<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996
REGISTRATION NO. 333-04415
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARIBBEAN CIGAR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
THOMAS R. DILK
CHIEF FINANCIAL OFFICER
CARIBBEAN CIGAR COMPANY
6265 S.W. EIGHTH STREET
MIAMI, FL 33144
(305) 267-3911 FAX: (305) 267-6026
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ERIC S. KAMISHER, ESQ. BERT GUSRAE, ESQ.
ASHER S. LEVITSKY P.C. DAVID A. CARTER, P.A.
ESANU KATSKY KORINS & SIGER 355 WEST PALMETTO PARK RD.
605 THIRD AVENUE BOCA RATON, FL 33432
NEW YORK, NEW YORK 10158 (407) 750-6999 FAX: (407) 367-0960
(212) 953-6000 FAX: (212) 953-6899
</TABLE>
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C> <C>
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</TABLE>
<TABLE>
<CAPTION>
MAXIMUM OFFERING
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) OFFERING PRICE FEE
<S> <C> <C> <C> <C> <C>
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Common Stock, par value $.001 per share(2)......... 1,523,750 Shs. $ 7.00 $ 10,666,250.00 $ 3,678.02
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Redeemable Common Stock Purchase Warrants(2)....... 1,523,750 Wts. .125 190,468.75 65.68
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Common Stock, par value $.001 per share(3)(4)...... 1,523,750 Shs. 7.00 10,666,250.00 3,678.02
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Common Stock Representative's Warrants(5).......... 132,500 Wts. .00008 10.60 0
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Common Stock, par value $.001 per share(4)(6)...... 132,500 Shs. 8.40 1,113,000.00 383.79
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Warrant Representative's Warrants(7)............... 132,500 Shs. .00001 1.33 0
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Redeemable Common Stock Purchase Warrants(4)(8).... 132,500 Wts. .15 19,875.00 6.85
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Common Stock, par value $.001 per share(4)(9)...... 132,500 Shs. 8.40 1,113,000.00 383.79
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Total...................................... $ 8,196.31
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</TABLE>
(1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457.
(2) Includes 198,750 shares of Common Stock and Redeemable Common Stock Purchase
Warrants ("Warrants") to purchase 198,750 shares of Common Stock issuable
upon exercise of the Underwriters' over-allotment option.
(3) Represents shares of Common Stock issuable upon exercise of the Warrants
offered pursuant to this Registration Statement.
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Warrants or the Representative's Warrants.
(5) Represents warrants to purchase Common Stock to be issued to the
Representatives (the "Common Stock Representative's Warrants").
(6) Represents shares of Common Stock issuable upon exercise of the Common Stock
Representative's Warrants.
(7) Represents warrants to purchase Warrants to be issued to the Representatives
(the "Warrant Representative's Warrants," and together with the Common Stock
Representative's Warrants, the "Representative's Warrants").
(8) Represents Warrants (the "Underlying Warrants") issuable upon exercise of
the Warrant Representative's Warrants.
(9) Represents shares of Common Stock issuable upon exercise of the Underlying
Warrants.
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<PAGE> 2
CARIBBEAN CIGAR COMPANY
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION LOCATION OF CAPTION IN PROSPECTUS
- ----------------------------------------------------- -------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside
Front Cover Page of Prospectus.................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors............ Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution........................................ Dilution
7. Plan of Distribution............................ Outside Front Cover Page; Underwriting
8. Legal Proceedings............................... *
9. Directors, Executive Officers, Promoters and
Control Persons................................. Management; Principal Stockholders
10. Security Ownership of Certain Beneficial Owners
and Management.................................. Principal Stockholders; Certain Transactions
11. Description of the Securities................... Description of Securities; Underwriting
12. Interests of named Experts and Counsel.......... Legal Matters; Experts
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Management
14. Organization Within Last Five Years............. Management; Principal Stockholders; Certain
Transactions
15. Description of Business......................... Prospectus Summary; Business
16. Management's Discussion and Analysis or Plan of
Operation....................................... Management's Discussion and Analysis of Results
of Operations
17. Description of Property......................... Business
18. Certain Relationships and Related
Transactions.................................... Certain Transactions
19. Market for Common Equity and Related Stockholder
Matters......................................... Outside Front Cover Page; Risk Factors
20. Executive Compensation.......................... Management
21. Financial Statements............................ Financial Statements
22. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. *
23. Selling Security Holders........................ *
</TABLE>
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* Omitted because item is inapplicable or answer is in the negative.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JULY 10, 1996
PROSPECTUS
LOGO
1,325,000 SHARES OF COMMON STOCK AND
1,325,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
------------------------
Caribbean Cigar Company (the "Company") is offering 1,325,000 shares of
Common Stock (the "Common Stock") and 1,325,000 Redeemable Common Stock Purchase
Warrant (the "Warrants"). The Common Stock and the Warrants (collectively, the
"Securities") are being offered separately and not as units, and each are
separately transferable. Each Warrant entitles the holder to purchase one share
of Common Stock at $7.00 per share (subject to adjustment) during the three-year
period commencing on the date of this Prospectus. The Warrants are redeemable by
the Company, for $.25 per Warrant, on not less than thirty (30) nor more than
sixty (60) days' written notice if the average closing price per share of Common
Stock is at least $14.00 per share during a period of thirty (30) consecutive
trading days ending not earlier than ten (10) days of the date the Warrants are
called for redemption and provided there is then a current effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
with respect to the issuance and sale of the Common Stock upon exercise of the
Warrants. Any redemption of the Warrants during the one-year period commencing
on the date of this Prospectus shall require the consent of Barron Chase
Securities, Inc. (the "Representative"), as representative of the several
underwriters (the "Underwriters"). See "Description of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or Warrants. The initial public offering prices of the Common Stock and
Warrants and the exercise price and other terms of the Warrants have been
determined through negotiations between the Company and the Representative, and
are not related to the Company's assets, book value, financial condition or
other recognized criteria of value. Although the Company has applied for the
inclusion of the Common Stock and Warrants in The Nasdaq SmallCap(R) Market
under the symbols CIGR and CIGRW respectively, and the Boston Stock Exchange
under the symbols and , respectively, there can be no
assurance that an active trading market in the Company's securities will develop
or be sustained.
------------------------
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE AND SUBSTANTIAL
DILUTION AND SHOULD BE CONSIDERED ONLY BY INVESTORS WHO CAN
AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE
INVESTMENT.
SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
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Per Share...................................... $7.00 $.70 $6.30
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Per Warrant.................................... $.125 $.025 $.1125
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Total(3)....................................... $9,440,625.00 $944,062.50 $8,496,562.50
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</TABLE>
(1) Excludes additional compensation to be received by the Representative in the
form of (a) a non-accountable expense allowance equal to 3% of the gross
proceeds of this Offering, for a total of $283,218.75 ($325,701.54 if the
Underwriters' over-allotment option is exercised in full) and (b) warrants
(the "Representative's Warrants") to purchase 132,500 shares of Common Stock
and 132,500 Warrants at an exercise price equal to 120% of the initial
public offering price of the Common Stock and the Warrants, respectively,
during the five-year period commencing on the date of this Prospectus. In
addition, 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 the Offering of approximately
$560,000.00, which are payable by the Company and which include the
Representative's non-accountable expense allowance.
(3) The Company has granted to the Representative an option, exercisable on its
behalf or on behalf of the Underwriters, within 45 days after the date of
this Prospectus, to purchase up to an additional 198,750 shares of Common
Stock and 198,750 Warrants on the same terms solely to cover
over-allotments. If the over-allotment option is exercised in full, the
Price to Public, Underwriting Discounts and Proceeds to Company will be
$10,856,718, $1,085,671.80 and $9,771,046.20, respectively. See
"Underwriting."
------------------------
The Securities are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to the approval of
certain legal matters by counsel and certain other conditions. It is expected
that delivery of the certificates representing the Common Stock and Warrants
comprising the Securities will be made against payment therefor at the offices
of the Representative at 7700 West Camino Real, Suite 200, Boca Raton, Florida
33433 on or about , 1996.
------------------------
LOGO
The date of this Prospectus is , 1996
<PAGE> 4
Artwork
Upper left hand corner
Employees in factory
Upper right hand corner
Cigar factory interior
Lower left hand corner
Cigar retail store interior
Lower right hand corner
Cigar retail store interior
<PAGE> 5
A significant number of shares of Common Stock and Warrants may be sold to
customers of the Underwriters. Such customers may subsequently engage in the
sale or purchase of the securities through or with the Underwriters. Although
they have no obligation to do so, the Underwriters may become market makers and
otherwise effect transactions in securities of the Company, and, if they
participate in such market, may be dominating influences in the trading of
securities. The prices and the liquidity of the securities may be significantly
affected by the degree, if any, of the participation of the Underwriters in such
market, should a market arise.
The Company has filed a registration statement covering the sale by certain
selling stockholders of an aggregate of shares of Common Stock.
The Company will be subject to certain informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith will
file reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or at the regional offices of the
Commission at Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661 and Seven World Trade Center, New York, New York 10048. Copies of
such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
The Company uses March 31 as its fiscal year end.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER THE COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following discussion summarizes certain information contained in this
Prospectus. It does not purport to be complete and is qualified in its entirety
by reference to more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
specified, all information contained in this Prospectus assumes no exercise of
the Underwriters' over-allotment option.
THE COMPANY
Caribbean Cigar Company (the "Company") is a vertically integrated
manufacturer, distributor and retailer of premium cigars. Premium cigars are
generally defined according to three criteria: (i) the cigars are made
completely by hand; (ii) the cigars consist of long-filler tobacco; and (iii)
the cigars retail at a price range from $1 to more than $20 each. The Company's
cigars are hand produced, using fine aged tobacco and traditional rolling
techniques. The Company's premium cigars are sold under the brand names of
Signature Collection by Santiago Cabana ("Signature Collection") Havana Classico
and Calle Ocho. The Company also markets three flavored cigars -- Rum Runner,
West Indies Vanilla and Island Amaretto, which use premium tobacco and are
flavored with rum, vanilla and amaretto extracts.
The Company commenced operations in 1994 with the opening, by a predecessor
company, of a cigar store in Key Largo, Florida. In early 1996, the Company
opened a second retail store in the South Beach section of Miami Beach, Florida.
A third retail store in Key West, Florida is presently under construction and is
scheduled to be opened in mid 1996. The Company's cigar stores sell its cigars
as well as other premium cigars and related products. The Company also sells its
cigars at its factory store in Miami, Florida.
In addition to its retail stores, the Company sells its cigars to tobacco
stores and tobacco departments of retail stores that sell a range of premium
cigars and tobacco products (collectively, "premium tobacco stores"). It also
sells its premium cigars to the private label market, which consists of
businesses and other organizations that sell products under their own brand
names.
The Company produces its cigars in its factory located in the Little Havana
section of Miami, Florida. The factory, which opened in December 1995, is
modeled after a traditional Cuban cigar factory. Such factories utilize a
hand-made manufacturing process, which effects the manner in which tobacco
leaves are processed, aged and made into cigars. With more than 40 skilled
rollers on staff at April 30, 1996, the factory currently has the capacity to
produce premium hand-rolled cigars at the rate of approximately 1.5 million
cigars per year.
The Company is seeking to capitalize on the recent growth of the premium
cigar market. In the United States, based on reports by the Cigar Association of
America, following several decades of declines in such sales, premium cigar
sales increased by 14% in 1994 and 28% in 1995. The Company's premium cigars
have been recognized by industry experts. In its Winter 1995 issue, Cigar
Aficionado magazine, rated the Signature Collection (then known as Santiago
Cabana) against other premium brands on the basis of taste, construction and
appearance. The Signature Collection was rated the third highest in the world
and received the highest rating among United States-produced cigars in the
"torpedo class" category.
The Company intends to use the proceeds of this Offering to expand its
retail operations, purchase tobacco for future production, increase its
manufacturing operations and expand its wholesale distribution network.
Following the completion of this Offering, the Company intends to open an
offshore cigar factory in the Dominican Republic, however, no assurance can be
given that the Company will be successful in these efforts.
The Company is a Florida corporation organized in September 1995. Its
executive offices are located at 6265 S.W. Eighth St., Miami, Florida 33144,
telephone (305) 267-3911. The Company's predecessor was a sole proprietorship
operated by Kevin Doyle, President of the Company, under the name Caribbean
Cigar Factory ("Cigar Factory") which commenced operations in October 1994. In
September 1995, the assets and liabilities of Cigar Factory were acquired and
assumed by the Company in exchange for shares of the Company's Common Stock and
a note for the accumulated income of the Key Largo retail store. In May 1996,
the Company organized a wholly-owned subsidiary in the Cayman Islands under the
name Caribbean Cigar Company (Cayman) Limited. See "Certain Transactions."
References to the Company, include the Company, its subsidiaries and Cigar
Factory unless the context indicates otherwise.
3
<PAGE> 7
THE OFFERING
Securities Offered......... 1,325,000 shares of Common Stock at $7.00 per share
and 1,325,000 Redeemable Common Stock Purchase
Warrants (the "Warrants") at $.125 per Warrant. The
shares of Common Stock and the Warrants are offered
separately and not as units. The Common Stock and
Warrants are separately tradeable immediately upon
issuance.
Description of Warrants
Exercise of Warrants..... Subject to redemption by the Company, the Warrants
may be exercised at any time during the three-year
period commencing on the date of this Prospectus at
an exercise price of $7.00 per share, subject to
adjustment.
Redemption of Warrants... The Warrants are redeemable by the Company, for
$.25 per Warrant, on not less than thirty (30) nor
more than sixty (60) days' written notice, if the
average closing price per share of Common Stock is
at least $14.00 per share during a period of thirty
(30) consecutive trading days ending within ten
(10) days of the date the Warrants are called for
redemption, and provided there is then a current
effective registration statement under the
Securities Act of 1933, as amended (the "Act"),
with respect to the issuance and sale of the Common
Stock upon exercise of the Warrants. Any redemption
during the one year period commencing on the date
of this Prospectus shall require the consent of the
Registrant.
Use of Proceeds............ The net proceeds of this Offering will be used for
working capital and other corporate purposes,
including the expansion of its manufacturing
facilities. See "Use of Proceeds."
Risk Factors............... Purchase of the Securities involves a high degree
of risk and substantial dilution, and should be
considered only by investors who can afford to
sustain a loss of their entire investment. See
"Risk Factors" and "Dilution."
Nasdaq Symbols
Common Stock............. "CIGR"
Warrants................. "CIGRW"
Boston Stock Exchange
Symbols
Common Stock.............
Warrants.................
Common Stock Outstanding
Prior to the date of this
Prospectus............. 3,586,948 shares of Common Stock(1)
As Adjusted(2)........... 4,911,948 shares of Common Stock(1)
1,325,000 Warrants
- ---------------
(1) Does not include a maximum of 500,000 shares of Common Stock which may be
issued pursuant to the Company's 1996 Long Term Incentive Plan or 100,000
shares of Common Stock which may be issued pursuant to the Company's
Non-Employee Stock Option Plan, of which no stock options to purchase shares
are outstanding, 308,000 shares of Common Stock issuable pursuant to
outstanding options, or any shares of Common Stock issuable upon exercise of
the Warrants, the Underwriters' over-allotment option or Representative's
Warrants or the securities underlying the Representative's Options. In the
event the Underwriter's over-allotment option is exercised, the total number
of outstanding shares of Common Stock shall be 5,110,698.
(2) Reflects the issuance of the 1,325,000 shares of Common Stock and 1,325,000
Warrants offered hereby.
4
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The following financial information reflects the operations of the Company
for the fiscal year ended March 31, 1996 and the record from inception (October
3, 1994) to March 31, 1995.
<TABLE>
<CAPTION>
INCEPTION
FISCAL YEAR ENDED (OCTOBER 3, 1994)
MARCH 31, 1996 MARCH 31, 1995
----------------- ------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales....................................................... $ 820,950 $ 88,331
Net loss.................................................... (521,587) (11,772)
Net loss per share(1)....................................... (0.16) (0.00)
Weighted average of shares of Common Stock outstanding(1)... 3,255,135 3,228,764
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
AS
ACTUAL ADJUSTED(2)(3)
---------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 888,542 $ 9,423,193
Total assets..................................................... 1,658,402 10,200,929
Total liabilities................................................ 364,112 364,112
Accumulated deficit.............................................. (550,743) (569,839)
Stockholders' equity............................................. 1,294,290 9,836,817
Net tangible book value per share of Common Stock................ .38 2.00
</TABLE>
- ---------------
(1) Shares of Common Stock issued to founders at the time of the Company's
organization are treated as outstanding since inception. See "Note 1 to
Notes to Financial Statements."
(2) As adjusted to reflect (i) the sale of 181,329 shares of Common Stock at
$3.50 per share during the period prior to the date of this Prospectus and
(ii) the receipt by the Company of the net proceeds from the sale of the
1,325,000 shares of Common Stock offered hereby at an initial public
offering price of $7.00 per share price and 1,325,000 Warrants offered
hereby at an initial public offering price of $.125 per warrant.
(3) As adjusted to reflect the net effect of other insignificant Common Stock
transactions during the period subsequent to March 31, 1996 through the date
of this prospectus. Such Common Stock issuances and cancellations were
primarily related to employee compensation.
5
<PAGE> 9
RISK FACTORS
The purchase of the shares of Common Stock and Warrants offered hereby
involves a high degree of risk and should be considered only by investors who
can afford to sustain the loss of their entire investment. In analyzing this
Offering, prospective investors should carefully consider the following factors,
among others.
RECENTLY ORGANIZED BUSINESS; HISTORY OF LOSSES
The Company was organized in October 1994 and has incurred a loss of
$521,587, or $.16 per share, on revenues of $820,950 for the fiscal year ended
March 31, 1996, and a loss of $11,772, or $.00 per share, on revenues of $88,332
for the period from October 3, 1994 (inception) to March 31, 1995. The ability
of the Company to operate profitably is dependent upon its ability to increase
its manufacturing and distribution channels and a continuation of an increase in
the market for premium cigars (as to which no assurance can be made). In
addition, its costs may be increased as a result of government regulations,
which may affect the ability of the Company to operate profitably. The Company
is also subject to business risks associated with new business enterprises. No
assurance can be given as to the ability of the Company to operate profitably.
ADDITIONAL FINANCING REQUIREMENTS OF THE COMPANY
At March 31, 1996, the Company had working capital of approximately
$888,500. The Company's operations have been financed to date through private
placements of Common Stock in 1995 and 1996, which generated net proceeds of
approximately $1,614,000. Prior to such private placements, the Company's
operations were financed by its principal stockholders. The Company requires
significant additional capital for the expansion of its manufacturing, marketing
and retail operations. The Company believes that the net proceeds from this
Offering will be sufficient to fund its operations for twelve months from the
date of this Prospectus. However, no assurance can be given that additional
funds will not be required prior to the expiration of such period or that any
funds which may be required will be available, if at all, on acceptable terms.
If additional funds are required, the inability of the Company to raise such
funds will have an adverse effect upon its operations. To the extent that
additional funds are obtained by the sale of equity securities, the stockholders
may sustain significant dilution.
GOVERNMENT REGULATION
The tobacco industry in general has been subject to regulation by Federal,
state and local governments, and recent trends have been toward increased
regulation. Such regulations include labeling requirements, limitations on
advertising and prohibition of sales to minors, laws restricting smoking from
both public places and in offices, office buildings and restaurants and other
eating places. Because the tobacco for the Company's cigars is hand rolled, the
Company's factory may become subject to increased regulation under Federal and
state health and safety regulations. In addition, cigars have been subject to
excise taxation at the Federal, state and local level, and such taxation may
increase in the future. Tobacco products are especially likely to be subject to
increases in excise taxation because of the detrimental effects of tobacco on
the health of both smokers and others who inhale secondary smoke. No assurance
can be given that future regulations, tax policies or tobacco litigation will
not have a material adverse affect upon the ability of cigar companies,
including the Company, to generate revenue and profits. See
"Business -- Government Regulation; Tobacco Industry Litigation."
EFFECTS OF FLUCTUATIONS IN TOBACCO COSTS AND AVAILABILITY
One of the principal costs of the Company's cigars is the tobacco used in
both the cigars and the cigar wrappers. The Company seeks to purchase only
premium grade tobacco, which the Company obtains from suppliers outside the
United States. The price and availability of such tobacco are subject to
numerous factors not within the Company's control, including weather conditions,
foreign government policies, potential trade restrictions and the overall demand
for the tobacco. In addition, larger tobacco companies, with greater resources
and buying power than the Company, have the resources to purchase large
quantities of tobacco
6
<PAGE> 10
which could both increase the cost and decrease the availability of the tobacco
to the Company. See "Business -- Raw Materials."
TOBACCO INDUSTRY RISKS
During the past decades the tobacco industry has been the subject of
advertising and public service campaigns against smoking in general.
Furthermore, litigation has been commenced in a number of jurisdictions seeking
damages from cigarette companies for damage resulting from cancer caused by
smoking. Although the Company is recently organized and all of its cigars have
been sold after both the risks of smoking and the addictive nature of nicotine
are generally known, no assurance can be given that the Company will not be
adversely affected by such factors. Furthermore, no assurance can be given that
the Company will be able to obtain product liability insurance or, if such
insurance is available, that it will be available on commercially reasonable
terms. See "Business -- Government Regulation; Tobacco Industry Litigation."
DECLINING MARKET FOR CIGARS THROUGH 1993
The cigar industry has, until recent years, been in substantial decline.
From the 1963 level of industry sales of approximately 9 billion cigars, the
estimated domestic market for cigars declined at a compound average rate of 5%
per year. According to a domestic industry source, the estimated domestic market
for cigars declined from approximately 4 billion cigars in 1980 to approximately
2.1 billion cigars in 1993. The decrease in cigar sales as well as the general
decline in smoking followed the 1964 report of the United States Surgeon
General, which study was followed by numerous other studies stressing the link
between smoking, including secondary smoke, and cancer, heart, respiratory and
other diseases and medical problems. Furthermore, "no smoking" laws and
ordinances and prohibitions on cigar smoking in certain cases have adversely
affected the sale of cigar products. The Company believes that these factors may
continue and, if continued, will have an adverse effect upon the cigar industry
in general and the Company's business in particular. See "Business -- The
Market."
COMPETITION
The tobacco industry in general, including the cigar industry, is dominated
by a small number of companies which are well known to the public. The Company
believes that, as a manufacturer of premium cigars, it competes with a smaller
number of domestic and foreign companies that specialize in premium cigars and
certain larger companies that maintain premium cigar lines, including
Consolidated Cigar Company ("Consolidated Cigar"), Culbro Corporation and
General Cigar Company. However, the market for premium cigars constitutes a
small portion of the cigar market. The Company believes that smokers of premium
cigars purchase cigars based on the perceived quality of the tobacco. The
process of producing premium cigars is not patented, but is based on the
know-how and experience of master craftsmen who can identify and purchase the
tobacco and roll the tobacco into premium cigars. The principal characteristics
that differentiate one premium cigar from another are the quality of the tobacco
in the cigar, the quality of the tobacco used as a cigar wrapper, the blend of
tobacco and the quality of the rolling. No assurance can be given as to the
ability of the Company to compete successfully in any market in which it
conducts, or may conduct, operations. See "Business -- Competition."
POTENTIAL INFRINGEMENT CLAIM
Consolidated Cigar has advised the Company that its use of the Santiago
Cabana brand name infringes upon Consolidated Cigar's trademark CABANAS.
Although the Company believes that it is not infringing on the Consolidated
Cigar trademark, the Company has modified the Santiago Cabana brand name to
Signature Collection by Santiago Cabana and only uses the SC logo in this
connection. See "Business -- Intellectual Property Rights."
7
<PAGE> 11
DEPENDENCE ON TRADEMARK PROTECTION FOR BRAND NAMES
The brand names owned by the Company are valuable assets of the Company.
Accordingly, the Company has filed for trademark protection for all its brand
trademarks. No assurance can be given that the Company will be successful in
obtaining such trademarks. In the event that such trademarks are not obtained,
the Company could be materially adversely affected. See
"Business -- Intellectual Property Rights."
SHARES ISSUABLE PURSUANT TO WARRANTS AND OPTIONS
Currently, other than the Warrants to be issued pursuant to this Offering
and those set forth below, there are no outstanding warrants or options.
Pursuant to the Company's long-term incentive plan adopted in April 1996, the
Company may grant options or other equity based incentives for up to 500,000
shares of Common Stock. Pursuant to the Company's non-employee directors plan
adopted in April 1996, the Company may grant options for up to 100,000 shares of
Common Stock. In addition, there are outstanding options to purchase a total of
308,000 shares of Common Stock, which includes 125,000 shares at $1.25, 100,000
shares at $1.50, 75,000 shares at $3.50 and 8,000 shares at $4.20. The holders
of the options are likely to exercise them, if at all, at a time when the
Company would otherwise be able to obtain capital on terms more favorable than
those provided in the option. There are also outstanding warrants to purchase a
total of 29,500 shares of Common Stock at $4.50.
DILUTION
Purchasers of Common Stock in this Offering will experience immediate and
substantial dilution of $5.00, or 71% from the $7.00 initial public offering
price of the Common Stock issued pursuant to this Prospectus. See "Dilution."
DEPENDENCE ON MANAGEMENT; MASTER CRAFTSMEN
The Company's business is largely dependent upon its president, Mr. Kevin
Doyle, and the ability of the Company to hire and retain quality master cigar
craftsmen. Mr. Doyle is responsible for both the blending and manufacturing of
the Company's cigars and the engagement of cigar craftsmen. The Company has an
employment agreement with Mr. Doyle. The loss of service of Mr. Doyle or other
key employees would have a material adverse effect upon the Company's business
and prospects. The ability of the Company to increase its capacity is dependent
upon its ability to hire and retain trained hand rollers. The market for
qualified personnel, particularly hand rollers, is highly competitive, and the
Company will compete with other cigar companies in seeking to hire such
employees, and no assurance can be given as to the ability of the Company to
employ or retain such persons. The Company does not currently maintain key-man
life insurance on any of its employees.
LIMITED INSURANCE COVERAGE
Although the Company carries general liability insurance with an aggregate
limit of $1,000,000, and product liability insurance with an aggregate limit of
$1,000,000, it has no health hazard policy. There can be no assurance that the
Company will not be subject to liability which is not covered by its general
liability insurance, and such liability may have a material adverse effect upon
its business. See "Business -- Government Regulation; Tobacco Industry
Litigations."
BROAD DISCRETION OF MANAGEMENT AS TO USE OF PROCEEDS; POTENTIAL CHANGE IN USE OF
PROCEEDS
Management will have broad discretion with respect to the expenditure of
the net proceeds of this Offering. Purchasers of the Securities offered hereby
will be entrusting their funds to the Company's management, upon whose judgment
the investors must depend. The Company may enter into joint ventures,
acquisitions or other arrangements, such as joint marketing arrangements and
licensing agreements, which the Company believes would further the Company's
growth and development. No assurance can be given that any such agreements will
result in additional revenue or net income for the Company. See "Use of
Proceeds."
8
<PAGE> 12
Notwithstanding its plan to develop its business as described in this
Prospectus, future events, including the problems, expenses, difficulties,
complications and delays frequently encountered by businesses, as well as
changes in the economic climate or changes in government regulations, may make
the reallocation of funds necessary or desirable. Any such reallocation will be
at the discretion of the Board of Directors. No assurance can be given that any
such businesses can or will be profitably operated.
LACK OF EXPERIENCE IN INTERNATIONAL OPERATIONS
The Company intends to establish manufacturing facilities outside of the
United States and to market its cigars to premium tobacco stores in the
international market. Except for the purchase of tobacco in the international
market, the Company has no experience in conducting business outside the United
States. The establishment and operation of manufacturing facilities outside of
the United States, especially in less developed countries in which the Company
intends to manufacture cigars, is subject to numerous risks, including political
and currency instability, currency controls and exchange regulations, and import
and export regulations, any of which could have a material adverse effect upon
the Company. These factors, as well as significantly increased competition and
regulations of the tobacco industry internationally, will also affect the
Company as it seeks to market its cigars in the international market. See
"Business -- Production and Manufacturing."
CONTINUED CONTROL BY MANAGEMENT AND PRESENT STOCKHOLDERS
As of the date of this prospectus, approximately 59.9% of the outstanding
shares of Common Stock were owned by the Company's officers and directors.
Following completion of this Offering, such persons will own approximately 43.7%
of the outstanding Common Stock and may be able to elect all of the directors
and will thus be able to continue to control the Company.
NO PRIOR PUBLIC MARKET
Prior to this Offering, there has been no public trading market for the
Company's securities. Although the Company has applied to have the Common Stock
and Warrants included in The Nasdaq SmallCap(R) Market, there can be no
assurance that an active market in either of such securities will develop, or,
if such a market develops, that it will be sustained.
ARBITRARY OFFERING PRICE AND TERMS; EFFECT OF SEPARATE OFFERING OF COMMON STOCK
AND WARRANTS
The prices of the Common Stock and Warrants and the terms of the Warrants
offered hereby have been determined by negotiations between the Company and the
Representative, and do not necessarily bear any relation to the results of the
Company's operations or its financial condition or any other indicia of value.
Furthermore, the shares of Common Stock and Warrants are being offered
separately and not as units, and the Underwriter has no obligation to issue
shares of Common Stock and Warrants to the same purchasers. The market may place
a different relative value on the shares of Common Stock and Warrants than the
Representative.
POSSIBLE DELISTING FROM THE NASDAQ STOCK MARKET AND MARKET ILLIQUIDITY
The Company's Common Stock and Warrants, based upon the completion of this
Offering, should meet the current Nasdaq listing requirements and are expected
to be initially included in The Nasdaq SmallCap(R) Market. If the Company is
unable to satisfy Nasdaq's requirements for continued listing, the Common Stock
and Warrants may be delisted from The Nasdaq SmallCap(R) Market. In such event,
trading, if any, in such securities would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the OTC Bulletin
Board, established for securities that do not meet the Nasdaq SmallCap(R) Market
listing requirements. Consequently, the liquidity of the Company's securities
could be impaired, not only in the number of securities which could be bought
and sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of the Company, and lower
prices for the Company's securities than might otherwise be attained.
9
<PAGE> 13
A significant number of shares of Common Stock and Warrants may be sold to
customers of the Underwriters. Such customers may subsequently engage in the
sale or purchase of the securities through or with the Underwriters. Although
they have no obligation to do so, the Underwriters may become market makers and
otherwise effect transactions in securities of the Company, and, if they
participate in such market, may be dominating influences in the trading of the
securities. The prices and the liquidity of the securities may be significantly
affected by the degree, if any, of the participation of the Underwriters in such
market, should a market arise.
RISKS OF LOW-PRICED STOCKS; PENNY STOCK REGULATIONS
If the Company's securities were delisted from The Nasdaq SmallCap(R)
Market (See "Risk Factors -- "Possible Delisting from The Nasdaq Stock Market
and Market Illiquidity.") they may become subject to Rule 15g-9 under the 1934
Act, which imposes additional sales practice requirements on broker-dealers
which sell such securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
the Company's Common Stock and Warrants and may affect the ability of purchasers
in this Offering to sell any of the Common Stock or Warrants acquired pursuant
to this Prospectus in the secondary market.
The Commission's regulations define a "penny stock" to be any equity
security that has a market price (as therein defined) less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain
exceptions. The penny stock restrictions will not apply to the Company's Common
Stock or Warrants if the Common Stock is listed on The Nasdaq SmallCap(R) Market
and has certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average revenue
criteria. There can be no assurance that the Company's securities will qualify
for exemption from these restrictions. If the Company's Common Stock or Warrants
were subject to the rules on penny stocks, the market liquidity for the Common
Stock or Warrants could be severely adversely affected.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
Commencing one year from the date of this Prospectus, or earlier with the
consent of the Representative, the Warrants may be redeemed by the Company at a
redemption price of $.25 per Warrant upon not less than thirty (30) days', nor
more than sixty (60) days' written notice, if the average closing price of the
Common Stock is at least $14.00 per share during the thirty (30) consecutive
trading days ending within ten (10) days of the date the Warrants are called for
redemption. Redemption of the Warrants could force the holders to exercise the
Warrants and pay the exercise price therefor at a time when it may be
disadvantageous for the holder to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which, at the time the Warrants are called for
redemption, is likely to be substantially less than the market value of the
Warrants. The Company will not call the Warrants for redemption except pursuant
to a currently effective prospectus and registration statement. See "Description
of Securities -- Series A Redeemable Common Stock Purchase Warrants."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS
Holders of the Warrants will only be able to exercise the Warrants if (a) a
current prospectus under the Securities Act relating to the shares of Common
Stock issuable upon exercise of the Warrants is then in effect and (b) such
securities are qualified for sale or exemption from qualification under the
applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts to
maintain the effectiveness of a current prospectus covering the Common Stock
underlying the Warrants, and may not call the Warrants for redemption unless
there is a current and effective registration statement covering the issuance of
the Common Stock upon exercise of the Warrants, there can be no assurance that
the Company will be able to do so. Pursuant to Section 10(a)(3) of the
Securities Act, this Prospectus, unless amended or supplemented in accordance
with the rules and regulations of the Commission pursuant to the Securities Act,
may not be used by the Company in connection with the exercise
10
<PAGE> 14
of any Warrants subsequent to nine months from the date of this Prospectus.
Prior to the expiration of nine months from the date of this Prospectus, or such
longer time period permitted under the Act, it may be necessary to amend or
supplement this Prospectus under certain conditions, in which event the Warrants
could not be exercised prior to the date of the amended Prospectus or
supplement. Unless there is an effective and current registration statement
covering the issuance of the Common Stock upon exercise of the Warrants, the
Company will not accept payment for, or issue Common Stock with respect to, the
exercise of any Warrants, and any payments made by a Warrant holder will be
refunded by the Company. The value of the Warrants may be greatly reduced if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such securities are not qualified or exempt
from qualification in the states in which the holders of Warrants reside. See
"Description of Securities -- Redeemable Common Stock Purchase Warrants."
