<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996
REGISTRATION NO. 33-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
CAPITAL BEVERAGE CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 5181 13-3878747
- --------------- ------------------------- -------------------
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION) CODE NUMBER)
1111 EAST TREMONT AVENUE
BRONX, NEW YORK 10460
(718) 409-2337
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CARMINE N. STELLA, PRESIDENT
CAPITAL BEVERAGE CORPORATION
1111 EAST TREMONT AVENUE
BRONX, NEW YORK 10460
(718) 409-2337
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
* * * * * * * * *
COPIES TO:
WILLIAM E. WEBER, ESQ. M. DAVID SAYID, ESQ.
WEBER & WEBER SAYID AND ASSOCIATES
300 RABRO DRIVE 411 HACKENSACK AVENUE
HAUPPAUGE, NEW YORK 11788 HACKENSACK, NEW JERSEY 07601
TELEPHONE: (516) 232-0301 TELEPHONE: 201-525-4746
FAX: (516) 232-0817 FAX: 201-525-0831
APPROXIMATE DATE OF SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER
THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN
OFFERING PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), PLEASE CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ] _________________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(c) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES
ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. [ ] ________________
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE
434 OF THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX. [ ]
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT, CHECK THE FOLLOWING BOX. [X]
TOTAL NUMBER OF SEQUENTIAL PAGES ______
EXHIBIT INDEX ON SEQUENTIAL PAGE NUMBER ______
<PAGE> 2
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"),
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
TITLE OF EACH CLASS OF SECURITIES Amount to be Offering Price Per Aggregate Offering Amount of
TO BE REGISTERED Registered(1) Security(2) Price Registration Fee
<S> <C> <C> <C> <C>
Units, consisting of one (1) share
of Common Stock, $.001 par value,
and one-half (1/2) Class A
Warrant 800,000 $ 5.05(3) $ 4,040,000 $ 1,393.00
Common Stock, $.001 PAR VALUE 800,000 -- -- --
Class A Warrants(4) 400,000 -- -- --
Common Stock, $.001 par value,
underlying the Class A Warrants
(4)(5) 400,000 $ 5.00 $ 2,000,000 $ 689.60
Representative's Unit Purchase
Option(6) 80,000 $ .001 $ 100.00 $ 1.00
Units, each Unit consists of one
(1) share of Common stock, par
value $.001 per share, and one-
half (1/2) Class A Warrant(6) 80,000 $ 6.06 $ 484,800 $ 167.16
Common Stock, $.001 par value
underlying Representative's Unit
Purchase Option 80,000 -- -- --
Class A Warrants underlying
Representative's Unit Purchase
Option 40,000 -- -- --
Common Stock, par value $.001
per share, underlying Class A
Warrants in Representative's Unit
Purchase Option(7) 40,000 $ 5.00 $ 200,000 $ 68.96
Selling Securityholders
Common Stock, par value $.001 300,000 $ 5.00 $ 1,500,000 $ 517.20
per share(8)
Common Stock, par value $.001
per share, issuable upon
conversion of Series A Preferred 337,500 $ 5.00 $ 1,687,500 $ 581.85
Stock(9)
Class A Warrants(10) 3,175,000 -- -- --
Common Stock, par value $.001
per share, underlying Class A
Warrants(11) 3,175,000 $ 5.00 $15,875,000 $ 5,473.70
TOTAL -- -- -- $ 8,892.47
</TABLE>
- -------------------------
ii
<PAGE> 3
1. Pursuant to Rule 416 under the Securities Act of 1933, this
Registration Statement covers such additional indeterminate number of
shares of Common Stock and Class A Common Stock Purchase Warrants
(the "Class A Warrants") as may be issued by reason of adjustments in
the number of shares of Common Stock and Class A Warrants pursuant to
anti-dilution provisions contained in the Class A Warrants being
registered hereunder and in the Representative's unit purchase option
(the "Unit Purchase Option"). Because such additional shares of
Common Stock and Class A Warrants will, if issued, be issued for no
additional consideration, no registration fee is required.
2. Estimated solely for purposes of calculating registration fee.
3. Of such Unit purchase price, $5.00 has been allocated to the Common
Stock and $.05 has been allocated to each one-half (1/2) Class A
Warrant ($.10 per whole Class A Warrant).
4. Each whole Class A Warrant is exercisable over a four (4) year period
commencing on the Effective Date of this Offering into one (1) share
of Common Stock at an exercise price of $5.00 per share.
5. The number of shares of Common Stock specified is the number which
may be acquired by the holders of the Units upon exercise of whole
Class A Warrants at the exercise price thereof.
6. The Representative's Unit Purchase Option entitles the Representative
to purchase up to 80,000 Units at 120% of the offering price.
7. Represents shares of Common Stock that are issuable upon exercise of
the Class A Warrants included in the Representative's Unit Purchase
Option.
8. Represents 300,000 shares of Common Stock that may be sold from time
to time by an officer of the Company. Such officer has agreed that he
will not sell any of such shares prior to the expiration of two (2)
years after the Effective Date without the consent of the
Representative.
9. Represents 337,500 shares of Common Stock that may be offered for
sale from time to time by the Selling Securityholders. Such 337,500
shares of Common Stock are issuable by the Company to the Selling
Securityholders upon conversion during the period commencing 180 days
and ending 360 days after the Effective Date of 337,500 shares of
Series A Preferred Stock acquired by such Selling Securityholders in
the Company's 1996 Private Placement Financing.
10. Represents 675,000 Class A Warrants issued to 26 accredited investors
in the Company's Private Placement of Units of Series A Preferred
Stock and Class A Warrants, which occurred between January and March
1996, and 2,500,000 Class A Warrants that will be issued upon the
automatic conversion on the Effective Date of the $250,000 of
principal amount of Convertible Bridge Notes issued to two (2)
accredited investors in the Company's Bridge Financing that occurred
in April 1996.
11. Represents shares of Common Stock either that may be resold by the
Selling Securityholders after acquisition of such shares upon
exercise of Class A Warrants held by such Selling Securityholders or,
alternatively, that may be issued by the Company to those individuals
or entities that purchase Class A Warrants from the Selling
Securityholders.
iii
<PAGE> 4
CAPITAL BEVERAGE CORPORATION
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Part I Items of Form SB-2
<TABLE>
<CAPTION>
Item Number and Heading
In Form SB-2 Registration Statement Location in Prospectus
----------------------------------- ----------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front
Cover of Prospectus................................................... Front of Registration Statement;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................................ Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors.................................... Prospectus Summary; Risk Factors
4. Use of Proceeds......................................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......................................... Risk Factors; Underwriting
6. Dilution................................................................ Risk Factors; Dilution
7. Selling Securityholders................................................. Selling Securityholders
8. Plan of Distribution.................................................... Outside Front Cover Page of
Prospectus; Underwriting
9. Legal Proceedings....................................................... Business
10. Directors, Executive Officers, Promoters and
Control Persons .................................................... Management
11. Security Ownership of Certain Beneficial
Owners and Management............................................... Principal Stockholders
12. Description of Securities............................................... Description of Securities
13. Interest of Named Experts and Counsel................................... Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities...................... Risk Factors; Management
15. Organization Within Last Five Years..................................... Prospectus Summary; Business
16. Description of Business................................................. Prospectus Summary; Risk Factors;
Business
17. Management's Discussion and Analysis or Plan of
Operation........................................................... Management's Discussion and Analysis
of Financial Condition and Results of
Operations
18. Description of Property................................................. Business
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C> <C>
19. Certain Relationships and Related Transactions.......................... Certain Transactions; Management
20. Market for Common Equity and Related Stockholder
Matters............................................................. Outside Front Cover Page of
Prospectus; Prospectus Summary;
Dividend Policy; Description of
Securities; Shares Eligible for Future
Sale
21. Executive Compensation.................................................. Management
22. Financial Statements.................................................... Selected Financial Data; Financial
Statements
23. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................. Not Applicable
</TABLE>
v
<PAGE> 6
EXPLANATORY NOTE
This registration statement covers the primary offering ("Offering")
of Units, consisting of one (1) share of Common Stock and one-half (1/2) Class A
Warrant by Capital Beverage Corporation (the "Company") and the concurrent
offering of Common Stock and Class A Warrants by the Selling Securityholders.
The Company is registering under the primary prospectus ("Primary Prospectus")
800,000 Units, 800,000 shares of Common Stock, 400,000 whole Class A Warrants,
and 400,000 shares of Common Stock issuable upon the exercise of such whole
Class A Warrants. The Company is also registering on behalf of the Selling
Securityholders under an alternate prospectus ("Alternate Prospectus") 3,812,500
shares of Common Stock and 3,175,000 Class A Warrants. The Alternate Prospectus
pages, which follow the Primary Prospectus, are to be combined with all of the
sections contained in the Primary Prospectus with the following exceptions: the
front and back cover pages and the sections entitled "Offering," "Selling
Securityholders" and "Underwriting".
vi
<PAGE> 7
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 AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
Subject to Completion, Dated _____ __, 1996
CAPITAL BEVERAGE CORPORATION
800,000 Units
Each Unit Consisting of One (1) Share of Common Stock, $.001 par value, and
One-Half (1/2) Class A Redeemable Common Stock Purchase Warrant
Capital Beverage Corporation, a Delaware corporation (the "Company"
or "Capital"), hereby offers Eight Hundred Thousand (800,000) Units ("Units"),
each Unit consisting of One (1) Share (the "Shares") of Common Stock, $.001 par
value (the "Common Stock"), and One-Half (1/2) Class A Redeemable Common Stock
Purchase Warrant, at an offering price of $5.05 per Unit ("Offering Price").
Each one-half (1/2) Class A Warrant may only be exercised in combination with
another one-half (1/2) Class A Warrant. Each whole Class A Warrant will entitle
the holder to purchase one (1) share of Common Stock at an exercise price of
$5.00 per share, subject to adjustment. The Units, the Shares and the Class A
Warrants offered hereby are sometimes referred to as the "Securities". The
Shares and whole Class A Warrants offered hereby will be separately tradeable
immediately upon issuance. Each Class A Warrant is exercisable commencing on the
effective date of the Registration Statement covering the Securities (the
"Effective Date") and expiring at the close of business on the last day of the
four (4) year period following the Effective Date. The Class A Warrants are
subject to redemption by the Company, with the consent of Investors Associates,
Inc. (the "Representative") in the event a redemption occurs prior to the first
anniversary of the Effective Date, for a redemption price of $.001 per warrant,
provided (i) notice of not less than forty-five (45) days is given; (ii) the
closing bid quotation of the Common Stock of the Company has been at least One
Hundred Sixty Percent (160%) of the then exercise price of the Class A Warrants
on all twenty (20) of the trading days ending on the date prior to the day that
notice is given; and (iii) holders of the Class A Warrants shall have had
exercise rights until the close of business on the date fixed for redemption.
The exercise price of the Class A Warrants is subject to adjustment under
certain circumstances. See "Description of Securities - Class A Warrants".
The Registration Statement of which this Prospectus forms a part also
relates to (i) the offer and sale by an officer of the Company of up to 300,000
shares of Common Stock; (ii) the offer and sale by certain holders ("Selling
Securityholders") of the Company's 7% Series A Convertible Preferred Stock
("Series A Preferred Stock") of 337,500 shares of Common Stock issuable by the
Company to such Selling Securityholders upon conversion of 337,500 shares of
Series A Preferred Stock held by such Selling Securityholders; (iii) the offer
and sale by the Selling Securityholders of up to 3,175,000 Class A Warrants and
3,175,000 shares of Common Stock issuable to such Selling Securityholders upon
their exercise of such Class A Warrants; (iv) the possible issuance by the
Company of up to 3,175,000 shares of Common Stock upon exercise by individuals
or entities that purchase Class A Warrants sold by the Selling Securityholders
(the securities referred to in (i) through (iv) being sometimes collectively
referred to herein as the "Additional Securities"); and (v) the offer and sale
by the Company of the Representative's Unit Purchase Option and the securities
issuable to the Representative upon exercise of its Unit Purchase Option. See
"Description of Securities, " "Selling Securityholders" and "Underwriting."
Prior to the Offering, there has been no public market for any of the
Company's securities. It is anticipated that the Common Stock and the Class A
Warrants will be quoted on the Nasdaq Small Cap Market (NASDAQ) under the
symbols __________ and _____________, respectively. However, there can be no
assurance that a market for the Common Stock or Class A Warrants will develop or
be sustained. See "Risk Factors," "Description of Securities," and
"Underwriting".
--------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL
DILUTION. SEE "RISK FACTORS" AND "DILUTION".
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discounts & Proceeds to
Price to Public Commissions (1) Company(2)
--------------- --------------- -----------
<S> <C> <C> <C>
Per Unit $ 5.05 $ .505 $ 4.545
Total $4,040,000 $404,000 $3,636,000
</TABLE>
1. Does not reflect additional compensation to be received by
the Representative in the form of: (i) a non-accountable expense
allowance of $121,200; (ii) the sale for $100 of an option to
purchase up to 80,000 units consisting of 80,000 shares of Common
Stock and Class A Warrants to purchase up to 40,000 shares of Common
Stock at 120% of the Price to Public of the Units offered hereby;
(iii) an agreement to retain an affiliate of the Representative as
the Company's management consultant for a period of 24 months
following the Effective Date; and (iv) an agreement to indemnify the
Representative against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting".
2. Before deducting other expenses of the Offering payable by
the Company estimated at $345,000, including Blue Sky fees and
expenses of approximately $30,000, filing fees of approximately
$12,000, NASDAQ listing fees of $10,000, printing expenses of
approximately $75,000, legal fees of approximately $100,000,
accounting fees of approximately $60,000 and other miscellaneous
fees and expenses of approximately $58,000. The Selling
Securityholders will not bear any expenses of this Offering.
----------------------------------
INVESTORS ASSOCIATES, INC.
--------------------
THE DATE OF THIS PROSPECTUS IS _____________, 1996
<PAGE> 8
The Units are offered by the Representative on a "firm commitment"
basis, subject to prior sale, when, as and if delivered and accepted by them,
and subject to approval of certain legal matters by counsel and certain other
conditions. It is expected that delivery of certificates representing the Common
Stock and Class A Warrants will be made on or about _____________, 1996 at the
offices of Investors Associates, Inc., 411 Hackensack Avenue, Hackensack, New
Jersey.
Although it has no legal obligation to do so, the Representative from
time to time may become a market maker and otherwise effect transactions in the
Securities (and has indicated to the Company that it intends to do so). The
Representative, if it participates in the market, may be a significant influence
in any market that might develop for any of the Securities. The prices and
liquidity of the Securities may be significantly affected by the degree, if any,
of the Representative's participation in the market. Such activities, if
commenced, may be discontinued at any time or from time to time.
IN CONNECTION WITH THIS OFFERING, THE REPRESENTATIVE MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
COMMON STOCK AND/OR THE CLASS A WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
The Additional Securities being offered by the Selling Securityholders may
be sold directly by such Selling Securityholders or through brokers, dealers,
underwriters or agents on terms to be determined at the times of such sales. The
Company is registering the Additional Securities pursuant to the Company's
obligations under certain registration rights agreements and, in the case of the
300,00 shares of Common Stock being offered by an officer of the Company,
pursuant to the request of such officer. The registration of the Additional
Securities does not necessarily mean that any of such Additional Securities will
be offered or sold. At the time a particular offer of securities is made by or
on behalf of a Selling Securityholder, to the extent required, a Prospectus will
be distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed sellling
price to the public.
The Company will receive no proceeds from the sale of the Additional
Securities by the Selling Securityholders, but the Company has agreed to bear
substantially all the expenses of registration of such Additional Securities
under federal and state securities laws. The Company will receive proceeds from
the issuance of Common Stock issued to individuals that purchase Class A
Warrants from Selling Securityholders when and if any of such Class A Warrants
are exercised by such warrant holders. Sales of Additional Securities and/or the
potential of such sales at any time may have an adverse effect on the market
prices of the Securities offered hereby.
-------------------------
ADDITIONAL INFORMATION
With respect to the Securities offered hereby, the Company has filed
with the principal office of the Commission in Washington, D.C., a Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended (the
"Securities Act"). For purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, to which reference hereby is made. Each
statement made in this Prospectus concerning a document filed as an exhibit to
the Registration Statement is not necessarily complete and is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration Statement and its
exhibits without charge, or obtain a copy of all or any portion thereof, at
prescribed rates, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549. The Registration Statement and exhibits may also be
inspected at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7
World Trade Center, Suite 1300, New York, New York 10048.
The Company is not a reporting company subject to certain
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and does not file reports and other information with the
Commission. As a result of this Offering, the Company will become subject to
such requirements and will file periodic reports with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements, audited by independent certified public
accountants, and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year following
the end of each such quarter.
2
<PAGE> 9
PROSPECTUS SUMMARY
This summary of certain provisions of this Prospectus is intended
only for ease of reference, is not a complete presentation of all relevant
facts, and is qualified in its entirety by reference to the detailed information
appearing elsewhere in this Prospectus, including the attachments hereto. This
Prospectus describes in detail numerous aspects of the Company and its business
which are material to investors, including aspects summarized here. The entire
Prospectus should be read and understood by prospective investors. Unless
otherwise indicated, the information in this Prospectus does not give effect to
the conversion of any shares of Series A or Series B Preferred Stock or to the
exercise of (i) the Class A Warrants included in the Units; (ii) the
Representative's Unit Purchase Option; (iii) any outstanding Class A Warrants;
or (iv) options available for grant under the Company's 1996 Incentive Stock
Option Plan.
THE COMPANY
Capital Beverage Corporation, a Delaware corporation, was organized
on December 5, 1995. In January 1996, the Company acquired from Consolidated
Beverage Corporation ("Consolidated") the right to become the exclusive
distributor ("Pabst Distribution Rights") for certain beer and malt liquor
products (the "Pabst Products") manufactured by Pabst Brewing Company ("Pabst")
in Manhattan, Bronx, Queens, Staten Island, and Westchester County (the
"Territory"). The purchase price for the Pabst Distribution Rights was
$1,600,000, payable $800,000 in cash at or prior to closing and the balance by
delivery of a series of 120 promissory notes of the Company, each in the amount
of $10,000 inclusive of interest at 9% per annum. Upon acquisition of the Pabst
Distribution Rights, the Company simultaneously entered into an agreement with
Pabst (the "Distributorship Agreement") to become the exclusive distributor for
Pabst Products within the Territory. Pursuant to the Distributorship Agreement,
the Company is required to use its best efforts to market and sell the Pabst
Products to each prospective account located within the Territory.
The Company acts as a master distributor for Pabst Products within
the Territory, subject to policies and procedures determined by Pabst, so that
all in-Territory orders for Pabst Products flow directly through the Company.
The Company has established three (3) geographical sectors within the Territory
and entered into arrangements with three (3) licensed independent depots to
distribute the Pabst Products throughout the Territory. Except for Company
accounts, each depot is responsible for its own invoicing, employees and
distribution of Pabst Products within its geographical sector.
In June 1996, the Company entered into an agreement and plan of
merger (the "Merger Agreement") with Vito Santoro, Inc. ("VSI"), a New York
wholesale and retail beverage distributor doing business under the tradename
Caribe Beverages. During its fiscal years ended December 31, 1994 and 1995, VSI
had revenues of approximately $12 million and $7 million, respectively, and net
income (loss) of approximately $59,000 and ($15,000), respectively. The Company
intends to complete the merger with VSI ("Merger") prior to the Effective Date.
The financial information contained in this Prospectus for periods prior to
January 3, 1996 (the date that Capital obtained the Pabst Distribution Rights)
relates solely to VSI. For periods on or after January 3, 1996, the financial
information relates to the Company and VSI on a combined basis as if the
proposed Merger had been consummated on January 3, 1996.
All of the outstanding capital stock of VSI is owned by Mr. Carmine
Stella, who is the Chairman of the Board, President and Chief Executive Officer
of the Company. Under the terms of the Merger Agreement, Mr. Stella will receive
300,000 shares of the Company's 7% Cumulative Convertible Series B Preferred
Stock (the "Series B Preferred Stock") in exchange for his interest in VSI.
VSI distributes several different brands of beer, soda and other
beverages primarily in the New York metropolitan area. Customers of VSI
primarily consist of approximately 700 grocery stores and 50 wholesalers, all of
which pick up and purchase beverage products at VSI's warehouse on a "cash and
carry" basis. VSI does not own or lease any vehicles for the distribution of its
beverages and is a non-exclusive wholesaler of all of the beverages that it
sells.
The Company's offices are located at 1111 East Tremont Avenue, Bronx,
New York 10460. Its telephone number is (718) 409-2337.
3
<PAGE> 10
THE OFFERING
Securities Offered by Company 800,000 Units, each Unit consisting of
one (1) Share of Common Stock and
one-half (1/2) Class A Warrant. Each
whole Class A Warrant entitles the holder
thereof to purchase one (1) share of
Common Stock at any time commencing on
the Effective Date and expiring four
years after such Effective Date at an
exercise price of $5.00 per share of
Common Stock. The exercise price of the
Class A Warrants is subject to adjustment
pursuant to anti-dilution rights. The
Class A Warrants are redeemable by the
Company under certain circumstances. See
"Description of Securities - Class A
Warrants."
Offering Price $5.05 per Unit
Common Stock Outstanding
Prior to this Offering 1,240,909 shares(1)
After this Offering 2,040,909 shares(1)
Class A Warrants Outstanding
Prior to this Offering 4,659,000
After this Offering 5,059,000(2)
Proposed Nasdaq Small-Cap
Market Trading Symbols:
Common Stock ________
Class A Warrants ________
- ----------------------------
(1) Unless otherwise indicated, all information in this Prospectus assumes that:
(i) no Class A Warrants are exercised, (ii) the Representative's Unit
Purchase Option is not exercised; (iii) no options under the Company's 1996
Incentive Stock Option Plan are exercised; and (iv) no shares of Series A
or Series B Preferred Stock have been converted into shares of Common
Stock. See "Capitalization," "Description of Securities" and
"Underwriting."
(2) Of such 5,059,000 Class A Warrants, 400,000 are being offered hereby,
3,175,000 will be offered from time to time by the Selling Securityholders.
In addition, an aggregate of 1,484,000 Class A Warrants are held by Messrs.
Carmine Stella, who is the Chairman of the Board, President and Chief
Executive Officer of the Company, Eugene Fernandez, who is a Director of the
Company, and Anthony Stella, who is the Sales Manager of the Company. Such
1,484,000 Class A Warrants have not been registered under the Securities
Act. Moreover, each holder of such 1,484,000 Warrants has agreed not to
transfer such Warrants or the Common Stock issuable on the exercise thereof
prior to two (2) years after the Effective Date without the consent of the
Representative. Such restriction does not apply to 50,000 Class A Warrants
held by Mr. Carmine Stella, 25,000 Class A Warrants held by Mr. Fernandez
and 12,500 Class A Warrants held by Ms. Carol Macchiarulo, who is Secretary
and Treasurer of the Company, which were purchased by such three (3)
individuals in the Company's Units Financing that took place between January
and March 1996 and are being registered in this Offering on behalf of the
Selling Securityholders.
4
<PAGE> 11
Estimated Net Proceeds Approximately $3,170,000 after deducting
discounts and commissions of $404,000,
the Representative's non-accountable
expense allowance of $121,200, and other
Offering expenses of approximately
$345,000, including Blue Sky fees and
expenses of approximately $30,000, filing
fees of approximately $12,000, NASDAQ
listing fees of $10,000, printing
expenses of approximately $75,000, legal
fees of approximately $100,000,
accounting fees of approximately $60,000
and other miscellaneous fees and expenses
of approximately $58,000.
Use of Proceeds To provide working capital for
acquisition of inventory and licensing of
additional brands, to acquire beverage
depots, to implement the Company's
marketing plan and for general corporate
purposes.
Additional Securities
Offered by Selling Securityholders This Registration Statement also covers
the offer and sale by the Selling
Securityholders of 3,812,500 shares of
Common Stock, including 300,000
outstanding shares of Common Stock held
by an officer of the Company; 337,500
shares of Common Stock issuable by the
Company to the Selling Securityholders
upon their conversion during the period
beginning 180 days and ending 360 days
after the Effective Date of 337,500
shares of Series A Preferred Stock; and
3,175,000 shares of Common Stock issuable
upon exercise of 3,175,000 Class A
Warrants held by the Selling
Securityholders at $5.00 per share.
Up to 3,175,000 shares of Common Stock
underlying the Class A Warrants held by
the Selling Securityholders may be issued
and sold by the Company upon the exercise
of outstanding Class A Warrants held by
persons who acquire such Class A Warrants
directly or indirectly from the Selling
Securityholders under this Registration
Statement. See "Selling Securityholders".
Risk Factors An investment in the Securities involves
a high degree of risk and immediate
substantial dilution. Prospective
investors should review and consider
carefully the factors described under
"Risk Factors" and "Dilution."
5
<PAGE> 12
SUMMARY FINANCIAL INFORMATION
The financial information contained in this Prospectus for periods prior to
January 3, 1996 (the date that Capital obtained the Pabst Distribution Rights)
relates solely to VSI. For periods on or after January 3, 1996, the financial
information relates to the Company and VSI on a combined basis as if the
proposed Merger had been consummated on January 3, 1996. All information set
forth below should be read in conjunction with the financial statements and
notes thereto of Capital Beverage Corporation included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31 Three Months Ended March 31
---------------------------- ---------------------------
STATEMENT OF 1995 1994 1996 1995
OPERATIONS DATA ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 6,926,789 $ 12,135,655 $2,503,597 $ 1,720,837
Gross Profit 504,300 678,904 293,909 99,179
Income (loss) before
income taxes (11,948) 60,818 127,834 (10,422)
Net Income (loss) (15,308) 58,616 115,834 (11,047)
Pro forma Income (loss)
before income taxes(1) (311,948) (239,182) 52,834 (85,422)
Pro forma Net Income
(loss)(2) $ (311,948) $ (239,182) $ 31,700 $ (85,422)
=========== ============ ========== ===========
Pro forma Net Income
(loss) per Common
Share $ (.25) $ (.19) $ .01 $ (.07)
=========== ============ ========== ===========
Weighted Average
Number of Common
Shares Outstanding 1,240,909 1,240,909 1,240,909 $ 1,240,909
=========== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
-----------------------------
BALANCE SHEET DATA Actual As Adjusted (3)
---------- ---------------
<S> <C> <C>
Working Capital $ 634,792 3,804,792
Total Assets 2,961,786 6,131,786
Long-Term Debt 706,663 706,663
Stockholders' Equity (4) 1,750,822 4,920,822
</TABLE>
- ---------------------
6
<PAGE> 13
(1) For the periods presented Mr. Carmine Stella received no compensation
from either VSI or the Company. However, Mr. Stella is to receive an
employment contract setting forth an annual salary of $300,000. The pro
forma results reflect the impact of this salary.
(2) For the years ended December 31, 1995 and 1994 and the three (3) months
ended March 31, 1996, VSI operated as an S corporation for federal income
tax purposes, and, accordingly, federal income taxes were the obligation
of VSI's shareholders. In contemplation of this Offering, VSI's S
corporation tax status will be revoked and, accordingly, the Company will
be required to pay income taxes on its taxable income.
(3) Adjusted to reflect the receipt by the Company of the net proceeds of the
Offering. See "Use of Proceeds."
(4) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
7
<PAGE> 14
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE IN NATURE AND INVOLVE A
HIGH DEGREE OF RISK. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD, PRIOR
TO PURCHASE, CONSIDER VERY CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS ALL
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
EXPANSION OF BUSINESS; NEED FOR ADDITIONAL CAPITAL TO ACHIEVE GROWTH;
SUBSTANTIAL PORTION OF NET PROCEEDS OF THIS OFFERING UTILIZED TO MAKE STRATEGIC
ACQUISITIONS
VSI was marginally profitable during fiscal 1994, incurred a $15,000 loss
during fiscal 1995 and, together with the Company on a combined basis, was
profitable for the three (3) month period ended March 31, 1996. In addition, the
Company's present working capital position is adequate for its needs based on
its current operations. However, the Company will be significantly dependent on
the net proceeds of this Offering in order to enhance its existing working
capital and provide it with the additional financing abilities to expand
inventories required as a result of the Company's acquisition of the Pabst
Distribution Rights. There can be no assurance that without the receipt of the
net proceeds of this Offering the Company will be able to increase its working
capital to the levels estimated to be necessary by management. In addition, it
is estimated that of the net proceeds of this Offering will be utilized to make
acquisitions of beverage distributors in desirable locations and/or the
acquisition of distribution rights of additional leading brands. Although the
Company has been in preliminary discussions with respect to the acquisition of
an additional brand, no assurance can be given that such discussions will result
in an agreement acceptable to the Company. In addition, there can be no
assurance that the Company will continue to operate profitably if and when such
acquisitions are consummated, or that additional equity and/or debt financing
will not be required to consummate such acquisitions. Moreover, the Company's
ability to generate sufficient cash flow from operations that will be necessary
in view of the debt incurred to acquire the Pabst Distribution Rights and the
dividend requirements of the Series A and Series B Preferred Stock will be
dependent to a large extent upon the success of its new market entry strategy,
the proposed licensing of additional product brands, successful implementation
of its distribution strategy and its marketing and sales efforts, none of which
the Company can give any assurances will occur. See "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON AGREEMENT WITH PABST
The Company is substantially dependent on its relationship with Pabst for
a significant portion of its anticipated future revenues. The Company
anticipates that a substantial portion of such future revenues will be derived
from such relationship. The Company's Distributorship Agreement with Pabst
permits Pabst to terminate such agreement under certain circumstances. See
"Business - Distributorship Agreement with Pabst". If Pabst were to terminate
the Distributorship Agreement, such termination would have a materially adverse
effect on the Company's financial condition and results of operations.
GOVERNMENT REGULATION
Wholesale and retail distribution of alcoholic beverages is regulated by
federal and state law. Since the Company intends to distribute such alcoholic
beverages in New York State, the Company is required to obtain authorization
from the Federal Bureau of Alcohol, Tobacco and Firearms (BATF) and the New York
State Liquor Authority (SLA). The Company has applied to the BATF and SLA for
its required licenses and is not aware of any reason why such licenses will not
be granted. In the experience of management, although such agencies may impose
conditions on the grant of such licenses, such licenses are ordinarily granted.
In the event, either the SLA or the BATF should impose conditions on the grant
of such licenses, the Company intends to take all steps necessary to satisfy
such conditions. Pending receipt of its licenses, the Company has appointed VSI,
which is a licensed distributor, to act as its agent for distribution of Pabst
Products. There can be no assurance that the various governmental regulations
applicable to the beverage industry will not be changed so as to impose more
stringent requirements on the Company. If the Company was to fail to be in
compliance with any applicable governmental regulation, such failure could cause
the Company's licenses to be revoked and have a material adverse effect on the
business of the Company.
8
<PAGE> 15
ARBITRARY OFFERING PRICE
The Offering Price of the Units, as well as the exercise price of the
Class A Warrants being offered hereby, bear no relation to book value, assets,
earnings or any other objective criteria of value. They have been arbitrarily
determined by the Company in discussion with the Representative. There can be no
assurance that, even if a public trading market develops for the Common Stock
and the Class A Warrants offered in this Offering, such securities will attain
market values commensurate with the offering price of the Units. See "Dilution".
TAXATION
The sale of alcoholic beverages is a business that is highly regulated
and taxed at the federal, state and local levels. The Company's beer operations
may be subject to increased taxation by federal, state and local governmental
agencies as compared with those of non-alcohol related businesses. In addition,
if federal or state excise taxes are increased, the Company may have to raise
prices to maintain present profit margins. The Company does not believe that a
price increase due to increased taxes will reduce unit sales, but the actual
effect will depend on the amount of any such increase, general economic
conditions and other factors. Higher taxes may reduce overall demand for beer,
and thus negatively impact sales of the Company's beer products.
PUBLIC ATTITUDES
The alcohol beverage industry has become the subject of considerable
societal and political attention in recent years due to increasing public
concern over alcohol-related social problems including driving while
intoxicated, underage drinking and health consequences from the abuse of
alcohol. As an outgrowth of these concerns, the possibility exists that
advertising by beer producers could be restricted, additional cautionary
labeling or packaging requirements might be imposed, or that there may be
renewed efforts to impose increased excise or other taxes on beer. If beer
consumption in general were to come into disfavor among consumers, the Company's
business could be materially adversely affected.
SEASONALITY; FLUCTUATION OF QUARTERLY RESULTS OF OPERATIONS; DEPENDENCE ON SALES
IN KEY PEAK DEMAND PERIODS
The Company's business is subject to substantial seasonal fluctuations.
Historically, a significant portion of the Company's net sales and net earnings
have been realized during the period from May through September and the month of
December, and levels of net sales and net earnings have generally been
significantly lower during the period from October through April (other than the
month of December). The Company believes that this is the general pattern
associated with other beverage distributors with which it competes. Accordingly,
the Company's operating results may vary significantly from quarter to quarter.
The Company's operating results for any particular quarter are not necessarily
indicative of any other results. Additionally, fluctuations caused by variations
in quarterly operating results may adversely affect the market price of the
Common Stock. If for any reason the Company's sales were to be substantially
below seasonal norms during December and/or the months of May through September,
the Company's annual revenues and earnings could be materially and adversely
affected.
GENERAL ECONOMIC CONDITIONS
The success of the Company depends, to a large extent, on certain
economic factors that are beyond its control. Factors such as general economic
conditions, levels of unemployment, interest rates, tax rates at all levels of
government, competition and other factors beyond the Company's control may have
an adverse effect on the Company's ability to sell its products and to collect
sums due and owing to it.
COMPETITION
The Company's business is highly competitive. As of May 31, 1996, the
Company competed with approximately ten other companies in the metropolitan New
York area that are engaged in businesses that are substantially similar to that
engaged in by the Company. Some of the Company's competitors may be better
capitalized, better financed, more established and more experienced than the
Company and may offer beer, beverage and related products at lower prices or
greater concessions than the Company. Should the Company not be able to compete
effectively, the Company's results of operations and financial position would be
materially and adversely affected.
9
<PAGE> 16
DEPENDENCE UPON OUTSIDE ADVISORS
To supplement the business experience of management, the Company may be
required to employ accountants, technical experts, appraisers, attorneys, or
other consultants or advisors. The selection of any such advisors will be made
by management without any input from stockholders. Furthermore, it is
anticipated that such persons may be engaged on an "as needed" basis without a
continuing fiduciary or other obligation to the Company. It is possible that the
Company would hire affiliates as outside advisors.
POSSIBLE LOSS OF PABST DISTRIBUTION RIGHTS UPON DEFAULT UNDER CONSOLIDATED NOTES
The Company is required to make monthly payments to Consolidated Beverage
Corporation, from which it obtained the Pabst Distribution Rights, of Ten
Thousand Dollars ($10,000) until January 2006. Although the Company believes it
has and will continue to have sufficient resources to make the monthly payments
to Consolidated Beverage Corporation, there can be no assurances that it will be
able to do so. Failure to make any of such monthly payments could result in a
re-transfer of the Pabst Distribution Rights to Consolidated Beverage
Corporation. Any such re-transfer would have a materially adverse effect on the
Company's financial condition and results of operations.
POSSIBLE ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS
The Class A Warrants are subject to redemption by the Company, with the
consent of the representative in the event redemption occurs prior to one (1)
year after the Effective Date, upon forty-five (45) days' written notice, at a
price of $.001 per Warrant, at any time during the exercise period of the
Warrants provided that the final bid price for shares of the Company's Common
Stock has been at least 160% of the then exercise price of the Class A Warrants
for the twenty (20) trading days preceding the date notice of redemption is
given and the holders of the Class A Warrants shall have had exercise rights
until the close of business on the date fixed for redemption. Redemption of the
Class A Warrants by the Company could force the holder to exercise the Class A
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holder to do so or to sell such Warrants at their then current market price
when the holder might otherwise wish to hold such Warrants for possible
appreciation. Alternatively, the holders may accept the redemption price when it
is likely to be substantially less than the market value of the Class A Warrants
at the time of redemption. Any holder who does not exercise Class A Warrants
prior to their expiration or redemption, as the case may be, will forfeit the
right to purchase shares of Common Stock of the Company underlying such
Warrants.
DIVIDENDS ON COMMON STOCK NOT LIKELY; REQUIREMENT TO PAY DIVIDENDS ON PREFERRED
STOCK
It is anticipated that earnings, if any, which might be generated from
operations of the Company and be available to holders of Common Stock, will be
used to finance the growth of the Company and that cash dividends will not be
paid on the Common Stock. See "Dividends". In addition, the Company is obligated
to pay cumulative dividends on its outstanding Series A and Series B Preferred
Stock. Under Delaware law, cash dividends are payable out of a corporation's
surplus or, if there is no surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year. See
"Description of Securities". There can be no assurance that the Company will
ever operate at levels of profitability and generate sufficient positive cash
flow to meet the dividend requirements of its Series A and Series B Preferred
Stock.
DEPENDENCE ON KEY PERSONNEL
The Company is relying on a relatively small number of key individuals to
implement the Company's operations, and, in particular, the services of Mr.
