<PAGE>
As filed with the Securities and Exchange Commission on December 1, 1997
SEC File No. __________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-8
Registration Statement
Under the Securities Act of 1933
_________________________________
TERRACE HOLDINGS, INC.
(Name of Small Business Issuer as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 5812 65-0594270
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
4100 North Hills Drive
Hollywood, Florida 33021
954-894-6000
(Address and Telephone Number of Principal Executive Offices)
Engagement Letter and Fee Agreement For Financial Communication Services
(Full Title of the Plan)
Dr. Samuel H. Lasko, President
4100 North Hills Drive
Hollywood, Florida 33012
954-894-6000
(Name, address and telephone number of Agent for Service)
Copies to:
Gerald L. Fishman, Esq.
Adam D. Fishman, Esq.
Fishman, Merrick, Miller, Genelly, Springer,
Klimek & Anderson, P.C.
30 N. LaSalle Street
Chicago, IL 60602
312-726-1224
312-726-2649 - Fax
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum
of Securities To Be Amount To Be Offering Price Aggregate Amount of
Registered Registered/(1)/ Per Share /(1)/ Offering Price /(1)/ Registration Fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 75,000/(2)/ $2.00/(2)/ $ 150,000/(2)/ $
- -------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 50,000 $3.00 $ 150,000 $
exercise of option
- -------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 50,000 $4.00 $ 200,000 $
exercise of option
- -------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 50,000 $5.00 $ 250,000 $
exercise of option
- -------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon $ 300,000 $
exercise of option 50,000 $6.00
=========================================================================================================================
TOTAL 275,000 ----- $1,050,000 $309.75
=========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) In accordance with Rule 457(c), the price represents the average of the
closing bid and asked price of the Company's Common Stock as of November
24, 1997.
<PAGE>
EXPLANATORY NOTE
This Registration Statement relates to the Engagement Letter and Fee
Arrangement for Financial Communications Services, dated September 29,
1997, between Terrace Holdings, Inc.(the "Company") and GFC
Communications Corp. of West Palm Beach, Florida ("GFC"). Under the
Engagement Letter, GFC provides shareholder and financial communication
services to the Company, serving as the Company liaison and spokesperson,
as the Company does not have sufficient staff to engage a full time
director of shareholder relations. The fee agreement required the Company
to compensate GFC at a base fee of $5,000 per month plus reimbursement
for reasonable out-of-pocket expenses. At the Company's election, such
compensation may be paid in cash or in shares of the Company's common
stock. Accordingly, the Company has issued 75,000 shares of its Common
Stock to GFC, some or all of which shares may be sold from time to time
by GFC in the open market to satisfy its monthly statements.
In addition, the Company has granted to GFC options to purchase up to
200,000 shares of the Company's Common Stock, 50,000 at $3.00 per share,
50,000 at $4.00 per share, 50,000 at $5.00 per share, and 50,000 at $6.00
per share. Such options expire on or before September 30, 2000. This
Registration Statement also covers the up to 200,000 shares of Common
Stock underlying such options, in addition to the 75,000 shares of Common
Stock issued as compensation.
<PAGE>
PART II
Information Required in the Registration Statement
Item 3. Incorporation of Certain Documents by Reference.
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated in this Registration Statement by this
reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996, filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended;
(b) The Company's Forms 10-QSB for the quarters ended March 31,
1997, June 30, 1997, and September 30, 1997, filed pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
(c) The description of the Company's Common Stock, par value $.001
per share (the "Common Stock") contained in the Company's Registration
Statement on Form SB-2 (Commission File No. 33-96892-A), declared effective
by the Commission on December 5, 1995, and any amendment or report filed
with the Commission for the purpose of updating such description of Common
Stock.
(d) All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated in this Registration Statement
and to be a part hereof from the date of filing such documents. Any
statement contained herein or any document, all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained in any subsequently
filed document which also is or is deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Registration Statement.
Item 6. Indemnification of Directors and Officers.
The Registrant hereby incorporates by this reference Part II, Item 24, of
its Registration Statement heretofore filed with the Commission (Commission File
No. 33-96892-A), which Registration Statement was declared effective by the
Commission on December 5, 1995.
Item 7. Exemption from Registration Claimed.
With respect to the shares of Common Stock issued to GFC, the options
granted to GFC to purchase shares of Common Stock and the Common Stock issuable
upon exercise by GFC of such options, the Registrant believes such transactions
exempt under Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D promulgated thereunder in that such transactions were (and
2
<PAGE>
in the case of shares to be issued upon exercise of options granted, will
be) transactions not involving any public offering and in compliance with
Rule 504 promulgated by the Commission in connection with bona fide
services being rendered by GFC to the Company such services not in
connection with the offer or sale of securities in a capital raising
transaction.
Item 8. Exhibits.
4.1 Engagement Letter and Fee Agreement for Financial Communication
Services
5.1 Opinion of Counsel
23.1 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (contained on the signature page hereof)
99.1 Reoffer Prospectus (in accordance with Part I of Form S-3)
Item 9. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(ii) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information
in the Registration Statement;
provided, however, paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein and the offering such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The Registrant hereby undertakes that, for purpose of determining
any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, that is incorporated by reference in the
registration statement, 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.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policies as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the 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, the
Registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling a precedent, submit to a court of appropriate
jurisdiction, the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hollywood, State of Florida, on the 24th day of
November, 1997.
TERRACE HOLDINGS, INC.