The Company has registered or qualified the Warrants for sale in a limited
number of states. Although the Company is not aware of any states which prohibit
the registration or qualification of securities of the type offered by the
Company and anticipates that it will qualify for available after-market
exemptions in a majority of states within several months after the completion of
the Offering, there can be no assurance that an exception permitting the
exercise of the Warrants will be available in any jurisdiction other than those
in states which the Common Stock and Warrants were initially registered or are
exempt from registration at the time a holder seeks to exercise Warrants.
POTENTIAL ADVERSE IMPACT OF PREFERRED STOCK ON RIGHTS OF HOLDERS OF COMMON STOCK
The Company's certificate of incorporation authorizes the issuance of
so-called "blank check" preferred stock with the Board of Directors having the
right to determine the designations, rights, preferences and privileges of the
holders of one or more series of Preferred Stock. Accordingly, the Board of
Directors is empowered, without stockholder approval, to issue Preferred Stock
with voting, dividend, conversion, liquidation or other rights which could
adversely affect the voting power and equity interest of the holders of Common
Stock. The board of directors has the power to issue shares of Preferred Stock
with the right to vote more than one vote per share. The Preferred Stock could
be utilized as a method of discouraging, delaying or preventing a change of
control of the Company. The possible impact on takeover attempts could adversely
affect the price of the Common Stock. Although the Company has no present
intention to create any series of Preferred Stock or to issue any shares of
Preferred Stock, the Company may issue such shares in the future. The Company
has agreed that for a period of three years from the date of this Prospectus, it
will not create any series of Preferred Stock or issue any shares of Preferred
Stock without the prior written consent of the Representative.
NO COMMON STOCK DIVIDENDS ANTICIPATED
The Company presently intends to retain future earnings, if any, in order
to provide funds for use in the operation and expansion of its business and,
accordingly, does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.
SHARES ELIGIBLE FOR FUTURE SALE; OFFERING BY SELLING SHAREHOLDERS
All of the presently issued and outstanding shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 promulgated under
the Securities Act. Rule 144 governs resales of such restricted securities for
the account of any person (other than an issuer), and restricted and
unrestricted securities for the account of an "affiliate" of the issuer.
Restricted securities generally include any securities acquired directly or
indirectly from an issuer of its affiliates which were not issued or sold in
connection with a public offering registered under the Securities Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of the
Company may include its directors, executive officers and persons directly or
indirectly owning 10% or more of the outstanding Common Stock. Under Rule 144
unregistered resales of restricted Common Stock cannot be made until it has been
held for two years from the later of its acquisition from the Company or an
affiliate of the Company. Thereafter, shares of Common Stock may be resold
without registration subject to Rule 144's
11
<PAGE> 15
volume limitation, aggregation, broker transaction, notice filing requirements,
and requirements concerning publicly available information about the Company
(the "Applicable Requirements"). Resales by the Company's affiliates of
restricted and unrestricted Common Stock are subject to the Applicable
Requirements. The volume limitations provide that a person (or persons who must
aggregate their sales) cannot, within any three-month period, sell more than the
greater of (i) one percent of the then outstanding shares, or (ii) the average
weekly reported trading volume during the four calendar weeks preceding each
such sale. A person who is not deemed an "affiliate" of the Company and who has
beneficially owned shares for at least three years would be entitled to sell
such shares under Rule 144 without regard to the Applicable Requirements.
If a public market develops for the Company's Common Stock, the Company is
unable to predict the effect that sales made under Rule 144 or other sales may
have on the then prevailing market price of the Common Stock. Of the 3,586,948
presently outstanding shares of Common Stock, no shares of Common Stock will
become eligible for sale pursuant to Rule 144 until 90 days after the date of
this Prospectus. Thereafter, at various times throughout the two year period
from the effective date of this Offering, 892,669 shares of Common Stock will
become eligible for sale pursuant to Rule 144.
In addition, the holders of 865,000 shares of Common Stock and the holders
of 1,829,279 shares of Common Stock have agreed that they will not sell their
shares for 12 months and 16 months, respectively, from the date of this
Prospectus, without the prior approval of the Representative. (the "Lock-up).
The Company has filed a registration statement covering a secondary offering by
selling shareholders, each of whom will be subject to the Lock-up.
12
<PAGE> 16
DILUTION
The net tangible book value of the Company's Common Stock at March 31, 1996
was approximately $0.38 per share. Net tangible book value represents the amount
of the Company's tangible assets reduced by the amount of its liabilities. After
taking into effect the net change in net tangible book value of the Company
after March 31, 1996, as a result of common stock issued and the sale of the
1,325,000 shares of Common Stock and 1,325,000 Warrants pursuant to this
Offering, after deducting fees and other estimated expenses of the Offering, the
Company's net tangible book value as of March 31, 1996 would have been
approximately $2.00 per share. This amount represents an immediate increase in
net tangible book value per share of approximately $1.62 to the present
stockholders and an immediate dilution (the difference between the offering
price of the Shares and the net tangible book value per share after the
Offering) of approximately $5.00.
The following table illustrates the dilution of one share of Common Stock
as of March 31, 1996:
<TABLE>
<S> <C> <C>
Offering price per share of Common Stock............................... $7.00
Net tangible book value per share at March 31, 1996.................... $0.38
Increase per share attributable to sale of shares after
May 31, 1996 through the date of this prospectus..................... 0.16
Increase per share attributable to sale of the Shares.................. 1.41
Increase per share attributable to sale of Warrants.................... 0.05
-----
Pro forma net tangible book value per share after offering............. 2.00
Dilution to investors.................................................. $5.00*
</TABLE>
- ---------------
* If the Underwriters exercise the over-allotment option in full, the pro forma
net tangible book value would be $2.17 per share of Common Stock, resulting in
an increase in the net tangible book value per share of $1.79 and dilution to
the public investors of $4.83 per share.
The following tables summarize, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration and the average price per share paid to the Company for the Common
Stock outstanding prior to this Offering and to be paid by the purchasers of the
Shares:
<TABLE>
<CAPTION>
SHARES OF PERCENT TOTAL PERCENT AVERAGE
COMMON OF CASH OF TOTAL PRICE
STOCK TOTAL CONSIDERATION CONSIDERATION PER
PURCHASED SHARES PAID PAID SHARE
--------- ------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.......... 3,586,948 73.02% $ 2,649,101 22.22% $0.74
======
Public Purchasers.............. 1,325,000 26.98% 9,275,000 77.78% $7.00
------ ---- -------- ----- ------
Total................ 4,911,948 100.00% 11,924,101 100.0%
====== ==== ======== =====
</TABLE>
13
<PAGE> 17
USE OF PROCEEDS
The net proceeds from the sale of the Securities offered hereby, estimated
at approximately $7.9 million based on assumed initial public offering price of
$7.00 per share of Common Stock and $.125 per warrant, after deducting estimated
costs of this Offering, will be used substantially as follows:
(a) Approximately $2.0 million (25% of the net proceeds) to expand its
retail operations(1). See "Business -- Marketing."
(b) Approximately $1.7 million (22%) to purchase tobacco for future
production(2). See "Business -- Production and Manufacturing."
(c) Approximately $1.2 million (15%) to increase its manufacturing
operations, including the lease of additional plant facilities and the
hiring of additional manufacturing personnel(3). See "Business --
Production and Manufacturing."
(d) Approximately $1.0 million (13%) to expand its wholesale
distribution network(4). See "Business -- Marketing."
(e) The balance of approximately $2.0 million (25%) will be used for
working capital and other corporate purposes, including the purchasing of
tobacco inventory for current use.
None of the proceeds of this Offering are allocated to pay obligations to
any officers, directors or principal stockholders. However, the Company has
agreements with Mr. Kevin Doyle, president and chief executive officer, Mr.
Thomas R. Dilk, chief financial officer and one employee of the Company who is a
principal stockholder, pursuant to which the Company is paying salaries at the
aggregate annual rate of $274,000. See "Management -- Remuneration" and. To the
extent that the Company's operations do not generate sufficient cash to enable
it to pay such compensation, a portion of the proceeds of this Offering
allocated to working capital may be used for such purposes.
The foregoing represents the Company's best estimate of its allocation of
the proceeds of this Offering based upon the present state of its business,
operations and plans, current business conditions and the Company's evaluation
of the market for cigars. Management will have broad discretion to determine the
use of a substantial portion of the proceeds of this Offering, and conditions
may develop which could cause management to reallocate proceeds from the
categories listed above, including difficulties encountered in implementing its
proposed expanded marketing program, other problems encountered in the Company's
business and changes in government policy, none of which can be predicted with
any degree of certainty. Furthermore, future events, including the problems,
expenses, difficulties, complications and delays frequently encountered by new
businesses, as well as changes in the economic climate and changes or
anticipated changes in government regulations may make the reallocation of funds
necessary or desirable. Any such reallocation will be at the discretion of the
Board of Directors.
The Company believes that the net proceeds from this Offering will be
sufficient to satisfy the Company's cash requirements for at least twelve months
following the date of this Prospectus. However, it is possible that conditions
may arise as a result of which the Company may require additional capital prior
to the expiration of such period, and no assurance can be given that the Company
will be able to obtain any or adequate funds when required or that any funds
available to it will be on reasonable terms.
- ---------------
(1) The Company plans to open approximately five retail locations in the next 12
months. ($2.0 million).
(2) To insure its future ability to produce cigars from properly aged tobacco,
the Company plans to invest in and store an inventory of premium tobacco.
($1.7 million).
(3) The Company intends to complete the expansion of its Miami facility, and
will complete the construction, furnishing and staffing for its facility in
the Dominican Republic. ($1.2 million).
(4) The Company intends to expand its activities in the wholesale distribution
of cigars manufactured by others, and will commence alternative distribution
for cigars and accessories. ($1.0 million).
14
<PAGE> 18
The Company may use a portion of the proceeds of this Offering in
connection with joint ventures, acquisitions or other arrangements, such as
joint marketing arrangements and licensing agreements, which management deems
necessary or desirable in connection with the development of the Company's
business and related activities, although the Company has not entered into any
letters of intent or agreements with respect to any such arrangements or
transactions and has no informal agreement with respect to any such transaction.
Pending the application of the funds as described above, said funds will be
invested in high quality short-term interest-bearing deposits and securities.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the sale of the Securities offered
hereby:
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------
AS
ACTUAL ADJUSTED(1)(3)
---------- ----------------
<S> <C> <C>
Long-term liabilities due to Stockholder:....................... $ 49,621 $ 49,621
Stockholders' equity:
Preferred Stock, par value $.001 per share, 2,000,000 shares
authorized, none issued or outstanding..................... -- --
Common Stock, par value $.001 per share, 10,000,000 shares
authorized, 3,408,369 shares issued and outstanding and
4,911,948 outstanding as adjusted(2)....................... 3,408 4,912
Additional paid-in capital.................................... 1,852,945 10,408,468
Accumulated deficit........................................... (550,743) (569,839)
Unearned compensation........................................... (11,320) (6,724)
---------- -----------
Total stockholders' equity...................................... 1,294,290 9,836,817
---------- -----------
Total capitalization............................................ $1,343,911 $ 9,886,438
========== ===========
</TABLE>
- ---------------
(1) Adjusted to reflect the sale of 181,329 shares of Common Stock at $3.50 per
share prior to the date of this Prospectus.
(2) Does not include an aggregate of 937,500 shares of Common Stock reserved for
issuance as follows: (a) 500,000 shares for issuance pursuant to the
Company's 1996 Long-Term Incentive Plan, (b) 308,000 shares upon the
exercise of outstanding options plus 29,500 shares upon the exercise of
outstanding warrants and (c) 100,000 shares for issuance pursuant to the
Company's Non-Employee Directors Stock Option Plan.
(3) As adjusted to reflect the net effect of other insignificant Common Stock
transactions during the period subsequent to March 31, 1996 through the date
of this prospectus. Such Common Stock issuances and cancellations were
primarily related to employee compensation.
16
<PAGE> 20
SELECTED FINANCIAL INFORMATION
Set forth below is selected financial information with respect to the
Company for the period ended March 31, 1996 and the period from inception
(October 3, 1994) to March 31, 1995. The selected financial information has been
derived from the financial statements which appear elsewhere in this Prospectus.
This data should be read in conjunction with the financial statements of the
Company and the related notes which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
INCEPTION TO
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
EARNINGS DATA:
Sales........................................................... $ 820,950 $ 88,332
Cost of sales................................................... 592,258 51,953
---------- ----------
Gross Profit.................................................. 228,692 36,379
Operating costs and expenses.................................... 723,026 48,151
---------- ----------
Loss from operations.......................................... (494,334) (11,772)
Interest expense................................................ 27,253 --
---------- ----------
Loss before provision for income taxes.......................... (521,587) (11,772)
Provision for income taxes...................................... -- --
---------- ----------
Net loss........................................................ $ (521,587) $ (11,772)
========== ==========
Weighted average shares outstanding............................. 3,255,135 3,228,764
Loss per share.................................................. $ (0.16) $ (0.00)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).................................... $888,542 $ (519)
Total assets.................................................... 1,658,402 24,059
Total liabilities............................................... 364,112 35,831
Stockholder's equity (deficit).................................. 1,294,290 (11,772)
</TABLE>
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1996 AND 1995
The Company was founded in October 1994. The results of operations for the
year ended March 31, 1996 are not readily comparable with the results of
operations for the period from inception (October 3, 1994) to March 31, 1995,
which is referred to as the six months ended March 31, 1995. During the six
months from inception to March 31, 1995, the Company's sole business was the
operation of one retail store in Key Largo, Florida. This was operated as a sole
proprietorship by Mr. Kevin Doyle, president of the Company and sold cigars
manufactured by others. During the last half of the fiscal year ended March 31,
1996, the Company expanded its retail operations, commenced manufacturing cigars
and established distribution channels to premium tobacco stores.
The Company's sales for 1996 were approximately $821,000, representing an
increase of 833% from the Company's sales for the six months ended March 31,
1995, which were approximately $88,000. This increase is attributed to the
increase in volume. The primary source of revenue for 1996 was from retail sales
at the Key Largo store, which was open for twelve months, and the South Beach
store, which was open for approximately one month. The combined sales of these
stores was approximately $545,000 or 67% of total sales. The remaining sales of
$277,000, or 33% of revenue, was attributable to wholesale sales from the
factory which opened in December 1995. The Company's sales for the six months
from inception through March 31, 1995 were entirely from sales from its Key
Largo retail store.
Gross profit increased to approximately $229,000, or approximately 28% of
sales, in fiscal 1996 as compared to approximately $36,000, or approximately 41%
of sales in the six months ended March 31, 1995, an increase of 536%. The
decline in gross margin reflects (i) the commencement of manufacturing in
December 1995 and the accompanying inefficiencies reflecting start-up and
training costs of $38,000; (ii) the establishment of a cigar box manufacturing
division, which was necessitated by the inability to purchase an adequate supply
of boxes from outside sources, resulting in higher costs for boxes of $39,000;
and (iii) lower margins from wholesale sales than from retail sales resulting in
a $30,000 decline in the gross margin.
Selling expenses for the year ended March 31, 1996 were approximately
$385,000 as compared to $41,000 for the six months ended March 31, 1995,
representing an 838% increase. The increase in selling expenses reflects the
expanded nature of the Company's operations. During fiscal 1996, the Company
expanded its marketing efforts as it expanded its retail base with the opening
of a second store late in the fiscal year and the commencement of a wholesale
marketing effort. During the six months ended March 31, 1995, the Company had
only modest selling expenses relating to its one retail store in Key Largo.
General and administrative expenses for the year ended March 31, 1996 were
approximately $338,000 reflecting the expanded nature of the Company's
operations and include $165,000 for salaries and related costs; and $69,000 for
professional fees. Pursuant to a compensation agreement with the chief financial
officer, compensation of $40,000 was paid in the form of Common Stock. During
the six months ended March 31, 1995, general and administrative expenses were
$7,200.
Interest expense was approximately $27,000 for fiscal 1996 and includes the
value of shares of Common Stock issued with the debt obligations. The Company
had no debt obligations in the six months ended March 31, 1995.
As a result of the foregoing factors, the Company sustained losses of
approximately $522,000, or $.16 per share, for 1996, as compared with a loss of
approximately $12,000, or $.00 per share, for the six months ended March 31,
1995.
During the quarter ended June 30, 1996, the Company changed the name of its
Santiago Cabana cigar line to Signature Collection by Santiago Cabana. The
Company does not believe that such a change will have a material adverse effect
on the Company's business.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had working capital of approximately
$889,000. Since its inception, it has sustained losses of approximately
$534,000. Its operations through March 31, 1996, were funded principally through
a $250,000 loan from investors in October, 1995, and the sale of Common Stock
during the period from December 1995 through May 1996 which raised gross
proceeds of approximately $2,385,000, which was used for working capital and
other corporate purposes.
In April 1996, the Company entered into an agreement for the future
purchase of tobacco at an estimated cost of $525,000, of which $300,000 has been
deposited as of the date of this Prospectus. The Company believes that the net
proceeds from the sale of the Common Stock and Warrants pursuant to this
Prospectus together with the sales of its products will be sufficient to fund
its operations for the balance of fiscal 1997 and for fiscal 1998, and that it
will have sufficient cash resources to finance this commitment pending the
successful completion of this Offering.
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BUSINESS
INTRODUCTION
The Company is a vertically integrated manufacturer, distributor and
retailer of premium cigars. The Company's cigars are hand produced, using fine
aged tobacco and traditional rolling techniques. The cigars are sold under the
premium brand names of Signature Collection by Santiago Cabana, Havana Classico
and Calle Ocho. The Company also markets three flavored cigars -- Rum Runner,
West Indies Vanilla and Island Amaretto, which use premium tobacco and are
flavored with rum, vanilla and amaretto extracts.
The Company commenced operations in 1994 when Kevin Doyle, President of the
Company, opened a cigar store in Key Largo, Florida. In early 1996, the Company
opened a second retail store in the South Beach section of Miami, Florida. A
third retail store in Key West, Florida is presently under construction and is
scheduled to be opened in mid 1996. The Company's cigar stores sell its cigars
as well as other premium cigars and related products. The Company also sells its
cigars at its factory store in Miami, Florida.
In early 1995, the Company took two steps to expand its operations beyond
the one retail store in Key Largo. The first step was the development of a
unique tobacco blend that became the foundation of the Company's first cigar
line, Signature Collection (then known as Santiago Cabana). The second step was
the lease of a manufacturing facility at which a staff of full-time master
craftsmen were hired to hand-roll cigars. The factory is designed after a
traditional Cuban cigar factory. Such factories utilize a hand-made
manufacturing process, which effects the manner in which tobacco leaves are
processed, aged and made into cigars. The Company's factory has a current
capacity to produce approximately 1.5 million premium cigars per year.
PRODUCT LINES
Premium Brands
Premium cigars are generally defined according to three criteria: (i) the
cigars are made completely by hand; (ii) the cigars consist of long-filler
tobacco; and (iii) the cigars retail at a price range from $1 to more than $20
each.
Hand-rolled cigars consist of three different categories of tobacco -- the
filler is the tobacco in the cigar, the binder is the leaf that binds the filler
together and the wrapper is the tobacco leaf that wraps around the rolled
tobacco and finishes the cigar. A premium cigar uses only long-filler tobacco,
binders and wrappers that are composed solely of tobacco leaf. Long-filler
tobacco consists of half tobacco leaves rolled up whereas short-filler tobacco
consists of smaller pieces of tobacco, including the portions of the long-filler
tobacco which are cut and discarded in producing premium cigars. The quality of
a premium cigar is based on the quality of the tobacco used for the filler,
binder and wrapper. Cigars that are not premium cigars typically use short-
filler, and may be wholly or partially manufactured by machine.
The Company has developed and markets a full line of premium cigars, which
are sold under the brand names of Signature Collection, Havana Classico and
Calle Ocho. Each of these cigars is offered in eight sizes and ring gauges and
sells at retail prices ranging from $4.95 to $17.00, depending on the size with
an average price between $6.00 to $8.00. Each brand of premium cigars is a blend
of premium selected tobaccos. Such tobaccos are combined according to
brand-specified formulas to create the cigar. In the Company's premium cigars,
the wrapper, binder and filler are natural tobacco leaf and is formulated by the
Company to meet the tastes of premium cigar buyers. The tobaccos for each cigar
are grown in up to five countries, including the Dominican Republic, Nicaragua,
Honduras, Ecuador and Mexico. The cigar wrapper is a different premium tobacco
leaf.
Signature Collection, which is the Company's first cigar, was introduced in
September, 1995. Havana Classico was introduced in December, 1995, and Calle
Ocho was introduced in April 1996. The Company intends to develop additional
lines of premium cigars as part of the expansion of its marketing and
manufacturing operations. These lines may be designed to sell at retail at
prices lower than its present lines in an attempt to expand its customer base.
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Flavored Brands
In addition to the premium brands, the Company also offers three flavored
cigars -- Rum Runner, a rum-flavored cigar, West Indies Vanilla, a
vanilla-flavored cigar, and Island Amaretto, an amaretto-flavored cigar. The
flavorings in these cigars are extracts, which are purchased by the Company.
These cigars use premium tobacco, however, the tobacco is short-filler which is
generated from the manufacture of the premium cigar brands. Each of the flavored
cigars is offered in three sizes and sells at retail prices in the $2.00 to
$2.50 range. The Company intends to introduce new flavors, sizes, and packaging
for its flavored cigars.
Private Label and Custom Brands
The Company also offers certain of its existing cigar lines, as well as
cigars manufactured by others, to the private label market. This market consists
of organizations, such as mass market retailers, hotels, restaurants and clubs
and special events. The Company's sales to the private label market through
March 31, 1996 have been almost exclusively sales of cigars manufactured by
others. At present, the Company is negotiating with additional suppliers and
customers to expand its private label operations, although no assurance can be
given that the Company will be successful in these efforts.
THE MARKET
The Company believes that there is an increasing market for cigars.
Industry reports show that worldwide cigar sales increased in 1994 for the first
time since 1970. Cigar sales in 1970 amounted to just under 8 billion cigars.
The number of cigars sold decreased significantly and, in 1994, cigar sales were
approximately 2.3 billion. Although sales in the United States are still much
lower than they were in the 1970s and 1980s (due, in significant part, to a
well-developed anti-smoking movement and smoking restrictions), sales in 1995
increased approximately 28% from 1994 to nearly 2.6 billion cigars. It is
estimated that cigar sales in the United States amount to more than $1 billion
at the retail level.
The Company believes, based on estimates from the Cigar Association of
America, that the market for premium cigars is currently growing. According to
industry statistics, sales of premium cigars account for approximately 6.5% of
the United States cigar market. The number of premium cigars sold has increased
each year since 1991, and sales of premium cigars in 1995 represented a 30.6%
increase of the number sold in 1994. The Company is seeking to take advantage of
this trend; however, no assurance can be given that the trend will continue or
that the Company will benefit from any growth in the premium cigar market.
MARKETING
Wholesale Distribution
The Company sells its premium cigars to tobacco stores and tobacco
departments of retail stores that sell a range of premium cigars and tobacco
products. The Company also sells certain of its existing cigar lines, as well as
premium cigars manufactured by others, for the private label market. This market
consists of organizations, such as mass market retailers, hotels, restaurants
and clubs and sponsors of special events, which would sell the cigars either
under their own brand name or a brand name developed by the Company.
The Company does not have a significant marketing staff and most of its
sales to date have resulted from favorable press, advertising in the trade press
and customer response to the Company's cigars. The Company intends to expand its
wholesale distribution following completion of this Offering by (a) implementing
a marketing program directed at premium tobacco stores both within and outside
the United States through the use of both commission salespersons and
independent distributors, (b) marketing newly developed premium cigars
manufactured by the Company and premium cigars manufactured by others to the
private label market, and (c) introducing additional lines of premium cigars and
marketing such cigars as well as its flavored cigars through additional
distribution channels.
Retail
The Company's retail stores are located in the South Florida resort areas
and are designed to attract the attention of both the tourist and the premium
cigar smoker. To differentiate the Company's retail shops from other high-end
tobacco stores, the Company is reintroducing the roller to the buyer by
providing each shop with an on-site roller. The Company believes that the
experience of seeing a cigar being constructed is
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something few consumers have experienced. During the earlier part of this
century, most cigars were sold in drugstore-type shops where an on-site roller
produced and immediately sold his or her cigars. Each shop's on-site master
cigar craftsman provides customers with an entertaining and educational
experience.
The initial store, in Key Largo, was opened in October 1994 by Mr. Kevin
Doyle, president of the Company, under the name Caribbean Cigar Factory. In
March 1996, the Company opened its second store, in the South Beach section of
Miami Beach, Florida. The third store, which is under construction, is scheduled
to open in mid 1996 in Key West, Florida. The retail stores sell, in addition to
the Company's cigars, other premium cigars brands and related products. Retail
sales of cigars are comprised of Company manufactured brands (representing
approximately 65% of sales) and cigars manufactured by others (representing
approximately 35% of sales).
The Company's retail stores provide the Company with both sales of cigars
and tobacco products as well as names for inclusion on the Company's mailing
list. The Company intends to use its mailing list to distribute catalogs, the
first of which is scheduled for the second half of 1996, direct mail
solicitations and a monthly newsletter, which would include any information
relating to new and potential products. The Company intends to expand its mail
order business through the purchase and use of available mailing lists which the
Company believes are targeted to premium cigar smokers.
Following the completion of this Offering, the Company intends to expand
its retail operations through the opening of additional retail stores, both in
South Florida and in other cities in the United States in which it believes
there is a local market for premium cigars. In July 1996, the Company signed a
lease for a retail store in Coconut Grove, Florida, that the Company believes
will be operational in the Fall of 1996.
Advertising and Promotions
The Company supports both the wholesale and retail distribution of its
cigars through advertising in numerous publications, including Cigar Aficionado,
Tobacconist, Smokeshop and Smoke magazines, along with general circulation
publications oriented to the type of person who, the Company believes, would
smoke premium cigars. In this connection, the Company intends to use other
marketing techniques that have been identified as contributing to the increased
interest in premium cigars, including, but not limited to, the sponsorship of
cigar evenings at hotels, restaurants and clubs throughout the United States.
The Company intends to expand its advertising and marketing through promotions
distributed at point of sale and through direct mail. The Company also
participates in trade shows throughout the United States.
PRODUCTION AND MANUFACTURING
Each of the Company's three premium cigar brands is hand rolled at the
Company's manufacturing facility in Miami, Florida. The manufacturing process
for premium cigars includes the selection, purchase and aging of the tobacco and
the hand rolling of the cigars. The tobacco is selected by the Company based
upon the flavor and quality of the tobacco. The availability and quality of
tobacco varies from season to season as a result of such factors as weather
conditions and the demand for the tobacco. As a result of the difference in
taste between different lots, the Company is continuously reformulating the
tobaccos in its premium cigars in order to maintain a consistent taste.
The taste of the cigar is based on the quality and blend of the tobacco.
The Company's premium cigars use a blend of imported fine aged tobaccos. After
tobacco is grown, it is typically aged for a period of between 18 months to two
years. This aging process releases ammonia, which is naturally occurring in
tobacco, and is believed to reduce the overall nicotine content in the tobacco.
The time period for aging has been substantially reduced in recent months due to
the high demand for tobacco worldwide.
The particular tobacco blend for each of the Company's cigars is formulated
from two to four different tobaccos. The Company's premium cigars use
long-filler tobacco from the Dominican Republic, Nicaragua, Honduras, Ecuador
and Mexico. The production process begins as each type of tobacco leaf is placed
in different boxes at the roller's desk, and the roller is given the formula for
the cigar he or she is making. The roller takes the leaves and presses them
together in their hand; then places the leaves on a binder leaf (a flat elastic
leaf of tobacco). The roller then rolls them together into a "bunch," cuts them
to the appropriate length and places them in the bottom half of a wooden mold.
After setting the upper half of the mold in place, the entire box is put into a
screw press. The press operator will usually break down the press once, turn the
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"bunch" inside the mold and then re-box and press the bunch again. The total
pressing time is approximately one hour. The roller removes the "bunch" and
wraps it with the wrapper leaf (a supple, very elastic leaf that has been cut in
half). Keeping constant pressure on the "bunch" and the wrapper, the cigar maker
rolls the leaf around the bunch and applies a bit of vegetable glue to bond the
wrapper leaf together at the head. This prevents the cigar from unraveling.
Supervisors inspect cigars by hand. They feel them for weight and for hard spots
(which can cause an uneven burn). In addition, the cigars are weighed in bunches
of 50 to ensure consistency in weight. If the inspector finds any variations in
the cigar's quality, consistency or weight he will reject the cigars. The
completed cigars are then aged for at least 30 days. The finished cigar is then
packed in the Company's Spanish cedar cigar boxes, and shipped to customers or
retail outlets.
The Company's flavored cigars are manufactured from short-filler tobacco
using a proprietary flavoring process. The cigars are made by using tobacco
generated from the manufacture of the premium cigar brands. This tobacco is then
combined, flavored and sold through the Company's wholesale, retail and mail
order channels.
The Company organized a wholly-owned subsidiary in the Cayman Islands under
the name Caribbean Cigar Company (Cayman) Limited (the "Cayman Subsidiary") to
conduct the Company's anticipated offshore manufacturing operations. In
particular, the Company, through the Cayman Subsidiary, is negotiating to lease
production facilities in the Dominican Republic; however, no assurance can be
given that the Company will be able to negotiate a lease or manufacture cigars
to the Company's standards. In the event that the Company is not successful in
establishing a manufacturing facility in the Dominican Republic, it will seek,
with no assurance of success, to establish such a facility in another country in
which the Company believes there is a substantial and economical labor pool. The
Company also intends to expand the factory in Miami, Florida in order to
increase the number of rollers in production and to create a larger facility for
the Company's administration and marketing staff.
RAW MATERIALS
The Company uses tobaccos from the Dominican Republic, Nicaragua, Honduras,
Ecuador and Mexico, and the Company does not believe that it is dependent upon
any single source for tobacco. Each buying season, the Company analyzes and
evaluates the tobacco producing markets worldwide. The Company seeks to source,
to the extent available, aged leaf that can be blended and matched to the taste
profile of the Company's cigars. The Company has no long-term commitment to
purchase tobacco. In addition, the Company has purchased and has allocated a
percentage of the proceeds of this Offering for, tobacco for future delivery.
The Company, and the cigar industry, in general, has recently experienced
shortages in certain types of natural wrapper and filler due to the increase in
demand for tobacco for premium cigars. Although the shortages have not
materially impacted cigar production, no assurances can be made that future
shortages will not have an adverse effect on the Company. In view of both the
potential shortages and the recent practices of certain suppliers of selling
tobacco before it is fully aged, the Company intends to use a portion of the
proceeds of the Offering to purchase tobacco for future use as well as for
current inventory. See "Use of Proceeds." The Company believes that by
purchasing tobacco for future use, the Company can be in a better position both
to age the tobacco, which improves the taste, and to reduce the risks of tobacco
shortages.
COMPETITION
The tobacco industry in general, including the cigar industry, is dominated
by a small number of companies which are well known to the public. The Company
believes that, as a manufacturer of premium cigars, it competes with a smaller
number of domestic and foreign companies that specialize in premium cigars and
certain larger companies that maintain premium cigar lines, including
Consolidated Cigar, Culbro Corporation and General Cigar Company. However, the
market for premium cigars constitutes a small portion
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of the cigar market. The Company believes that smokers of premium cigars
purchase cigars based on the perceived quality of the tobacco and the taste
profile of the cigar. The process of producing premium cigars is not patented,
but is based on the know-how and experience of master craftsmen who can identify
and purchase the tobacco and roll the tobacco into premium cigars. The principal
characteristics that differentiate one premium cigar from another are the
quality of the tobacco in the cigar, the quality of the tobacco used as a cigar
wrapper and the quality of the rolling. Cigars are a natural product, therefore
the taste profile of cigars is not uniform and tastes are subject to change. No
assurance can be given as to the market for the Company's cigars in the future
or the ability of the Company to market its cigars successfully.
GOVERNMENT REGULATION; TOBACCO INDUSTRY LITIGATION
The tobacco industry, in general has been subject to regulation by Federal,
state and local governments, and recent trends have been toward increased
regulation. Such regulations include labeling requirements, limitations on
advertising and prohibition of sales to minors, laws restricting smoking from
public places including offices, office buildings and restaurants and other
eating establishments. Because the tobacco for the Company's cigars is hand
rolled, the Company's factory may become subject to increased regulation under
Federal and state health and safety regulations. In addition, cigars have been
subject to excise taxation at the Federal, state and local level, and such
taxation may increase in the future. Tobacco products are especially likely to
be subject to increases in excise taxation because of the detrimental effects of
tobacco on the health of both smokers and others who inhale secondary smoke. No
assurance can be given that future regulations and tax policies will not have a
material adverse affect upon the ability of cigar companies, including the
Company, to generate revenue and profits.
Excise Taxes. Effective January 1, 1991, the federal excise tax rate on
large cigars (weighing more than three pounds per thousand cigars) was increased
to 10.625%, capped at $25.00 per thousand cigars, and again increased to 12.75%,
capped at $30.00 per thousand cigars, effective January 1, 1993. However, the
base on which the federal excise tax is calculated was lowered effective January
1, 1991 to the manufacturer's selling price, net of the federal excise tax and
certain other exclusions. The excise tax on pipe tobacco increased effective
January 1, 1993 to $0.675 per pound. The federal excise tax on little cigars
(weighing less than three pounds per thousand cigars) increased from $0.75 per
thousand cigars to $0.9375 per thousand cigars effective January 1, 1991. The
excise tax on little cigars increased to $1.125 per thousand cigars effective
January 1, 1993. The Company does not believe that the current level of excise
taxes will have a material adverse effect on the Company's business, but there
are no assurances that additional increases will not have a material adverse
effect on the Company's business.
Cigars and pipe tobacco are also subject to certain state and local taxes.