Carmine Stella, its Chairman of the Board, President and Chief Executive
Officer. To the extent that the services of Mr. Stella or other key personnel
become unavailable, there can be no assurances that the Company will be able to
attract or retain personnel who would be able to adequately perform the
functions previously performed by the personnel whose services have been lost.
See "Management."
DISCRETIONARY USE OF PROCEEDS
The Company presently intends to use the net proceeds of this Offering
for acquisition of inventory; licensing of additional beer brands; acquisition
of beverage depots; implementation of the Company's marketing plan; and working
capital. However, the net proceeds of this Offering may, in the discretion of
the Company, be used to finance other opportunities consistent with the
Company's plan of operation
10
<PAGE> 17
based on facts and circumstances which may develop subsequent to the completion
of this Offering. See "Business" and "Use of Proceeds."
CONTROL BY EXISTING DIRECTORS AND OFFICERS
Following completion of this Offering, the existing members of the Board
of Directors and management of the Company will own 61% of the Common Stock
outstanding. Accordingly, management will have a significant voting influence in
connection with the election of the directors of the Company and control of the
Company's business and affairs. See "Management," "Principal Shareholders" and
"Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this offering will incur immediate, substantial dilution of
$3.33 in the pro forma net tangible book value per share from the price for
which they acquired the Units being offered in this Offering. See "Dilution."
PREFERRED STOCK; ANTI-TAKEOVER CONSIDERATIONS
The authorized capital stock of the Company includes 1,000,000 preferred
shares. The Board of Directors, without any action by the Company's
shareholders, is authorized to designate and issue the preferred shares in such
classes or series as it deems appropriate and to establish the rights,
preferences and privileges of such shares, including dividend, liquidation and
voting rights. Currently, 337,500 shares of Series A Preferred Stock are issued
and outstanding. Except for 300,000 shares of Series B Convertible Preferred
Stock to be issued to Mr. Carmine Stella in connection with the proposed Merger
of the Company with VSI , there is no current plan to designate or issue any
additional shares or series of Preferred Stock. However, the ability of the
Board of Directors to designate and issue any such undesignated shares could
adversely affect the other rights of holders of Common Stock and could, in
certain circumstances, deter or discourage takeover attempts and other changes
in control of the Company not approved by the Board of Directors and, thus, have
a depressive effect on the value of the Securities. See "Description of
Securities - Preferred Stock."
ANTI-TAKEOVER EFFECT OF DELAWARE GENERAL CORPORATION LAW
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. As a result
of Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such Securities at above-market prices pursuant to such
transactions. See "Description of Securities."
LIMITATIONS ON DIRECTOR LIABILITY
The Company's Articles of Incorporation provide, as permitted by
governing Delaware law, that a director of the Company will not be personally
liable to the Company or its shareholders for monetary damages relating to such
director's position with the Company, with certain exceptions. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors of the Company pursuant to the foregoing, or otherwise,
the Company has been advised that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF MARKET IN GENERAL
Prior to this Offering, there has been no public trading market for the
Company's Securities. Although the Company intends to seek quotation of the
Shares and Class A Warrants on the NASDAQ Small Cap Market, there can be no
assurance that the Company will be successful in its efforts, and even if the
Company is successful, there can be no assurance that a regular trading market
for the Shares and Class A Warrants will develop after this Offering or that, if
developed, such a market will be sustained. Following this Offering, the market
price of the Company's Common Stock and Class A Warrants may be volatile
depending on various factors, including the general economy, stock market
conditions, announcements by the Company or its competitors, fluctuations in the
Company's operating results or for undeterminable reasons. In addition, the
stock market has experienced extreme price and volume fluctuations in recent
years. These fluctuations have had a substantial effect on the market price for
many
11
<PAGE> 18
companies, often unrelated to the operating performance of such companies and
may adversely affect the market prices of the Shares and Class A Warrants.
REPRESENTATIVE'S UNIT PURCHASE OPTION; ADDITIONAL OPTIONS AND WARRANTS;
PREFERRED STOCK
The Company has agreed to issue to the Representative a Unit Purchase
Option to purchase up to 80,000 Units, consisting of 80,000 shares of Common
Stock and Class A Warrants to purchase up to an additional 40,000 shares of
Common Stock, at $6.06 per Unit (120% of the offering price of the Units offered
hereby). Moreover, In addition to the 400,000 shares of Common Stock reserved
for issuance upon the exercise of the Class A Warrants offered hereby and the
40,000 shares of Common Stock so reserved upon exercise of the Class A Warrants
included in the Representative's Unit Purchase Option, the Company has reserved
a total of 4,659,000 shares of Common Stock for issuance upon the exercise of
other Class A Warrants, including (i) 675,000 Class A Warrants issued to
investors in the Company's 1996 Units Financing, (ii) 2,500,000 Class A Warrants
that may be issued to investors that acquired the Company's Convertible Bridge
Notes in April 1996, and (iii) 1,484,000 Class A Warrants issued to certain
members of management of the Company in December 1995. None of the outstanding
Class A Warrants have been exercised. The Class A Warrants issued or issuable in
connection with the Company's 1996 Units Financing and Convertible Bridge Notes
are being registered for resale to the public in this Offering. In addition, the
Company has agreed with the Representative, under certain circumstances, to
register the shares of Common Stock and Class A Warrants (and the shares of
Common Stock underlying such Class A Warrants) included in the Representative's
Unit Purchase Option for distribution to the public. Exercise of these
registration rights could involve a substantial expense to the Company and could
prove a hindrance to future financing. See "Underwriting." The Company has also
reserved 350,000 shares of its Common Stock for issuance upon exercise of stock
options which may be granted pursuant to the Company's 1996 Incentive Stock
Option Plan and 637,500 of such shares for issuance upon conversion of its
Series A and Series B Preferred Stock. Exercise of the Unit Purchase Option, the
Class A Warrants, and options that may be granted under the 1996 Incentive Stock
Option Plan and/or conversion of the Series A and/or Series B Preferred Stock,
will reduce the percentage of Common Stock held by the public stockholders
purchasing Units in this Offering. Further, the terms on which the Company could
obtain additional capital during the life of such Securities may be adversely
affected, and it should be expected that the holders of such convertible
securities would exercise them at a time when the Company would be able to
obtain equity capital on terms more favorable than those provided for by such
convertible securities.
NON-REGISTRATION IN CERTAIN JURISDICTION OF SHARES UNDERLYING THE CLASS A
WARRANTS
On the Effective Date, the Class A Warrants offered hereby shall be
immediately detachable from the Units and separately tradable from the Shares.
Although the Securities offered hereby will not be sold to purchasers in
jurisdictions in which such Securities are not registered or otherwise qualified
for sale, purchasers who buy Class A Warrants in the aftermarket may reside or
may move to jurisdictions in which the shares issuable upon exercise of the
Class A Warrants are not so registered or qualified. In this event, the Company
would be unable to issue shares of Common Stock to the holder desiring to
exercise a Class A Warrant unless the shares could be registered or otherwise
qualified for sale in the jurisdiction in which such purchaser resides, or an
exemption from such registration or qualification exists in such jurisdiction.
No assurance can be given that the Company will be able to effect any required
registration or qualification.
NECESSITY TO MAINTAIN PROSPECTUS
After the Effective Date, the shares of Common Stock issuable upon
exercise of the Class A Warrants included in this Registration Statement will be
registered under the Securities Act. The Company will be required, from time to
time, to file post-effective amendments to such Registration Statement in order
to maintain a current prospectus with respect to such shares. The Company has
undertaken to file post-effective amendments and to use its best efforts to
cause such post-effective amendments to become effective. If for any reason a
post-effective amendment to the Registration Statement does not become effective
or is not maintained with respect to the shares underlying the Class A Warrants
registered pursuant to this Registration Statement, the respective holders of
such Warrants will be prevented from exercising these warrants.
12
<PAGE> 19
REPRESENTATIVE'S POSSIBLE ABILITY TO DOMINATE OR INFLUENCE THE MARKET FOR THE
SECURITIES
A significant amount of the Securities offered hereby may be sold to
customers of the Representative. This may adversely affect the market for and
liquidity of the Securities if additional broker/dealers do not make a market in
the Securities. Although it has no legal obligation to do so, the Representative
may from time to time act as a market maker and otherwise effect transactions in
the Securities. The Company cannot ensure that other broker/dealers besides the
Representative will make a market in the Securities. In the event that other
broker/dealers fail to make a market in the Securities, the possibility exists
that the market for, and liquidity of, the Company's Securities could be
adversely affected, which in turn could affect stockholders' ability to trade
the Securities.
Additionally, commencing twelve (12) months after the Effective Date, the
Representative may participate in the solicitation of the exercise of the Class
A Warrants. In connection with the solicitation of Warrant exercises, unless the
Representative is granted an exemption by the Commission from Rule 10b-6 under
the Exchange Act, the Representative and any other soliciting broker-dealer will
be prohibited from engaging in any market making activities with respect to the
Company's securities for the period commencing either two (2) or nine (9)
business days (depending on the market price of the Common Stock) prior to any
solicitation activity until the later of (i) the termination of such
solicitation activity, or (ii) the termination (by waiver or otherwise) of any
right that the Representative or any other soliciting broker-dealer may have to
receive a fee for the exercise of Class A Warrants following such solicitation.
As a result, the Representative or any other soliciting broker-dealer may be
unable to provide a market for the Company's securities, should it desire to do
so, during certain periods while the Class A Warrants are exercisable. Such
restrictions may adversely affect the price and liquidity of the shares of
Common Stock and Class A Warrants.
If the Representative should exercise its registration rights to effect
the distribution of Securities underlying the Unit Purchase Option, the
Representative, prior to and during such distribution, will be unable to make a
market in the Company's securities. If the Representative ceases to make a
market in the Common Stock or Class A Warrants, the market and market prices for
the Common Stock or Class A Warrants may be materially adversely affected, and
holders thereof may be unable to sell or otherwise dispose of the Common Stock
or Class A Warrants.
POSSIBLE RESALES UNDER RULE 144
Upon consummation of this Offering, an aggregate of 940,909 outstanding
shares of Common Stock, 1,484,000 outstanding Class A Warrants (and the
1,484,000 shares of Common Stock for which such Class A Warrants may be
exercised), and 300,000 outstanding shares of Series B Preferred Stock (and the
300,000 shares of Common Stock into which it may be converted) will not have
been registered under the Securities Act. In addition, the 337,500 shares of
Series A Preferred Stock that were issued in the Company's 1996 Units Financing
will also not have been registered under the Securities Act, although the
337,500 shares of Common Stock into which such Series A Preferred stock are
convertible are being registered hereby (such unregistered shares of Common
Stock and Preferred Stock and Class A Warrants being collectively referred to
herein as the "Restricted Securities"). The Restricted Securities may, however,
under certain circumstances, be available for public sale by means of ordinary
brokerage transactions in the open market pursuant to Rule 144, promulgated
under the Securities Act, subject to certain limitations. In general, under Rule
144, a person (or persons whose shares are aggregated) who has satisfied a
two-year holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed the greater of
1% of the then outstanding shares of Common Stock or the average weekly trading
volume of the class during the four calendar weeks prior to such sale. Rule 144
also permits, under certain circumstances, the sale of securities, without any
limitation, by a person who is not an affiliate of the Company and who has
satisfied a three-year holding period. The holders of all of the shares of the
Common Stock of the Company currently outstanding have agreed not to publicly
offer, sell or otherwise dispose of directly or indirectly, any of their shares
of Common Stock for a period of 24 months following the consummation of this
Offering without the prior written consent of the Representative. Any
substantial sale of Common Stock pursuant to Rule 144 may have an adverse effect
on the market price of the Securities. See "Shares Eligible for Future Sale" and
"Underwriting."
EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET
13
<PAGE> 20
The Company has applied for quotation of the Common Stock on the NASDAQ
SmallCap Market, although there can be no assurance that such application for
quotation will be approved, or, if approved, that the Company will be able to
maintain the qualification standards for listing of the Common Stock on the
NASDAQ SmallCap Market. Continued inclusion on the NASDAQ SmallCap Market will
require the Company to have at least two active market makers in the Common
Stock, total assets of $4 million, capital and surplus of $2 million, a minimum
bid price for the Common Stock of $3.00 per share, 300 Shareholders of its
Common Stock, and at least 100,000 shares of its Common Stock held by
non-affiliates having a market value of $1,000,000 or more. If the Company fails
to maintain the listing criteria, the Common Stock will be subject to delisting.
In such event, trading, if any, in the Common Stock would thereafter be
conducted in the over-the-counter market on the National Association of
Securities Dealers' "Electronic Bulletin Board." Consequently, the liquidity of
the Company's Common Stock would likely be impaired, not only in the number of
shares, which could be bought and sold, but also through delays in the timing of
the transactions, and reduction in security analysts' and the news media's
coverage, if any, of the Company. As a result, prices for the Company's shares
of Common Stock may be lower than might otherwise prevail.
APPLICABILITY OF "PENNY STOCK RULES"
Federal regulations under the Exchange Act regulate the trading of
so-called "penny stocks" (the "Penny Stock Rules"), which are generally defined
as any security not listed on a national securities exchange or NASDAQ, priced
at less than $5.00 per share, and offered by an issuer with limited net tangible
assets and revenues. In addition, equity securities listed on NASDAQ that are
priced at less than $5.00 per share are deemed penny stocks for the limited
purpose of Section 15(b)(6) of the Exchange Act. Therefore, if, during the time
in which the Common Stock is quoted on the NASDAQ SmallCap Market, the Common
Stock is priced below $5.00 per share, trading of the Common Stock will be
subject to the provisions of Section 15(b(6) of the Exchange Act, which makes it
unlawful for any broker-dealer to participate in a distribution of any penny
stock without the consent of the Commission if, in the exercise of reasonable
care, the broker-dealer is aware of, or should have been aware of, the
participation of a previously sanctioned person. In such event, it may be more
difficult for broker-dealers to sell the Common Stock, and purchasers of the
shares of Common Stock offered hereby may have difficulty in selling their
shares in the future in the secondary trading market.
In the event that the Company's Common Stock is delisted from the NASDAQ
SmallCap Market and the Company fails other relevant criteria, trading, if any,
of the Common Stock would be subject to the full range of the Penny Stock Rules.
Under these rules, broker-dealers must take certain steps prior to selling a
"penny stock," which steps include: (i) obtaining financial and investment
information from the investor: (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor; and (iii) providing
the investor a written identification of the shares being offered and in what
quantity. If the Penny Stock Rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, delisting from
the NASDAQ SmallCap Market and the application of the comprehensive Penny Stock
Rules may make it more difficult for broker-dealers to sell the Company's Common
Stock, and purchasers of the shares of Common Stock in the Offering may have
difficulty in selling their shares in the future in the secondary trading
market.
14
<PAGE> 21
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 800,000 Units
offered hereby are estimated to be $3,170,000 after deducting estimated
underwriting discounts, commissions and other offering expenses at an
anticipated public offering price of $5.05 per Unit. The Company intends to use
such net proceeds as follows:
<TABLE>
<CAPTION>
Application of Proceeds Approximate Dollar Amount Percentage
- ----------------------- ------------------------- ----------
<S> <C> <C>
Acquisition of Inventory (1) $ 900,000 28.4
Acquisition of Beverage Depots (2) 600,000 18.9
Acquisitions of Additional Brands (3) 1,000,000 31.6
Implementation of Sales and Marketing Plan (4) 150,000 4.7
Working Capital 520,000 16.4
---------- -----
TOTAL $3,170,000 100.0
========== =====
</TABLE>
- --------------------
(1) Of the $900,000 to be used for acquisition of inventory,
approximately $600,000 will be used to acquire additional inventory of
Pabst Products. Currently, the Company's inventory of such products
averages approximately seven (7) days' supply. Management believes that
normal inventory levels should average thirty (30) days' supply. The
additional inventory will permit the Company to adequately meet anticipated
customer demand for Pabst Products. The remaining $300,000 will be used to
increase inventories of other brands that the Company currently
distributes.
(2) Management of the Company intends to complete the acquisition of two
(2) to four (4) distributors that have previously acquired exclusive rights
to distribute alcoholic products other than Pabst Products. The amount
allocated to the acquisition of such distributors would be utilized,
together with other debt or equity securities of the Company, to complete
such acquisitions. Management is not currently negotiating for the
acquisition of any such distributors. Moreover, there can be no assurances
that the Company will complete any such acquisitions.
(3) Management of the Company plans to utilize approximately $1,000,000
of the proceeds of this Offering to acquire exclusive rights to distribute
between two (2) and four (4) additional brands of alcoholic and/or
non-alcoholic products in the areas in which it currently distributes Pabst
Products. Depending on the brand(s) for which it acquires such distribution
rights, the Company may be required to pay acquisition fees to the prior
holder of such distribution rights, which it would partially finance out of
the proceeds of this Offering. Management is currently in negotiations with
a company that is the exclusive distributor of the Colt 45 Malt Liquor and
Schaeffer Beer brands in the five (5) boroughs of New York City to obtain
the right to become the new exclusive distributor of such products in that
territory. Negotiations are in a preliminary stage, and no agreement or
letter of intent has been executed by the parties. There can be no
assurances that the Company will be successful in its efforts to
successfully complete an agreement with such distributor or, even if it is
successful, that it will be able to obtain the consent of the brewery that
produces such products, to such distribution arrangement.
(4) Such amount will be used primarily as compensation for additional
sales people and to purchase point-of-sale promotional items, such as neon
signs, "shelf-talkers," banners, and other similar promotional items.
The foregoing represents the Company's estimate of the allocation of
the net proceeds of this Offering, based on the current status of its product
line, its sales expectations, anticipated operating
15
<PAGE> 22
expenses, inventory requirements and current marketing plans. If the Company
experiences unforeseen delays or cost increases or encounters marketing
problems, the Company may modify the intended utilization of proceeds as
necessary to allow it to conserve capital by slowing the speed of inventory
build-up and delaying other expenditures while attempting to resolve such
problems.
The Company anticipates that the proceeds of this Offering, together
with revenues from operations, will satisfy its cash requirements for at least
the next twenty-four (24) months. This estimate is based principally upon the
Company's assumptions of (i) continuing demand for its products, and (ii) its
ability to meet the supply requirements for customer demand and inventory
buildup. No assurance can be given that future unforeseen events or
contingencies will not affect the validity of these assumptions. Any significant
favorable or unfavorable deviation in the Company's sales performance could
significantly affect the timing and amount of additional financing required.
There is no assurance that financing of any kind will be available to the
Company if required, and if available, that it will be on terms acceptable to
the Company.
Any additional net proceeds received upon the exercise of the Class A
Warrants or any options that may be granted under the Company's 1996 Incentive
Stock Option Plan will be used for working capital. Pending the use of the
proceeds of this Offering, the funds will be deposited in interest or
non-interest bearing accounts, or invested in commercial paper, certificates of
deposit, governmental securities or similar instruments.
DIVIDEND POLICY
The Company has not previously paid any dividends since its inception
and, except for cash dividends, if any, to be paid on its outstanding Series A
Preferred Stock and the Series B Preferred Stock to be issued upon completion of
the Merger, currently intends to follow a policy of retaining all of its
earnings, if any, to finance the development and continued expansion of its
business. Except for dividends to be paid on the Company's Series A and Series B
Preferred Stock, which dividends may be paid in either cash or shares of the
Company's Common Stock, there can be no assurance that dividends will ever be
paid by the Company. Investors who anticipate the need for dividends from their
investment should take into consideration this factor, among others, in deciding
whether they should purchase Units and if, they purchase Units, whether they
should exercise their Class A Warrants to purchase shares of the Company's
Common Stock.
16
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company
assuming the proposed Merger had taken place on or prior to March 31, 1996. The
as adjusted amounts give effect to the sale of the 800,000 Units offered by the
Company hereby and the application of the estimated net proceeds therefrom. The
table should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Prospectus. See "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1996
Actual As Adjusted(1)
<S> <C> <C>
Long-term debt, net of current portion(2) $ 706,663 $ 706,663
---------- ----------
Stockholders' equity:
Preferred Stock, par value $.01 per share;
1,000,000 shares authorized;
337,500 Series A shares issued and
outstanding; 1,350,000 1,350,000
300,000 Series B shares issued and
outstanding, as adjusted -- 300
Common Stock, par value $.001 per share
20,000,000 shares authorized;
1,240,909 shares issued and
outstanding prior to Offering
2,040,909 shares issued and outstanding
after Offering(3) 1,241 2,041
Additional paid-in capital 351,333 3,520,233
Retained earnings 98,248 98,248
---------- ----------
Total stockholders' equity 1,800,822 4,970,822
---------- ----------
Total capitalization $2,507,485 $5,677,485
========== ==========
</TABLE>
- ------------------------------------
(1) As adjusted for the issuance of 800,000 shares of the Company included
as part of the Units in this Offering.
(2) Does not include $250,000 in proceeds that the Company received upon
issuance of its Convertible Bridge Notes in April 1996. On the
Effective Date, such Bridge Notes will be automatically converted into
2,500,000 Class A Warrants, and such $250,000 of proceeds will
therefore be reflected as equity on the Company's financial statements.
(3) Excludes: (i) 337,500 shares of Common Stock reserved for issuance upon
conversion of shares of Series A Preferred Stock; (ii) 300,000 shares
of Common Stock that may be issued upon conversion of shares of Series
B Preferred Stock (); (iii) 400,000 shares of Common Stock reserved for
issuance upon exercise of the Class A Warrants being offered hereby;
(iv) 3,175,000 shares of Common Stock reserved for issuance upon
exercise of the Class A Warrants that were issued in the Company's 1996
Units Financing and that will be issued upon conversion of the
Convertible Bridge Notes; (v) 1,484,000 shares of Common Stock reserved
for issuance upon exercise of the Class A Warrants issued to certain
members of management of the Company in December 1995; (vi) 120,000
shares of Common Stock reserved for issuance upon exercise of the
Representative's Unit Purchase Option and the Class A Warrants included
therein; and (vii) 350,000 shares of Common Stock that may be issued
under the Company's 1996 Incentive Stock Option Plan.
17
<PAGE> 24
DILUTION
As of March 31, 1996, the Company had a net tangible book value (total
tangible assets less total liabilities) of $19,627, or $.02 per share of
Common Stock. After giving effect to the sale of 800,000 Units offered hereby
and the receipt of the net proceeds therefrom (after deduction of underwriting
discounts, the Representative's non-accountable expense allowance, and the
expenses of this Offering), the pro forma net tangible book value of the Company
will be approximately $3,410,822, or $1.67 per share of Common Stock. This
represents an immediate dilution of $3.33 for each share of Common Stock
purchased by public investors and an immediate increase of $1.65 per share to
existing shareholders. The following table, which illustrates this dilution,
assumes that there has been no conversion of Series A Preferred Stock or
exercise of the Class A Warrants issued in this Offering or any additional
outstanding Class A Warrants, the Representative's Unit Purchase Option or
options that may be granted under the Company's 1996 Incentive Stock Option
Plan:
<TABLE>
<S> <C>
Public offering price per share $5.00
Net tangible book value per share at March 31, 1996 .02
Increase in net tangible book value per share of Common Stock
attributable to public investors 1.65
-----
Pro forma net tangible book value per share after Offering 1.67
-----
Dilution per share to public investors $3.33
=====
</TABLE>
The following table summarizes as of March 31, 1996 the differences
between existing stockholders and public investors with respect to the number
and percentage of shares of Common Stock purchased from the Company, the total
consideration and percentage of total consideration paid to the Company, and the
average consideration per share paid (at an assumed initial public offering
price of $5.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders 1,240,909 60.8 $ 352,574 8.1 $ 0.28
Public Investors 800,000 39.2 4,000,000 91.9 5.00
---------- ------ ---------- -------
Total 2,040,909 100.0 $4,352,574 100.0 2.13
========= ====== ========== =======
</TABLE>
18
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data at March 31, 1996 and for the
three (3) months ended March 31, 1996 and the two years ended December 31, 1995
have been derived from the financial statements of the Company and VSI, that are
included elsewhere in this Prospectus and that (except for the three (3) months
ended March 31, 1996 and 1995) have been audited by Feldman Radin & Co., P.C.,
whose reports with respect thereto are also included elsewhere in this
Prospectus. The financial information contained in this Prospectus for periods
prior to January 3, 1996 (the date that Capital obtained the Pabst Distribution
Rights) relates solely to VSI. For periods on or after January 3, 1996, the
financial information relates to the Company and VSI on a combined basis as if
the proposed Merger had been consummated on January 3, 1996. This information
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations". Operating results for the
three (3) month period ended March 31, 1996 are not necessarily indicative of
the results that may be expected for an entire fiscal year.
<TABLE>
<CAPTION>
Three (3) Months Ended March 31 Years Ended December 31
------------------------------- --------------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 2,503,597 $ 1,720,837 $ 6,926,789 $ 12,135,655
Gross Margin 293,909 99,179 504,300 678,904
Net Income (Loss) 115,834 (11,047) (15,308) 58,616
Pro Forma Net Income
(Loss)(1)(2) $ 31,700 $ (85,422) $ (311,948) $ (239,182)
============ ============ ============ ============
Pro Forma Net Income (Loss)
Per Common Share $ .01 $ (.07) $ (.25) $ (.19)
============ ============ ============ ============
March 31, 1996
--------------
BALANCE SHEET DATA:
Working Capital $ 634,792
Total Assets 2,961,786
Long Term Debt (3) 706,663
Stockholders' Equity (4) 1,750,822
</TABLE>
- ------------------
(1) For the periods presented Mr. Carmine Stella received no compensation from
either VSI or the Company. However, Mr. Stella is to receive an employment
contract setting forth an annual salary of $300,000. The Pro Forma results
reflect the impact of this salary.
(2) For the years ended December 31, 1995 and 1994 and the three (3) months
ended March 31, 1996, VSI operated as an S corporation for federal income
tax purposes and, accordingly, federal income taxes were the obligation of
VSI's shareholders. In contemplation of this Offering, VSI's S corporation
tax status will be revoked and, accordingly, the Company will be required
to pay income taxes on its taxable income.
(3) Does not include $250,000 in proceeds that the Company received upon
issuance of its Convertible Bridge Notes in April 1996. On the Effective
Date, such Bridge Notes will be automatically converted into 2,500,000
Class A Warrants, and such $250,000 of proceeds will therefore be
reflected as equity on the Company's financial statements.
(4) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
19
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the information contained in the Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus.
The financial information contained in this Prospectus for periods
prior to January 3, 1996 (the date that Capital obtained the Pabst Distribution
Rights) relates solely to VSI. For periods on or after January 3, 1996, the
financial information relates to the Company and VSI on a combined basis as if
the proposed merger had been consummated on January 3, 1996.
RESULTS OF OPERATIONS
Three (3) months ended March 31, 1996 ("the 1996 Interim Period") as compared to
the three (3) months ended March 31, 1995 ("the 1995 Interim Period"):
Net sales for the three (3) months ended March 31, 1996 were
$2,503,597, reflecting an increase of approximately $783,000, or approximately
45%, from the $1,720,837 of net sales for the three (3) months ended March 31,
1995. Net sales for the 1996 Interim Period were favorably impacted by the
Company's acquisition, in January 1996 of its license to distribute certain
products (the "Pabst Products") of a significant brewery in the five (5)
boroughs of New York City and certain other surrounding counties. Net sales for
the 1995 Interim Period continued the trend from fiscal 1994, wherein management
had determined to scale back its distribution of certain products as a result of
lower gross margins in those products. Net sales of Pabst products were
approximately $1,407,000 during the 1996 Interim Period.
Cost of sales was $2,209,688, or 88.3% of net sales, for the 1996
Interim Period, as compared to $1,621,658, or 94.2% of net sales, for the 1995
Interim Period. The increase, in absolute terms, of $588,030 in cost of sales
from the 1995 Interim Period to the 1996 Interim Period reflects the
significantly higher net sales in the 1996 Interim Period as compared to the
1995 Interim Period.
The Company's gross margin was $293,909, or 11.7% of net sales, in the
1996 Interim Period as compared to $99,179, or 5.8% of net sales, in the 1995
Interim Period. The increase, in dollar terms, is a result of increased sales in
the 1996 Interim Period as compared to the 1995 Interim Period. In addition,
specifically as a result of the acquisition of the license to distribute Pabst
Products, gross margin as a percentage of net sales increased in the 1996
Interim Period to 11.7% of net sales, as compared to 5.8% of net sales in the
1995 Interim Period. The Company's gross margins on sales of Pabst Products are
significantly higher than on sales of other products, and management expects the
improving trend in both net sales and gross margin to continue in 1996, although
there can be no assurances that this will occur.
Selling and delivery expenses were $5,611 in the 1996 Interim Period,
as compared to $9,391 for the 1995 Interim Period.
General and administrative expenses were $152,627 for the 1996 Interim
Period, as compared to $95,385 for the 1995 Interim Period. This represents an
increase of $57,242, or 60%, from the 1995 to the 1996 Interim Period.
Amortization of intangible assets was $40,000 in the 1996 Interim Period, as
compared to none in the 1995 Interim Period, as a result of the license to sell
Pabst Products acquired in January 1996. The cost of license agreement is being
amortized over ten (10) years. Other general and administrative expenses
fluctuated sightly upward from the 1995 Interim Period to the 1996 Interim
Period as a result of marginal increases in office expense, utilities and
repairs, and maintenance expenses.
Interest expense was $7,837 for the 1996 Interim Period, as compared to
$4,825 for the 1995 Interim Period. This represents an increase of $3,012, or
62%. The increase in interest expense is a result of higher borrowings during
the 1996 Interim Period as a result of the debt incurred (approximately
$800,000) to acquire the license to distribute Pabst Products.
Management believes that interest expense for the balance of 1996 will
exceed interest expense for the year ended December 31, 1995 as a result of the
aforementioned liability.
20
<PAGE> 27
Year Ended December 31, 1995 ("Fiscal 1995") as compared to the year ended
December 31, 1994 ("Fiscal 1994")
Net sales were $6,926,789 for fiscal 1995, as compared to $12,135,655
for fiscal 1994. The decline in net sales of $5,208,866, or approximately 43%,
resulted from VSI's decision to withdraw as a distributor of certain
Anheuser-Busch products.
Cost of sales was $6,422,489 for fiscal 1995 as compared to $11,456,751
for fiscal 1994. Cost of sales declined, both in dollar terms and as a
percentage of net sales, in part due to VSI's decision to withdraw from the
Anheuser-Busch market, where gross margins were extremely competitive. As a
result, gross margin declined from $678,904 in fiscal 1994 to $504,300 in fiscal
1995. Gross margin as a percentage of net sales increased from 5.6% in fiscal
1994 as a result of the discontinuance of the distribution of certain low margin
products, including the Anheuser-Busch products referred to herein.
Selling and delivery expenses declined from $78,175 in fiscal 1994 to
$56,083 in fiscal 1995. This $22,092, or 28% decline, is a result of decreased
commissions as a result of lower sales in fiscal 1995 as compared to fiscal
1994.
General and administrative expense declined from $530,649 in fiscal
1994 to $445,689 in fiscal 1995, a decrease of $84,960 or 16%. The principal
reason for this decline was a decline in rent expense of $95,890 as VSI was able
to sublease a portion of its unutilized leased space in 1995. Other general and
administrative expenses changed slightly from fiscal 1994 to fiscal 1995.
Interest expense increased in fiscal 1995 by $5,214 as a result of
slightly higher borrowings.
LIQUIDITY AND CAPITAL RESOURCES
VSI has historically financed its operations and capital expenditures
primarily through cash flow from operations, bank borrowing and other short-term
credit facilities. Thus, for fiscal 1995 and fiscal 1994 VSI's operating
activities generated positive cash flow of $88,781 and $71,755, respectively. As
capital expenditures were not required in either of these two years, cash
generated by operating activities was utilized to repay indebtedness,
distributions to stockholders and retention for working capital.
Nevertheless, in the 1996 Interim Period the Company utilized
approximately $186,000 in operating activities, as the Company increased
inventories ($124,800) and extended credit terms to certain customers, thereby
increasing accounts receivable ($273,521). Management believes that these
increases were necessary in view of the change in the business dynamics as a
result of the acquisition of the right to become the exclusive distributor of
Pabst Products in the Territory. Management further believes that these
increases will not be repeated in future 1996 quarters since they are related to
the start up of the Pabst Products distribution. Hence, management believes the
cash flow from operations will become positive in the second quarter of 1996,
although there can be no assurances that this will occur.
During the 1996 Interim Period, the Company paid $800,000 towards the
acquisition of the acquisition of the right to become the exclusive in-Territory
distributor of Pabst Products and signed a promissory note for the balance of
the purchase price payable over 10 years, together with interest at 9% per
annum.
In order to finance the acquisition of the right to become the
exclusive distributor of Pabst Products referred to herein, as well as to
provide cash flow during the operating cash flow deficit during the 1996 Interim
Period, the Company sold $1,350,000 of Units consisting of its 7% Cumulative
Convertible Series A Preferred Stock and Class A Warrants, sold $250,000 of its
Convertible Bridge Notes, and borrowed $185,000 from an officer (and significant
stockholder).
21
<PAGE> 28
BUSINESS
Capital Beverage Corporation was incorporated under the laws of the
State of Delaware on December 5, 1995. In January 1996, the Company acquired
from Consolidated Beverage Corporation, the right to become the exclusive
distributor ("Pabst Distribution Rights") for certain beer and malt liquor
products ("Pabst Products") manufactured by Pabst Brewing Company ("Pabst"). The
consideration paid by the Company for the Pabst Distribution Rights was One
Million Six Hundred Thousand Dollars ($1,600,000), payable Eight Hundred
Thousand Dollars ($800,000) in cash at or prior to closing, and the balance by
delivery of a series of 120 promissory notes, each in the amount of Ten Thousand
Dollars ($10,000) (collectively, the "Pabst Notes"). The Pabst Notes bear
interest at 9% per annum, which interest is included in the monthly $10,000
payments. If the Company defaults in payment of any of the Pabst Notes, such
default may result in a re-conveyance of the Pabst Distribution Rights to
Consolidated Beverage Corporation. Any such loss of the Pabst Distribution
Rights may have a materially adverse effect on the Company's financial condition
and results of operations.
Subject to the conditions set forth in the agreement pursuant to which
the Company acquired the Pabst Distribution Rights, the Company became the
exclusive distributor of the following Pabst Products in the following areas
(collectively, the "Territory"):
Borough of Manhattan: Pabst Blue Ribbon Beer, Pabst Extra Light Beer,
Pabst Light Beer, Pabst Genuine Draft Beer, Pabst 10E Draft Beer, Pabst Non Ala
Beer, Andeker Beer, Hamm's Beer, Hamm's Special Light Beer, Hamm's Genuine Draft
Beer, Big Bear Malt Liquor, Olde English "800" Malt Liquor, Olde English "800"
Genuine Draft Malt Liquor, "800" Ice Malt Liquor and Old Tankard Ale.
Borough of the Bronx: Hamm's Beer, Hamm's Special Light Beer, Hamm's
Genuine Draft Beer, Olde English "800" Malt Liquor, Olde English "800" Genuine
Draft Malt Liquor and "800" Ice Malt Liquor.
Borough of Queens: In that portion of Queens County situated west and
north of the following described boundary lines: starting at a point in Flushing
Bay at the boat basin; thence southerly along Grand Central Parkway to the
intersection of Union Turnpike and Interboro Parkway to the western boundary of
Queens County, thence northerly along the western boundary of Queens County to
the East River, being the terminal of Queens County: Olde English "800" Malt
Liquor, Olde English "800" Genuine Draft Malt Liquor and "800" Ice Malt Liquor.
Borough of Staten Island: Pabst Blue Ribbon Beer, Pabst Extra Light
Beer, Pabst Light Beer, Pabst Genuine Draft Beer, Pabst 10E Draft Beer, Pabst
Non Ala Beer, Andeker Beer, Hamm's Beer, Hamm's Special Light Beer, Hamm's
Genuine Draft Beer, Big Bear Malt Liquor, Olde English "800" Malt Liquor, Olde
English "800" Genuine Draft Malt Liquor, "800" Ice Malt Liquor and Old Tankard
Ale.
Westchester County: In that portion of Westchester County situated
south of Interstate Highway No. 287, but not including the Towns of Ardsley and
Dobbs Ferry: Hamm's Beer, Hamm's Special Light Beer and Hamm's Genuine Draft
Beer.
State of New York: Old Tankard Ale.
DISTRIBUTORSHIP AGREEMENT WITH PABST
Duties and Responsibilities: At the time the Company acquired the Pabst
Distribution Rights, it simultaneously entered into an agreement with Pabst (the
"Distributorship Agreement") to become the exclusive distributor for Pabst
Products within the Territory. Pursuant to the Distributorship Agreement, the
Company is required to solicit and seek to service every retail account within
the Territory and to use its best efforts to market, promote and sell the Pabst
Products within such Territory. The Company is prohibited under the
Distributorship Agreement from selling or supplying Pabst Products to customers
located outside the Territory.