By: /s/ Samuel H. Lasko
----------------------------
Samuel H. Lasko, President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Samuel H. Lasko his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution for him in his name, place and stead, in any
and all capacities, to sign this Registration Statement and any and all
amendments (including post-effective amendments) to this Registration Statement
on Form S-8 and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
In accordance with 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.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Milton Namiot Chief Executive Officer November 24, 1997
- -------------------------
Milton Namiot
/s/ Samuel H. Lasko President, Principal Financial November 24, 1997
- ------------------------- and Accounting Officer and Director
Samuel H. Lasko Director
/s/ Jonathan S. Lasko Executive Vice-President, November 24, 1997
- ------------------------- Secretary, Chief Operating
Jonathan S. Lasko Officer and Director
/s/ Bruce S. Phillips Director November 24, 1997
- -------------------------
Bruce S. Phillips
/s/ Steven Shulman Director November 24, 1997
- -------------------------
Steven Shulman
/s/ Bernard Rubin, M.D. Director November 24, 1997
- -------------------------
Bernard Rubin, M.D.
- ------------------------- Director November __, 1997
Richard Power
</TABLE>
<PAGE>
EXHIBIT 4.1
[LOGO OF GFC]
September 29, 1997
Mr. Steven Shulman, Chairman
Terrace Holdings, Inc.
2699 Stirling Road, Ste. C-405
Ft. Lauderdale, FL 33312
RE: Engagement Letter and Fee Agreement for Financial Communication Services.
Dear Mr. Shulman,
This letter sets forth the agreement (the "Agreement") between Terrace
Holdings, Inc. (the "Company") and GFC Communications Corp. ("GFC"), concerning
financial communication and related advisory services (hereafter being referred
to as the "Services") rendered to the Company from October 1, 1997 and
continuing through September 29, 1998 (approximately twelve months).
When countersigned in the space provided below, this letter shall serve as
our agreement, as follows:
1. The Services
GFC shall provide shareholder and financial communication services to the
Company, and serve, when requested, as the Company liaison and spokesperson.
Such services shall include but are not limited to the timely response, by fax,
telephone or mail, to all inquiries related to the Company from shareholders, or
other interested parties. Such response shall consist of written materials-such
as copies of public announcements, shareholder Due Diligence Packages, current
corporate profile of the Company, and teleconferencing as
EXHIBIT 4.1
<PAGE>
[LOGO OF GFC]
necessary. Additionally, GFC agrees to make reasonable efforts to increase
investor participation in the Company's securities by organizing and supervising
the production of corporate advertising, and quarterly and annual financial
reports to its shareholders (collectively, the "Services"), as approved by the
Company.
With respect to providing the Services, GFC agrees to make itself available
for reasonable amounts of time and upon reasonable notice, devote reasonable and
good faith attention to the Company's other communications and public relations
needs. Specific assignments, however, will be mutually agreed upon and may incur
additional fees to the Company. It is understood that GFC does not perform
investment advisory services and/or advise any person or entity to buy or sell
the Company's stock, and that as a liaison between the Company and its
shareholders, GFC only disseminates information as an intermediary on behalf of
the Company.
2. Compensation for the Services
In compensation for the Services, the Company agrees to pay GFC a base fee
equal to Five Thousand Dollars ($5,000) per month ("Compensation"), due monthly
in arrears, thirty (30) days following the effective date of this Agreement, and
payable no later than fifteen (15) days following the close of each calendar
month.
In addition, the Company shall reimburse GFC for reasonable out-of-pocket
expenses in connection with GFC's Services to the Company, including but not
limited to expenses related to telecommunication and travel; third-party
advertising, consulting, and mail processing; postage and express mail; and
related materials (according to, but not limited to, the Schedule of Standard
Expenses, Item 14, below) within thirty (30) days upon GFC submitting to the
Company an invoice itemizing such expenses. Interest on any overdue balance owed
to GFC by the Company shall accrue at 1.5% per month.
Unless otherwise agreed and approved in writing between GFC and the
Company, all such third party and out-of-pocket expenses exceeding $1,800 per
instance incurred by GFC in performing the Services under this Agreement and not
covered by the Compensation shall
2
<PAGE>
[LOGO OF GFC]
be approved by the Company in advance (See form "Addendum A," attached.). The
Company has sixty (60) days from the date of invoice to contest any charges over
$1,800 that it believes were not approved, after which time such charges shall
be considered approved in writing.
3. Method of Compensation
At the Company's election, the Compensation may be paid in cash or in
shares of the Company's common stock (the "Fee Shares"). In the event the
Compensation contains Fee Shares, the Company shall agree to deposit a minimum
of Seventy-five Thousand (75,000) shares of the Company's common stock in the
name of GFC in a GFC-designated account and branch of a registered securities
broker. GFC will send the Company a statement for fees and costs, with notice to
the brokerage firm of the dollar amount of such statement. Unless objection is
made to GFC's bill, sufficient common stock of the Company, net of commission,
shall then be sold forthwith at the prevailing market price to satisfy such
statement. Occasionally, GFC may sell some fee shares ahead of amounts due to
GFC, or may delay the sale of shares, in order to accommodate the selling broker
or the purchaser of the stock.
In the course of GFC's representation of the Company, if all of the Fee
Shares are sold, additional shares sufficient to cover projected fees and costs,
in an amount contemporaneously agreed to by the parties, will again be placed
with the brokerage firm, under the same terms and conditions as enumerated
above. At the conclusion of GFC's representation of the Company, and the payment
of all final fees and costs, any unused Fee Shares or sale proceeds shall
forthwith be returned to the Company.
