially the following form: "The shares evidenced by this certificate may not be sold or transferred prior to _____________ 19__, 4 in the absence of a written statement from Jazz Photo Corp. (the "Company") to the effect that the Company is aware of the fact of such sale or transfer. "The blank contained in such legend shall be filled in with the date which is the later of two years and one day from the day the Incentive Option was granted or one year and one day after the date of exercise of such Incentive Option. Upon delivery to the Company, at its principal executive office, of a written statement to the effect that such shares have been sold or transferred prior to such date, the Company does hereby agree to promptly deliver to the transfer agent for such shares a written statement to the effect that the Company is aware of the fact of such sale or transfer." (h) Act Legend. Each certificate representing shares of Class A Common Stock issued pursuant to the exercise of an option under this Agreement shall bear the following Securities Act of 1933 legend: "The offer or sale of the shares evidenced by this certificate have not been registered under the Securities Act of 1933 and, accordingly, such shares may not be sold, transferred or otherwise disposed of except upon full compliance with such law or an exemption therefrom." 6. Shareholders' Agreement. Reference is made to a certain Shareholders' Agreement (the "Shareholders' Agreement") among the Company and certain of its shareholders including Optionee. Upon the exercise of any option under this Agreement by Optionee, the shares issuable hereunder shall be subject to all the terms and conditions of the Shareholders' Agreement and shall bear a legend to the following effect: "The shares represented by this certificate are subject to the terms of a Shareholders' Agreement dated as of January __ 1997, which, among other provisions, restrains the disposition hereof. A copy of the Shareholders' Agreement may be examined by the holder of this certificate at the offices of the Company." 5 IN WITNESS WHEREOF, this Incentive Stock Option Agreement is executed as of the __th day of January, 1997. JAZZ PHOTO CORP. By:_______________________________ The undersigned Optionee hereby accepts the benefits of the foregoing Incentive Stock Option Agreement. __________________________________ , Optionee 6 JAZZ PHOTO CORP. 1997 LONG-TERM INCENTIVE PLAN STOCK OPTION AGREEMENT ---------- AWARD AGREEMENT ---------- In consideration of the value of the continuing services of _____________ (hereinafter called "Optionee"), which continuing services the grant of this option is designed to secure, and in consideration of the undertakings made herein by Optionee, and pursuant to its 1997 Long-Term Incentive Plan (hereinafter called the "Plan"), Jazz Photo Corp. (the "Company") hereby grants to Optionee an option, evidenced by this option agreement (the "Agreement"), exercisable for the period and upon the terms and conditions hereinafter set out, to purchase _________________________________ _______ shares of Class A Common Stock ("Class A Common Stock") of the Company at a price of $____ per share, which price represents at least 100% of the fair market value of a share of the Class A Common Stock at the Date of Grant (as hereinafter defined). 1. Term of Option. This option is granted and dated on the date set forth next above the Company's signature on page 6 hereof(sometimes hereinafter called the "Date of Grant"), and will terminate and expire, to the extent not previously exercised, ten (10) years after the Date of Grant, or at such earlier time as may be specified in the Agreement or the Plan. 2. Subject to Plan. This option is subject to all the terms and conditions of the Plan, and specifically to the power (i) of the Committee of the Board of Directors of the Company to make interpretations of the Plan and of the Awards including options granted thereunder, and (ii) of the Board of Directors of the Company to alter, amend, suspend or discontinue the Plan subject to the limitations expressed in the Plan. By acceptance hereof, Optionee acknowledges receipt of a copy of the Plan and recognizes and agrees that all determinations, interpretations or other actions respecting the Plan may be made by a majority of the Board of Directors of the Company or of the Committee, and that such determination, interpretations or other actions are final, conclusive and binding upon all parties, including Optionee. 3. Exercise of Option. (a) Each option shall become exercisable with respect to one-third of the total number of shares subject to the option one year after the Date of Grant and with respect to an additional one-third at the end of each twelve-month period thereafter, during the succeeding two-year period. Notwithstanding the previous sentence, the options shall become exercisable immediately upon an "Exercise Event" of the Company (as defined below). For this purpose an Exercise Event shall be deemed to have occurred if: (A) any "person" (as such term is used in Sections 13(d) and I 4(d)(2) of the Securities Exchange Act of 1934, as amended), other than persons who were stockholders immediately prior to the Date of Grant becomes the beneficial owner of 20% or more of the combined voting power of the Company's then outstanding securities unless the Board of Directors specifically determines that any specific acquisition or holder of securities shall not constitute an Exercise Event of the Company; (B) at any time the individuals who currently constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof. For this purpose, any individual who is (i) a current director of the Company or (ii) a director who was nominated by the Board of Directors of the Company, the majority of whom are either current directors or were nominated by persons described in clauses (i) or (ii), shall be treated as a person who is currently a member of the Board of Directors of the Company; (C) the Company shall sell Common Stock of the Company to the public in an initial public offering pursuant to an effective registration statement filed with the federal Securities and Exchange Commission or in connection with any transaction described in clause (D) below; or (D) the Company shall (i) merge or consolidate with or into another entity, in which holders of the Common Stock or Class A Common Stock of the Company immediately prior to such merger or consolidation shall not own more than 50% of the outstanding equity capitalization of the entity surviving such merger or of such consolidated entity immediately after such merger or consolidation, or (ii) sell all or substantially all of its assets to any entity in which the holders of the Common Stock and Class A Common Stock of the Company immediately prior to such sale shall not own more than 50% of the equity capitalization of the entity which purchases such assets. (b) Upon the happening of an Exercise Event (as defined above) upon exercise the Optionee shall receive Common Stock, par value $.01 per share, upon exercise on a share-for-share basis instead of Class A Common Stock. 4. Manner of Exercise. (a) Shares of Class A Common Stock purchased upon exercise of options shall at the time of purchase be paid for in full. To the extent that the right to purchase shares has accrued hereunder, options may be exercised from time to time 2 by providing written notice to the Company stating the full number of shares with respect to which the option is being exercised and the time of delivery thereof, which shall be at least fifteen days after the giving of such notice unless an earlier date shall have been mutually agreed upon. The aforesaid notice must be accompanied by full payment for the shares, which payment is to be by certified or official bank check or the equivalent thereof acceptable to the Company or by delivering Common Stock or Class A Common Stock of the Company, valued at its Fair Market Value (determined as provided in the Plan). At the time of delivery, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise the option), deliver to the Optionee (or to such other person) at the principal office of the Company, or such other place as shall be mutually agreed upon, a certificate or certificates for such shares; provided, however, that the time of delivery may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any requirements of law. In the event the Class A Common Stock issuable upon exercise is not registered under the Securities Act of 1933 (the "Act"), then the Company at the time of exercise will require, in addition to the foregoing that the registered owner deliver an investment representation in form acceptable to the Company and its counsel and the Company will place a legend on the certificate for such Common Stock restricting the transfer of same. There shall be no obligation or duty for the Company to register under the Act at any time that Class A Common Stock is issued upon exercise of the options, or at any time thereafter. (b) Non-Assignability of Option Rights. No option shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. During the lifetime of an Optionee, the option is exercisable only by the Optionee. 5. Termination of Employment. (a) In the event that Optionee's employment by the Company or a Subsidiary shall terminate, and the provisions of Sections 5(b), 5(c) or 5(e) do not apply, the option granted to Optionee pursuant to this Agreement shall terminate immediately (b) In the event that Optionee shall die while in the employment of the Company (or a Subsidiary) or if Optionee's employment by the Company (or a Subsidiary) is terminated because Optionee has become disabled within the meaning of Section 105(d)(4) of the Code, Optionee, Optionee's estate or beneficiary shall have the right to exercise Optionee's options at any time within six months from the date of death of Optionee or termination due to disability. Notwithstanding the foregoing, the provisions of this Section 5(b) shall be subject to Section 3, 5(c) and 5(e) as may earlier terminate the option. 3 (c) In the event that any termination of employment is due to retirement with the consent of Optionee's employer, the Optionee shall have the right to exercise the option at any time within three months after such retirement to the extent he was entitled to exercise the same immediately prior to retirement. Notwithstanding the foregoing, the provisions of this Section 5(c) shall be subject to Section 3, 5(b) and 5(e) as may earlier terminate the option. (d) Adjustment of Options on Recapitalization. The aggregate number of shares of Common Stock or Class A Common Stock for which options may be granted to persons participating under the Plan, the number of shares subject to outstanding options, and the exercise price per share for each such option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock or Class A Common Stock of the Company resulting from the subdivision or consolidation of shares, or the payment of a stock dividend after the effective date of this Plan, or other increase or decrease in such shares effected without receipt of consideration by the Company; provided, however, that any options to purchase fractional shares resulting from any such adjustment shall be eliminated; and provided further, that any such adjustment shall be made in a manner so as not to constitute a modification as defined in Section 425(h)(3) of the Code. (e) Dissolution of Issuer of Option Stock. In the event of the proposed dissolution or liquidation of the Company, the options granted hereunder shall terminate as of a date to be fixed by the Committee, provided that not less than thirty (30) days' prior written notice of the date so fixed shall be given to the Optionee, and the Optionee shall have the right, during the period of thirty (30) days preceding such termination, to exercise his option. Notwithstanding the foregoing, the provisions of this Section shall be subject to Section 3. (f) Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares of Common Stock or Class A Common Stock of the Company held under the option until the date of issuance of the stock certificates to Optionee or Optionee's agent or custodian for such shares. (g) Stock Legend. Certificates evidencing shares of the Company's Class A Common Stock purchased upon the exercise of any option issued under this Agreement shall be endorsed with a legend in substantially the following form: "The shares evidenced by this certificate may not be sold or transferred in the absence of a written statement from Jazz Photo Corp. (the "Company") to the effect that the Company is aware of the fact of such sale or transfer." 