Deficit concerns at the state level continue to exert pressure to increase
tobacco taxes. Since 1964, the number of states that tax cigars has risen from
six to forty-one. Since 1988, the following eleven states have enacted excise
taxes on cigars, where no prior tax had been in effect: California, Connecticut,
New Jersey, New York, North Carolina, Ohio, Rhode Island, Illinois, Missouri,
Michigan and South Dakota. State excise taxes generally range from 2% to 75% of
the wholesale purchase price. In addition, the following seven states have
increased existing taxes on large cigars since 1988: Arkansas, Idaho, Iowa,
Maine, New York, North Dakota and Washington. The following five states tax
little cigars at the same rates as cigarettes: California, Connecticut, Iowa,
Oregon and Tennessee. Except for Tennessee, all of these states have increased
their cigarette taxes since 1988.
State cigar excise taxes are not subject to caps similar to the federal
cigar excise tax; therefore, although the Company does not believe that state
excise taxes have a material adverse effect on the Company's business, there are
no assurances that increases in such state excise taxes or new state excise
taxes will not in the future have a material adverse effect on the Company's
business.
Health Regulations. Cigar manufacturers, like other producers of tobacco
products, are subject to regulation in the U.S. at the federal, state and local
levels. Together with changing public attitudes toward smoking, a constant
expansion of smoking regulations since the early 1970s has been a major cause
for the decline in consumption. Moreover, the trend is toward increasing
regulation of the tobacco industry.
In recent years, a variety of bills relating to tobacco issues have been
introduced in the Congress of the United States, including bills that would have
prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of such advertising expenses; set a
federal minimum age of 18
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years for use of tobacco products; increased labelling requirements on tobacco
products to include, among other things, addiction warnings and lists of
additives and toxins; modified federal preemption of state laws to allow state
courts to hold tobacco manufacturers liable under common law or state statutes;
and shifted regulatory control of tobacco products and advertisements from the
Federal Trade Commission to the U.S. Food and Drug Administration (the "FDA").
In addition, in recent years, there have been proposals to increase tobacco
excise taxes. In some cases, hearings were held, but only one of these proposals
was enacted, namely, that states, in order to receive full funding for federal
substance abuse block grants, establish a maximum age of 18 years for the sale
of tobacco products along with an appropriate enforcement program. The law
requires that states report on their enforcement efforts. Future enactment of
the other bills may have an adverse effect on the sales or operations of the
Company.
In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Such places
where the majority of states have prohibited smoking include: any public
building designated as non-smoking; elevators; public transportation;
educational facilities; health care facilities; restaurants and workplaces.
Local legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. In a few states, legislation has been introduced,
but has not passed, which would require all little cigars sold in those states
to be "fire-safe" little cigars, i.e., cigars which extinguish themselves if not
continuously smoked. Passage of this type of legislation and any other related
legislation could have a materially adverse effect on the Company's cigar
business because of the technological difficulties in complying with such
legislation. There is currently an effort by the federal Consumer Product Safety
Commission to establish such standards for cigarettes. The enabling legislation,
as originally proposed, included little cigars. However, little cigars were
deleted due to the lack of information on fires caused by these products.
Although federal law has required health warnings on cigarettes since 1965,
there is no federal law requiring that cigars or pipe tobacco carry such
warnings. However, California requires "clear and reasonable" warnings to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, Proposition 65, can result in a civil penalty
not to exceed $2,500 per day for each violation. Although similar legislation
has been introduced in other states, no action has been taken.
During 1988, 26 manufacturers of tobacco products, including the largest
mass-marketers of cigars, entered into a settlement of legal proceedings filed
against them pursuant to Proposition 65. Under the terms of the settlement, the
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with the following specified warning label:
"This Product Contains/Produces Chemicals Known To The State of California To
Cause Cancer, And Birth Defects or Other Reproductive Harm." Although the
settlement of the Proposition 65 litigation by its terms only impacts
California, it is not practical for national cigar manufacturers to confine
their warning labels to cigars earmarked for sale in California. Consequently,
since 1988, most cigars sold in the United States carry cancer warning labels.
The U.S. Environmental Protection Agency (the "EPA") has recently published
a report with respect to the respiratory health effects of passive smoking,
which report concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health impact. In June 1993, Philip
Morris and five other representatives of the tobacco manufacturing and
distribution industries filed suit against the EPA seeking a declaration that
the EPA does not have the statutory authority to regulate environmental tobacco
smoke, and that, in view of the available scientific evidence and the EPA's
failure to follow its own guidelines in making the determination, the EPA's
final risk assessment was arbitrary and capricious. The litigation is still
pending.
The FDA has proposed rules to regulate cigarettes and smokeless tobacco in
order to protect minors. Although the FDA has defined cigarettes in such a way
as to include little cigars, the ruling does not directly impact large cigars.
However, once the FDA has successfully exerted authority over any one tobacco
product, the practical impact would be felt by manufacturers of any tobacco
product. If the FDA is successful, this may have long-term repercussions on the
large cigar industry.
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Tobacco Industry Litigation. Historically, the cigar industry has not
experienced material health-related litigation, and, to date, the Company has
not been the subject of any material health-related litigation. However,
litigation against leading United States cigarette manufacturers seeking
compensatory and, in some cases, punitive damages for cancer and other health
effects alleged to have resulted from cigarette smoking is pending.
Several states have sued tobacco companies seeking to recover the monetary
benefits paid under Medicaid to treat residents allegedly suffering from
tobacco-related illnesses. Florida and Massachusetts have enacted statutes
permitting suit against the tobacco companies to recoup such Medicaid costs, and
recently, one defendant has entered into a settlement with such plaintiff
states, which provides that the settling defendant will, among other things, pay
a portion of its profits in the future to the plaintiffs. Under the Florida
statute, many of the tobacco companies' traditional defenses, such as assumption
of risk, are vitiated. The statute also permits the state to establish causation
(that smoking causes cancer, heart disease and other ailments) through the use
of purely statistical evidence. The tobacco companies have filed suit
challenging the Florida law as unconstitutional.
A class action suit, Castano v. American Tobacco, et al. has been filed in
federal district court in New Orleans against the entire cigarette industry. On
February 17, 1995, the district court granted plaintiffs' motion for class
certification with regard to the liability issues of fraud, breach of warranty
(express or implied), intentional tort, negligence and strict liability as well
as the issues of consumer protection and punitive damages. The court defined the
class as "all nicotine-dependent persons in the United States," "the estates,
representatives, and administrators of these nicotine-dependent cigarette
smokers," and "the spouses, children, relatives and 'significant others' of
these nicotine-dependent cigarette smokers as their heirs or survivors." The
court defined "nicotine-dependent" to mean "all cigarette smokers who have been
diagnosed by a medical practitioner as nicotine-dependent; and/or all regular
cigarette smokers who were or have been advised by a medical practitioner that
smoking has had or will have adverse health consequences who thereafter do not
or have not quit smoking." In May 1996, the Fifth Circuit Court of Appeals
reversed a Louisiana district court's certification of a nationwide class
consisting essentially of nicotine dependent cigarette smokers. Notwithstanding
the dismissal, new class actions asserting claims similar to those in Castano
have recently been filed in certain states. To date, two pending class actions
against major cigarette manufacturers have been certified. The first case is
limited to Florida citizens allegedly injured by their addiction to cigarettes;
the other is limited to flight attendants alledgedly injured through exposure to
secondhand smoke.
In another decision, Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608
(1992), the United States Supreme Court held that certain federal legislation
applicable specifically to cigarette manufacturers preempts claims based on
failure to warn consumers about the health hazards of smoking, but does not
preempt claims based on express warranty, misrepresentation and fraud, or
conspiracy. Although the Company believes that the effect of the Cipollone
decision, which involved cigarette smoking, will not have a material adverse
effect on the operations of the Company, there can be no assurance of what the
ultimate effect, if any, of the Cipollone decision or the pending cigarette
industry litigation, or cigarette and tobacco regulation, will be on the cigar
industry or the Company. Although there are numerous differences between the
cigar industry and the cigarette industry, the outcome of pending and future
cigarette litigation may encourage various parties to bring suits on various
grounds against cigar industry participants. While it is impossible to quantify
what effect, if any, any such litigation may have on the Company, the Company
can give no assurance that such litigation would not have a material adverse
effect on the operations of the Company.
OSHA Regulations. The federal Occupational Safety and Health
Administration (OSHA) has proposed an indoor air quality regulation covering the
workplace that seeks to eliminate nonsmoker exposure to environmental tobacco
smoke. Under the proposed regulation, smoking must be banned entirely from the
workplace or restricted to designated areas of the workplace that meet certain
criteria. The proposed regulation covers all indoor workplaces under OSHA
jurisdiction, including, for example, private residences used as workplaces,
hotels and motels, private offices, restaurants, bars and vehicles used as
workplaces. The tobacco industry is challenging the proposed OSHA regulation on
legal, scientific and practical grounds. It also contends that the proposed
regulation ignores reasonable alternatives. There is no guaranty, however, that
this challenge will be successful. Although the Company does not believe that
the proposed OSHA regulation
26
<PAGE> 30
would have a material adverse effect on the cigar industry or the Company, there
are no assurances that such regulation would not adversely impact the Company.
Immigration Laws. The Company, like all employers in the United States, is
obligated, pursuant to the Immigration Reform and Control Act of 1986 (the
"IRCA"), to verify that its employees are authorized to work in the United
States. The Company believes that its employees are authorized to work in the
United States, although the Company may have in the past unknowingly violated
some of the technical verification requirements under the IRCA. The Company has
taken affirmative steps to insure that it is in compliance with its obligations
under the IRCA and does not believe that immigration regulations or the
Company's actions with respect to such regulations should have a material
adverse effect on the business of the Company, although there are no assurances
that they will not in the future.
INTELLECTUAL PROPERTY RIGHTS
The Company has filed applications with the United States Patent and
Trademark Office for its three brands of premium cigars, its three brands of
flavored cigars and certain other names which the Company is considering for new
brands. The Company has not yet received responses from the Patent and Trademark
Office, and no assurance can be given that the Company will receive trademarks
for any or all of its brands. The Company has no patents on its cigars or
manufacturing process.
Consolidated Cigar owns a registration for CABANAS cigars. Consolidated
Cigar has alleged that the Company's prior use of Santiago Cabana brand name
infringes Consolidated Cigar's trademark. The Company does not believe that it
has infringed Consolidated Cigar's trademark. The Company has modified the
Santiago Cabana brand name to Signature Collection by Santiago Cabana and only
uses the SC logo in this connection.
LEGAL PROCEEDINGS.
The Company is not a party to any pending lawsuits, which, in the
aggregate, will have a material adverse effect on the Company's financial
position.
FACILITIES.
The Company leases its corporate offices and manufacturing facilities
located in the Little Havana section of Miami pursuant to a lease which expires
in 2000. The present annual rent, which is subject to certain standard
escalation provisions, is approximately $70,284. The Company has leases for its
three retail stores pursuant to which it pays an annual rental of approximately
$122,000. These leases expire in 1998 for Key Largo, 1998 for the South Beach
section of Miami Beach and 2001 for Key West.
The Company believes that its manufacturing and retail facilities are
adequate for its present needs. However, the Company intends to lease additional
space for manufacturing facilities outside the United States and to establish
additional retail stores. See "Business -- Production and Manufacturing" and
"Business -- Marketing." The Company believes that additional space will be
available at commercially reasonable rents.
EMPLOYEES
At April 30, 1996, the Company had 90 full time employees, of which eight
were executive and administrative, three were sales and marketing and 79 were
manufacturing. None of the Company's employees are represented by a labor union,
and the Company believes that employee relations are good.
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<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Kevin Doyle........................ 37 President, Chief Executive Officer and Director
Thomas R. Dilk..................... 50 Chief Financial Officer and Director
Eric S. Kamisher................... 37 Secretary and Director
Luciano R. Nicasio................. 39 Director
</TABLE>
Mr. Kevin Doyle has been president, chief executive officer and a director
of the Company since its organization in October 1994. From June 1987 through
November 1995, Mr. Doyle was an air traffic controller in Miami, Florida. From
1983 until 1994, Mr. Doyle was involved in the cigar business on a part-time
basis as a wholesaler and retailer. During this period, Mr. Doyle developed
relationships in the tobacco industry, some of which have been developed into
formal relationships by the Company.
Mr. Thomas R. Dilk has been chief financial officer and a director of the
Company since October 1995. From February 1991 to October 1995, Mr. Dilk was
vice president and chief financial officer for Wave Systems Corporation. For two
years prior thereto, he was a business consultant providing analytical services
to emerging growth companies. In 1981, Mr. Dilk was a founder of POP Radio
Corp., of which he was executive vice president until April 1989.
Mr. Eric S. Kamisher has been secretary of the Company since March 1996. He
is of counsel to the law firm of Esanu Katsky Korins & Siger, which is counsel
to the Company. Mr. Kamisher does not receive a salary for his duties as
secretary of the Company. From 1986 through the present, Mr. Kamisher has
practiced law in New York City and Stamford, Connecticut, specializing in the
areas of corporate and securities law.
Mr. Luciano R. Nicasio has been a director of the Company since June 1996.
From 1978 to June 1996, Mr. Nicasio was an officer of Bankers Trust Company,
where he most recently served as a Managing Director with Bankers Trust New York
Corporation and as Co-head of International Equities Sales and Trading with BT
Securities Corporation. Mr. Nicasio recently established a private international
investment advisory firm located in New York City, Stamford, Connecticut and
London, England.
REMUNERATION
Set forth below is information concerning the Company's chief executive
officer during the fiscal years ended March 31, 1996 and 1995. No other officers
received remuneration of $100,000 or more during either of such fiscal years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION (AWARDS)
ANNUAL COMPENSATION --------------------------------
FISCAL ------------------- RESTRICTED STOCK OPTIONS, SARS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (DOLLARS) (NUMBER)
- --------------------------------------- ------ -------- ------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Kevin Doyle............................ 1996 $102,000 -- -- --
President and Chief Executive Officer 1995 -- -- -- --
</TABLE>
Mr. Doyle has a three-year employment agreement, which commenced on January
1, 1996, pursuant to which he receives a base salary of $102,000. In addition,
he is eligible to receive bonuses at the discretion of the board of directors.
Mr. Doyle shall be entitled to participate in any and all pension, health,
deferred compensation or any other similar plan which are made to all employees.
Mr. Dilk has a one-year agreement, which commenced on November 1, 1995,
which provides for compensation at the annual rate of $80,000. Until the date
the Company shall have received at least $5,000,000 from one or more private or
public debt or equity financings, (the "Financing Date") the Company is to pay
such compensation in shares of common stock valued at $1.25 per share, which was
greater than the fair market value per share at the date of the agreement. After
the Financing Date, compensation will be paid
28
<PAGE> 32
in cash. As of March 31, 1996, the Company had issued 32,000 shares of common
stock to the chief financial officer under this agreement. The agreement also
provides for the grant of an option to purchase 100,000 shares of common stock
at $1.50 per share, exercisable from the Financing Date until November 2001.
1996 LONG TERM INCENTIVE PLAN
In May 1996, the Company adopted, by action of the board of directors and
stockholders, the 1996 Long-Term Incentive Plan (the "Plan"). The Plan does not
have an expiration date. The Plan is authorized for 500,000 shares of Common
Stock. If shares subject to an option under the Plan cease to be subject to such
option, or if shares awarded under the Plan are forfeited, or otherwise
terminate without a payment being made to the participant in the form of stock,
such shares will again be available for future distribution under the Plan.
Awards under the Plan may be made to key employees, including officers of
and consultants to the Company, its subsidiaries and affiliates. The Plan
imposes no limit on the number of officers and other key employees to whom
awards may be made; however, no person shall be entitled to receive in any
fiscal year awards which would entitle such person to acquire more than 3% of
the number of shares of common stock outstanding on the date of grant.
The Plan will be administered by a committee of no less than two
disinterested directors to be appointed by the board (the "Committee"). Any
member or alternate member of the Committee shall not be eligible to receive
options or stock under the Plan (except as to the automatic grant of options to
directors) or under any plan of the Company or any of its affiliates. The
Committee has broad discretion in determining the persons to whom stock options
or other awards are to be granted, the terms and conditions of the award,
including the type of award, the exercise price and term and the restrictions
and forfeiture conditions. If no committee is appointed, the functions of the
committee shall be performed by the board of directors.
The Committee will have the authority to grant the following types of
awards under the Plan: incentive or non-qualified stock options; stock
appreciation rights; restricted stock; deferred stock; stock purchase rights
and/or other stock-based awards. The Plan is designed to provide the Committee
with broad discretion to grant incentive stock-based rights.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
In June, 1996, the Company adopted the Non-Employee Directors Stock Option
Plan (the "Non-Employee Directors Plan") authorized to grant stock options to
purchase up to 100,000 shares of Common Stock. As of the date of this
Prospectus, the Company has not granted any options under the Non-Employee
Directors Plan.
Initial option grants under the Non-Employee Directors Plan vest upon
grant. Annual option grants vest 25% after each three-month period following
grant. The exercise price of options granted under the Non-Employee Directors
Plan may not be less than 100% of the fair market value of the Common Stock of
the Company on the date of grant (as determined pursuant to the Non-Employee
Directors Plan). Each option granted under the Non-Employee Directors Plan will
be exercisable for a period of ten years from the date of grant. If there is a
change in control of the Company, all outstanding stock options granted under
the Non-Employee Directors Plan shall be made in the event of a merger,
consolidation, recapitalization, reclassification, stock split, warrants or
rights issuance, stock dividend or combination of shares.
CERTAIN TRANSACTIONS
In connection with the organization of the Company in October 1995, the
Company issued an aggregate of 1,820,750 and 638,250 shares of Common Stock for
nominal consideration to Messrs. Kevin Doyle and Michael Risley, respectively.
In addition, Mr. Doyle transferred the assets and liabilities of the Cigar
Factory to the Company. The assets consisted of cash, inventory, leasehold
improvements, and deposits amounting in total to approximately $65,500. The
liabilities assumed consisted of trade payables and accrued expenses of
approximately $15,900 and advances made by Mr. Doyle of approximately $32,220.
Mr. Doyle received a
29
<PAGE> 33
note from the company in the amount of $49,621, consisting of excess of assets
over liabilities and advances described above. All assets were contributed at
Mr. Doyle's cost less accumulated depreciation. The Company believes that the
transaction with Mr. Doyle was made on terms no less favorable to the Company
than those available from unaffiliated parties. Messrs. Doyle and Risley may be
deemed founders of the Company.
In connection with a compensation agreement, as of November 1, 1995, Thomas
R. Dilk, chief financial officer and a director of the Company, was issued
options to purchase one hundred thousand (100,000) shares of Common Stock at an
exercise price of $1.50 per share. In addition, Mr. Dilk also purchased 10,000
shares of Common Stock at a price of $1.25 per share in November, 1995.
See "Interim Financings" for information relating to a loan from Mr. Thomas
R. Dilk, chief financial officer and a director of the Company, as part of a
financing with non-affiliated investors.
30
<PAGE> 34
INTERIM FINANCINGS
Subsequent to the organization of the Company, in October 1995, ten
accredited investors lent the Company an aggregate amount of $250,000. The
proceeds from the loan were used for working capital. The loan, plus interest
accruing thereon at a rate of ten percent (10%) per annum, was repayable one
year from the date of the loan. As additional consideration for making the loan,
the investors received one share of Common Stock for every one dollar loaned.
Mr. Thomas R. Dilk, chief financial officer and a director of the Company,
participated in the financing and lent the Company $100,000 on the same terms as
the other investors. Mr. Kamisher, secretary and a director of the Company,
participated in the financing and lent the Company $5,000 on the same terms as
other investors. In March 1996, the Company paid $100,000 of the outstanding
loan principal from the proceeds of a subsequent financing and the remaining
$150,000 principal amount of the loan was converted into 75,000 shares of Common
Stock.
In January 1996, the Company sold an aggregate of 125,000 shares of Common
Stock to two accredited investors at $2.00 per share, for an aggregate purchase
price of $250,000. The proceeds from the sale were used for working capital.
In March, April and May 1996, the Company sold to 80 accredited investors
an aggregate of 606,348 shares of Common Stock for $3.50 per share. The proceeds
from this financing were used to pay $100,000 of the October 1995 loan and for
working capital.
31
<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus and as
adjusted to give effect to the sale of the 1,325,000 shares of Common Stock
offered by this Prospectus and the number and percentage of shares of
outstanding Common Stock owned by each person owning at least 5% of the
Company's Common Stock, each director owning stock and all directors and
officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF OWNERSHIP
OF BENEFICIAL ------------------------------------
NAME AND ADDRESS(1) OWNERSHIP(2) PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------------- ----------------- ----------------- --------------
<S> <C> <C> <C>
Kevin Doyle.................................... 1,820,750 50.7% 37.1%
Michael Risley................................. 558,250 15.5% 11.4%
Thomas R. Dilk(3).............................. 320,000 8.9% 6.5%
Eric S. Kamisher............................... 7,500 .2% .2%
All directors and officers(3).................. 2,148,250 59.9% 43.7%
</TABLE>
- ---------------
(1) Unless otherwise indicated, the address of each person is c/o Caribbean
Cigar Company, 6265 S.W. Eighth Street, Miami, Florida 33144. There are a
total of 100 recordholders of the Company's Common Stock as of the date of
this Prospectus.
(2) Unless otherwise indicated, each person named has the sole voting and sole
investment power and has direct beneficial ownership of the shares.
(3) Includes 100,000 shares issued upon exercise of options held by Mr. Dilk.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 2,000,000 shares of Preferred Stock, par
value $.01 per share, and 10,000,000 shares of Common Stock, par value $.001 per
share.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of Common
Stock are entitled to share in such dividends as the Board of Directors, in its
discretion, may declare from funds legally available. In the event of
liquidation, each outstanding share entitles its holder to participate ratably
in the assets remaining after payment of liabilities. There are presently
3,586,948 shares of Common Stock outstanding, and upon completion of this
Offering, assuming the Underwriters' over-allotment option is not exercised,
there will be 4,911,948 shares of Common Stock outstanding.
Stockholders have no preemptive or other rights to subscribe for or
purchase additional shares of any class of stock or of any other securities of
the Company, and there are no redemption or sinking fund provisions with regard
to the Common Stock. All outstanding shares of Common Stock are, and those
issuable pursuant to this Prospectus or upon exercise of the Warrants will be
when issued as provided in this Prospectus, validly issued, fully paid, and
nonassessable. Stockholders do not have cumulative voting rights.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue, from time to time
and without further stockholder action, up to 2,000,000 shares of Preferred
Stock in one or more distinct series. The Board of Directors is authorized to
fix the following rights and preferences, among others, for each series: (i) the
rate of dividends and whether such dividends shall be cumulative; (ii) the price
at and the terms and conditions on which shares may be redeemed; (iii) the
amount payable upon shares in the event of voluntary or involuntary liquidation;
(iv) whether or not a sinking fund shall be provided for the redemption or
purchase of shares; (v) the terms and conditions on which shares may be
converted; and (vi) whether, and in what proportion to any other series or
class, a series shall have voting rights other than required by law, and, if
voting rights are granted, the number of voting rights per share. The Company
has no plans, agreements or understandings with respect to the designation of
any series or the issuance of any shares of Preferred Stock. The Company has
32
<PAGE> 36
agreed that for a period of three years from the date of this Prospectus, it
will not create any series of Preferred Stock or issue any shares of Preferred
Stock without the prior written consent of the Representative.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
The holder of each Warrant issued pursuant to this Offering is entitled,
upon payment of the exercise price of $7.00 per share, to purchase one share of
Common Stock. Unless previously redeemed, the Warrants are exercisable during
the three-year period commencing on the date of this Prospectus. Holders of the
Warrants will only be able to exercise the Warrants if (a) a current prospectus
under the Securities Act relating to the shares of Common Stock issuable upon
exercise of the Warrants is then in effect, and (b) such securities are
qualified for sale or exemption from qualification under the applicable
securities laws of the states in which the various holders of Warrants reside.
The Warrants are subject to redemption by the Company, on not less than 30
nor more than 60 days' written notice, at a price of $.25 per Warrant, if the
average closing price per share of the Common Stock is at least $14.00 per share
for at least 30 consecutive trading days ending within ten (10) days of the date
on which the Warrants are called for redemption. During the one-year period
commencing of the date of this Prospectus, the Warrants may only be redeemed
with the consent of the Representative. Holders of Warrants will automatically
forfeit their rights to purchase the shares of Common Stock issuable upon
exercise of such Warrants unless the Warrants are exercised before the close of
business on the business day immediately prior to the date set for redemption.
All of the outstanding Warrants must be redeemed if any are redeemed. A notice
of redemption shall be mailed to each of the registered holders of the Warrants
by first class, postage prepaid, within five business days (or such longer
period to which the Representative may consent) after the Warrants are called
for redemption, but no earlier than the sixtieth nor later than the thirtieth
day before the date fixed for redemption. The notice of redemption shall specify
the redemption price, the date fixed for redemption, the place where the Warrant
certificates shall be delivered and the redemption price to be paid, and that
the right to exercise the Warrants shall terminate at 5:00 p.m. (New York City
time) on the business day immediately preceding the date fixed for redemption.
The Warrants can only be redeemed if, on the date the Warrants are called for
redemption, there is an effective registration statement covering the shares of
Common Stock issuable upon exercise of the Warrants.
The Warrants may be exercised upon surrender of the certificate(s) therefor
on or prior to 5:00 p.m. New York City time on the expiration date of the
Warrants or, if the Warrants are called for redemption, the day prior to the
redemption date (as explained above) at the offices of the Company's warrant
agent (the "Warrant Agent") with the form of "Election to Purchase" on the
reverse side of the certificate(s) filled out and executed as indicated,
accompanied by payment of the full exercise price for the number of Warrants
being exercised.
The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, sale of substantially all of the Company's
assets, and for other extraordinary events.
The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value of
such fractional shares. The holder of the Warrants will not possess any rights
as a stockholder of the Company unless and until the holder exercises the
Warrants.
Although the Warrants have a fixed exercise price and a formula for
adjustments in certain events and have a fixed expiration date, it is possible
that in the future the Company may wish to reduce the exercise price or extend
the exercise period. The Company has no plans to and will not, in any way, prior
to this Offering, reduce such price or extend the Warrants. The Company may not
extend the exercise period or reduce the exercise price without the consent of
the Representative. Any such change would be effected pursuant to a
post-effective amendment to the registration statement of which this Prospectus
is a part or a new registration statement, and no exercise of the Warrant with
amended terms may be exercised unless and until such post-effective amendment or
new registration statement has been declared effective by the Commission.
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<PAGE> 37
SHARES ELIGIBLE FOR FUTURE SALE
All of the presently issued and outstanding shares of Common Stock are
"restricted securities" as that term is defined under Rule 144 promulgated under
the Securities Act. Rule 144 governs resales of such restricted securities for
the account of any person (other than an issuer), and restricted and
unrestricted securities for the account of an "affiliate" of the issuer.
Restricted securities generally include any securities acquired directly or
indirectly from an issuer of its affiliates which were not issued or sold in
connection with a public offering registered under the Securities Act. An
affiliate of the issuer is any person who directly or indirectly controls, is
controlled by, or is under common control with, the issuer. Affiliates of the
Company may include its directors, executive officers and person directly or
indirectly owning 10% or more of the outstanding Common Stock. Under Rule 144
unregistered resales of restricted Common Stock cannot be made until it has been
held for two years from the later of its acquisition from the Company or an
affiliate of the Company. Thereafter, shares of Common Stock may be resold
without registration subject to Rule 144's volume limitation, aggregation,
broker transaction, notice filing requirements, and requirements concerning
publicly available information about the Company (the "Applicable
Requirements"). Resales by the Company's affiliates of restricted and
unrestricted Common Stock are subject to the Applicable Requirements. The volume
limitations provide that a person (or persons who must aggregate their sales)
cannot, within any three-month period, sell more than the greater of (i) one
percent of the then outstanding shares, or (ii) the average weekly reported
trading volume during the four calendar weeks preceding each such sale. A person
who is not deemed an "affiliate" of the Company and who has beneficially owned
shares for at least three years would be entitled to sell such shares under Rule
144 without regard to the Applicable Requirements.
If a public market develops for the Company's Common Stock, the Company is
unable to predict the effect that sales made under Rule 144 or other sales may
have on the then prevailing market price of the Common Stock. Of the 3,586,948
presently outstanding shares of Common Stock, no shares of Common Stock will
become eligible for sale pursuant to Rule 144 commencing 90 days after the date
of this Prospectus. Thereafter, at various times throughout the two year period
from the effective date of this Offering, 892,669 shares of Common Stock will
become eligible for sale pursuant to Rule 144.
In addition, the holders of 865,000 shares of Common Stock and the holders
of 1,829,279 shares of Common Stock have agreed that they will not sell their
shares for 12 months and 16 months, respectively, from the date of this
Prospectus, without the prior approval of the Representative.
LIMITATION OF LIABILITY; INDEMNIFICATION MATTERS AND DIRECTORS' AND OFFICERS'
INSURANCE
The Company's Bylaws requires the Company, to the fullest extent permitted
or required by Florida law, to (i) indemnify its directors against any and all
liabilities and (ii) advance any all reasonable expenses, incurred in any
proceeding to which any such director is a party or in which such director is
deposed or called to testify as a witness because he or she is or was a director
of the Company. Generally, Florida statutory law permits indemnification of a
director upon a determination that he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The right to
indemnification granted in the Company's Bylaws is not exclusive of any other
rights to indemnification against liabilities or the advancement of expenses
which a director may be entitled under any written agreement, Board resolution,
vote of stockholders, Florida law or otherwise.
The Company has also entered into agreements with each of its current
directors and executive officers pursuant to which it is obligated to indemnify
those persons to the fullest extent authorized by law and to advance payments to
cover defense costs against an unsecured obligation to repay such advances if it
is ultimately determined that the recipient of the advance is not entitled to
indemnification. The indemnification agreements provide that no advancement of
expenses shall be made (A) if a final adjudication establishes that the
indemnification actions or omissions were material to the cause of action
adjudicated and constitute (i) a violation of criminal law (unless the
indemnitee had reasonable cause to believe that his or her actions were lawful);
(ii) a transaction from which the indemnitee derived an improper personal
benefit; (iii) an unlawful
34
<PAGE> 38
distribution or dividend under applicable Florida law; or (iv) willful
misconduct or a conscious disregard for the just interest of the Company in a
derivative or shareholder action, (B) liability under Section 16(b) of the
Exchange Act, or (C) if a final decision by a court having jurisdiction in the
matter determines that indemnification is not lawful.
At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of the
Company in which indemnification would be required or permitted under the
Company's Bylaws, the indemnification agreements or Florida law.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and Warrant Agent for the Warrants
is Continental Stock Transfer & Trust Company, Two Broadway, New York, New York
10004.
35
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom Barron Chase Securities, Inc. is acting as
Representative, have severally agreed to purchase from the Company an aggregate
of 1,325,000 Shares of Common Stock ("Shares") and 1,325,000 Warrants
(collectively the "Securities"). The number of Shares and Warrants which each
Underwriter has agreed to purchase is set forth opposite its name.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNDERWRITERS SHARES WARRANTS
-------------------------------------------------------------- --------- ---------
<S> <C> <C>
Barron Chase Securities, Inc. ................................
--------- -------
Total............................................... 1,325,000 1,325,000
========= =======
</TABLE>
The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Securities through members of the National Association of Securities
Dealers, Inc. ("NASD"), and may allow a concession, in their discretion, to
certain dealers who are members of the NASD and who agree to sell the Securities
in conformity with the NASD Rules of Fair Practice. Such concessions shall not
exceed the amount of the underwriting discount that the Underwriters are to
receive.
The Company has granted to the Underwriters options, exercisable for 45
days from the date of this Prospectus, to purchase up to an additional 198,750
Shares and an additional 198,750 Warrants at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus (the "Over-
Allotment Option"). The Underwriters may exercise this option solely to cover
over-allotments in the sale of the Securities being offered by this Prospectus.
Officers and directors of the Company may introduce the Representative to
persons to consider this offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation.
The Company has agreed to pay the Underwriters a commission of ten percent
(10%) of the gross proceeds of the offering (the "Underwriting Discount"),
including the gross proceeds from the sale of the Over-Allotment Option, if
exercised. In addition, the Company has agreed to pay to the Representative a
non-accountable expenses allowance of three percent (3%) of the gross proceeds
of this Offering, including proceeds from any Securities purchased pursuant to
the Over-Allotment Option. The Representative's expenses in excess of the
non-accountable expense allowance will be paid by the Representative. To the
extent that the expenses of the Representative are less than the amount of the
non-accountable expense allowance received, such excess shall be deemed to be
additional compensation to the Representative. The Representative has informed
the Company that it does not expect sales to discretionary accounts by the
Underwriters to exceed five percent (5%) of the total number of Securities
offered by the Company hereby.
Prior to the Offering, there has been no public market for the Shares of
Common Stock or Warrants of the Company. Consequently, the initial public
offering price for the Securities, and the terms of the Warrants
36
<PAGE> 40
(including the exercise price of the Warrants), have been determined by
negotiation between the Company and the Representative. Among the factors
considered in determining the public offering price were the history of, and the
prospects for, the Company's business, an assessment of the Company's
management, its past and present operations, the Company's development and the
general condition of the securities market at the time of the offering. The
initial public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criterion of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Shares
and/or Warrants will develop after the close of the Public Offering, or if a
public market in fact develops, that such public market will be sustained, or
that the Shares and/or Warrants can be resold at any time at the offering or any
other price. See "Risk Factors."
At the closing of the Offering, the Company will issue to the
Representative and/or persons related to the Representative, for nominal
consideration, Common Stock Representative Warrants and Warrant Representative
Warrants (the "Representative's Warrants") to purchase up to 132,500 Shares and
132,500 Warrants ("Underlying Warrants"). The Representative's Warrants will be
exercisable for a five year period commencing on the date of this Prospectus.