4. Termination
Either party may terminate upon thirty (30) days prior written notice to
the other. In the event of termination, all fees and charges owed by the Company
to GFC up until the effective date of termination (including any unreimbursed
expenses) will be paid to GFC within ten (10) days of the later of the effective
termination date or the notice date. Interest
3
<PAGE>
[LOGO OF GFC]
on any overdue balance owed to GFC by the Company shall accrue at 1.5% per
month. Upon termination of this Agreement the Company is to pay for all
authorized work in progress. GFC shall transfer, assign and make available to
the Company, or its representative, all property and materials in GFC's
possession or control which belong to and were paid for by the Company.
5. Reports
At the Company's request, GFC agrees to supply a report at least once a
month, verbally or included in the billing invoice, on general activities and
actions taken on behalf of the Company.
6. Materials
The Company agrees to furnish any supplies and materials which GFC may need
regarding the Company, its management, products, financial and business status
and plans.
7. Independent Contractor Status
GFC is acting as an independent contractor, and not as an employee or
partner of the Company. As such, neither party has the authority to bind the
other, nor make any unauthorized representations on the behalf of the other.
8. Indemnification
The Company shall indemnify GFC and its officers and employees and hold
them harmless for any acts, statements or decisions made by GFC in reliance upon
information supplied to GFC by the Company, or in accordance with instructions
from or acts, statements or decisions approved by the Company. This indemnity
and hold harmless obligation shall include expenses and fees including attorneys
fees incurred by GFC in connection with the defense of any act, suit or
proceeding arising out of the foregoing.
4
<PAGE>
GFC
COMMUNICATIONS CORP
9. Confidential Information
GFC will use its best efforts to maintain the confidential nature of the
proprietary or confidential information the Company entrusts to it through
strict control of its distribution and use. Further, GFC will use its best
efforts to guard against any loss to the Company through the failure of GFC or
their agents to maintain the confidential nature of such information.
"Proprietary" and "confidential information", for the purpose of this Agreement
shall mean any and all information supplied to GFC which is not otherwise
available to the public, including information which may be considered "inside
information" within the meaning of the U.S. securities laws, rules and
regulations. GFC acknowledges that its use of "inside information" to purchase
or sell securities of Company, or its affiliates, or to transmit such
information to any other party with a view to buy, sell or otherwise deal in the
securities of Company or its affiliates is prohibited by law and would
constitute a breach of this Agreement and, notwithstanding the provisions of
this Agreement, will result in the immediate termination of the Agreement
without penalty to the Company.
10. Option to Purchase Shares
In consideration for GFC entering into this Agreement, the Company hereby
grants GFC immediately exercisable options to purchase up to Two Hundred
Thousand (200,000) shares of its common stock, exercisable as follows (in U.S.
dollars, and adjusted for stock splits).
Fifty Thousand (50,000) shares at three dollars ($3.00), Fifty Thousand
(50,000) shares at four dollars ($4.00), Fifty Thousand (50,000) shares at five
dollars ($5.00), and Fifty Thousand (50,000) shares at six dollars ($6.00) per
share.
11. Other Transactions
GFC may, on its own accord and outside of the scope of the Services to be
provided under this Agreement, choose to investigate possible acquisitions or
merger candidates for the Company, or identify sources of financing for certain
of the Company's lines of business
5
<PAGE>
GFC
COMMUNICATIONS CORP
(collectively, a "Business Opportunity"). GFC shall also be entitled to receive
from the Company a "Transaction Fee," as a result of any transaction effected by
the Company with a Business Opportunity introduced by GFC or by a third party
introduced by GFC. A Business Opportunity shall include the merger, sale of
assets, consolidation or other similar transaction or series or combination of
transactions whereby the Company or its subsidiaries transfer to the other, or
both transfer to a third entity or person, assets or any interest in its
business in exchange for stock, assets, securities, cash or other valuable
property or rights, or wherein they make a contribution of capital or services
to a joint venture, commonly owned enterprise or venture with the other for
purposes of future business operations and opportunities. To be a Business
Opportunity covered by this section, the transaction must occur during the term
of this Agreement, or during the period of one year after the expiration of this
Agreement. In the event this paragraph shall apply, any Transaction Fee due
shall be based upon the net value of the consideration, securities, property,
business, assets or other value given, paid, transferred or contributed by, or
to the Company, and shall be equal to five percent (5%) of the first One Million
Dollars ($1,000,000) of such net value, four percent (4%) of the second One
Million Dollars ($1,000,000), three percent (3%) of the third One Million
Dollars ($1,000,000), two percent (2%) of the fourth One Million Dollars
($1,000,000) and one percent (1%) of all of the remaining net value. Unless
otherwise mutually agreed in writing prior to the closing of any Business
Opportunity, the Transaction Fee shall be paid in cash at the closing of the
transaction.
12. Registration of Shares
As soon as practicable following the execution of this Agreement, the
Company will include the Option Shares and the Fee Shares, if any, in an
appropriate Registration Statement to be filed with the Securities and Exchange
Commission. In the event the compensation hereunder contains Fee Shares, GFC, at
its sole discretion, may request that such shares may be issued prior to
registration in reliance on exemptions from registration provided by Section
4(2) of the Securities Act of 1933 (the "Act"), Regulation D of the Act, and
applicable state securities laws.
6
<PAGE>
GFC
COMMUNICATIONS CORP
14. Schedule of Standard Expenses
The following sets forth the schedule of standard expenses for financial
communications and public relations services between GFC Communications and the
Company:
<TABLE>
<CAPTION>
Description Cost
- ----------- ----
<S> <C>
Facsimile Transmission (including long distance charges): $0.60/page
First Class Mail, Standard letter/Press Release, including postage
& materials: $0.60 ea.
Bulk Rate Mail, Standard Letter, including postage & materials: $0.50 ea.