4 (h) Act Legend. Each certificate representing shares of Class A Common Stock issued pursuant to the exercise of an option under this Agreement shall bear the following Securities Act of 1933 legend: "The offer or sale of the shares evidenced by this certificate have not been registered under the Securities Act of 1933 and, accordingly, such shares may not be sold, transferred or otherwise disposed of except upon full compliance with such law or an exemption therefrom." IN WITNESS WHEREOF, this Stock Option Agreement is executed as of the __th day of April, 1997. JAZZ PHOTO CORP. By:_______________________________ The undersigned Optionee hereby accepts the benefits of the foregoing Stock Option Agreement. __________________________________ ,Optionee 5 EX-10.13 20 FACTORING AGREEMENT Exhibit 10.13 FACTORING AGREEMENT ROSENTHAL & ROSENTHAL, Inc. 1370 Broadway New York, N.Y. 10018 New York, New York July 12, 1995 Jazz Photo Corp. 1459 Pinewood Street Rahway, NJ 07065 THE FOLLOWING IS THE AGREEMENT UNDER WHICH WE ARE TO ACT AS YOUR SOLE FACTOR: 1. You hereby sell and assign to us, making us absolute owner thereof, all of your accounts, contract rights, and all other obligations to you, now existing or hereafter arising, for the payment of money arising out of the sale of goods or rendition of services ("receivables"), together with all proceeds thereof, all security and guarantees therefor, and all of your rights to any goods and property represented thereby. We shall have all the rights of an unpaid seller of any goods, the sale of which gives rise to each receivable, including the right of stoppage in transit, reclamation and replevin. Upon each sale of goods or rendition of services, you shall execute and deliver to us such further and confirmatory assignments of your receivables as we require, in form and manner satisfactory to us, together with copies of invoices and all shipping or delivery receipts and such other proof of sale and delivery or performance as we from time to time may require. You will make appropriate notations upon your books and ledgers indicating the sale and assignment of your receivables to us. All invoices or other statements to customers evidencing receivables shall be mailed at your expense whether mailed by you or at our options by us and shall clearly state in a manner satisfactory to us that such receivables has been assigned to us and is payable to us only. 2. Before accepting or filling any order from any customer, the amount and terms of sale are to be submitted to us for our credit approval, which approval must be in writing and shall be limited to the specific terms and amounts described therein. We reserve the right to withdraw such credit approval at any time before delivery or performance and, in any event, a credit approval shall be deemed to be withdrawn if full delivery or performance is not made within 30 days after the delivery or shipment date specified in the terms of sale submitted for such approval, or, if no delivery or shipment date is specified, within 30 days of the date of such credit approval. On sales approved and accepted by us, we shall assume the credit risk, being responsible only for the financial inability of your customers to pay at maturity, such assumption of credit risk going into effect upon delivery or performance, and acceptance of the goods or services by such customer, without dispute. We shall not be responsible for any nonpayment of a receivable because of the assertion of any claim or dispute by a customer or the exercise of any counterclaim or offset (whether or not such claim, dispute, counterclaim or offset relates to the specific receivable) or where nonpayment is a consequence of enemy attack, civil commotion, the acts or restraint of public authorities, acts of God or force majeure, or if any warranty made by you to us in respect of such receivables has been breached. We shall have no liability of any kind for refusing to give or for withdrawing credit approval pursuant to the terms of this Agreement, or for exercising or refusing to exercise any rights or remedies we have under this Agreement or otherwise. Any sale of goods or rendition of services made by you which is not approved in writing by us as to credit shall be known as a C.R. (Client's risk) receivable. All such C.R. receivables assigned to and purchased by us are with full recourse to you and at your credit risk, but are otherwise subject to the covenants, terms and conditions provided herein in respect of approved receivables on which we have assumed the credit risk. We shall have the rights to charge back to your account the amount of such C.R. receivables at any time either before or after their maturity and you agree to pay us upon demand the amount thereof, together with all expenses including collection charges and other collection and attorney's fees incurred by us up to the date of such payment in attempting to collect or enforce any such payment and in attempting to collect or enforce any such receivable. In no event shall we have any credit risk on any receivable, whether or not approved by us, if the net amount of such receivable is less than $250.00. 3. Any goods rejected or returned by any customer shall be our property held by you in trust for us separate and apart from any other goods, and upon demand shall forthwith be delivered to us or disposed of by you at our direction and without charge to us. You shall report to us in writing all disputes and claims made by your customers, and the return of or offer to return any goods, and you will promptly settle all such claims and disputes at your expense. As absolute owner of each receivable, we may in our sole discretion enforce, effect any compromise, settle and adjust any receivable, in our name or yours, without affecting or limiting your obligation to us under this Agreement, and whether or not any such receivable shall have been charged back. We reserve the right at any time to charge back to your account the full amount of the receivable involved in any claim, dispute or return asserted by your customer, and you agree to pay us upon demand the full amount thereof. The charge back to your account of the amount of any receivable shall not be deemed a reassignment thereof to you and title thereto, to the proceeds thereof, to all security and guarantees therefor and to your interest in the goods represented thereby, shall remain in us. You shall indemnify us for, and hold us harmless against, any loss, liability, claim or expense of any kind arising from any claims of, or dispute with, your customer as to terms, price, quality, or otherwise, with respect to receivables, including any claim for a return of any payments thereunder. 4. If any checks, drafts, notes acceptances, cash collections or payments in any form shall be received by you on receivables, you will immediately transmit and deliver them to us in the identical form received. You agree that we and any such person or entity as we may from time to time designate, shall have the right to sign and/or endorse your name on all remittances and all papers, bills of lading, receipts, instruments and documents relating to the receivables and the transactions between us. We shall have the right to deposit any checks or other remittances received on receivables regardless of notations or conditions placed thereon by your customers or deductions reflected thereby and to charge the amount of any such deductions to your account. 5. As to each receivable assigned to us, you hereby warrant that: (i) it is a bona fide existing obligation created by the sale and actual delivery of goods or the rendition of services to customers in the ordinary course of business, which you then own free of liens and encumbrances, and which is then unconditionally owing to you without defense, offset or counterclaim; and(ii) the customers have received and will accept the goods and services, and the invoices therefor, without dispute or claim of any kind. You hereby warrant that you are solvent, that you have full right and authority to sell and assign to us and to grant to us a security interest in your receivables, that you have not granted a security interest therein or in any of your inventory, other than to us, at any time during the term of this Agreement and until the security interests granted hereunder have been terminated. You further represent and warrant that your name, place of business, chief executive office and location of your books and records relating to your receivables is as you are addressed above and you agree to notify us promptly of any change in such or in your corporate or business structure. 6. (a) For our services hereunder, we shall receive a factoring commission equal to 1.125% of the invoice amount of each receivable, less selling discounts (at our option, calculated on shortest terms), which commission shall be due and payable by you as at the date a receivable arises, and shall then be chargeable to your account with us. (b) Our charge specified in paragraph 6(a) hereof is based upon maximum selling terms of sixty (60) days, and no more extended terms or additional dating shall be granted by you to any customer without our prior written approval. When such approval is given by us, our charge with respect to the receivables covered thereby shall by increased twenty-five percent (25%), provided that the minimum increase shall be one quarter of one percent (.25%) for each additional 30 days or portion thereof of extended terms or additional dating. (c.) Amounts taken by customers for anticipation at an annual rate in excess of two (2%) percent under the Prime Rate (as defined in paragraph 7 (b) hereof) shall be charged to your account. (d) The minimum factoring commission on each invoice in respect of any receivable shall be $5.00. (e) The minimum aggregate monthly factoring commissions payable under this Agreement shall be $2,000 but not less than $24,000 in the aggregate per contract year, which to the extent of any deficiency (after giving effect to commissions payable and other charges under the foregoing subparagraphs), shall be chargeable to your account with us on a monthly basis. (f) Should we open letters of credit or issue guarantees for your account, we shall receive a commission equal to 0.5% of the face amount of such letters of credit or guarantees plus an additional 0.25% for each 30 days or portion thereof that the letter of credit (or any resulting acceptance) or guarantee remains open and unpaid plus preparation fees and bank charges. 