The initial exercise price of each Common Stock Representative Warrant shall be
$8.40 per share (120% of the public offering price). The initial exercise price
of each Warrant Representative Warrant shall be $.15 per Underlying Warrant
(120% of the public offering price). Each Underlying Warrant will be exercisable
for a three (3) year period commencing on the date of this Prospectus to
purchase one Share of Common Stock at an exercise price of $8.40 per share of
Common Stock. The Representative's Warrants will not be transferable for one
year from the date of this Prospectus, except (i) to officers of the
Representative, other Underwriters, and members of the selling group and
officers and partners thereof; (ii) by will; or (iii) by operation of law.
The Representative's Warrants contain provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
Representative's Warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the Representative's Warrants in whole or in part
and instruct the Company to withhold from the securities issuable upon exercise,
a number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. Such net exercise provision has the effect
of requiring the Company to issue shares of Common Stock without a corresponding
increase in capital. A net exercise of the Representative's Warrants will have
the same dilutive effect on the interests of the Company's shareholders as will
a cash exercise. The Representative's Warrants do not entitle the holders
thereof to any rights as a shareholder of the Company until such
Representative's Warrants are exercised and shares of Common Stock are purchased
thereunder.
The Representative's Warrants and the securities issuable thereunder may
not be offered for sale except in compliance with the applicable provisions of
the Securities Act of 1933. The Company has agreed that if it shall cause a
post-effective amendment, a new registration statement, or similar offering
document to be filed with the Commission, the holders shall have the right, for
seven years from the date of this Prospectus, to include in such registration
statement or offering statement the Representative's Warrants and/or the
securities issuable upon their exercise at no expense to the holders.
Additionally, the Company has agreed that, upon request by the holders of 50% or
more of the Representative's Warrants and Registrable Securities during the
period commencing one year from the date of this Prospectus and expiring four
years thereafter, the Company will, on no more than two separate occasions,
register the Representative's Warrants and/or any of the securities issuable
upon their exercise. The initial such registration will be at the Company's
expense, and the second such registration shall be at the expense of the holders
of the Representative's Warrants and Registrable Securities.
The Company has also agreed that if the Company participates in any merger,
consolidation or other such transactions which the Representative has brought to
the Company during a period of five years after the closing of this offering,
and which is consummated after the closing of this offering (including an
acquisition of assets or stock for which it pays, in whole or in part, with
Shares or other securities), or if the Company retains the services of the
Representative in connection with any merger, consolidation or other such
transaction, then the Company will pay for the Representative's services an
amount equal to 5% of up to one million dollars of
37
<PAGE> 41
value paid or received in the transaction, 4% of the next million dollar of such
value, 3% of the next million dollars of such value, 2% of the next million
dollars of such value and 1% of the next million dollars and of all such value
above $4,000,000.
The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement, based on information relating to the Underwriters and
furnished in writing by the Underwriters. To the extent that this section may
purport to provide exculpation from possible liabilities arising from the
federal securities laws, in the opinion of the Commission, such indemnification
is contrary to public policy and therefore unenforceable.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
Esanu Katsky Korins & Siger, 605 Third Avenue, New York, New York 10158,
counsel for the Company, have given their opinion as to the authorization and
valid issuance of the shares of Common Stock and Warrants comprising the
Securities offered by this Prospectus. David A. Carter, P.A., 355 West Palmetto
Park Rd., Boca Raton, Florida 33432 is acting as counsel for the Underwriters in
connection with this Offering.
EXPERTS
The financial statements of the Company included in this Prospectus have
been audited by Grant Thornton LLP, independent certified public accountants, as
stated in their report appearing herein, and are included in reliance on their
report given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2 relating to the securities offered
hereby has been filed by the Company with the Securities and Exchange
Commission. This Prospectus does not contain all of the information set forth in
such Registration Statement. For further information with respect to the Company
and to the securities offered hereby, reference is made to such Registration
Statement, including the exhibits thereto. Statements contained in this
Prospectus as to the content of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
38
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants................................... F-2
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Stockholders' Equity................................................... F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Caribbean Cigar Company
We have audited the accompanying balance sheets of Caribbean Cigar Company
as of March 31, 1996 and 1995, and the related statements of operations,
stockholders' equity and cash flows for the year ended March 31, 1996 and the
six month period from October 3, 1994 (inception) through March 31, 1995. 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 audits 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 referred to above present fairly,
in all material respects, the financial position of Caribbean Cigar Company as
of March 31, 1996 and 1995, and the results of their operations and their cash
flows for the year ended March 31, 1996 and the six month period from October 3,
1994 (inception) through March 31, 1995, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Miami, Florida
May 15, 1996
F-2
<PAGE> 44
CARIBBEAN CIGAR COMPANY
BALANCE SHEETS
MARCH 31,
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................................................. $ 748,801 $ 250
Accounts receivable.............................................. 31,873 --
Note receivable from stockholder................................. 18,000 --
Inventory........................................................ 379,466 8,303
Prepaid expenses and other current assets........................ 24,893 --
---------- --------
Total current assets..................................... 1,203,033 8,553
PROPERTY AND EQUIPMENT, NET........................................ 432,169 12,821
DEPOSITS AND OTHER ASSETS.......................................... 23,200 2,685
---------- --------
$1,658,402 $ 24,059
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................................. $ 218,268 $ 9,072
Accrued expenses................................................. 96,223 --
---------- --------
Total current liabilities................................ 314,491 9,072
DUE TO STOCKHOLDER................................................. 49,621 26,759
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value;
2,000,000 shares authorized, none issued or outstanding........ -- --
Common stock, $.001 par value; 10,000,000 shares authorized,
3,408,369 shares issued and outstanding....................... 3,408 --
Capital in excess of par value................................... 1,852,945 --
Accumulated deficit.............................................. (550,743) (11,772)
---------- --------
1,305,610 (11,772)
Unearned compensation............................................ (11,320) --
---------- --------
Total stockholders' equity............................... 1,294,290 (11,772)
---------- --------
$1,658,402 $ 24,059
========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 45
CARIBBEAN CIGAR COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1996 AND THE
SIX MONTH PERIOD FROM OCTOBER 3, 1994 (INCEPTION) THROUGH MARCH 31, 1995
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Sales............................................................... $ 820,950 $ 88,332
Cost of goods sold.................................................. 592,258 51,953
--------- --------
Gross profit................................................... 228,692 36,379
Selling expenses.................................................... 384,818 40,893
General and administrative expenses................................. 338,208 7,258
Interest expense.................................................... 27,253 --
--------- --------
750,279 48,151
--------- --------
Net Loss.................................................. $(521,587) $(11,772)
========= ========
Loss per share...................................................... $ (0.16) $ (0.00)
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 46
CARIBBEAN CIGAR COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED UNEARNED
SHARES PAR VALUE CAPITAL DEFICIT COMPENSATION TOTAL
--------- --------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net loss for the six month
period ending March 31,
1995...................... -- $ -- $ -- $ (11,772) $ -- $ (11,772)
--------- ------ ---------- ---------- --------- ----------
Balance as of March 31,
1995...................... -- -- -- (11,772) -- (11,772)
Common stock issued upon
incorporation............. 2,459,000 2,459 -- -- -- 2,459
Common stock issued for
services.................. 8,850 9 20,766 -- -- 20,775
Common stock issued in
connection with debt
financing................. 250,000 250 24,750 -- -- 25,000
Common stock issued as
compensation.............. 55,500 55 52,494 -- (11,320) 41,229
Sale of common stock........ 135,000 135 262,365 -- -- 262,500
Conversion of debt financing
to common stock, net...... 75,000 75 141,150 -- -- 141,225
Common stock issued through
private placement, net.... 425,019 425 1,351,420 -- -- 1,351,845
Payment due to owner of
predecessor company....... -- -- -- (17,384) -- (17,384)
Net loss for year ended
March 31, 1996............ -- -- -- (521,587) -- (521,587)
--------- ------ ---------- ---------- --------- ----------
Balance as of March 31,
1996...................... 3,408,369 $ 3,408 $1,852,945 $(550,743) $(11,320) $1,294,290
========= ====== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 47
CARIBBEAN CIGAR COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1996 AND THE
SIX MONTH PERIOD FROM OCTOBER 3, 1994 (INCEPTION) THROUGH MARCH 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $ (521,587) $(11,772)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation.................................................. 21,896 2,121
Common stock issued as compensation........................... 41,230 --
Common stock issued for services.............................. 20,775 --
Amortization of debt issuance costs........................... 16,225 --
(Increase) in accounts receivable and note receivable from
stockholder.................................................. (49,873) --
(Increase) in inventory....................................... (371,163) (8,303)
(Increase) in prepaid expenses and other current assets....... (24,893) --
(Increase) in deposits and other assets....................... (20,515) (2,685)
Increase in accounts payable.................................. 209,196 9,072
Increase in accrued expenses.................................. 96,223 --
---------- --------
Net cash used in operating activities.................... (582,486) (11,567)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.............................. (438,797) (14,942)
---------- --------
Net cash used in investing activities.................... (438,797) (14,942)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from stockholder........................................ 5,478 26,759
Proceeds from convertible debt................................... 250,000 --
Principal repayment of convertible debt.......................... (100,000) --
Proceeds from issuance of common stock........................... 1,614,356 --
---------- --------
Net cash provided by financing activities................ 1,769,834 26,759
---------- --------
Net increase in cash............................................... 748,551 250
Cash at beginning of period........................................ 250 --
---------- --------
Cash at end of year................................................ $ 748,801 $ 250
========== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for interest........................... $ 10,840 $ --
========== ========
Non cash investing and financing activities........................
</TABLE>
During March, 1996, the Company issued 75,000 shares of Common Stock in
exchange for the cancellation of $150,000 in outstanding debt obligations.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 48
CARIBBEAN CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
NOTE 1 -- BASIS OF PRESENTATION
Caribbean Cigar Company (a Florida corporation) (the "Company") is a
vertically integrated manufacturer, distributor and retailer of high quality,
hand rolled, premium cigars operating in South Florida.
The Company's predecessor, Caribbean Cigar Factory ("Cigar Factory"), was a
sole proprietorship operated by the current President of the Company. From the
commencement of operations in October 1994, through September 1995, the Cigar
Factory operated a retail tobacco store in Key Largo, Florida. In September
1995, the assets and liabilities of the Cigar Factory were acquired and assumed
by the Company in exchange for 1,820,750 shares of the Company's Common Stock
and issuance of a promissary note as described in Note 7. Such assets
approximating $65,500 consisted principally of cash, inventory, leasehold
improvements and certain deposits. The liabilities assumed consisted primarily
of trade and other accounts payable, including an obligation to the sole
proprietor of $49,621.
The accompanying financial statements present operations of the Company and
the Cigar Factory from October 1994, as if it was a single entity.
The Company, and the cigar industry, in general, have recently experienced
shortages in certain types of natural wrapper and filler due to the increase in
demand for tobacco for premium cigars. Although the shortages have not
materially impacted cigar production, no assurance can be made that future
shortages will not have an adverse effect on the Company.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Inventory
Inventory consists of tobacco, hand rolled cigars, cigars purchased from
various other distributors as well as cigar accessories. Inventory is stated at
the lower of cost (first-in, first-out method) or market. Inventories are
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Raw materials.................................................... $ 39,651 $ --
Finished goods................................................... 339,815 8,303
-------
-
--------
$379,466 $8,303
======== ========
</TABLE>
Property and Equipment
Property and equipment has been recorded at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to their estimated operating service lives using
straight-line methods. Leasehold improvements are amortized over the lesser of
their estimated service life or the life of the lease. The range of estimated
lives for financial reporting purposes are as follows:
<TABLE>
<S> <C>
Leasehold improvements................................................ 2 to 5 years
Equipment............................................................. 7 years
Furniture and fixtures................................................ 5 to 7 years
</TABLE>
F-7
<PAGE> 49
CARIBBEAN CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. Certain charges to earnings differ as to timing
from those deducted for tax purposes; this relates primarily to uniform
capitalization. The tax effect of these differences are to be reflected as
deferred income taxes.
Private Placement Fees
Costs incurred by the Company in connection with the sale of equity
securities are charged to paid-in capital. Included in accounts payable at March
31, 1996, is $65,525 relating to commissions owed to a broker from the private
placement of certain equity securities.
Deferred Rent Liability
The Company provides for rent expense by straight-lining future minimum
rental payments over the terms of the respective lease agreements. For leases
with scheduled rent increases which are fixed in amount, this creates a
difference between rent expense recorded by the Company and amounts currently
due. The difference between these amounts is reflected in accrued expenses as a
deferred rent liability.
Loss Per Share
Loss per share for the year ended March 31, 1996 and the six months from
October 3, 1994 (inception) to March 31, 1995, are based upon the weighted
average number of shares of common stock outstanding during the period, which
was $3,255,135 and 3,228,764, respectively. The calculation gives retroactive
effect (as if to inception of the Cigar Factory) to those shares issued to
founders at par value. Additionally, stock and stock options issued during
fiscal 1996 have been treated as outstanding since October 3, 1994 (inception),
the dilutive effect of which was computed using the treasury stock method.
Stock Options
Options granted by the Company are accounted for under APB 25, "Accounting
for Stock Issued to Employees," and related interpretations. In November 1995,
the Financial Accounting Standards Board issued Statement No. 123, "Accounting
for Stock-Based Compensation," which will require additional proforma
disclosures for companies that will continue to account for employee stock
options under the intrinsic value method specified in APB 25. The Company plans
to continue to apply APB 25 and the only effect of adopting Statement 123 in
fiscal 1997 will be the new disclosure requirement.
Fair Value of Financial Instruments
The carrying value of cash, receivables, and accounts payable approximate
the fair value due to the short-term maturities of these instruments.
Use of Estimates
In preparing financial statements in conformity with Generally Accepted
Accounting Principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
F-8
<PAGE> 50
CARIBBEAN CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Leasehold improvements......................................... $124,100 $ 10,234
Machinery and equipment........................................ 136,750 --
Furniture and fixtures......................................... 118,720 4,708
-------- --------
379,570 14,942
Accumulated depreciation....................................... (24,018) (2,121)
-------- --------
355,552 12,821
Construction in progress....................................... 76,617 --
-------- --------
$432,169 $ 12,821
======== ========
</TABLE>
NOTE 4 -- DEBT FINANCING
In October 1995, at or about the time of organization of the Company, the
Company issued 10% notes in the aggregate principal amount of $250,000 and as
additional consideration to the lenders, issued 250,000 shares of common stock
to the lenders. The Company valued such stock at $.10 per share, which was
determined by the Board of Directors to be the fair value at the date of
issuance. The issue of such shares was amortized using the effective interest
method, over the term of the notes. These notes were to mature upon the earlier
of one year or the receipt of $500,000 from the sale of additional debt or
equity securities. In March 1996, certain lenders converted a total of $150,000
of such notes into 75,000 shares of the Company's common stock. For notes which
were converted into common stock, the unamortized portion of the debt issue
discount was recorded as a reduction in paid-in capital. The remaining principal
amounts and accrued interest was paid in March 1996, with the proceeds from the
sale of common stock.
NOTE 5 -- ACCRUED LIABILITIES
Accrued liabilities is comprised of the following items at:
<TABLE>
<CAPTION>
3/31/96
--------
<S> <C>
Payroll.................................................................. $54,974
Professional fees........................................................ 35,000
Deferred rent liability.................................................. 6,249
--------
$96,223
=======
</TABLE>
NOTE 6 -- COMMITMENTS
Lease Commitments
The Company leases office and retail facilities under noncancelable,
operating leases. The lease agreements provide for certain minimum fixed rental
increases and/or increases based upon changes in the consumer price index. The
agreements also contain options to extend the term of the lease. Future minimum
annual lease commitments at March 31, 1996, are approximately as follows:
<TABLE>
<S> <C>
1997.................................................................... $196,100
1998.................................................................... 176,500
1999.................................................................... 148,900
2000.................................................................... 127,600
2001.................................................................... 94,500
--------
$743,600
========
</TABLE>
Rent expense was approximately $47,000 and $5,300 in fiscal 1996 and 1995,
respectively.
F-9
<PAGE> 51
CARIBBEAN CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Employment and Compensation Agreements
The Company has agreements with its key officers and employees which
provide for certain levels of base compensation and non-compete covenants. The
agreements provide for aggregate compensation at the annual rate of $274,000
during the fiscal year ended March 31, 1997.
The Company's compensation agreement with its chief financial officer
provides for compensation at the annual rate of $80,000, which is included in
the aggregate compensation set forth in the previous paragraph. Until the date
the Company shall have received at least $5,000,000 from one or more private or
public debt or equity financings (the "Financing Date"), the Company is to pay
such compensation in shares of common stock valued at $1.25 per share, which was
greater than the fair market value per share at the date of the agreement
(November 1995). After the Financing Date, compensation will be paid in cash. As
of March 31, 1996, the Company had issued 32,000 shares of common stock to the
chief financial officer under this agreement. The agreement also provides for
the grant of an option to purchase 100,000 shares of common stock at $1.50 per
share, exercisable from the Financing Date until November 2001.
NOTE 7 -- RELATED PARTY TRANSACTIONS
In addition to those transactions discussed in Notes 5 and 9, in March
1996, the Company loaned $18,000 to an employee of the Company who is also a
principal stockholder. The note is due on demand and bears interest at a rate of
10% per annum.
The amount due to stockholder represent advances of $32,237 to Caribbean
Cigar Factory by its founder, who is currently the Company's largest individual
stockholder. This amount also includes the accumulated earnings of the
predecessor company of $17,384 through the date on which the net assets were
acquired by the Company, as discussed in Note 1. The obligation, which is due on
demand after April 1, 1997, bears interest at a rate of 10%.
NOTE 8 -- INCOME TAXES
No provision for income taxes has been recorded in the accompanying
financial statements as the Company has incurred losses since incorporation. No
income tax provision is provided for the period prior to incorporation, since
the Cigar Factory was operating as a sole proprietorship.
Deferred tax assets and liabilities result principally from temporary
differences in the recognition of revenues and expenses for tax and financial
reporting purposes. The tax effect of such deductible current and noncurrent
temporary differences at March 31, 1996, was $18,750 and $207,240, respectively.
The current deferred tax asset at March 31, 1996, is primarily the result of
differences in inventory capitalization between tax and financial reporting. The
noncurrent deferred tax asset at March 31, 1996 represents the tax effect of net
operating loss carryforwards for federal and state purposes. The Company has
provided a 100% valuation allowance against such assets as management believes
that it is more likely than not that the benefits will not be realized. There
were no deferred tax assets or liabilities at March 31, 1995.
The Company has net operating loss carryforwards for federal and state
purposes of approximately $550,700. The net operating losses will expire in the
year 2011. Certain provisions of the tax law may limit the net operating loss
carryforwards available for use in any given year in the event of an ownership
change as defined in the tax code. There have already been significant changes
in stock ownership; however, an ownership change has not occurred which would
cause the net operating loss carryover to be limited.
NOTE 9 -- STOCKHOLDERS' EQUITY
The following summarizes and describes the issuance of common stock as
detailed in the Statement of Stockholders' Equity:
Upon incorporation and in connection with the transfer of net assets of the
Cigar Factory (see Note 1), the Company issued a total of 2,458,000 shares to
the founders of the Company which was recorded at the par value of the stock.
F-10
<PAGE> 52
CARIBBEAN CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
See Note 4 -- Debt Financing, which describes the issuance of common stock
in connection with certain financing as well as the conversion of such debt to
common stock of the Company.
See Note 6 -- Commitments which described the agreement entered into with
the Company's Chief Financial Officer for payment of compensation in the form of
common stock.
The Company has issued common stock to certain key employees which vests
upon their completion of one year of service with the Company after the issue
date. For the 20,500 shares issued in October 1995, such stock was valued at
$.10 per share. In March 1996, an additional 3,000 shares were issued which were
valued at $3.50 per share. Should the employee leave the Company prior to
vesting, then the stock is forfeited. The fair value of the common stock, as
defined above has been reflected as compensation expense, to the extent earned,
in the accompanying financial statements. The unearned portion of such amounts
is reflected as a reduction in stockholder's equity in the accompanying balance
sheet.
In November 1995, the Company sold 10,000 shares of common stock to its
Chief Financial Officer for $1.25 per share. In January 1996, the Company sold a
total of 125,000 shares of common stock to unrelated investors at $2.00 per
share.
During the year, the Company issued common stock to unrelated parties in
exchange for certain services provided to the Company. In November 1995, 3,000
shares were issued to the Company's former attorney which was valued at $0.10
per share. In February 1996, a total of 5,850 shares, valued at $3.50 per share,
were issued to various parties for services provided in connection with the
private placement as well as development of certain software programs.
Beginning in February 1996 and through March 31, 1996, the Company has sold
425,019 shares of common stock through a private placement of such securities.
The offering price of such stock was $3.50 per share and has resulted in net
proceeds of approximately $1,352,000.
NOTE 10 -- STOCK OPTIONS
In January 1996, the Company issued an option for the purchase of 125,000
shares of common stock in exchange for certain consulting and advisory services.
No expense was recorded in connection with this transaction as the option price
of $1.25 per share equaled or exceeded the fair market value on the date of the
grant.
In March 1996, the Company issued an option for the purchase of 8,000
shares at $4.20 per share, which exceeded the fair market value on the date of
the grant. The option was issued in consideration for certain consulting
services provided to the Company.
F-11
<PAGE> 53
CARIBBEAN CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SEGMENT INFORMATION
During fiscal 1996, the Company had two operating segments consisting of
retail operations and manufacturing and distribution. During fiscal 1995, the
Company operated a retail store.
<TABLE>
<CAPTION>
RETAIL MANUFACTURING GENERAL
OPERATIONS DISTRIBUTION CORPORATE ELIMINATIONS TOTAL
---------- ------------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Sales and transfers
To unaffiliated customers........... $ 544,307 $ 276,643 -- -- $ 820,950
To other segments................... -- 83,082 -- (83,082) --
-------- ---------- ---------- -------- ----------
544,307 359,725 -- (83,082) 820,950
Operating profit (loss)............... 120,647 (276,773) (365,461) -- (521,587)
-------- ---------- ---------- -------- ----------
Identifiable Assets................... 372,100 462,402 823,900 -- 1,658,402
======== ========== ========== ======== ==========
Depreciation and Amortization......... 10,700 8,996 2,200 -- 21,896
======== ========== ========== ======== ==========
Capital Expenditures.................. 205,978 179,419 53,400 -- 438,797
======== ========== ========== ======== ==========
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company entered into a letter of intent
with an underwriter for an initial public offering.
In April 1996, the Company arranged an agreement for the purchase of
approximately $525,000 worth of tobacco during the upcoming year. In connection
with this arrangement, as of the date of this Prospectus the Company has placed
a $300,000 deposit for the purchase of such tobacco.
In May 1996, the Company formed a wholly-owned subsidiary in the Cayman
Islands under the name Caribbean Cigar Company (Cayman) Limited.
F-12
<PAGE> 54
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-13
<PAGE> 55
Artwork
Upper left hand corner
Cigar rolling technique
Upper right hand corner
Tabacco press
Middle photo
Cigar inventory
Lower left hand corner
Bundle of cigars
Lower right hand corner
Cigar rolling process
<PAGE> 56
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WAS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. 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 CIRCUMSTANCES OF THE COMPANY OF THE FACTS HEREIN
SET FORTH SINCE THE DATE OF THIS PROSPECTUS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Offering.......................... 4
Summary of Financial Information...... 5
Risk Factors.......................... 6
Dilution.............................. 13
Use of Proceeds....................... 14
Capitalization........................ 16
Selected Financial Information........ 17
Management's Discussion and Analysis
of Results of Operations............ 18
Business.............................. 20
Management............................ 28
Certain Transactions.................. 29
Interim Financings.................... 31
Principal Stockholders................ 32
Description of Securities............. 32
Underwriting.......................... 36
Legal Matters......................... 38
Experts............................... 38
Additional Information................ 38
Index to Financial Statements......... F-1
</TABLE>
------------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE 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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,325,000
SHARES OF
COMMON STOCK
1,325,000
REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
LOGO
------------------------------
PROSPECTUS
------------------------------
LOGO
7700 W. CAMINO REAL
SUITE 200
BOCA RATON, FLORIDA 33433
(561)-750-6081
ATLANTA, GEORGIA
BEVERLY HILLS, CALIFORNIA
BOSTON, MASSACHUSETTS
CHICAGO, ILLINOIS
CLEARWATER, FLORIDA
DALLAS, TEXAS
DENVER, COLORADO
EAST BOCA RATON, FLORIDA
HOOPESTON, FLORIDA
MIAMI, FLORIDA
MIDDLETOWN, NEW JERSEY
MINNEAPOLIS, MINNESOTA
OKLAHOMA CITY, OKLAHOMA
PHOENIX, ARIZONA
SARASOTA, FLORIDA
TAMPA, FLORIDA
TULSA, OKLAHOMA
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Paragraphs 6 and 7 of the Underwriting Agreement
(Exhibit 1.1) with respect to indemnification of the Company and the
Underwriters.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, offices or 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 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 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 8,196.31
NASD registration fee................................................... 3,021.00
Nasdaq listing fee...................................................... 9,753.70
Printing and engraving.................................................. *
Accountants' fees and expenses.......................................... *
Legal fees.............................................................. *
Transfer agent's and warrant agent's fees and expenses.................. *
Blue Sky fees and expenses.............................................. 21,000.00**
Representative's non-accountable expense allowance...................... 325,701.00
Miscellaneous........................................................... 20,000.00**
----------
Total................................................................... $560,000.00**
==========
</TABLE>
- ---------------
* To be supplied by amendment.
** Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information concerning the issuance by the Company of
its securities since its organization in September 1995. All securities issued
are restricted securities and the certificates bear restrictive legends.
II-1
<PAGE> 58
(a) In connection with its organization in September 1995, the Company
issued 1,820,750 shares of Common Stock to Kevin Doyle and 638,250 shares of
Common Stock to Michael Risley for nominal consideration:
(b) In October 1995, the Company issued shares of Common Stock to the
following employees and service providers of the Company for nominal
consideration:
<TABLE>
<CAPTION>
NAME SHARES
---------------------------------------------------------------------------- ------
<S> <C>
Jeffrey Klein............................................................... 3,000
Chris Stamford*............................................................. 20,000
Bob Michaels*............................................................... 1,000
Alvaro Alonzo*.............................................................. 1,000
Bob Curtis.................................................................. 500
Diego Betancourt*........................................................... 1,000
</TABLE>
- ---------------
* Forfeited under terms of restricted grants.
(c) Pursuant to a November 1995 compensation agreement between the Company
and Thomas Dilk,
(i) Mr. Dilk's salary of $80,000 per year is payable in shares of
Common Stock, issued at $1.25 per share. As of May 15, 1996, 48,000 shares
were issued to Mr. Dilk pursuant to this agreement; and
(ii) The Company issued 10,000 shares of Common Stock to Tom Dilk at
the price of $1.25 per share.
(d) From September through December, 1995, the Company issued its 10%
Promissory Notes in the principal amount of $250,000. In connection with such
loans, the Company issued 250,000 shares of Common Stock for $.10 per share. The
issuance of the notes and Common Stock was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof.
Set forth below is information relating to the notes and shares of Common
Stock issued in connection with such interim financing:
<TABLE>
<CAPTION>
NAME PRINCIPAL OF NOTE NUMBER SHARES
----------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Thomas Dilk.......................................... $ 100,000 100,000
Tony Kamen........................................... 75,000 75,000
George Markelson..................................... 25,000 25,000
Ed Arioli Trust...................................... 10,000 10,000
Janet Kenning........................................ 5,000 5,000
Donna Millar......................................... 5,000 5,000
Eric Kamisher........................................ 5,000 5,000
Douglas Zindulka..................................... 5,000 5,000
John Banta........................................... 5,000 5,000
Charles Spina........................................ 15,000 15,000
</TABLE>
(e) In January 1996, the Company issued an aggregate of 125,000 shares of
Common Stock for $2.00 per share. The sale of the Common Stock was exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
and/or 4(6) and Rule 506 of the Commission. Set forth below is information
relating to the issuance of the shares of Common Stock:
<TABLE>
<CAPTION>
NAME SHARES PRICE PER SHARE
------------------------------------------------------------- ------ ---------------
<S> <C> <C>
The Athena Fund Ltd. ........................................ 65,000 2.00
Harbinger Partners, L.P. .................................... 35,000 2.00
Robert Vaughn................................................ 25,000 2.00
</TABLE>
II-2
<PAGE> 59
(f) Pursuant to a January 1996 agreement between the Company and Mark
DeVuyst, 25% of Mr. DeVuyst's compensation as consultant is payable in shares of
Common Stock, at the rate of $3.50 per share. As of June 30, 1996, 4,100 shares
were issued to Mr. DeVuyst pursuant to this agreement.
(g) In March 1996, the Company issued 1,000 and 2,000 shares of Common
Stock to each of Charles Cauley and Andres Siverio, respectively, both employees
of the Company, for nominal consideration. The shares issued to Charles Cauley
were subsequently forfeited under terms of restricted grants.
(h) In March 1996, the Company issued 75,000 shares of Common Stock at
$2.00 per share in exchange for cancellation of promissory notes in the
principal amount of $150,000, which are described in Paragraph (d) of this Item
26. The remaining $100,000 in notes were repaid. The sale of the Common Stock
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) and/or 4(6) and Rule 506 of the Commission. Set forth below is
information relating to the issuance of the shares of Common Stock:
<TABLE>
<CAPTION>
NAME SHARES PRICE PER SHARE
------------------------------------------------------------ ------- ---------------
<S> <C> <C>
Tom Dilk.................................................... 50,000 2.00
George Markelson............................................ 12,500 2.00
Ed Arioli Trust............................................. 5,000 2.00
Donna Millar................................................ 2,500 2.00
Eric Kamisher............................................... 2,500 2.00
John Banta.................................................. 2,500 2.00
</TABLE>
(i) In February through May 1996, the Company issued an aggregate of
606,348 shares of Common Stock for $3.50 per share for the aggregate
consideration of $2,122,218. The sale of the Common Stock was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) and/or
4(6) and Rule 506 of the Commission. Set forth below is information relating to
the issuance of the shares of Common Stock:
<TABLE>
<CAPTION>
NAME SHARES PRICE PER SHARE
------------------------------------------------------------ ------- ---------------
<S> <C> <C>
Edward D. Arioli Revocable Living Trust..................... 7,000 3.50
James W. Forsythe Jr........................................ 1,428 3.50
Timothy J. Horan............................................ 2,857 3.50
Harbinger Partners, LP...................................... 10,000 3.50
The Athena Fund, Ltd. ...................................... 20,000 3.50
Merv Adelson Trust.......................................... 8,000 3.50
The Mosbacher Trust......................................... 5,000 3.50
Fairbanks Partners, L.P. ................................... 2,000 3.50
Rhino Fund, Ltd. ........................................... 18,000 3.50
Common Fund Hedged Equity Fund.............................. 12,000 3.50
Carlos Gonzales............................................. 7,000 3.50
Frederic Powers............................................. 2,857 3.50
Christopher Powers.......................................... 2,857 3.50
Stephen Powers.............................................. 2,857 3.50
William J. Hickey........................................... 2,857 3.50
Antonio A. Cabral, Jr. and Rosario V. Cabral................ 2,000 3.50
Sally D. Price.............................................. 2,000 3.50
Judith L. Leahy............................................. 1,000 3.50
Joseph L. DeMarzo........................................... 1,428 3.50
David Portnoy............................................... 32,143 3.50
Mark Raymer................................................. 2,000 3.50
Maroons Partnership......................................... 3,571 3.50
Ralph Giorgio............................................... 7,000 3.50
David Heiss................................................. 1,900 3.50
Robert A. Cervoni........................................... 3,500 3.50
U.S. Clearing Corp. FBO John P. Nolan IRA Rollover Account
#117-95023-13............................................. 1,600 3.50
</TABLE>
II-3
<PAGE> 60
<TABLE>
<CAPTION>
NAME SHARES PRICE PER SHARE
------------------------------------------------------------ ------- ---------------
<S> <C> <C>
Account#117-95016-12.......10,5003.50U.S. Clearing Corp. FBO
Robert G. Weppler IRA Rollover Account #117-95032-12...... 3,500 3.50
U.S. Clearing Corp. FBO Timothy McDonald IRA Rollover
Account #117-95022-14..................................... 3,500 3.50
U.S. Clearing Corp. FBO Barry Small IRA Rollover Account
#117-95027-19............................................. 3,500 3.50
Donald E. Weeden IRA Rollover Trust......................... 3,500 3.50
Lincoln Trust Co, Custodian FBO Nora D. Kimball............. 5,714 3.50
Kenneth Alan Horowitz....................................... 3,500 3.50
Michael J. Daly Jr.......................................... 7,000 3.50
William M. Merkler.......................................... 4,500 3.50
Thomas H. Reynolds.......................................... 1,429 3.50
Paul Di Biasio.............................................. 14,000 3.50
Arrabel R. Sykes............................................ 4,286 3.50
Hope Murphy................................................. 4,286 3.50
Harris Barton............................................... 3,429 3.50
Le Dinh Can................................................. 14,000 3.50
James P. Snow............................................... 2,857 3.50
John O'Neil................................................. 2,800 3.50
Frank S. Cagio.............................................. 1,000 3.50
William Tonyes.............................................. 14,293 3.50
Jibs Equities............................................... 10,000 3.50
Penn Footwear Retirement Trust.............................. 10,000 3.50
Stephen J. Dresnik, M.D. ................................... 7,000 3.50
James K. Slusser............................................ 7,500 3.50
Arthur Gronbach............................................. 3,500 3.50
Stephen B. Olore............................................ 7,000 3.50
Markus O. Bohi.............................................. 3,571 3.50
Scott T. Pilling............................................ 3,571 3.50
Mary L. Orians.............................................. 5,000 3.50
Jerry Lowery................................................ 5,000 3.50
Mathers Associates.......................................... 15,000 3.50
Jack Gilbert................................................ 7,000 3.50
Kenneth L. Atwell Revocable Trust........................... 3,000 3.50
Randy Gavlik and Kim Gavlik................................. 3,000 3.50
Anita Visbal................................................ 21,000 3.50
G.B. Conley................................................. 7,000 3.50
Jay Matthew................................................. 7,143 3.50
Robert M. Rubin............................................. 10,000 3.50
Richard Oakley.............................................. 3,500 3.50
Teddy Struhl................................................ 7,143 3.50
Walter A. Fox IRA........................................... 3,642 3.50
Jerry Lowery................................................ 5,000 3.50
Joseph Guttman and Lieve Guttman............................ 8,571 3.50
Yitz Grossman............................................... 14,286 3.50
Donald Silpe & Linda Silpe.................................. 10,000 3.50
Dante Greco................................................. 10,000 3.50
Edward D. Arioli............................................ 14,286 3.50
</TABLE>
II-4
<PAGE> 61
<TABLE>
<CAPTION>
NAME SHARES PRICE PER SHARE
------------------------------------------------------------ ------- ---------------
<S> <C> <C>
Nickos...........28,5713.50Eleftherios Kougentakis.......... 14,286 3.50
Michael G. Theodoroveakos................................... 10,000 3.50
Robert Scannell............................................. 35,000 3.50
Eugene Capel................................................ 2,000 3.50
Stanley Wirtheim............................................ 600 3.50
Paramount Acquisition....................................... 33,729 3.50
(j) In February 1996, the Company issued 2,000 shares of Common Stock for $3.50 per share
to each of Scott Maddux and the Jansken Group for consulting services rendered.