Two page fact sheet w/ Cover Letter, Custom Business Reply
Card, including materials, First Class Mail: $1.25 ea.
Two page fact sheet w/ Cover Letter, Custom Business Reply
Card, including materials, Bulk Rate Mail: $1.15 ea.
Bulk Rate Reply card return postage & processing: $0.60 ea.
Complete Investor Package (as supplied by Company),
w/ Cover Letter, 2 day, U.S. Postal Service Priority Mail: $4.00 ea.
Express Mail (i.e., Federal Express Standard Overnight): Standard Carrier
Rates
Telephone, Photocopies and Teleconferencing Charges: Standard Carrier
Rates
</TABLE>
These rates are subject to change due to an increase or decrease in third
party vendor rates.
7
<PAGE>
[LETTERHEAD OF GFC]
If the foregoing is agreeable, please indicate your approval by dating and
signing below and returning an original copy to me.
Very truly yours,
GFC COMMUNICATIONS CORPORATION
Signed: /s/ Geoffrey C. Plank
---------------------------------------
Geoffrey C. Plank
President
GFC Communications Corp.
250 S. Australian Ave. Ste. 1503
West Palm Beach, FL 33401
APPROVAL AND ACCEPTANCE
READ AND ACCEPTED this 29th day of September, 1997, with an effective date
retroactive to the date services were first performed for the Company.
Terrace Holdings, Inc.
Signed: /s/ Jonathan S. Lasko
---------------------------------------
Name: Jonathan S. Lasko
---------------------------------------
Title: Vice President, Chief Operating Officer
---------------------------------------
Mr. Steven Shulman, Chairman
Terrace Holdings, Inc.
2699 Stirling Road, Ste. C-405
Ft. Lauderdale, FL 33312
8
<PAGE>
[LOGO OF GFC]
GFC COMMUNICATIONS
------------------
FINANCIAL PUBLIC RELATIONS & COMMUNICATIONS AGREEMENT
-----------------------------------------------------
ADDENDUM "A"
Additional activities for financial communications and financial public
relations services between GFC Communications and the Company:
Description Fee/Expense Amount One time or Monthly?
1) 75,000 mailing of fact sheet @ US$1.15 ea One-time
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
................................................................................
APPROVAL AND ACCEPTANCE
READ AND ACCEPTED this ____ day of _______________, 19_____.
GFC COMMUNICATIONS INC.
Signed:________________________________________________
Geoffrey C. Plank
President
GFC Communications Corp.
250 S. Australian Ave. Ste. 1503
West Palm Beach, FL 33401
<PAGE>
[LOGO OF GFC]
READ AND ACCEPTED this _________ day of _______________, 19_____.
Terrace Holdings, Inc.
Signed:________________________________________________
Name:_________________________________________________
Title:__________________________________________________
Mr. Steven Shulman, Chairman of the Board of Directors
Terrace Holdings, Inc.
2699 Stirling Road, Ste. C-405
Ft. Lauderdale, FL 33312
<PAGE>
EXHIBIT 5.1
Fishman, Merrick, Miller, Genelly,
Springer, Klimek & Anderson, P.C.
30 North LaSalle Street
Suite 3500
Chicago, Illinois 60602
November 24, 1997
Terrace Holdings, Inc.
4100 North Hills Drive
Hollywood, Florida 33021
Re: Terrace Holdings, Inc. -- GFC Communications Corp.
Engagement Letter and Fee Arrangement for
Financial Communications Services
Form S-8 Under the Securities Act of 1933, as amended
Ladies and Gentlemen:
We have acted as counsel for Terrace Holdings, Inc. (the "Company") in
connection with the registration by the Company under the Securities Act of
1933, as amended (the "Act") of up to 275,000 shares of common stock, par value
$.001 per share, of the Company ("Common Stock") issuable under the engagement
letter and fee arrangement for financial communications services dated September
29, 1997 between the Company and GFC Communications Corp. of West Palm Beach,
Florida (the "Arrangement") and subject to the terms as provided therein, under
a registration statement on Form S-8 (the "Registration Statement") about to be
filed with the Securities and Exchange Commission.
We have originals, all copies, certified to our satisfaction, of such
corporate records of the Company, agreements and other instruments, certificates
of public officials and officers and representatives of Company and such other
documents as we have deemed necessary as a basis for the opinions hereinafter
expressed.
<PAGE>
Terrace Holdings, Inc.
November 24, 1997
Page Two
Based upon the foregoing, and having regard for the legal considerations we
deem relevant, we are of the opinion that, when such shares of Common Stock have
been registered under the Act and when the Company has received consideration to
be received for such shares in accordance with the provisions of the Arrangement
and said shares of Common Stock have been issued by the Company as provided
under the Arrangement, said shares of Common Stock will be duly authorized,
validly issued and outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof.
We hereby consent to the inclusion of this opinion in the Registration
Statement.
Very truly yours,
/s/ Fishman, Merrick, Miller, Genelly,
Springer, Klimek & Anderson, P.C.
FMM/GLF/bs
<PAGE>
Exhibit 99.1
REOFFER PROSPECTUS
TERRACE HOLDINGS, INC.
Up to 275,000 Shares of Common Stock, Par Value $.001 Per Share
This Prospectus covers up to 275,000 shares of Common Stock Terrace Holdings,
Inc., a Delaware corporation (the "Company") issued or issuable to GFC
Communications Corp. of West Palm Beach, Florida ("GFC") under the Engagement
Letter and Fee Agreement for Financial Communication Services, dated September
29, 1997, between the Company and GFC (the "Agreement"). Under the Agreement,
GFC provides the Company with stockholder liaison and spokesperson services and
similar matters. The Company will not receive any of the proceeds from the sale
of the Common Stock offered hereby, although the costs incurred in connection
with their offer and sale will be borne by the Company. The Company will receive
from GFC funds for the exercises of its options as described below. Should GFC
exercise all of its options, the Company will receive gross proceeds from such
exercises in the amount of $700,000, all of which will be added to the Company's
general funds and used for working capital purposes. See "Fee Agreement."