The responsibilities of the Company under the Distributorship Agreement
include, but are not limited to: (i) establishment and maintenance of a planned
overall sales and contact program on a continuing
22
<PAGE> 29
basis; (ii) establishment and maintenance of a place of business within the
Territory, including distribution and warehouse facilities; (iii) establishment
and maintenance of stock rotation procedures for the Pabst Products in the
warehouse, on trucks and in retail accounts to the extent permitted by law and
adherence to all stated policies of Pabst in regard to overage Pabst Products
(with the cost of replacing overage products to be absorbed by the Company);
(iv) establishment and maintenance of a fleet of trucks; (v) cooperation with
Pabst in the distribution of point-of-sale materials necessary to support Pabst
Products; (vi) personal involvement of management of the Company in maintaining
satisfactory contact with all accounts; (vii) maintenance of adequate capital
and cash flow to insure competitive strength in facilities, inventory,
equipment, personnel, advertising and promotions; (viii) maintenance of a
continuous in-house training program where practicable and attendance at sales
meetings and training schools scheduled by Pabst; and (ix) maintenance of
sufficient inventories and mix of package types as reasonably requested by Pabst
and justified by market conditions existing in the Territory.
Terms of Sale Any orders for the Pabst Products placed by the Company
will be subject to the written approval of Pabst, and Pabst shall not be
obligated to fill such order. Sales made by Pabst to the Company shall be upon
such terms and prices as are approved by the Pabst Credit and Pricing
Departments from time to time in their discretion. The Company is required under
the Distributorship Agreement to grant to Pabst a security interest in the Pabst
Products to secure the performance of all obligations owed by it to Pabst.
Termination. Pabst may terminate the Distributorship Agreement
immediately upon the occurrence of any of the following events: (i) assignment
or attempted assignment for the benefit of creditors by the Company or
insolvency of the Company; (ii) institution of voluntary or involuntary
bankruptcy proceedings or for receivership or dissolution; (iii) non-payment by
the Company of sums past due and owing to Pabst, which sums continue to remain
owing upon the expiration of twenty (20) days after written notice of
non-payment to the Company by Pabst; (iv) fraudulent conduct of the Company; (v)
loss by the Company of any federal, state or local license required by law or
necessary in order to carry out the Company's duties as a distributor of Pabst
Products; (vi) attempted assignment of the Distributorship Agreement by the
Company or change in control of the Company's business without the prior written
consent of Pabst; (vii) violation by the Company of its obligations to sell and
distribute the Pabst's Products only within the Territory and/or its obligation
to solicit every retail account within the Territory and to use its best efforts
to market and promote Pabst Products and protect their quality.
Deficiency Termination. Pabst may also terminate the Distributorship
Agreement if any of the following occurs: (i) the Company fails to perform its
duties and responsibilities in the reasonable judgment of Pabst; or (ii) other
breaches by the Company of its obligations contained in the Distributorship
Agreement (a "deficiency termination"). In the case of any such default, Pabst
has agreed to provide the Company with notice of the manner in which such
default has occurred and to allow the Company not less than ninety (90) days to
cure such default. Moreover, in the event of any such deficiency termination,
Pabst will pay the Company an amount equal to twice the Company's pre-tax net
earnings arising from the sale and distribution of the Pabst Products during the
immediate preceding annual accounting period of the Company. In addition, Pabst
will purchase from the Company its entire inventory of saleable Pabst Products
at an amount equal to the cost of such inventory plus a handling charge of $.10
per case, $.50 per half-barrel and $5.25 per quarter-barrel. Upon request by the
Company, Pabst will purchase from the Company, at the then fair market value,
those local delivery vehicles regularly used by the Company in the sale and
distribution of Pabst Products.
Uniform Termination . Pabst also has the right to terminate the
Distributorship Agreement if Pabst simultaneously terminates all other
agreements that are substantially similar to the Distributorship Agreement
between the Company and Pabst.
Partial Termination. Pabst has the right to assign any individual brand
of beer listed as a Pabst Product to another distributor if, in the reasonable
judgment of Pabst, the Company cannot or does not adequately promote and/or
market such brand of beer. Pabst also has the right to effect a termination of
the part of the Company's Territory if, in its reasonable judgment, the Company
does not adequately promote and market Pabst Products in that part of the
Territory.
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<PAGE> 30
Change of Control Termination. Pabst also has the right to terminate
the Distributorship Agreement if there is a change in ownership or control in
the Company's business which occurs without the prior written consent of Pabst
(which consent may not be unreasonably withheld). For purposes of the
Distributorship Agreement, the term "control" means record or beneficial
ownership of (i) thirty-three percent (33%) or more of the Company's voting
stock; (ii) thirty-three percent (33%) or more of its business; or (iii)
thirty-three percent (33%) or more interest in an entity which owns fifty-one
percent (51%) or more of the Company's voting stock.
STRATEGY
Management of the Company believes it has developed a strategy to
effectively market, sell and distribute Pabst Products throughout the Territory.
This strategy includes plans to expand the Company's customer base; to increase
sales and marketing efforts; and to develop a distribution network utilizing
independent licensed distributor depots ("Depots") that will result in reduced
costs.
Expanding Customer Base
In order to expand its customer base for Pabst Products in the
Territory, the Company intends to concentrate its efforts on increasing its
sales of Pabst Products through supermarket chains, such as Waldbaums, A&P,
Grand Union and Pathmark; chain convenience stores, such as 7-Elevens, Mobil
Marts, Hess Stores and Shell Marts; and beverage centers such as Thrifty
Beverage, Beverage Barn and Empire Beverage Centers. In addition, only 10% of
the approximately 10,000 potential retail accounts for Pabst Products within the
Territory are currently being serviced by the Company, and the Company has
recently implemented a marketing and sales strategy for increasing such
percentage.
The Company will also attempt to sell Pabst Products at Yankee and Shea
Stadiums, Madison Square Garden, New York theaters, the Jacob K. Javits Center,
the World Trade Center, South Street Seaport, the Port Authority, Grand Central
Station and Pennsylvania Station, where such products are not currently being
sold. In addition, the Company intends to promote and sell Pabst Products at
special events, such as Harlem Week, Latin and Cuban Days and the Caribbean Day
Parade.
Sales and Marketing
The Company employs sales people to obtain new accounts for Pabst
Products and to increase sales of Pabst Products to existing accounts for such
products in the Territory. Upon acceptance of an order from an account (other
than orders from chain stores), the order is referred to the Depot operating in
the sector of the Territory within which the account is located. The respective
Depots are responsible for delivery to, invoicing for, and collecting on, the
order from the account. Orders from supermarket and other chain store accounts
are invoiced directly by the Company. However, delivery to such accounts is made
on behalf of the Company by the Depot operating in the sector of the Territory
within which such supermarket or chain store is located.
In addition to employing a sales staff, the Company employs sales
supervisors who recommend sales policies and incentive programs to the Depots in
order to motivate Depot sales personnel to sell Pabst Products within the
Territory. The Company also creates promotional materials and has formulated
marketing plans to increase sales by the Company and the Depots within the
Territory. The Company's sales personnel receive formal training both at Company
and Pabst sponsored seminars. The Company also intends to hire a training
coordinator to conduct seminars, covering such topics as draft technology,
brewing processes and role-playing. Sales personnel are responsible for
preparing weekly schematics on key store resets (both shelf and cooler) to
secure the most visible positions for maximum consumer exposure. Shelf
allocations are periodically reviewed under the supervision of the
Vice-President of Sales and Marketing to assure that space allocations and
placement comply with retailer policies, distribution philosophies, and
recommendations from suppliers. The Company has also implemented merchandising
services to handle trade problems and seek future sales opportunities.
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<PAGE> 31
The Company offers bonuses to sales personnel who market and sell
additional Pabst Products to existing customers and maintain established goals
on reorders of Pabst Products. This incentive program is designed to achieve
long and steady growth for additional product placements.
Distribution
The Company has implemented a strategy to achieve effective
distribution of Pabst Products in the Territory. Under this strategy, the
Company acts as a master distributor for Pabst Products, subject to policies and
procedures determined by Pabst, so that all orders for Pabst Products come
through the Company. Because of the expansiveness of the Territory, the Company
has divided it into three geographical sectors and has appointed a Depot as the
exclusive distributor of Pabst Products within one of such sectors. The Depots
follow policies and procedural guidelines established by the Company and Pabst.
Such Depots are independent, licensed beverage wholesalers that are responsible
for hiring and maintaining their own staffs, maintaining trucking fleets to
distribute Pabst Products to the wholesale and/or retail customers located
within their respective sectors, as well as invoicing and collecting from such
customers. In addition, such Depots distribute Pabst Products to the supermarket
and other chain stores that have been retained as Company accounts.
The Company's objective in appointing Depots to service each sector
within the Territory is to increase effective sales and distribution of all
Pabst Products while not incurring the expense of such sales and distribution
efforts. Specific strategies include: developing sales incentives with the
cooperation of Pabst representatives for Depots that meet sales goals for both
"on-premises" and "off-premises" accounts; establishing a method of monitoring
accounts within the Territory that do not purchase Pabst Products and
establishing incentives for Depots who reverse such pattern; scheduling monthly
promotions for all on-premises accounts; and utilizing and promoting "Brewery
Rebate" programs.
ADVERTISING
The Company intends to present to the trade and the consumer an ongoing
marketing campaign. To achieve this, the Company will establish and maintain an
advertising and marketing budget. Such budget will be used primarily to
participate in cooperative radio and billboard advertising programs established
by Pabst. A proposed budget of $.05 per case based upon monthly estimated sales
during Fiscal 1996 of 60,000 cases will enable the Company to allocate $3,000
per month toward this advertising.
PROPERTIES
In January 1996, the Company entered into a lease with East Tremont
Partners under which it agreed to lease 15,000 square feet of administrative
office and warehousing space for a term of five (5) years commencing on April 1,
1996 and continuing until May 31, 2001. Total monthly payments under such lease
are $5,000, subject to increases during subsequent years of the lease term. East
Tremont Partners is a New York partnership in which Mr. Stella holds a one-sixth
interest. Management of the Company believes that the rent paid by the Company
under this lease is less than what it would be required to pay for similar
premises within the area in which the Company's administrative offices are
located.
In December 1995, the Company entered into a lease with East Tremont
Partners, pursuant to which it agreed to lease approximately 7,000 square feet
of retail and warehousing space for a term of five (5) years commencing on April
1, 1996 and continuing until May 31, 2001. Total monthly payments under such
lease are $5,000, subject to increases during subsequent years of the lease
term. Management of the Company believes that the rent paid by it under this
lease is also less than the fair market value of similar premises within the
area in which such premises are located.
Management believes that the facilities used by it in the operation of
its business are adequately covered by insurance and are suitable and adequate
for their respective purposes.
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<PAGE> 32
EMPLOYEES
As of July 29, 1996, the Company employed a staff of 18, including two
(2) sales supervisors, one (1) sales manager, twelve (12) sales people, and
three (3) managerial/administrative employees. The Company does not have any
collective bargaining agreements and has not experienced any work stoppages as a
result of labor disputes. The Company considers its employee relations to be
good.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings,
and no such proceedings are known to be contemplated.
COMPETITION
The business conducted by the Company is highly competitive. As of May
31, 1996, the Company competed with approximately ten (10) other companies in
the metropolitan New York area that are engaged in businesses that are
substantially similar to that engaged in by the Company. Some of the Company's
competitors are better capitalized, better financed, more established and more
experienced than the Company and may offer beer, beverage and related products
at lower prices or concessions than the Company. Should the Company not be able
to compete effectively, its results of operations and financial condition could
be materially adversely affected.
SOURCES OF SUPPLY
In addition to purchasing Pabst Products directly from Pabst, the
Company intends to purchase products (other than Pabst Products) from a number
of nationally known beer and beverage companies. Since there are many
manufacturers of alcoholic and non-alcoholic products sold by the Company, the
Company does not anticipate difficulty in obtaining such products if its
relationship with one or more of its suppliers terminates. Management of the
Company believes that except for Pabst, the loss of any one supplier will not
adversely affect the Company's business. Termination of the Company's
Distributorship Agreement with Pabst could have a materially adverse effect on
the business of the Company.
SEASONALITY
The Company's business is subject to substantial seasonal variations.
Historically, a significant portion of the Company's net sales and net earnings
have been realized during the month of December and the months of May through
September, and levels of net sales and net earnings have generally been
significantly lower during the period from October through April (excluding
December). The Company believes that this is the general pattern associated with
other beverage distributors with which it competes. If for any reason the
Company's sales were to be substantially below seasonal norms during the month
of December and/or the months of May through September, the Company's
anticipated revenues and earnings could be materially and adversely affected.
GOVERNMENT REGULATION
Wholesale and retail distribution of alcoholic beverages is regulated
by federal and state law. Since the Company intends to distribute such alcoholic
beverages in New York State, the Company is required to obtain authorization
from the Federal Bureau of Alcohol, Tobacco and Firearms (BATF) and the New York
State Liquor Authority (SLA). The Company has applied to the BATF and SLA for
its required licenses and is not aware of any reason why such licenses will not
be granted. In the experience of management, although such agencies may impose
conditions on the grant of such licenses, such licenses are ordinarily granted.
In the event, either the SLA or the BATF should impose conditions on the grant
of such licenses, the Company intends to take all steps necessary to satisfy
such conditions. Pending receipt of its licenses, the Company has appointed VSI,
which is a licensed distributor, to act as its agent for distribution of Pabst
Products. There can be no assurance that the various governmental regulations
applicable to the beverage industry will not be changed so as to impose more
stringent requirements on the Company. If the Company was to fail to be in
compliance with any applicable governmental
26
<PAGE> 33
regulation, such failure could cause the Company's licenses to be revoked and
have a material adverse effect on the business of the Company.
PROPOSED ACQUISITION OF VSI
In June 1996, the Company entered into an agreement and plan of merger
(the "Merger Agreement") with VSI, a New York wholesale and retail beverage
distributor doing business under the tradename Caribe Beverages. During its
fiscal years ended December 31, 1994 and 1995, VSI had revenues of $12 million
and $7 million, respectively, and net income (loss) of $59,000 and $(15,000),
respectively. The Company intends to complete the Merger with VSI as soon as
practicable after obtaining its required licenses and prior to the Effective
Date. All of the outstanding capital stock of VSI is owned by Mr. Carmine
Stella, who is the Chairman of the Board of Directors, President and Chief
Executive Officer of the Company. Under the terms of the Merger Agreement, Mr.
Stella will receive 300,000 shares of the Company's Series B Preferred Stock in
consideration for his interest in VSI.
VSI distributes beer, soda, bottled water and other beverages primarily
in the New York City metropolitan area. Customers of VSI consist primarily of
approximately 700 grocery stores and fifty (50) wholesalers, all of which
purchase such beverage products at VSI's warehouse on a "cash and carry" basis.
VSI does not own or lease any vehicles for the distribution of its beverages and
is a non-exclusive wholesaler of all of the beverages that it sells. VSI
distributes several different brands, and management of VSI believes that
supplies of such brands are readily available from several different suppliers.
Audited financial statements of VSI and pro forma financial statements
of the Company, assuming completion of the Company's proposed Merger with VSI,
are contained in the financial statements included with this Prospectus.
PRIVATE PLACEMENT FINANCINGS
Between December 1995 and March 1996, the Company conducted a private
offering under Section 4(2) of the Securities Act and Regulation D promulgated
thereunder, of units ("Units") of its Series A Preferred Stock and Class A
Warrants (the "Units Financing"). Each Unit consisted of 12,500 shares of Series
A Preferred Stock and 25,000 Class A Warrants. A total of 27 Units, consisting
of an aggregate of 337,500 shares of Series A Preferred Stock and 675,000 Class
A Warrants, were sold to 26 "accredited investors" (as such term is defined in
the Securities Act) for gross offering proceeds of $1,350,000. Pursuant to an
Agency Agreement, dated December 6, 1995, the Company retained the
Representative as its exclusive agent in connection with the Units Financing and
paid the Representative a selling commission equal to 10% of the gross proceeds
from the sale of the Units ($135,000) and a non-accountable expense allowance
equal to 1% of such gross proceeds ($13,500). Approximately $800,000 of the net
proceeds of the Units Financing were used to acquire the Pabst Distribution
Rights. The balance of such net proceeds were used for purchase of inventory of
Pabst Products, for legal fees related to such financing and general corporate
purposes.
In April 1996, the Company conducted a private offering under Section
4(2) of the Securities Act and Regulation D promulgated thereunder, of its 12%
Convertible Bridge Notes ("Bridge Financing"). The Convertible Bridge Notes were
purchased by two (2) accredited investors for aggregate gross offering proceeds
of $250,000. The Convertible Bridge Notes, including accrued interest thereon,
are due one (1) year after issuance but will automatically be converted into an
aggregate of 2,500,000 Class A Warrants upon the Effective Date. The Company
retained the Representative as its exclusive placement agent (the "Placement
Agent") in connection with such private placement. As compensation for the
Representative's services as Placement Agent, the Company paid the
Representative a selling commission equal to 10% of the gross proceeds of the
Bridge Financing in ($25,000) and a non-accountable expense allowance of 1% of
such gross proceeds ($2,500). The proceeds of the Bridge Financing were used
principally for purchase of inventory of Pabst Products, for legal fees related
to such financing and general corporate purposes.
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<PAGE> 34
MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Directors and Executive Officers
Name Age Position(s) Held
- -------------------------------- --- -----------------------------------
<S> <C> <C> <C>
Carmine N. Stella 44 President, Chief Executive Officer,
Chairman of the Board
Robert A. Vessa 45 Vice President--Sales and Marketing
Carol Macchiarulo 40 Secretary and Treasurer
Eugene Fernandez, Jr. 34 Director
</TABLE>
Carmine N. Stella - Mr. Stella has served as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
inception in December 1995. From 1991 to the present, Mr. Stella has been the
sole officer, director and shareholder of VSI, a wholesale and retail seller of
alcoholic and nonalcoholic beverages with $12,000,000 of sales during fiscal
1994 and $7,000,000 of sales during fiscal 1995. From 1986 to 1990, Mr. Stella
served as President and a director of Gotham Wholesale Beer Distributors, a beer
and non-alcoholic beverage wholesaler with annual sales in excess of
$20,000,000. Mr. Stella served as a President and Director of the Empire State
Beer Distributors Association from 1984 to 1988. Mr. Stella received a B.B.A. in
Accounting from Bernard M. Baruch College, New York, New York in 1973.
Robert A. Vessa - Mr. Vessa has served as Vice President - Sales and
Marketing since February 1996. From 1984, Mr. Vessa has acted as Business
Affairs Coordinator and a member of the Board of Directors of the Empire State
Beer Distributors Association. Mr. Vessa received a B.B.A. degree in Marketing
and Advertising from Bernard M. Baruch College, City University of New York in
1973.
Carol Macchiarulo - Ms. Macchiarulo has served as Secretary and
Treasurer of the Company since February 1996. From 1991. Ms. Macchiarulo has
also served as Comptroller and Operations Manager of VSI from 1991 to the
present.
Eugene Fernandez, Jr. - Mr. Fernandez has been a director of the
Company since its inception in December 1995. From December 1994 to the present,
Mr. Fernandez has been self employed as a developer and builder of residentail
real estate and has acted as a private investor and financial consultant. From
April 1991 to December 1994, Mr. Fernandez was an account executive for Sandoz
Pharmaceuticals, a distributor of pharmaceutical products. From January 1989 to
April 1991, Mr. Fernandez served as an Account Executive for Screen Tech, Inc.,
a distributor of promotional advertising. Mr. Fernandez received a B.A. degree
in Marketing and Finance from Dominion College in Orangeburg, New York in 1984.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors does not currently have any separate
compensation, audit, or nominating committees. However, the Board of Directors
may establish audit, compensation, and/or nominating committees after the
completion of this Offering. The Company intends to identify and thereafter to
appoint two independent directors to the Board within 180 days following the
Effective Date.
EXECUTIVE AND DIRECTOR COMPENSATION
The Company did not have any employees during the year of its
organization, 1995. The Company intends to enter into an employment agreement
with Mr. Carmine Stella and such other employees as may be determined by the
Board of Directors to be effective on completion of this Offering. The
employment agreement with Mr. Stella will provide for a three-year term and will
include annual compensation of approximately $300,000, plus certain fringe
benefits including health and life insurance. In addition, Mr. Stella and other
key employees selected by the Board will receive incentive bonus compensation
typically offered to executive officers of similar size to that of the Company.
Directors of the Company will be reimbursed for their ordinary and necessary
expenses incurred in attending meetings of the Board of Directors or a committee
thereof.
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<PAGE> 35
1996 INCENTIVE STOCK OPTION PLAN
The Company's 1996 Incentive Stock Option Plan was approved by the
Board of Directors and holders of Common Stock of the Company on June 19, 1996
to provide for the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 to officers and employees of
the Company. A total of 350,000 shares of Common Stock has been authorized and
reserved for issuance under the 1996 Incentive Stock Option Plan, subject to
adjustment to reflect changes in the Company's capitalization in the case of a
stock split, stock dividend or similar event. No options have been granted under
the Company's 1996 Incentive Stock Option Plan. The 1996 Incentive Stock Option
Plan will be administered by the Compensation Committee, which has the sole
authority to interpret the 1996 Incentive Stock Option Plan, to determine the
persons to whom options will be granted, to determine the basis upon which the
options will be granted, and to determine the exercise price, duration and other
terms of options to be granted under the 1996 Incentive Stock Option Plan;
provided that, (i) the exercise price of each option granted under the 1996
Incentive Stock Option Plan may not be less than the fair market value of the
Common Stock on the day of the grant of the option, (ii) the exercise price must
be paid in cash and or stock upon exercise of the option, (iii) no option may be
exercisable for more than 10 years after the date of grant, and (iv) no option
is transferable other than by will or the laws of descent and distribution. No
option is exercisable after an optionee ceases to be employed by the Company or
a subsidiary of the Company, subject to the right of the Compensation Committee
to extend the exercise period for not more than 90 days following the date of
termination of an optionee's employment. If an optionee's employment is
terminated by reason of disability, the Compensation Committee has the authority
to extend the exercise period for not more than one year following the date of
termination of the optionee's employment. If an optionee dies holding options
that were not fully exercised, such options may be exercised in whole or in part
within one year of the optionee's death by the executors or administrators of
the optionee's estate or by the optionee's heirs. The vesting period, if any,
specified for each option will be accelerated upon the occurrence of a change of
control or threatened change of control of the Company
LIMITATIONS OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
(the "General Corporation Law"), the Company's Articles of Incorporation and the
Company's Bylaws contain provisions for indemnification of officers, directors,
employees and agents of the Company. The Company's Articles of Incorporation and
Bylaws require the Company to indemnify such persons to the fullest extent
permitted by Delaware law. Each person will be indemnified in any proceeding if
he acted in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Company. Indemnification would cover
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement.
The Company's Articles of Incorporation also provide that the Board of
Directors may cause the Company to purchase and maintain insurance on behalf of
any present or past director or officer insuring against any liability asserted
against such person incurred in the capacity of director or officer or arising
out of such status, whether or not the Company would have the power to indemnify
such person. The Company may seek to obtain directors' and officers' liability
insurance upon completion of this Offering.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the 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 Company of expenses incurred or paid
by a director, officer, or controlling person of the Company in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the Securities being
registered, the Company will, unless in the opinion of 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 of such court.
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<PAGE> 36
PRINCIPAL SHAREHOLDERS
COMMON STOCK
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) by each officer and director of the Company,
and (iii) by all officers and directors of the Company as a group. Unless
otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares of Common Stock set forth opposite
his name.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership(1) Percent of Class(1)
Name of Beneficial Owner
<S> <C> <C>
Carmine N. Stella (2)(3) 759,091 58.80
Eugene Fernandez, Jr.(2)(4) 379,545 30.00
Anthony Stella(2)(5) 177,273 14.30
Carol Macchiarulo(2)(6) 12,500 1.00
All Officers and Directors
as a Group:
(3 Persons) 1,151,136 86.66
</TABLE>
- ------------------------
1 The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for computing the percentage of the person holding such
options or warrants but are not deemed outstanding for computing the
percentage of any other person.
2 The address for Messrs. Carmine Stella, Eugene Fernandez and Anthony Stella
and Ms. Carol Macchiarulo is 1111 East Tremont Avenue, Bronx, New York
10460.
3 Includes 50,000 shares of Common Stock that may be acquired by Mr. Stella
upon exercise of Class A Warrants acquired in the Company's Units Financing
that was completed in March 1996. Does not include: (i) 25,000 shares of
Common Stock that Mr. Stella may acquire during the period commencing 180
days and ending 360 days after the Effective Date upon conversion of 25,000
shares of Series A Preferred Stock acquired by him in the Company's 1996
Units Financing; (ii) 300,000 shares of Common Stock that may be acquired by
Mr. Stella during the period commencing 180 days and ending three (3) years
after the Effective Date upon conversion of the 300,000 shares of Series B
Preferred Stock that will be issued to Mr. Stella upon consummation of the
Merger; or (iii) 333,600 shares of Common Stock that may be acquired by Mr.
Stella beginning six (6) months after the Effective Date upon exercise of
333,600 additional Class A Warrants held by Mr. Stella.
4 Includes 25,000 shares of Common Stock that may be acquired by Mr. Fernandez
upon exercise of Class A Warrants acquired in the Company's Units Financing
that was completed in March 1996. Also includes 245,454 shares of Common
Stock owned of record owned by Mr. Fernandez and 109,091 shares of Common
Stock owned of record by American Marketing and Sales, Ltd., of which Mr.
Fernandez is sole officer, director and shareholder. Does not include: (i)
12,500 shares of Common Stock that Mr. Fernandez may acquire during the
period commencing 180 days and ending 360 days after the Effective Date upon
conversion of 12,500 shares of Series A Preferred Stock
30
<PAGE> 37
acquired by him in the Company's 1996 Units Financing; or (ii) 167,000
shares of Common Stock that may be acquired by Mr. Fernandez or 900,000
shares of Common Stock that may be acquired by American Marketing & Sales,
Ltd., a corporation of which Mr. Fernandez is the sole officer, director and
shareholder, beginning six (6) months after the Effective Date upon exercise
of 167,000 Class A Warrants held by Mr. Fernandez and 900,000 Class A
Warrants held by American Marketing & Sales, Ltd.
5. Does not include 83,400 shares of Common Stock that may be acquired by Mr.
Anthony Stella beginning six (6) months after the Effective Date upon
exercise of 83,400 Class A Warrants held by him.
6 Includes 12,500 shares of Common Stock that may be acquired by Ms.
Macchairulo upon exercise of Class A Warrants acquired by her in the
Company's 1996 Units Financing. Does not include 6,250 shares that Ms.
Macchiarulo may acquire during the period commencing 180 days and ending 360
days after the Effective Date upon conversion of 6,250 shares of Series A
Preferred Stock acquired by Ms. Macchiarulo in the Company's 1996 Units
Financing.
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<PAGE> 38
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part also
relates to (i) the offer and sale by Mr. Carmine Stella, who is Chairman of the
Board, President and Chief Executive Officer of the Company, of up to 300,000
shares of Common Stock; (ii) the offer and sale by certain holders (including
Mr. Carmine Stella, Mr. Eugene Fernandez and Ms. Carol Macchiarulo) ("Selling
Securityholders") of the Company's 7% Series A Convertible Preferred Stock
("Series A Preferred Stock") of 337,500 shares of Common Stock issuable by the
Company to such Selling Securityholders upon conversion of 337,500 shares of
Series A Preferred Stock held by such Selling Securityholders; (iii) the offer
and sale by the Selling Securityholders of up to 3,175,000 Class A Warrants and
3,175,000 shares of Common Stock issuable to such Selling Securityholders upon
their exercise of such Class A Warrants; and (iv) the possible issuance by the
Company of up to 3,175,000 shares of Common Stock upon exercise by individuals
or entities that purchase Class A Warrants sold by the Selling Securityholders
(the securities referred to in (i) through (iv) being sometimes collectively
referred to herein as the "Additional Securities").
The shares of Common Stock underlying the Class A Warrants are offered
by the Company hereunder only for purchase upon exercise of Class A Warrants by
a holder who has purchased such Class A Warrants from a Selling Securityholder
and shall be issued by the Company to such holders from time to time pursuant to
exercise of such Class A Warrants in accordance with the terms thereof.
The securities offered hereby may be sold from time to time directly
by the Selling Securityholders. Alternatively, the Selling Securityholders may
from time to time offer such securities through underwriters, dealers or
agents. The distribution of securities by the Selling Securityholders may be
effected in one or more transactions that may take place on the
over-the-counter market including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders in
connection with such sales of securities. The securities offered by the Selling
Securityholders may be sold by one or more of the following methods, without
limitation: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the securities as agent but may purchase and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary broker transactions and
transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf
of a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
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The Company has agreed to pay substantially all the expenses incurred
by the Selling Securityholders incident to the offering and sale of the
Additional Securities offered by the Selling Securityholders to the public, but
excluding any underwriting discounts, commissions or transfer taxes.
The Company has agreed to indemnify certain Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.
Sales of Common Stock and/or Class A Warrants by the Selling
Securityholder or even the potential of such sales would likely have an adverse
effect on the market prices of the Securities offered hereby.
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CERTAIN TRANSACTIONS
Upon formation of the Company in December 1995, the Company issued an
aggregate of 709,091 shares of Common Stock to Mr. Carmine Stella, 354,545
shares of Common Stock to Mr. Eugene Fernandez and 177,273 shares of Common
Stock to Mr. Anthony Stella, in consideration of the payment by each of such
individuals of $.001 per share, and issued 333,600 Class A Warrants to Mr.
Carmine Stella, 1,667,000 Class A Warrants to Mr. Eugene Fernandez and to a
corporation wholly owned by Mr. Fernandez, and 83,400 Class A Warrants to Mr.
Anthony Stella. The Company also issued 886,364 additional shares of Common
Stock and 416,000 additional Class A Warrants to four other individuals involved
in its formation but repurchased all of such additional shares and Class A
Warrants for nominal consideration in January 1996. All such reacquired shares
of Common Stock are being held as treasury stock, and all such reacquired Class
A Warrants have been cancelled. In January 1996, Mr. Fernandez agreed to the
cancellation of 600,000 of the Class A Warrants that had previously been issued
to him.
In December 1995, the Company entered into a lease with East Tremont
Partners, pursuant to which it agreed to lease approximately 7,000 square feet
of retail and warehousing space for a term of five (5) years commencing on April
1, 1996 and continuing until May 31, 2001. Total monthly payments under such
lease are $5,000, subject to adjustment during subsequent years of the lease
term. East Tremont Partners is a New York partnership in which Mr. Stella holds
a one-sixth interest. Management of the Company believes that the rent paid by
it under this lease is less than the fair market value of similar premises
within the area in which such premises are located.
In January 1996, the Company entered into a lease with East Tremont
Partners under which it agreed to lease 15,000 square feet of administrative
office and warehousing space for a term of five (5) years commencing on April 1,
1996 and continuing until May 31, 2001. The initial monthly rent under such
lease is $5,000, subject to adjustment during the term of the lease. East
Tremont Partners is a New York partnership in which Mr. Stella holds a one-sixth
interest. Management of the Company believes that the rent paid by the Company
under this lease is less than what it would be required to pay for similar
premises within the area in which the Company's administrative offices are
located.
In February 1996, the Company entered into an agency agreement (the
"Agency Agreement") with VSI pursuant to which the Company appointed VSI as its
agent to perform the Company's obligations under the Pabst Distributorship
Agreement pending receipt of the Company's required licenses from The New York
State Liquor Authority and the federal Bureau of Alcohol, Tobacco and Firearms.
Under the Agency Agreement, VSI is required to collect all revenues and pay all
expenses in connection with the distribution of Pabst Products and to hold all
net income derived from the conduct of such business for the benefit of the
Company. VSI has agreed that it will remit all such net income to the Company
within five (5) days after the Company's receipt of its required licenses. VSI
agreed to perform its obligations under the Agency Agreement in consideration
and contemplation of the proposed Merger with the Company and without further
consideration to VSI. The Company or VSI may terminate VSI's agency under the
Agency Agreement upon sixty (60) days' prior written notice to the other party.
In March 1996, Mr. Carmine Stella made an interest free loan to the
Company in the amount of $185,000 to provide it with cash flow during the
operating deficit that occurred during the first quarter of 1996. The Company
repaid Mr. Stella the entire amount of such loan during the second and third
quarters of fiscal 1996.
In June 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with VSI pursuant to which VSI would be merged with and
into the Company. All of the outstanding stock of VSI is owned by Mr. Carmine
Stella, who is the Chairman of the Board, President, and Chief Executive Officer
of the Company. On the effective date of the Merger ("Merger Date") each share
of common stock of VSI presently outstanding shall be automatically cancelled
and converted into the right to receive 3,000 fully paid and non-assessable
shares of the Company's Series B Preferred Stock. In May 1996, the Company
obtained an appraisal of the business of VSI from 1st Class Management Inc., a
non-affiliated company with in excess of 25 years' experience in performing
business appraisals. No member of the board of directors or officer of the
Company is affiliated with such appraiser. 1st Class Management Inc. estimated
the value of VSI to be between $1,000,000 and $1,500,000. It was agreed between
the Company and Mr. Stella that the value of VSI for purposes of determining the
number of shares of Series B Preferred Stock to be issued to Mr. Stella in the
Merger is $1,200,000.
Under the terms of an Option Agreement between the Company and Mr.
Stella dated as of December 6, 1995, the Company and Mr. Stella agreed that the
consideration to be paid to Mr. Stella for VSI would be that number of shares of
the Company's Series B Preferred Stock equal to the value of VSI as determined
by an independent appraiser, with each share of Series B Preferred Stock having
a value of $4.00. The value for such Series B Preferred Stock was established by
attributing to the shares of such stock the same approximate value as was paid
for the Company's Series A Preferred Stock in the Company's Units Financing that
occurred between January and March of 1996.
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The terms of the Company's Series A and Series B Preferred Stock are
substantially similar except that the Series B Preferred Stock ranks junior to
the Series A Preferred Stock with respect to payment of dividends and payment
upon liquidation, and the Series B Preferred Stock is convertible into Common
Stock of the Company at any time during the three (3) year period commencing 180
days and terminating three (3) years after the Effective Date, whereas the
Series A Preferred Stock may be converted into Common Stock of the Company
during the period commencing 180 days and terminating 365 days after the
Effective Date (unless the Representative consents to the conversion thereof
prior to such 180th day).
Under the terms of the Merger Agreement, VSI made certain
representations and warranties to the Company in connection with its business,
operations, assets and liabilities and agreed that it would perform certain
covenants. In order to ensure the accuracy of such representations and
warranties and the performance of the covenants of VSI contained in the Merger
Agreement, Mr. Stella agreed to deposit with an escrow agent all of the Series B
Preferred Stock received by him in the Merger. The Company's sole remedy in the
event of a breach of any representation, warranty or covenant is to recover that
number of shares of Series B Preferred Stock as may then be equal in value to
the loss incurred by the Company resulting from the breach, and the Company is
not entitled under the Merger Agreement to assert a claim against Mr. Stella
personally in connection with any such breach. Moreover, any claim for
indemnification under the Merger Agreement must be brought within two years and
may not be brought unless monetary damages incurred by the Company in connection
with such claim exceed $60,000 individually and $250,000 in the aggregate, in
which event the Company may only recover those damages that are in excess of
such $250,000 amount. Since the sole remedy of the Company for breaches of
representations, warranties and covenants in the Merger Agreement is limited to
the value of the Series B Preferred Stock placed in escrow, the Company may
incur losses arising out of such breaches for which it would not be indemnified.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, par value $.001 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share. Immediately prior to the Offering
made hereby, there were 1,240,909 shares of Common Stock issued and outstanding.
Of such 1,240,909 shares, 709,091 are beneficially owned by Mr. Carmine Stella,
who is the Chairman of the Board, President and Chief Executive Officer of the
Company, 354,545 are beneficially owned by Mr. Eugene Fernandez, who is a
Director of the Company, and 177,273 are beneficially owned by Mr. Anthony
Stella, who is the Director of Sales of the Company and the brother of Mr.
Carmine Stella. In addition, prior to this Offering, there were issued and
outstanding (i) 337,500 shares of the Company's Series A Preferred Stock held by
twenty-six (26) individual and entities that acquired such shares in the
Company's 1996 Units Financing; (ii) 300,000 shares of the Company's Series B
Preferred Stock issued to Mr. Carmine Stella upon consummation of the Merger;
and (iii) 4,659,000 Class A Warrants to purchase an aggregate of 4,659,000
shares of Common Stock held by thirty (30) Warrantholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no rights to
convert their Common Stock into any other securities. All shares of Common Stock
have equal, non-cumulative voting rights, and have no preference, conversion,
exchange, preemptive or redemption rights. The outstanding shares of Common
Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation grants to the Board, without
further action of the Company's stockholders, the authority to issue up to
1,000,000 shares of Preferred Stock in series and, at
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the time of issuance, to determine the powers, rights, preferences and
limitation of any such series. Satisfaction of any dividend preferences on
outstanding shares of Preferred Stock will reduce the amount of funds available
for the payment of dividends on Common Stock. Holders of Preferred Stock would
be entitled to receive a preference payment in the event of any liquidation,
dissolution or winding up of the Company before any payment is made to the
holders of Common Stock. Under certain circumstances, the issuance of such
Preferred Stock may render more difficult or tend to discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of the Company's securities or the removal of incumbent directors.
7% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
Pursuant to the terms and conditions of a Certificate of Designations,
Powers, Preferences and Rights of the 7% Cumulative Preferred Stock, Series A
(the "Series A Certificate of Designations") filed with the Secretary of State
of the State of Delaware, the Board has designated 375,000 shares (of which
337,500 have been issued and are presently outstanding) of the Company's
authorized Preferred Stock as 7% Cumulative Preferred Stock, Series A (the
"Series A Preferred Stock"), with the following rights, designations and
preferences:
Dividends Holders of the Series A Preferred Stock are entitled to
receive, out of funds legally available therefor, annual dividends at the rate
of twenty-eight cents ($.28) per share (7% of the liquidation value), payable in
either cash or common stock, in preference to and priority over dividends (other
than stock dividends) on shares of the Company's Common Stock. Dividends on the
Series A Preferred Stock, which are cumulative, accrue beginning on the date of
issuance thereof, and are payable annually to the holders of record thirty (30)
days prior to such date.
Voting Rights So long as any shares of the Series A Preferred Stock
remain outstanding, the Company may not without the affirmative vote at a
meeting, or the written consent with or without a meeting, of the holders of at
least 66 2/3% of the shares of Series A Preferred Stock then outstanding, amend,
alter or repeal any of the provisions of the Series A Certificate of
Designations or the Certificate of Incorporation of the Company, or authorize
any reclassification of the Series A Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series A
Preferred Stock, or authorize any capital stock of the Company ranking, either
as to payment of dividends or upon liquidation, dissolution or winding up of the
Company, prior to the Series A Preferred Stock. In addition, the Company may not
without the affirmative vote at a meeting or the written consent without a
meeting of the holders of at least a majority in voting power of the shares of
the Series A Preferred Stock then outstanding, increase the authorized number of
shares of Series A Preferred Stock or create or increase the authorized number
of shares of, any other class of capital stock of the Company ranking on a
parity with the Series A Preferred Stock either as to payment of dividends or
upon liquidation, dissolution or winding up of the Company. In exercising such
voting rights or when otherwise granted voting rights by operation of law, each
share of Series A Preferred Stock shall be entitled to one vote. Except as set
forth above or as otherwise required by law, holders of Series A Preferred Stock
shall have no special voting rights, and their consent shall not be required for
taking any corporate action.
Liquidation Rights Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall have preference and priority over any Common Stock upon
liquidation, dissolution or winding up, for payment out of the assets of the
Company or proceeds thereof available for distribution to stockholders of $4.00
per share plus all dividends accrued and unpaid thereon to the date of such
distribution, and after such payment the holders of the Series A Preferred Stock
shall be entitled to no other payments. If, in the case of any such liquidation,
dissolution or winding up of the Company, the assets of the Company or proceeds
thereof shall be insufficient to make the full liquidation payment of $4.00 per
share plus all accrued and unpaid dividends on the Series A Preferred Stock and
full liquidation payments on any other series of preferred stock ranking as to
liquidation on a parity with the Series A Preferred Stock, then such assets and
proceeds shall be distributed among the holders of the Series A Preferred Stock
and any such other preferred stock ratably in accordance with the respective
amounts which would be payable upon liquidation, dissolution or winding-up on
such shares of Series A Preferred Stock and any such other series of preferred
stock if all amounts payable thereof were paid in full. Neither the
consolidation nor merger of the Company into or with another corporation or
corporations, nor the
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sale of all or substantially all of the assets of the Company, shall be deemed a
liquidation, dissolution or winding up the affairs of the Company.
Conversion Each share of Series A Preferred Stock shall be convertible
into one (1) share of Common Stock, $.001 par value, of the Company, subject to
adjustment in certain events including (i) subdivisions or combinations of
shares of common stock, and (ii) reclassifications, consolidations, mergers and
similar transactions. Such conversion may be effected at the option of the
holder of shares of Series A Preferred Stock during the period commencing one
hundred eighty (180) days and terminating three hundred sixty (360) days after
the Effective Date of this Registration Statement unless the Representative and
the Company consent that such option may be exercised prior to such 180th day.
The registered holder of shares of Series A Preferred Stock at the
close of business on a dividend payment record date shall be entitled to receive
the dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof or the Company's default on payment of
the dividend due on such dividend payment date. However, shares of Series A
Preferred Stock surrendered for conversion during the period from the close of
business on any dividend payment record date of such Series A Preferred Stock to
the opening of business on the corresponding dividend payment date must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such dividend payment date. A holder of Series A Preferred Stock on a
dividend payment record date who converts shares of such Series A Preferred
Stock on a dividend payment date will receive the dividend payable on such
Series A Preferred Stock by the Company on such date, and the converting holder
need not include payment in the amount of such dividend upon surrender of shares
of Series A Preferred Stock for conversion.
Other Holders of Series A Preferred Stock are not entitled to any
preemptive rights and no sinking fund provisions are applicable to such shares.
In addition, such Series A Preferred Stock may not be transferred, pledged or
otherwise disposed of in any manner prior to the expiration of twelve (12)
months after the Effective Date without the prior consent of the Company and the
Representative. However, in the event a holder of Series A Preferred Stock
converts his or her shares into shares of Common Stock of the Company
("Converted Preferred Stock") during the convertibility period thereof, such
Converted Preferred Stock may be sold by such holder under the Registration
Statement of which this Prospectus is a part.
7% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B
Pursuant to the terms and conditions of a Certificate of Designations,
Powers, Preferences and Rights of the 7% Cumulative Preferred Stock, Series B
(the "Series B Certificate of Designations") to be filed with the Secretary of
State of the State of Delaware, the Board has designated 300,000 shares of the
Company's authorized Preferred Stock as 7% Cumulative Preferred Stock, Series B
(the "Series B Preferred Stock"), with the following rights, designations and
preferences:
Dividends Holders of the Series B Preferred Stock are entitled to
receive, out of funds legally available therefor, annual dividends at the rate
of twenty-eight cents ($.28) per share (7% of the liquidation value), payable in
either cash or common stock, in preference to and priority over dividends (other
than stock dividends) on shares of the Company's Common Stock but after payment
of all dividends then due on the Company's Series A Preferred Stock. Dividends
on the Series B Preferred Stock, which are cumulative, accrue beginning on the
date of issuance thereof, and are payable annually to the holders of record
thirty (30) days prior to such date.
Voting Rights So long as any shares of the Series B Preferred Stock
remain outstanding, the Company will not without the affirmative vote at a
meeting, or the written consent with or without a meeting, of the holders of at
least 66 2/3% of the shares of Series B Preferred Stock then outstanding, amend,
alter or repeal any of the provisions of the Series B Certificate of
Designations or the Certificate of Incorporation of the Company, or authorize
any reclassification of the Series B Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series B
Preferred Stock, or authorize any capital stock of the Company ranking, either
as to payment of dividends or upon liquidation, dissolution or winding up of the
Company, prior to the Series B Preferred Stock. In addition, the Company will
not without the affirmative vote at a meeting or the written consent without a
meeting of the holders of at least a majority in voting power of the shares of
the Series B Preferred Stock then outstanding, increase the authorized
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number of shares of Series B Preferred Stock or create or increase the
authorized number of shares of, any other class of capital stock of the Company
ranking on a parity with the Series B Preferred Stock either as to payment of
dividends or upon liquidation, dissolution or winding up of the Company. In
exercising such voting rights or when otherwise granted voting rights by
operation of law, each share of Series B Preferred Stock shall be entitled to
one (1) vote. Except as set forth above or as otherwise required by law, holders
of Series B Preferred Stock shall have no special voting rights, and their
consent shall not be required for taking any corporate action.
Liquidation Rights The holders of the Series B Preferred Stock shall be
subordinate to the rights of the Series A Preferred Stock but shall have
preference and priority over any Common Stock upon any liquidation, dissolution
or winding up, for payment out of the assets of the Company or proceeds thereof
available for distribution to stockholders, of $4.00 per share plus all
dividends accrued and unpaid thereon to the date of such distribution, and after
such payment the holders of the Series B Preferred Stock shall be entitled to no
other payments. If, in the case of any such liquidation, dissolution or winding
up of the Company, the assets of the Company or proceeds thereof shall be
insufficient to make the full liquidation payment of $4.00 per share plus all
accrued and unpaid dividends on the Series B Preferred Stock and full
liquidation payments on any other series of preferred stock ranking as to
liquidation on a parity with the Series B Preferred Stock, then such assets and
proceeds shall be distributed among the holders of the Series B Preferred Stock
and any such other preferred stock ratably in accordance with the respective
amounts which would be payable upon liquidation, dissolution or winding-up on
such shares of Series B Preferred Stock and any such other series of preferred
stock if all amounts payable thereof were paid in full. Neither the
consolidation nor merger of the Company into or with another corporation or
corporations, nor the sale of all or substantially all of the assets of the
Company, shall be deemed a liquidation, dissolution or winding up the affairs of
the Company.
Conversion Each share of Series B Preferred Stock shall be convertible
into one (1) share of Common Stock, $.001 par value, of the Company, subject to
adjustment in certain events including (i) subdivisions or combinations of
shares of common stock, and (ii) reclassifications, consolidations, mergers and
similar transactions. Such conversion may be effected at the option of the
holder of shares of Series B Preferred Stock during the period commencing one
hundred eighty (180) days and terminating three (3) years after the Effective
Date.
The registered holder of shares of Series B Preferred Stock at the
close of business on a dividend payment record date shall be entitled to receive
the dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof or the Company's default on payment of
the dividend due on such dividend payment date. However, shares of Series B
Preferred Stock surrendered for conversion during the period from the close of
business on any dividend payment record date of such Series B Preferred Stock to
the opening of business on the corresponding dividend payment date must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such dividend payment date. A holder of Series B Preferred Stock on a
dividend payment record date who converts shares of such Series B Preferred
Stock on a dividend payment date will receive the dividend payable on such
Series B Preferred Stock by the Company on such date, and the converting holder
need not include payment in the amount of such dividend upon surrender of shares
of Series B Preferred Stock for conversion.
Other Holders of Series B Preferred Stock are not entitled to any
preemptive rights and no sinking fund provisions are applicable to such shares.
CLASS A WARRANTS
The Class A Warrants sold in this Offering and the other outstanding
Class A Warrants of the Company are governed by and subject to the terms of a
warrant agreement (the "Warrant Agreement") between the Company and Continental
Stock Transfer & Trust Company as warrant agent (the "Warrant Agent"). The
following statements are brief summaries of certain provisions of the Warrant
Agreement. Copies of the Warrant Agreement may be obtained from the Company or
the Warrant Agent and have been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
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The holder of each Class A Warrant is entitled, upon payment of the
exercise price of $5.00, to purchase one share of the Company's Common Stock.
Unless previously redeemed, the Class A Warrants are exercisable at any time
commencing on the Effective Date until the close of business on the day prior to
the fourth anniversary of the Effective Date ("Class A Warrant Exercise
Period"), provided a registration statement filed pursuant to the Securities Act
covering the Class A Warrants and shares of Common Stock underlying such Class A
Warrants has been declared effective. The Class A Warrant Exercise Period may be
extended by the Company's Board of Directors. The Class A Warrants are subject
to redemption by the Company, with the consent of the Representative in the
event a redemption occurs prior to the first anniversary of the Effective Date,
upon not less than forty-five (45) days written notice, at a price of $.001 per
warrant, at any time during the Class A Warrant Exercise Period, provided that
the final bid price for a share of Common Stock has been at least 160% of the
then exercise price of the Class A Warrants for the twenty (20) trading days
preceding the date of such notice, and holders of the Class A Warrants shall
have had exercise rights until the close of business on the date fixed for
redemption. The Class A Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price in certain events
including, but not limited to, stock dividends, stock splits, reclassification
or mergers. The ownership of a Class A Warrant will not grant its holder any
rights as a shareholder of the Company. The shares of Common Stock, when issued
upon the exercise of the Class A Warrants in accordance with the terms thereof,
will be fully paid and non-assessable.
Holders of the Class A Warrants will automatically forfeit their rights
to purchase the shares of Common Stock issuable upon exercise of such Class A
Warrants unless the Warrants are exercised before the close of business on the
business day set for redemption. All Class A Warrants must be redeemed if any of
such Warrants are redeemed. A notice of redemption shall be mailed to each
registered holder of Class A Warrants by first class mail, postage prepaid, and
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.
(Eastern Standard Time) on the business day fixed for redemption.
Class A Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to the expiration of the redemption date (as explained
above) at the offices of the Company's Warrant Agent, with the form of "Election
to Purchase" attached to the Class A Warrant, filled out and executed as
indicated, accompanied by payment (in the form of certified or cashier's check
payable to the order of the Company) of the full exercise price for the number
of Class A Warrants being exercised. The Company may amend the terms of the
Class A Warrants but only by extending the termination date or lowering the
exercise price thereof. The Company has no present intention of amending such
terms.
On the Effective Date, there will be 5,059,000 Class A Warrants
outstanding. Of such 5,059,000 Class A Warrants, 400,000 are being registered
hereby and are freely tradeable immediately upon issuance, 3,175,000 are being
offered by the Selling Securityholders and will be tradeable commencing 120 days
after the Effective Date unless the Representative agrees that such warrants may
be transferred prior to such 120th day, and 1,484,000 are owned by certain
members of management of the Company and are "restricted securities", as such
term is defined in the Securities Act. Each member of management holding such
1,484,000 Class A Warrants has agreed that he will not exercise such warrants
prior to the expiration of 180 days after the Effective Date.
POSSIBLE ANTI-TAKEOVER EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon completion of this Offering, the Company's authorized but unissued
capital stock will consist of 362,500 shares of Preferred Stock and 17,959,091
shares of Common Stock (inclusive of 637,500 shares reserved for issuance upon
conversion of the Series A and Series B Preferred Stock and 5,529,000 shares
reserved for issuance upon exercise of (i) the Class A Warrants to purchase
400,000 shares of Common Stock included as part of the Units offered hereby,
(ii) the 4,659,000 Class A Warrants presently outstanding, (iii) 120,000 shares
of Common Stock underlying the Representative's Unit Purchase Option, and (iv)
options to purchase 350,000 shares of Common Stock that may be granted under the
Company's 1996 Incentive Stock Option Plan).
CERTAIN CHARTER AND BYLAW PROVISIONS
39
<PAGE> 46
The Company's Certificate of Incorporation and Bylaws limit the
liability of directors and officers to the extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
including gross negligence, except liability for (i) breach of the directors'
duty of loyalty; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption; and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not permit a corporation to eliminate a director's duty of
care, and this provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of duty of care.
The Company is planning to enter into indemnification agreements with
each of its current and future directors and officers which provide for
indemnification of, and advancing of expenses to, such persons to the greatest
extent permitted by Delaware law, including by reason of action or inaction
occurring in the past and circumstances in which indemnification and the
advancing of expenses are discretionary under Delaware law. The Company believes
that the limitation of liability provisions in its Certificate of Incorporation
and its Bylaws and the indemnification agreements will facilitate the Company's
ability to continue to attract and retain qualified individuals to serve as
directors of the Company.
The Company's Certificate of Incorporation authorizes the Company to
purchase and maintain insurance for the purposes of indemnification. The Company
intends to apply for directors' and officers' insurance, although there can be
no assurance that the Company will be able to obtain such insurance on
reasonable terms, or at all. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent for which
indemnification will be required or permitted under the Company's Certificate of
Incorporation, Bylaws or indemnification agreements. The Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
BUSINESS COMBINATION PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election); (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder; (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
TRANSFER AGENT
40
<PAGE> 47
The Transfer Agent, Conversion Agent and Registrar for the Common Stock
and Preferred Stock, and the Warrant Agent is Continental Stock Transfer & Trust
Company.
DIVIDEND POLICY
The Company has not previously paid any dividends since its inception
and except for cash dividends, if any, to be paid on its Series A and Series B
Preferred Stock, currently intends to follow a policy of retaining all of its
earnings, if any, to finance the development and continued expansion of its
business. Except for dividends to be paid on the Company's Series A and Series B
Preferred Stock, which dividends may be paid in either cash or shares of the
Company's Common Stock, there can be no assurance that dividends will ever be
paid by the Company. Investors who anticipate the needs for dividends from their
investments should take into consideration this factor, among others, in
deciding whether they should purchase Units and if, they purchase them, whether
they should exercise their Warrants to purchase shares of the Company's Common
Stock.
TREASURY STOCK
In January 1996, the Company reacquired Shares of Common Stock of Class
A Warrants that previously had been held by certain shareholders for nominal
consideration. All of such common stock is being held as treasury stock, and all
of such Class A Warrants were cancelled.
REGISTRATION RIGHTS
The Unit Purchase Option will contain a "demand" right to require, on
any one occasion one year after the date of this Prospectus, the Company to file
a registration statement with respect to the Common Stock and Class A Warrants
(including Common Stock to be issued upon exercise of such Class A Warrants)
(the "Registrable Securities") issuable upon exercise of the Representative's
Unit Purchase Option in order to effect a public offering thereof, and certain
"piggyback" rights to require the registration of such Registrable Securities in
certain registration statements filed by the Company with the Commission. Such
registration rights may be transferred to any subsequent holder of the
Registrable Securities. Holders of Registrable Securities may exercise their
demand registration right with respect to all or part of their Registrable
Securities provided, in either case, that the holders demanding registration
represent not less than a majority of the Registrable Securities then
outstanding. The Company has agreed to pay all expenses with respect to
registration pursuant to the demand registration right described above. The
Company has also agreed to register the 337,500 shares of Series A Preferred
Stock issued in connection with its Private Placement Financing completed in
March 1996, no earlier than 12, nor later than 13, months after the Effective
Date and to pay all expenses in connection therewith. The Common Stock into
which such preferred stock is convertible is being registered under the
Registration Statement of which this Prospectus forms a part.
LOCK-UP AGREEMENTS
The Registration Statement of which this Prospectus forms a part covers
Additional Securities held by the Selling Securityholders, including certain
Additional Securities held by Mr. Carmine Stella, who is Chairman of the Board,
President and Chief Executive Officer of the Company, Mr. Eugene Fernandez, who
is a Director of the Company, and Ms. Carol Macchiarulo, who is Secretary and
Treasurer of the Company. Except for such Additional Securities being offered by
such persons, each of the officers, directors and 5% or greater shareholders of
the Company has agreed not to sell any securities held by them, respectively,
for a period of 24 months after the Effective Date (or such longer period not to
exceed 36 months as may be required by any applicable state blue sky law)
without obtaining the prior written approval of the Representative (and, if
required by applicable blue sky laws, the securities commissioners of any such
states).
SECURITIES ELIGIBLE FOR FUTURE SALE
Assuming (i) the exercise of all of the 5,059,000 Class A Warrants to
be outstanding after this Offering for 5,059,000 shares of Common Stock, (ii)
conversion of the outstanding 337,500 shares of Series A Preferred Stock into
337,500 shares of Common Stock, and (iii) conversion of the outstanding 300,000
shares of Series B Preferred Stock into 300,000 shares of Common Stock (but
excluding the 120,000 shares of Common Stock that the Representative may acquire
upon exercise of the Representative's Unit Purchase Option and the Class A
Warrants issued thereunder), the Company would have outstanding 7,737,409 shares
of Common Stock after this Offering.
41
<PAGE> 48
Not all of the Company's outstanding securities are being registered
hereby. Of the 7,737,409 shares of Common Stock outstanding upon completion of
this Offering (assuming the exercise of all of the Class A Warrants and the
conversion of the Series A and Series B Preferred Stock but excluding the
120,000 shares of Common stock that the Representative may acquire upon exercise
of the Representative's Unit Purchase Option and the Class A Warrants issued
thereunder), 5,012,500 shares of Common Stock are being registered hereby and
2,724,909 shares of Common Stock are not being registered hereby. Of the
5,059,000 Class A Warrants to be outstanding after this Offering (excluding the
40,000 Class A Warrants issuable upon exercise of the Representative's Unit
Purchase Option), 3,575,000 Class A Warrants are being registered hereby and
1,484,000 Class A Warrants, which are held by certain members of management, are
not being registered.
All of the securities registered under the Registration Statement of
which this Prospectus is a part (excluding the Representative's Unit Purchase
Option and the securities issuable thereunder) will be freely tradeable without
registration under the Securities Act following their offer and sale except for
securities purchased by an affiliate of the Company.
Upon consummation of this Offering, an aggregate of 940,909 outstanding
shares of Common Stock, 1,484,000 outstanding Class A Warrants (and the
1,484,000 shares of Common Stock for which such Class A Warrants may be
exercised), and 300,000 outstanding shares of Series B Preferred Stock (and the
300,000 shares of Common Stock into which it may be converted) will not have
been registered under the Securities Act. In addition, the 337,500 shares of
Series A Preferred Stock that were issued in the Company's 1996 Units Financing
will also not have been registered under the Securities Act, although the
337,500 shares of Common Stock into which such Series A Preferred stock are
convertible are being registered hereby. Such unregistered securities may,
however, under certain circumstances, be available for public sale by means of
ordinary brokerage transactions in the open market pursuant to Rule 144,
promulgated under the Securities Act, subject to certain limitations.
In general, under Rule 144 as currently in effect, a securityholder,
including an affiliate of the Company, may sell securities of the Company
acquired prior to this Offering after at least two years have elapsed since such
securities were acquired from the Company or an affiliate of the Company. The
number of securities which may be sold within any three month period is limited
to the greater of one percent of the then outstanding shares or other units of
the class or the average weekly trading volume in such securities during the
four calendar weeks preceding the date on which notice of such sale was filed
under Rule 144. Certain other requirements of Rule 144 concerning availability
of public information, manner of sale and notice of sale must also be satisfied.
In addition, a securityholder who is not an affiliate of the Company (and who
has not been an affiliate of the Company for 90 days prior to the sale) and who
beneficially owns securities acquired from the Company or an affiliate of the
Company over three years previously may resell his or her securities without
compliance with the foregoing requirements under Rule 144.
In addition, Rule 144A as currently in effect generally permits
unlimited resales of certain restricted securities of any issuer provided that
the purchaser is an institution that owns and invests on a discretionary basis
at least $100,000,000 in securities or is a registered broker dealer that owns
and invests $10,000,000 in securities. Rule 144A allows the existing
shareholders of the Company to sell their shares of Common Stock to such
institutions and registered broker-dealers without regard to any volume or other
restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A
to nonaffiliates do not lose their status as restricted securities.
The Commission has recently proposed reducing the initial Rule 144
holding period to one year and the Rule 144(k) holding period to two years.
There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modification will have a material effect on the time
when shares of the Company's Common Stock and Class A Warrants become eligible
for resale.
Prior to this Offering, there has been no public market for the Shares
or Class A Warrants, and no predictions can be made as to the effect, if any,
that sale of shares of Common Stock or Class A Warrants or the availability of
shares of Common Stock or Class A Warrants for sale will have on the prevailing
market price of the Shares or Class A Warrants . Nevertheless, sales of
substantial amounts of such securities in
42
<PAGE> 49
the public market could have an adverse effect on prevailing market prices for
the Shares and Class A Warrants offered hereby.
The holders of the Restricted Securities have agreed not to sell such
securities (or any securities that may be issued upon conversion or exercise
thereof) without the consent of the Representative for a period of two (2) years
after the Effective Date.
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement,
the Underwriters named below, for whom Investors Associates, Inc. is acting as
representative, have agreed to purchase from the Company the 800,000 Units
offered hereby. The number of Units that each Underwriter has agreed to purchase
is set forth opposite its name below.
<TABLE>
<CAPTION>
REPRESENTATIVE NUMBER OF UNITS
<S> <C>
Investor Associates, Inc.
Name
Name
</TABLE>
The Underwriting Agreement provides that the several Underwriters will
be obligated to purchase all of the Units offered hereby if any are purchased,
subject to the approval of certain legal matters by their counsel and to certain
other conditions. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, the purchase commitments of
the nondefaulting Underwriters may be increased or the Underwriting Agreement
may be terminated.
The Company has been advised by the Representative that the
Underwriters propose to offer the Units to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
selected dealers at such price less a concession of $0.__ per Unit, of which an
amount not exceeding $0.__ per Unit may be reallowed to other dealers. The
public offering price and concessions and discounts to dealers may be changed by
the Representative after the initial public offering.
The Company will pay to the Underwriters the underwriting commission
set forth on the cover page of this Prospectus upon payment for the Units by the
Underwriters.
The Company has agreed to pay the Representative a non-accountable
expense allowance of 3% of the aggregate offering price of the Units offered
hereby. The Company has also agreed to pay all expenses in connection with
qualifying the Securities for sale under the laws of such states as the
Representative may designate, including expenses of counsel retained for such
purpose. The Representative's expenses in excess of the non-accountable expense
allowance, including its legal expenses (other than the aforesaid expenses of
counsel) will be borne by the Representative. To the extent that the expenses of
the Representative are less than the non-accountable expense allowance, the
excess may be deemed additional underwriting compensation.
The Company has agreed to sell the Unit Purchase Option to the
Representative and/or its designees upon the closing of this Offering for
$100.00. Such Unit Purchase Option may be exercised to purchase up to that
aggregate number of shares of Common Stock and Class A Warrants as would be
equal to 10% of the total number of Units sold pursuant to this Offering. The
Unit Purchase Option will be exercisable at a price equal to 120% of the Price
to Public of the Units offered hereby commencing one year from the date of this
Prospectus and will remain exercisable for a period of three years after such
date and grants the Representative certain demand and participatory rights to
require registration of the shares of Common Stock and Class A warrants
underlying the Unit Purchase Option under the Securities Act. The Class A
Warrants included in the Unit Purchase Option are subject to redemption during
the term of the Unit Purchase Option subject to the same terms and conditions as
the Class A Warrants sold to the public. During the first year of the Unit
Purchase Option, it is generally not transferable, except to officers and
shareholders of the Representative or to any Underwriters or selected dealers or
their officers or partners. Any profits realized
43
<PAGE> 50
by the Underwriters upon the sale of the Unit Purchase Option or the securities
issuable upon exercise thereof may be deemed to constitute additional
underwriting compensation. During the term of the Unit Purchase Option, the
holder(s) thereof are given, at nominal cost, the opportunity to profit from a
rise in the market price of the Common Stock.
Upon exercise of the Class A Warrants commencing 12 months from the
date of this Prospectus, the Company will pay the Representative a warrant
solicitation fee of 5% of the aggregate exercise price of Class A Warrants
exercised (a portion of which the Representative may re-allow to another
broker-dealer soliciting the exercise), if (i) the market price of the Common
Stock on the date the Class A Warrant is exercised is greater than the then
exercise price of the Class A Warrant; (ii) the exercise of the Class A Warrant
was solicited by a member of the NASD; (iii) the Class A Warrant is not held in
a discretionary account; (iv) disclosure of the compensation arrangements was
made (by delivery of this Prospectus or otherwise) both at the time of the
Offering and at the time of exercise of the Class A Warrant; and (v) the
solicitation of exercise of the Class A Warrant is not in violation of Rule
10b-6 promulgated under the Exchange Act. No warrant solicitation fee will be
paid to an NASD member unless such member has been designated in writing by the
warrant holder.
In connection with the solicitation of warrant exercises, unless
granted an exemption by the Commission from its Rule 10b-6, the Representative
and any other soliciting broker-dealer will be prohibited from engaging in any
market-making activities with respect to the Company's Securities for the period
commencing either two or nine business days (depending on the market price of
the Common Stock) prior to any solicitation activity for the exercise of Class A
Warrants until the latter of (i) the termination of such solicitation activity,
or (ii) the termination (by waiver or otherwise) of any right which the
Representative or any other soliciting broker-dealer may have to receive a fee
for the exercise of Class A Warrants following such solicitation. As a result,
the Representative or any other soliciting broker-dealer may be unable to
provide a market for the Company's Securities, should they desire to do so,
during certain period while the Class A Warrants are exercisable.
For a period of five years from the date of this Prospectus, the
Company has agreed to recommend and use its best efforts to elect a designee of
the Representative, at the option of the Representative, either as either a
member of or a non-voting advisor to its Board of Directors.
Further, the Company has agreed to engage Horatio Management Services
Corp., an affiliate of the Representative, as the Company's management
consultant, for a period of 24 months following the closing of the Offering, at
a monthly fee of $5,000 (exclusive of any accountable out-of-pocket expenses),
which fee is payable annually commencing on the closing of this Offering. In
addition, the Company has agreed, subject to any required regulatory approvals,
to pay the Representative a finder's fee in the event that the Representative
originates within five years following the Effective Date a merger, acquisition,
joint venture or other transaction, which the Company determines to enter into,
in an amount equal to 5% of the first $1,000,000, 4% of the next $1,000,000, 3%
of the next $1,000,000 and 2% of the excess, if any, over $3,000,000 of the
consideration actually received by the Company on such transaction.
In addition, during the five year period following the Effective Date,
the Representative has been granted the right to purchase for its own account or
to sell for the account of the Company's officers and directors any securities
sold pursuant to Rule 144. Each of the officers and directors of the Company
(the "144 Seller") has agreed to consult with the Representative with regard to
any such sales and will offer the Representative the exclusive opportunity to
purchase or sell such securities on terms at least as favorable to the 144
Seller as he or she could secure elsewhere.
The Representative has performed investment banking services for the
Company in connection with its Private Placement Financings. As compensation for
such services, the Company paid the Representative aggregate selling commissions
of $135,000, reimbursed the Representative an aggregate of $13,500 for its
expenses, and paid approximately $30,000 to the Representative's counsel for
blue sky fees and expenses. In addition, the Company has paid approximately
$15,000 to the Representative's counsel for blue sky fees and expenses in
connection with this Offering (up to an additional $25,000 will be payable to
such counsel for blue sky fees and expenses upon consummation of this Offering).
44
<PAGE> 51
Each of the Company's officers, directors and shareholders owning at
least 5% of the outstanding shares of Common Stock prior to this Offering has
agreed that he or she will not directly or indirectly sell, offer to sell, grant
an option for the sale of, or otherwise dispose of, any of the Company's
securities owned by him or her for a period of 24 months following the Effective
Date (or such longer period not to exceed 36 months as may be required under
applicable state blue sky laws) without obtaining the prior written consent of
the Representative.
In the Underwriting Agreement, the Company and the Underwriters have
agreed to indemnify each other against liabilities arising out of or based upon
any untrue statement or alleged untrue statement of any material fact or
omission or alleged omission of a material fact required to be stated or
necessary to make the statements made not misleading, in each case only to the
extent made in reliance upon or in conformity with written information furnished
by the respective party for use herein. If such indemnifications are unavailable
or insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon relative benefits received
from this Offering and relative fault resulting in such damages.
The Underwriters do not intend to confirm sales of the Securities
offered hereby to discretionary accounts.
An application has been filed by the Company for quotation of the
Common Stock and the Class A Warrants on the NASDAQ Small Cap Market upon
completion of this Offering. Prior to the Offering, there has been no public
market for the Securities of the Company. The initial public offering price of
the Units and the exercise price of the Class A Warrants have been arbitrarily
determined by negotiation between the Company and the Representative. Among the
factors considered in determining the initial public offering price of the Units
and the exercise price of such Warrants were the earnings and certain other
financial and operating information of the Company in the periods prior to the
Offering, the future prospects of the Company and its industry in general, the
general condition of the securities markets at the time of this Offering, and
the market prices of securities and certain financial and operating information
of companies engaged in activities similar to those of the Company. There can be
no assurance, however, that the prices at which the Common Stock and Class A
Warrants will sell in the public market after this Offering will not be lower
than the prices at which they are sold by the Underwriters.
The foregoing does not purport to be a complete statement of the terms
and conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Company, the Representative and the Commission.
LEGAL MATTERS
Certain legal matters in connection with this Offering are being passed
upon for the Company by Weber & Weber, 300 Rabro Drive, Hauppauge, New York
11788. Counsel for the Representative in connection with this Offering is the
law office of Sayid and Associates, 411 Hackensack Avenue, Hackensack, New
Jersey 07601.
EXPERTS
The financial statements included in this Registration Statement have
been examined and certified by Feldman Radin & Co., P.C., independent certified
public accountants, as set forth in their report appearing elsewhere herein, and
are included in reliance upon such report and upon the authority of said firm as
experts in accounting and auditing.
45
<PAGE> 52
CAPITAL BEVERAGE CORPORATION
FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 2
FINANCIAL STATEMENTS:
Balance Sheet - December 31, 1995 F - 3
Statement of Operations - Years ended
December 31, 1995 and 1994 F - 4
Statement of Stockholders' Equity - Years ended
December 31, 1995 and 1994 F - 5
Statement of Cash Flows - Years ended
December 31, 1995 and 1994 F - 6
Notes to Financial Statements F - 7
</TABLE>
F - 1
<PAGE> 53
After the Agreement and Plan of Merger discussed in Note 1 to these
financial statements is effected, we expect to be in a position to render the
following audit report
New York, New York Feldman Radin & Co., P.C.
July 26, 1996
INDEPENDENT AUDITORS' REPORT
Capital Beverage Corporation
Bronx, New York
We have audited the accompanying balance sheet of Capital Beverage
Corporation as of December 31, 1995 and 1994 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
two-year period ended December 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, the financial position of Capital Beverage Corporation as of December
31, 1995 and 1994 and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
F - 2
<PAGE> 54
CAPITAL BEVERAGE CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 30,383 $ 273,441
Accounts receivable - trade -- 273,521
Stock subscription receivable -- 50,000
Inventories 460,440 585,240
Due from stockholder 5,000 --
Prepaid expenses 7,408 6,891
-------- ----------
TOTAL CURRENT ASSETS 503,231 1,189,093
PROPERTY AND EQUIPMENT, net 40,750 38,208
OTHER ASSETS
Intangible assets, less accumulated amortization of $40,000 -- 1,560,000
Deferred registration costs -- 221,195
Deposits 3,290 3,290
-------- ----------
$547,271 $3,011,786
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 73,031 $ 82,194
Accrued expenses and taxes 70,742 115,090
Current portion of long-term debt 38,500 108,204
Dividends payable -- 18,813
Due to stockholder -- 180,000
-------- ----------
TOTAL CURRENT LIABILITIES 182,273 504,301
-------- ----------
LONG-TERM DEBT -- 706,663
STOCKHOLDERS' EQUITY
7% Cumulative Convertible Series A Preferred stock, $ .01 par value; 1,000,000
authorized shares; 337,500 shares issued and outstanding
at March 31, 1996; none issued and outstanding at December 31, 1995 -- 1,350,000
Common stock, $ .001 par value;
20,000,000 authorized shares; 1,240,909 outstanding after
deducting 886,364 shares in treasury 1,241 1,241
Additional paid in capital 351,333 351,333
Retained earnings 12,424 98,248
-------- ----------
TOTAL STOCKHOLDERS' EQUITY 364,998 1,800,822
-------- ----------
$547,271 $3,011,786
======== ==========
</TABLE>
See notes to financial statements
F-3
<PAGE> 55
CAPITAL BEVERAGE CORPORATION
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
Years Ended December 31, March 31,
-------------------- --- ---------
1995 1994 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $6,926,789 $12,135,655 $2,503,597 $1,720,837
Cost of goods sold 6,422,489 11,456,751 2,209,688 1,621,658
---------- ----------- ---------- ----------
GROSS PROFIT 504,300 678,904 293,909 99,179
COSTS AND EXPENSES:
Selling and delivery 56,083 78,175 5,611 9,391
General and administrative 445,689 530,649 152,627 95,385
---------- ----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 2,528 70,080 135,671 (5,597)
---------- ----------- ---------- ----------
INTEREST EXPENSE 14,476 9,262 7,837 4,825
---------- ----------- ---------- ----------
INCOME (LOSS) BEFORE TAXES (11,948) 60,818 127,834 (10,422)
INCOME TAXES 3,360 2,202 12,000 625
---------- ----------- ---------- ----------
NET INCOME (LOSS) (15,308) 58,616 115,834 (11,047)
PRO-FORMA INCOME TAXES (5,358) 20,516 40,542 (3,866)
---------- ----------- ---------- ----------
PRO-FORMA NET INCOME(LOSS) $ (9,950) $ 38,100 $ 75,292 $ (7,181)
========== =========== ========== ==========
PRO-FORMA INCOME AND (LOSS) PER COMMON SHARE $ (0.01) $ 0.03 $ 0.05 $ (0.01)
========== =========== ========== ==========
NUMBER OF COMMON SHARES OUTSTANDING 1,240,909 1,240,909 1,240,909 1,240,909
========== =========== ========== ==========
</TABLE>
See notes to financial statements
F-4
<PAGE> 56
CAPITAL BEVERAGE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
--------------- ------------ Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 -- $ -- 1,240,909 $ 1,241 $ 48,759 $ 7,559 $ 57,559
Net Income -- -- -- -- -- 58,616 58,616
Distributions -- -- -- -- -- (15,143) (15,143)
------- ---------- --------- -------- -------- -------- ----------
Balance December 31, 1994 -- -- 1,240,909 1,241 48,759 51,032 101,032
Net income -- -- -- -- -- (15,308) (15,308)
Contribution by principal stockholder -- -- -- -- 302,574 -- 302,574
Distributions -- -- -- -- -- (23,300) (23,300)
------- ---------- --------- -------- -------- -------- ----------
Balance December 31, 1995 -- -- 1,240,909 1,241 351,333 12,424 364,998
Net Income -- -- -- -- -- 115,834 115,834
Issuance of Preferred Stock, less related costs 337,500 1,350,000 -- -- -- -- 1,350,000
Dividends payable to preferred shareholders -- -- -- -- -- (18,813) (18,813)
Distributions to Common Shareholders -- -- -- -- -- (11,197) (11,197)
------- ---------- --------- -------- -------- -------- ----------
Balance March 31, 1996 (Unaudited) 337,500 $1,350,000 1,240,909 $ 1,241 $351,333 $ 98,248 $1,800,822
======= ========== ========= ======== ======== ======== ==========
</TABLE>
See notes to financial statements
F-5
<PAGE> 57
CAPITAL BEVERAGE CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Year Ended December 31, March 31,
----------------------- ---------
1995 1994 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(15,308) $ 58,616 115,834 (11,047)
-------- -------- ---------- --------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 10,167 10,167 42,542 2,542
Changes in assets and liabilities:
(Increase) in accounts receivable -- -- (273,521)
(Increase) decrease in inventories 38,272 12,622 (124,800) (9,434)
(Increase) decrease in prepaid expenses 3,771 (11,179) 517 3,396
(Increase) decrease in other assets 4,728 (4,728) -- 4,728
(Decrease) increase in accounts payable and accrued expenses 47,151 6,257 53,711 (9,948)
-------- -------- ---------- --------
104,089 13,139 (301,551) (8,716)
-------- -------- ---------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 88,781 71,755 (185,717) (19,763)
-------- -------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Pabst rights -- -- (800,000) --
-------- -------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of note payable - bank (42,000) (39,900) (10,500) (10,500)
Payment of note payable - other -- -- (13,333) --
Deferred registration costs -- -- (221,195)
Loan from stockholder -- -- 185,000 88,053
Loan to stockholder (5,000) -- -- --
Issuance of preferred stock -- -- 1,300,000 --
Distributions to stockholder (23,300) (15,143) (11,197) (11,854)
-------- -------- ---------- --------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (70,300) (55,043) 1,228,775 65,699
-------- -------- ---------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 18,481 16,712 243,058 45,936
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 11,902 (4,810) 30,383 11,902
-------- -------- ---------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 30,383 $ 11,902 $ 273,441 $ 57,838
======== ======== ========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 14,476 $ 9,262 $ 7,837 $ 4,825
======== ======== ========== ========
Cash paid for taxes $ 3,360 $ 2,202 $ 12,000 $ 625
======== ======== ========== ========
</TABLE>
See notes to financial statements
F-6
<PAGE> 58
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
(Information with respect to the interim three month periods is unaudited)
1. BASIS OF PRESENTATION AND BUSINESS
Capital Beverage Corporation (the "Company") was formed in December
1995 to operate as a wholesaler and retailer of beer and other
beverages from its premises in the Bronx, New York. It is intended that
prior to the effectiveness of the registration statement of which these
financial statements form an integral part, the Company will enter into
an Agreement and Plan of Merger with Vito Santoro, Inc., ("VSI"), a
company related by common ownership interests (the "Merger"). In
connection with the contemplated Merger, all of the issued and
outstanding common shares of VSI will be cancelled, all of its assets
and liabilities will be transferred to Capital and VSI will go out of
existence. In addition, the existing sole stockholder of VSI (who is
also a significant stockholder of the Company), will receive 300,000
shares of the Company's Series B Cumulative Convertible Preferred
Stock. In connection with the Merger, the Company has received an
independent appraisal regarding the valuation of VSI for purposes of
determining the consideration to be paid to Mr. Stella. Based upon that
independent appraisal, the Company determined to issue to Mr. Stella
300,000 shares of the cumulative convertible Series B preferred shares
referred to above.