</TABLE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Selected Dealer Agreement.
1.3 Form of Agreement Among Underwriters
3.1(1) Restated Certificate of Incorporation, as amended.
3.2(1) By-Laws
4.1 Form of Representative Warrant Agreement among Registrant and Representative to
which the form Representative Warrant Certificate is included as an exhibit.
4.2(1) Form of Warrant Agreement among the Registrant and Continental Stock Transfer &
Trust Company, as Warrant Agent, to which the form of Redeemable Common Stock
Purchase Warrant is included as an exhibit.
4.3 Special Common Stock Certificate.
5.1(2) Opinion of Esanu Katsky Korins & Siger.
10.1(1) Employment Agreement dated January 1, 1996, between the Registrant and Kevin
Doyle.
10.2(1) Compensation Agreement dated November 1, 1995 between the Registrant and Thomas
R. Dilk.
10.3(1) 1996 Long-Term Incentive Plan.
10.4(1) Form of Subscription Agreement relating to the 1996 Private Placement.
10.5(1) Form of Redeemable Common Stock Purchase Warrant (included in Exhibit 4.1).
10.6(1) Form of Representative's Warrant to purchase Warrants (included in Exhibit 4.2).
10.7(1) Form of M/A Agreement between the Registrant and the Representative.
10.8(2) Non-Employee Director Stock Option Plan
24.1(1)(2) Consent of Grant Thornton LLP (See Page II-8)
24.3(1)(2) Consent of Esanu Katsky Korins & Siger (included in Exhibit 5.1).
25.1(1) Powers of attorney (included on Signature Page)
27.1(2) Financial Data Schedule.
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
None
II-5
<PAGE> 62
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(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.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) To remove from the registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) 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.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officer or 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
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
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.
(6) For determining any liability under the Securities Act, to treat
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 issuer under Rule 424(b)(I), or (4) or 497(h)
under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-6
<PAGE> 63
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Miami, State of Florida on this the 10th day of July, 1996
CARIBBEAN CIGAR COMPANY
By: /s/ KEVIN DOYLE
Kevin Doyle, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to this registration statement has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ --------------
<C> <S> <C>
/s/ KEVIN DOYLE Chairman of the Board, Chief July 10, 1996
Executive Officer and Director
Kevin Doyle (Principal Executive Officer)
/s/ THOMAS R. Chief Financial Officer and Director July 10, 1996
DILK (Principal Financial and
Accounting Officer)
Thomas R. Dilk
/s/ ERIC S. Director July 10, 1996
KAMISHER
Eric S. Kamisher
/s/ LUCIANO NICASIO Director July 10, 1996
Luciano Nicasio
</TABLE>
II-7
<PAGE> 64
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Each person whose
signature appears below hereby authorizes Kevin Doyle, Thomas R. Dilk or either
of them acting in the absence of the other, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- -------------
<C> <C> <S>
/s/ LUCIANO NICASIO Director July 9, 1996
- -------------------------------------
Luciano Nicasio
</TABLE>
II-8
<PAGE> 65
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 15, 1996, accompanying the financial
statements of Caribbean Cigar Company contained in Amendment No. 1 to the Form
SB-2 Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Miami, Florida
July 8, 1996
II-9
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement........................................
1.2 Form of Selected Dealer Agreement.....................................
1.3 Form of Agreement Among Underwriters..................................
3.1(1) Restated Certificate of Incorporation, as amended.....................
3.2(1) By-Laws...............................................................
4.1 Form of Representative Warrant Agreement among Registrant and
Representative to which the form Representative Warrant Certificate is
included as an exhibit................................................
4.2(1) Form of Warrant Agreement among the Registrant and Continental Stock
Transfer & Trust Company, as Warrant Agent, to which the form of
Redeemable Common Stock Purchase Warrant is included as an exhibit....
4.3 Speciman Common Stock Certificate.....................................
5.1(2) Opinion of Esanu Katsky Korins & Siger................................
10.1(1) Employment Agreement dated January 1, 1996, between the Registrant and
Kevin Doyle...........................................................
10.2(1) Compensation Agreement dated November 1, 1995 between the Registrant
and Thomas R. Dilk....................................................
10.3(1) 1996 Long-Term Incentive Plan.........................................
10.4(1) Form of Subscription Agreement relating to the 1996 Private
Placement.............................................................
10.5(1) Form of Redeemable Common Stock Purchase Warrant (included in Exhibit
4.1)..................................................................
10.6(1) Form of Representative's Warrant to purchase Warrants (included in
Exhibit 4.2)..........................................................
10.7(1) Form of M/A Agreement between the Registrant and the
Representative........................................................
10.8(2) Non-Employee Director Stock Option Plan...............................
24.1(1)(2) Consent of Grant Thornton LLP (See Page II-8).........................
24.3(1)(2) Consent of Esanu Katsky Korins & Siger (included in Exhibit 5.1)......
25.1(1) Powers of attorney (included on Signature Page).......................
27.1(2) Financial Data Schedule...............................................
</TABLE>
- ---------------
(1) Previously filed.
(2) To be filed by amendment.
<PAGE> 1
CARRIBEAN CIGAR COMPANY
1,325,000 SHARES OF COMMON STOCK AND
1,325,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
Boca Raton, Florida
_____________, 1996
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Gentlemen:
Carribean Cigar Company (the "Company"), on the basis of the
representations, warranties, covenants and conditions contained herein, hereby
proposes to issue and sell in a public offering to be effected by such
Underwriters as named in Schedule A (the "Underwriters") to the Underwriting
Agreement (the "Agreement"), for whom Barron Chase Securities, Inc. is acting as
a representative (the "Representative"), pursuant to the terms of this
Agreement, on a "firm commitment" basis, 1,325,000 shares of Common Stock (the
"Shares") at $7.00 per Share and 1,325,000 Redeemable Common Stock Purchase
Warrants (the "Warrants") at $.125 per Warrant. The Shares and the Warrants are
collectively referred to as the "Securities". Each Warrant is exercisable to
purchase one (1) share of Common Stock (the "Common Stock") at the Initial
Public Offering Price per share at any time during the period between the
Effective Date and three (3) years from the Effective Date. The date upon which
the Securities and Exchange Commission ("Commission") shall declare the
Registration Statement of the Company effective shall be the "Effective Date".
The Warrants are subject to redemption under certain circumstances. In addition,
the Company proposes to grant to the Underwriters (or, at the option of the
Representative, to the Representative, individually) the option referred to in
Section 2(b) to purchase all or any part of an aggregate of 198,750 additional
Shares and/or 198,750 additional Warrants (the "Option Securities").
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Securities, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Securities by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
<PAGE> 2
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with each of the
Underwriters as of the Effective Date (as defined above), the Closing Date (as
hereinafter defined) and the Option Closing Date (as hereinafter defined) that:
(a) A registration statement (File No. 333-4415) on Form SB-2 relating
to the public offering of the Securities, including a preliminary form of the
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Commission thereunder, and has been filed with the
Commission under the Act. The Company has prepared in the same manner and
proposes to file, prior to the Effective Date of such registration statement, an
additional amendment or amendments to such registration statement, including a
final form of Prospectus, copies of which shall be delivered to you.
"Preliminary Prospectus" shall mean each prospectus filed pursuant to the Rules
and Regulations under the Act prior to the Effective Date. The registration
statement (including all financial schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are
respectively referred to as the "Registration Statement" and the "Prospectus",
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from said prospectus as then
amended, the term "Prospectus" shall mean the prospectus first filed pursuant to
Rule 424(b), and (ii) if such registration statement or prospectus is amended or
such prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be.
(b) At the Effective Date and at all times subsequent thereto up to the
Option Closing Date, if any, and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriters or
Selected Dealers: (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
the Company makes no representations, warranties or agreement as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by the Underwriters
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<PAGE> 3
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting" and regarding the identity of counsel to the Underwriters
under the heading "Legal Matters" constitute the only information furnished in
writing by the Underwriters for inclusion in the Prospectus.
(c) Each of the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus and is duly qualified to do business as a foreign corporation and is
in good standing in all other jurisdictions in which the nature of its business
or the character or location of its properties requires such qualification,
except where failure to so qualify will not materially affect the Company's
business, properties or financial condition.
(d) The authorized, issued and outstanding securities of the Company as
of the date of the Prospectus is as set forth in the Prospectus under
"Capitalization"; all of the issued and outstanding securities of the Company
have been, or will be when issued as set forth in the Prospectus, duly
authorized, validly issued and fully paid and non-assessable; the issuances and
sales of all such securities complied in all material respects with applicable
Federal and state securities laws; the holders thereof have no rights of
rescission against the Company with respect thereto, and are not subject to
personal liability by reason of being such holders; none of such securities were
issued in violation of the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any securities of the Company have been granted or
entered into by the Company; and all of the securities of the Company, issued
and to be issued as set forth in the Registration Statement, conform to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares are duly authorized, and when issued, delivered and paid
for pursuant to this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights of any security holder of
the Company. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated in this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
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<PAGE> 4
The Warrants have been duly authorized and, when issued, delivered and
paid for pursuant to this Agreement, will have been duly authorized, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms and entitled to the benefits
provided by the warrant agreement pursuant to which such Warrants are to be
issued (the "Warrant Agreement"), which will be substantially in the form filed
as an exhibit to the Registration Statement. The shares of Common Stock issuable
upon exercise of the Warrants have been reserved for issuance and when issued in
accordance with the terms of the Warrants and Warrant Agreement, will be duly
and validly authorized, validly issued, fully paid and non-assessable, free of
pre-emptive rights and no personal liability will attach to the ownership
thereof. The Warrant exercise period and the Warrant exercise price may not be
changed or revised by the Company, without the prior written consent of the
Representative. The Warrant Agreement has been duly authorized and, when
executed and delivered pursuant to this Agreement, will have been duly executed
and delivered and will constitute the valid and legally binding obligation of
the Company enforceable in accordance with its terms.
The Common Stock Representative Warrants, the Warrant Representative
Warrants, the Underlying Warrants, the shares of Common Stock issuable upon
exercise of the Common Stock Representative Warrants, and the shares of Common
Stock issuable upon exercise of the Underlying Warrants (all as defined in the
Representative's Warrant Agreement described in Section 12 herein), have been
duly authorized and, when issued, delivered and paid for, will be validly
issued, fully paid, non-assessable, free of pre-emptive rights and no personal
liability will attach to the ownership thereof, and will constitute valid and
legally binding obligations of the Company enforceable in accordance with their
terms and entitled to the benefits provided by the Representative's Warrant
Agreement.
(f) This Agreement, the Warrant Agreement, the Merger and Acquisition
Agreement (the "M/A Agreement") and the Representative's Warrant Agreement have
been duly and validly authorized, executed and delivered by the Company, and
assuming due execution of this Agreement by the other party hereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the rights of creditors
generally. The Company has full power and lawful authority to authorize, issue
and sell the Securities to be sold by it hereunder on the terms and conditions
set forth herein, and no consent, approval, authorization or other order of any
governmental authority is required in connection with such authorization,
execution and delivery or with the authorization, issue and sale of the
Securities or the securities to be issued pursuant to the Representative's
Warrant Agreement, except such as may be required under the Act or state
securities
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<PAGE> 5
laws, or as otherwise have been obtained.
(g) Except as described in the Prospectus, neither the Company nor any
subsidiary is in material violation, breach of or default under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach of, or
constitute a material default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or each subsidiary or any of the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or each subsidiary is a party or by which the Company or each
subsidiary may be bound or to which any of the property or assets of the Company
or each subsidiary is subject, nor will such action result in any material
violation of the provisions of the articles of incorporation or by-laws of the
Company or each subsidiary, as amended, or any statute or any order, rule or
regulation applicable to the Company or subsidiary of any court or of any
regulatory authority or other governmental body having jurisdiction over the
Company or each subsidiary.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each subsidiary have good and marketable title to all properties and assets
described in the Prospectus as owned by each of them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to its business; all of the material leases
and subleases under which the Company or each subsidiary is the lessor or
sublessor of properties or assets or under which the Company or each subsidiary
holds properties or assets as lessee or sublessee as described in the Prospectus
are in full force and effect, and, except as described in the Prospectus,
neither the Company nor each subsidiary is in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or each subsidiary as lessor, sublessor, lessee, or sublessee under any
of the leases or subleases mentioned above, or affecting or questioning the
right of the Company or each subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company and each subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Grant Thornton & Co., L.L.P., who have given their reports on
certain financial statements filed and to be filed with the Commission as part
of the Registration Statement, and which are included in the Prospectus, are
with respect to the Company, independent public accountants as required by the
Act and the Rules
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<PAGE> 6
and Regulations.
(j) The financial statements and schedules, together with related
notes, set forth in the Prospectus and the Registration Statement present fairly
the financial position and results of operations and changes in financial
position of the Company on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The Company's internal accounting controls and
procedures are sufficient to cause the Company and each subsidiary to prepare
financial statements which comply in all material respects with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved. During the preceding five (5) year period, nothing has been
brought to the attention of the Company's management that would result in any
reportable condition relating to the Company's internal accounting procedures,
weaknesses or controls.
(k) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus and to and including the
Option Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) neither the Company nor any subsidiary has
incurred and will not have incurred any material liabilities or obligations,
direct or contingent, and has not entered into and will not have entered into
any material transactions other than in the ordinary course of business and/or
as contemplated in the Registration Statement and the Prospectus; (ii) neither
the Company nor any subsidiary has and will not have paid or declared any
dividends or have made any other distribution on its capital stock; (iii) there
has not been any change in the capital stock of, or any incurrence of long-term
debt by, the Company or any subsidiary; (iv) neither the Company nor any
subsidiary has issued any options, warrants or other rights to purchase the
capital stock of the Company or any subsidiary; and (v) there has not been and
will not have been any material adverse change in the business, financial
condition or results of operations of the Company or any subsidiary, or in the
book value of the assets of the Company or any subsidiary, arising for any
reason whatsoever.
(l) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any
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subsidiary.
(m) Except as disclosed in the Prospectus, each of the Company and each
subsidiary has filed all necessary federal, state and foreign income and
franchise tax returns 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 that has not been provided for in
the financial statements.
(n) Except as set forth in the Prospectus, each of the Company and each
subsidiary has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects in compliance therewith and owns or possesses adequate right to use all
material patents, patent applications, trademarks, service marks, trade-names,
trademark registrations, service mark registrations, copyrights, and licenses
necessary for the conduct of such business and has not received any notice of
conflict with the asserted rights of others in respect thereof. To the best of
the Company's knowledge, none of the activities or business of the Company or
any subsidiary are in violation of, or 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 locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company and any
subsidiary.
(o) Neither the Company nor any subsidiary has, directly or indirectly,
at any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contribution, in violation of law or (ii) made
any payment to any state, federal or foreign governmental officer or official,
or other person charged with similar public or quasi-public duties, other than
payments or contributions required or allowed by applicable law.
(p) On the Closing Dates (herein defined) all transfer or other taxes
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Securities to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents which are required to be
described in or filed as exhibits to the Registration Statement have been so
described and/or filed.
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(r) Except as described in the Registration Statement and Prospectus,
no holders of Common Stock or of any other securities of the Company have the
right to include such Common Stock or other securities in the Registration
Statement and Prospectus.
(s) Except as set forth in or contemplated by the Registration
Statement and the Prospectus, neither the Company nor any subsidiary has any
material contingent liabilities.
(t) The Company has no subsidiary corporations except as disclosed in
the Registration Statement and Prospectus, nor has it any equity interest in any
partnership, joint venture, association or other entity except as disclosed in
the Registration Statement or Prospectus. Except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
securities of each of its subsidiaries.
(u) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus with respect to the offer and sale of the
Securities and each Preliminary Prospectus, as of its date, has conformed fully
in all material respects with the requirements of the Act and the Rules and
Regulations and did not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein not
misleading.
(v) Neither the Company, nor, to the Company's knowledge, any of its
officers, directors, employees or stockholders, have taken or will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any of the securities of the
Company.
(w) Item 26 of Part II of the Registration Statement accurately
discloses all unregistered securities sold by the Company within the three year
period prior to the date as of which information is presented in the
Registration Statement. All of such securities were sold in transactions which
were exempt from the registration provisions of the Act and not in violation of
Section 5 thereof.
(x) Other than as set forth in the Prospectus, the Company has not
entered into any agreement pursuant to which any person is entitled, either
directly or indirectly, to compensation from the Company for services as a
finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriters against any losses, claims, damages
or liabilities, joint or several, which shall include, but not be limited to,
all costs to defend against any such claim, so long as such claim arises out of
agreements made or allegedly made by the Company.
(y) Based upon written representations received by the
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Company, no officer, director or five percent (5%) or greater stockholder of the
Company or any subsidiary has any direct or indirect affiliation or association
with any member of the National Association of Securities Dealers, Inc.
("NASD"), except as disclosed to the Representative in writing, and no
beneficial owner of the Company's unregistered securities has any direct or
indirect affiliation or association with any NASD member except as disclosed to
the Representative in writing. The Company will advise the Representative and
the NASD if any five percent (5%) or greater shareholder of the Company or any
subsidiary is or becomes an affiliate or associated person of an NASD member
participating in the distribution.
(z) The Company and each subsidiary is in compliance in all material
respects with all federal, state and local laws and regulations respecting the
employment of its employees and employment practices, terms and conditions of
employment and wages and hours relating thereto. There are no pending
investigations involving the Company or any subsidiary by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company or any subsidiary pending before the
National Labor Relations Board or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or to the knowledge of the Company, threatened
against or involving the Company or any subsidiary or any predecessor entity. No
question concerning representation exists respecting the employees of the
Company or any subsidiary and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company or any subsidiary. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company or any subsidiary, if any.
(aa) Neither the Company nor any subsidiary maintains, sponsors nor
contributes to, nor is it required to contribute to, any program or arrangement
that is an "employee pension benefit plan", an "employee welfare benefit plan",
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Neither the Company nor any subsidiary
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA.
(ab) Based upon written representations received from the officers and
directors of the Company and each subsidiary, except as disclosed in the
Prospectus, during the past five years, none of the officers or directors of the
Company or any subsidiary have been:
(1) Subject of a petition under the Federal bankruptcy laws or
any state insolvency law filed by or
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against them, or by a receiver, fiscal agent or similar officer
appointed by a court for their business or property, or any partnership
in which either or them was a general partner at or within two years
before the time of such filing, or any corporation or business
association of which either of them was an executive officer at or
within two years before the time of such filing;
(2) Convicted in a criminal proceeding or a named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining either of them from,
or otherwise limiting, any of the following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, any
other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association
or insurance company, or engaging in or continuing any conduct
or practice in connection with any such activity;
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection
with any violation of Federal or State securities law or
Federal Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or State
authority barring, suspending or otherwise limiting for more than sixty
(60) days either of their right to engage in any activity described in
paragraph (3)(i) above, or be associated with persons engaged in any
such activity;
(5) Found by any court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated
any Federal or State
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securities law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated
any Federal Commodities Law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
(ac) Based upon written representations received from the officers and
directors of the Company, each of the officers and directors of the Company has
reviewed the sections in the Prospectus relating to their biographical data and
equity ownership position in the Company, and all information contained therein
is true and accurate.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement and upon the
basis of the representations, warranties and agreements herein contained, the
Company hereby agrees to issue and sell to the Underwriters an aggregate of
1,325,000 Shares at $6.30 per Share and 1,325,000 Warrants at $.1125 per
Warrant, (the public offering price less ten percent (10%)), at the place and
time hereinafter specified, in accordance with the number of Shares and/or
Warrants set forth opposite the names of the Underwriters in Schedule A attached
hereto (the "Securities") plus any additional Securities which such Underwriters
may become obligated to purchase pursuant to the provisions of Section 9 hereof.
The Securities shall consist of 1,325,000 Shares and 1,325,000 Warrants to be
purchased from the Company, and the price at which the Underwriters shall sell
the Securities to the public shall be $7.00 per Share and $.125 per Warrant.
Delivery of the Securities against payment therefor shall take place at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200,
Boca Raton, Florida 33433 (or at such other place as may be designated by the
Representative) at 10:00 a.m., Eastern Time, on such date after the Registration
Statement has become effective as the Representative shall designate, but not
later than ten (10) business days (holidays excepted) following the first date
that any of the Securities are released to you, such time and date of payment
and delivery for the Securities being herein called the "Closing Date".
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the Underwriters (or, at the
option of the
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Representative, to the Representative, individually) to purchase all or any part
of an aggregate of an additional 198,750 Shares and 198,750 Warrants at the same
price per Share and Warrant as the Underwriters shall pay for the Securities
being sold pursuant to the provisions of subsection (a) of this Section 2 (such
additional Securities being referred to herein as the "Option Securities"). This
option may be exercised within 45 days after the Effective Date of the
Registration Statement upon notice by the Underwriters to the Company advising
as to the amount of Option Securities as to which the option is being exercised,
the names and denominations in which the certificates for such Option Securities
are to be registered and the time and date when such certificates are to be
delivered. Such time and date shall be determined by the Underwriters (or the
Representative, individually) but shall not be later than ten (10) full business
days after the exercise of said option, nor in any event prior to the Closing
Date, and such time and date is referred to herein as the "Option Closing Date".
Delivery of the Option Securities against payment therefor shall take place at
the offices of the Representative. The Option granted hereunder may be exercised
only to cover overallotments in the sale by the Underwriters of the Securities
referred to in subsection (a) above. In the event the Company declares or pays a
dividend or distribution on its Common Stock, whether in the form of cash,
shares of Common Stock or any other consideration, prior to the Option Closing
Date, such dividend or distribution shall also be paid on the Option Closing
Date.
(c) The Company will make the certificates for the Securities to be
sold hereunder available to you for inspection at least two (2) full business
days prior to the Closing Date at the offices of the Representative, and such
certificates shall be registered in such names and denominations as you may
request. Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Company to each Underwriter.
Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices by the several Underwriters, by certified or bank cashier's
checks in New York Clearing House funds, payable to the order of the Company or
by wire transfer in New York Clearing House funds.
In addition, in the event the Underwriters (or the Representative
individually) exercises the option to purchase from the Company all or any
portion of the Option Securities pursuant to the provisions of subsection (b)
above, payment for such Securities shall be made payable in New York Clearing
House funds at the offices of the Representative, or by wire transfer in New
York Clearing House funds, at the time and date of delivery of such Securities
as required by the provisions of subsection (b) above,
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against receipt of the certificates for such Securities by the Representative
for the respective accounts of the several Underwriters registered in such names
and in such denominations as the Representative may request.
It is understood that you, individually and not as Representative of
the several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 2 on behalf of any Underwriters whose
check or checks shall not have been received by the Representative at the time
of delivery of the Securities to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder. It is also understood
that you individually, rather than all of the Underwriters, may (but shall not
be obligated to) purchase the Option Securities referred to in subsection (b) of
this Section 2, but only to cover overallotments.
It is understood that the several Underwriters propose to offer the
Securities to be purchased hereunder to the public upon the terms and conditions
set forth in the Registration Statement, after the Registration Statement is
declared effective by the Commission.
3. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company, upon notification from the Commission that the
Registration Statement has become effective, will so advise you and will not at
any time, whether before or after the Effective Date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously been advised and furnished with a copy or to which you or your
counsel shall have objected in writing, acting reasonably, or which is not in
compliance with the Act and the Rules and Regulations. At any time prior to the
later of (i) the completion by the Underwriters of the distribution of the
Securities as contemplated hereby; or (ii) 25 days after the date on which the
Registration Statement shall have become or been declared effective, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
and as mutually agreed by the Company and the Representative.
After the Effective Date and as soon as the Company is advised thereof,
the Company will advise you, and confirm the advice in writing, of the receipt
of any comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the
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<PAGE> 14
Prospectus or for additional information with respect thereto, of the issuance
by the Commission or any state or regulatory body of any stop order or other
order suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any Preliminary Prospectus, or of the
suspension of the qualification of the Securities for offering in any
jurisdiction, or of the institution of any proceedings for any of such purposes,
and will use its best efforts to prevent the issuance of any such order, and, if
issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary and Final Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and Selected Dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of counsel to the Underwriters the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriters or Selected
Dealers, of any event of which the Company has knowledge and which materially
affects the Company or the securities of the Company, or which in the opinion of
counsel for the Company or counsel for the Underwriters, should be set forth in
an amendment to the Registration Statement or a supplement to the Prospectus, in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered to
a purchaser of the Securities, or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Act and the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to be
attached to the Prospectus, in such quantities as you may reasonably request, in
order that the Prospectus, as so amended or supplemented, will not contain any
untrue statement of a material fact or omit to state any material facts
necessary in order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriters.
The Company will comply with the Act, the Rules and Regulations
thereunder, the Securities Exchange Act of 1934 (the "1934 Act"), and the rules
and regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will act in good faith and use its best efforts and
cooperate with you and your counsel to qualify to register the Securities for
sale under the securities or "blue sky"
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<PAGE> 15
laws of such jurisdictions as the Representative may designate and will make
such applications and furnish such information as may be required for that
purpose and to comply with such laws, provided the Company shall not be required
to qualify as a foreign corporation or a dealer in securities or to execute a
general consent to service of process in any jurisdiction in any action other
than one arising out of the offering or sale of the Securities. The Company
will, from time to time, prepare and file such statements and reports as are or
may be required to continue such qualification in effect for so long a period as
the Underwriters may reasonably request.
(c) If the sale of the Securities provided for herein is not
consummated, the Company shall pay all costs and expenses incident to the
performance of the Company's obligations hereunder, including, but not limited
to, all such expenses itemized in Section 8(a) and 8(c) hereof, and either (i)
the out-of-pocket expenses of the Representative, not to exceed the $50,000
previously paid if the Representative elects to terminate the offering for any
reason; or (ii) the out-of-pocket expenses of the Representative if the Company
elects to terminate the offering for any reason. For the purposes of this
sub-paragraph, the Representative shall be deemed to have assumed such expenses
when they are billed or incurred, regardless of whether such expenses have been
paid. The Representative shall not be responsible for any expenses of the
Company or others, or for any charges or claims relative to the proposed public
offering if it is not consummated.
(d) The Company will deliver to you at or before the Closing Date two
signed copies of the Registration Statement, including all financial statements
and exhibits filed therewith, and of each amendment or supplement thereto. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the Effective Date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the Effective
Date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the Effective Date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented as the several
Underwriters may from time to time reasonably request.
(e) For so long as the Company is a reporting company under either
Section 12 or 15 of the 1934 Act, the Company, at its expense, will furnish to
the Representative during the period ending five (5) years from the Effective
Date, (i) as soon as practicable after the end of each fiscal year, a balance
sheet of the Company and any of its subsidiaries as at the end of such fiscal
year, together with statements of income, surplus and cash flow of the Company
and any subsidiaries for such fiscal year, all
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<PAGE> 16
in reasonable detail and accompanied by a copy of the certificate or report
thereon of independent accountants; (ii) as soon as they are available, a copy
of all reports (financial or other) mailed to security holders; (iii) as soon as
they are available, a copy of all non-confidential documents, including annual
reports, periodic reports and financial statements, furnished to or filed with
the Commission under the Act and the 1934 Act; (iv) copies of each press
release, news item and article with respect to the Company's affairs released by
the Company; and (v) such other information as you may from time to time
reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will make generally available to its stockholders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable, but in no event later than the first day of the sixteenth full
calendar month following the Effective Date, an earnings statement (which need
not be audited) covering a period of at least twelve consecutive months
beginning with the Effective Date of the Registration Statement, which shall
satisfy the requirements of Section 11(a) of the Act.
(h) On the Closing Date, the Company shall have taken the necessary
action to become a reporting company under Section 12 of the 1934 Act, and the
Company will make all filings required to, and will have obtained approval for,
the listing of the Shares and Warrants on The NASDAQ Small Cap Market System and
the Pacific or Boston Stock Exchange, and will use its best efforts to maintain
such listing for at least seven (7) years from the date of this Agreement.
(i) For such period as the Company's securities are registered under
the 1934 Act, the Company will hold an annual meeting of stockholders for the
election of Directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years will provide the Company's stockholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by Rule 14a-3 under
the 1934 Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(j) The Company will apply the net proceeds from the sale of the
Securities substantially in accordance with its statement under the caption "Use
of Proceeds" in the Prospectus, and will file such reports with the Commission
with respect to the sale of the Securities and the application of the proceeds
therefrom as may be required by Sections 12, 13 and/or 15 of the 1934 Act and
pursuant
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<PAGE> 17
to Rule 463 under the Act.
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters and the Company may be
reasonably necessary or advisable in connection with the distribution of the
Securities and will use its best efforts to cause the same to become effective
as promptly as possible.
(l) On the Closing Date, the Company shall execute and deliver to you
the Representative's Warrant Agreement. The Representative's Warrant Agreement
and Warrant Certificates will be substantially in the form of the
Representative's Warrant Agreement filed as an Exhibit to the Registration
Statement.
(m) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued securities which are issuable upon
exercise of the Representative's Warrants outstanding from time to time.
(n) All beneficial owners of the Company's securities (including
Warrants, Options and Common Stock of the Company), except those owners who
purchased pursuant to private placements completed during 1996, as of the
Effective Date, shall agree in writing, in a form satisfactory to the
Representative, not to sell, transfer or otherwise dispose of any of such
securities or underlying securities for a period of sixteen (16) months from the
Effective Date, or any longer period required by any State, without the prior
written consent of the Representative. The beneficial owners of the Company's
securities purchased pursuant to the private placements completed during 1996,
shall agree in writing, not to sell, transfer or otherwise dispose of any of
such securities for a period of twelve (12) months from the Effective Date, or
any longer period required by any state, without the prior written consent of
the Representative.
(o) The Company will obtain, on or before the Closing Date, key person
life insurance on the life of Kevin Doyle in an amount of not less than
$1,000,000, and will use its best efforts to maintain such insurance for a
period of at least five (5) years from the Effective Date.
(p) Prior to the Closing Date, the Company shall, at its own expense,
undertake to list the Company's securities in the appropriate recognized
securities manual or manuals published by Standard & Poor's Corporation and such
other manuals as the Representative may designate, such listings to contain the
information required by such manuals and the Uniform Securities Act. The Company
hereby agrees to use its best efforts to maintain
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<PAGE> 18
such listing for a period of not less than five (5) years. The Company shall
take such action as may be reasonably requested by the Representative to obtain
a secondary market trading exemption in such states as may be reasonably
requested by the Representative.
(q) During the one hundred eighty (180) day period commencing on the
Closing Date, the Company will not, without the prior written consent of the
Representative, grant options or warrants to purchase the Company's Common Stock
at a price less than the initial per share public offering price.
(r) Prior to the Closing Date, neither the Company nor any subsidiary
will issue, directly or indirectly, without your prior consent, any press
release or other communication or hold any press conference with respect to the
Company or its activities or the offering of the Securities other than routine
customary advertising of the Company's products and services, and except as
required by any applicable law or the directives of any relevant regulatory
authority in any relevant jurisdiction.
(s) The Company shall employ the services of a firm of independent
certified public accountants in connection with the preparation of the financial
statements to be included in any registration statement or similar disclosure
document to be filed by the Company hereunder, or any amendment or supplement
thereto. For a period of five (5) years from the Effective Date, the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's quarterly report
and the mailing of quarterly financial information to stockholders.
(t) The Company shall retain Continental Stock Transfer & Trust Company
as the transfer agent for the securities of the Company, or such other transfer
agent as you may agree to in writing. In addition, the Company shall direct such
transfer agent to furnish the Representative with daily transfer sheets as to
each of the Company's securities as prepared by the Company's transfer agent and
copies of lists of stockholders and warrantholders as reasonably requested by
the Underwriter, for a five (5) year period commencing from the Closing Date.
(u) The Company shall cause the Depository Trust Company, or such other
depository of the Company's securities, to deliver a "special security position
report" to the Representative on a daily and weekly basis at the expense of the
Company, for a five (5) year period from the Effective Date.
(v) Following the Effective Date, the Company shall, at its sole cost
and expense, prepare and file such Blue Sky applications with such jurisdictions
as the Representative shall designate and
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<PAGE> 19
the Company may reasonably agree.
(w) On the Effective Date and for a period of three (3) years
thereafter, the Company's Board of Directors shall consist of a minimum of five
(5) persons, two (2) of whom shall be independent and not otherwise affiliated
with the Company or associated with any of the Company's affiliates. The
Representative shall have the opportunity to invite an observer to attend Board
of Directors meetings of the Company at the expense of the Company.