The Company's Common Stock is currently traded in the NASDAQ SmallCap Market
under the symbol "THIS."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THE 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.
The date of this Prospectus is December 1, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the offices of the
Commission's New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048 and the Chicago Regional Office at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of these materials may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants, such as the Company, that file electronically
with the Commission. The Commission's Web site address is http:\\www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-8
which the Company has filed with the Commission pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), relating to the Company's securities
(referred to herein, together with amendments and exhibits, as the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is hereby
made to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
Copies of the Registration Statement and the exhibits may be inspected, without
charge, at the offices of the Commission, or obtained at prescribed rates from
the Public Reference Section of the Commission at the address set forth above.
<PAGE>
THE COMPANY
Terrace Holdings, Inc. maintains its principal executive offices at 4100
North Hills Drive, Hollywood, Florida 33021. The telephone number is
954-894-6000.
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UNLESS THE CONTEXT INDICATES OTHERWISE, ANY REFERENCE IN THIS PROSPECTUS TO THE
"COMPANY" MEANS AND REFERS TO THE COMPANY AND ITS WHOLLY-OWNED SUBSIDIARIES.
RISK FACTORS
THE PURCHASE OF THE SECURITIES BEING OFFERED HEREBY IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. THE PURCHASE OF THESE
SECURITIES SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A
TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY. PROSPECTIVE INVESTORS, PRIOR TO
ANY PURCHASE, SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING FACTORS WHICH COULD MATERIALLY AND
ADVERSELY AFFECT THE OPERATIONS AND PROSPECTS OF THE COMPANY OR AN INVESTMENT
THEREIN, BEFORE MAKING A DECISION TO PURCHASE THE SECURITIES BEING OFFERED
HEREBY. THE FOLLOWING IS NOT INTENDED AS, AND SHOULD NOT BE CONSIDERED, AN
EXHAUSTIVE LIST.
1. No Assurance of Profitability. To date, on a fiscal year basis, the
Company has generated net losses. There is no assurance that the future
operations of the Company will result in revenues or will be profitable. Should
the operations of the Company be profitable, it is anticipated that the Company
would retain all of its earnings in order to finance future growth and
expansion.
2. No Dividends on Common Stock. The Company does not anticipate payment
of any cash dividends on its Common Stock for the foreseeable future; it being
anticipated that any earnings would be retained by the Company to finance its
operations and future growth and expansion.
3. Proposed Expansion. Although the Company intends to continue to pursue
a strategy of growth by acquisition, to date, it has only completed three
acquisitions: the purchase, in January, 1996, of three additional Passover
vacation venues (one of which was not operated in 1997), the acquisition, in
February, 1997, of Deering Ice Cream (see Risk Factor 7 below) and the
acquisition, in July, 1997, of A-One-A Wholesale Produce, Inc. There is no
assurance that the Company will make any additional acquisitions in the near
future, or if made, that any such acquisitions will add profitability to the
Company. Contrary to its initial strategy in December, 1995, the Company has
determined that proposed expansion by establishing additional kosher dining
facilities geographically dispersed would
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entail substantial intensive costs both economically and in personnel.
Accordingly, the Company has determined to seek growth by acquisition of
existing food and food related operations. There is no assurance any such
acquisitions will be available to the Company or that its acquiring such
operations will add to the Company's profitability. Furthermore, competition in
the Company's current principal businesses (kosher dining facilities, holiday
vacation venues offering kosher foods and regional frozen desserts manufacture
and sales) could significantly increase.
4. Possible Need for Additional Financing; Possible Loss of Entire
Investment. In the event that the Company's plans change and there are any
delays in implementing its proposed expansion or its projections prove to be
inaccurate, the Company may be required to seek additional financing or curtail
its current and expansion activities. In such case, the Company will generally
be required to seek additional debt or equity financing to fund the costs of
continuing operations or to expand its operations. The Company has no current
commitments or arrangements for additional financing and there can be no
assurance that additional financing, if needed, will be available, or if
available, that it can be obtained on terms satisfactory to the Company.
Prospective investors should be aware that if the Company is not successful in
its operations, future acquisitions or facilities that it establishes, their
entire investment in the Company could become worthless. Even if the Company is
successful in its expansion plans, no assurances can be given that such
expansion will be successful or that investors will derive a profit from their
investment. See "Use of Proceeds".
5. Changes and Other Factors Affecting Restaurant and Holiday Vacation
Industries. The restaurant, holiday vacation and frozen desserts industries are
often affected by changes in consumer tastes, national, regional and local
economic conditions, demographic trends, traffic patterns and the type, number
and location of competing facilities. In addition, the labor intensiveness of
these businesses, as well as factors such as inflation, increased food, labor
and employee benefit costs and availability of experienced management and hourly
employees may also adversely affect the restaurant, holiday vacation and frozen
desserts industries in general and the Company's operations in particular.
6. Competition. The restaurant and holiday vacation industries are highly
competitive, as is the frozen dessert manufacture and sales industry, and there
are numerous well-established competitors possessing substantially greater
financial, marketing, personnel and other resources than the Company. These
competitors include national, regional and local chains and manufacturers. The
Company can also be expected to face competition from other restaurants and food
service establishments, tour companies and ice cream manufacturers. In addition,
there can be no assurance that consumers will regard the Company's products and
services as significantly distinguishable from competitive products and
services, or that substantially equivalent products will not be introduced by
the Company's competitors or that the Company will be able to compete
successfully.