7. (a) The purchase price for each receivable shall be the invoice amount of the receivable, less returns (whenever made), less all selling discounts (at our option, calculated on shortest terms) and credits or deductions of any kind allowed or granted to or taken by the customer at any time, and less our commission provided for herein. No discount, credit or allowance with respect to the receivables shall be granted by you to any customer, and no return of goods shall be accepted by you without our prior written consent. A discount, credit or allowance may be claimed only by the customer. All amounts collected against the receivables shall be credited to your account adding ten (10) banking days for collection and clearance of remittances. (b) If you require funds from time to time, we will advance to you, at our discretion, up to seventy percent (70%) of the net amount of receivables purchased by us and not as yet collected. You will be charged with interest on all sums paid, advanced or charged to you at a rate equal to eleven and one quarter percent (11.25%) per annum upon the average daily debt cash balance in your account. That portion of advances made by us to you which is in excess of the above stated percentage of your receivables shall bear interest at a per annum rate which is 3% in excess of such interest rate. The rates of interest and discount provided for in this paragraph 7 shall be increased or decreased by three-tenths of one percent (3/10ths of 1%) per annum for each increase or decrease respectively of one quarter of one percent (1/4 of 1%) per annum that is hereafter made in the prime rate of The Chase Manhattan Bank (National Association) as announced by such Bank from time to time ("Prime Rate"), such change to become effective when and as the Prime Rate shall change, provided that at no time shall such percentage interest or discount rate be less than 2.5% per annum above the Prime Rate. Notwithstanding the foregoing, in no event shall the rate of interest agreed to by or charged to you hereunder exceed the maximum rate of interest permitted to be so agreed or charged under the law of the jurisdiction whose laws are applicable to such rate of interest. We shall have the privilege of remitting to you at any time any amount standing to your credit on our books. The present Prime Rate is 8.75% per annum. (c) About fifteen (15) days after the end of each month, we will render to you a statement with respect to the receivables purchased by us in the previous month, together with advances and charges made to your account under this Agreement. In addition to any other amounts chargeable to your account, your account shall be charged with our expenses consisting of postage on invoices, bank wire and similar charges and in addition all expenses and costs from time to time hereafter incurred by us during the course of periodic examinations of your books and records, and operations, plus a per diem charge at the rate of $500 per person, per day, for our examiners, in the field and office. All statements, reports or accountings rendered or issued by us to you shall be deemed accepted and be finally conclusive and binding upon you unless you notify us to the contrary by registered or certified mail within thirty (30) days after the date such statement, report or accounting is sent to you. 8. As collateral security for any and all of your (and your subsidiaries and affiliates) indebtness and obligations to us and to each of our subsidiaries and affiliates, whether matured or unmatured, absolute or contingent, now existing or that may hereafter arise (including under indemnity or reimbursement agreements or by subrogation), and howsoever acquired by us, whether arising directly between us or acquired by us by assignment, whether relating to this Agreement or independent hereof, including all obligations incurred by you to any other concern factored or financed by us (collectively, the "Obligations"), you grant to us a security interest in all of your accounts, contract rights and general intangibles (whether or not specifically assigned to us), now existing and hereafter arising, and in the proceeds thereof, any security and guarantees therefor, in the goods and property represented thereby, in all of your books and records relating to the foregoing, in all sum of money at any time to your credit with us, all your present and future claims against us under or in connection with this Agreement and any of your property at any time in our possession. All Obligations shall be due and payable on demand, and you hereby irrevocably authorize and direct us to charge at any time to your account any Obligations, and to pay any Obligations owing to any of our subsidiaries or affiliates by so charging at any time to your account. You agree to execute financing statements and any and all other instruments and documents that may now or hereafter be provided for by the Uniform Commercial Code or other law applicable thereto reflecting the security interests granted to us hereunder. You authorize us to file such financing statements without your signature, signed only by us as a secured party, to reflect the security interests granted to us hereunder. You shall be liable for, and we may charge your account with, all costs and expenses of filing such statements (including any filing or recording taxes), the making of lien searches, and any attorney's fees which may be incurred by us in protecting, preserving and enforcing our security interests and rights hereunder. 9. This Agreement shall commence on the date hereof, and shall continue until July 31, 1996, and automatically from year to year thereafter, unless you give us notice in writing, by registered or certified mail, sixty days prior to the expiration of the original term of this Agreement (or any renewal term thereof), of your intention to terminate this Agreement as at the end of such term, with the understanding that we may terminate this Agreement at any time upon thirty days notice to you by registered or certified mail. If you become insolvent or become unable to meet your debts as they mature, or fail, suspend or go out of business or apply for, consent to, or suffer the appointment of a receiver, trustee or custodian (or similar person) for you or any of your property, make an assignment for the benefit of creditors, or commence or become the subject of a case or proceeding under any federal bankruptcy law, or if you shall be in default under this Agreement or under any other agreement with us or any Obligations to us, or if there is a change (by death or otherwise) in your controlling stockholders or owners, then notwithstanding the foregoing, we shall have the right to terminate this Agreement at any time without notice. Our rights and your Obligations arising out of transactions having their inception prior to the termination date shall not be affected by any termination or notice thereof. Termination of this Agreement shall not become effective in respect of the liens and security interests granted to us hereunder until you have fully paid and discharged any and all of your Obligations to us, and you shall continue to furnish confirmatory assignments and schedules of receivables assigned to us and all proceeds in respect thereof. After the giving of any notice of termination hereunder and until the full liquidation of your account and the payment in full of all Obligations, you shall not be entitled to receive any equities or payments from us, to the extent we are obligated to make payments to you under this Agreement. From and after the effective date of termination, all amounts charged or chargeable to your account hereunder, and all your Obligations to us, shall become immediately due and payable without further notice or demand. 10. This Agreement is deemed made in the State of New York and shall be governed, interpreted and construed in accordance with the laws of the State of New York. No modification, waiver or discharge of this Agreement shall be binding upon us unless in writing and signed by us. If at any time we should fail to exercise any right or remedy hereunder, it shall not constitute a waiver on our part of exercising the same or any other right or remedy at any subsequent time. If any taxes are imposed upon, or if we shall be required to withhold or pay any tax or penalty because of or in connection with any transactions between us under this Agreement, you agree to indemnity us and hold us harmless in respect thereof. Trial by jury is hereby waived by each of us in any action, proceeding or counterclaim brought by either of us against the other on any matters whatsoever arising out of or in any way connected with this Agreement or the relationship created hereby, and you hereby consent to the jurisdiction of the Supreme Court of the State of New York (or the Civil Court of the City of New York if such matters be within its jurisdiction), and of any Federal Court in such State, for a determination of any dispute as to any such matters. In connection therewith, you hereby waive personal service of any summons, complaint or other process and agree that service thereof may be made by registered or certified mail directed to you at your address set forth above, or such other address as shall have previously been communicated to us by registered or certified mail. Within thirty days after such mailing, you shall appear to answer to such summons, complaint or other process. Should you fail to appear or answer within said thirty-day period, you shall be deemed in default and judgment may be entered by us against you for the amount as demanded in any summons, complaint or other process so served. In the event we shall retain counsel for the purpose of enforcing the performance, payment or collection of any of the Obligations, then in that event you agree to pay the reasonable fees of our counsel, the amount of which is hereby expressly fixed (to the extent permitted by applicable law) at a sum that shall be equal to fifteen percent of the Obligations plus any and all expenses and disbursements incurred in connection therewith and/or incidental thereto. Our books and records shall be admissable as prima facie evidence of the status of the account between us. This Agreement shall be binding upon and inure to the benefit of each of us and our respective heirs, executors, administrators, successors and assigns. ROSENTHAL & ROSENTHAL, INC. By: /s/ Jerry Sandak -------------------- Name and Title: Jerry Sandak, Exec. Vice Pres. The foregoing is acknowledged, accepted and agreed to: Jazz Photo Corp. By: /s/ [ILLEGIBLE] --------------- RE: FACTORING AGREEMENT It is mutually agreed that the above mentioned agreement between us shall be amended as hereafter provided: The following is hereby added to the last sentence of Paragraph 6(a): "... except for those receivables due from a customer (or any affiliates or subsidiaries thereof) listed on the Special Accounts Schedule submitted herewith and/or from time to time hereafter (by certified mail) for which the commission on paid receivables shall be increased by an amount equal to the surcharge set forth on the said Special Accounts Schedule to the extent of the amount credit approved." The foregoing amendment shall be effective as of July 12, 1995. In all other respects the terms and conditions of the aforesaid agreement, as the same may have heretofore been amended, shall remain unchanged. ROSENTHAL & ROSENTHAL, INC. By: /s/ [ILLEGIBLE] Sr VP ------------------------------- THE FOREGOING IS ACKNOWLEDGED AND AGREED TO: JAZZ PHOTO CORP. By: /s/ [ILLEGIBLE] ------------------------------ SPECIAL ACCOUNT SCHEDULE 1% SURCHARGE - -------------------------------------------------------------------------------- AMES DEPARTMENT STORES INC. - -------------------------------------------------------------------------------- C.R. ANTHONY COMPANY - -------------------------------------------------------------------------------- CALDOR INC. - -------------------------------------------------------------------------------- BROADWAY STORES INC. - -------------------------------------------------------------------------------- McCRORY CORP. -D.I.P. - -------------------------------------------------------------------------------- BRADLESS, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL ACCOUNT SCHEDULE 2% Surcharge ================================================================================ LESLIE FAY COMPANIES DIP SASSCO division SPITALNICK CORP. subsidiary PIECE GOODS SHOPS COMPANY L.P. DIP BILLS DOLLAR STORES INC. DIP JAMESWAY CORP. DIP ROSES STORES INC, DIP BRADLEES INC. DIP MERRY GO ROUND ENTERPRISES, INC. DIP SOLO SERVE CORP. DIP WOODWARD & LOTHROP INC. DIP NO NAME STORES INC. DIP FINES MENS SHOPS INC. DIP JAY JACOBS INC. DIP WEINER STORES INC. DIP Rev. 06/28/95 New York, New York July 12, 1995 Rosenthal & Rosenthal, Inc. 1370 Broadway New York, New York 10018 Gentlemen: We do hereby agree that the Factoring Agreement between us dated July 12, 1995, be and the same hereby is amended and supplemented by adding thereto the following clauses: We hereby pledge, assign, consign, transfer and set over to you, and you shall at all times have a continuing general lien upon, and we hereby grant you a continuing security interest in, all of our Inventory and the proceeds thereof. "Inventory" shall include but not be limited to raw materials, work in process, finished merchandise and all wrapping, packing and shipping materials, wheresoever located, now owned or hereafter acquired, presently existing or hereafter arising, and all additions and accessions thereto, the resulting product or mass and any documents representing all or any part thereof. Upon your request, we will at any time and from time to time, at our expense, deliver such Inventory to you or such person as you may designate, cause the same to be stored in your name at such place as you may designate, deliver to you documents of title representing the same or otherwise evidence your security interest in such manner as you may require. The aforesaid pledge, assignment, consignment, transfer, lien and security interest shall secure any and all of our obligations to you, matured or unmatured, absolute or contingent, now existing or that may hereafter arise, and howsoever acquired by you, whether arising directly between us or acquired by you by assignment and whether relating to this agreement or independent hereof, together with all interest, charges, commissions, expenses, attorneys' fees and other items chargeable against us in connection with any of said obligations. We agree, at our expense, to keep all Inventory insured to the full value thereof against such risks and by policies of insurance issued by such companies as you may designate or approve, and the policies evidencing such insurance shall be duly endorsed in your favor with a long form lender's loss payable rider or such other document as you may designate and said policies shall be delivered to you. Should we fail for any reason to furnish you with such insurance, you shall have the right to effect the same and charge any costs in connection therewith to us. You shall have no risk, liability or responsibility in connection with payment or nonpayment of any loss, you sole obligation being to credit our account with the net proceeds of any such insurance payments received on account of any loss. Any and all assessments, taxes or other charges that may be assessed upon or payable with respect to the Inventory or any part thereof shall forthwith be paid by us, and we agree that you, in your discretion, may effect such payment and charge the amount thereof to us. We further agree that except for the pledge, assignment, consignment, transfer, lien and security interest granted to you hereby, we shall not permit said Inventory to otherwise become liened or encumbered nor shall we grant any security interest therein to any other party. We shall not, without your written consent first obtain, remove or dispose of any of such Inventory except to bona fide purchasers thereof in the ordinary course of our business on orders first approved in writing by you. All such sales shall be reported to you promptly and the accounts or other proceeds thereof shall be subject to the security interests in your favor. You shall have the right at all times to the immediate possession of all Inventory and its products and proceeds and we shall make such Inventory and all our records pertaining thereto available to you for inspection at any time requested by you. You shall have the right, in your discretion, to pay any liens or claims upon said Inventory, including, but not limited to, warehouse charges, dyeing, finishing and processing charges, landlords' claims, etc. and the amount of any such payment shall be charged to our account and secured hereby. You shall not be liable for the safekeeping of any of the Inventory or for any loss, damage or diminution in the value thereof or for any act or default of any warehouseman, carrier or other person dealing in and with said Inventory, whether as your agent or otherwise, or for the collection of any proceeds thereof but the same shall at all times be at our sole risk. Prior to its sale to a bona fide purchaser in the ordinary course of business, Inventory shall at all times remain at our address specified below and shall not be removed therefrom without your prior written consent. Upon our default in the payment, performance or discharge of any of our obligations and liabilities to you as and when the same become due, or in the event of our insolvency, or if a receiver or trustee is appointed for our assets or affairs, or if we discontinue doing business, or if a petition in bankruptcy or for arrangement or reorganization is filed by or against us, or if we make an assignment for the benefit of our creditors, or suspend the operation of our business or commence the liquidation thereof, or make any offer of settlement, extension or composition with our creditors, or upon the appointment of a committee of our creditors or a liquidating agent for us, or the issuance of any attachment or execution against us, or the filing of a judgment or other lien against us, or upon our any default hereunder or under any other agreement between us, you shall have the right, upon reasonable notice to us, to sell all or any part of our Inventory, at public or private sale, or make other disposition thereof, at which sale or disposition you may be a purchaser. We agree that written notice sent to us by postpaid mail, at least five days before the date of any intended public sale or the date after which any private sale or other intended disposition of the inventory is to be made, shall be deemed to be reasonable notice thereof. We do hereby waive all notice of any such sale or other intended disposition if said Inventory is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. Upon the occurrence of any of the events referred to in the first sentence of this paragraph, you may require us to assemble all or any part of the Inventory and make it available to you at a place to be designated by you, which is reasonably convenient to both parties. In addition, you may peaceably, by your own means or with judicial assistance, enter our or any other premises and take possession of the Inventory and remove or dispose of it on our premises and we agree that we will not resist or interfere with any such action. We hereby expressly waive demand, notice of sale (except as herein provided), advertisement of sale and redemption before sale. The net proceeds of any such public or private sale or other disposition as far as needed shall be applied toward the payment and discharge of any and all of our obligations to you, together with all interest thereon and all reasonable costs, charges, expenses and disbursements in connection therewith, including the reasonable fees of your attorneys, the amount of which is hereby expressly fixed at a sum which shall be equal to fifteen percent of our then obligations to you, rendering any surplus remaining to us, we, of course, to continue liable should there be any deficiency. This agreement is deemed made in the State of new York and is to be governed, interpreted and construed in accordance with the laws of the State of New York. No modification, waiver or discharge of this agreement shall be binding upon you unless in writing, signed and subscribed by you. If you should at any time fail to exercise any right or privilege hereunder, the same shall not constitute a waiver on your part of exercising any right or privilege at any subsequent time. If any taxes are imposed or if you shall be required to withhold or pay any tax because of any transactions between us, we agree to indemnify you and hold you harmless in respect thereto. It is agreed between us that trial by jury is hereby waived in any action, proceeding or counterclaim brought by either of us against the other on any matters whatsoever arising out of or in any way connected with this agreement or our relationship created hereby and we hereby consent to the jurisdiction of the Supreme Court of the State of New York for a determination of any dispute as to any such matters and authorize the service of process on us by registered mail sent to us at our address hereinbelow set forth. This agreement shall constitute a security agreement pursuant to the Uniform Commercial Code and, in addition to any and all of your other rights hereunder, you shall have all of the rights of a secured party pursuant to the provisions of the Uniform Commercial Code. We agree to execute a financing statement and any and all other instruments and documents that may now or hereafter be provided for by the Uniform Commercial Code or other law applicable thereto, reflecting the security interests granted to you hereunder. We do hereby authorize you to file a financing statement without our signature, signed only by you as secured party, to reflect the security interests granted to you hereunder. Very truly yours, JAZZ PHOTO CORP. By: [ILLEGIBLE] ----------- 1459 Pinewood Street, Rahway, NJ 07065 OFFICERS' CERTIFICATE The undersigned, President and Secretary of JAZZ PHOTO CORP., a corporation duly organized and validly existing under the laws of the State of New Jersey, DO HEREBY CERTIFY that the following is a true copy of certain resolutions duly and unanimously adopted at a meeting of the Board of Directors and shareholders of said corporation, duly called and held on July 12, 1995, at which a quorum was present and voting throughout, and which are not in conflict with the Certificate of Incorporation, By-Laws, rules and regulations of said corporation, and which resolutions have not been modified or rescinded and are still in full force and effect: "WHEREAS, this corporation proposes to enter into a factoring agreement with Rosenthal & Rosenthal, Inc. ("Rosenthal") pursuant to which this corporation will sell and assign to Rosenthal all of its receivables (as defined therein), and will grant to Rosenthal a security interest in, a continuing lien upon and right of set-off against, and will assign, transfer, pledge and set over to Rosenthal, all of its accounts, contract rights, general intangibles and instruments, and certain other personal property of this corporation (herein collectively referred to as "collateral"), and the form of such factoring agreement having been submitted to and duly considered at this meeting, and the execution and delivery thereof having been deemed to be in the best interest of this corporation; now, therefore, be it: "RESOLVED, that any one or more of the officers of this corporation be, and they each hereby are, authorized, directed and empowered, in the name and on behalf of this corporation: to enter into, execute and deliver to Rosenthal a factoring agreement substantially in the form submitted to this meeting, with such changes as said officer or officers may consider appropriate, the execution and delivery thereof being deemed conclusive evidence of this corporation's approval of the terms thereof; from time to time, to sell and assign to Rosenthal the receivables, and to borrow money and obtain advances and other financial accommodations from Rosenthal, in such amounts and upon such terms and conditions as said officer or officers may consider appropriate, and to grant a security interest in, a continuing lien upon and right of set-off against, and assign, transfer, pledge and set over to Rosenthal, the collateral, now existing or hereafter arising, pursuant to the terms of said factoring agreement, or otherwise; to execute and deliver one or more promissory notes or other evidences of indebtedness, financing statements, supplementary agreements, assignments, schedules, transfers, notices, contracts, subordination agreements, guarantees, designations, consignments and other instruments and documents in connection with the factoring agreement, as amended or supplemented from time to time (including the grant of additional liens and security interests in such personal property and/or real property of this corporation as may be requested by Rosenthal pursuant to any such supplement), containing