(x) On the Closing Date, the Company shall execute and deliver to you a
non-exclusive M/A Agreement with the Representative in a form satisfactory to
the Representative, providing:
(1) The Representative will be paid a finder's fee, of from
five percent (5%) of the first $1,000,000 ranging in $1,000,000
increments down to one percent (1%) of the excess, if any, over
$4,000,000 of the consideration involved in any transaction introduced
in writing by the Representative (including mergers, acquisitions,
joint ventures, and any other business for the Company introduced by
the Representative) consummated by the Company, as an "Introduced,
Consummated Transaction", by which the Representative introduced the
other party to the Company during a period ending five (5) years from
the date of the M/A Agreement; and
(2) That any such finder's fee due to the Representative will
be paid in cash or stock as mutually agreed at the closing of the
particular Introduced, Consummated Transaction for which the finder's
fee is due.
(y) After the Closing Date, the Company shall prepare and publish, at a
total cost not to exceed $15,000, "tombstone" advertisements of at least 5 x 5
inches in publications to be designated by the Representative.
(z) For such period as any Warrants are outstanding, the Company shall
use its best efforts to cause post-effective amendments to the Registration
Statement or a new Registration Statement to become effective in compliance with
the Act and without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then amended,
to be delivered to each holder of record of a Warrant and to furnish to each of
the Underwriters and each dealer as many copies of each such Prospectus as such
Underwriter or such dealer may reasonably request. Such post-effective
amendments or new Registration Statements shall also register the
Representative's Warrants and all the securities underlying the Representative's
Warrants. The Company shall not call for redemption of any of the Warrants
unless a Registration Statement covering the securities underlying the Warrants
has been declared effective by the
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<PAGE> 20
Commission and remains current at least until the date fixed for redemption. In
addition, the Warrants shall not be redeemable during the first year after the
Effective Date without the written consent of the Representative.
(aa) Until such time as the securities of the Company are listed or
quoted on either the New York Stock Exchange or the American Stock Exchange, the
Company shall engage the Company's legal counsel to deliver to the
Representative a written opinion detailing those states in which the Shares and
Warrants of the Company may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Opinion"). The initial
Secondary Market Trading Opinion shall be delivered to the Representative on the
Effective Date, and the Company shall continue to update such opinion and
deliver same to the Representative on a timely basis, but in any event at the
beginning of each fiscal quarter, for a five (5) year period, if required.
(ab) As promptly as practicable after the Closing Date, the Company
will prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute such volumes to the individuals designated by the
Representative or counsel to the Representative.
4. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Securities which they have
agreed to purchase hereunder from the Company are subject, as of the date hereof
and as of each Closing Date, to the continuing accuracy of, and compliance with,
the representations and warranties of the Company herein, to the accuracy of
statements of officers of the Company made pursuant to the provisions hereof, to
the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) (i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or at such
later time or on such later date as you may agree to in writing; (ii) at or
prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the Commission and no
proceeding for that purpose shall have been initiated or pending, or shall be
threatened, or to the knowledge of the Company, contemplated by the Commission;
(iii) no stop order suspending the effectiveness of the qualification or
registration of the Securities under the securities or "blue sky" laws of any
jurisdiction (whether or not a jurisdiction which you shall have specified)
shall be threatened or to the knowledge of the Company contemplated by the
authorities of any such jurisdiction or shall have been issued and in effect;
(iv) any request for additional information on the part of the Commission or any
such authorities shall have been complied with to the satisfaction of the
Commission and any such authorities, and to the satisfaction of counsel to the
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<PAGE> 21
Underwriters; and (v) after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to the Underwriters and the Underwriters did not
object thereto.
(b) At the Closing Date, since the respective dates as of which
information is presented in the Registration Statement and the Prospectus, (i)
there shall not have been any material change in the capital stock or other
securities of the Company or any subsidiary or any material adverse change in
the long-term debt of the Company or any subsidiary except as set forth in or
contemplated by the Registration Statement, (ii) there shall not have been any
material adverse change in the general affairs, business, properties, condition
(financial or otherwise), management, or results of operations of the Company or
any subsidiary, whether or not arising from transactions in the ordinary course
of business, in each case other than as set forth in or contemplated by the
Registration Statement or Prospectus; (iii) neither the Company nor any
subsidiary shall have sustained any material interference with its business or
properties from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree, which is not set forth in the Registration
Statement and Prospectus; and (iv) 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 Act and the Rules and
Regulations, and shall 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, in light of the circumstance under
which they are made, not misleading.
(c) Except as set forth in the Prospectus, there is not pending or, to
the knowledge of the Company or any subsidiary, threatened, any material action,
suit, proceeding, inquiry, arbitration or investigation against the Company or
any subsidiary, or any of the officers or directors of the Company or any
subsidiary, or any material action, suit, proceeding, inquiry, arbitration, or
investigation, which might result in any material adverse change in the
condition (financial or other), business prospects, net worth, or properties of
the Company or any subsidiary.
(d) Each of the representations and warranties of the Company contained
herein shall be true and correct as of this date and at the Closing Date as if
made at the Closing Date, and all covenants and agreements herein contained to
be performed on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the Closing Date
shall
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<PAGE> 22
have been duly performed, fulfilled or complied with.
(e) At each Closing Date, you shall have received the opinion, together
with copies of such opinion for each of the other several Underwriters, dated as
of each Closing Date, from Esanu Katsky Korins & Siger, counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters, to the
effect that:
(i) the Company and each subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full corporate power
and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly
qualified or licensed to do business as a foreign corporation and is in
good standing in each other jurisdiction in which the ownership or
leasing of its properties or conduct of its business requires such
qualification except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company and
each subsidiary as a whole;
(ii) the authorized capitalization of the Company is as set
forth under "Capitalization" in the Prospectus; all shares of the
Company's outstanding stock and other securities requiring
authorization for issuance by the Company's Board of Directors have
been duly authorized, validly issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; the
outstanding shares of Common Stock of the Company and other securities
have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any
preemptive rights or, to such counsel's knowledge, other rights to
subscribe for or to purchase securities of the Company, nor, to such
counsel's knowledge, are there any restrictions upon the voting or
transfer of any of the securities of the Company, except as disclosed
in the Prospectus; the Common Stock, the Shares, the Warrants, and the
securities contained in the Representative's Warrant Agreement conform
to the respective descriptions thereof contained in the Prospectus; the
Common Stock, the Shares, the Warrants, the shares of Common Stock to
be issued upon exercise of the Warrants and the securities contained in
the Representative's Warrant Agreement, have been duly authorized and,
when issued, delivered and paid for, will be duly authorized, validly
issued, fully paid, non-assessable, free of pre-emptive rights and no
personal liability will attach to the ownership thereof; all prior
sales by the Company of the Company's securities have been made in
compliance with or under an exemption from registration under the Act
and applicable state securities laws and no shareholders of the Company
have any rescission rights against the Company with respect to the
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<PAGE> 23
Company's securities; a sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Warrants and the
Representative Warrants, and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any registration rights or other rights, other than those which have
been waived or satisfied or described in the Registration Statement;
(iii) this Agreement, the Representative's Warrant Agreement,
the Warrant Agreement and the M/A Agreement have been duly and validly
authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery of this Agreement by the
Representative, are the valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except (a) as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time in effect
which effect creditors' rights generally; and (b) no opinion is
expressed as to the enforceability of the indemnity provisions or the
contribution provisions contained in this Agreement;
(iv) the certificates evidencing the outstanding securities of
the Company, the Shares, the Common Stock and the Warrants are in valid
and proper legal form;
(v) to the best of such counsel's knowledge, except as set
forth in the Prospectus, there is not pending or, to the knowledge of
the Company, threatened, any material action, suit, proceeding,
inquiry, arbitration or investigation against the Company or any
subsidiary or any of the officers of directors of the Company or any
subsidiary, nor any material action, suit, proceeding, inquiry,
arbitration, or investigation, which might materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth, or properties of the Company or any subsidiary;
(vi) the execution and delivery of this Agreement, the
Representative's Warrant Agreement, the Warrant Agreement and the M/A
Agreement, and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or therein
contemplated, will not result in a violation of, or constitute a
default under (a) the Articles of Incorporation or By-Laws of the
Company and each subsidiary; (b) to the best of such counsel's
knowledge, any material obligations, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the
Company or any subsidiary is a party
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<PAGE> 24
or by which it or any of its properties is bound; or (c) to the best of
such counsel's knowledge, any material order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality
or court, domestic or foreign;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations; and
(viii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Securities by the Company, in connection with the execution,
delivery and performance of this Agreement by the Company or in
connection with the taking of any action contemplated herein, or the
issuance of the Representative's Warrants or the Securities underlying
the Representative's Warrants, other than registrations or
qualifications of the Securities under applicable state or foreign
securities or Blue Sky laws and registration under the Act.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Underwriter or counsel for the Underwriter shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law, upon opinions of counsel
satisfactory to you and counsel to the Underwriters. The opinion of such counsel
to the Company shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Representative and they are justified
in relying thereon.
Such counsel shall also include a statement to the effect that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus and nothing has come to the attention of such counsel to lead
such counsel to believe that the Registration Statement or any amendment thereto
at the time it became effective contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or that the
24
<PAGE> 25
Prospectus or any supplement thereto contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary in order to make statements therein, in light of the circumstances
under which they are made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
(f) You and the several Underwriters shall have received on each
Closing Date a certificate dated as of each Closing Date, signed by the Chief
Executive Officer and the Chief Financial Officer of the Company and such other
officers of the Company as the Underwriters may request, certifying that:
(i) No Order suspending the effectiveness of the Registration
Statement or stop order regarding the sale of the Securities in effect
and no proceedings for such purpose are pending or are, to their
knowledge, threatened by the Commission;
(ii) They do not know of any litigation instituted or, to
their knowledge, threatened against the Company or any subsidiary or
any officer or director of the Company or any subsidiary of a character
required to be disclosed in the Registration Statement which is not
disclosed therein; they do not know of any contracts which are required
to be summarized in the Prospectus which are not so summarized; and
they do not know of any material contracts required to be filed as
exhibits to the Registration Statement which are not so filed;
(iii) They have each carefully examined the Registration
Statement and the Prospectus and, to the best of their knowledge,
neither the Registration Statement nor the Prospectus nor any amendment
or supplement to either of the foregoing contains an untrue statement
of any material fact or omits to state any material fact required to be
stated therein or necessary to make the statement therein, in light of
the circumstances under which they are made, not misleading; and since
the Effective Date, to the best of their knowledge, there has occurred
no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth;
(iv) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition of the Company or any
subsidiary, financial or otherwise, or in the results of its
operations, except as reflected in or contemplated by the Registration
Statement and the Prospectus and except as so reflected or contemplated
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<PAGE> 26
since such date, there has not been any material transaction entered
into by the Company or any subsidiary;
(v) The representations and warranties set forth in this
Agreement are true and correct in all material respects and the Company
has complied with all of its agreements herein contained;
(vi) Neither the Company nor any subsidiary is delinquent in
the filing of any federal, state and municipal tax return or the
payment of any federal, state or municipal taxes; they know of no
proposed redetermination or re-assessment of taxes, adverse to the
Company or any subsidiary, and the Company and each subsidiary has paid
or provided by adequate reserves for all known tax liabilities;
(vii) They know of no material obligation or liability of the
Company or any subsidiary, contingent or otherwise, not disclosed in
the Registration Statement and Prospectus;
(viii) This Agreement, the Representative's Warrant Agreement,
the Warrant Agreement and the M/A Agreement, the consummation of the
transactions therein contemplated, and the fulfillment of the terms
thereof, will not result in a breach by the Company of any terms of, or
constitute a default under, its Articles of Incorporation or By-Laws,
any indenture, mortgage, lease, deed or trust, bank loan or credit
agreement or any other material agreement or undertaking of the Company
or any subsidiary including, by way of specification but not by way of
limitation, any agreement or instrument to which the Company or any
subsidiary is now a party or pursuant to which the Company or any
subsidiary has acquired any right and/or obligations by succession or
otherwise;
(ix) The financial statements and schedules filed with and as
part of the Registration Statement present fairly the financial
position of the Company as of the dates thereof all in conformity with
generally accepted principles of accounting applied on a consistent
basis throughout the periods involved. Since the respective dates of
such financial statements, there have been no material adverse change
in the condition or general affairs of the Company, financial or
otherwise, other than as referred to in the Prospectus;
(x) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as may
otherwise be indicated therein, neither the Company nor any subsidiary
has, prior to the Closing Date, either (i) issued any securities or
incurred any material liability or obligation, direct or contingent,
for borrowed money, or (ii) entered into any material transaction other
than in the ordinary course of business. The Company
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<PAGE> 27
has not declared, paid or made any dividend or distribution of any kind
on its capital stock;
(xi) They have reviewed the sections in the Prospectus
relating to their biographical data and equity ownership position in
the Company, and all information contained therein is true and
accurate; and
(xii) Except as disclosed in the Prospectus, during the past
five years, they have not been:
(1) Subject of a petition under the Federal
bankruptcy laws or any state insolvency law filed by or
against them, or by a receiver, fiscal agent or similar
officer appointed by a court for their business or property,
or any partnership in which either or them was a general
partner at or within two years before the time of such filing,
or any corporation or business association of which either of
them was an executive officer at or within two years before
the time of such filing;
(2) Convicted in a criminal proceeding or a named
subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(3) The subject of any order, judgment, or decree not
subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining
either of them from, or otherwise limiting, any of the
following activities:
(i) acting as a futures commission merchant,
introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by
the Commodity Futures Trading Commission, or an
associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in
securities, or as an affiliated person, director or
employee of any investment company, bank, savings and
loan association or insurance company, or engaging in
or continuing any conduct or practice in connection
with any such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in connection
with the purchase or sale of any security or
commodity or in connection with any violation of
Federal or State securities law or Federal
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<PAGE> 28
Commodity laws.
(4) The subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated of any Federal or
State authority barring, suspending or otherwise limiting for
more than sixty (60) days either of their right to engage in
any activity described in paragraph (3)(i) above, or be
associated with persons engaged in any such activity;
(5) Found by any court of competent jurisdiction in a
civil action or by the Securities and Exchange Commission to
have violated any Federal or State securities law, and the
judgment in such civil action or finding by the Commission has
not been subsequently reversed, suspended or vacated; or
(6) Found by a court of competent jurisdiction in a
civil action or by the Commodity Futures Trading Commission to
have violated any Federal Commodities Law, and the judgment in
such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or
vacated.
(g) The Underwriters shall have received from Grant Thornton &
Co., L.L.P., independent auditors to the Company, certificates or letters, one
dated and delivered on the Effective Date and one dated and delivered on the
Closing Date, in form and substance satisfactory to the Underwriters, stating
that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;
(ii) the financial statements and the schedules included in
the Registration Statement and the Prospectus were examined by them
and, in their opinion, comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally
accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the
latest available unaudited interim financial statements), inquiries of
officers of the Company who have responsibility for financial and
accounting matters, review of minutes of all meetings of the
shareholders and the Board of Directors of the Company and other
specified
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<PAGE> 29
inquiries and procedures, nothing has come to their attention as a
result of the foregoing inquiries and procedures that causes them to
believe that:
(a) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to a specified date not more than five days
prior to the date of such letters, there has been any change
in the Common Stock, long-term debt or other securities of the
Company (except as specifically contemplated in the
Registration Statement and Prospectus) or any material
decreases in net current assets, net assets, shareholder's
equity, working capital or in any other item appearing in the
Company's financial statements as to which the Underwriters
may request advice, in each case as compared with amounts
shown in the balance sheet as of the date of the financial
statement in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or will occur;
(b) during the period from (and including) the date
of the financial statements in the Registration Statement and
the Prospectus to such specified date there was any material
decrease in revenues or in the total or per share amounts of
income or loss before extraordinary items or net income or
loss, or any other material change in such other items
appearing in the Company's financial statements as to which
the Underwriters may request advice, in each case as compared
with the fiscal period ended as of the date of the financial
statement in the Prospectus, except in each case for
increases, changes or decreases which the Prospectus discloses
have occurred or will occur;
(c) the unaudited interim financial statements of the
Company appearing in the Registration Statement and the
Prospectus (if any) do not comply as to form in all material
respects with the applicable accounting requirements of the
Act and the Rules and Regulations or are not fairly presented
in conformity with generally accepted accounting principles
and practices on a basis substantially consistent with the
audited financial statements included in the Registration
Statements or the Prospectus.
(iv) they have compared specific dollar amounts, numbers of
shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the general
accounting records, including work
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<PAGE> 30
sheets, 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; and
(v) they have not during the immediately preceding five (5)
year period brought to the attention of the Company's management any
reportable condition related to the Company's internal accounting
procedures, weaknesses and/or controls.
Such letters shall also set forth such other information as may be
requested by counsel for the Underwriters. Any changes, increases or decreases
in the items set forth in such letters which, in the judgment of the several
Underwriters, are materially adverse with respect to the financial position or
results of operations of the Company shall be deemed to constitute a failure of
the Company to comply with the conditions of the obligations to the several
Underwriters hereunder.
(h) Upon exercise of the option provided for in Section 2(b) hereof,
the obligation of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Securities
referred to therein will be subject (as of the date hereof and as of the Option
Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of counsel to the Underwriters.
(ii) At the Option Closing Date, there shall have been
delivered to you the signed opinion from Esanu Katsky Korins & Siger,
counsel for the Company, dated as of the Option Closing Date, in form
and substance satisfactory to counsel to the Underwriters, which
opinion shall be substantially the same in scope and substance as the
opinion furnished to you at the Closing Date pursuant to Section 4(e)
hereof, except that such opinion, where appropriate, shall cover the
Option Securities.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chief Executive Officer and Chief
Financial Officer of the Company, dated the Option
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<PAGE> 31
Closing Date, in form and substance satisfactory to counsel to the
Underwriters, substantially the same in scope and substance as the
certificate furnished to you at the Closing Date pursuant to Section
4(f) hereof.
(iv) At the Option Closing Date, there shall have been
delivered to you a letter in form and substance satisfactory to you
from Grant Thornton & Co., L.L.P., independent auditors to the Company,
dated the Option Closing Date and addressed to the several Underwriters
confirming the information in their letter referred to in Section 4(g)
hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five business days prior to the Option Closing
Date, which would require any change in said letter if it were required
to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities
shall be satisfactory in form and substance to the Underwriters, and
the Underwriters and counsel to the Underwriters shall have been
furnished with all such documents, certificates, and opinions as you
may request in connection with this transaction in order to evidence
the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(i) No action shall have been taken by the Commission or the NASD, the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Common Stock and no proceedings for the taking of such action shall have been
instituted or shall be pending, or, to the knowledge of the several Underwriters
or the Company, shall be contemplated by the Commission or the NASD. The Company
represents that at the date hereof it has no knowledge that any such action is
in fact contemplated by the Commission or the NASD. The Company shall advise the
Representative of any NASD affiliations of any of its officers, directors, or
stockholders or their affiliates in accordance with paragraph 1(y) of this
Agreement.
(j) At the Effective Date, you shall have received from counsel to the
Company, dated as of the Effective Date, in form and substance satisfactory to
counsel for the Underwriter, a written Secondary Market Trading Opinion
detailing those states in which the Shares and Warrants may be traded in
non-issuer transactions under the Blue Sky laws of the fifty (50) states after
the Effective Date, in accordance with paragraph 3(aa) of this Agreement.
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<PAGE> 32
(k) The authorization and issuance of the Securities and delivery
thereof, the Registration Statement, the Prospectus, and all corporate
proceedings incident thereto shall be satisfactory in all respects to counsel
for the several Underwriters, and such counsel shall be furnished with such
documents, certificates and opinions as they may reasonably request to enable
them to pass upon the matters referred to in this sub-paragraph.
(l) Prior to the Effective Date, the Representative shall have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Representative, as described in the Registration Statement.
(m) If any of the conditions herein provided for in this Section shall
not have been fulfilled as of the date indicated, this Agreement and all
obligations of the several Underwriters under this Agreement may be canceled at,
or at any time prior to, the Closing Date and/or the Option Closing Date by the
Representative and/or the Underwriters notifying the Company of such
cancellation in writing or by telegram at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the several
Underwriters to the Company.
5. Conditions of the Obligations of the Company. The
obligation of the Company to sell and deliver the Securities is
subject to the following conditions:
(i) The Registration Statement shall have become effective not
later than 5:00 p.m., Eastern Time, on the date of this Agreement, or
on such later time or date as the Company and the Representative may
agree in writing; and
(ii) At the Closing Date and the Option Closing Date, no stop
orders suspending the effectiveness of the Registration Statement shall
have been issued under the Act or any proceedings therefore initiated
or threatened by the Commission.
If the conditions to the obligations of the Company provided for in
this Section have been fulfilled on the Closing Date but are not fulfilled after
the Closing Date and prior to the Option Closing Date, then only the obligation
of the Company to sell and deliver the Securities on exercise of the option
provided for in Section 2(b) hereof shall be affected.
6. Indemnification. (a) The Company indemnifies and holds harmless each
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include but not be
limited to, all reasonable costs of defense and investigation and all attorneys'
fees), to which the Underwriter or such controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged
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<PAGE> 33
untrue statement of any material fact contained in (i) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (ii) any blue sky application or other document executed by
the Company specifically for that purpose or based upon written information
furnished by the Company and filed in any state or other jurisdiction in order
to qualify any or all of the Securities under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such cases to the extent, but only to the extent, that any
such losses, claim, damages or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such Preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. Notwithstanding the
foregoing, the Company shall have no liability under this section if such untrue
statement or omission made in a Preliminary Prospectus is cured in the
Prospectus and the Prospectus is not delivered to the person or persons alleging
the liability upon which indemnification is being sought. This indemnity will be
in addition to any liability which the Company may otherwise have.
(b) Each Underwriter, severally, but not jointly, indemnifies and holds
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statements or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
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<PAGE> 34
information furnished to the Company by you or by any Underwriter through you
specifically for use in the preparation thereof. Notwithstanding the foregoing,
the Underwriters shall have no liability under this section if such untrue
statement or omission made in a Preliminary Prospectus is cured in the
Prospectus and the Prospectus is not delivered to the person or persons alleging
the liability upon which indemnification is being sought through no fault of the
Underwriter. This indemnity agreement will be in addition to any liability which
the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the reasonable judgment of
the Representative, it is advisable for the Representative or such Underwriters
or controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
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<PAGE> 35
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) each Underwriter makes claim
for indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriter and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company, or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
controlling persons in the aggregate were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the first sentence of this Section; and
(b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of
Securities purchased by such Underwriter to the number of Securities purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person ultimately
determined to be guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f)
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<PAGE> 36
of the Act) shall be entitled to contribution from any person who is not
ultimately determined to be guilty of such fraudulent misrepresentation. As used
in this paragraph, the term "Underwriter" includes any officer, director, or
other person who controls the Underwriter within the meaning of Section 15 of
the Act, and the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. This foregoing
agreement shall in no way affect the contribution liabilities of any persons
having liability under Section 11 of the Act other than the Company and the
Underwriter. No contribution shall be requested with regard to the settlement of
any matter from any party who did not consent to the settlement; provided,
however, that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
8. Costs and Expenses. (a) Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company will pay all costs and expenses incident to the performance of this
Agreement by the Company including but not limited to the fees and expenses of
counsel to the Company and of the Company's accountants; the costs and expenses
incident to the preparation, printing, filing and distribution under the Act of
the Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented; the fee of the National Association of Securities
Dealers, Inc. ("NASD") in connection with the filing required by the NASD
relating to the offering of the Securities contemplated hereby; all state filing
fees, expenses and disbursements and legal fees of counsel to the Representative
who shall serve as Blue Sky counsel to the Company in connection with the filing
of applications to register the Securities under the state securities or blue
sky laws (which legal fees shall be payable by the Company in the sum of
$20,000, of which $10,000 has been paid); the cost of printing and furnishing to
the several Underwriters copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Selected Dealers Agreement, the
Agreement Among Underwriters, Underwriters Questionnaire, Underwriters Power of
Attorney and the Blue Sky Memorandum; the cost of printing the certificates
evidencing the securities comprising the Securities; the cost of preparing and
delivering to the Underwriters and its counsel bound volumes containing copies
of all documents and appropriate correspondence filed with or received from the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., and all closing documents; and the fees and disbursements of the
transfer agent for the Company's securities. The Company shall pay any and all
taxes (including any original issue, transfer, franchise, capital stock or other
tax imposed by any jurisdiction) on sales to the Underwriters hereunder. The
Company will also pay all costs and
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<PAGE> 37
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus. The Company shall also engage the
Company's counsel to provide the Representative with a written Secondary Market
Trading Opinion in accordance with paragraphs 3(aa) and 4(j) of this Agreement.
(b) In addition to the foregoing expenses, the Company shall at the
Closing Date pay to the Representative a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received from the sale of the
Securities, of which an advance of $50,000 has been paid to date. In the event
the overallotment option is exercised, the Company shall pay to the
Representative at the Option Closing Date an additional amount equal to three
percent (3%) of the gross proceeds received upon exercise of the overallotment
option.
(c) Other than as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Representative or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Representative and the other Underwriters against any losses,
claims, damages or liabilities, joint or several which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees, to which the Representative or such other
Underwriter may become subject insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
claim of any person (other than an employee of the party claiming indemnity) or
entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Substitution of Underwriters. If any of the Underwriters shall for
any reason not permitted hereunder cancel their obligations to purchase the
Securities hereunder, or shall fail to take up and pay for the number of
Securities set forth opposite their respective names in Schedule A hereto upon
tender of such Securities in accordance with the terms hereof, then:
(a) if the aggregate number of Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of Securities, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Securities which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed number
of Securities with respect to which such default or defaults occurs is more than
ten percent (10%) of the total number of Securities, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the Securities which the defaulting Underwriter or Underwriters
agreed but failed to purchase. If such remaining
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Underwriters do not, at the Closing Date, take up and pay for the Securities
which the defaulting Underwriter or Underwriters agreed but failed to purchase,
the time for delivery of the Securities shall be extended to the next business
day to allow the several Underwriters the privilege of substituting within
twenty-four hours (including non-business hours) another Underwriter or
Underwriters satisfactory to the Company. If no such Underwriter or Underwriters
shall have been substituted as aforesaid, within such twenty-four period, the
time of delivery of the Securities may, at the option of the Company, be again
extended to the next following business day, if necessary, to allow the Company
the privilege of finding within twenty-four hours (including non-business hours)
another Underwriter or Underwriters to purchase the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Securities of the defaulting Underwriter or Underwriters as provided
in this Section, (i) the Company or the Representative shall have the right to
postpone the time of delivery for a period of not more than seven (7) 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 or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary; and (ii) the respective numbers of Securities to be purchased by
the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Securities agreed
to be purchased by the defaulting Underwriters or substitute another Underwriter
or Underwriters as aforesaid, and the Company shall not find or shall not elect
to seek another Underwriter or Underwriters for such Securities as aforesaid,
then this Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof,
any Underwriter or Underwriters shall for any reason not permitted hereunder
cancel their obligations to purchase Option Securities at the Option Closing
Date, or shall fail to take up and pay for the number of Option Securities,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Securities in accordance with the terms hereof, then the
remaining Underwriters or substituted Underwriters may take up and pay for the
Option Securities of the defaulting Underwriters in the manner provided in
Section 9(b) hereof. If the remaining Underwriters or substituted Underwriters
shall not take up and pay for all Option Securities, the Underwriters shall be
entitled to purchase the number of Option Securities for which there is no
default or, at their election, the option shall terminate, the exercise thereof
shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. In the
38
<PAGE> 39
event of termination, there shall be no liability on the part of any
non-defaulting Underwriter to the Company, provided that the provisions of this
Section 9 shall not in any event affect the liability of any defaulting
Underwriter to the Company arising out of such default.
10. Effective Date. The Agreement shall become effective upon its
execution except that you may, at your option, delay its effectiveness until
11:00 a.m., Eastern time, on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the public offering by the Underwriters of any of the Securities. The
time of the public offering shall mean the time after the effectiveness of the
Registration Statement when the Securities are first generally offered by you to
the other Underwriters and Selected Dealers. This Agreement may be terminated by
you at any time before it becomes effective as provided above, except that
Sections 3(c), 6, 7, 8, 13, 14, 15, 16, 17 and 18 shall remain in effect
notwithstanding such termination.
11. Termination. (a) This Agreement, except for Sections 3(c), 6, 7, 8,
13, 14, 15, 16, 17, and 18 hereof, may be terminated at any time prior to the
Closing Date, and the option referred to in Section 2(b) hereof, if exercised,
may be cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Securities agreed to be purchased
hereunder by reason of: (i) the Company having sustained a material adverse
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by Federal or New York or Florida state authorities; (v) an
outbreak of major international hostilities or other national or international
calamity having occurred; (vi) the passage by the Congress of the United States
or by any state legislative body of similar impact, of any act or measure, or
the adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Representative to have a material
adverse impact on the business, financial condition or financial statements of
the Company or the market for the securities offered hereby; (vii) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement; (viii) any
material adverse change having occurred, since the respective dates as of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business; (ix) a
pending or
39
<PAGE> 40
threatened legal or governmental proceeding or action relating generally to the
Company's business, or a notification having been received by the Company of the
threat of any such proceeding or action, which could, in the reasonable judgment
of the Representative, materially adversely affect the Company; (x) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
or (xi) the Company shall not have complied in all material respects with any
term, condition or provisions on their part to be performed, complied with or
fulfilled (including but not limited to those set forth in this Agreement)
within the respective times therein provided.
(b) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
promptly notified by you, by telephone, telegram or facsimile, confirmed by
letter.
12. Representative's Warrant Agreement. At the Closing Date, the
Company will issue to the Representative and/or persons related to the
Representative, for an aggregate purchase price of $10, and upon the terms and
conditions set forth in the form of Representative's Warrant Agreement annexed
as an exhibit to the Registration Statement, Representative Warrants to purchase
up to an aggregate of 132,500 Shares and 132,500 Warrants, in such denominations
as the Representative shall designate. In the event of conflict in the terms of
this Agreement and the Representative's Warrant Agreement, the language of the
form of Representative's Warrant Agreement shall control.
13. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its principal officers, where appropriate, and the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters, the Company or any of its officers or directors or any controlling
person and will survive delivery of and payment for the Securities and the
termination of this Agreement.
14. Notice. All communications hereunder will be in writing and, except
as otherwise expressly provided herein, will be mailed, delivered or telegraphed
and confirmed:
If to the Underwriters: Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Copy to: David A. Carter, P.A.
355 West Palmetto Park Road
Boca Raton, Florida 33432
40
<PAGE> 41
If to the Company: Kevin Doyle, President
Carribean Cigar Company
6265 S.W. 8th Street
Miami, Florida 33144
Copy to: Eric S. Kamisher, Esq.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158-0038
15. Parties in Interest. This Agreement herein set forth is made solely
for the benefit of the several Underwriters, the Company and, to the extent
expressed, any person controlling the Company or of the Underwriters, and
directors of the Company, nominees for directors (if any) named in the
Prospectus, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors, assigns and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser of the Securities, as
such purchaser, from the several Underwriters. All of the obligations of the
Underwriters hereunder are several and not joint.
16. Applicable Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed entirely within the State of Florida. The parties agree that
any action brought by any party against another party in connection with any
rights or obligations arising out of this Agreement shall be instituted properly
in a federal or state court of competent jurisdiction with venue only in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida or the
United States District Court for the Southern District of Florida, West Palm
Beach Division. A party to this Agreement named as a Defendant in any action
brought in connection with this Agreement in any court outside of the above
named designated county or district shall have the right to have the venue of
said action changed to the above designated county or district or, if necessary,
have the case dismissed, requiring the other party to refile such action in an
appropriate court in the above designated county or federal district.
17. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
18. Entire Agreement. This Agreement and the agreements referred to
within this Agreement constitute the entire agreement of the parties, and
supersedes all prior agreement, understanding, negotiations and discussions,
whether written or oral, of the parties hereto.
19. Representative as Underwriter. In the event the Representative acts
as the sole Underwriter ("Underwriter") in connection with the underwriting of
the securities being offered
41
<PAGE> 42
pursuant to the Registration Statement, all references to the Representative in
this Agreement shall be replaced by reference to the "Underwriter", and (i) any
consents required to be obtained from the Representative shall be required to be
obtained solely from the Underwriter; (ii) all compensation to be received by
the Representative shall instead be received by the Underwriter; and (iii) the
provisions of section nine (9) of this Agreement shall not apply.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding Agreement between the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
CARRIBEAN CIGAR COMPANY
BY:
---------------------------------
Kevin Doyle, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
BARRON CHASE SECURITIES, INC.
BY:
---------------------------------
Robert T. Kirk, President
For itself and as Representative
of the several Underwriters
42
<PAGE> 43
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
UNDERWRITER SHARES
- ----------- ------
<S> <C>
Barron Chase Securities, Inc................................
---------
1,325,000
<CAPTION>
UNDERWRITER WARRANTS
- ----------- --------
<S> <C>
Barron Chase Securities, Inc................................
---------
1,325,000
</TABLE>
43
<PAGE> 1
CARRIBEAN CIGAR COMPANY
1,325,000 Shares of Common Stock and
1,325,000 Common Stock Purchase Warrants
SELECTED DEALER AGREEMENT
Boca Raton, Florida
, 1996
----------------
Gentlemen:
1. Barron Chase Securities, Inc. (the "Representative") and the other
Underwriters named in the Prospectus (collectively the "Underwriters"), acting
through us as the Representative, are severally offering for sale an aggregate
of 1,325,000 Shares of Common Stock (the "Shares") and 1,325,000 Warrants (the
"Warrants") (collectively the "Firm Securities") of Carribean Cigar Company (the
"Company"), which we have agreed to purchase from the Company, and which are
more particularly described in the Registration Statement, Underwriting
Agreement and Prospectus. In addition, the several Underwriters have been
granted an option to purchase from the Company up to an additional 198,750
Shares and an additional 198,750 Warrants (the "Option Securities") to cover
overallotments in connection with the sale of the Firm Securities. The Firm
Securities and any Option Securities purchased are herein called the
"Securities". The Securities and the terms under which they are to be offered
for sale by the several Underwriters are more particularly described in the
Prospectus.