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Furthermore, certain of the Company's businesses (kosher dining facilities and
holiday vacation venues offering kosher foods) are limited to specialty food
products in a niche market which is specifically aimed at consumers of kosher
foods. Such a market is significantly more limited than a market catering to
consumers of non-kosher foods.
7. Current Seasonal Nature of Operations. The Company's current restaurant
operations are located in south Florida and are seasonal in nature since such
operations rely, to a significant degree, on tourism in the winter months to
sustain them. Thus, unless the Company is successful in generating significant
frozen dessert sales during the summer months, the third calendar quarter (July-
September) of each year is likely to generate losses. Furthermore, the Company's
current holiday vacation business is limited to Passover which, in date of
occurrence, approximates Easter. While the Passover vacation operations generate
revenue and income and require year-round management activity, the concentration
of revenues, expenses and management effort into a short period of time may have
a material adverse effect upon the Company's ability to expand the number of its
vacation venues unless additional qualified management personnel are engaged in
this area of its operations. There can be no assurance that the Company will be
able to successfully overcome these seasonal drawbacks, which may have a
materially adverse effect on the Company generally.
The Company has recently determined to dispose of its frozen dessert, food
service and vacation businesses and to concentrate on its food distribution and
produce processing operations. On November 21, 1997, the Company entered into an
agreement to sell the assets and certain liabilities of Deering Ice Cream, Inc.
to a subsidiary of Fieldbrook Farms, Inc., Dunkirk, New York, for $1,150,000
plus certain royalties over four years. Consummation of the sale is scheduled
for December 9, 1997. There is no assurance that the Company will be successful
in consummating the sale of Deering Ice Cream, Inc., or completing such other
dispositions or that it will become profitable as a result of the foregoing.
8. Government Regulation. Food and food related businesses are subject to
various federal, state and local laws and regulations, including those related
to the manufacture and sale of food and alcoholic beverages. The failure to
obtain and retain food and liquor licenses or any other governmental approvals
would have a material adverse effect on the Company. In addition, food
processing and restaurant operating costs are affected by increases in the
minimum hourly wage, unemployment tax rates, sales taxes and similar matters
over which the Company has no control. The Company may be subject to "dram-shop"
statutes, which generally provide a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. Additionally, laws in certain states may
limit or delay the Company in obtaining liquor licenses.
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9. Loss of Kosher Certification. In addition to federal, state and local
laws and regulations, Jewish laws must be observed with respect to the Company's
"kosher" operations. The designation of the Company's restaurants, Passover
holiday vacations and frozen dessert products as "kosher" means that all the
foods are prepared in accordance with Jewish dietary laws. The Company's frozen
dessert products are under the supervision of the Union of Orthodox Jewish
Congregations of America ("Orthodox Union"). Any restaurant located in Broward
County, Florida will be under the supervision of the Orthodox Rabbinic Board of
Broward and Palm Beach Counties ("ORB"). Restaurants or other food operations
of the Company located elsewhere will be under the supervision of other local
Rabbinic certifications generally accepted by the Orthodox Jewish community.
The Orthodox Union, ORB or other certifying Rabbinic body must approve the
ingredients, foods, preparation and facility before it will certify a restaurant
as "kosher." Therefore, the ability of the Company to continue successfully to
maintain kosher status for its businesses is dependent upon its continued
compliance with the requirements of Rabbinic certification. Loss of kosher
certification would have a materially adverse effect upon the Company.
10. Loss of PACA Licenses. The Company's A-One-A Produce & Provisions,
Inc. subsidiary and its affiliate, Terrace Fresh, Inc., are subject to The
Perishable Agricultural Commodities Act ("PACA") which regulates "commission
merchants," "brokers" and "dealers" engaged in the business of shipping or
receiving perishable agricultural commodities in interstate commerce. A-One-A
Produce and Terrace Fresh currently maintain PACA licenses to distribute fresh
produce, fruits and vegetables. The ability of the Company to continue
successful distribution and sales of its fresh produce, fruits and vegetables is
dependent upon its continued compliance with PACA. Loss of its PACA license
would have a materially adverse effect on the Company.
11. Broad Discretion in Application of Proceeds. Management of the
Company has broad discretion to adjust the application and allocation of any net
proceeds of funds received upon exercise of the options granted to GFC, which
proceeds, if received, will be added to the Company's working capital, in order
to address changed circumstances and opportunities. As a result of the
foregoing, the success of the Company will be substantially dependent upon the
discretion and judgment of the management of the Company with respect to the
application and allocation of such net proceeds. See "Use of Proceeds".
12. No Assurance of Continued Public Trading Market or Continued
Qualification for NASDAQ Inclusion. The Company's Common Stock and Warrants are
listed on the NASDAQ SmallCap/sm/ Market ("NASDAQ"). If the Company is unable
to satisfy the requirements for continued quotation on NASDAQ, trading, if any,
in its securities would be conducted in the over-the-counter market in what are
commonly referred to as the "pink sheets" or on the NASD OTC Electronic Bulletin
Board. As a result, an investor may find it more difficult to dispose or to
obtain accurate quotations as to the price of the
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Company's securities. The above-described rules may materially adversely
affect the liquidity of the market for the Company's securities.