and upon such terms as said officer or officers may consider appropriate, the execution and delivery thereof being deemed conclusive evidence of this corporation's approval of the terms thereof; to make remittances and payments by checks, drafts or otherwise; to adopt a facsimile printed or rubber stamp signature for the purpose of expediting the terms of the factoring agreement; and to execute and deliver such further documents and to perform such other acts as may be necessary or desirable to effectuate the foregoing resolution; and all such action of said officer or officers shall be taken as the action of, and is hereby authorized, ratified, approved and confirmed by, this corporation and the board of directors thereof; and it is further "RESOLVED, that this corporation hereby authorizes and empowers Rosenthal from time to time to endorse by rubber stamp or otherwise the name of this corporation on any and all checks, drafts or other orders for the payment of money or written evidences of debt, which may be made or be in form payable to this corporation, and which may come into the possession of Rosenthal and to deposit such items in Rosenthal's account with any other bank, banker or trust company and further authorizes Rosenthal to deal absolutely with any such items as the property of Rosenthal and to do and perform any and all such other acts as may be necessary or proper to constitute any and all such items the property of Rosenthal without requiring the signature or signatures of any officer or officers of this corporation; and it is further "RESOLVED, that until Rosenthal receives notice in writing by registered mail of any changes or limitations of authority of any officers of this corporation, it is authorized to rely upon the authority and power set forth in these resolutions." The undersigned DO FURTHER CERTIFY that the Certificate of Incorporation and By-Laws of this corporation contain no requirement for shareholder approval or consent to the execution of the factoring agreement or the consummation of any of the transactions referred to in the foregoing resolutions. IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the corporation this July 12, 1995. ______________________________ President /s/ Jay Stavitsky ------------------------------ Secretary [Corporate Seal] CERTIFICATE AS TO OFFICERS, DIRECTORS, STOCKHOLDERS AND AUTHORIZED SIGNATURES OF Jazz Photo Corp. We, the undersigned Jack Benun, President Mona Benun, Secretary of Jazz Photo Corp., a corporation organized and existing under and by virtue of the laws of the state of New Jersey, having its principal office at 1459 Pinewood Street, Rahway, NJ 07065, do hereby certify as follows: 1. The names and residence addresses of all of the officers of Jazz Photo Corp. are as follows: NAME OFFICE RESIDENCE ADDRESS Jack Benun President 80 Wickapecko Drive, Allenhurst, NJ 07711 Joy Stavitsky Secretary 2. The names and residence addresses of all of the directors of Jazz Photo Corp. are as follows: NAME OFFICE RESIDENCE ADDRESS Jack Benun President 80 Wickapecko Drive, Allenhurst, NJ 07711 Joy Stavitsky 3. The names and residence addresses of the stockholders owning and holding all the issued and outstanding stock of Jazz Photo Corp. are as follows: NAME RESIDENCE ADDRESS NO. OF SHARES CLASS OF SHARES Mona Benun 80 Wickapecko Drive, Allenhurst, NJ 100% Common 07711 4. That pursuant to the by-laws, resolutions and minutes of Jazz Photo Corp., the persons authorized and empowered to make, sign and endorse on behalf of Jazz Photo Corp., any and all documents, checks, notes, drafts, trade acceptances and other negotiable papers or instruments, are as follows: NAME* OFFICE Jack Benun President *Indicate whether the above persons may sign alone or jointly 5. The names of the persons authorized to make, sign and deliver on behalf of Jazz Photo Corp., schedules of assignments of accounts and/or any other instruments of assignment to ROSENTHAL & ROSENTHAL, INC., are as follows: NAME* OFFICE Jack Benun President Joy Stabitsky Assistant to President *Indicate whether the above persons may sign alone or jointly 6. The following are the actual signatures of the officers and other authorized persons: Jack Benun /s/ Jack Benun -------------------------------- Mona Benun ________________________________ Joy Stabitsky /s/ Joy Stavitsky -------------------------------- IN WITNESS WHEREOF, we have hereunto affixed our signatures as officers of Jazz Photo Corp. and affixed the seal of Jazz Photo Corp. this July 12, 1995 Corp. Seal /s/ Jack Benun ------------------------------- Jack Benun, President /s/ Joy Stavitsky ------------------------------- Joy Stavitsky - Secretary GUARANTEE New York, New York July 12, 1995 In order to induce Rosenthal & Rosenthal, Inc. (herein called "Rosenthal") to enter into the foregoing agreement with, and/or to extend financial accommodations from time to time, in the discretion of Rosenthal, to JAZZ PHOTO CORP. (herein called "Obligor") and for other good and valuable considerations received, the undersigned irrevocably and unconditionally guarantees to Rosenthal payment when due, whether by acceleration or otherwise, of any and all Obligations of the Obligor to Rosenthal. The term "Obligations" shall mean all obligations, liabilities and indebtedness of the Obligor to Rosenthal or an affiliate of Rosenthal, however evidenced, arising under this Agreement, under any other or supplemental financing provided to the Obligor by Rosenthal or an affiliate of Rosenthal, or independent hereof or thereof, whether now or existing or incurred from time to time hereafter and whether before or after termination hereof, absolute or contingent, joint or several, matured or unmatured, direct or indirect, primary or secondary, liquidated or unliquidated, and whether arising directly or acquired from others (whether acquired outright, by assignment unconditionally or as collateral security from another and including, without limitation, participations or interest of Rosenthal in obligations of Obligor to others), and including (without limitation) all of Rosenthal's charges, commissions, fees, interest, expenses, costs and attorneys' fees chargeable to Obligor in connection therewith. In addition, the undersigned agrees to indemnify Rosenthal against any loss, damage or liability because of an wrongful acts or fraud of the Obligor. The undersigned waives notice of acceptance of this guarantee and notice of any liability to which it may apply, and waives presentment, demand for payment, protest, notice of dishonor or nonpayment of any Obligations, or suit or taking other action by Rosenthal against, and any other notice to, any party liable thereon (including the undersigned) and waives any defense, offset or counterclaim to any liability hereunder. Rosenthal may at any time and from time to time (whether or not after revocation or termination of this guarantee) without the consent of, or notice to, the undersigned, without incurring responsibility to the undersigned, without impairing or releasing the obligations of the undersigned hereunder, upon or without any terms or conditions and in whole or in part: (1) change the manner, place or terms of payment, and/or change or extend the time of payment of, renew or alter, any Obligation, any security therefor, or any liability incurred directly or indirectly in respect thereof, and the guarantee herein made shall apply to the Obligations as so changed, extended, renewed or altered; (2) sell, exchange, release, surrender, realize upon or otherwise deal with in any manner and in any order any property by whomsoever at any time pledged or mortgaged to secure, or howsoever securing, the liabilities hereby guaranteed or any liabilities (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and/or offset thereagainst; (3) exercise or refrain from exercising any rights against the Obligor or others (including the undersigned) or otherwise act or refrain from acting; (4) settle or compromise any Obligation, any security therefor or any liability (including any of those hereunder) incurred directly or indirectly in respect thereof or hereof, and may subordinate the payment of all or any part thereof to the payment of any liability (whether due or not) of the Obligor to creditors of the Obligor other than Rosenthal and the undersigned; and (5) apply any sums by whomsoever paid or howsoever realized to any Obligation to Rosenthal regardless of what liability or liabilities of the Obligor remain unpaid. No invalidity, irregularity or unenforceability of all or any part of the liabilities hereby guaranteed or of any security therefor shall affect, impair or be a defense to this guarantee. The liability of the undersigned hereunder is primary and unconditional and shall not be subject to any offset, defense or counterclaim of the Obligor. This guarantee is a continuing one and all liabilities to which it applies or may apply under the terms hereof shall be conclusively presumed to have been created in reliance hereon. The books and records of Rosenthal shall be admissible as prima facie evidence of the Obligations. As to each of the undersigned, this guarantee shall continue until written notice of revocation signed by such undersigned, or until written notice of the death of such undersigned shall in each case have been actually received by Rosenthal, notwithstanding a revocation by, or the death of, or complete or partial release for any cause of any one or more of the remainder of the undersigned or of the Obligor, or of any one liable in any manner for the liabilities hereby guaranteed, or for the liabilities (including those herein) incurred directly or indirectly in respect thereof or hereof, and notwithstanding the dissolution, termination or increase, decrease or change in personnel of any one or more of the undersigned which may be partnerships or corporations. No revocation or termination hereof shall affect in any manner rights arising under this guarantee with respect to (a) Obligations which shall have been created, contracted, assumed or incurred prior to receipt by Rosenthal of written notice of such revocation or termination or (b) Obligations which shall have been created, contracted, assumed or incurred after receipt of such written notice pursuant to any contract entered into by the Obligor or by Rosenthal for the benefit of the Obligor prior to receipt by Rosenthal of such notice, or to protect, preserve or realize upon any security for any Obligations; and the sole effect of revocation or termination hereof shall be to exclude from this guarantee liabilities thereafter arising which are unconnected with liabilities theretofore arising or with transactions theretofore entered into. Upon the happening of any of the following events: (i) the death or insolvency of the Obligor or any of the undersigned, or (ii) suspension of business of the Obligor or any of the undersigned, or (iii) the issuance of any warrant of attachment against any of the property of the Obligor or any of the undersigned, or (iv) the making by the Obligor or any of the undersigned or any assignment custodian being appointed for the Obligor or any of the undersigned or for any property of either of them or (vi) any proceeding being commenced by or against the Obligor or any of the undersigned under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute - then and in any such event, at any time thereafter, Rosenthal may, without notice to the Obligor or any of the undersigned, make the Obligations, whether or not then due, immediately due and payable hereunder as to any of the undersigned, and Rosenthal shall be entitled to enforce the obligations of the undersigned hereunder. All sums of money at any time to the credit of the undersigned with Rosenthal and any of the property of the undersigned at any time in the possession of Rosenthal may be held by Rosenthal as security for any and all obligations of the undersigned hereunder, notwithstanding that any of said money or property may have been deposited, pledged or delivered by the undersigned for any other, different or