The Merger has been accounted as a combination of commonly controlled
entities. Accordingly, the financial statements presented herein
present the financial position and results of operations and cash flows
for VSI and the Company as if they had been combined for all periods
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents - The Company considers as cash equivalents
all highly liquid investments with an original maturity of three months
or less.
F - 7
<PAGE> 59
Inventory - Inventory is stated at the lower of cost, determined by the
first-in, first-out method, or market and is comprised of beer and
other beverages.
Property and Equipment - Property and equipment are stated at cost and
are depreciated over the estimated useful lives of the related assets,
ranging from 6 to 15 years. Depreciation is computed on the
straight-line and accelerated methods for both financial reporting and
income tax purposes.
Income Taxes - The Company follows Statement of Financial Accounting
Standards No. 109 - Accounting for Income Taxes, which requires
recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the differences between
the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Intangibles - Intangible assets (consisting principally of the license
to distribute certain products in a significant portion of the greater
New York City area), are recorded at cost, less amortization, which is
provided on a straight-line basis over their economic lives.
Revenue Recognition - Wholesale sales are recognized at the time the
order is shipped. Retail sales are net of returns and exclude sales
tax.
New Accounting Pronouncements - In 1995, the Financial Accounting
Standards Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" which requires
impairment costs to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the
asset's carrying amount. The Company adopted Statement No. 121 in the
first quarter of 1996 and, the effect of adoption was not material.
3. ACQUISITION OF RIGHTS TO DISTRIBUTE CERTAIN PRODUCTS
On December 6, 1995 the Company acquired from Consolidated Beverage
Corporation the exclusive rights to distribute Pabst Products within
the Territory.
F - 8
<PAGE> 60
In consideration for these rights the Company paid Consolidated
Beverage Corporation the sum of $1,600,000 in the following manner:
$800,000 prior to or at closing; and the balance of $800,000 through
delivery of a series of 120 promissory notes, in the amount of $10,000
each, inclusive of interest at 9% per annum.
Upon the acquisition of the Pabst Distribution Rights, the Company
simultaneously entered into an agreement with Pabst as part of the
"Distributorship Agreement" to use its best efforts to market and sell
the Pabst products to each prospective account located within the
Territory. As part of the agreement the Company is required to have an
annual sales and marketing plan, maintain an adequate capital and cash
flow to ensure competitive strength, maintain warehouse facilities
which meet Pabst's physical and quality standards, establish stock
rotation procedures for Pabst products, among other general
requirements to promote the sale of Pabst products.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable
and payable and accrued liabilities approximate their fair values due
to the short-term maturities of these assets and liabilities.
The fair value of the preferred stock, which was issued in a private
placement, is estimated at carrying value as such securities are not
traded in the open market and a market price is not readily available.
5. STOCKHOLDERS' EQUITY
General - The authorized capital stock of the Company consists of
20,000,000 shares of common stock, par value $.001 per share, and
1,000,000 shares of Preferred Stock $.01 par value per share.
Treasury Stock - On January 24, 1996, the Company reacquired for
nominal consideration shares of common stock and existing common stock
purchase warrants previously owned by certain shareholders. All such
reacquired common stock will be held as treasury shares, and all
existing warrants acquired from these shareholders have been cancelled.
This transaction has been given retroactive effect for all periods
presented.
Preferred Stock - In 1996 the Company issued 337,500 shares of $ .01
par value 7% Cumulative Convertible Preferred Stock, Series A
("Preferred Stock"). The Preferred Stock is convertible into 1 share of
the Company's common stock, subject to
F - 9
<PAGE> 61
adjustments in certain events including: (i) subdivisions or
combinations of shares of common stock, and (ii) reclassifications,
consolidations, mergers and similar transactions.
Such conversion may be effected at the option of the holder of shares
of Preferred Stock during the period commencing 180 days and
terminating 360 days after the effective date of a registration
statement filed pursuant to the Securities Act of 1933 offering shares
of the Company's common stock in an initial public offering, unless
Investors Associates, Inc. and the Company consent that such option may
be exercised prior to such 180th day.
Common stock warrants - During 1996, in connection with the issuance of
the preferred stock referred to above, the Company issued 3,175,000
Class A warrants to the holders of the preferred stock. The Class A
warrants entitle the holder thereof to purchase one share of the
Company's common stock at an exercise price of $5.00 per share. Unless
previously redeemed by the Company, the warrants are exercisable at any
time commencing on the date of issuance thereof until the close of
business on the day prior to fourth anniversary of the effective date.
In addition, during December 1995 the Company issued 1,484,000 Class A
warrants to certain officers and directors of the Company.
6. PROPERTY AND EQUIPMENT
Property and equipment are summarized by major classifications, as
follows:
<TABLE>
<CAPTION>
December 31,
1995
----
<S> <C>
Equipment $37,000
Furniture and fixtures 8,000
Leasehold improvements 40,000
-------
85,000
Less: Accumulated depreciation and amortization 44,250
-------
Total $40,750
=======
</TABLE>
F - 10
<PAGE> 62
7. LONG TERM DEBT
<TABLE>
<CAPTION>
Long-term debt as of consists of the following: December 31, March 31,
1995 1996
---- ----
<S> <C> <C>
Term loan maturing November 1, 1996 with
Chemical Bank payable in monthly payments of
$3,500 plus interest at 2% above the bank's
prime lending rate. The loan is collateralized by
the Company's assets. $38,500 $ 28,000
Note payable issued in connection with the
acquisition of the exclusive rights to distribute
certain beer and malt liquor products. Payable in
120 monthly installments of principal and interest
of $10,000 at an effective interest rate of
9.04%, collateralized by distribution agreement. -- 786,867
------- --------
38,500 814,867
Less current portion 38,500 108,204
------- --------
Long-term Debt $ -- $706,663
======= ========
</TABLE>
8. COMMITMENTS
In December 1995, the Company entered into a lease with East Tremont
Partners, pursuant to which it agreed to lease approximately 7,000
square feet of retail and warehousing space for a term of five (5)
years commencing on April 1, 1996 and continuing until May 31,2001.
Total monthly payments under such lease are $5,000, subject to
adjustment during subsequent years of the lease term. East Tremont
Partners is a New York partnership in which Mr. Stella holds a one-
sixth interest. Management of the Company believes that the rent paid
by it under this lease is less than the fair market value of similar
premises within the area in which such premises are located.
In January 1996, the Company entered into a lease with East Tremont
Partners under which it agreeed to lease 15,000 square feet of
administrative office and warehousing space for a term of five
(5) years commencing on April 1, 1996 and continuing until May 31,
2001. The initial monthly rent under such lease is $5,000, subject
to adjustment during the term of the lease. East Tremont Partners
is a New York partnership in which Mr. Stella holds a one-sixth
interest. Management of the Company believes that the rent paid
by the Company under this lease is less than what it would be
required to pay for similar premises within the area in which the
Company's administrative offices are located.
The following minimum rental payments are due with respect to the
aforementioned leases:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $120,000
1998 125,250
1999 126,000
2000 127,750
2001 55,000
--------
Total minimum rental payments $554,000
========
</TABLE>
F - 11
<PAGE> 63
The Company intends to enter into an employment agreement with its
Chief Executive Officer, pursuant to which this officer will receive an
annual salary of $300,000. This officer received no compensation from
either the Company or Vito Santoro, Inc. for any of the periods
presented in the accompanying financial statements.
9. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
--------- ------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Federal: Current $ -- $ -- $ -- $ --
Deferred -- -- -- --
------- ------ ------ ------
-- -- -- --
------- ------ ------ ------
State: Current 12,000 625 3,360 2,202
Deferred -- -- -- --
------- ------ ------ ------
12,000 625 3,360 2,202
------- ------ ------ ------
Total Tax Provision $12,000 $ 625 $3,360 $2,202
======= ====== ====== ======
</TABLE>
The tax provision for 1995 and 1994 differs from the amount computed
using the statutory federal income tax rate since the Company operated
as an 'S' corporation for income tax purposes in those years. Pursuant
to subchapter 'S' of the Internal Revenue Code, shareholders rather
than the corporation are taxed directly on their allocable share of the
Company's taxable income. Taxes provided in the accompanying financial
statements consists of New York City income taxes (benefit) as New York
City does not recognize the federal 'S' corporation status.
Pro forma income taxes have been provided in the accompanying
statement of operations to reflect the taxes that would have been
provided as if the Company had not operated as an 'S'
Corporation.
F - 12
<PAGE> 64
10. CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables and
short-term cash investments. Credit risk with respect to trade
receivables is minimized because of a large customer base. Short-term
cash investments are placed with high credit quality financial
institutions, whereby limiting the amount of credit exposure.
F - 13
<PAGE> 65
No dealer, salesperson or other person has been authorized to give any
information or to make any representations either 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 upon as having
been authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is 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.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Additional Information...............................
Prospectus Summary...................................
Summary Financial Information........................
Risk Factors.........................................
Use of Proceeds.............................
Dividend Policy......................................
Capitalization.......................................
Dilution.............................................
Selected Financial Information.......................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.......................................
Business.............................................
Management...........................................
Principal Shareholders...............................
Selling Securityholders..............................
Certain Transactions.................................
Description of Securities............................
Underwriting.........................................
Securities Eligible for Future Sale..................
Legal Matters........................................
Experts..............................................
Index to Financial Statements........................
</TABLE>
-----------------------
Until ___________, 1996 (90 days after the date of this Prospectus),
all broker-dealers effecting transactions in the registered securities, whether
or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
CAPITAL BEVERAGE CORPORATION
800,000 UNITS
EACH UNIT CONSISTING
OF
ONE SHARE OF COMMON STOCK
AND
ONE-HALF (1/2) CLASS A COMMON STOCK
PURCHASE WARRANT
---------------------
PROSPECTUS
---------------------
______________, 1996
<PAGE> 66
SUBJECT TO COMPLETION, DATED ________, 1996
ALTERNATE
PROSPECTUS
CAPITAL BEVERAGE CORPORATION
3,175,000 Class A Warrants
3,812,500 Shares of Common Stock, $.001 par value
This Prospectus relates to the offer and sale of 3,175,000 Class A Common Stock
Purchase Warrants ("Class A Warrants") of Capital Beverage Corporation (the
"Company") held by certain holders of such Warrants (hereinafter collectively
referred to as the "Selling Securityholders"). Sales of such Class A Warrants
(and the 3,175,000 shares of Common Stock underlying such Class A Warrants (the
"Warrant Shares")) may be made by the Selling Securityholders commencing 120
days after the effective date ("Effective Date") of the Registration Statement
covering the underwritten public offering ("Offering") by the Company of 800,000
Units ("Units") of Common Stock and Class A Warrants unless Investors
Associates, Inc. (the "Representative") consents to the sale of such securities
prior to such date. Six Hundred Seventy-Five Thousand (675,000) of the Class A
Warrants offered hereby were acquired by twenty-six (26) "accredited investors"
(as such term is defined in the Securities Act of 1933, as amended (the
"Securities Act")), that purchased Units of Series A Preferred Stock and Class A
Warrants in the Company's 1996 Units Financing. The remaining Two Million Five
Hundred Thousand (2,500,000) of such Class A Warrants were acquired on the
Effective Date upon the automatic conversion of two (2) of the Company's
Convertible Bridge Notes, in the aggregate principal amount of $250,000, that
were issued to two "accredited investors" in a Bridge Financing that occurred in
April 1996. The Bridge Notes were converted at a rate of One Class A Warrant for
each Ten Cents ($.10) in principal amount of such Bridge Notes.
Each Class A Warrant entitles the holder to purchase one (1) share of
Common Stock at a price of $5.00 per share during the period commencing on the
date such warrant was issued and terminating on the day prior to the fourth
anniversary of the Effective Date. The Class A Warrants are redeemable by the
Company at any time after the Effective Date, but with the consent of the
Representative if such redemption should occur during the first year after such
Effective Date, for $.001 per Warrant, provided (i) notice of not less than
forty-five (45) days is given; (ii) the closing bid quotation of the Common
Stock of the Company has been at least One Hundred Sixty Percent (160%) of the
then exercise price of the Class A Warrants on all twenty (20) of the trading
days ending on the date prior to the day notice is given; and (iii) holders of
the Class A Warrants shall have had exercise rights until the close of business
on the date fixed for redemption. The exercise price of the Class A Warrants is
subject to adjustment under certain circumstances. See "Description of
Securities - Class A Warrants".
This Prospectus also relates to the offer and sale of 3,812,500 shares
of Common Stock. Of such shares, (i) an aggregate of 3,175,000 may be offered
and sold by the Selling Securityholders upon their exercise of their Class A
Warrants or, alternatively, such 3,175,000 Warrant Shares may be issued by the
Company upon exercise by individuals or entities that purchase Class A Warrants
from the Selling Securityholders; (ii) an aggregate of 337,500 may be offered
and sold by the Selling Securityholders upon conversion of the 337,500 of Series
A Preferred Stock acquired by such Selling Securityholders in the Company's 1996
Units Financing; and (iii) 300,000 may be offered from time to time by Mr.
Carmine Stella, who is the Chairman of the Board, President and Chief Executive
Officer of the Company, subject to his agreement not to offer or sell such
shares prior to the expiration of two (2) years after the Effective Date without
the consent of the Representative. Sales of the 337,500 shares of Common Stock
that may be acquired by the Selling Securityholders upon conversion of an equal
number of shares of Series A Preferred Stock may be made commencing 180 days
after the Effective Date unless the Representative consents to the sale of such
securities prior to such date. The Selling Securityholders have agreed that they
will not offer or sell the Class A Warrants or the Warrant Shares offered hereby
for a period of 120 days after the Effective Date without the consent of the
Representative.
The Company will not receive any proceeds of sales of the Class A
Warrants or the Warrant Shares sold by the Selling Securityholders. The Company
will receive proceeds of the issuances of shares of Common Stock upon exercise
of the Class A Warrants offered hereby that have been purchased from the Selling
Shareholders. All costs incurred in the registration of the Securities being
offered by the Selling Securityholders are being borne by the Company.
Resales of the securities offered hereby are subject to Prospectus
delivery and other requirements of the Securities Act. Sales of such securities,
or the potential of such sales at any time, may have an adverse effect on the
market prices of the securities offered by the Company in the Offering. See
"Selling Securityholders."
The Company has applied for inclusion of its Class A Warrants and
Common Stock on the Nasdaq Small Cap Market. There can be no assurance that an
active trading market will develop even if such securities are accepted for
quotation. Additionally, even if such securities are accepted for quotation and
active trading develops, the Company is
<PAGE> 67
still required to maintain certain minimum criteria established by The National
Association of Securities Dealers, which there can be no assurances the Company
will be able to do. See Risk Factors - "Absence of Prior Public Market;
Volatility of Market in General" and "Effects of Delisting from NASDAQ Small Cap
Market."
-------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1996.
- 2 -
<PAGE> 68
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the
Securities Act with respect to the underwritten Offering of the Units by the
Company was declared effective by the Securities and Exchange Commission, and
the Company commenced the sale of the Units offered thereby. Each Unit consists
of one (1) share of Common Stock and one-half (1/2) Class A Warrant to purchase
Common Stock. Each one-half (1/2) Class A Warrant may be exercised only in
combination with another one-half (1/2) Class A Warrant to purchase a whole
share of Common Stock at a exercise price of $5.00 per share. Sales of the
securities offered by the Selling Securityholders hereby, or even the potential
of such sales, may have an adverse effect on the market prices of the Company's
securities.
SELLING SECURITYHOLDERS
CLASS A WARRANTS
As of the date of this Prospectus, there were 5,059,000 Class A
Warrants outstanding. The following table sets forth the names of the Selling
Securityholders, the number of Class A Warrants owned by each Selling
Securityholder before this offering, the number of Class A Warrants being
offered pursuant to this Prospectus, and the number and percentage of Class A
Warrants to be owned by each Selling Securityholder after this offering. Except
for Mr. Carmine Stella, Mr. Eugene Fernandez and Ms. Carol Macchiarulo, none of
the Selling Shareholders has had a material relationship or has held any
position or office with the Company or any of its affiliates within the last
three (3) years.
<TABLE>
<CAPTION>
Number of Class A Number of Number of Percent of
Warrants Owned Class A Warrants Class A Warrants Class A Warrants
Name Owned Prior to Offered for Account Owned After Owned After
of Securityholder Offering Of Securityholder Offering Offering
- ----------------- ----------------- ------------------- -------- ----------------
<S> <C> <C> <C> <C>
Boro Recycling, Inc. 75,000 75,000 0 0
Sandra A. Calabrese 25,000 25,000 0 0
Maureen Cohen 12,500 12,500 0 0
Carolyn Faulk 25,000 25,000 0 0
Eugene Fernandez(1) 1,092,000 25,000 1,067,000 21.1
Harvey Glicker 25,000 25,000 0 0
June Guiffrida 25,000 25,000 0 0
Carol A. Macchiarulo 12,500 12,500 0 0
Sheila Margiotta 25,000 25,000 0 0
</TABLE>
- 3 -
<PAGE> 69
<TABLE>
<CAPTION>
Number of Class A Number of Number of Percent of
Warrants Owned Class A Warrants Class A Warrants Class A Warrants
Name Owned Prior to Offered for Account Owned After Owned After
of Securityholder Offering Of Securityholder Offering Offering
- ----------------- ----------------- ------------------- -------- ----------------
<S> <C> <C> <C> <C>
Alfredo Nasti 25,000 25,000 0 0
Stanley Parlante 25,000 25,000 0 0
M. Frank Powell 25,000 25,000 0 0
Louis Ragosta 25,000 25,000 0 0
John James Schauder 25,000 25,000 0 0
Thomas J. Simone 25,000 25,000 0 0
Software Marketing Corp. 50,000 50,000 0 0
Carmine N. Stella(2) 383,600 50,000 333,600 6.6
Marie Jackson 12,500 12,500 0 0
William Lutz 12,500 12,500 0 0
Pacesetter Personnel 25,000 25,000 0 0
Services, Inc
Carol Rodopoulus 25,000 25,000 0 0
Ira M. Hariton 25,000 25,000 0 0
Worldwide Temporary 25,000 25,000 0 0
Services, Inc
John T. Pergolizzi 12,500 12,500 0 0
Stephen Pechenik 25,000 25,000 0 0
Anna Ferrante and Rocco 12,500 12,500 0 0
Ferrante, as joint tenants
John Pasquale 1,250,000 1,250,000 0 0
Clinthill Investments Ltd. 1,250,000 1,250,000 0 0
</TABLE>
- ---------------------------
(1) In addition to the 25,000 Class A Warrants being offered hereby, Mr.
Fernandez is the beneficial holder of 1,067,000 other Class A Warrants.
Such 1,067,000 Class A Warrants, and the Common Stock underlying such
warrants, are subject to a lock-up agreement which prevents the
transfer of such securities for a minimum of two years after the
Effective Date without the consent of the Representative.
(2) In addition to the 50,000 Class A Warrants being offered hereby, Mr.
Stella owns 333,600 other Class A Warrants. Such 333,600 Class A
Warrants, and the Common Stock underlying such warrants, are subject to
a lock-up agreement which prevents the transfer of such securities for
a minimum of two years after the Effective Date without the consent
of the Representative.
- 4 -
<PAGE> 70
COMMON STOCK
The following table sets forth the number of shares of Common Stock
owned by each of the Selling Securityholders prior to the offering being made by
them hereby, the number of such shares being offered by each of them hereby, and
the number and percentage of shares of Common Stock that will be owned by each
of them after this offering. The information contained in such table assumes
that (i) the 3,175,000 Class A Warrants offered hereby have been exercised by
the Selling Securityholders, (ii) the 337,500 shares of Series A Preferred Stock
owned by the Selling Securityholders have been converted by them into 337,500
shares of Common Stock, and (iii) neither any other outstanding Class A Warrants
nor the 300,000 shares of Series B Preferred Stock issued upon consummation of
the Merger have been exercised for or converted into Common Stock.
<TABLE>
<CAPTION>
Number of Percentage of
Number of Common Number of Common Common Shares Common Shares
Name Shares Owned Shares Offered for Owned After Owned After
of Securityholder Prior to Offering Securityholder Offering Offering
- ----------------- ----------------- ------------------- -------- ----------------
<S> <C> <C> <C> <C>
Boro Recycling, Inc. 112,500 112,500 0 0
Sandra A. Calabrese 37,500 37,500 0 0
Maureen Cohen 18,750 18,750 0 0
Carolyn Faulk 37,500 37,500 0 0
Eugene Fernandez 392,045 37,500 354,545 6.3
Harvey Glicker 37,500 37,500 0 0
June Guiffrida 37,500 37,500 0 0
Carol A. Macchiarulo 18,750 18,750 0 0
Sheila Margiotta 37,500 37,500 0 0
Alfredo Nasti 37,500 37,500 0 0
Stanley Parlante 37,500 37,500 0 0
M. Frank Powell 37,500 37,500 0 0
Louis Ragosta 37,500 37,500 0 0
John James Schauder 37,500 37,500 0 0
Thomas J. Simone 37,500 37,500 0 0
Software Marketing Corp. 75,000 75,000 0 0
Carmine N. Stella 784,091 375,000 409,091 7.3
</TABLE>
- 5 -
<PAGE> 71
<TABLE>
<CAPTION>
Number of Percentage of
Number of Common Number of Common Common Shares Common Shares
Name Shares Owned Shares Offered for Owned After Owned After
of Securityholder Prior to Offering Securityholder Offering Offering
- ----------------- ----------------- ------------------- -------- ----------------
<S> <C> <C> <C> <C>
Marie Jackson 18,750 18,750 0 0
William Lutz 18,750 18,750 0 0
Pacesetter Personnel 37,500 37,500 0 0
Services, Inc
Carol Rodopoulus 37,500 37,500 0 0
Ira M. Hariton 37,500 37,500 0 0
Worldwide Temporary 37,500 37,500 0 0
Services, Inc
John T. Pergolizzi 18,750 18,750 0 0
Stephen Pechenik 37,500 37,500 0 0
Anna Ferrante and Rocco 18,750 18,750 0 0
Ferrante, as joint tenants
John Pasquale 1,250,000 1,250,000 0 0
Clinthill Investments Ltd. 1,250,000 1,250,000 0 0
</TABLE>
- 6 -
<PAGE> 72
PLAN OF DISTRIBUTION
The securities offered hereby may be sold from time to time directly
by the Selling Securityholders. Alternatively, the Selling Securityholders may
from time to time offer such securities through underwriters, dealers or
agents. The distribution of securities by the Selling Securityholders may be
effected in one or more transactions that may take place on the
over-the-counter market including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more broker-dealers
for resale of such securities as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Selling Securityholders in connection
with such sales of securities. The securities offered by the Selling
Securityholders may be sold by one or more of the following methods, without
limitation: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the securities as agent but may purchase and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary broker transactions and
transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf
of a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for securities
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
The shares of Common Stock underlying the Class A Warrants are offered
by the Company hereunder only for purchase upon exercise of Class A Warrants by
a holder who has purchased such Class A Warrants from a Selling Securityholder
and shall be issued by the Company to such holders from time to time pursuant to
exercise of such Class A Warrants in accordance with the terms thereof.
Sales of securities by the Selling Securityholder or even the
potential of such sales would likely have an adverse effect on the market
prices of the securities offered hereby.
The Company has agreed to pay substantially all the expenses incurred
by the Selling Securityholders incident to the offering and sale of the
securities offered by the Selling Securityholders to the public, but excluding
any underwriting discounts, commissions or transfer taxes.
The Company has agreed to indemnify certain Selling Securityholders
against certain liabilities, including liabilities under the Securities Act.
- 7 -
<PAGE> 73
================================================================================
No dealer, salesperson or 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 upon as having
been authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is 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.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information......................
Prospectus Summary..........................
Summary Financial Information...............
Risk Factors................................
Use of Proceeds.............................
Dividend Policy.............................
Capitalization..............................
Dilution....................................
Selected Financial Data.....................
Management's Discussion and Analysis
of Financial Condition and Results of
Operations..............................
Business....................................
Management..................................
Principal Shareholders......................
Selling Securityholders.....................
Certain Transactions........................
Description of Securities...................
Securities Eligible for Future Sale.........
Plan of Distribution........................
Legal Matters...............................
Experts.....................................
Index to Financial Statements...............
</TABLE>
-----------------------
================================================================================
================================================================================
ALTERNATE
CAPITAL BEVERAGE CORPORATION
3,175,000
CLASS A WARRANTS
3,812,500
SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
______________, 1996
================================================================================
- 8 -
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law provides, in general,
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director or officer of the
corporation. Such indemnity may be against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding, if the indemnitee acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal action or
proceeding, the indemnitee must not have had reasonable cause to believe his
conduct was unlawful.
Section 145(b) of the General Corporation Law provides, in general,
that a corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interest of the corporation.
Section 145(g) of the General Corporation Law provides in general that
a corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation against any
liability asserted against him or incurred by him in any capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of the law.
The Company's By-Laws and Certificate of Incorporation provide that the
Company will indemnify its officers, directors, employees and agents to the
fullest extent permitted by the General Corporation Law.
Section 102(b) of the General Corporation Law permits a Delaware
corporation, by so providing in its Certificate of Incorporation, to eliminate
or limit the personal liability of a director to the corporation for damages
arising out of certain alleged breaches of the director's duties to the
corporation. The General Corporation Law, however, provides that no such
limitation of liability may affect a director's liability with respect to any of
the following: (i) for breach of the director's duty of loyalty to the
corporation of its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payment of dividends or unlawful purchase or redemption of its capital
stock, or (iv) for any transaction from which the director derived an improper
personal benefit.
The Company's Certificate of Incorporation eliminates the personal
liability of the directors to the fullest extent permitted by Section 102(b) of
the General Corporation Law.
II-1
<PAGE> 75
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of the estimated expenses to be
incurred by the Registrant in connection with this Offering (excluding the
Representative's non-accountable expense allowance):
<TABLE>
<CAPTION>
<S> <C> <C>
SEC Registration fee................................................... $8,892
NASD filing fee........................................................ 3,079
NASDAQ listing fee..................................................... 10,000
Blue Sky fees and expenses............................................. 30,000*
Printing and engraving expenses........................................ 75,000*
Legal fees and expenses of issuance.................................... 100,000*
Accounting fees and expenses........................................... 60,000*
Transfer agent fees and expenses....................................... 5,000*
Miscellaneous.......................................................... 53,029*
-------
TOTAL............................................................... $345,000*
</TABLE>
* Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Registrant sold the following
securities.
Private Placement of Units
Between December 1995 and March 1996, the Company conducted a private
offering under Section 4(2) of the Securities Act and Regulation D promulgated
thereunder, of units ("Units") of its Series A Preferred Stock and Class A
Warrants (the "Units Financing"). Each Unit consisted of 12,500 shares of Series
A Preferred Stock and 25,000 Class A Warrants. A total of 27 Units, consisting
of an aggregate of 337,500 shares of Series A Preferred Stock and 675,000 Class
A Warrants, were sold to 26 "accredited investors" (as such term is defined in
the Securities Act) for gross offering proceeds of $1,350,000. Pursuant to an
Agency Agreement, dated December 6, 1995, the Company retained the
Representative as its exclusive agent in connection with the Units Financing and
paid the Representative a selling commission equal to 10% of the gross proceeds
from the sale of the Units ($135,000) and a non-accountable expense allowance
equal to 1% of such gross proceeds ($13,500). Approximately $800,000 of the net
proceeds of the Units Financing were used to acquire the Pabst Distribution
Rights. The balance of such net proceeds were used for purchase of inventory of
Pabst Products, for legal fees related to such financing and general corporate
purposes.
Private Placement of Bridge Notes
In April 1996, the Company conducted a private offering under Section
4(2) of the Securities Act and Regulation D promulgated thereunder, of its 12%
Convertible Bridge Notes ("Bridge Financing"). The Convertible Bridge Notes were
purchased by two (2) accredited investors for aggregate gross offering proceeds
of $250,000. The Convertible Bridge Notes, including accrued interest thereon,
are due one (1) year after issuance but will automatically be converted into an
aggregate of 2,500,000 Class A Warrants upon the Effective Date of this
Prospectus. The Company retained the Representative as its exclusive placement
agent (the "Placement Agent") in connection with such private placement. As
compensation for the Representative's services as Placement Agent, the Company
paid the Representative a selling commission equal to 10% of the gross proceeds
of the Bridge Financing in ($25,000) and a non-accountable expense allowance of
1% of such gross proceeds ($2,500). The proceeds of the Bridge Financing were
used principally for purchase of inventory of Pabst Products, for legal fees
related to such financing and general corporate purposes.
In connection with all the transactions described above, no general
advertisement or solicitation of offerees was made, and all purchasers signed
and delivered to the Registrant agreements wherein they represented, among other
things, that the securities would be held for their own account, for investment
only and not with a view to the distribution thereof. The certificates
representing such securities bear legends restricting transferability in
transactions not registered under the Act, and the Registrant's records bear
stop transfer restrictions with respect thereto.
II-2
<PAGE> 76
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description of Exhibit Pages
<S> <C> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation.
3.2 Certificate of Designations, As Amended, Relating to Series A Preferred Stock.
3.3 Form of Certificate of Designations Relating to Series B Preferred Stock.
3.4 ByLaws.
4.1 Specimen Common Stock Certificate.
4.2 Specimen Series A Preferred Stock Certificate.
4.3 Specimen Series B Preferred Stock Certificate.
4.4 Specimen Class A Warrant Certificate.*
4.5 Form of Convertible Bridge Note.
4.6 Form of Class A Warrants Issued to Certain Members of Management.
4.7 Form of Class A Warrants Issued in 1996 Private Placement Financing.
4.8 Form of Representative's Unit Purchase Option Agreement.
4.9 Form of Warrant Agreement.*
5.1 Opinion of Law Offices of Weber & Weber, Counsel for the Registrant,
as to the legality of the Securities being registered.*
10.1 Agreement with Consolidated Beverage Corp. relating to Pabst Distribution Rights
10.2 Form of Series of Promissory Notes to Consolidated Beverage Corporation
10.3 Bill of Sale from Consolidated Beverage Corp. to Registrant.
10.4 Distributorship Agreement with Pabst Brewing Company
10.5 Agency Agreement with Vito Santoro, Inc.
10.6 Employment Agreement between Registrant and Carmine N. Stella.*
10.7 1996 Incentive Stock Option Plan.
10.8 Agreement with Carmine N. Stella relating to Option to acquire Vito Santoro, Inc.
10.9 Merger Agreement relating to Vito Santoro, Inc.
10.10 Form of Consulting Agreement with Horatio Management Services Corp.
10.11 Form of Agreement with Investors Associates, Inc. Relating to Acquisition Transactions.
23.1 Consent of Feldman, Radin & Co., P.C., Certified Public Accountants.
23.2 Consent of Weber & Weber (included in their opinion filed as Exhibit 5.1).*
24.1 Power of Attorney (contained on signature page hereof).
</TABLE>
- ----------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
. The undersigned small business issuer undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereto) which, individually or
together, represent a fundamental change in the information in the
Registration Statement; and
(iii) include any material information relating the plan of
distribution not previously disclosed in the Registration Statement or
any material change in such information.
II-3
<PAGE> 77
(2) For the purpose of determining liability under the Securities Act,
treat each such post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
The small business issuer hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions or otherwise, the small
business issuer 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 small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer, 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.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement for the securities offered in the
Registration Statement, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of those securities.
II-4
<PAGE> 78
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, at Hauppauge, State of New York, on August 12, 1996.
CAPITAL BEVERAGE CORPORATION
By: /S/ CARMINE N. STELLA
------------------------------------------
Name: Carmine N. Stella
Title: Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Carmine N. Stella and Eugene Fernandez,
each or either of them, his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him or her and in his or
her 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, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on August 12, 1996, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
Name Title
<S> <C>
/S/ CARMINE N. STELLA Chairman of the Board, President and
- --------------------------------------- Chief Executive Officer (Principal Executive Officer)
Carmine N. Stella
/S/ CAROL MACCHIARULO Secretary and Treasurer (Principal Financial
- --------------------------------------- and Accounting Officer)
Carol Macchiarulo
/S/ EUGENE FERNANDEZ Director
- ---------------------------------------
Eugene Fernandez
</TABLE>
S-1
<PAGE> 79
EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description of Exhibit Pages
<S> <C> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation.
3.2 Certificate of Designations, As Amended, Relating to Series A Preferred Stock.
3.3 Form of Certificate of Designations Relating to Series B Preferred Stock.
3.4 ByLaws.
4.1 Specimen Common Stock Certificate.
4.2 Specimen Series A Preferred Stock Certificate.
4.3 Specimen Series B Preferred Stock Certificate.
4.4 Specimen Class A Warrant Certificate.*
4.5 Form of Convertible Bridge Note.
4.6 Form of Class A Warrants Issued to Certain Members of Management.
4.7 Form of Class A Warrants Issued in 1996 Private Placement Financing.
4.8 Form of Representative's Unit Purchase Option Agreement.
4.9 Form of Warrant Agreement.*
5.1 Opinion of Law Offices of Weber & Weber, Counsel for the Registrant,
as to the legality of the Securities being registered.*
10.1 Agreement with Consolidated Beverage Corp. relating to Pabst Distribution Rights
10.2 Form of Series of Promissory Notes to Consolidated Beverage Corporation
10.3 Bill of Sale from Consolidated Beverage Corp. to Registrant.
10.4 Distributorship Agreement with Pabst Brewing Company
10.5 Agency Agreement with Vito Santoro, Inc.
10.6 Employment Agreement between Registrant and Carmine N. Stella.*
10.7 1996 Incentive Stock Option Plan.