13. Rule 144 Sales; Future Sales of Common Stock. 1,843,900 of the
Company's presently outstanding 5,156,400 shares of Common Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act and may only be sold pursuant to a registered offering or in
accordance with applicable exemptions from the registration requirements of the
Securities Act. Rule 144 provides for the sale of limited quantities of
restricted securities without registration under the Securities Act. In
general, under Rule 144, a person (or person whose shares are aggregated) who
has satisfied a one year holding period may, under certain circumstances, sell,
within any three month period, a number of shares which does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks prior to such sale. Rule
144(k) also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who is not an affiliate of the company and who
has satisfied a two year holding period. The Company is unable to predict the
effects that future sales under Rule 144 may have on the then prevailing market
price of the Company's securities. Possible or actual sales of the Company's
outstanding Common Stock by certain of the present shareholders under Rule 144
may, in the future, have a depressive effect on the price of the Company's
securities. See "Description of Securities -Shares Eligible for Future Sale".
As of the date hereof, 775,000 shares of Common Stock are available for resale
pursuant to Rule 144. Notwithstanding the foregoing, certain current officers,
directors, shareholders and holders of the Private Placement Warrants have
agreed not to sell, transfer, assign or issue any securities of the Company for
a period of eighteen months following the date of this Prospectus without the
consent of the Soliciting Agent.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market and, therefore, the ability of any investor to sell his securities
may be dependent directly upon the number of securities that are offered and
sold. Affiliates of the Company may sell their securities during a favorable
movement in the market price of the Company's Common Stock which may have a
depressive effect on its price per share. See "Description of Securities".
14. Future Issuances of Stock by the Company Without Shareholder Approval.
Following the exercise of all of the Company's outstanding Warrants, convertible
preferred stock and the options issued under the Employee Stock Option Plan, the
Company will have outstanding 16,713,700 shares of Common Stock out of a total
of 25,000,000 shares of Common Stock authorized. The Company also has 10,000,000
shares of Preferred Stock authorized, the rights, preferences, conversions,
terms and conditions of which may be set, from time to time, by the Board of
Directors. There are currently 3,056,650 shares of
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Preferred Stock outstanding. The remaining shares of Common Stock not issued or
reserved for specific purposes and the remaining shares of Preferred Stock may
be issued without any action or approval of the Company's shareholders.
Although there are no present plans, agreements or undertakings involving the
issuance of such shares except as disclosed in this Prospectus, any such
issuance could be used as a method of discouraging, delaying or preventing a
change in control of the Company or could significantly dilute the public
ownership of the Company, which could adversely affect the market. There can be
no assurance that the Company will not undertake to issue such shares if it
deems it appropriate to do so.
15. Market Maker's Influence on the Market. A significant amount of
securities of the Company are held by customers of the Biltmore Securities, Inc.
("Biltmore") which underwrote the Company's initial public offering in December,
1995. Such customers may engage in transactions for the sale or purchase of
such securities through or with Biltmore. Although it has no obligation to do
so, Biltmore may make a market in the Company's securities and may otherwise
effect transactions in such securities. If it participates in the market,
Biltmore may exert a dominating influence on the market for the securities of
the Company. Such market activity may be discontinued at any time. The price
and liquidity of the Company's securities may be significantly affected by the
degree, if any, of Biltmore's participation in such market.
16. "Penny Stock" Regulations. Securities laws require certain
disclosures in connection with trades in any stock defined as a "penny stock".
Commission regulations generally define a penny stock to be any equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Such exceptions include any equity security listed on NASDAQ.
Unless an exception is available, Commission regulations require the
broker/dealer to deliver, prior to effecting any transaction involving a penny
stock, certain information and disclosures regarding the penny stock market and
the risks associated therewith.
In addition, applicable Commission regulations provide that unless the
transaction involving a penny stock is exempt under the regulations, a
broker/dealer cannot effect a transaction in the penny stock unless certain
sales practice requirements are met, which include the determination by the
broker/dealer that transactions in penny stocks are suitable investments for the
prospective purchaser and receipt by the broker/dealer from such person of a
written agreement to the transaction.
As of the date of this Prospectus, by reason of inclusion on NASDAQ, the
Company's securities are exempt from the definition of penny stock. If any of
the Company's securities were subsequently to become characterized as a penny
stock, the market liquidity for the Company's securities could be severely
affected. In such an event, the regulations on penny
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stocks could limit the ability of broker/dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities in
this offering to sell their securities in the secondary market.
25. Limitation on Director Liability. As permitted by the Delaware General
Corporation Law, the Company's Certificate of Incorporation limits the liability
of directors to the Company or its shareholders for monetary damages for breach
of a director's fiduciary duty except for liability for (i) any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involved intentional misconduct or knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
purchases or redemptions as provided in Section 174 of the Delaware General
Corporation Law, or (iv) any transaction from which the director derived an
improper personal benefit. As a result of the Company's charter provision and
Delaware law, shareholders may have more limited rights to recover against
directors for breach of fiduciary duty.
FOR ALL OF THE AFORESAID REASONS, AND OTHERS WHICH MAY NOT BE SET FORTH
HEREIN, THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING
AN INVESTMENT IN THE SECURITIES OFFERED SHOULD BE AWARE OF THESE AND OTHER
FACTORS SET FORTH IN THIS PROSPECTUS. THESE SECURITIES SHOULD BE PURCHASED ONLY
BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR ENTIRE INVESTMENT IN THE COMPANY
AND HAVE NO IMMEDIATE NEED FOR A RETURN OF THEIR INVESTMENT.
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PRICE RANGE OF SECURITIES
Market Information
Since the Company's initial public offering in early December, 1995, the
Company's Common Stock and Warrants have been traded in the NASDAQ SmallCap
Market.