specific purpose. Any and all claims of any nature which the undersigned may now or hereafter have against the Obligor are hereby subordinated to the full payment to Rosenthal of the Obligations and are hereby assigned to Rosenthal as additional collateral security therefor. In the event Rosenthal takes any action, including retaining attorneys, for the purpose of effecting collection of the Obligations or of any liabilities of the undersigned hereunder, or protecting any of Rosenthal's rights hereunder, the undersigned shall pay all costs and expenses of every kind for protection of the rights of Rosenthal or for collection of the Obligations or such liabilities, including reasonable attorneys' fees which the undersigned agrees to be a sum equal to fifteen percent of the amount then due. If claim is ever made upon Rosenthal for repayment or recovery of any amount or amounts received by Rosenthal in payment or on account of any of the Obligations and Rosenthal pays all or part of said amount by reason of (a) any judgment, decree or order of any Court or administrative body having jurisdiction over Rosenthal or any of its property, or (b) any settlement or compromise of any such claim effected by Rosenthal with any such claimant (including the Obligor), then and in such event the undersigned agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the undersigned, notwithstanding any revocation or release hereof or the cancellation of any note or other instrument evidencing any of the Obligations, or any release of any such liability of the Obligor, and the undersigned shall be and remain liable to Rosenthal hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by Rosenthal. The provisions of this paragraph shall survive, and continue in effect, notwithstanding any revocation or release hereof, unless such revocation or release shall specifically refer to this paragraph. No delay on the part of Rosenthal in exercising any of its options, powers or rights, or partial or single exercise thereof, shall constitute a waiver thereof. No waiver of any of its rights hereunder, and no modification or amendment of this guarantee, shall be deemed to be made by Rosenthal unless the same shall be in writing, duly signed on behalf of Rosenthal, and each such waiver, if any, shall apply only with respect to the specific instance involved and shall in no way impair the rights of Rosenthal or the obligations of the undersigned to Rosenthal in any other respect or at any other time. The undersigned shall have no right (whether by contract or by operation of law) of subrogation, restitution, indemnification, reimbursement or any other or similar rights of a surety against the Obligor or any of its assets or property or any security held for any liabilities of the Obligor, and all such rights are hereby expressly waived. This guarantee and the rights and obligations of Rosenthal and of the undersigned hereunder shall be governed and construed in accordance with the laws of the State of New York; and this guarantee is binding upon the undersigned, his, her, their or its executors, administrators, successors or assigns, and shall inure to the benefit of Rosenthal, its successors or assigns. THE UNDERSIGNED AGREES AND DOES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT AGAINST THE UNDERSIGNED OR ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTEE, AND THE UNDERSIGNED HEREBY CONSENTS TO THE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK FOR A DETERMINATION OF ANY DISPUTE AS TO ANY SUCH MATTERS AND AUTHORIZES THE SERVICE OF PROCESS ON THE UNDERSIGNED BY REGISTERED MAIL SENT TO THE UNDERSIGNED AT THE ADDRESS OF THE UNDERSIGNED HEREINBELOW SET FORTH. Any acknowledgement, new promise, payment of principal or interest or other act by the Obligor and others, with respect to the Obligations, shall be deemed to be made as agent of the undersigned for the purposes hereof, and shall, if the statute of limitations in favor of the undersigned against Rosenthal shall have commenced to run, toll the running of such statute of limitations, and if such statute of limitations shall have expired, prevent the operation of such statute. The undersigned, if more than one, shall be jointly and severally liable hereunder and the term "undersigned" wherever used herein shall mean the undersigned or any one or more of them. Any one signing this guarantee shall be bound hereby, whether or not any one else signs this guarantee at any time. The term "Rosenthal" includes any agent of Rosenthal acting for it. Witness: /s/ [illegible] Signature /s/ Jack Benun L.S. --------------- ---------------------------------------- Name: Jack Benun Address: 80 Witkatetko Drive, Allenhurst, NJ 07711 Soc. Sec. No.: ###-##-#### STATE OF New York COUNTY OF New York On this 19 day of July, 1995, before me personally came Jack Benun, to me known and known to me to be the individual(s) described in, and who executed the foregoing instrument, and acknowledged to me that (t)he(y) executed the same. /s/ [ILLEGIBLE] - -------------------------- IRWIN PEARL NOTARY PUBLIC, State of New York No. 31-4603194 Qualified in New York County Commission Expires 2/28/97 AGREEMENT OF SUBORDINATION AND ASSIGNMENT In order to induce ROSENTHAL & ROSENTHAL, INC., a New York corporation (hereinafter called "Lender"), its successors or assigns, from time to time to make such advances, loans, discounts or purchase of accounts, assumption of credit risks in respect to sales of goods or services, or other extensions of credit, as it may deem advisable, directly or indirectly, to or for the account of Jazz Photo Corp., a New Jersey corporation having a principal place of business at 1459 Pinewood Street, Rahway, NJ 07065, its successors or assigns (hereinafter called "Debtor"), or to others upon Debtor's obligations, or to grant to or for the account of Debtor such renewals, extensions, forbearances, releases of collateral or other relinquishments of legal rights as Lender may deem advisable, and in consideration of advances, loans, discounts, extensions of credit or other financial accommodations, due or to become due, whether heretofore or hereafter made to Debtor and for other valuable consideration, receipt of which is hereby duly acknowledged, Vanessa Benun (hereinafter called "Creditor"), and who, if two or more in number, shall be jointly and severally bound hereunder, hereby agrees that all claims and demands and all interest accrued or that may hereafter accrue thereon which Creditor now has or may hereafter have or acquire against Debtor are not to be payable, and that no payment on account thereof, nor any security therefor, shall be received, accepted or retained by Creditor unless and until Debtor has paid and satisfied in full all its obligations to Lender of every kind and description, whether direct or indirect, absolute or contingent, due or not due, secured or unsecured, original, renewed or extended, now in existence or hereafter incurred, and whether contracted by Debtor alone or jointly and/or severally with another to others; and Debtor agrees not to make payment or to give any security to Creditor except in conformity herewith. Creditor waives any and all notice of the acceptance of this subordination or of the creation, modification, renewal or extension or accrual of any obligations of Debtor to Lender, present or future, or of the reliance of Lender upon this agreement. Creditor hereby consents that, without notice to or further assent by Creditor, the liability of Debtor or of any other party for or upon the obligations of Debtor to Lender may from time to time, in whole or in part, be renewed, extended, modified, prematured, compromised or released by Lender, as it may deem advisable, and that any collateral, or lien or liens for sad obligations or any of them, may from time to time, in whole or in part, be exchanged, sold, surrendered or released by Lender, as it may deem advisable, all without impairing, abridging, affecting or releasing the subordination contained in this agreement. Creditor does hereby transfer and assign to Lender as collateral security for any and all said obligations of Debtor to Lender, all of the said claims or demands of Creditor against Debtor and all interest accrued or what may hereafter accrue thereon, with the full and irrevocable right on the part of Lender, in its own name or in the name of Creditor, to collect and enforce said claims by suit, proof of debt in bankruptcy, or other liquidation proceedings or any reorganization or arrangement, or otherwise and to vote the full amount of said claims and demands in any such proceedings, reorganization or arrangement for or against any proposal or resolution, for a trustee or trustees or for a committee of creditors or for the acceptance or rejection of any proposed arrangement, plan or reorganization, wage earners' plan, composition, settlement or extension. Should any payment or distribution or security or proceeds thereof be received by Creditor for or on account of any of said claims or demands, prior to the satisfaction of all said obligations of Debtor to Lender, Creditor will forthwith assign, endorse and deliver same to Lender, in precisely the form received (except for Creditor's endorsement where necessary), for application on account of Debtor's obligations to Lender, and until so delivered, same shall be held in trust by Creditor as the property of Lender; in the event of the failure of Creditor to endorse or assign any security or instrument for the payment of money, so received by Creditor or payable to Creditor's order, Lender or any officer or employee thereof is hereby irrevocably constituted and appointed attorney-in-fact for Creditor, with full power to make any such endorsement or assignment and with full power of substitution. Creditor represents and warrants to Lender that Creditor is solvent and has granted no security interest in and has made no prior transfer or assignment of its claims or demands against Debtor; Creditor further covenants and agrees that Creditor will grant no security interest in or transfer of (except to Lender) its claims or demands no existing or hereafter arising against Debtor unless and until the obligations of Debtor to Lender have been paid in full. Creditor and Debtor represent to Lender that Debtor now owes Creditor the principal sum of $175,000.00, without counterclaim, defense or offset. Creditor hereby agrees to endorse to the order of Lender and deliver to Lender any note or other instrument, which now or hereafter evidences any or all of its claims or demands against Debtor, or, at the option of Lender, to mark prominently each such note or instrument with a legend, referring to this agreement, in form and substance satisfactory to Lender. Debtor and Creditor each agree, upon request of Lender, to execute such further documents and -2- instruments, including without limitation, additional notes or negotiable instruments, assignments, security agreements and financing statements under the Uniform Commercial Code, as Lender may require. Lender may also file financing statements signed only by the Lender and the costs of filing shall be payable by Debtor or Creditor, as the case may be. Debtor hereby agrees that it will render to Lender upon demand from time to time a statement of the account of Creditor with Debtor; that it will give and Lender shall have access from time to time to its books in order that Lender may make full and free examination of the state of the accounts of Creditor with Debtor (with the right to make copies thereof) and that it will duly comply with and perform each and every of the terms of this agreement on its part required to be performed. Debtor and Creditor agree that their books and records will appropriately show that Creditor's claims are subject to this agreement. Creditor and Debtor waive a trial by jury and a right to interpose any counterclaim or offset of any nature or description in any litigation arising out of or relating to Creditor's claims or this subordination. In the event Lender shall retain or engage an attorney or attorneys to collect