10.8 Agreement with Carmine N. Stella relating to Option to acquire Vito Santoro, Inc.
10.9 Merger Agreement relating to Vito Santoro, Inc.
10.10 Form of Consulting Agreement with Horatio Management Services Corp.
10.11 Form of Agreement with Investors Associates, Inc. Relating to Acquisition Transactions.
23.1 Consent of Feldman, Radin & Co., P.C., Certified Public Accountants.
23.2 Consent of Weber & Weber (included in their opinion filed as Exhibit 5.1).*
24.1 Power of Attorney (contained on signature page hereof).
</TABLE>
- ----------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 1.1
Form of Underwriting Agreement
<PAGE> 2
800,000 UNITS
EACH UNIT CONSISTING OF
ONE (1) SHARE OF COMMON STOCK, $.001 PAR VALUE
AND
ONE-HALF (1/2) CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
CAPITAL BEVERAGE CORPORATION
UNDERWRITING AGREEMENT
New York, New York
________ ___, 1996
INVESTORS ASSOCIATES, INC., ("IAI"),
For Itself and As Representative
Of the Several Underwriters
411 Hackensack Avenue
Hackensack, NJ 07601
Attn: Mr. Herman Epstein,
Chairman
Ladies and Gentlemen:
Capital Beverage Corporation (the "Company") confirms its agreement
with Investors Associates, Inc. and each of the underwriter(s) named in Schedule
A hereto (collectively, the "Underwriters", which term shall also include any
underwriter substituted as hereinafter provided in Section 12), for whom IAI is
acting as representative (in such capacity, IAI shall hereinafter be referred to
as "you" or the "Representative"), with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of units (the "Units"), consisting of one (1) share of common
stock, $.001 par value (the "Common Stock") and one-half (1/2) Class A
redeemable common stock purchase warrant (the "Warrants"). Each Warrant is
exercisable commencing the Effective Date (as below defined) until four years
after the Effective Date, unless previously redeemed by the Company, at an
initial exercise price of $5.00 for one share of Common Stock. The Warrants may
be redeemed by the Company on 45 days' prior written notice, at a redemption
price of $.001 per Warrant at any time, subject to your consent in the event a
redemption occurs on or prior to the second anniversary of the Effective Date,
provided, the reported closing bid quotation of the Common Stock equals or
exceeds 160% of the then exercise price of the Warrants for a period of 20
consecutive trading days ending on the trading day prior to the date of the
notice of redemption. The 800,000 Units referred to above are hereinafter
collectively referred to as the "Firm Securities". The Company also proposes to
issue and to sell to you for the sum of $100.00 an option (the "UPO") for the
purchase of up to 80,000 Units. The securities issuable upon exercise of the UPO
are hereinafter referred to as the "Representative's Securities." None of the
Representative's Securities shall be
<PAGE> 3
redeemable by the Company but the Representative's Securities shall otherwise be
identical to the respective securities comprising the Firm Securities. The UPO
will be exercisable between the first and fourth anniversary dates of the
Effective Date (the "UPO Exercise Term"). You agree that during the one-year
period from the Effective Date, the Representative will not transfer the UPO
except to the Representative's officers or partners or to any underwriters or
selected dealers or their officers or partners. The UPO shall be exercisable at
a price per Unit equal to 120% of the public offering price of the Units and
shall be exercisable at any time and from time to time, in whole or in part,
during the UPO Exercise Term. The UPO contains the terms and conditions
substantially as set forth in Exhibit ___ to the Registration Statement (as
below defined). The shares of the Common Stock issuable upon exercise of the
Warrants (including the Warrants issuable upon exercise of the UPO) are
hereinafter referred to as the "Warrant Shares." The Firm Securities, the
Shares, the Warrants, the Representative's Securities, and the Warrant Shares
are more fully described in the Registration Statement and the Prospectus
referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters as of the
date hereof and the Closing Date, as defined in Section 2(b) hereof, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2, including any related preliminary
prospectus (the "Preliminary Prospectus"), for the registration of the Firm
Securities; as well as, Warrants and Common Stock underlying such Warrants
issued in connection with the Bridge Financing (as below defined) under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity with the
requirements of the Act, and the Rules and Regulations, as defined below. The
Company will promptly file a further amendment to the Registration Statement in
the form heretofore delivered to the Representative but will not file any other
amendment thereto to which the Representative shall have objected in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, the Registration Statement, as amended, on file with the
Commission at the time the Registration Statement becomes effective (including
the prospectus, financial statements, exhibits and all other documents filed as
a part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Rules and Regulations) and as further amended by any
post-effective amendment declared effective prior to the Closing Date, is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Rules and Regulations" shall mean the rules and regulations adopted by the
Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
-2-
<PAGE> 4
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or the offer and sale of any of the Company's securities
have been instituted or are pending or threatened. Each of the Preliminary
Prospectus, the Registration Statement and the Prospectus at the time of filing
thereof conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, the Registration Statement
or the Prospectus at the time of filing thereof contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made or omitted in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto until the Closing Date and during such longer
period as the Prospectus may be required to be delivered in connection with
sales by the Underwriters or a dealer, the Registration Statement and the
Prospectus, as amended by any amendment or supplement thereto, will contain all
statements which are required to be stated therein in accordance with the
Exchange Act and the Rules and Regulations, and will conform to the requirements
of the Exchange Act and the Rules and Regulations; neither the Registration
Statement nor the Prospectus, as amended or supplemented by any amendment or
supplement thereto, nor any such amendment or supplement thereto, will 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 circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of the Underwriters expressly for use
in the Registration Statement or the Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation. Except as set forth in the Prospectus, the Company does not own
an interest in any corporation, partnership, trust, joint venture or other
business entity. The Company is duly qualified and licensed for the transaction
of business and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the conduct of its
business requires such qualification or licensing except for jurisdictions where
the failure to be so registered or qualified would not have a material adverse
effect on the Company's business. The Company has all requisite power and
authority (corporate and other), and
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<PAGE> 5
has obtained any and all necessary and material authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
government or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its current business as described in the
Prospectus other than any of the foregoing the absence of which would not have a
material effect on the Company's business taken as a whole; the Company is doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all Federal, state, local and
foreign laws, rules and regulations; and the Company has not received any notice
of proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, operation, properties, business or
results of operations of the Company.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement or as described in the
Prospectus. The Firm Securities, the Representative's Securities and the Warrant
Shares (collectively, hereinafter sometimes referred to as the "Securities") and
all other securities issued or issuable by the Company conform or, when issued
and paid for, will conform, in all respects to all statements with respect
thereto contained in the Registration Statement and the Prospectus. All issued
and outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable and the holders thereof have no
claims under right of rescission with respect thereto, and are not subject to
personal liability by reason of being such holders; and none of such securities
was issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid for
and delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained in
the Prospectus; the holders thereof will not be subject to any personal
liability solely as such holders; all corporate action required to be taken for
the authorization, issuance and sale of the Securities has been duly and validly
taken, and the certificates representing the Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of the
Securities to be sold by the Company hereunder, the Underwriters or the
Representative, as the case may be, will acquire good and marketable tile to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction of any kind whatsoever.
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<PAGE> 6
(f) The financial statements of the Company together with the
related notes and any schedules thereto included in the Registration Statement,
each Preliminary Prospectus and the Prospectus fairly present the financial
condition of the Company at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved. Except as
contemplated by the Registration Statement or the Prospectus, there has been no
material adverse change or development involving a material adverse prospective
change in the condition, financial or otherwise, or in the earnings, operations,
properties, business, or results of operation of the Company whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company conform in all respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. Financial information set forth
in the Prospectus under the headings "Selected Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in the
Prospectus, the information set forth therein and have been derived from or
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus.
(g) The Company (i) has paid all Federal, state, local, and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 22 and 23 of the Internal Revenue Code
of 1986 (the "Code"), has furnished all information returns it is required to
furnish pursuant to the Code; (ii) has established adequate reserves for such
taxes which are not yet due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Securities; (ii) the purchase by the Underwriters of the
Securities from the Company and the purchase by the Representative of the
Representative's Securities from the Company; (iii) the consummation by the
Company of any of its obligations under this Agreement, or (iv) resales of the
Securities in connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies including general
liability and property insurance, which insures the Company against such losses
and risks as are generally insured against by comparable businesses. The Company
(i) has not failed to give notice or present any insurance claims with respect
to any matter, including but not limited to the Company's business and property,
under any such insurance policy in a due and timely manner; (ii) does not have
any disputes or claims against any underwriter of such insurance policies or has
not failed to pay any premiums due and payable thereunder, or (iii) has not
failed to comply with all conditions contained in such insurance
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<PAGE> 7
policies. To the best of the Company's knowledge, there are no facts or
circumstances under any such insurance policy which would relieve any insurer of
its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, injury, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the best knowledge of the Company,
threatened against, or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Warrant Agreement, the Consulting Agreement, the M&A Agreement
(all as defined herein) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Warrant Agreement, the
Consulting Agreement or M&A Agreement; (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) other than any action, suit, proceeding, injury,
arbitration, investigation, litigation or governmental proceeding described in
the Prospectus would materially and adversely affect the condition, financial or
otherwise, or the earnings, stockholders' equity, operation, properties,
business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to execute and deliver this
Agreement, the Warrant Agreement, the Consulting Agreement and the M&A Agreement
and to consummate the transactions provided for in each such agreement; and this
Agreement, the Warrant Agreement, the Consulting Agreement and the M&A Agreement
have each been duly and properly authorized, executed and delivered by the
Company. Each of this Agreement, the Warrant Agreement, the Consulting Agreement
and the M&A Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its respective terms,
and none of the Company's issue and sale of the Firm Securities or the
Representative's Securities, execution, delivery or performance of this
Agreement, the Warrant Agreement, the Consulting Agreement or the M&A Agreement,
the consummation of the transactions contemplated herein and therein or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or with
the lapse of time will conflict with, or results or with the lapse of time will
result in, any breach or violation of any of the terms or provisions of, or
constitutes a default under, or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of, (i) the articles of
incorporation or by-laws of the Company; (ii) any material license, contract,
indenture, mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement or any other agreement or instrument
to which the Company is a party or by which it is or may be bound or to which
its properties or assets (tangible or intangible) are or may be subject, or any
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<PAGE> 8
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties, except with respect to clauses (ii) and (iii) of this
sentence where such conflict, violation, default, creation or imposition would
not have a material adverse effect on the condition (financial or otherwise),
properties, business, or results of operations of the Company taken as a whole.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Firm Securities or the
UPO pursuant to the Prospectus and the Registration Statement, the performance
of this Agreement, the Warrant Agreement, the Consulting Agreement and the M&A
Agreement and the transactions contemplated hereby and thereby, including
without limitation, any waiver of any preemptive, first refusal or other rights
that any entity or person may have for the issue and/or sale of any of the
Securities, except such as have been made or may be obtained under the Act or
may be required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Firm Securities and the
Representative's Securities to be sold by the Company hereunder or the clearance
of such purchase, distribution and sale by the National Association of
Securities Dealers, Inc. (the "NASD").
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party, by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms. There are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies. The descriptions in the Registration Statement of such agreements,
contracts and other documents are accurate and fairly present the information
required to be disclosed in conformity with the Act and the Rules and
Regulations. The contracts so described are in full force and effect and the
Company is not in breach of any such agreement which is material to the business
of the Company taken as a whole.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution in respect of its capital stock
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<PAGE> 9
of any class, and there has not been any change in the capital stock or any
change in the debt (long or short term) or liabilities or material change in or
affecting the general affairs, management, financial operations, stockholders'
equity or results of operations of the Company.
(o) No default exists in the due performance of any term,
covenant or condition of any material license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement, purchase agreement, or
any other material agreement or instrument evidencing an obligation for borrowed
money, or any other material agreement or instrument to which the Company is a
party or by which the Company may be bound or to which the property or assets
(tangible or intangible) of the Company is subject or affected, except for any
default which would not have a material adverse effect on the condition
(financial or otherwise), properties, business, or results of operations of the
Company taken as a whole.
(p) Except as otherwise expressly limited in any other
representation and warranty herein, the Company is in compliance with all
Federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment and wages and
hours. To the best of the Company's knowledge, there are no pending
investigations involving the Company, by governmental agency responsible for the
enforcement of such Federal, state, local, or foreign laws and regulations.
There is no unfair labor practice charge or complaint against the Company
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the best of the Company's
knowledge, threatened against or involving the Company, or any predecessor
entity. No representation question exists respecting the employees of the
Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists or, to the best of the Company's knowledge, is imminent.
(q) The Company does not maintain, sponsor or 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 32(2) and 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")(" Plans"). The
Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. The Company has
never completely or partially withdrawn from a "multi-employer plan."
(r) None of the Company, any of its employees, directors,
shareholders, or affiliates (within the meaning of the Rules and Regulations) of
any of the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or
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<PAGE> 10
which might be expected to cause or result in, under the Exchange Act,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(s) The Company has obtained all requisite licenses and
permits from the proper authorities to operate the Company, and the same are in
full force and effect.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus, to be owned or leased by it free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions of any kind whatsoever, other than those referred to in the
Prospectus and liens for taxes not yet due and payable.
(u) Feldman Radin, whose report is filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(v) Other than as contemplated hereby and/or as described in
the Prospectus, there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company or any of its officers, directors, stockholders,
employees or affiliates that may affect the Underwriters' compensation, as
determined by the NASD.
(w) The Common Stock and Warrants have been approved for
quotation on the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ").
(x) Neither the Company nor any of its officers, employees,
agents or any other person acting on behalf of the Company has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign); (b) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might materially adversely affect the assets, business or
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<PAGE> 11
operations of the Company. The Company's internal accounting controls are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
(y) Except as disclosed in the Prospectus, no officer,
director or shareholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) currently
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company, or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected, which in any such case is required to be so disclosed.
Except as set forth in the Prospectus, there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company on
the one hand, and any officer, director or shareholder owning in excess of 5% of
the Common Stock of the Company, or any affiliate or associate of any of the
foregoing persons or entities, on the other hand.
(z) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or the Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(aa) The minute books of the Company have been made
available to the Underwriters and contain a complete summary of all meetings and
actions of the directors and shareholders of the Company, since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(bb) Except as and to the extent described in or referred
to in the Prospectus, (i) no holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the Act, and
(ii) no person or entity holds any anti-dilution rights with respect to any
securities of the Company.
(cc) The Company has entered into an agreement
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement") with Continental Stock Transfer and Trust, Inc. in
form and substance satisfactory to the Representative, with respect to the
Warrants. The Warrant Agreement has been duly and validly authorized by the
Company and, assuming due execution by the parties thereto other than the
Company, constitutes a valid and legally binding agreement of the
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<PAGE> 12
Company, enforceable against the Company in accordance with its terms, except
(i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (ii) as
enforceability of any indemnification provision may be limited under the Federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(dd) At the Closing Date, the Company will enter into
an agreement (the "M&A Agreement") in form annexed to the Registration Statement
as Exhibit ___ which provides that in the event you originate within five years
from the Effective Date a business combination to which the Company is a party,
you will be paid a finder's fee in an amount equal to 5% of the first $1
million, 4% of the next million, 3% of the next million and 2% of the excess, if
any, over $3 million of the consideration received by the Company in any such
transactions, all as more specifically set forth in the M&A Agreement.
Additionally, the Company will enter into an agreement (the "Consulting
Agreement") with Horatio Management Corp. ("HMC") for a 24-month term commencing
the Closing Date (as below defined) to engage HMC as a consultant for a fee of
$5,000 per month payable annually in advance.
(ee) During the five-year period following the date
hereof, you shall have the right to purchase for IAI's account or to sell for
the account of the Company's officers and directors any securities sold pursuant
to Rule 144 under the Act. Each of the officers and directors (the "144 Seller")
has agreed to consult with you with regards to any such sales and to offer IAI
the exclusive opportunity to purchase or sell such securities on terms at least
as favorable to the 144 Sellers as they can secure elsewhere. If you fail to
accept in writing any such proposal for sale by the 144 Sellers within seven
business days after receipt of a copy of the proposal, you shall be deemed to
have released any claim or right with respect to any such sales contained in the
proposal. If thereafter, the proposal is modified in any material respect, the
144 Sellers shall adopt the procedure set forth in this paragraph with respect
to the original proposal.
(ff) Subject to the provisions of applicable law and
rules and regulations of the NASD, the Representative shall be entitled to
receive a warrant solicitation fee of 5% of the exercise price for each Warrant
exercised after the first anniversary of the Effective Date.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly agrees to purchase from the Company, at a price of
$5.05 per Unit ($5.00 of which
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<PAGE> 13
shall be allocable to the Common Stock and five cents ($0.05) shall be allocable
to each one - half Warrant) that number of Firm Securities set forth in Schedule
A opposite the name of such Underwriter, subject to such adjustment as the
Representative in its discretion shall make to eliminate any sales or purchases
of fractional shares, plus any additional numbers of Firm Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 11 hereof.
(b) Payment of the purchase price and delivery of certificates
for the Firm Securities shall be made at IAI's offices, 411 Hackensack Avenue,
Hackensack, New Jersey, or at such other place as shall be agreed upon by the
Representative and the Company. Such delivery and payment shall be made at 10:00
a.m., New York City time) on the fifth business day following the date on which
the Registration Statement has been declared effective (the "Effective Date") or
at such earlier time and date or other time and date as shall be agreed upon by
the Representative and the Company not later than seven business days after such
fifth business day (such time and date of payment and delivery being herein
called the "First Closing Date", and the "Closing Date" being the First Closing
Date, unless otherwise specified herein). Delivery of the certificates for the
Firm Securities shall be made to you, for the respective accounts of the
Underwriters, against payment by you, for the respective accounts of the
Underwriters, of the purchase price for the Firm Securities by certified or
official bank checks payable in same day funds or by wire transfer of
immediately available funds, to the order of the Company. Certificates for the
Firm Securities shall be in definitive, fully registered form, shall bear no
restrictive legends (except with respect to Blue Sky resale restrictions and
shall be in such denominations and registered in such names as the Underwriters
may request in writing at least two business days prior to the First Closing
Date. The certificates for the Firm Securities shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the First Closing Date.
You have advised the Company that each Underwriter has
authorized you to accept delivery of its Securities, to make payment and to
deliver a receipt therefor. You, individually and not as the Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Securities to be purchased by any Underwriter whose funds shall not have been
received by you by the Closing Date for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
3. Public Offering of Securities. Immediately upon effectiveness of the
Registration Statement, the Underwriters shall make a public offering of the
Securities (other than to residents of or in any jurisdiction in which
qualification of the Securities is required and has not become effective) at the
price and upon the other terms set forth in the Prospectus. The Representative
may from time to time increase or decrease the public offering price after
distribution of the Securities has been completed to such extent as the
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<PAGE> 14
Representative, in its sole discretion deems advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
4. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable 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 or file any document under the Act or Exchange Act before
termination of the offering of the Securities by the Underwriters of which the
Representative shall not previously have been advised and furnished with a copy,
to which the Representative shall have reasonably objected or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Representative and confirm the notice in
writing (i) when the Registration Statement as amended, becomes effective or, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments regarding the Registration
Statement from the Commission, and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission or authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain promptly
the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Representative) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(4) not later than the Commission's close of business on the earlier
of (i) the second business day following the execution and delivery of this
Agreement, and (ii) the fifth business day after the Effective Date.
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<PAGE> 15
(d) The Company will give the Representative notice prior to
the Closing Date of its intention to file or prepare any amendment to the
Registration Statement (including any revised prospectus which the Company
proposes for use by the Underwriters in connection with the offering of the
Securities which differs from the corresponding Prospectus on file at the
Commission at the time the Registration Statement becomes effective, whether or
not such revised prospectus is required to be filed pursuant to Rule 424(b) of
the Rules and Regulations), and will furnish the Representative with copies of
any such amendment or supplement within a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file any such
amendment to which the Representative shall reasonably object.
(e) The Company shall endeavor in good faith, in cooperation
with the Representative, at or prior to the time the Registration Statement
becomes effective, to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as the Representative may designate to
permit the continuance of sales and dealings therein for as long as may be
necessary to complete the distribution, and shall make such applications, file
such documents and furnish such information as may be required for such purpose,
provided, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdictions to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the judgment of the Company, or in the
reasonable opinion of counsel to the Underwriters, the Prospectus, as then
amended or supplemented, included an 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 the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Representative
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, to correct such statement
or omission or to effect such compliance, and the Company will furnish to the
Representative copies of such amendment or supplement as soon as available and
in such quantities as the Representative may request.
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<PAGE> 16
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the Company during which the Effective Date occurs (90
days in the event that the end of such fiscal quarter is the end of the
Company's fiscal year), the Company shall make generally available to its
security holders, in the manner specified in Rule 158(b) of the Rules and
Regulations, and to the Representative, an earnings statement which will be in
the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act, covering a period of
at least 12 consecutive months after the Effective Date.
(h) During the period of five years after the date hereof, the
Company will furnish to its shareholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly
reports to its shareholders, statements of income of the Company for each
quarter in the form furnished to the Company's shareholders and certified by the
Company's principal financial or accounting officer;
(ii) concurrently with furnishing such annual reports
to its shareholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations, shareholders'
equity, and cash flows of the Company for such fiscal year, accompanied by a
copy of the report thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to shareholders;
(iv) as soon as practicable after the filing thereof,
copies of all reports and financial statements of the Company furnished to or
filed with the Commission, the NASD or any securities exchange, and
(v) every press release and every material news item
or article of interest to the financial community in respect of the Company or
its affairs which was released or prepared by or on behalf of the Company.
(i) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock and
Warrants.
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<PAGE> 17
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, and all amendments and
supplements thereto, including any Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus and all amendments and supplements thereto, including any prospectus
prepared after the Effective Date, in each case as soon as available and in such
quantities as the Representative may reasonably request.
(k) On or before the Effective Date, the Company shall provide
the Representative with true copies of duly executed, legally binding and
enforceable agreements pursuant to which for a period of 24 months (except as
hereinafter provided) from the Effective Date (or for such longer period not to
exceed 36 months as may be required under applicable state blue sky laws), each
of the Company's shareholders owning at least__% of the Shares outstanding prior
to the Effective Date, agrees that it, he or she will not directly or
indirectly, issue, offer to sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of
Common Stock or securities (collectively, the "Lock-Up Securities") convertible
into, exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock or securities (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein without written consent of the Representative (collectively,
the "Lock-up Agreements"). On or before the Closing Date, the Company shall
deliver instructions to the transfer agent authorizing it to place appropriate
legends on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers.
(l) None of the Company, any of its officers, directors,
shareholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(m) The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the conditions, set forth under
"Use of Proceeds" in the Prospectus. No portion of the net proceeds will be
used, directly or indirectly, to acquire any securities issued by the Company.
(n) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(o) The Company shall furnish to the Representative as early
as practicable prior to each of the date hereof, and the Closing Date but not
later than two business days prior thereto, a copy of the latest available
unaudited interim financial statements of the
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<PAGE> 18
Company (which in no event shall be as of a date more than thirty (30) days
prior to the Effective Date) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(i) hereof.
(p) The Company shall cause the Common Stock and Warrants to
be quoted on NASDAQ and for a period of five years from the date hereof shall
use its best efforts to maintain such NASDAQ quotations.
(q) For a period of five years from the Closing Date, at the
Representative's request, the Company shall furnish to the Representative at the
Company's sole expense, daily consolidated transfer sheets relating to the
Common Stock and Warrants.
(r) Until the completion of the distribution of the Securities
but in no event after twenty-five (25) days following the Effective Date, the
Company shall not without prior written consent of the Representative, issue,
directly or indirectly any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(s) Until the earlier to occur of (i) the seventh anniversary
of the date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 (or other appropriate form) for the
registration under the Act of the Representative's Securities.
(t) For a period of not less than five (5) years after the
Effective Date, the Company will recommend and use its best efforts to appoint a
person designated by the Representative as a member of its Board of Directors
who shall be permitted to attend all meetings of the Board of Directors, and
will be entitled to vote at such meetings. The Company shall reimburse such
designee for his or her reasonable out-of-pocket expenses including, but not
limited to food, lodging and transportation incurred in connection with his or
her attendance at the Company's Board meetings upon submission of documentation
therefor. The Company will agree, if possible, to include such designee under
any directors' liability insurance policy obtained by the Company.
(u) For the period of three (3) years from the date hereof,
the Company shall engage a financial public relations firm, subject to approval
by the Representative.
(v) The Company agrees that any and all future transactions
between the Company and its officers, directors, principal shareholders and the
affiliates of the foregoing persons will be on terms no less favorable to the
Company than could reasonably be obtained in arm's length transactions with
independent third parties, and that any such transactions also be approved by a
majority of the Company's directors
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<PAGE> 19
disinterested in the transaction, if any.
(w) The Company agrees that for a period of five (5) years
from the Effective Date it will register and remain covered by the Corporation
Records Service published by Standard & Poor's Corporation.
(x) Prior to the filing of the Registration Statement, the
Company will provide IAI or its counsel with the results of UCC, lien and title
searches effected in all appropriate jurisdictions.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on the Closing Date all
expenses and fees (other than fees of Underwriters' counsel, except as provided
in (iv) and (v) below) incident to the performance of the obligations of the
Company under this Agreement, including, without limitation, (i) the fees and
expenses of accountants and counsel for the Company; (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing (including
mailing and handling charges), filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and the
Prospectus and any amendments and supplements thereto and the duplication,
mailing (including the payment of postage with respect thereto) and delivery of
this Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement,
the Powers of Attorney, and related documents, including the cost of all copies
thereof and of the Preliminary Prospectus and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriters and such
dealers as the Underwriters may request; (iii) the printing, engraving, issuance
and delivery of the Securities; (iv) the qualification of the Securities under
state securities or "Blue Sky" laws, including the costs of printing and mailing
the "Preliminary Blue Sky Memorandum" and the "Supplemental Blue Sky Memorandum"
to be prepared by Underwriters' counsel and disbursements and fees of counsel to
the Underwriters in connection therewith (such fees and disbursements to be so
reimbursed not to exceed $37,500 in the aggregate, $12,500 of which it is
acknowledged has already been paid); (v) the fees and disbursements of
Underwriter's counsel in connection with the qualification with NASD of the
terms of the transaction relating to underwriting compensation (not to exceed
$______ plus disbursements); (vi) advertising costs and expenses, including but
not limited to costs and expenses in connection with the "road show,"
information meetings and presentations, not more than three bound volumes and
"tombstone" advertisement expenses (not in excess of $20,000 in the aggregate);
(vii) fees and expenses of the transfer agent and registrar, and (viii) the fees
payable to the Commission, the NASD and NASDAQ, including the fees and expenses
incurred in connection with the listing of the Common Stock and Warrants on
NASDAQ.
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<PAGE> 20
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6 or Section 12 (other than any such
termination resulting from the breach hereof or default hereunder by the
Representative or Underwriters or the exercise by the Underwriters of their
rights under Section 10 hereof), the Company shall reimburse and indemnify the
Representative for all of its accountable out of pocket expenses, including the
fees and disbursements of Underwriters' counsel, up to a maximum of $150,000,
less any amounts already paid pursuant to Sections 5(a) and 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Representative on the Closing Date by certified or bank cashier's check or,
at the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities, it being acknowledged that $______ of said amount has already
been paid to the Representative.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date, as if they had been made on and as of the Closing Date;
the accuracy on and as of the Closing Date of the statements of officers of the
Company made pursuant to the provisions hereof, and the performance by the
Company on and as of the Closing Date of its covenants and obligations hereunder
and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m. New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Representative and, at
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of the Representative. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Registration Statement, or any amendment thereto,
shall not contain an untrue statement of a material fact or omit to state a
material fact which is required to
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<PAGE> 21
be stated therein or is necessary to make the statements therein not misleading,
or the Prospectus, or any supplement thereof, shall not contain an untrue
statement of a material fact, or omit to state a material fact which is required
to be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(c) On or prior to the First Closing Date, the Representative
shall have received from Underwriters' counsel, such opinion or opinions with
respect to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as the
Representative may request and Underwriters' counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(d) At the First Closing Date, the Underwriters shall have
received the opinion of Law Office of Weber and Weber ("Weber and Weber"), dated
the First Closing Date, addressed to the Underwriters and in form and substance
satisfactory to the Representative, to the effect that:
(i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware; (B) is duly qualified and licensed for the transaction of business
and in good standing as a foreign corporation in any jurisdiction where the
conduct of the Company's business requires qualification or where
non-qualification would have a material adverse effect on the Company's
operations, and (C) has all requisite corporate power and authority, and to such
counsel's knowledge, has obtained any and all material authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies, to own or lease its
properties and conduct its business as described in the Prospectus, other than
any the failure of which to so obtain would not have a material adverse effect
on the Company. To the best of such counsel's knowledge after due inquiry, the
Company is doing business in compliance with all such authorizations, approvals,
orders, licenses, certificates, franchises and permits and all Federal, state
and local laws, rules and regulations; and, to the best of such counsel's
knowledge after due inquiry, the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the business, operations,
condition, financial or otherwise or the earnings, business affairs, operation,
properties, business or results of operations of the Company. The disclosures in
the Registration Statement concerning the effects of Federal, state and local
laws, rules and regulations on the Company's business as currently conducted and
as contemplated are accurate in all material respects and do not omit to state a
fact necessary to make the statements contained therein not misleading in light
of the circumstances in which they were made;
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<PAGE> 22
(ii) except as described in the Prospectus, the
Company does not own an interest in any corporation, partnership, joint venture,
trust or other business entity;
(iii) the Company has duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any amendment or
supplement thereto, under the heading "Capitalization", and to such counsel's
knowledge, except as set forth in the Prospectus, the Company is not a party to
or bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities. The Firm
Securities, and all other securities issued or issuable by the Company have been
duly authorized; to the best of such counsel's knowledge, all outstanding shares
of Common Stock have been fully paid for and are non-assessable, and the Firm
Securities, when issued, paid for and delivered in accordance with the terms
hereof will be validly issued, fully paid and non-assessable and to such
counsel's knowledge the holders of the outstanding Shares of Common Stock have
no claim under right of rescission with respect thereto, and holders of the
outstanding Common Stock and the Firm Securities are not subject to personal
liability by reason of being such holders. To the best of such counsel's
knowledge, following an examination of the certificate of incorporation and
by-laws of the Company, the minutes of meetings or written consents of the board
of directors and shareholders of the Company through the First Closing Date, as
certified to Feldman Radin by the president of the Company, the Securities to be
sold by the Company hereunder are not and will not be subject to any preemptive
or other rights to subscribe for or purchase any securities, or any restrictions
upon the voting or transfer thereof. The Firm Securities conform to the
description thereof in the Prospectus. All corporate action required to be taken
for the authorization, issue and sale of the Firm Securities has been duly and
validly taken; and the certificates representing the Firm Securities are in due
and proper form. The Representative's UPO constitutes a valid and binding
obligation of the Company to issue and sell, upon exercise thereof and payment
therefor, the number and type of securities of the Company called for thereby.
Upon the issuance and delivery pursuant to this Agreement of the Firm Securities
to be sold by the Company, the Underwriters and the Representative,
respectively, will acquire title to the Firm Securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, or other
restriction of any kind whatsoever.
(iv) the Registration Statement has become effective
under the Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A and to the best of counsel's
knowledge following due inquiry, no stop order suspending the effectiveness of
the Registration Statement or preventing the use of the preliminary prospectus
or any part of any thereof has been issued and no proceeding for that purpose
has been instituted or is pending, or is threatened or contemplated under the
Act;
(v) to the best of such counsel's knowledge, (A)
there are no agreements, contracts or other documents required by the Act to be
described in the Registration Statement and the Prospectus or to be filed as
exhibits to the Registration
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<PAGE> 23
Statement which are not described or filed other than those described in the
Registration Statement; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of contracts and other
documents to which the Company is a party or by which it is bound, incorporated
by reference into the Prospectus and any supplement or amendment thereto, are
materially accurate and fairly present in all material respects the information
required to be presented therein; (C) there is no action, arbitration, suit,
proceeding, inquiry, investigation, litigation, governmental, legal or other
proceeding (including, without limitation those having jurisdiction over
environmental or similar matters), domestic or foreign, pending or threatened
against the Company, or involving the properties or business of the Company
which is required to be disclosed in the Registration Statement which is not so
disclosed [except that an opinion that such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects shall be given
by Weber and Weber]; (D) to the best knowledge of such counsel, no Federal,
state or local statute or regulation required to be described in the Prospectus
is not described as required [this subphrase "(D)" to be covered by Weber and
Weber], and (E) there is no action, suit or proceeding pending, or threatened,
against or affecting the Company before any court or arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel) in which
there is a reasonable possibility of an adverse decision which may result in a
material adverse change in the condition, financial or otherwise, or the
earnings, shareholders' equity, operations, properties, business or results of
operations of the Company, which could adversely affect the present or
prospective ability of the Company to perform its obligations under this
Agreement, the Consulting Agreement, or the M&A Agreement or which in any manner
draws into question the validity or enforceability of this Agreement, the
Consulting Agreement, or the M&A Agreement [this subphrase "(E)" to be covered
by Weber and Weber];
(vi) the Company has full corporate power and
authority to enter into each of this Agreement, the UPO, the M&A Agreement, the
Consulting Agreement and to consummate the transactions contemplated therein;
and each of this Agreement, the UPO, the Consulting Agreement, or the M&A
Agreement has been duly authorized, executed and delivered by or on behalf of
the Company. Each of this Agreement, the UPO, the Consulting Agreement, or the
M&A Agreement, assuming due authorization, execution and delivery by each other
party thereto, constitutes a legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its respective terms (except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights generally and the application of
general equitable principles in any action, legal or equitable, and except as to
those provisions relating to indemnity or contribution as to which no opinion is
expressed), and to the best of such counsel's knowledge none of the Company's
execution, delivery or performance of this Agreement, the UPO, the M&A
Agreement, the Consulting Agreement, or the conduct of its business as described
in the Registration Statement, the Prospectus, and any amendments or supplements
thereto, will result in any material breach or material violation of any of the
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<PAGE> 24
terms or provisions of, or constitutes or will constitute a material default
under, or result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of (A) the articles of incorporation or by-laws of the
Company; (B) any material license, contract, indenture, mortgage, deed of trust,
voting trust agreement, shareholders agreement, note, loan or credit agreement
or any other material agreement or instrument to which the Company is a party or
by which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or (C) any Federal, state or
local statute, judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its properties;
(vii) no consent, approval, authorization or order
of, and no filing with, any court, regulatory body, government agency or other
body (except such as have been obtained and are in full force and effect under
the Act (and such as may be required under applicable Blue Sky laws in
connection with the purchase and distribution of the Securities by the
Underwriters and clearance of the offering by the NASD, as to which no opinion
will be rendered)) is required in connection with the issuance of the Securities
covered by the Prospectus, the issuance of the Representative's UPO, and the
Registration Statement, the performance of this Agreement, the UPO, the
Consulting Agreement, the M&A Agreement, and the transactions contemplated
hereby and thereby;
(viii) to the best of such counsel's knowledge, the
properties and business of the Company conform to the description thereof
contained in the Registration Statement and the Prospectus and nothing has come
to Weber and Weber's attention since _____________ 1996 which would cause Weber
and Weber to change its opinion as to the status of title to Capital Beverage
Corporation (as defined in the Prospectus) rendered on such date in connection
with the Bridge Financing;
(ix) to the best of such counsel knowledge, there is
no breach of or a default under, any term or provision of any license, contract,
indenture, mortgage, installment sale agreement, deed of trust, lease, voting
trust agreement, shareholders' agreement, note, loan or credit agreement or any
other agreement or instrument evidencing any obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which the property or assets (tangible or
intangible) of the Company is subject or affected; to the best of such counsel's
knowledge, the Company is not in violation of any term or provision of its
certificate of incorporation or by-laws or in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation;
(x) the statements in the Prospectus under
"BUSINESS", "MANAGEMENT," "PRINCIPAL STOCKHOLDERS", "SELLING SECURITY HOLDERS",
"CERTAIN TRANSACTIONS", "DESCRIPTION OF SECURITIES", and "SHARES
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<PAGE> 25
ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material respects;
(xi) to counsel's knowledge, the Common Stock and
Warrants have been approved for quotation on NASDAQ;
(xii) to such counsel's knowledge,___________________
is the "beneficial owner" (as such phrase is defined in Regulation 13d-3 under
the Exchange Act) of the securities set forth opposite his name under "SELLING
SECURITY HOLDERS" in the Prospectus and to the extent set forth therein;
(xiii) to the best of such counsel's knowledge, none
of the Company, nor any of its officers, shareholders, employees or agents, nor
any other person acting on behalf of the Company, has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official of
any governmental agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or foreign) or
other person who is or may be in a position to help or hinder the business of
the Company (or assist in connection with any actual or proposed transaction)
which might subject the Company to any damage or penalty in any civil, criminal
or governmental litigation or proceeding;
(xi) except as described in the Prospectus, no
person, corporation, trust, partnership, association or other entity has the
right to include or have included any securities of the Company in the
Registration Statement, require the Company to file any registration statement
and, if filed, to include any security in such registration statement;
(xv) to such counsel's knowledge, except as described
in the Prospectus there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial consulting
arrangement or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriters' compensation, as determined by the
NASD;
(xvi) to such counsel's best knowledge, except as
described in the Prospectus, (i) no officer, director or shareholder of the
Company, or any member of the immediate family of any thereof, either directly
or indirectly, during the two years next preceding the Effective Date, had or
has a material interest in a transaction to which the Company is or was a party
which (A) exceeds $60,000; (B) is not a transaction regulated as to price or fee
by law, and (C) is or was not subject to open competitive bidding, and (ii)
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company and any officer, director or principal shareholder of the
Company or any
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<PAGE> 26
affiliate or associate of any such person or entity required to be so disclosed;
(xvii) to such counsel's knowledge following due
inquiry, the Company is not party to any ERISA plans or defined benefit plan, as
defined in Section 3(35) of ERISA;
(xviii) to such counsel's knowledge, there are no
claims, payments, arrangements or understandings between the Company and any
other underwriter, agent or other entity with respect to the sale of the
Securities or any other securities of the Company required to be disclosed in
the Prospectus which in any case is not so disclosed;
(xviv) to the best of such counsel's knowledge, the
documents referred to in "(iii)" above contain a complete summary of all
meetings and actions of the directors and stockholders of the Company since the
time of its incorporation and reflect all transactions referred to in such
minutes accurately in all material respects, and
(xx) following due execution by the parties thereto
other than the Company, the Lock-up Agreements are legal, valid and binding
obligations of the parties thereto, enforceable against the party in accordance
with their terms except that (a) the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or
hereafter in effect relating to creditors' rights generally, and (b) that the
remedy of specific performance and injunctive and other forms of equitable
relief are subject to certain equitable defenses and to the discretion of the
court before which any proceedings therefor may be brought.