Set forth below is the range of high and low sales prices of the Common
Stock and Warrants for each month since the Company's initial public offering as
reported by NASDAQ for those periods. The prices represent quotations between
dealers. The quotations do not include retail markups, markdowns, or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Bid Ask
--- ---
Type of Security Quarter Ended High Low High Low
- ---------------- ------------- ---- --- ---- ----
<S> <C> <C> <C> <C> <C>
Common Stock December 29, 1995/(1)/ 6 1/8 2 1/4 7 1/8 4 1/4
High/(2)/ Low/(2)/
-------- --------
March 31, 1996 6 3/4 4 1/4
June 30, 1996 4 5/8 3
September 30, 1996 4 1/2 2 3/4
December 31, 1996 1 1/16 7/8
March 31, 1997 1 1/2 1 5/16
June 30, 1997 1 7/8 1 7/8
Sept. 30, 1997 2 1/8 2
November 20, 1997 2 1/4 1 7/8
Quarter Ended High Low High Low
------------- ---- --- ---- ---
Warrants December 29, 1995/(1)/ 1 1/2 3/4 2 1 1/2
High/(2)/ Low/(2)/
--------- --------
March 31, 1996 2 1/2 1 1/4
June 30, 1996 1 3/4 1
September 30, 1996 1 5/8 1/2
December 31, 1996 5/16 5/16
March 31, 1997 5/8 5/8
June 26, 1997 3/4 3/4
September 30, 1997 2 1/8 1 7/8
November 20, 1997 1 1/2 1 1/4
</TABLE>
- ---------------------------
/(1)/ Includes only the period December 6, 1996 through December 29, 1996.
/(2)/ In February, 1996, NASDAQ changed its reporting system to no longer
including Bid and Ask amounts; therefore, the prices shown for these dates
only reflect the High and Low actual sales price.
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Holders
As of November 21, 1997, there were 41 and 39 holders of record of the
Company's Common Stock and Public Warrants, respectively. The Company believes
that it has a greater number of shareholders and Public Warrant holders because
the Company believes that a substantial amount of its Common Stock and Public
Warrants are held of record in street name by broker-dealers for their
customers.
Dividends
The Company has not paid any dividends on its Common Stock and does not
expect to pay a cash dividend in the foreseeable future, but intends to devote
all funds to the operation of its business.
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USE OF PROCEEDS
As noted on the cover page of this Prospectus, the Company will not receive
any of the proceeds from the sale of the Common Stock by GFC. To the extent GFC
exercises its options to purchase shares of Common Stock offered hereby, the
Company may receive up to $700,000 from such exercises, all of which funds will
be added to the Company's general working capital and used for general business
purposes.
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THE FEE AGREEMENT
On September 29, 1997, the Company retained GFC to provide shareholder and
financial communication services and to act as the Company liaison and
spokesperson with respect to its shareholders and the general public. In
compensation for its services under the engagement letter with GFC, the Company
agreed to pay a base fee of $5,000 per month, plus reimbursement for reasonable
out-of-pocket expenses. At the Company's election, this compensation may be paid
in cash or in shares of Common Stock. The Company has issued 75,000 shares of
Common Stock to GFC. As monthly statements are rendered by GFC, it may sell a
portion of such shares at prevailing market prices to pay its fees and costs.
In addition, the Company has granted GFC options to purchase up to 200,000
shares of Common Stock. These options are exercisable by GFC at any time until
September 30, 2000, when they expire. 50,000 of such options are exercisable at
$3.00 per share, 50,000 at $4.00 per share, 50,000 at $5.00 per share and 50,000
at $6.00 per share.
There is no assurance that any of these options will be exercised by GFC.
See "Price Range of Securities."
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GFC COMMUNICATIONS CORP. - THE SELLING SECURITY HOLDER
GFC Communications Corp., located at 250 South Australian Avenue, Suite
1503, West Palm Beach, Florida 33401 does not have, and has not had, any
relationship with the Company other than the bona fide business relationship
based upon the engagement letter described herein. Without giving effect to the
exercise of the options granted it, GFC presently owns 75,000 shares, less than
1.6% of the Company's outstanding Common Stock. Furthermore, under the Fee
Agreement, to the extent such shares are not sold in payment of GFC's fees and
costs billed to the Company, the shares are to be returned to the Company.
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PLAN OF DISTRIBUTION
GFC has advised that in accordance with the Fee Agreement, it will offer
and sell the shares of Common Stock covered by this Prospectus through a
registered broker/dealer of its choosing, which broker/dealer will attempt to
sell such shares for GFC's account, from time to time, in the open market, at
prevailing market prices. GFC will be responsible for its own brokerage
commissions with respect to any such sales.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission are incorporated in this Prospectus by this reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996, filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended;
(b) The Company's Forms 10-QSB for the quarters ended March 31, 1997,
June 30, 1997, and September 30, 1997, filed pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended;
(c) The description of the Company's Common Stock, par value $.001 per
share (the "Common Stock") contained in the Company's Registration
Statement on Form SB-2 (Commission File No. 33-96892-A), declared effective
by the Commission on December 5, 1995, and any amendment or report filed
with the Commission for the purpose of updating such description of Common
Stock.
(d) All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered
hereby have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated in this Prospectus and to be a
part hereof from the date of filing such documents. Any statement contained
herein or any document, all or a portion of which is incorporated or deemed
to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in any subsequently filed document which also is or is deemed to
be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
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COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Under Delaware law, the Company provides for indemnification of directors,
officers and certain controlling persons of the Company if they are sued in
connection with their activities by or on behalf of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to provisions for indemnification, the Company has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
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