or enforce or protect its interests with respect to this agreement or any claim or demand of Creditor against Debtor, all of the costs and expenses of such collection, enforcement or protection, including reasonable attorneys' fees shall be payable by each Creditor or Debtor against whom such collection, enforcement or protection is sought. Creditor and Debtor agree that, if after the satisfaction of all of said obligations, Debtor thereafter becomes liable to Lender on account of any new obligations, this agreement shall thereupon become immediately effective with respect to any claims then in existence or thereafter created, without the necessity of any further act, agreement or writing, the intent being that this be a continuing agreement of subordination and assignment. However, should Creditor have received any payment or security on account of said claims at any time after the satisfaction by Debtor of all of said obligations and before the incurring of new obligations, Creditor will notify Lender in writing of the receipt thereof. In the event that Creditor fails to notify Lender, and new obligations are thereafter created, Creditor agrees that if a default occurs with respect to the payment or performance of any of the terms of such new obligations, Creditor will immediately pay to Lender an amount equivalent to any such payment or the value of such security received. Creditor agrees that any credit now or hereafter extended to Debtor by Lender shall be in its sole discretion and shall be deemed to have been extended in consideration of and in reliance upon this agreement. In the event of a breach by either Debtor or Creditor in the performance of any of the terms of this agreement, all of the said obligations of Debtor to Lender shall, any other agreement to the contrary notwithstanding and without notice or demand, become immediately due and payable, at Lender's option. No waiver shall be deemed to be made by lender of any of its rights hereunder unless same shall be writing and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair Lender's rights and/or the obligations of Creditor to it in any other respect or at any other time, nor shall same establish a course of conduct. This agreement may not be modified or amended without the prior written consent of Lender. Each Creditor or Debtor not a resident of the State of New York or qualified to do business in New York, hereby irrevocably consents to the jurisdiction of the Courts of the State of New York and of any Federal Court located in such State in connection with any action or proceeding arising out of or relating to this agreement or any claim or demand of Creditor against Debtor. In any such litigation such Creditor or Debtor, as the case may be, waives personal service of any summons, complaint or other process and agrees that the service thereof may be made by certified or registered mail directed to such party at the last known address appearing on the records of Lender. Within 30 days after such mailing, the party so served shall appear or answer to such summons, complaint or other process. -3- Should the party so served fail to appear or answer within said 30-day period, such party shall be deemed in default and judgment may be entered by Lender against such party for the amount as demanded in any summons, complaint or other process so served. This agreement shall be binding upon the undersigned and the legal representatives, successors and assigns of the undersigned and shall be governed by and construed in accordance with the Laws of the State of New York. IN WITNESS WHEREOF, each of the undersigned has caused these presents to be properly executed this 28th day of June, 1996. JAZZ PHOTO CORP. (Debtor) By: /s/ -------------------- VANESSA BENUN By MONA BENUN - Custodian - /s/ Mona Benun - ------------------------ (Creditor) STATE OF NEW JERSEY COUNTY OF MONMOUTH On this 30 day of June, 1997, before me personally appeared Mona Benun - Custodian - for Vanessa Benun, to me known and known to me to be the individual described in and who executed the foregoing instrument, and (s)he duly acknowledged that (s)he executed the same. /s/ Irwin Pearl - ------------------------ Notary Public STATE OF NEW YORK COUNTY OF NEW YORK On this 30 day of June, 1997, before me personally appeared Jack Benun, to me known, who being by me duly sworn, did depose and say that (s)he resides at 80 Wickapecko Drive, Allenhurst, NJ 07711, and that (s)he is the President of Jazz Photo Corp., the corporation described in and which executed the foregoing instrument; that (s)he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by the order of the Board of Directors of said corporation, and that (s)he signed his/her name thereto by like order. /s/ Irwin Pearl - ------------------------ Notary Public EX-10.14 21 BANKING AGREEMENT (Exhibit 10.14) [Letterhead of Hongkong Bank] Ref: CORPORATE BANKING CENTRE ESD - TEAM B CONFIDENTIAL Jazz Photo (HK) Ltd Room 617 6/F Fortune Commercial Building No 362 Sha Taui Road Tsuen Wan New Territories Attn: Ms. Jessie Szeto 25 March 1997 Dear Madam BANKING FACILITIES A/C NO. 162-131239-001 With reference to our recent discussion, we are pleased to confirm our agreement to granting the following banking facility to your company which will be made available on the specific terms and conditions outlined herein and upon the satisfactory completion of the security detailed below. This facility is subject to review at any time and, in any event by 21 March 1998, and also subject to our overriding right of withdrawal and repayment on demand, including the right to call for cash cover on demand for prospective and contingent liabilities. Limit OBN Advance HKD6,000,000.- Advance against export bills under local DC opened by Walmart, negotiation of which is restricted to other banks (OBN). Interest on OBN Advance will be charged on a daily basis at 1/2% over our best lending rate, (currently 8-1/2% per annum, but subject to fluctuation at our discretion). Accrual of Interest and Other Sums Please note that interest and other sums expressed to be chargeable or payable on a periodic basis will nonetheless accrue from day to day and amounts so accrued may be demanded at any time. As security for the foregoing facility, we require to hold a Joint & Several Guarantee for HKD6,000,000 - from Mr. Jack C. Benun and Ms. Szeto Suk Yee, Jessie (already in hand). Please note that arrangement fee of HKD15,000 - (i.e. 1/4% on facility limit) will be charged to the debit of your current account upon receipt of your acceptance to this facility. Page _______ of _________ [Logo] CORPORATE BANKING CENTRE ESD - TEAM B PRIVATE & CONFIDENTIAL Jazz Photo (HK) Ltd 25 March 1997 -2- - -------------------------------------------------------------------------------- Please arrange for the authorized signatories of your company, in accordance with the terms of the mandate given to the bank, to sign and return to us the duplicate copy of this letter to signify your understanding and acceptance of the terms and conditions under which this facility is granted. This facility will remain open for acceptance until the close of business on 16 April 1997 and if not accepted by that date will be deemed to have lapsed. We are pleased to be of assistance. Yours faithfully /s/ [Illegible] M A Wong [Illegible] M A Wong Corporate Relationship Manager VL/rk To: The Manager The Hongkong and Shanghai Banking Corporation Limited Hong Kong JOINT AND SEVERAL GUARANTEE BY INDIVIDUALS OR PARTNERS IN A FIRM (Limited Amount - - Under Seal) 1. Definitions "Bank" means The Hongkong and Shanghai Banking Corporation Limited at its office specified in the Schedule and its successors and assigns; "Banking Facilities" means such facilities as the Bank may make or continue to make available to the Customer or to any other person at the request of the Customer; "Customer" means the person whose name and address are specified in the Schedule; "Default Interest" means interest at such rate as the Bank may specify, compounded monthly if not paid on the dates specified by the Bank; "Exchange Rate" means the rate for converting one currency into another currency which the Bank determines to be prevailing in the relevant foreign exchange market at the relevant time, such determination to be conclusive and binding on the Guarantor. "Guaranteed Moneys" means (i) all moneys in any currency owing by the Customer to the Bank at any time, actually or contingently, in any capacity, alone or jointly with any other person, (ii) interest on such moneys (both before and after any demand or judgment), to the date on which the Bank receives payment, at the rates payable by the Customer or which would have been payable but for any date on which the Bank receives payment, at the rates payable by the Customer or which would have been payable but for any circumstance which restricts payment and (iii) expenses of the Bank in enforcing this Guarantee on a full indemnity basis; "Guarantor" means each person whose name and address are specified in the Schedule or, if the name and address of a firm are specified in the Schedule, means each of the present and future partners of the firm and, in any case, means any executor, personal representative or lawful successor of such person; "Maximum Liability" means the sum, if any, specified in the Schedule plus Default Interest on that sum and expenses of the Bank in enforcing this Guarantee on a full indemnity basis; where a liability for Guaranteed Moneys is incurred in a currency different from the currency in which the Maximum Liability is stated and the equivalent of that liability in the currency in which the Maximum Liability is stated, calculated at the Exchange Rate, has increased since it was incurred, that increase shall be added to the Maximum Liability; "Person" includes an individual, firm, company, corporation and an unincorporated body of persons; and "Process Agent" means the person, if any, whose name and Hong Kong address are specified in the Schedule. 2. Guarantee 2.01 In consideration of the Banking Facilities, the Guarantor guarantees to pay the Guaranteed Moneys to the Bank on demand. 2.02 The liability of the Guarantor shall not exceed the Maximum Liability. 2.03 The Guarantor shall pay Default Interest (to the extent that it is not paid by the Customer) on the Guaranteed Moneys from the date of demand by the Bank on the Guarantor until the Bank receives payment of the whole of the Guaranteed Moneys (both before and after any demand or judgment or any circumstance which restricts payment by the Customer). 2.04 A certificate of balance signed by any duly authorised officer of the Bank shall be conclusive evidence against the Guarantor of the amount of the Guaranteed Moneys owing at any time. 2.05 The Bank shall be entitled to retain this Guarantee and any security it has in respect of the Guaranteed Moneys for such period as the Bank may certify to the Guarantor to be appropriate in order to protect the interests of the Bank in respect of the Guaranteed Moneys. 3. Joint and Several Liability 3.01 The liability and obligations of each Guarantor are joint and several. 3.02 Each Guarantor shall be bound even though any other Guarantor or any other person intended to be bound by this Guarantee is not. 3.03 The Bank shall be entitled to deal separately with a Guarantor on any matter, including the discharge of the liability of that Guarantor to the extent without affecting the liability of any other Guarantor. 3.04 No Guarantor shall be entitled to the rights or remedies of a surety as regards the liability or obligations of another Guarantor. 4. Continuing and Additional Security 4.01 This Guarantee is continuing security and shall secure the whole of the Guaranteed Moneys until one calendar month after receipt by the Bank of notice in writing by each Guarantor to terminate it. Nevertheless and despite the giving of such notice, this Guarantee shall continue to apply to the Guaranteed Moneys in respect of which the Customer is or becomes actually or contingently liable up to such termination and the Guarantor guarantees to pay such Guaranteed Moneys to the Bank on demand whether that demand is made before at the time of or after such termination. 