2. The Securities are to be offered to the public by the several
Underwriters at the price per Share and price per Warrant set forth on the cover
page of the Prospectus (the "Public Offering Price"), in accordance with the
terms of offering set forth in the Prospectus.
3. Some or all of the several Underwriters are severally offering,
subject to the terms and conditions hereof, a portion of the Securities for sale
to certain dealers who are actually engaged in the investment banking or
securities business and who are either (a) members in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), or (b) dealers
with their principal places of business located outside the United States, its
territories and its possessions and not registered as brokers or dealers under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), who have
agreed not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (such
dealers who shall agree to sell Securities hereunder being herein called
"Selected Dealers") at the public offering price, less a selling concession
1
<PAGE> 2
(which may be changed) of not in excess of $ _________ per Share and/or $
_________ per Warrant payable as hereinafter provided, out of which concession
an amount not exceeding $ _________ per Share and/or $ _________ per Warrant may
be reallowed by Selected Dealers to members of the NASD or foreign dealers
qualified as aforesaid. The Selected Dealers who are members of the NASD agree
to comply with all of the provisions of Article III of the Rules of Fair
Practice of the NASD. Foreign Selected Dealers agree to comply with the
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, and, if any such dealer is a foreign dealer and not a member of the NASD,
such Selected Dealer also agrees to comply with the NASD's Interpretation with
Respect to Free-Riding and Withholding, and to comply, as though it were a
member of the NASD, with the provisions of Sections 8 and 36 of Article III of
such Rules of Fair Practice, and to comply with Section 25 of Article III
thereof as that section applies to non-member foreign dealers. Some or all of
the Underwriters may be included among the Selected Dealers. Each of the
Underwriters has agreed that, during the term of this Agreement, it will be
governed by the terms and conditions hereof whether or not such Underwriter is
included among the Selected Dealers.
4. Barron Chase Securities, Inc. shall act as Representative on behalf
of the Underwriters and shall have full authority to take such action as we may
deem advisable in respect to all matters pertaining to the public offering of
the Securities.
5. If you desire to act as a Selected Dealer, and purchase any of the
Securities, your application should reach us promptly by telefax or telegraph at
the offices of Barron Chase Securities, Inc., 7700 West Camino Real, Suite 200,
Boca Raton, Florida 33433. We reserve the right to reject subscriptions in whole
or in part, to make allotments, and to close the subscription books at any time
without notice. The Securities allotted to you will be confirmed, subject to the
terms and conditions of this Agreement.
6. The privilege of subscribing for the Securities is extended to you
only on behalf of such of the Underwriters, if any, as may lawfully sell the
Securities to Selected Dealers in your state or other applicable jurisdiction.
7. Any Securities to be purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of offering as set forth herein and in the Prospectus, subject to the
securities or Blue Sky laws of the various states or other jurisdictions.
You agree to pay us on demand for the accounts of the several
Underwriters an amount equal to the Selected Dealer concession as to any
Securities purchased by you hereunder which, prior to the completion of the
public offering as defined in paragraph 8 below, we may purchase or contract to
purchase for the account of any
2
<PAGE> 3
Underwriter and, in addition, we may charge you with any broker's commission and
transfer tax paid in connection with such purchase or contract to purchase.
Certificates for Securities delivered on such repurchases need not be the
identical certificates originally purchased.
You agree to advise us from time to time, upon request, of the number
of Securities purchased by you hereunder and remaining unsold at the time of
such request, and, if in our opinion any such Securities shall be needed to make
delivery of the Securities sold or overallotted for the account of one or more
of the Underwriters, you will, forthwith upon our request, grant to us for the
account or accounts of such Underwriter or Underwriters the right, exercisable
promptly after receipt of notice from you that such right has been granted, to
purchase, at the Public Offering Price less the selling concession or such part
thereof as we shall determine, such number of Securities owned by you as shall
have been specified in our request.
No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Securities by the respective Underwriters
to you will be paid when such Securities are delivered to you. However, you
shall pay any transfer tax on sales of Securities by you and you shall pay your
proportionate share of any transfer tax (other than the single transfer tax
described above) in the event that any such tax shall from time to time be
assessed against you and other Selected Dealers as a group or otherwise.
Neither you nor any other person is or has been authorized to give any
information or to make any representation in connection with the sale of the
Securities other than as contained in the Prospectus.
8. The first three paragraphs of Section 7 hereof will terminate when
we shall have determined that the public offering of the Securities has been
completed and upon telefax notice to you of such termination, but, if not
theretofore terminated, they will terminate at the close of business on the 30th
full business day after the date hereof; provided, however, that we shall have
the right to extend such provisions for a further period or periods, not
exceeding an additional 30 days in the aggregate upon telefax notice to you.
9. For the purpose of stabilizing the market in the Securities, we have
been authorized to make purchases and sales of the Securities of the Company, in
the open market or otherwise, for long or short account, and, in arranging for
sales, to overallot.
10. On becoming a Selected Dealer, and in offering and selling the
Securities, you agree to comply with all the applicable requirements of the
Securities Act of 1933, as amended (the "1933
3
<PAGE> 4
Act"), and the 1934 Act. You confirm that you are familiar with Rule 15c2-8
under the 1934 Act relating to the distribution of preliminary and final
prospectuses for securities of an issuer (whether or not the issuer is subject
to the reporting requirements of Section 13 or 15(d) of the 1934 Act) and
confirm that you have complied and will comply therewith.
We hereby confirm that we will make available to you such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act, or the
rules and regulations thereunder.
11. Upon request, you will be informed as to the states and other
jurisdictions in which we have been advised that the Securities are qualified
for sale under the respective securities or Blue Sky laws of such states and
other jurisdictions, but neither we nor any of the Underwriters assume any
obligation or responsibility as to the right of any Selected Dealer to sell the
Securities in any state or other jurisdiction or as to the eligibility of the
Securities for sale therein. We will, if requested, file a Further State Notice
in respect of the Securities pursuant to Article 23-A of the General Business
Law of the State of New York.
12. No Selected Dealer is authorized to act as our agent or as agent
for the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Securities to the public or otherwise
or to furnish any information or make any representation except as contained in
the Prospectus.
13. Nothing will constitute the Selected Dealers an association or
other separate entity or partners with the Underwriters, or with each other, but
you will be responsible for your share of any liability or expense based on any
claim to the contrary. We and the several Underwriters shall not be under any
liability for or in respect of value, validity or form of the Securities, or the
delivery of the certificates for the Securities, or the performance by anyone of
any agreement on its part, or the qualification of the Securities for sale under
the laws of any jurisdiction, or for or in respect of any other matter relating
to this Agreement, except for lack of good faith and for obligations expressly
assumed by us or by the Underwriters in this Agreement and no obligation on our
part shall be implied herefrom. The foregoing provisions shall not be deemed a
waiver of any liability imposed under the 1933 Act.
14. Payment for the Securities sold to you hereunder is to be made at
the Public Offering Price less the above-mentioned selling concession on such
time and date as we may advise, at the office of Barron Chase Securities, Inc.,
7700 West Camino Real, Suite 200, Boca Raton, Florida 33433, by a certified or
official bank check in current New York Clearing House funds, payable to the
order of
4
<PAGE> 5
Barron Chase Securities, Inc., as Representative, against delivery of
certificates for the Securities so purchased. If such payment is not made at
such time, you agree to pay us interest on such funds at the prevailing broker's
loan rate.
15. Notices to us should be addressed to us at the offices of Barron
Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida
33433, Attention: Robert T. Kirk. Notices to you shall be deemed to have been
duly given if telephoned, telefaxed, telegraphed or mailed to you at the address
to which this letter is addressed.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to the choice of law
or conflicts of law principles thereof.
17. If you desire to purchase any Securities and act as a Selected
Dealer, please confirm your application by signing and returning to us your
confirmation on the duplicate copy of this letter enclosed herewith, even though
you may have previously advised us thereof by telephone or telegraph. Our
signature hereon may be by facsimile.
Very truly yours,
BARRON CHASE SECURITIES, INC.
As Representative of the Several
Underwriters
BY:
-------------------------------
Authorized Officer
5
<PAGE> 6
Robert T. Kirk, President
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
We hereby subscribe for _______ Shares and/or _______ Warrants of
Carribean Cigar Company in accordance with the terms and conditions stated in
the foregoing Selected Dealers Agreement and letter. We hereby acknowledge
receipt of the Prospectus referred to in the Selected Dealers Agreement and
letter. We further state that in purchasing said Shares and/or Warrants we have
relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
or (ii) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein. As a
member of the NASD, we hereby agree to comply with all of the provisions of
Article III of the Rules of Fair Practice of the NASD. If we are a foreign
Selected Dealer, we agree to comply with the provisions of Section 24 of the
Rules of Fair Practice, and if we are a foreign dealer and not a member of the
NASD, we agree to comply with the NASD's interpretation with respect to
free-riding and withholding, and agree to comply, as though we were a member of
the NASD, with provisions of Sections 8 and 36 of Article III of such Rules of
Fair Practice, and to comply with Section 25 of Article III thereof as that
Section applies to non-member foreign dealers.
Firm:
----------------------------
By:
----------------------------
(Name and Position)
Address:
----------------------------
----------------------------
Telephone No.:
----------------------------
Dated: , 1996
-----------------
6
<PAGE> 1
CARRIBEAN CIGAR COMPANY
1,325,000 Shares of Common Stock and
1,325,000 Common Stock Purchase Warrants
AGREEMENT AMONG UNDERWRITERS
Boca Raton, Florida
_____________, 1996
Barron Chase Securities, Inc.
7700 West Camino Real, Suite 200
Boca Raton, Florida 33433
Dear Sirs:
1. Underwriting Agreement. We understand that Carribean Cigar Company
(the "Company"), proposes to enter into an underwriting agreement attached
hereto as Exhibit A (the "Underwriting Agreement") with Barron Chase Securities,
Inc. (the "Representative") and the other underwriters named in Schedule A to
the Underwriting Agreement (the "Underwriters"), acting severally and not
jointly, with respect to the purchase of an aggregate of 1,325,000 Shares of
Common Stock (the "Shares") and 1,325,000 Warrants (the "Warrants"). The Shares
and Warrants are hereinafter also referred to collectively as the "Securities".
The Securities and the terms under which they are to be offered for sale by the
several Underwriters are more particularly described in the Registration
Statement, Underwriting Agreement and Prospectus.
Unless the context indicates otherwise, the term Securities shall also
include an additional 198,750 Shares and an additional 198,750 Warrants (the
"Option Securities"), all or any part of which the Representative and/or the
Underwriters are entitled to purchase from the Company upon exercise of the
Representative's over-allotment option referred to in Section 2(b) of the
Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with the
terms hereof and of the Underwriting Agreement, the number of Securities set
forth opposite our name in Schedule A, plus such number of Securities, if any,
which we may become obligated to purchase pursuant to Section 2(b) of the
Underwriting Agreement and Section 4 hereof ("our Securities"). The ratio which
the number of our Securities bears to the total number of Securities purchased
pursuant to the Underwriting Agreement is herein called "our underwriting
proportion".
2. Registration Statement and Prospectus. We have heretofore received
and examined a copy of the registration statement, as amended to the date
hereof, and the related prospectus in respect of the Securities, as filed with
the Securities and Exchange Commission. The registration statement as
1
<PAGE> 2
amended at the time it becomes effective, including financial statements and
exhibits, is hereafter referred to as the "Registration Statement", and the
prospectus in the form first filed with the Securities and Exchange Commission
pursuant to its Rule 424(b) after the Registration Statement becomes effective
is referred to as the "Prospectus".
We confirm that the information furnished to you by us for use in the
Registration Statement and in the Prospectus is correct and is not misleading
insofar as it relates to us. We consent to being named as an Underwriter in such
Registration Statement and we are willing to accept our responsibilities under
the Securities Act of 1933 (the "Act"), as a result thereof. We confirm that we
have authorized you to advise the Company on our behalf (a) as to the statements
to be included in any Preliminary Prospectus and in the Prospectus under the
heading "Underwriting" insofar as they relate to us and (b) that there is no
other information about us required to be stated in the Registration Statement
or Prospectus. We further confirm that, upon request by you as Representative,
we have furnished a copy of any amended Preliminary Prospectus to each person to
whom we have furnished a copy of any previous Prospectus, and we confirm that we
have delivered, and we agree that we will deliver, all preliminary and final
Prospectuses required for compliance with the provisions of Rule 15c2-8 under
the Securities Exchange Act of 1934 (the "1934 Act").
3. Authority of the Representative. We authorize you, acting as
Representative of the Underwriters, to execute and deliver on our behalf, the
Underwriting Agreement, and to agree to any variation of its terms (except as to
the purchase price and the number of our Securities) which, in your judgment, is
not a variation which materially and adversely affects our rights and
obligations. We also authorize you, in your discretion and on our behalf, with
approval of counsel for the Underwriters, to approve the Prospectus and to
approve of, or object to, any further amendments to the Registration Statement,
or amendments or supplements to the Prospectus. We further authorize you to
exercise all the authority and discretion vested in the Underwriters and in you
by the provisions of the Underwriting Agreement and to take all such action as
you in your discretion may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement including the extension of any date
specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination and to determine all matters relating to the public
advertisement of the Securities; provided, however, that, except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Securities, no extension of the time by which the Registration
Statement is to become effective as provided in the Underwriting Agreement shall
be for a period in excess of two business days. We authorize you to take such
action as in your discretion may be necessary or desirable to effect the sale
and distribution of the Securities, including, without limiting the generality
of the foregoing, the right to determine the terms of any proposed offering, the
concession to Selected Dealers (as hereinafter
2
<PAGE> 3
defined) and the reallowance, if any, to other dealers and the right to make the
judgments provided for in the Underwriting Agreement.
4. Authority of Representative as to Defaulting Underwriters. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Securities not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Securities to be purchased
by the non-defaulting Underwriters and by such other person or persons, if any,
shall be taken as the basis for all rights and obligations hereunder; but this
shall not in any way affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from its default, nor shall any such
default relieve any other Underwriter of any of its obligations hereunder or
under the Underwriting Agreement except as herein or therein provided.
In the event of default by one or more Underwriters in respect of their
obligations (a) under the Underwriting Agreement to purchase the Securities
agreed to be purchased by them thereunder, (b) under this Agreement to take up
and pay for any Securities purchased or (c) to deliver any Securities sold or
over-allotted by you for the respective accounts of the Underwriters pursuant to
this Agreement, or to bear their respective share of expenses or liabilities
pursuant to this Agreement, and to the extent that arrangements shall not have
been made by you for any persons to assume the obligations of such defaulting
Underwriter or Underwriters, we agree to assume our proportionate share of the
obligations of each defaulting Underwriter (subject in the case of clause (a)
above to the limitations contained in the Underwriting Agreement) without
relieving any such defaulting Underwriter of its liability therefor.
5. Offering of Securities. We understand that you will notify us when
the public offering of the Securities is to be made and of the initial public
offering price. We hereby authorize you to fix the concession to dealers and the
reallowance to dealers and in your sole discretion after the public offering to
change the public offering price, the concession and the reallowance. The
offering price at any time in effect is hereinafter referred to as the "public
offering price". We agree that we will not offer any of the Securities for sale
at a price other than the public offering price or allow any discount therefrom
except as herein otherwise specifically provided.
We agree that public advertisement of the offering shall be made by you
on behalf of the Underwriters on such date as you shall determine. We have not
advertised the offering and will not do so until after such date. We understand
that any advertisement we may then make will be on our own responsibility and at
our own expense.
We authorize you to reserve and offer for sale to institutions and
other retail purchasers and to dealers (the "Selected Dealers")
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<PAGE> 4
to be selected by you (such dealers may include any Underwriter ) such of our
Securities as you in your sole discretion shall determine. Any such offering to
Selected Dealers may be made pursuant to a Selling Agreement, in the form
attached hereto as Exhibit B, or otherwise , as you may determine. The form of
Selling Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Securities from or
to any Selected Dealers or Underwriters at the public offering price less all or
any part of the concession and, with your consent, any Underwriter may make
purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the public offering price less all or any of the concession.
We understand that you will notify each Underwriter promptly upon the
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and retail purchasers. Securities not so
reserved may be sold by each Underwriter for its own account, except that from
time to time you may, in your discretion, add to the Securities reserved for
sale to Selected Dealers and retail purchasers any Securities retained by an
Underwriter remaining unsold. We agree to notify you from time to time upon
request of the amount of our Securities retained by us remaining unsold. If all
the Securities reserved for offering to Selected Dealers and retail purchasers
are not promptly sold by you, any Underwriter may from time to time, with your
consent, obtain a release of all or any Securities of such Underwriter then
remaining unsold and Securities so released shall thereafter be deemed not to
have been reserved. Securities of any Underwriter so reserved which remain
unsold, or, if sold, have not been paid for at any time prior to the termination
of this Agreement may, in your discretion or upon the request of such
Underwriter, be delivered to such Underwriter for carrying purposes only, but
such Securities shall remain subject to redelivery to you upon demand for
disposition by you until this Agreement is terminated.
We agree that in connection with sales and offers to sell the
Securities, if any, made by us outside the United States or its territories or
possessions, (a) we will furnish to each person to whom any such offer or sale
is made such Prospectus, advertisement or other offering document containing
information relating to the Securities or the Company as may be required under
the laws of the jurisdiction in which such offer or sale is made and (b) we will
furnish to each person to whom any such offer is made a copy of the then current
Preliminary Prospectus and to each person to whom any such sale is made a copy
of the Prospectus referred to in the Underwriting Agreement (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto). Any Prospectus, advertisement or other offering document (other than
any such preliminary Prospectus or Prospectus) furnished by us to any person in
accordance with the preceding sentence and all such additional offering
material, if any, as we may furnish to any person (i) shall comply in all
respects with the laws of the jurisdiction in which it is so furnished, (ii)
shall be
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<PAGE> 5
prepared and so furnished at our sole risk and expense, and (iii) shall not
contain information relating to the Securities or the Company which is
inconsistent in any respect with information contained in the then current
Preliminary Prospectus or in the Prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), as the
case may be.
We recognize the importance of a broad distribution of the Securities
among bona fide investors and we agree to use our best efforts to obtain such
broad distribution and to that end, to the extent we deem practicable, to give
priority to small orders.
We agree that we will not sell to any account over which we exercised
discretionary authority any of the Securities which we have agreed to purchase
pursuant to the Underwriting Agreement.
6. Compensation to Representative. We authorize you to charge to our
account, as compensation for your services as Representative in connection with
this offering, including the purchase from the Company of the Securities and the
management of the offering, an amount equal to $_________ per Share and/or
$_________ per Warrant in respect to each of our Securities.
7. Payment and Delivery. At or about 9:00 a.m., Eastern Time, on the
Closing Dates (including the first Closing Date and any Option Closing Date, as
defined in the Underwriting Agreement), we agree to deliver to you at your
office a certified or official bank check payable in New York Clearing House
funds to your order in an amount equal to the initial public offering price,
less the concession to the Selected Dealers in respect of that portion of our
Securities which has been retained by or released to us for direct sales.
In the event that our funds are not received by you when required, you
are authorized, in your discretion, but shall not be obligated, to make payment
for our account pursuant to the Underwriting Agreement by advancing your own
funds. Any such payment by you shall not relieve us from any of our obligations
hereunder or under the Underwriting Agreement.
We authorize you to hold and deliver against payment any of our
Securities which have been sold or reserved for sale to Selected Dealers or
retail purchasers. Any of our Securities not sold or reserved by you as
aforesaid, will be available for delivery to us at your office as soon as
practicable after such Securities have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Securities reserved by you for
sale to Selected Dealers or retail purchasers but not sold and paid for against
payment by us of an amount equal to the initial public offering price of such
Securities, less the concession to the Selected Dealers in respect thereof.
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<PAGE> 6
8. Authority to Borrow. We authorize you to arrange loans for our
account and to execute and deliver any notes or other instruments in connection
therewith, and to pledge as security therefor all or any part of our Securities,
as you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Securities, and to advance your own funds, charging current
interest rates.
9. Over-allotment; Stabilization. We authorize you, for the account of
each Underwriter, prior to the termination of this Agreement, and for such
longer period as may be necessary to cover any short position incurred for the
accounts of the several Underwriters pursuant to this Agreement, (a) to
over-allot in arranging for sales of Securities to Selected Dealers and others
and, if necessary, to purchase Securities (whether pursuant to exercise of the
option set forth in Section 2(b) of the Underwriting Agreement or otherwise) at
such prices as you may determine for the purpose of covering such
over-allotments, and (b) for the purpose of stabilizing the market in the
Securities, to make purchases and sales of Securities on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such prices, in such amounts and in such manner as you may determine; provided,
however, that at no time shall our net commitment, either for long or short
account, under this Section exceed 15% of the amount of our Securities. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Securities
so purchased for our account and deliver on demand any Securities so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Securities purchased pursuant to this Section, upon such terms
as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Securities. You are authorized to charge the respective accounts
of the Underwriters with broker's commissions or dealer's mark-up on purchases
and sales effected by you.
If pursuant to the provisions of the preceding paragraph and prior to
the termination of this Agreement (or prior to such earlier date as you may have
determined) you purchase or contract to purchase for the account of any
Underwriter in the open market or otherwise any Securities which were retained
by, or released to, us for direct sale, or any Securities which may have been
issued in exchange for such Securities, we authorize you either to charge our
account with an amount equal to the concession to Selected Dealers with respect
thereto, which amount shall be credited against the cost of such Securities, or
to require us to repurchase such Securities at a price equal to the total cost
of such purchase, including transfer taxes and broker's commissions or dealer's
mark-up, if any. In lieu of such action you may, in your discretion, sell for
our account the Securities so purchased and debit or credit our account for the
loss or profit resulting from such sale.
You will notify us promptly if and when you engage in any stabilization
transaction pursuant to this Section or otherwise and
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<PAGE> 7
will notify us of the date of termination of stabilization. We agree to file
with you any reports required of us including "Not as Manager" reports pursuant
to Rule 17a-2 under the 1934 Act not later than five business days following the
date upon which stabilization was terminated, and we authorize you to file on
our behalf with the Securities and Exchange Commission any reports required by
such Rule.
10. Limitation on Transactions by Underwriters. Except as permitted by
you, we will not during the term of this Agreement bid for, purchase, sell or
attempt to induce others to purchase or sell, directly or indirectly, any
Securities other than (i) as provided in the Underwriting Agreement and in this
agreement, (ii) purchases from or sales to dealers of the Securities at the
public offering price less all or any part of the reallowance to dealers or
(iii) purchases or sales by us of any Securities as broker or unsolicited orders
for the account of others.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule 10b-6 and Rule 10b-6A under the 1934 Act applicable
to this offering.
We may, with your prior consent, make purchases of the Securities from
and sales to other Underwriters at the public offering price, less all or any
part of the concession to dealers.
11. Allocation and Payment of Expenses. We understand that all expenses
of a general nature incurred by you, as Representative, in connection with the
purchase, carrying, marketing and sale of the Securities shall be borne by the
Underwriters in accordance with their respective share of the underwriting
obligations. We authorize you to charge our account with our share, based on our
underwriting obligation, of the aforesaid expenses including all transfer taxes
paid of our behalf on sales or transfers made for our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or settlements hereunder, we will remain liable
for our share of all expenses and liabilities which may be incurred by or the
accounts of the Underwriters, including any expenses and liabilities referred to
in Sections 13 and 14 hereof, which shall be determined as provided in this
Section.
12. Termination. Unless this Agreement or any provision hereof is
earlier terminated by you and except for provisions herein that contemplate
obligations surviving the termination hereof as noted in the next paragraph,
this Agreement will terminate at the close of business on the 45th day after the
date hereof, but in your discretion may be extended by you for a further period
not exceeding 30 days with the consent of the Underwriters who have agreed to
purchase in the aggregate 50% or more of the
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<PAGE> 8
Securities. No termination or suspension pursuant to this Section shall affect
your authority to cover any short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights and
obligations hereunder shall cease, except (i) the mutual obligations to settle
accounts under Section 11, (ii) our obligation to pay any transfer taxes which
may be assessed and paid on account of any sales thereunder for our account,
(iii) our obligation with respect to purchases which may be made by you from
time to time thereafter to cover any short position incurred under this
Agreement, (iv) the provisions of Sections 13 and 14 and (v) the obligations of
any defaulting Underwriter, all of which shall continue until fully discharged.
13. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value for the Securities or the validity
of the form thereof, the Registration Statement, the Prospectus, or agreements
or other instruments executed by the Company or others; or for or in respect of
the delivery of the Securities; or for the performance by the Company or others
of any agreement on its or their part.
Nothing herein contained shall constitute the several Underwriters an
association, or partners with us or with each other, or, except as herein
expressly provided, render any Underwriter liable for the obligation of any
other Underwriter. The rights, obligations and liabilities of each of the
Underwriters are several, in accordance with their respective obligations, and
not joint. Notwithstanding any settlement of accounts under this Agreement, we
agree to pay our underwriting proportion of the amount of any claim demand or
liability which may be asserted against and discharged by the Underwriters or
any of them, based on the claim that the Underwriters constitute an association,
unincorporated business or other entity, and also to pay our underwriting
proportion of expenses approved by you incurred by the Underwriters, or any of
them, in contesting any such claims, demands or liabilities. If the Underwriters
shall be deemed to constitute a partnership for income tax purposes, it is the
intent of each Underwriter to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1954, as amended. Each
Underwriter elects to be so excluded and agrees not to take any position
inconsistent with such election. Each Underwriter authorizes you, in your
discretion, to execute and file on behalf of the Underwriters such evidence of
election as may be required by the Internal Revenue Service.
14. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each
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<PAGE> 9
other Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act of 1933, and
to reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this Section
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter or controlling person and shall survive the
delivery of and payment for the Securities and the termination of this
Agreement.
(b) In the event that at any time any claim or claims shall be asserted
against you, as Representative, or otherwise involving the Underwriters
generally, relating to the Registration Statement or any Preliminary Prospectus
or the Prospectus, as such may be from time to time amended or supplemented, the
public offering of the Securities or any of the transactions contemplated by
this Agreement, we authorize you to take such other action as you shall deem
necessary or desirable under the circumstances, including settlement of any such
claim or claims if such course of action shall be recommended by counsel
retained by you. We agree to pay to you on request, our underwriting proportion
of all expenses incurred by you (including, but not limited to, disbursements
and fees of counsel so retained) in investigating and defending against such
claim or claims and our underwriting proportion of any liability incurred by you
in respect of such claim or claims, whether such liability shall be the result
of a judgment or as a result of any such settlement.
15. Title to Securities. The Securities purchased by, or on behalf of,
the respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Securities shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
16. Blue Sky Matters. It is understood that you assume no
responsibility with respect to the right of any Underwriter or other person to
offer or to sell Securities in any jurisdiction, not withstanding any
information which you may furnish as to the jurisdictions under the securities
laws of which it is believed the Securities may be sold.
17. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Florida.
18. Capital Requirements. We confirm that the incurrence by us of our
obligation under this Agreement and under the Underwriting Agreement will not
place us in violation of the net capital requirements of Rule 15c3-1 under the
1934 Act or of any applicable rules relating to capital requirements of any
securities exchange to which we are subject.
19. Miscellaneous. Any notice from you to us shall be deemed to have
been duly given if telefaxed, telephoned or telegraphed, and confirmed by mail
to us at the address set forth in the
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<PAGE> 10
Underwriters Questionnaire furnished by us to you. Any notice from us to you
shall be deemed to have been duly given if telefaxed or telegraphed, and
confirmed by mail to you at 7700 West Camino Real, Suite 200, Boca Raton,
Florida 33433.
We understand that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"). We hereby confirm that we are
actually engaged in the investment banking or securities business and are either
(i) a member in good standing of the NASD or (ii) a dealer with its principal
place of business located outside the United States, its territories and its
possession and not registered as a broker or dealer under the 1934 Act who
agrees not to make any sales within the United States, its territories or its
possessions or to persons who are nationals thereof or residents therein (except
that we may participate in sales to Selected Dealers and others under Section 5
of this Agreement). We hereby agree that if we are members of the NASD, we will
comply with all of the provisions of Article III of the Rules of Fair Practice
of the NASD. If we are a foreign dealer, we agree to comply with Section 24 of
Article III of the Rules of Fair Practice of the NASD. If we are a foreign
dealer and not a member of the NASD, we agree to comply with the NASD's
interpretation with respect to free-riding and withholding, as though we were a
member of the NASD, with the provisions of Sections 8 and 36 of Article III of
the Rules of Fair Practice, and to comply with Section 25 of Article III thereof
as that Section applies to a non-member foreign dealer. In connection with sales
and offers to sell Securities made by us outside the United States, its
territories and possessions (i) we will either furnish to each person to whom
any such sale or offer is made a copy of the then current Preliminary Prospectus
or the Prospectus, as the case may be, or inform such person that such
Preliminary Prospectus or Prospectus will be available upon request, and (ii) we
will furnish to each person to whom any such sale or offer is made such
Prospectus, advertisement or other offering document containing information
relating to the Securities or the Company as may be required under the law of
the jurisdiction in which such sale or offer is made. Any Prospectus,
advertisement or other offering document furnished by us to any person in
accordance with the preceding sentence and any such additional offering material
as we may furnish to any person (i) shall comply in all respects with the law of
the jurisdiction in which it is so furnished, (ii) shall be prepared and so
furnished at our sole risk and expenses and (iii) shall not contain information
relating to the Securities or the Company which is inconsistent in any respect
with the information contained in the then current preliminary Prospectus or in
the Prospectus, as the case may be.
We understand that, in consideration of your services in connection
with the public offering of the Securities, the Company has agreed with you
individually, and not as Representative of the Underwriters (a) to sell to you
the Representative's Warrants referred to in the Underwriting Agreement for the
sum of $10; (b) to pay to you a non-accountable expense allowance referred to in
the Underwriting Agreement; and (c) to enter into the Merger and
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<PAGE> 11
Acquisition Agreement (the "M/A Agreement") referred to in the Underwriting
Agreement. In addition, you may, at your sole discretion, elect to exercise the
over-allotment option individually. We confirm to you that we shall make no
claim to the Representative's Warrants (or any offering of the Company's
securities related thereto, or any right to participate in any capacity in any
offering resulting therefrom), any rights related thereto, the Company's
securities underlying the Representative's Warrants, the non-accountable expense
allowance, or, to the over-allotment option to the extent you elect to exercise
such option individually, or the M/A Agreement. You confirm to us that we shall
have no obligation or liabilities with respect to the purchase of the
Representative's Warrants, the exercise thereof, the Company's securities
underlying the Representative's Warrants (or any offering of the Company's
securities related thereto, unless we shall subsequently agree to become an
underwriter for, or otherwise participate in any such offering) or the
non-accountable expense allowance, the M/A Agreement, or, the over-allotment
option, to the extent you elect to exercise such option individually.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
By:
------------------------------
(Attorney-in-fact for each of
the several Underwriters named
in Schedule A to the attached
Underwriting Agreement.)
Confirmed as of the date first
above written:
BARRON CHASE SECURITIES, INC.
By:
--------------------------
Robert T. Kirk, President
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby
irrevocably constitute and appoint Robert T. Kirk and/or Barron Chase
Securities, Inc., the true and lawful agent and attorney-in-fact of the
undersigned with respect to all matters arising in connection with the
undersigned's acting as one of the Underwriters of the proposed offering of an
aggregate of
1,325,000 Shares of Common Stock and
1,325,000 Common Stock Purchase Warrants
of
CARRIBEAN CIGAR COMPANY
(such securities being more fully described in the Registration Statement No.
333-4415 filed by Carribean Cigar Company pursuant to the Securities Act of
1933) with full power and authority to execute and deliver for and on behalf of
the undersigned all such agreements, consents and documents in connection
therewith as said agent and attorney-in-fact may deem advisable. The undersigned
hereby gives to said agent and attorney-in-fact full power and authority to act
in the premises, including, but not limited to, the power an authority to
execute and deliver an Agreement Among Underwriters relating to such financing,
to agree to increase or decrease the size of the offering to an amount as shall
be approved by Barron Chase Securities, Inc., as Representative of the
Underwriters, and to appoint a substitute or substitutes to act hereunder with
the same power and authority as said agent and attorney-in-fact would have if
personally acting. The undersigned hereby ratifies and confirms all that said
agent and attorney-in-fact, or any substitute or substitutes, may do by virtue
hereof.
WITNESS the due execution hereof at _________________________________
______________________________________________________________________________
(Street) (City)
this __________ day of __________________, 1996.
___________________________________
Firm Name
______________________________________ By: _____________________________
Witness Partner, Officer or
Sole Proprietor
(indicate which)
12
<PAGE> 13
CORPORATE ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this ______ day of ________________, 1996, before me personally came
___________________________________________, to me know, who being by me duly
sworn, deposes and say that he resides at No. _______________________________:
that he is the _________________________ of ____________________________, the
aforementioned corporation, which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said instrument is
such corporate seal; and that it was so affixed by order the Board of Directors
of said corporation; and that he signed his name thereto by like order.
_________________________________
Notary Public
My Commission Expires:
PARTNERSHIP ACKNOWLEDGEMENT
STATE OF )
) ss.:
COUNTY OF )
On this ______ day of ________________, 1996, before me personally came
___________________________________________, one of the members of the firm of
_______________________________, to me known and known to me to be the
individual who executed the foregoing instrument and acknowledged that he
executed, and was duly authorized to execute, the same as and for the act and
deed of said firm.
_________________________________
Notary Public
My Commission Expires:
____________________________________________
Unless prior to 5:00 p.m. Eastern Time, on the date immediately
preceding the proposed public offering date, the Syndicate Department of Barron
Chase Securities, Inc., 7700 West Camino Real, Suite 200, Boca Raton, Florida
33433 receives a telegram or letter from you revoking the Power of Attorney, the
power and authority granted by such Power of Attorney may be exercised in
accordance with the terms thereof.