The opinion shall also state that the Registration Statement,
the Prospectus and each amendment thereto or supplement thereof (except for the
financial statements and schedules and other financial information included
therein, as to which such counsel will express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and the Rules
and Regulations.
The opinion shall also contain a statement in the form
generally delivered in connection with underwritten public offerings to the
effect that counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants of the Company and representatives of the Representative at which
the contents of the Registration Statement and the Prospectus were discussed
and, although such counsel is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, on the basis of the
foregoing (relying as to materiality to a large extent upon the opinions of
officers and other representatives of the Company), nothing has come to such
counsel's attention that causes it to believe that the Registration Statement at
the time the Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus at the date of the Prospectus and as supplemented or amended
at all times up to and including the date of such opinion, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements
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<PAGE> 27
therein, in light of circumstances under which they were made, not misleading
(it being understood that such counsel expresses no opinion or belief with
respect to the financial statements and schedules, statistical information or
other financial information included in the Registration Statement or
Prospectus, or as to information set forth in the Registration Statement under
the captions "Risk Factors" and "Business").
(e) On or prior to the First Closing Date, Representative
shall receive from the chief executive officer and chief financial officer of
the Company a certificate dated the Closing Date stating that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all material respects, on and as of
the Closing Date, and the Company has complied with all agreements and covenants
and satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the best
of each of such person's knowledge, after due inquiry, are contemplated or
threatened under the Act;
(iii) the Registration Statement and Prospectus
contain all statements and information required to be included therein, and
neither of the Registration Statement or the Prospectus includes any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make statements therein not misleading and
neither the Preliminary Prospectus or any supplement thereto includes any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and
(iv) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (A) the
Company has not incurred up to and including the Closing Date, other than in the
ordinary course of its business, any material liabilities or obligations, direct
or contingent; (B) the Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not entered into any
transactions not in the ordinary course of business; (D) there has not been any
change in the capital stock or long-term debt or any increase in the short-term
borrowings (other than any increase in the short-term borrowings in the ordinary
course of business) of the Company; (E) the Company has not sustained any loss
or damage to its property or assets, whether or not insured; (F) there is no
litigation which is pending or threatened (or circumstances giving rise to same)
against the Company or any affiliated party or any of the foregoing which is
required to be set forth in an amended or supplemental Prospectus which has not
been set forth; (G) there has been no revocation, suspension or other material
adverse occurrence affecting any of the Company's gaming, liquor or other
licenses or permits, and (H) there has occurred no event required to be set
-26-
<PAGE> 28
forth in an amended or supplemental Prospectus which has not been set forth.
(References to the Registration Statement and the Prospectus
in this subsection are to such documents as amended and supplemented at the date
of such certificate.)
(f) By the Effective Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters.
(g) At the date this Agreement is executed, the Underwriters
shall have received a letter, dated such date, addressed to the Underwriters in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriters and Underwriters' counsel, from Feldman Radin and Company
("Feldman Radin"),
(i) confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Representatives may rely upon the report of Feldman
Radin with respect to the financial statements and supporting schedules included
in the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of meetings of the shareholders and board of directors and the
various committees of the board of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
financial statements and supporting schedules of the Company included in the
Registration Statement, 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 applied on a basis substantially consistent with
that of the audited financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five days prior
to the Effective Date, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the shareholders' equity or
net current assets or net assets of the Company as compared with amounts shown
in the
-27-
<PAGE> 29
_______________1996 balance sheet included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement, or, if there
was any change or decrease, setting forth the amount of such change or decrease;
(iv) setting forth, at a date not later than five
days prior to the date of the Registration Statement, the amount of liabilities
of the Company (including a breakdown of commercial paper and notes payable to
banks);
(v) stating that 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 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
(vi) statements as to such other matters incident to
the transaction contemplated hereby as the Representative may request.
(h) Upon the First Closing Date, the Underwriters shall have
received from Feldman Radin a letter dated such date to the effect that they
reaffirm the statements made in the letter furnished pursuant to subsection (g)
of this Section, except that the specified date referred to shall be a date not
more than five days prior to the First Closing Date and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further effect
that they have carried out procedures as specified in clause (v) of subsection
(g) of this Section with respect to certain amounts, percentages and financial
information as specified by the Representative and deemed to be a part of the
Registration Statement pursuant to Rule 430(b) and have found such amounts,
percentages and financial information to be in agreement with the records
specified in such clause (v).
(i) On the First or Second Closing Date, as the case may be,
there shall have been duly tendered to the Representative for the several
Underwriters' accounts, the appropriate number of Securities.
(j) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on the Closing Date and no proceedings
for that purpose shall have been instituted or shall be contemplated.
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<PAGE> 30
(k) On the First Closing Date upon exercise of the option
aforesaid and payment of the price therefor, the Company shall have executed and
delivered the UPO to the Representative.
(l) On or before the First or Second Closing Date, as the case
may be, the Common Stock and Warrants shall have been duly approved for
quotation on NASDAQ.
(m) On or before the First Closing Date, there shall have been
delivered to the Representative all of the Lock-up Agreements, in form and
substance satisfactory to Underwriters' counsel.
(n) On or before the First Closing Date, the Company shall
have executed the Consulting Agreement, and the M&A Agreement, substantially in
the forms thereof filed as exhibits to the Registration Statement.
Upon the Second Closing Date, if any, the Company will deliver
opinions of Weber and Weber as appropriate, the certificate of the Company
referred to in subparagraph "(e)" above and the letter of Feldman Radin referred
to in "(h)" above, each dated the Second Closing Date, each of which shall
affirm the accuracy as of the Second Closing Date of the matters set forth in
the opinion letters, certificate or letter, as the case may be, delivered upon
the First Closing Date.
If any condition to the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date is not so fulfilled, the
Representative may terminate this Agreement on notice to the Company or, if the
Representative so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment, and proceed with the
transactions contemplated by this Agreement.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters (for purposes of this Section 7 "Underwriters" shall include
the officers, directors, partners, employees, agents and counsel of the
Underwriters), including specifically each person who may be substituted for an
Underwriter (a "controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriters or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in any Preliminary Prospectus, the Registration
-29-
<PAGE> 31
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities, or (iii) in any application or
other document or written communication (in this Section 7 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, NASDAQ or any other securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading (in the case
of the Prospectus, in light of the circumstances under which they were made),
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company on behalf of the Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, or in any
application, as the case may be.
The indemnity agreement above referred to shall be in addition
to any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its officers and
directors who has signed the Registration Statement, and each other person, if
any, who controls the Company, within the meaning of the Act or the Exchange
Act, respective counsel to the Company and the employees and agents of the
Company, to the same extent as the foregoing indemnity from the Company to the
Underwriters but only with respect to statements or omissions, if any, made in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any application made in reliance
upon, and in strict conformity with, written information furnished to the
Company by an Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or any such application. The Company acknowledges that the information
set forth under the heading "Underwriting," the risk factor entitled "Limited
Experience of the Underwriter", the stabilization legend in the Prospectus and
all written information and correspondence provided by Underwriters' counsel
have been furnished by the Underwriters expressly for use therein and constitute
the only information furnished in writing by or on behalf of the Underwriters
for inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent
-30-
<PAGE> 32
that it has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case but the fees and expenses of such counsel
shall be at the expense of the indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party; (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be, defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying parties shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of one additional
counsel shall be borne by the indemnifying parties. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent, provided, such consent
was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by 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 this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand from the offering of the
Securities, or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (A) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or
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<PAGE> 33
liabilities, as well as any other relevant equitable considerations. In any case
where the Company is a contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters on the other, shall be deemed to be in the same
proportions as the total net proceeds from the offering of the Securities
(before deducting expenses) bear to the total underwriting discounts received by
the Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expense or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claims. Notwithstanding the provisions of this
subdivision (d) the Underwriters shall not be required to contribute any amount
in excess of the underwriting discount applicable to the Securities purchased by
the Underwriters hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of Section 12(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subparagraph (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements of the Company
at the Closing Date and such representations, warranties and agreements of the
Company and the respective indemnity and contribution agreements contained in
Section 7 hereof, shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter, the Company, any
controlling person of either the Underwriter or the Company and shall survive
termination of this Agreement or the issuance and delivery of the Securities to
the
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<PAGE> 34
Underwriters and the Representative, as the case may be.
9. Effective Date. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public, provided, the provisions of Sections 5, 7 and 10 of this Agreement shall
at all times be effective. For purposes of this Section 9, the Securities to be
purchased hereunder shall be deemed to have been so released upon the earlier of
dispatch by the Representative of telegrams to securities dealers releasing such
Securities for offering or the release by the Representative for publication of
the first newspaper advertisement which is subsequently published relating to
the Securities.
10. Termination.
(a) Subject to subsection (b) of this Section 10, the
Representative shall have the right to terminate this Agreement if (i) any
domestic or international event or act or occurrence shall have disrupted the
financial markets or, in the Representative's opinion will in the immediate
future disrupt the financial markets; (ii) minimum or maximum prices shall have
been established by the New York Stock Exchange, by the American Stock Exchange
or in the over-the-counter market by the NASD, or trading in securities
generally shall have been suspended or materially limited by either stock
exchange or in the over-the-counter market by the NASD; (iii) the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities in which the United
States is a participant, or a national emergency shall have been declared in the
United States; (iv) a banking moratorium shall have been declared by Federal or
state authorities; (v) the Company shall have sustained a loss material or
substantial to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (vi) there shall
have been such a material change in the general market, political or economic
conditions, in the United States or elsewhere as in the Representative's
judgment would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Underwriters for all of their accountable out of
pocket expenses, including the fees and disbursements of counsel for the
Underwriters up to the amounts previously paid pursuant to Sections 5(a) and
5(c) hereof. Notwithstanding any contrary provision contained in this Agreement
but subject to the first sentence of this Section 10(b), any election hereunder
or any termination of this Agreement (including, without limitation, pursuant to
Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be in
any way be affected by such election
-33-
<PAGE> 35
or termination or failure to carry out the terms of this Agreement or any part
hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth and if any such underwriter is willing to so purchase the Defaulted
Securities, then notwithstanding Section 11(ii) below, the Representative shall
be obligated to effect such arrangement; if, however, the Representative shall
not have completed such arrangement within such 24-hour period, then:
(i) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(ii) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period of not exceeding ten days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
12. Default by Company. If the Company shall fail at the Closing Date
to sell and deliver the number of Securities which it is obligated to sell
hereunder on such date (other than any such failure resulting from the breach
hereof or default hereunder by the Representative or Underwriters or the
exercise by the Underwriters of their rights under Section 10 hereof), then this
Agreement shall terminate without any liability on the part of any
non-defaulting party other than pursuant to Section 5, Section 7 and Section 10
hereof. No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
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<PAGE> 36
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given three days following the day when mailed by prepaid first class
mail, or upon the day of personal delivery. Notices to the Underwriters shall be
directed to the Representative, Investors Associates, Inc., 411 Hackensack
Avenue, Hackensack, NJ 07601, Attn: Herman Epstein, Chairman, with a copy to
Sayid and Associates, 411 Hackensack Avenue, Hackensack, NJ 07601. Notices to
the Company shall be directed to the Company, Capital Beverage Corporation, 1111
East Tremont Avenue, Bronx, NY 10460, Attn: Carmine Stella, President, with
copies to the Law Offices of Weber and Weber, 300 Rabro Drive, Hauppauge, NY
11788.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to be
a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the law of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
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<PAGE> 37
17. Entire Agreement; Amendments. This Agreement, the M&A Agreement and
the Consulting Agreement constitute the entire agreements between the parties
hereto, and supersede all prior written or oral agreement, understandings and
negotiations, with respect to the subject matter hereof, except as herein
expressly provided. This Agreement may not be amended except in writing, signed
by the Representative and the Company.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
CAPITAL BEVERAGE CORPORATION
By:_________________________
Carmine N. Stella
President
Confirmed and accepted as of
the date first above written
INVESTORS ASSOCIATES, INC.
For itself and as Representative
of the other Underwriters named
in Schedule A hereto
By:_____________________________________
Herman Epstein
Chairman
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<PAGE> 38
SCHEDULE A
<TABLE>
<CAPTION>
NO./SHARES NO./WARRANTS
UNDERWRITER TO BE PURCHASED TO BE PURCHASED
<S> <C> <C>
Investors Associates, Inc.
TOTAL
========= =========
</TABLE>
-37-
<PAGE> 1
Exhibit 1.2
Form of Agreement Among Underwriters
<PAGE> 2
CAPITAL BEVERAGE CORPORATION
800,000 UNITS
EACH UNIT CONSISTING OF
ONE (1) SHARE OF COMMON STOCK, $.001 PAR VALUE
AND
ONE-HALF (1/2) CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
AGREEMENT AMONG UNDERWRITERS
_________ 1996
Investors Associates, Inc.
As Representative of the
several underwriters named
in Schedule I to Exhibit A
annexed hereto
Dear Sirs:
We understand that Capital Beverage Corporation, a Delaware
corporation (the "Company" desires to enter into an agreement, substantially in
the form of Exhibit A attached hereto (the "Underwriting Agreement") with you
and the other prospective Underwriters named in Schedule I to the Underwriting
Agreement for the sale by the Company, of an aggregate of 800,000 Units (the
"Firm Units") consisting of one (1) share of Common Stock, par value $.001, and
one-half (1/2) class A Redeemable Common Stock Purchase Warrant of the Company.
We understand that changes may be made in those who are to be
Underwriters and in the respective number of Firm Units to be purchased by them,
but that the number of Firm Units to be purchased by us as set forth in said
Schedule I will not be changed without our consent except as provided herein or
in the Underwriting Agreement. The parties on whose behalf you execute the
Underwriting Agreement are herein called the "Underwriters."
<PAGE> 3
We desire to confirm the agreement among you, the undersigned
and the other underwriters with respect to the purchase of the Firm Units by the
Underwriters, severally and not jointly, from the Company. The aggregate number
of Firm Units which any Underwriter will be obligated to purchase pursuant to
the terms of the Underwriting Agreement is herein called the "Underwriting
Obligation" of that Underwriter.
1. Authority and Compensation of Representative. We hereby
authorize you, as our representative (the "Representative"), and on our behalf,
(a) to enter into an agreement with the Company, in substantially the form
attached hereto as Exhibit A, but with such changes therein as in your judgment
will not be materially adverse to the Underwriters, providing for the purchase
by us, severally and not jointly, from the Company, at the purchase price per
share determined as set forth in said Exhibit A, of the number of Firm Units set
forth opposite our name in Schedule I to said Exhibit A, and (b) to exercise all
the authority and discretion vested in the Underwriters and in you by the
provisions of the Underwriting Agreement, (c) to take all such action as you in
your discretion may deem necessary or advisable in order to carry out the
provisions of the Underwriting Agreement and of this Agreement, and the sale and
distribution of the Firm Units, and (d) to determine all matters relating to the
public advertisement of the stock.
As our share of the compensation for your services hereunder,
we will pay to you, and we authorize you to charge to our account on the Closing
Date referred to in the Underwriting Agreement, $______ per share in respect of
the aggregate number of Firm Units, respectively, which we shall agree to
purchase pursuant to the Underwriting Agreement.
2. Public Offering of Firm Units. The sale of the Firm Units
to the public is to be made, as herein provided, as soon after the registration
statement relating to the Firm Units becomes effective as in your judgment is
advisable. The purchase price to be paid by the Underwriters for the Firm Units
and the initial public offering price are to be determined by agreement between
you and the Company. The Firm Units shall be first offered to the public at the
initial public offering price as so determined (the "Initial Public Offering
Price"). You will advise us by telegraph or telephone when the Firm Units shall
be released for offering, when the registration statement relating to the Firm
Units shall become effective and the price at which the Firm Units is initially
to be offered. We agree not to sell any of the Firm Units until you have
released it for that purpose. We authorize you, after the initial public
offering, to change the public offering price, the concession and the
reallowance if, in your sole discretion, such action becomes desirable by reason
of changes in general market conditions or otherwise. As used herein, the terms
"Registration Statement," "Preliminary Prospectus" and "Prospectus" shall have
the meanings ascribed thereto in the Underwriting Agreement. The public offering
price at the time in effect is herein called the "Offering Price."
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After notice from you that the Firm Units are released for
public sale, we will offer to the public in conformity with the provisions
hereof and with the terms of offering set forth in the Prospectus such Firm
Units as you advise us are not reserved.
3. Offering to Dealers and Retail Sales. We authorize you to
reserve for offering and sale, and on our behalf to sell, to retail purchasers
(such sales being herein called "Retail Sales") and to dealers selected by you
(such dealers, among whom any Underwriter may be included, being herein called
"Selected Dealers") all or any part of our Firm Units as you, in your sole
discretion, shall determine. Such sales, if any, shall be made (a) in the case
of Retail Sales, at the Offering Price, and (b) in the case of sales to Selected
Dealers, at the Offering Price less such concession or concessions as you, in
your sole discretion, shall determine. Except for such sales as are designated
by a purchaser to be for the account of a particular Underwriter or Selected
Dealer, any sales to Selected Dealers made for our account shall be as nearly as
practicable in the ratio that the Firm Units reserved for our account for
offering to Selected Dealers bears to the aggregate of all Firm Units of all
Underwriters so reserved.
You agree to notify us promptly on the date of the public
offering as to the number of shares, if any, of the Firm Units which we may
retain for direct sale by us. Prior to the termination of the provisions
referred to in Section 13 hereof, you may reserve for offering and sale as
hereinbefore provided any Firm Units theretofore retained by us remaining unsold
and we may, with your consent, retain any Firm Units theretofore reserved by you
remaining unsold.
We agree that from time to time prior to the termination of
the provisions referred to in Section 13 hereof, we shall furnish to you such
information as you may request in order to determine the number of shares of
stock purchased by us under the Underwriting Agreement which then remain unsold,
and we shall upon your request sell to you for the account of any Underwriter as
many of such unsold Firm Units as you may designate at the Offering Price, less
all or any part of the concession to Selected Dealers as you, in your sole
discretion, shall determine. The provisions of Section 4 hereof shall not be
applicable in respect of any such sale.
We authorize you to determine the form and manner of any
communications or agreements with Selected Dealers. In the event that there
shall be any agreements with Selected Dealers, you are authorized to act as
manager thereunder and we agree, in such event, to be governed by the terms and
conditions of such agreements.
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It is understood that any Selected Dealer to whom an offer may
be made as hereinbefore provided shall be actually engaged in the investment
banking or securities business and shall be either (i) a member in good standing
of the National Association of Securities Dealers, Inc. (the "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 (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. Each
Selected Dealer shall agree to comply with the provisions of Section 24 of
Article III of the Rules of Fair Practice of the NASD, and each foreign Selected
Dealer who is not a member of the NASD also shall agree to comply with the
NASD's interpretation with respect to free-riding and withholding, 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 a non-member foreign dealer. The
several Underwriters may allow, and the Selected Dealers, if any, may re-allow,
such concession or concessions as you may determine from time to time on sales
of Stock to any qualified dealer, all subject to the Rules of Fair Practice of
the NASD.
You, and any of the several Underwriters with your prior
consent, may make purchases or sales of the Firm Units from or to any of the
other Underwriters, at the Offering Price less all or any part of the gross
spread, and from or to any of the Selected Dealers at the Offering Price less
all or any part of the concession to Selected Dealers.
Upon your request, we will advise you of the identity of any
dealer to whom we allow such a discount and any Underwriter or Selected Dealer
from whom we receive such a discount.
4. Repurchases in the Open Market. Any Firm Units sold by us
(otherwise than through you) which shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters shall be
repurchased by us on demand at a price equal to the cost of such purchase plus
commissions and taxes on redelivery. Any Firm Units delivered on such repurchase
need not be the identical shares originally sold by us. In lieu of delivery of
such shares to us, you may sell such shares in any manner for our account and
charge us with the amount of any loss or expense or credit us with the amount of
any profit, less any expense, resulting from such sale, or charge our account
with an amount not in excess of the concession to selected Dealers.
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5. Delivery and Payment. Upon your request, we shall deliver
to you payment for the Firm Units to be purchased by us under the Underwriting
Agreement in an amount equal to the initial Public Offering Price for such Firm
Units less the concession to Selected Dealers. Such payment shall be made in
such form and at such time and place as may be specified in such request, and we
authorize you to make payment for such Firm Units against delivery thereof for
our account hereunder. If we are a member of or clear through a member of The
Depository Trust Company (the "DTC"), you may, in your discretion, deliver our
Firm Units through the facilities of DTC.
You shall remit to us, as promptly as practicable, the amounts
received by you from Selected Dealers and retail purchasers as payment in
respect of Firm Units sold by you for our account pursuant to Section 3 hereof
for which payment has been received. Firm Units purchased by us under the
Underwriting Agreement and not reserved or sold by you for our account pursuant
to Section 3 hereof shall be delivered to us as promptly as practicable after
receipt by you. Any Firm Units purchased by us and so reserved which remains
unsold at any time prior to the settlement of accounts hereunder may, in your
discretion, and shall, upon your request, be delivered to us, but, until
termination of the Selected Dealer Agreements pursuant to their terms, such
delivery shall be for carrying purposes only. In case any Firm Units reserved
for sale in Retail Sales or to Selected Dealers shall not be purchased and paid
for in due course as contemplated hereby, we agree (a) to accept delivery when
tendered by you of any shares of Firm Units so reserved for our account and not
so purchased and paid for, and (b) in case we shall have received payment from
you in respect of any such shares of Firm Units, to reimburse you on demand for
the full amount which you shall have paid us in respect of such Firm Units.
In the event of our failure to tender payment for Firm Units
as provided in the Underwriting Agreement, you shall have the right under the
provisions thereof to arrange for other persons, who may include you and any
other Underwriter, to purchase such Firm Units which we had agreed to purchase
but without relieving us from liability for our default.
6. Authority to Borrow. We authorize you to advance your funds
for our account (charging current interest rates) and to arrange loans for our
account or the account of the Underwriters for the purpose of carrying out this
Agreement, and in connection therewith to execute and deliver any notes or other
instruments and to hold or pledge as security therefor all or any part of our
Firm Units purchased hereunder for our account. Any lender is hereby authorized
to accept your instructions in all matters relating to such loans. Any part of
our Firm Units so held by you may be delivered to us for carrying purposes and,
if so delivered, will be redelivered to you upon demand.
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7. Allocation of Expenses and Liability. We authorize you to
charge our account with and we agree to pay (a) all transfer taxes on sales made
by you for our account, except as herein otherwise provided, and (b) our
proportionate share (based on our Underwriting obligation) of all expenses
incurred by you in connection with the purchase, carrying, sale and distribution
of the Firm Units and all other expenses arising under the terms of the
Underwriting Agreement or this Agreement. Your determination of all such
expenses and your allocation thereof shall be final and conclusive. You may at
any time make partial distributions of credit balances or call for payment of
debit balances. Funds for our account at any time in your hands may be held in
your general funds without accountability for interest. As soon as practicable
after the termination of this Agreement, the net credit or debit balance in our
account, after proper charge and credit for all interim payments and receipts,
shall be paid to or paid by us, provided that you may establish such reserves as
you, in your sole discretion, shall deem advisable to cover possible additional
expenses chargeable to the several Underwriters. Notwithstanding any settlement,
we will remain liable for any taxes on transfers for our account and for our
proportionate share (based on our Underwriting Obligation) of all expenses and
liabilities that may be incurred for the accounts of the Underwriters.
8. Liability for Future Claims. Neither any statement by you
of any credit or debit balance in our account nor any reservation from
distribution to cover possible additional expenses relating to the Firm Units
shall constitute any representation by you as to the existence or non-existence
of possible unforeseen expenses or liabilities of or charges against the several
Underwriters. Notwithstanding the distribution of any net credit balance to us
or the termination of this Agreement or both, we shall be and remain liable for,
and will pay on demand, (a) our proportionate share (based on our Underwriting
Obligation) of all expenses and liabilities which may be incurred by or for the
accounts of the Underwriters, or any of them, based on the claim that the
Underwriters constitute an association, unincorporated business, partnership or
any separate entity, and (b) any transfer taxes paid after such settlement on
account of any sale or transfer for our account.
9. Stabilization and Over-Allotment. We authorize you on our
behalf and for our account, during the term of this Agreement, in your
discretion, and without obligating you to do so, to buy and sell Firm Units in
the open market or otherwise for either long or short account, on such terms and
at such prices as you may determine and, in arranging for sales, to over-allot
and cover such over-allotments, provided that at no time shall the net
commitment of any Underwriter under authority of this Section, either for long
or short account, exceed an amount equivalent to 15% of the maximum number of
Firm Units to be purchased by such Underwriter under the Underwriting Agreement.
All purchases, sales and over-allotments under authority of this section shall
be for the accounts of each of the several Underwriters as nearly as practicable
in proportion to their respective Underwriting Obligations. We agree to take up
at cost on demand any Firm Units so purchased for our account and to deliver on
demand any Firm Units so sold or over allotted for our account. We also
authorize you to deliver our shares of Firm Units and any other
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Firm Units purchased by you for our account pursuant to this Section 9, against
sales made by you for our account pursuant to any provisions of this Agreement.
Notwithstanding the foregoing limitations, in the event of default by one or
more Underwriters in respect of their obligations under this paragraph, each
nondefaulting Underwriter shall assume its proportionate share of the
obligations of such defaulting Underwriter without relieving such defaulting
Underwriter of its liability hereunder.
In the event that you effect any stabilizing purchases
pursuant to this Section 9, you will notify each Underwriter promptly of the
date and time when the first stabilizing purchase is effected and the date and
time when stabilizing is terminated. Each Underwriter agrees that if it effects
any stabilizing purchases, it will, not later than three business days following
the day on which any such stabilizing purchase is effected, notify you of the
price, date and time at which such stabilizing purchase was effected and will
promptly notify you of the date and time when stabilizing was terminated by such
Underwriter. Each Underwriter authorizes you to file with the Securities and
Exchange Commission (the "Commission") all notices and reports which may be
required as a result of any transactions made pursuant to this Section 9.
We agree to advise you, from time to time upon your request
during the term of this Agreement, of the number of Firm Units retained by us or
purchased by us from other Underwriters and selected Dealers remaining unsold,
and will, upon your request, release to you for the accounts of one or more of
the several Underwriters, such number of Firm Units as you may designate at such
price, not less than the net price to Selected Dealers nor more than the Initial
Public Offering Price, as you may determine.
If, pursuant to the provisions of the first paragraph of this
Section 9 and prior to the termination of this Agreement (or such earlier date
as you may have determined on notice to the Underwriters) you purchase or
contract to purchase any Firm Units which were retained by or released to us for
direct sale, which shares were theretofore not effectively placed for investment
by us, we authorize you in your discretion either to charge our account with an
amount equal to the concession to Selected Dealers with respect thereto or to
require us to repurchase such shares at a price equal to the total cost of such
purchase, including commissions, if any, and transfer tax on the redelivery.
Shares delivered on such repurchase need not be the identical shares originally
purchased by and delivered to us.
Upon the termination of this Agreement, you are authorized in
your discretion, in lieu of delivering to the several Underwriters any Firm
Units then held for their respective accounts pursuant to this Section 9, to
sell such shares for the accounts of each of the Underwriters at such price or
prices as you may determine and debit or credit our account for the loss or
profit resulting from such sale.
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10. Open Market Transactions. We agree that we will not make
bids or offers, or make or induce purchases or sales for our own account or the
accounts of customers in the open market or otherwise, either before or after
the purchase of the Firm Units and for either long or short accounts, of any
Firm Units or any security of the same class or series, or any right to purchase
any such security except (i) as provided in this Agreement, the Underwriting
Agreement and the selected Dealer Agreements or otherwise approved by you, (ii)
in brokerage transactions not involving solicitation of the customer's order and
(iii) in connection with option and option-related transactions that are
consistent with the "no-action" position set forth in Release No. 17609, as
amended in Release No. 19565, of the Commission under the 1934 Act. We further
agree that we will not lend, either before or after the purchase of the Firm
Units, to any customer, Underwriter, Selected Dealer or to any other securities
broker or dealer any Firm Units. Prior to the completion (as defined in Rule
lOb-6 under the 1934 Act) of our participation in the distribution, we will
otherwise comply with Rule 10b-6.
11. Blue Sky. Prior to the initial offering by the
Underwriters, you will inform us as to the states and other jurisdictions under
the respective securities or blue sky laws of which it is believed that the Firm
Units have been qualified for sale or are exempt from such qualification, but
you do not assume any responsibility or obligation as to the accuracy of such
information or as to the right of any Underwriter or dealer to offer or sell the
Firm Units in any state or other jurisdiction. You agree to file or cause to be
filed, on behalf of the Underwriters, a Further State Notice in respect of the
stock pursuant to Article 23-A of the General Business Law of the State of New
York, if necessary.
12. Default by Underwriters. Default by one or more
Underwriters in respect of their obligations under the Underwriting Agreement
shall not release us from any of our obligations or in any way affect the
liability of any defaulting Underwriter to the other Underwriters for damages
resulting from such default. In the event of such default by one or more
Underwriters, you are authorized to increase, pro rata with the other
non-defaulting Underwriters, the amount of Firm Units which we shall be
obligated to purchase from the Company; provided, however, that the aggregate
amount of all such increases for all non-defaulting Underwriters shall not
exceed 10% of the Firm Units and, if the aggregate amount of the Firm Units not
taken up by such defaulting Underwriters exceeds such 10%, you are further
authorized, but shall not be obligated, to arrange for the purchase by other
persons, who may include you and other non-defaulting Underwriters, of all or a
portion of the Firm Units not taken up by such Underwriters. In the event any
such increases or arrangements are made, the respective amounts of the Firm
Units to be purchased by the non-defaulting Underwriters and by any such other
person or persons shall be taken as the basis for the Underwriters' obligations
under this Agreement, but this shall not in any way affect the liability of any
defaulting Underwriter to the other Underwriters for damages resulting from such
default.
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<PAGE> 10
In the event of default by one or more Underwriters in respect
of their obligations under this Agreement to take up and pay for any Firm Units
purchased by you for their respective accounts pursuant to Section 9 hereof, or
to deliver any such Firm Units sold or over-allotted by you for their respective
accounts pursuant to any provision of this Agreement, and to the extent that
arrangements shall not have been made by you for other persons to assume the
obligations of such defaulting Underwriter or Underwriters, each non-defaulting
Underwriter shall assume its proportionate share of the aforesaid obligations of
each such defaulting Underwriter without relieving any such defaulting
Underwriter of its liability therefor.
13. Termination. Section 2, the second paragraph and the first
sentence of the third paragraph of Section 3, Section 4, the first sentence of
Section 9 and Section 10 hereof will terminate at the close of business on the
30th calendar day after the effective date of the Registration Statement, unless
extended or sooner terminated as hereinafter provided. You may extend such
provisions, or any of them, for a period not to exceed 30 additional calendar
days by notice to us to such effect. You may terminate any of such provisions at
any time by notice to us, and you may terminate all such provisions at any time
by notice to us to the effect that the offering provisions of this Agreement are
terminated.
14. General Position of the Representative. In taking action
under this Agreement, you shall act only as agent of the several Underwriters.
Your authority shall include the taking of such action as you may deem advisable
in respect of all matters pertaining to any and all offers and sales of the Firm
Units, including the right to make any modifications which you consider
necessary or desirable in the arrangements with Selected Dealers or others. You
shall be under no liability for or in respect of the value of the Firm Units or
the validity or 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 Firm Units; or for the performance by the
Company, the Sellers or others of any agreement on its or their part; nor shall
you as Representative or otherwise be liable under any of the provisions hereof
or for any matters connected herewith, except for want of good faith, and except
for any liability arising under the Securities Act of 1933, as amended (the
"1933 Act"); and only obligations expressly assumed by you as Representative
herein shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the Representative of each of them respectively.
Nothing herein contained shall constitute the several Underwriters partners with
you or with each other, or render any Underwriter liable for the commitments of
any other Underwriter, except as otherwise provided in Section 12 hereof and in
Section 11 of the Underwriting Agreement. If the Underwriters shall be deemed to
constitute a partnership for Federal 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 1986, as amended. Each Underwriter
elects to be so excluded and agrees not to take any
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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. The commitments
and liabilities of each of the several Underwriters are several in accordance
with their respective Underwriting obligations and are not joint.
15. Acknowledgment of Receipt of Registration Statement etc.
We hereby confirm that we have examined the Registration Statement relating to
the stock as heretofore filed by the Company with the Commission and each
amendment thereto, if any, filed through the date hereof, including any
documents filed under the 1934 Act through the date hereof and incorporated by
reference into the Prospectus, that we are willing to be named as an underwriter
therein and to accept the responsibilities of an underwriter thereunder, and
that we are willing to proceed as therein contemplated. 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 understand that the aforementioned documents are subject to
further change and that we will be supplied with copies of any further
amendments or supplements to the Registration Statement, of any document filed
under the 1934 Act after the effective date of the Registration Statement and
before termination of the offering of the Firm Units by the Underwriters if such
document is deemed to be incorporated by reference into the Prospectus and of
any amended or supplemented Prospectus promptly, if and when received by you,
but the making of such changes, amendments and supplements shall not release us
or affect our obligations hereunder or under the Underwriting Agreement.
16. (a) Indemnity. We agree to indemnify and hold harmless
each other Underwriter and any person who controls any such Underwriter within
the meaning of Section 15 of the 1933 Act, to the extent that, and upon the
terms on which, we agree to indemnify and hold harmless the Company and other
specified persons as set forth in the Underwriting Agreement. Our indemnity
agreement contained in this Section 16 shall 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 Firm
Units and the termination of this Agreement and the similar agreements entered
into with the other Underwriters.
(b) Claims Against Underwriters. Each Underwriter
(including you) will pay, upon your request, as contribution, its proportionate
share, based upon its Underwriting Obligation, of any loss, claim, damage or
liability, joint or several, paid or incurred by any Underwriter (including you)
to any person other than an Underwriter, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectus, any amendment or supplement thereto or
any Preliminary Prospectus or any other selling or advertising material approved
by you for use
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by the Underwriters in connection with the sale of the Firm Units, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading (other
than an untrue statement or alleged untrue statement or omission or alleged
omission made in conformity with written information furnished to the Company
through you by or on behalf of an Underwriter expressly for use therein) or
relating to any transaction contemplated by this Agreement; and will pay such
proportionate share of any legal or other expense reasonably incurred by you or
with your consent in connection with investigating or defending against any such
loss, claim, damage or liability, or any action in respect thereof. In
determining the amount of our obligation under this paragraph, appropriate
adjustment may be made by you to reflect any amounts received by any one or more
Underwriters in respect of such claim from the Company pursuant to Section 8 of
the Underwriting Agreement or otherwise. There shall be credited against any
amount paid or payable by us pursuant to this paragraph any loss, claim, damage,
liability or expense which is incurred by us as a result of any such claim
asserted against us, and if such loss, claim, damage, liability or expense is
incurred by us subsequent to any payment by us pursuant to this paragraph,
appropriate provision shall be made to effect such credit, by refund or
otherwise. If any such claim is asserted, you may take such action in connection
therewith as you deem necessary or desirable, including retention of counsel for
the Underwriters, and in your discretion separate counsel for any particular
Underwriter or group of Underwriters, and the fees and disbursements of any
counsel so retained by you shall be included in the amounts payable pursuant to
this paragraph. In determining amounts payable pursuant to this paragraph, any
loss, claim, damage, liability or expense incurred by any person who controls
any Underwriter within the meaning of Section 15 of the 1933 Act which has been
incurred by reason of such control relationship shall be deemed to have been
incurred by such Underwriter. Any Underwriter may elect to retain, at its own
expense, its own counsel. You may settle or consent to the settlement of any
such claim on advice of counsel retained by you. Whenever you receive notice of
the assertion of any claim to which the provisions of this paragraph would be
applicable, you will give prompt notice thereof to each Underwriter. If any
Underwriter or Underwriters defaults in its or their obligation to make any
payments under this paragraph, each non-defaulting Underwriter shall be
obligated to pay its proportionate share of all defaulted payments, based upon
the proportion such non-defaulting Underwriter's Underwriting Obligation bears
to the Underwriting Obligations of all nondefaulting Underwriters. Nothing
herein shall relieve a defaulting Underwriter from liability for its default.