4.02 This Guarantee is in addition to, shall not be affected by and may be enforced despite the existence of any other guarantee or security held by the Bank. 5. Customer's Accounts The Bank may, at any time and despite the termination of this Guarantee, continue any existing account and open any new account in the name of the Customer and no subsequent transactions, receipts or payments involving such new accounts shall affect the liability of the Guarantor. 6. Payments 6.01 Payments by the Guarantor shall be made to the Bank as specified by the Bank without any set-off, counterclaim, withholding or condition of any kind except that, if the Guarantor is compelled by law to make such withholding, the sum payable the Guarantor shall be increased so that the amount actually received by the Bank is the amount it would have received if there had been no withholding. 6.02 Payment by the Guarantor to the Bank shall be in the currency of the relevant liability or, if the Bank so agrees in writing, in a different currency, in which case the conversion to that different currency shall be made at the Exchange Rate. -1- 6.03 No payment [illegible] Bank under this Guarantee pursuant to any judgement [illegible] order or otherwise shall discharge the obligation of the Guarantor [illegible] respect of which it was made unless and until payment [illegible] full has been received in the currency in which it is payable under this Guarantee and, to the extent that the amount of any such payment shall, on actual conversion into such currency, at the Exchange Rate, fall short of the amount of the obligation, expressed in that currency, the Guarantor shall be liable for the shortfall. 6.04 Any moneys paid to the Bank in respect of the Guaranteed Moneys may be applied in or towards satisfaction of the same or placed to the credit of such account as the Bank may determine with a view to preserving its rights to prove for the whole of the Guaranteed Moneys. 6.05 If any moneys paid to the Bank in respect of the Guaranteed Moneys are required to be repaid by virtue of any law relating to insolvency, bankruptcy or liquidation or for any other reason, the Bank shall be entitled to enforce this Guarantee as if such moneys had not been paid. 7. Set-off The Bank may, at any time and without notice, apply any credit balance to which the Guarantor is entitled on any account with the Bank in or towards satisfaction of the Guaranteed Moneys. For this purpose, the Bank is authorised to purchase, at the Exchange Rate, such other currencies as may be necessary to effect such application with the moneys standing to the credit of such account. 8. Lien The Bank is authorised to exercise a lien over all property of the Guarantor coming into the possession or control of the Bank, for custody or any other reason and whether or not in the ordinary course of banking business, with power for the Bank to sell such property to satisfy the Guaranteed Moneys. 9. Guarantor as Principal Debtor The liability of the Guarantor under this Guarantee shall not be discharged or otherwise affected by reason of the Bank entering into any agreement or arrangement with the Customer or any other person or by reason of any legal limitation, disability or incapacity or any other act, omission or circumstance which, but for this provision, would discharge the Guarantor to any extent. Any Guaranteed Moneys which may not be recoverable from the Customer for any such reason shall be recoverable by the Bank from the Guarantor as principal debtor by way of indemnity, on demand, together with Default Interest thereon in accordance with Clause 2.03. 10. Guarantor as Trustee 10.01 The Guarantor shall not, until the whole of the Guaranteed Moneys have been received by the Bank, exercise its rights of subrogation, indemnity, set-off or counterclaim against the Customer or its rights to participate in any security the Bank has in respect of the Guaranteed Moneys or, unless required by the Bank to do so, to prove in the bankruptcy or liquidation of the Customer. The Guarantor shall hold any amount recovered, as a result of the exercise of any such rights, on trust for the Bank and shall pay the same to the Bank immediately on receipt. 10.02 The Guarantor has not taken any security from the Customer and agrees not to do so until the Bank has received the whole of the Guaranteed Moneys. Any security taken by the Guarantor in breach of this provision shall be held in trust for the Bank as security for the Guaranteed Moneys and all moneys at any time received in respect thereof shall be paid to the Bank immediately on receipt. 11. No Waiver No act or omission by the Bank pursuant to this Guarantee shall affect its rights, powers and remedies hereunder or any further or other exercise of such rights, powers or remedies. 12. Assignment The Guarantor may not assign or transfer any rights or obligations of the Guarantor hereunder. The Bank may assign any of its rights hereunder to a person in whose favour it has made an assignment of all or any of the Banking Facilities. 13. Communications 13.01 Any notice, demand or other communication under this Guarantee shall be in writing addressed to the Guarantor at the last address registered with the Bank and addressed to the Bank at its office specified in the Schedule or such other address at the Bank may notify to the Guarantor for this purpose and may be delivered personally, by leaving it at such address, by post, facsimile transmission or telex and shall be deemed to have been delivered to the Guarantor at the time of personal delivery or on leaving it at such address or on the second day following the day of posting or on the day of despatch, if sent by facsimile transmission or telex, and to the Bank on the day of actual receipt. 13.02 Any notice, demand or other communication shall be effective on the Bank only if given by each Guarantor or the surviving Guarantor and on the Guarantor if given by the Bank to any Guarantor. 14. Severability Each of the provisions of this Guarantee is severable and distinct from the others and, if one or more of such provisions is or becomes illegal, invalid or unenforceable, the remaining provisions shall not be affected in any way. 15. Governing Law and Jurisdiction 15.01 This Guarantee is governed by and shall be construed in accordance with the laws of Hong Kong. 15.02 The Guarantor submits to the non-exclusive jurisdiction of the Hong Kong Courts but this Guarantee may be enforced in the Courts of any competent jurisdiction. 16. Governing Version This Guarantee is executed in an English version and a Chinese version. The English version is the governing version and shall prevail whenever there is any discrepancy between the English version and the Chinese version. -2- 17. Process Agent If a Process Agent is specified in the Schedule, service of any legal process on the Process Agent shall constitute service on the Guarantor. 18. Execution 18.01 This Guarantee may be entered into on separate counterparts which, together, shall constitute a single instrument. 18.02 This Guarantee has been entered into by the Guarantor under seal on ________________, 19_______. Schedule Bank's Office 15/F Hennessy Centre 500 Hennessy Office, Causeway Bay, Hong Kong. Customer Fordteam Ltd of ______________________________________________________ _______________________________________________________________________________ Guarantor Jessie Szeto of _____________________________________________________ _______________________________________________________________________________ Guarantor Jack Benun of _______________________________________________________ _______________________________________________________________________________ Specified Sum in Respect of Maximum Liability HKD6,000,000. - >5,000 Process Agent _______________________________________________________ of_______ ____________________________________________________________________, Hong Kong Executed under Seal ) Executed under Seal ) by the Guarantor in ) by the Guarantor in ) the presence of ) the presence of ) /s/ Kitty Wong /s/ Jeff Burkard - ------------------------------------ --------------------------------- Witness Signature Witness Signature Name Kitty Wong Name Jeff Burkard Office Fordteam Limited Office Jazz Photo Corp. Identification Secretary Identification Manager -3- EX-11 22 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11 JAZZ PHOTO CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
June 21, 1995 June 21, 1995 Six Months (Inception) (Inception) Ended Through Through December 31, December 31, June 30, 1996 1996 1995 -------------- ------------- --------------- Primary Income (loss) applicable to common stock ($799,000) 667,000 ($260,000) ----------- ----------- ----------- ----------- Proforma executive compensation (190,000) ---------- Proforma net income $477,000 ---------- ---------- Shares Weighted average number of common shares outstanding, and for the six months ended December 31, 1996, as adjusted to give effect to executive compensation on a pro forma basis(1) 2,200,000 2,200,000 2,200,000 Assuming exercise of options and warrants reduced by the number of shares which could have been purchased with the proceeds from their exercise 149,000 149,000 149,000 ----------- ---------- ----------- Weighted average number of common shares outstanding as adjusted 2,349,000 2,349,000 2,349,000 ----------- ---------- ----------- ----------- ---------- ----------- Earnings per common share ($0.34) $0.20 ($0.11) ----------- ---------- ----------- ----------- ---------- -----------
(1) Gives retroactive effect to a 4399 to 1 stock split effected as a dividend. See Note B(10) of the notes to the consolidated financial statements. EX-21 23 LISTS OF SUBSIDIARIES Exhibit 21 List of Subsidiaries: (i) Jazz Photo Canada Corp. (ii) Jazz Photo (Hong Kong) EX-23.1 24 CONSENT (RICHARD A. EISNER & COMPANY) EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use in this Registration Statement of our report dated March 26, 1997 with Respect to Note K[2] and K[5] April 3, 1997, relating to the consolidated financial statements of Jazz Photo Corp. and subsidiaries and to the reference to our firm under the captions "Summary Financial Information", "Selected Consolidated Historical Financial Data" and "Experts" in the Prospectus. Richard A. Eisner & Company, LLP New York, New York April 4, 1997 EX-27 25 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF JAZZ PHOTO CORP. AS AT DECEMBER 31, 1995 AND JUNE 30, 1996 AND FOR THEIR RESPECTIVE PERIODS THEN ENDED AND THE CONSOLIDATED FINANCIAL STATEMENTS OF JAZZ PHOTO CORP. AND SUBSIDIARY AS AT DECEMBER 31, 1996 AND FOR THE SIX MONTHS THEN ENDED. OTHER 6-MOS OTHER JUN-30-1996 DEC-31-1996 JUN-30-1996 JUN-21-1995 JUL-01-1996 JUN-21-1995 JUN-30-1996 DEC-31-1996 DEC-31-1995 10,000 171,000 0 0 0 0 105,000 178,000 0 5,000 6,000 0 833,000 836,000 0 1,003,000 1,453,000 0 124,000 186,000 0 12,000 28,000 0 1,115,000 1,611,000 0 1,034,000 946,000 0 0 0 0 0 0 0 0 0 0 22,000 22,000 0 0 0 0 1,115,000 1,611,000 0 1,166,000 7,619,000 332,000 1,166,000 7,619,000 332,000 976,000 5,835,000 315,000 976,000 5,835,000 315,000 825,000 998,000 196,000 5,000 1,000 4,000 111,000 87,000 42,000 (799,000) 725,000 (260,000) 0 40,000 0 (799,000) 685,000 (260,000) 0 0 0 0 0 0 0 0 0 (799,000) 667,000 (260,000) (.34) .20 (.11) 0 0 0
EX-99 26 EXH 99 - CONSENT OF PERSON NAMED AS DIRECTOR Exhibit 99 CONSENT OF PERSON NAMED AS DIRECTOR The undersigned has consented to the inclusion in this Registration Statement on Form S-1 of his name as a person who has consented to act as a director of Jazz Photo Corp. upon the completion of the offering made by the prospectus forming a part of this Registration Statement. The undersigned also consents to the references to him under the caption "Management" in the Prospectus. /s/ Elie Housman ------------------------ Elie Housman New York, New York - ------------------- (Place) April 2, 1997 -----END PRIVACY-ENHANCED MESSAGE-----