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<PAGE> 1
REPRESENTATIVE'S WARRANT AGREEMENT (the "Representative's Warrant
Agreement" or "Agreement"), dated as of _____________ , 1996, between CARRIBEAN
CIGAR COMPANY (the "Company"), and BARRON CHASE SECURITIES, INC. (the
"Representative").
W I T N E S S E T H:
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Company and the Representative, to act as the Representative of the Underwriters
in connection with the Company's proposed public offering of 1,325,000 shares of
the Company's Common Stock at $7.00 per share and 1,325,000 Warrants ("Public
Warrants") at $.125 per warrant (the "Public Offering"); and
WHEREAS, the Company proposes to issue to the Representative and/or
persons related to the Representative as those persons are defined in Section
44(a)(6) of Article III of the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. (the "Holder"), 132,500 warrants
("Common Stock Representative Warrants") to purchase 132,500 shares of the
Company's Common stock (the "Shares") and 132,500 warrants ("Warrant
Representative Warrants") to purchase 132,500 Common Stock Purchase Warrants
("Underlying Warrants") exercisable to purchase 132,500 shares of the Company's
Common Stock. The "Common Stock Representative Warrants" and the "Warrant
Representative Warrants" are collectively referred to as the "Warrants". The
"Shares" and the "Underlying Warrants" are collectively referred to as the
"Warrant Securities"; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Holders in consideration for, and as part of
the compensation in connection with, the Representative acting as Representative
pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of TEN DOLLARS AND NO CENTS ($10.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant and Period.
The Public Offering has been registered under a Registration Statement
on Form SB-2 (File No. 333-4415) and declared effective by the Securities and
Exchange Commission (the "SEC" or "Commission") on ___________ , 1996 (the
"Effective Date"). This Agreement, relating to the purchase of the Warrants, is
entered into pursuant to the Underwriting Agreement between the Company and
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<PAGE> 2
the Representative, as representative of the Underwriters, in connection with
the Public Offering.
Pursuant to the Warrants, the Holders are hereby granted the right to
purchase from the Company, at any time during the period commencing on the
Effective Date and expiring five (5) years thereafter (the "Expiration Time"),
up to 132,500 Shares at an initial exercise price (subject to adjustment as
provided in Article 8 hereof) of $8.40 per share (120% of the public offering
price) and/or 132,500 non-redeemable Underlying Warrants at an initial exercise
price of $.15 per warrant (120% of the public offering price) (the "Exercise
Price" or "Purchase Price"), subject to the terms and conditions of this
Agreement. Each Underlying Warrant is exercisable to purchase one (1) share of
Common Stock at $8.40 per share during the three (3) year period commencing on
the Effective Date.
Except as specifically otherwise provided herein, the Shares and the
Underlying Warrants constituting the Warrant Securities shall bear the same
terms and conditions as such securities described under the caption "Description
of Securities" in the Registration Statement, and as designated in the Company's
Articles of Incorporation and any amendments thereto, and the Underlying
Warrants shall be governed by the terms of the Warrant Agreement executed in
connection with the Company's public offering (the "Warrant Agreement"), except
as provided herein, and the Holders shall have registration rights under the
Securities Act of 1933, as amended (the "Act"), for the Warrants, the Shares,
the Underlying Warrants, and the shares of Common Stock underlying the
Underlying Warrants, as more fully described in paragraph seven (7) of this
Representative's Warrant Agreement. In the event of any extension of the
expiration date or reduction of the exercise price of the Public Warrants, the
same such changes to the Underlying Warrants shall be simultaneously effected,
except that the Underlying Warrants shall expire no later than five (5) years
from the Effective Date.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificate") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth in the
form of Warrant Certificate, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. Exercise of Warrant.
3.1 Full Exercise.
(i) The Holder hereof may effect a cash exercise of the
Common Stock Representative Warrants and/or the Warrant
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<PAGE> 3
Representative Warrants and/or the Underlying Warrants by surrendering
the Warrant Certificate, together with a Subscription in the form of
Exhibit "A" attached thereto, duly executed by such Holder to the
Company, at any time prior to the Expiration Time, at the Company's
principal office, accompanied by payment in cash or by certified or
official bank check payable to the order of the Company in the amount
of the aggregate purchase price (the "Aggregate Price"), subject to any
adjustments provided for in this Agreement. The aggregate price
hereunder for each Holder shall be equal to the exercise price as set
forth in Section six (6) hereof multiplied by the number of Warrants,
Underlying Warrants or Shares that are the subject of each Holder's
Warrant (as adjusted as hereinafter provided).
(ii) The Holder hereof may effect a cashless exercise of the
Common Stock Representative Warrants and/or the Underlying Warrants by
delivering the Warrant Certificate to the Company together with a
Subscription in the form of Exhibit "B" attached thereto, duly executed
by such Holder, in which case no payment of cash will be required. Upon
such cashless exercise, the number of Shares to be purchased by each
Holder hereof shall be determined by dividing: (i) the number obtained
by multiplying the number of Shares that are the subject of each
Holder's Warrant Certificate by the amount, if any, by which the then
Market Value (as hereinafter defined) exceeds the Purchase Price; by
(ii) the then per share Market Value or purchase price, whichever is
greater. In no event shall the Company be obligated to issue any
fractional securities and, at the time it causes a certificate or
certificates to be issued, it shall pay the Holder in lieu of any
fractional securities or shares to which such Holder would otherwise be
entitled, by the Company check, in an amount equal to such fraction
multiplied by the Market Value. The Market Value shall be determined on
a per Share basis as of the close of the business day preceding the
exercise, which determination shall be made as follows: (a) if the
Common Stock is listed for trading on a national or regional stock
exchange or is included on the NASDAQ National Market or Small-Cap
Market, the average closing sale price quoted on such exchange or the
NASDAQ National Market or Small-Cap Market which is published in The
Wall Street Journal for the ten (10) trading days immediately preceding
the date of exercise, or if no trade of the Common Stock shall have
been reported during such period, the last sale price so quoted for the
next day prior thereto on which a trade in the Common Stock was so
reported; or (b) if the Common Stock is not so listed, admitted to
trading or included, the average of the closing highest reported bid
and lowest reported ask price as quoted on the National Association of
Securities Dealer's OTC Bulletin Board or in the "pink sheets"
published by the National Daily Quotation Bureau for the first day
immediately
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preceding the date of exercise on which the Common Stock is
traded.
3.2 Partial Exercise. The securities referred to in paragraph 3.1 above
also may be exercised from time to time in part by surrendering the Warrant
Certificate in the manner specified in Section 3.1 hereof, except that with
respect to a cash exercise, the Purchase Price payable shall be equal to the
number of securities being purchased hereunder multiplied by the per security
Purchase Price, subject to any adjustments provided for in this Agreement. Upon
any such partial exercise, the Company, at its expense, will forthwith issue to
the Holder hereof a new Warrant Certificate or Warrants of like tenor calling in
the aggregate for the number of securities (as constituted as of the date
hereof) for which the Warrant Certificate shall not have been exercised, issued
in the name of the Holder hereof or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct.
4. Issuance of Certificates.
Upon the exercise of the Warrants and/or the Underlying Warrants, the
issuance of certificates for the shares of Common Stock and/or other securities
shall be made forthwith (and in any event within three (3) business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof) be
issued in the name of, or in such names as may be directed by, the Holder
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificates in a name other than that of the Holder and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance 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.
The Warrant Certificates and the certificates representing the shares
of Common Stock and/or other securities shall be executed on behalf of the
Company by the manual or facsimile signature of the then present Chairman or
Vice Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the then present Secretary or Assistant Secretary of
the Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
5. Restriction On Transfer of Warrants.
The Holder of a Warrant Certificate, by its acceptance
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thereof, covenants and agrees that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the Effective Date of the Public Offering, except
(a) to officers of the Representative or to officers and partners of the other
Underwriters or Selected Dealers participating in the Public Offering; (b) by
will; or (c) by operation of law.
6. Exercise Price.
6.1 Initial and Adjusted Exercise Prices.
The initial exercise price of each Common Stock Representative Warrant
shall be $8.40 per share (120% of the public offering price). The initial
exercise price of each Warrant Representative Warrant shall be $.15 per
Underlying Warrant (120% of the public offering price). The initial exercise
price of each Underlying Warrant shall be $8.40 per share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Section 8 hereof. The Warrant Representative Warrants and the Underlying
Warrants are exercisable during the three (3) year period commencing on the
Effective Date.
6.2 Exercise Price.
The term "Exercise Price" herein shall mean the initial exercise price
or the adjusted exercise price, depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933.
The Warrants, the Shares, the Underlying Warrants and the shares of
Common Stock issuable upon exercise of the Underlying Warrants (collectively the
"Registrable Securities") have been registered under the Securities Act of 1933,
as amended (the "Act"). Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares, the Underlying Warrants and/or the shares
of Common Stock issuable upon exercise of the Underlying Warrants shall bear the
following legend in the event there is no current registration statement
effective with the Securities and Exchange Commission at such time as to such
securities:
The securities represented by this certificate may not be offered or
sold except pursuant to (i) an effective registration statement under
the Act, (ii) to the extent applicable, Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such
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opinion shall be reasonably satisfactory to counsel to the issuer, that
an exemption from registration under such Act and applicable state
securities laws is available.
7.2 Piggyback Registration.
If, at any time commencing after the Effective Date of the offering and
expiring seven (7) years thereafter, the Company prepares and files a
post-effective amendment to the Registration Statement, or a new Registration
Statement, under the Act, or files a Notification on Form 1-A or otherwise
registers securities under the Act, or files a similar disclosure document with
the Commission (collectively the "Registration Documents") as to any of its
securities under the Act (other than under a Registration Statement pursuant to
Form S-8), it will give written notice by registered mail, at least thirty (30)
days prior to the filing of each such Registration Document, to the
Representative and to all other Holders of the Registrable Securities of its
intention to do so. If the Representative and/or other Holders of the
Registrable Securities notify the Company within twenty (20) days after receipt
of any such notice of its or their desire to include any such Registrable
Securities in such proposed Registration Documents, the Company shall afford the
Representative and such Holders of such Registrable Securities the opportunity
to have any Registrable Securities registered under such Registration Documents
or any other available Registration Document.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 Demand Registration.
(a) At any time commencing one (1) year after the Effective Date of the
Public Offering, and expiring four (4) years thereafter, the Holders of
Registrable Securities representing more than 50% of such securities at that
time outstanding shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Commission, on one
occasion, a registration statement and/or such other documents, including a
prospectus, and/or any other appropriate disclosure document as may be
reasonably necessary in the opinion of both counsel for the Company and counsel
for the Representative and Holders, in order to comply with the provisions of
the Act, so as to permit a public offering and sale of their respective
Registrable Securities for nine (9) consecutive months (or such
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<PAGE> 7
longer period of time as permitted by the Act) by such Holders and any other
Holders of any of the Registrable Securities who notify the Company within ten
(10) days after being given notice from the Company of such request. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the SEC and maintained
continuously effective for a period of at least nine months or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such Demand Registration, provided that a Demand Registration
shall be counted as a Demand Registration hereunder if the Company ceases its
efforts in respect of such Demand Registration at the request of the majority
Holders making the demand for a reason other than a material and adverse change
in the business, assets, prospects or condition (financial or otherwise) of the
Company and its subsidiaries taken as a whole.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by the majority of the Holders to
all other registered Holders of any of the Registrable Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing one (1) year after
the Effective Date of the offering, and expiring four (4) years thereafter, the
Holders of a majority of the Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare and
file, on one occasion, with the Commission a registration statement or any other
appropriate disclosure document so as to permit a public offering and sale for
nine (9) consecutive months (or such longer period of time as permitted by the
Act) by any such Holder of Registrable Securities; provided, however, that the
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and registration and all costs incident thereto shall be at the expense
of the Holder or Holders participating in the offering pro-rata.
(d) Any written request by the Holders made pursuant to this
Section 7.3 shall:
(i) specify the number of Registrable Securities which the
Holders intend to offer and sell and the minimum price at which the
Holders intend to offer and sell such securities;
(ii) state the intention of the Holders to offer such
securities for sale;
(iii) describe the intended method of distribution of
such securities; and
(iv) contain an undertaking on the part of the Holders to
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<PAGE> 8
provide all such information and materials concerning the Holders and
take all such action as may be reasonably required to permit the
Company to comply with all applicable requirements of the Commission
and to obtain acceleration of the effective date of the registration
statement.
(e) In the event the Company receives from the Holders of any
Registrable Securities representing more than 50% of such securities at that
time outstanding, a request that the Company effect a registration on Form S-3
with respect to the Registrable Securities and if Form S-3 is available for such
offering, the Company shall, as soon as practicable, effect such registration as
would permit or facilitate the sale and distribution of the Registrable
Securities as are specified in the request. All expenses incurred in connection
with a registration requested pursuant to this Section shall be borne by the
Company. Registrations effected pursuant to this Section 7.3(e) shall not be
counted as registrations pursuant to Section 7.3(a) and 7.3(c) hereof.
7.4 Covenants of the Company With Respect to Registration.
In connection with any registration under Section 7.2 or 7.3 hereof,
the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand pursuant to
Section 7.3, and shall use its best efforts to have any such registration
statement declared effective at the earliest practicable time. The Company will
promptly notify each seller of such Registrable Securities and confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective and (iii) of any request by the SEC for any amendment or supplement to
such registration statement or any prospectus relating thereto or for additional
information.
The Company shall furnish to each seller of such Registrable Securities
such number of copies of such registration statement and of each such amendment
and supplement thereto (in each case including each preliminary prospectus and
summary prospectus) in conformity with the requirements of the Act, and such
other documents as such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities by such seller.
(b) The Company shall pay all costs (excluding transfer taxes, if any,
and fees and expenses of Holder(s)' counsel and the Holder's pro-rata portion of
the selling discount or commissions), fees and expenses in connection with all
registration statements filed pursuant to Sections 7.2 and 7.3(a) hereof
including, without limitation, the Company's legal and
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<PAGE> 9
accounting fees, printing expenses, blue sky fees and expenses. The Holder(s)
will pay all costs, fees and expenses in connection with any registration
statement filed pursuant to Section 7.3(c). If the Company shall fail to comply
with the provisions of Section 7.3(a), the Company shall, in addition to any
other equitable or other relief available to the Holder(s), be liable for any or
all special and consequential damages sustained by the Holder(s) requesting
registration of their Registrable Securities.
(c) The Company shall prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be reasonably necessary to keep such registration statement
effective for at least nine months (or such longer period as permitted by the
Act), and to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller or
sellers of Registrable Securities set forth in such registration statement. If
at any time the SEC should institute or threaten to institute any proceedings
for the purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each seller of such
Registrable Securities and will use all reasonable efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will use its good faith reasonable efforts and take all
reasonably necessary action which may be required in qualifying or registering
the Registrable Securities included in a registration statement for offering and
sale under the securities or blue sky laws of such states as reasonably are
required by the Holder(s), provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. The
Company shall use its good faith reasonable efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities of the United States
or any State thereof as may be reasonably necessary to enable the seller or
sellers thereof to consummate the disposition of such Registrable Securities.
(d) The Company shall indemnify the Holder(s) of the Registrable
Securities to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement but only to
the same
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<PAGE> 10
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Representative as contained in the Underwriting
Agreement.
(e) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each of the Holder(s) of the
Registrable Securities to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from written information furnished by
such Holder, or their successors or assigns, for specific inclusion in such
registration statement to the same extent and with the same effect as the
provisions contained in the Underwriting Agreement pursuant to which the
Representative has agreed to indemnify the Company, except that the maximum
amount which may be recovered from each Holder pursuant to this paragraph or
otherwise shall be limited to the amount of net proceeds received by the Holder
from the sale of the Registrable Securities.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants or Underlying Warrants prior to the
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any registration statement
filed pursuant to Section 7.3 hereof without the prior written consent of the
Holders of the Registrable Securities representing a majority of such
securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), and (ii) a "cold comfort" letter
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events
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subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and the
managing underwriter copies of all correspondence between the Commission and the
Company, its counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such Holder shall reasonably request.
(j) With respect to a registration statement filed pursuant to Section
7.3, the Company, if requested, shall enter into an underwriting agreement with
the managing underwriter, reasonably satisfactory to the Company, selected for
such underwriting by Holders holding a majority of the Registrable Securities
requested to be included in such underwriting. Such agreement shall be
satisfactory in form and substance to the Company, each Holder and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter. The Holders, if required by the
Underwriter to be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities, may, at their option, require
that any or all the representations, warranties and covenants of the Company to
or for the benefit of such underwriters shall also be made to and for the
benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(k) Notwithstanding the provisions of paragraph 7.2 or paragraph 7.3 of
this Agreement, the Company shall not be required to effect or cause the
registration of Registrable Securities pursuant to paragraph 7.2 or paragraph
7.3 hereof if, within thirty (30) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holders requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder(s), to the effect
that the entire number of Registrable
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Securities proposed to be sold by such Holder(s) may otherwise be sold, in the
manner proposed by such Holder(s), without registration under the Securities
Act, or (ii) the SEC shall have issued a no-action position, in form and
substance satisfactory to counsel for the Holder(s) requesting registration of
such Registrable Securities, to the effect that the entire number of Registrable
Securities proposed to be sold by such Holder(s) may be sold by it, in the
manner proposed by such Holder(s), without registration under the Securities
Act.
(l) After completion of the Public Offering, the Company shall not,
directly or indirectly, enter into any merger, business combination or
consolidation in which (a) the Company shall not be the surviving corporation
and (b) the stockholders of the Company are to receive, in whole or in part,
capital stock or other securities of the surviving corporation, unless the
surviving corporation shall, prior to such merger, business combination or
consolidation, agree in writing to assume the obligations of the Company under
this Agreement, and for that purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which the Holders would be
entitled to receive in exchange for Registrable Securities under any such
merger, business combination or consolidation, provided that to the extent such
securities to be received are convertible into shares of Common Stock of the
issuer thereof, then any such shares of Common Stock as are issued or issuable
upon conversion of said convertible securities shall also be included within the
definition of "Registrable Securities".
8. Adjustments to Exercise Price and Number of Securities.
8.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrant Securities in
effect immediately prior to such action shall be adjusted so that the Holder of
this Warrant thereafter upon the exercise hereof shall be entitled to receive
the number and kind of shares of the Company which such Holder would have owned
immediately following such action had this Warrant been exercised immediately
prior thereto. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result
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of an adjustment made pursuant to this Section, the Holder of this Warrant shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive) shall determine the allocation of the adjusted Exercise Price
between or among shares of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Holder of Warrant
Certificates (by first class mail, postage prepaid), which notice shall state
the Exercise Price resulting from such adjustment, and any increase or decrease
in the number of Warrant Securities to be acquired upon exercise of the
Warrants, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
8.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental Warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such reorganization, consolidation, merger,
conveyance, sale or transfer. Such supplemental Warrant agreement shall provide
for adjustments which shall be identical to the adjustments provided in Section
8 and such registration rights and other rights as provided in this Agreement.
The Company shall not effect any such consolidation, merger, or similar
transaction as contemplated by this paragraph, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holders, the obligation to deliver to the Holders, such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase, and to perform the other obligations of the
Company under this Agreement. The above provision of this Subsection shall
similarly apply to successive consolidations or successively whenever any event
listed above shall occur.
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8.3 Dividends and Other Distributions.
In the event that the Company shall at any time prior to the exercise
of all of the Warrants and/or Underlying Warrants distribute to its stockholders
any assets, property, rights, evidences of indebtedness, securities (other than
a distribution made as a cash dividend payable out of earnings or out of any
earned surplus legally available for dividends under the laws of the
jurisdictions of incorporation of the Company), whether issued by the Company or
by another, the Holders of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities and
property receivable upon the exercise thereof, to receive, upon the exercise of
such Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such distribution as if the Warrants had been exercised
immediately prior to such distribution. At the time of any such distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this subsection or an adjustment to the Exercise Price, which
shall be effective as of the day following the record date for such
distribution.
8.4 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions
of this Section 8, the number of securities issuable upon the exercise of each
Warrant and/or Underlying Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of securities issuable upon exercise of the
Warrants and/or the Underlying Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.5 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($.05) per Share, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 5 cents ($.05) per Share.
8.6 Accountant's Certificate of Adjustment.
In each case of an adjustment or readjustment of the Exercise Price or
the number of any securities issuable upon exercise of the Warrants and/or
Underlying Warrants, the Company, at its expense, shall cause independent
certified public accountants of recognized standing selected by the Company (who
may be the independent
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certified public accountants then auditing the books of the Company) to compute
such adjustment or readjustment in accordance herewith and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to any Holder of the Warrants and/or
Underlying Warrants at the Holder's address as shown on the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based including, but not
limited to, a statement of (i) the Exercise Price at the time in effect, and
(ii) the number of additional securities and the type and amount, if any, of
other property which at the time would be received upon exercise of the Warrants
and/or Underlying Warrants.
8.7 Adjustment of Underlying Warrant Exercise Price.
With respect to any of the Underlying Warrants whether or not the
Underlying Warrants have been exercised (or are exercisable) and whether or not
the Underlying Warrants are issued and outstanding, the Underlying Warrant
exercise price and the number of shares of Common Stock underlying such
Underlying Warrants shall be automatically adjusted in accordance with the
Warrant Agreement between the Company and the Company's transfer agent, upon
occurrence of any of the events relating to adjustments described therein.
Thereafter, the Underlying Warrants shall be exercisable at such adjusted
Underlying Warrant exercise price for such adjusted number of underlying shares
of Common Stock or other securities, properties or rights.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of securities in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interest.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock upon the exercise
15
<PAGE> 16
of the Warrants and/or Underlying Warrants, nor shall it be required to issue
script or pay cash in lieu of fractional interests, it being the intent of the
parties that all fractional interests may be eliminated, at the Company's
option, by rounding any fraction up to the nearest whole number of shares of
Common Stock or other securities, properties or rights, or in lieu thereof
paying cash equal to such fractional interest multiplied by the current value of
a share of Common Stock.
11. Reservation and Listing.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants and the Underlying Warrants, such number of shares of
Common Stock or other securities, properties or rights as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and/or the Underlying Warrants, and payment of the Exercise Price
therefor, all shares of Common Stock and other securities issuable upon such
exercise shall be duly and validly issued, fully paid, non-assessable and not
subject to the preemptive rights of any stockholder. As long as the Warrants
and/or Underlying Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Warrants and the Underlying Warrants to be listed and quoted (subject to
official notice of issuance) on all securities Exchanges and Systems on which
the Common Stock and/or the Public Warrants may then be listed and/or quoted,
including NASDAQ.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holders of the Warrants and/or Underlying Warrants the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and/or Underlying Warrants and their
exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
16
<PAGE> 17
Company or securities convertible into or exchangeable for shares of
capital stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date of the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Underlying Warrants.
The form of the certificate representing the Underlying Warrants (and
the form of election to purchase shares of Common Stock upon the exercise of the
Underlying Warrants and the form of assignment printed on the reverse thereof)
shall be substantially as set forth in the exhibits to the Warrant Agreement.
Subject to the terms of this Agreement, one (1) Underlying Warrant shall
evidence the right to initially purchase one (1) fully-paid and non-assessable
share of Common Stock at an initial purchase price of $8.40 during the three (3)
year period commencing on the Effective Date of the Registration Statement, at
which time the Underlying Warrants, unless the exercise period has been
extended, shall expire. The exercise price of the Underlying Warrants and the
number of shares of Common Stock issuable upon the exercise of the Underlying
Warrants are subject to adjustment, whether or not the Warrants have been
exercised and the Underlying Warrants have been issued, in the manner and upon
the occurrence of the events set forth in the Warrant Agreement, which is hereby
incorporated herein by reference and made a part hereof as if set forth in its
entirety herein. Subject to the provisions of this Agreement and upon issuance
of the Underlying Warrants, each registered holder of such Underlying Warrant
shall have the right to purchase from the Company (and the Company shall issue
to such registered holders) up to the number of fully-paid and non-assessable
shares of Common Stock (subject to adjustment as provided in the Warrant
Agreement) set forth in such Warrant Certificate, free and clear of all
17
<PAGE> 18
preemptive rights of stockholders, provided that such registered Holder complies
with the terms governing exercise of the Underlying Warrant set forth in the
Warrant Agreement, and pays the applicable exercise price, determined in
accordance with the terms of the Warrant Agreement. Upon exercise of the
Underlying Warrants, the Company shall forthwith issue to the registered Holder
of any such Underlying Warrant in his name or in such name as may be directed by
him, certificates for the number of shares of Common Stock so purchased. Except
as otherwise provided herein and in this Agreement, the Underlying Warrants
shall be governed in all respects by the terms of the Warrant Agreement. The
Underlying Warrants shall be transferrable in the manner provided in the Warrant
Agreement, and upon any such transfer, a new Underlying Warrant certificate
shall be issued promptly to the transferee. The Company covenants to send to
each Holder, irrespective of whether or not the Warrants have been exercised,
any and all notices required by the Warrant Agreement to be sent to holders of
Underlying Warrants.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when personally
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of any of the
Registrable Securities, to the address of such Holder as shown
on the books of the Company; or
(b) If to the Company, to the address set forth below or
to such other address as the Company may designate by notice
to the Holders.
Kevin Doyle, President
Carribean Cigar Company
6265 S.W. 8th Street
Miami, Florida 33144
With a copy to: Eric S. Kamisher, Esq.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158-0038
15. Entire Agreement: Modification.
This Agreement (and the Underwriting Agreement and Warrant Agreement to
the extent applicable) contain the entire understanding between the parties
hereto with respect to the subject matter hereof, and the terms and provisions
of this Agreement may not be modified, waived or amended except in a
18
<PAGE> 19
writing executed by the Company and the Holders of at least a majority of
Registrable Securities (based on underlying numbers of shares of Common Stock).
Notice of any modification, waiver or amendment shall be promptly provided to
any Holder not consenting to such modification, waiver or amendment.
16. Successors.
All the covenants and provisions of this Agreement shall be binding
upon and inure to the benefit of the Company, the Holders and their respective
successors and assigns hereunder.
17. Termination.
This Agreement shall terminate at the close of business on _________ ,
2003. Notwithstanding the foregoing, the indemnification provisions of Section 7
shall survive such termination.
18. Governing Law; Submission to Jurisdiction.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Florida and for all
purposes shall be construed in accordance with the laws of said State without
giving effect to the rules of said State governing the conflicts of laws. The
Company, the Representative and the Holders hereby agree that any action,
proceeding or claim arising out of, or relating in any way to, this Agreement
shall be brought and enforced in a federal or state court of competent
jurisdiction with venue only in the Fifteenth Judicial Circuit Court in and for
Palm Beach County, Florida or the United States District Court for the Southern
District of Florida, West Palm Beach Division, and irrevocably submits to such
jurisdiction, which jurisdiction shall be exclusive. The Company, the
Representative and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Representative and the Holders (at the
option of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
14 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
19. Severability.
If any provision of this Agreement shall be held to be invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of this Agreement.
20. Captions.
The caption headings of the Sections of this Agreement are for
19
<PAGE> 20
convenience of reference only and are not intended, nor should they be construed
as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Representative and any other
registered Holder(s) of the Warrant Certificates or Registrable Securities any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Representative and any other Holder(s) of the Warrant Certificates or
Registrable Securities.
22. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
CARRIBEAN CIGAR COMPANY
By:
-------------------------------
Kevin Doyle, President
Attest:
- ----------------------------------
Eric S. Kamisher, Secretary
BARRON CHASE SECURITIES, INC.
By:
-------------------------------
Robert Kirk, President
20
<PAGE> 21
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M, EASTERN TIME ON , 200
-------------- ----
NO. W- Common Stock
----------- ------------
Representative
Warrants and/or
Warrant
------------
Representative
Warrants
This Warrant Certificate certifies that _________, or registered
assigns, is the registered holder of _________ Common Stock Representative
Warrants and/or Warrant Representative Warrants. Each Common Stock
Representative Warrant permits the Holder hereof to purchase initially, at any
time from _________, 1996 ("Purchase Date") until 5:30 p.m. Eastern Time on
_________, 2001 ("Expiration Date"), one (1) share of Carribean Cigar Company
(the "Company") Common Stock at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $ _________ per share
(120% of the public offering price). Each Warrant Representative Warrant permits
the Holder hereof to purchase initially, at any time from the Purchase Date
until three (3) years from the Purchase Date, one (1) Underlying Warrant at the
Exercise Price of $.15 per Underlying Warrant. Each Underlying Warrant permits
the Holder thereof to purchase, at any time from the Purchase Date until three
(3) years from the Purchase Date, one (1) share of the Company's Common Stock at
the Exercise Price of $________ per share.
21
<PAGE> 22
Any exercise of Common Stock Representative Warrants and/or Warrant
Representative Warrants shall be effected by surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the
Representative's Warrant Agreement dated as of , 1996, between the
Company and Barron Chase Securities, Inc. (the "Representative's Warrant
Agreement"). Payment of the Exercise Price shall be made by certified check or
official bank check in New York Clearing House funds payable to the order of
the Company in the event there is no cashless exercise pursuant to
Section 3.1(ii) of the Representative's Warrant Agreement. The "Common Stock
Representative Warrants" and the "Warrant Representative Warrants" are
collectively referred to as "Warrants". The Underlying Warrants shall be
exercised pursuant to the provisions of the Representative's Warrant
Agreement and pursuant to the Warrant Agreement entered into by the Company
relating to the Public Warrants, unless there is a cashless exercise pursuant
to Section 3.1(ii) of the Representative's Warrant Agreement.
No Warrant may be exercised after 5:30 p.m., Eastern Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Representative's Warrant
Agreement, which Representative's Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation or rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
The Representative's Warrant Agreement provides that upon the
occurrence of certain events, the Exercise Price and the type and/or number of
the Company's securities issuable thereupon may, subject to certain conditions,
be adjusted. In such event, the Company will, at the request of the holder,
issue a new Warrant Certificate evidencing the adjustment in the Exercise Price
and the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such new
Warrant Certificates shall not in any way change, alter, or otherwise impair,
the rights of the holder as set forth in the Representative's Warrant Agreement.
Upon due presentment for registration or transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the
Representative's Warrant Agreement, without any charge except for
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<PAGE> 23
any tax or other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Representative's Warrant Agreement shall have the meanings assigned to them in
the Representative's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of , 1996
--------------
CARRIBEAN CIGAR COMPANY
By:
--------------------------
Kevin Doyle, President
(Seal)
Attest:
- -------------------------------
Eric S. Kamisher, Secretary
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<PAGE> 24
EXHIBIT "A"
FORM OF SUBSCRIPTION (CASH EXERCISE)
(To be signed only upon exercise of Warrant)
TO: Carribean Cigar Company
6265 S.W. 8th Street
Miami, Florida 33144
The undersigned, the Holder of Warrant Certificate number___ (the
"Warrant"), representing _________ Common Stock Representative Warrants and/or
_________ Warrant Representative Warrants of Carribean Cigar Company (the
"Company"), which Warrant Certificate is being delivered herewith, hereby
irrevocably elects to exercise the purchase right provided by the Warrant
Certificate for, and to purchase thereunder, _________ Shares and/or _________
Underlying Warrants of the Company, and herewith makes payment of $ therefor,
and requests that the certificates for such securities be issued in the name of,
and delivered to,______________________________ _____________________________ ,
whose address is, _______________________________________________ , all in
accordance with the Representative's Warrant Agreement and the Warrant
Certificate.
Dated:
--------------------
-----------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------
-----------------------
(Address)
24
<PAGE> 25
EXHIBIT "B"
FORM OF SUBSCRIPTION (CASHLESS EXERCISE)
TO: Carribean Cigar Company
6265 S.W. 8th Street
Miami, Florida 33144
The undersigned, the Holder of Warrant Certificate number ______ (the
"Warrant"), representing _________ Common Stock Representative Warrants and/or
_________ Underlying Warrants of Carribean Cigar Company (the "Company"), which
Warrant is being delivered herewith, hereby irrevocably elects the cashless
exercise of the purchase right provided by the Representative's Warrant
Agreement and the Warrant Certificate for, and to purchase thereunder, Shares of
the Company in accordance with the formula provided at Section three (3) of the
Representative's Warrant Agreement. The undersigned requests that the
certificates for such Shares be issued in the name of, and delivered to,
____________________________________________________ , whose address is,
______________________________________________ , all in
accordance with the Warrant Certificate.
Dated:
--------------------
-----------------------
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant Certificate)
-----------------------
-----------------------
(Address)
25
<PAGE> 26
(FORM OF ASSIGNMENT)
(To be exercised by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby sells,
assigns and transfers unto
(Print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:
- ------------------------- ------------------------------
(Signature must conform in all
respects to name of holder as
specified on the fact of the
Warrant Certificate)
------------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
26
<PAGE> 1
[CARIBBEAN
CIGAR
COMPANY LOGO]
CUSIP 141834 10 1
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF FLORIDA CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE .001 PER SHARE, OF
============================ CARIBBEAN CIGAR COMPANY ===========================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.
Dated:
[CARIBBEAN CIGAR COMPANY
/s/ Eric Kamsher CORPORATE SEAL] /s/ Kevin Doyle
Secretary President
Countersigned:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ) Transfer Agent
By
Authorized Officer
- ---------------------------------------------
AMERICAN BANKNOTE COMPANY
680 BLAIR MILL ROAD
HORSHAM, PA 19044
215-657-3460
- ---------------------------------------------
SALES PERSON - R. JOHNS -- 212-657-9100
- ---------------------------------------------
/home/joew/inprogress/home11/Caribbean44238
- ---------------------------------------------
- -------------------------------------------------------------
PRODUCTION COORDINATOR - ALBERT DERMOVSESIAN - 215-630-2103
PROOF OF JUNE 21, 1996
CARIBBEAN
H44238fc
- -------------------------------------------------------------
Opr. JW/js REV 1
- -------------------------------------------------------------
/net/banknote/home51/C
- -------------------------------------------------------------