17. Capital Requirements. We confirm that the incurrence by us
of our obligations 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.
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18. Undertaking to Mail Prospectuses. As contemplated by Rule
15c2-8 under the 1934 Act, you agree to mail a copy of the Prospectus mentioned
in the Underwriting Agreement to any person making a written request therefor
during the period referred to in said Rule, the mailing to be made to the
address given in the request. We confirm that we have delivered all Preliminary
Prospectuses and revised Preliminary Prospectuses, if any, required to be
delivered under the provisions of Rule 15c2-8 and agree to deliver all
Prospectuses required to be delivered thereunder. We acknowledge that the copies
of the Preliminary Prospectus furnished to us have been distributed to dealers
who have been notified of the foregoing requirements pertaining to the delivery
of Preliminary Prospectuses and Prospectuses. You have heretofore delivered to
us such number of copies of Preliminary Prospectuses as have been reasonably
requested by us, receipt of which is hereby acknowledged, and will deliver such
number of copies of Prospectuses as will be reasonably requested by us.
19. Miscellaneous. Any notice hereunder from you to us or from
us to you shall be deemed to have been duly given if sent by registered mail,
telegram or teletype, to us at our address or to you at
________________________, Attention: ________ Department.
We understand that you are a member in good standing of the
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 possessions 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 3 of this Agreement). We hereby agree
to comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD, and, if we are a foreign dealer and not a member of the
NASD, we also hereby agree to comply with the NASD's interpretation with respect
to free-riding and withholding and to comply, as though we 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 a non-member foreign dealer. In connection with sales and
offers to sell Firm Units 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
Firm Units 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 (x) shall comply in all respects with the law of the
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jurisdiction in which it is so furnished, (y) shall be prepared and so furnished
at our sole risk and expense and (z) shall not contain information relating to
the Firm Units 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.
This instrument may be signed by or on behalf of the
Underwriters in one or more counterparts each of which shall constitute an
original and all of which together shall constitute one and the same agreement
among all the Underwriters and shall become effective at such time as all the
Underwriters shall have signed or have had signed on their behalf such
counterparts and you shall have confirmed all such counterparts. You may confirm
such counterparts by facsimile signature.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
choice of law or conflicts of laws principles thereof.
Please confirm that the foregoing correctly states the
understanding between us by signing and returning to us a counterpart hereof.
Very truly yours,
----------------------------
As Attorney-in-Fact for each of
the several Underwriters named in
Schedule I to the Underwriting
Agreement.
Confirmed as of the date
first above written:
- ------------------------
As Representative of
the Several Underwriters
By:______________________
Name:
Title:
13
<PAGE> 1
Exhibit 1.3
Form of Selected Dealer Agreement
<PAGE> 2
CAPITAL BEVERAGE CORPORATION
800,000 UNITS
EACH UNIT CONSISTING OF
ONE (1) SHARE OF COMMON STOCK, $.001 PAR VALUE
AND
ONE-HALF (1/2) CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
SELECTED DEALERS AGREEMENT
_________ , 1996
Dear Sirs:
We are the Underwriter named in the enclosed Prospectus. We
have agreed to purchase from Capital Beverage Corporation, a Delaware
corporation (the "Company"), an aggregate of _______ Units (the "Units") of the
Company, as set forth in the enclosed Prospectus and subject to the terms of the
Underwriting Agreement referred to therein. The Units are described in the
Prospectus, additional copies of which will be supplied in reasonable quantities
upon request to us.
1. Offering to Dealers. We as Underwriter are offering a portion of the Units to
certain dealers (the "Dealers") as principals, at the public offering price
thereof set forth on the cover of the Prospectus less a concession of $.__ per
Unit. The offering of Units to Dealers may be made on the basis of reservations
or allotments against subscription. We are advising you by telegram of the
method and terms of the offering. Acceptances of any reserved Units received at
the office of Investors Associates, Inc., 411 Hackensack Avenue, Hackensack, NY
07601, after the time specified therefore in the telegram and any subscriptions
for additional Units, will be subject to rejection in whole or in part.
Subscription books may be closed by us at any time without notice, and the right
is reserved to reject any subscription in whole or in part.
2. Offering by Dealers. Upon receipt of the aforementioned telegram, the Units
purchased by you may be reoffered to the public in conformity with the terms of
offering set forth in the Prospectus. You may, in accordance with the rules of
the National Association of Securities Dealers, Inc. (the "NASD"), allow a
discount from the public offering price of not more than $.___ per Unit with
respect to Units sold by you to (i) certain dealers that are members of the NASD
and that agree to comply with the
<PAGE> 3
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD and (ii) foreign dealers or institutions ineligible for membership in the
NASD that agree (X) not to resell shares (A) to purchasers in, or to person who
are nationals of, the United States of America or (B) when there is a public
demand for the Units, to persons specified as those to whom members of the NASD
participating in a distribution may not sell, and (Y) to comply, as though such
foreign dealer or institution were a member of the NASD, with Section 8, 24, 25
to the extent applicable to foreign non-member brokers or dealers and Section 36
of such Article.
Neither you nor any other person is, or has been, authorized
by the Company or us to give any information or make any representation in
connection with the sale of the Units other than those contained in the
Prospectus.
It is assumed that the Units will be effectively placed for
investment. In the event that, during the term of the Agreement, we shall
purchase or contract to purchase any Units purchased by you hereunder, we may at
our election, either (a) require you to repurchase such Units at a price equal
to the cost of such purchase by us, including brokerage commissions, if any, and
transfer taxes on the redelivery, or (b) charge you with and collect from you an
amount equal to the selling concession originally allowed you with respect to
the Units so purchased by us.
3. Payment and Delivery. Payment for the Units which you shall have agreed to
purchase hereunder shall be made by you at such time and place as we shall
direct by certified or bank cashier's check payable in next-day funds to our
order, against delivery of such Units. Additional Units confirmed to you shall
be delivered on such date or dates as we shall advise you.
4. Blue Sky Matters. This offer of Units to Dealers is made in each jurisdiction
only by us as lawfully may sell the Units to Dealers in such jurisdiction. Upon
application to us, we will inform you as to the jurisdictions in which we
believe the Units have been qualified for sale under the respective securities
or "blue sky" laws of such jurisdictions. You understand and agree that
compliance with the securities or "blue sky" laws in each jurisdiction where you
shall offer or sell any of the Units shall be your responsibility and that we
assume no responsibility as to the eligibility of the Units for sale or your
right to sell Units in any jurisdiction.
5. Termination. This Agreement shall terminate 30 days after the initial public
offering but may be extended for a period or periods not exceeding in the
aggregate 15 days as we may determine. We may terminate this Agreement at any
time without prior notice. Notwithstanding termination of this Agreement, you
shall remain liable for your proportion of any transfer tax or other liability
which may be asserted or assessed against us or any of the Dealers based upon
the claim that the Dealers or any of them constitute a partnership, an
association, an unincorporated business or other separate entity.
<PAGE> 4
6. Obligations and Position of Dealers. Your acceptance hereof will constitute
an obligation on your part to purchase, upon the terms and conditions hereof,
the aggregate amount of Units reserved for and accepted by you and to perform,
and observe all the terms and conditions hereof.
You are not authorized to act as our agent in offering Units
to the public or otherwise. Nothing contained herein shall constitute the
Dealers an association, or partners with us.
You agree that at any time, or times prior to the termination
of this Agreement you will upon our request, report to us the number of Units
purchased by you under this Agreement which then remain unsold by you and will,
upon our request at such time or times, sell to us for our account such number
of such unsold Units as we may designate, at the public offering price less an
amount to be determined by us, not in excess of total concession allowed you.
Dealers agree in re-offering the Units to comply with all
applicable requirements of the federal securities laws and all applicable rules
and regulations promulgated thereunder. If any Dealer fails to pay for the Units
confirmed to such Dealer or fails to perform any of such Dealer's other
obligations hereunder, we may, in our discretion and without demand, notice or
legal proceedings, and in addition to any and all remedies otherwise available
to us, (a) terminate any right or interest on such Dealer's part, and (b) at any
time and from time to time sell, without notice to such Dealer, and of the Units
then held for such Dealer's account at public or private sale at such price or
prices and upon such terms and conditions as we may deem fair, and apply the net
proceeds so realized, as determined by us, toward payment of any obligations in
respect of which such Dealer shall remain liable to us, to the extent of
Dealer's respective interest, or at our election, for all loss and expense
resulting from such Dealer's default. At any such sale or sales, we may for our
own account become the purchaser of any Units so sold, free from any right or
interest on any Dealer's part in such Units. A default by one or more Dealers
shall not release any other Dealer from any obligation hereunder.
We shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or arising
hereunder. We shall be under no liability to you, except for our own want of
good faith obligations assumed in this Agreement, and any liabilities arising
under the Securities Act of 1933, as amended. No obligation not expressly
assumed by us in this Agreement shall be implied hereby or inferred here from.
7. Representations. Each Dealer confirms that such Dealer is familiar with the
interpretation of the Board of Governors of the NASD with respect to Free-Riding
and Withholding, and each Dealer agrees to comply with such Interpretation in
offering and selling Units to the public. Each Dealer, by its participation in
an offering of Units, further represents that neither such Dealer nor any of its
directors, officers, partners or "persons associated with" such Dealer (as
defined in the By-Laws of the NASD), nor, to
<PAGE> 5
such Dealer's knowledge, any "related person" (as defined by the NASD in its
Interpretation with respect to Review of Corporate Financing) have participated
or intend to participate in any transaction or dealing as to which documents or
information are required to be filed with the NASD pursuant to such
Interpretation.
8. Notices. All communications from you should be addressed to us at the office
of Securities Planners, Inc. Any notice from us to you shall be deemed to have
been duly given if mailed or telegraphed to you at the address to which this
letter is mailed.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
Please confirm this Agreement by signing and returning at once the
duplicate copy of the letter enclosed herewith.
Very truly yours,
INVESTORS ASSOCIATES, INC.
By: ______________________________
Authorized Officer
<PAGE> 6
Investors Associates, Inc.
411 Hackensack Avenue
Hackensack, New Jersey 07601
Ladies and Gentlemen:
The undersigned confirms its agreement to purchase Units of
Capital Beverage Corporation subject to the terms and conditions of the
foregoing agreement, and agrees to take up and pay for such Units at the price
and upon the terms and conditions stated in said agreement. The undersigned
hereby acknowledges receipt of the Prospectus relating to the Units and confirms
that in agreeing to purchase the Units it has relied on said Prospectus and on
no other statement whatsoever, written or oral. The undersigned represents that
it has complied and will comply with the requirements of Rule 15c2-8 under the
Securities Exchange Act of 1934, as amended. The undersigned confirms that it is
(i) a member of the National Association of Securities Dealers, Inc. and agrees
to comply with the provisions of Section 24 of Articles III of the Rules of Fair
Practice of such Association (ii) a foreign dealer or institution ineligible for
membership in such Association and the undersigned hereby agrees (x) not to
resell Units (A) to purchasers in, or to person who are nationals of, the United
States of America or (B) when there is a public demand for the Units, to persons
specified as those to whom members of such Association participating in a
distribution may not sell, and (y) to comply, as though it were a member of such
Association, with Sections 8, 24, 25 to the extent applicable to foreign
non-member brokers or dealers and Section 36 of such Article.
Very truly yours,
-------------------------------
<PAGE> 1
Exhibit No. 3.1
Certificate of Incorporation
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
CAPITAL BEVERAGE CORPORATION
1. The name of the Corporation shall be:
CAPITAL BEVERAGE CORPORATION
2. The address of the registered office of the Corporation in the State of
Delaware is:
1013 Centre Road
Wilmington, Delaware 19805
County of New Castle
3. The registered agent in charge thereof is:
W/K Corporate Services (DEL), Inc.
4. The nature of the business or purposes of the Corporation to be
conducted or promoted is: to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
5. The Corporation is authorized to issue capital stock to the extent of:
(i) 20,000,000 shares of Common Stock with a par value of $.001 per share, and
(ii) 1,000,000 shares of Preferred Stock with a par value of $.01 per share,
which may be issued in one or more series at the discretion of the Board of
Directors. In establishing a series, the Board of Directors shall give to it a
distinctive designation so as to distinguish it from the shares of all other
series and classes, shall fix the number of shares in such series, and the
preferences, rights and restrictions thereof. All shares of any one series shall
be alike in every particular except as otherwise provided by this Restated
Certificate of Incorporation or the General Corporation Law of Delaware.
6 The name and address of the Incorporator is:
William Weber, Esq.
Weber & Weber
300 Rabro Drive
Hauppauge, New York 11788
<PAGE> 3
7. The names and mailing addresses of the persons who are to serve as
directors until the first annual meeting of directors or until their successors
are elected and quality are:
Carmine N. Stella
1111 E. Tremont Avenue
Bronx, NY 10460
Richard E. Heller
1111 E. Tremont Avenue
Bronx, NY 10460
Robert Blair
1111 E. Tremont Avenue
Bronx, NY 10460
Eugene Fernandez, Jr.
147 Southern Boulevard
Hauppauge, New York 11788
8. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(a) To make, alter or repeal the bylaws of the Corporation;
(b) To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation;
(c) To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created;
(d) By a majority of the whole Board of Directors, to designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. The bylaws may provide that In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, or in the bylaws of the Corporation, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of
2
<PAGE> 4
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution, or amending the bylaws of the Corporation; and,
unless the resolution or bylaws expressly so provide, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock;
(e) When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the Corporation, including its goodwill and its corporate franchise, upon
such terms and conditions and for such consideration, which may consist in whole
or in part of money or property, including shares of stock in, and/or other
securities of, any other corporation or corporations, as its Board of Directors
shall deem expedient and for the interests of the Corporation.
9. (a) Each person who was or is made a party or is threatened to be made
a party or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer, of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person
3
<PAGE> 5
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Paragraph 9 shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law so requires, the payment
of such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Paragraph 9 or otherwise.
The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) if a claim under paragraph (a) of this Paragraph 9 is not paid in full
by the Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard or
conduct.
4
<PAGE> 6
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs 9(a) and 9(b), the Corporation shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another, capacity while holding such office, and shall continue as to
a person who has ceased to be director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
10. To the maximum extent permitted by Section 102(b) (7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
11. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this
5
<PAGE> 7
Corporation, as the case may be, to be summoned in such manner as the said Court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement to any reorganization of this Corporation as consequences of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or an
all the stockholders or class of stockholders of this Corporation, as the case
may be, and also on the Corporation.
12. The Corporation shall have perpetual existence.
13. Meetings of the stockholders may be held within or without the State
of Delaware, as the bylaws may provide The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation.
14. The Corporation reserves the right to amend its Certificate of
Incorporation from time to time in accordance with the General Corporation Law
of Delaware.
IN WITNESS WHEREOF, the undersigned has executed and subscribed this
Certificate and affirm that the statements made herein are true under penalty of
perjury as of the 5th day of December, 1995.
CAPITAL BEVERAGE CORPORATION
By: /s/ WILLIAM WEBER
---------------------------
William Weber, Incorporator
6
<PAGE> 1
Exhibit 3.2
Certificate of Designations, As Amended, Relating to Series A Preferred Stock
<PAGE> 2
CAPITAL BEVERAGE CORPORATION
Certificate of Designations, Powers,
Preferences and Rights of the
7% Cumulative Convertible Preferred Stock, Series A
($.01 Par Value)
Liquidation Value $4.00 per Share
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------
The undersigned, a Vice President of Capital Beverage Corporation, a
Delaware corporation (hereinafter called the"Corporation"), DOES HEREBY CERTIFY
that the following resolution has been duly adopted by the Board of Directors of
the Corporation:
RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation (the "Board of Directors") by the
provisions of the Certificate of Incorporation of the Corporation, there hereby
is created, out of the 1,000,000 shares of preferred stock, $.01 par value, of
the Corporation authorized in Article Fourth of its Certificate of Incorporation
(the "Preferred Stock"), a series of Preferred Stock of the Corporation
consisting of 375,000 shares, which series shall have the following
designations, powers, preferences, rights, qualifications, limitations and
restrictions (in addition to the designations, powers, preferences, rights,
qualifications, limitations and restrictions set forth in the Certificate of
Incorporation of the Corporation which are applicable to the Preferred Stock):
1. Designation; Number of Shares; Stated Value
The designation of said series of the Preferred Stock shall be 7%
Cumulative Convertible Preferred Stock, Series A (the "Series A Preferred
Stock"). The number of shares of Series A Preferred Stock shall be limited to
375,000. The liquidation value of the Series A Preferred Stock shall be $4.00
per share. The shares of Series A Preferred Stock shall be issued as full shares
and shall have a stated value of $4.00.
<PAGE> 3
2. Dividends
The shares of Series A Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors or a duly authorized committee
thereof (an "Authorized Board Committee"), out of funds legally available for
the payment of dividends , cumulative dividends at the annual rate of
twenty-eight cents ($.28) per share, and no more, payable in cash or in shares
of Common Stock of the Corporation, at the descretion of the Board of Directors
of the Corporation or an Authorized Board Committee thereof, on January 1, 1997,
with respect to the period commencing on the date of issuance of the Series A
Preferred Stock and ending on December 31, 1996, and thereafter annually on the
first day of January in each year (the "Dividend Payment Date" or ":Dividend
Payment Dates") with respect to the period ending on the thirty-first day of
December next preceding such Dividend payment Date, to stockholders of record on
the record date, not exceeding thirty (30) days preceding such Dividend Payment
Date, fixed for such purposed by the Board of Directors or an Authorized Board
Committee in advance of each particular Dividend Payment Date. Dividends payable
on the Series A Preferred Stock for the initial dividend period and for any
period less than a full annual period shall be computed on the basis of a
3260-day year of twelve 30-day months.
3. Number of Shares
The Board of Directors reserves the right by subsequent amendment of
this resolution from time to time to decrease the number of shares which
constitute the Series A Preferred Stock (but not below the number of shares
thereof then outstanding) and, subject to anything to the contrary set forth in
the Certificate of Incorporation of the Corporation applicable to the Preferred
Stock, to subdivide the number of shares, the stated value per share and the
liquidation value per share of the Series A Preferred Stock and in other
respects to amend, within the limitations provided by law, this resolution and
the Certificate of Incorporation of the Corporation.
3. Liquidation Rights
Upon the dissolution, liquidation or winding up of the affairs of the
Corporation, whether voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, the amount of Four
Dollars ($4.00) per share plus an amount equal to all dividends on such shares
(whether or not declared) accrued and unpaid thereon to the date of final
distribution, before any payment or distribution shall be made on the Common
Stock or on any other class of stock ranking junior to the Series A Preferred
Stock with respect to distributions upon liquidation or winding up. For purposes
of this paragraph 4, the merger or consolidation of the Corporation or the sale
of all or a substantial part of the Corporation's assets, shall not be deemed to
be a liquidation, dissolution or winding up of the Corporation. In the event the
assets of the Corporation available for distribution to the holders of
3
<PAGE> 4
shares of the Series A Preferred Stock upon any dissolution, liquidation or
winding up of the Corporation shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to this paragraph 4, no such
distributions shall be made upon account of any shares of any other class of
stock of the Corporation ranking on a parity with the shares of the Series A
Preferred Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of the
Series A Preferred Stock, ratably, in proportion to the full distributable
amounts to which holders of all such parity shares are respectively entitled
upon such dissolution, liquidation or winding up. After the payment to the
holders of the shares of the Series A Preferred Stock of the full preferential
amounts provided for in this paragraph 4, the holders of the Series A Preferred
Stock as such shall have no right or claim to any of the remaining assets of the
Corporation.
7. Voting Rights
The shares of Series A Preferred Stock shall have the following voting
rights in addition to any voting rights set forth in the Certificate of
Incorporation of the Corporation which are applicable to the Preferred Stock.
(a) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of the holders of
at least 66 2/3% of the shares of Series B Preferred Stock then outstanding,
amend, alter or repeal any of the provisions of the Certificate of the
Designations, Powers, Preferences and Rights of the Series A Preferred Stock or
the Certificate of Incorporation of the Corporation, or authorize any
reclassification of the Series A Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series A
Preferred Stock, or authorize any capital stock of the Corporation ranking,
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation, prior to the Series A Preferred Stock.
(b) So long as any shares of the Series A Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of the holders of
at least a majority in voting power of shares of the Series A Preferred Stock
then outstanding, increase the authorized number of shares of Preferred Stock or
create, or increase the authorized number of shares of, any other class of
capital stock of the Corporation ranking on a parity with the Preferred Stock
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation.
4
<PAGE> 5
(c) In exercising the voting rights set forth in this paragraph 5 or
when otherwise granted voting rights by operation of law, each share of Series A
Preferred Stock shall be entitled to one vote.
(d) Except as set forth herein or as otherwise required by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required for taking any corporate action.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 6th day
of December, 1995.
/s/ Richard E. Heller V.P.
------------------------------
Richard Heller, Vice President
(Corporate Seal)
ATTEST:
/s/ Robert Blair
- -----------------------
Robert Blair, Secretary
5
<PAGE> 6
CAPITAL BEVERAGE CORPORATION
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS
OF
7% CUMULATIVE PREFERRED STOCK, SERIES A
Capital Beverage Corporation (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: That by action taken through the unanimous written consent of the
Board of Directors of the Corporation resolutions were adopted amending the
Certificate of Designations, Powers, Preferences and Rights of the 7% Cumulative
Preferred Stock, Series A of said Corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said Corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Designations, Powers, Preferences and
Rights of the 7% Cumulative Preferred Stock, Series A of this Corporation be
amended by adding a new paragraph 6 to provide as follows:
6. Conversion Rights.
(a) Each share of the Series A Preferred Stock shall be
convertible at the option of the holder thereof into fully paid and
nonassessable shares of Common Stock at the rate of one (1) share of Common
Stock for each share of Series A Preferred Stock. Such conversion may be
effected at the option of the holder of shares of Series A Preferred Stock
during the period commencing one hundred eighty (180) days and terminating three
hundred sixty (360) days after the effective date of a registration statement
filed to pursuant to the Securities Act of 1933, as amended, offering shares of
the Company's Common Stock, $.001 par value, in an initial public offering,
unless Investors Associates, Inc. and the Corporation consent that such option
may be exercised prior to such 180th day.
(b) The Common Stock deliverable upon conversion of Series A
Preferred Stock shall be Common Stock of the Corporation, par value $.001 per
share, as constituted at the date of this certificate, except as otherwise
provided in subdivision (i), (iii) and (v) of paragraph 6(e).
<PAGE> 7
(c) In order for any holder of Series A Preferred Stock to convert
the same into Common Stock, he shall surrender the certificate or certificates
for such Series A Preferred Stock at the office of the Transfer Agent for the
Series A Preferred Stock, which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank, or
accompanied by proper instruments of transfer to the Corporation or in blank,
and shall give written notice to the Corporation at such office that he elects
so to convert such Series A Preferred Stock, and state in writing therein the
name or names in which he wishes the certificate or certificates for Common
Stock to be issued. Every such notice of such election to convert shall
constitute a contract between the holder of such Series A Preferred Stock and
the Corporation, whereby the holder of such Series A Preferred Stock shall be
deemed to subscribe for the amount of Common Stock which he shall be entitled to
receive upon such conversion, and, in satisfaction of such subscription, to
deposit the Series A Preferred Stock to be converted and to release the
Corporation from all liability thereunder (except to deliver the shares
deliverable upon conversion thereof), and thereby the Corporation shall be
deemed to agree that the amount paid to it for such Series A Preferred Stock,
together with the surrender of the certificate or certificates therefor and the
extinguishment of liability thereon (except as aforesaid), shall constitute full
payment of such subscription for Common Stock to be delivered upon such
conversion. Shares of Series A Preferred Stock surrendered for conversion during
the period from the close of business on any record date for the payment of
dividends next preceding any Dividend Payment Date to the opening of business on
the Dividend Payment Date shall be accompanied by payment in funds acceptable to
the Corporation of an amount equal to the dividend payable on such Dividend
Payment Date on the shares being surrendered for conversion.
(d) The Corporation will, as soon as practicable after such
deposit of certificates for Series A Preferred Stock accompanied by the written
notice and the statement above prescribed and the payment of any amount required
by the provisions of paragraph 6(c), deliver at said office to the person for
whose account such Series A Preferred Stock was so surrendered, or to his
nominee or nominees, certificates for the number of shares of Common Stock to
which he shall be entitled as aforesaid, together with any cash adjustment of
any fraction of a share as hereinafter provided. Subject to the following
provisions of this paragraph, such conversion shall be deemed to have been made
as of the date of such surrender of the Series A Preferred Stock to be
converted; and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such Series A Preferred Stock shall be treated
for all purposes as the record holder or holders of such Common Stock on such
date. The Corporation shall not be required to convert any shares of Series A
Preferred Stock while the stock transfer books of the Corporation are closed for
any purpose; but the surrender of Series A Preferred Stock for conversion during
any period while such books are so closed shall become effective for conversion
immediately upon reopening of such books, as if the surrender had been made on
the date of such
-2-
<PAGE> 8
reopening, and conversion shall be at the conversion rate in effect at such
date.
Except as provided in the last sentence of paragraph 6(c) no
adjustments in respect of, or payments of dividends on, shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion, shall be
made upon the conversion of any shares of Series A Preferred Stock; provided,
however, that if any shares shall be converted subsequent to the close of
business on the record date next preceding a Dividend Payment Date but on or
prior to the opening of business on such Dividend Payment Date, the registered
holder of such shares at the close of business on such record date shall be
entitled to receive the dividend payable on such shares on such Dividend Payment
Date notwithstanding the conversion thereof.
(e) The conversion rate shall be subject to adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend on its
Common Stock in shares of its Common Stock, (B) subdivide its outstanding
shares of Common Stock, or (C) combine its outstanding shares of Common
Stock into a smaller number of shares, the conversion rate in effect at
the time of the record date of such dividend, subdivision, or combination
shall be proportionately adjusted so that the holder of any Series A
Preferred Stock surrendered for conversion after such time shall be
entitled to receive the number and kind of shares which he would have
owned or have been entitled to receive had such Series A Preferred Stock
been converted immediately prior to such time. Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) No adjustment in the conversion rate applicable to a
share of Series A Preferred Stock shall be required unless such adjustment
would require an increase or decrease of at least 1% in such rate;
provided, however, that the Corporation may make any such adjustment at
its election; and provided further, however, that any adjustments which by
reason of this subdivision (ii) are not made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this paragraph 6(e) shall be made to the nearest one-hundredth of a share.
Anything in this paragraph 6(e) notwithstanding, the Corporation shall be
entitled to make such increases in the conversion rate, in addition to
those required by this paragraph 6(e), as it in its discretion shall
determine to be advisable in order that any stock dividend, subdivision or
combination of shares hereafter made by the Corporation to its
stockholders shall not be taxable.
-3-
<PAGE> 9
(iii) In case of any consolidation of the Corporation into, or
merger of the Corporation with or into, any other corporation, or in case
of any sale or transfer of all or substantially all of the assets of the
Corporation, or in case of any reclassification of its shares of Common
Stock, the holder of each share of Series A Preferred Stock then
outstanding shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities, cash and other
property receivable upon such consolidation, merger, sale, transfer or
reclassification by a holder of the number of shares of Common Stock of
the Corporation into which such share of Series A Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale,
transfer or reclassification. In any such event, effective provision shall
be made, in the articles or certificate of incorporation of the resulting
or surviving corporation or other corporation issuing or delivering such
shares, other securities, cash or other property or otherwise, so that the
provisions set forth herein for the protection of the conversion rights of
the Series A Preferred Stock shall thereafter be applicable, as nearly as
reasonable may be, to any such other shares of stock and other securities,
cash and other property deliverable upon conversion of the Series A
Preferred Stock remaining outstanding or other convertible stock or
securities received by the holders in place thereof; and any such
resulting or surviving corporation or other corporation issuing or
delivering such shares, other securities, cash or other property shall
expressly assume the obligation to deliver, upon the exercise of the
conversion privilege, such shares, securities, cash or other property as
the holders of the Series A Preferred Stock remaining outstanding, or
other convertible stock or securities received by the holders in place
thereof, shall be entitled to receive, pursuant to the provisions hereof,
and to make provision for the protection of the conversion right as above
provided. In case shares, securities, cash or other property other than
Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references to Common Stock in this paragraph 6(e)
shall be deemed to apply, so far as provided and as nearly as is
reasonable, to any such shares, other securities, cash or other property.
(iv) No fractional interests in Common Stock shall be issued
upon conversion of shares of Series A Preferred Stock. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any share of Series A Preferred Stock, the Corporation will
pay a cash adjustment in respect of such fractional interest in an amount
equal to the liquidation value provided in Paragraph 4 hereof.
-4-
<PAGE> 10
(v) In the event that at any time, as a result of any
adjustment made pursuant to this paragraph 6(e), the holder of any share
of Series A Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than shares
of its Common Stock, the number of such other shares so receivable upon
conversion of any share of Series A Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provision with respect to the Common Stock contained
in subdivisions (i) to (iv), inclusive, above, with respect to the Common
Stock.
(vi) Whenever any adjustment is required in the number of
shares into which each share of Series A Preferred Stock is convertible,
the Corporation shall forthwith (A) file with the Transfer Agent for the
Series A Preferred Stock a statement describing in reasonable detail the
adjustment in the method of calculation used and (B) cause a copy of such
statement to be mailed to the holders of records of the Series A Preferred
Stock.
(f) Upon any conversion of shares of Series A Preferred Stock, the
shares so converted shall have the status of authorized and unissued shares of
Preferred Stock, unclassified as to series, and the number of shares of
Preferred Stock which the Corporation shall have authority to issue shall not be
decreased by the conversion of shares of Series A Preferred Stock. The
Corporation shall at all times reserve and keep available, out of its authorized
and unissued stock or stock held as treasury stock, solely for the purpose of
effecting the conversion of the Series A Preferred Stock, such number of shares
of its Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series A Preferred Stock from time to time
outstanding. For the purpose of this paragraph 6(f), the full number of shares
of Common Stock issuable upon the conversion of all outstanding shares of Series
A Preferred Stock shall be computed as if at the time of computation of such
number of shares of Common Stock all outstanding shares of Series A Preferred
Stock were held by a single holder. The Corporation shall from time to time, in
accordance with the laws of the State of Delaware, increase the authorized
number of shares of its Common Stock if at any time the number of shares of its
Common Stock not outstanding shall not be sufficient to permit the conversion of
all the then outstanding Series A Preferred Stock.
(g) The Corporation will pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series A Preferred Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock in a name other than
that in which
-5-
<PAGE> 11
the Series A Preferred Stock so converted was registered, and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(h) Before taking any action which would cause an adjustment
reducing the conversion rate such that the conversion price would be below the
then par value of the Common Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at the conversion rate as so adjusted."
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
the unanimous written consent of the stockholders of the Corporation entitled to
vote thereon was given to the proposed amendment to the Certificate of
Designations, Powers, Preferences and Rights of the 7% Cumulative Preferred
Stock, Series A of the Corporation set forth above in accordance with Section
242 of the General Corporation Law;
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware;
FOURTH: That the capital of said Corporation shall not be reduced under or
by reason of said amendment;
IN WITNESS WHEREOF, said Capital Beverage Corporation has caused this
Certificate to be signed by Carmine Stella, its President, and Carol
Macchiarulo, its Secretary, as of this 17th day of March 1996.
By: /s/ CARMINE STELLA
----------------------------------
Carmine Stella, President
Attest: /s/ CAROL MACCHIARULO
----------------------------------
Carol Macchiarulo, Secretary
-6-
<PAGE> 1
Exhibit No. 3.3
Form of Certificate of Designations Relating to Series B Preferred Stock
<PAGE> 2
CAPITAL BEVERAGE CORPORATION
Certificate of Designations, Powers,
Preferences and Rights of the
7% Cumulative Convertible Preferred Stock, Series B
($.01 Par Value)
Liquidation Value $4.00 per Share
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------
The undersigned, a Vice President of Capital Beverage Corporation, a
Delaware corporation (hereinafter called the"Corporation"), DOES HEREBY CERTIFY
that the following resolution has been duly adopted by the Board of Directors of
the Corporation:
RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation (the "Board of Directors") by the
provisions of the Certificate of Incorporation of the Corporation, there hereby
is created, out of the 1,000,000 shares of preferred stock, $.01 par value, of
the Corporation authorized in Article 5 of its Certificate of Incorporation (the
"Preferred Stock"), a series of Preferred Stock of the Corporation consisting of
Three Hundred Thousand (300,000) shares, which series shall have the following
designations, powers, preferences, rights, qualifications, limitations and
restrictions (in addition to the designations, powers, preferences, rights,
qualifications, limitations and restrictions set forth in the Certificate of
Incorporation of the Corporation which are applicable to the Preferred Stock):
1. Designation; Number of Shares; Stated Value
The designation of said series of the Preferred Stock shall be 7%
Cumulative Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"). The number of shares of Series B Preferred Stock shall be limited to
Three Hundred Thousand (300,000). The liquidation value of the Series B
Preferred Stock shall be $4.00 per share. The shares of Series B Preferred Stock
shall be issued as full shares and shall have a stated value of $4.00.
2. Number of Shares
The Board of Directors reserves the right by subsequent amendment of
this resolution from time to time to decrease the number of shares which
constitute the Series B Preferred Stock
<PAGE> 3
(but not below the number of shares thereof then outstanding) and, subject to
anything to the contrary set forth in the Certificate of Incorporation of the
Corporation applicable to the Preferred Stock, to subdivide the number of
shares, the stated value per share and the liquidation value per share of the
Series B Preferred Stock and in other respects to amend, within the limitations
provided by law, this resolution and the Certificate of Incorporation of the
Corporation.
3. Rank
The shares of Series B Preferred Stock shall, subject to the provisions
of paragraphs 5 and 6 hereof, with respect to the payment of dividends and upon
the liquidation, dissolution or winding up of the affairs of the Corporation,
rank (i) senior and prior to the common stock, par value $.001 per share, of the
Corporation (the "Common Stock") and any other class or series of capital stock
of the Corporation hereafter issued the terms of which specifically provide that
shares of such class or series shall rank junior to the shares of the Series B
Preferred Stock (collectively, the "Junior Securities"); (ii) on a parity with
any other class or series of capital stock of the Corporation hereafter issued
the terms of which specifically provide that shares of such class or series
shall rank on a parity with the shares of the Series B Preferred Stock
(collectively, the "Parity Securities"); and (iii) junior to the 7% Cumulative
Preferred Stock, Series A, of the Corporation and to any other class or series
of capital stock of the Corporation hereafter issued the terms of which
specifically provide that shares of such class or series shall rank senior to
shares of Series B Preferred Stock (collectively, the "Senior Securities").
4. Conversion Rights
(a) Each share of the Series B Preferred Stock shall be convertible at
the option of the holder thereof into fully paid and nonassessable shares of
Common Stock of the Corporation at the rate of one (1) share of Common Stock for
each share of Series B Preferred Stock. Such conversion may be effected at the
option of the holder of shares of Series B Preferred Stock during the period
commencing one hundred eighty (180) days and terminating at the close of
business on the day prior to the third anniversary of the effective date of a
registration statement filed pursuant to the Securities Act of 1933, as amended,
offering shares of the Company's Common Stock, $.001 par value, in an initial
public offering.
(b) The Common Stock deliverable upon conversion of Series B Preferred
Stock shall be Common Stock of the Corporation, par value $.001 per share, as
constituted at the date of this certificate, except as otherwise provided in
subdivision (i), (iii) and (v) of paragraph 4(e).
(c) In order for any holder of Series B Preferred Stock to convert the
same into Common Stock, he shall surrender the certificate or certificates for
such Series B Preferred Stock at the office of the Transfer Agent for the Series
B Preferred Stock, which certificate or certificates, if the Corporation shall
so request, shall be duly endorsed to the Corporation or in blank, or
accompanied by proper instruments of transfer to the Corporation or in blank,
and shall give written notice to the Corporation at such office that he elects
so to convert such Series B Preferred Stock,
- 3 -
<PAGE> 4
and state in writing therein the name or names in which he wishes the
certificate or certificates for Common Stock to be issued. Every such notice of
such election to convert shall constitute a contract between the holder of such
Series B Preferred Stock and the Corporation, whereby the holder of such Series
B Preferred Stock shall be deemed to subscribe for the amount of Common Stock
which he shall be entitled to receive upon such conversion, and, in satisfaction
of such subscription, to deposit the Series B Preferred Stock to be converted
and to release the Corporation from all liability thereunder (except to deliver
the shares deliverable upon conversion thereof), and thereby the Corporation
shall be deemed to agree that the amount paid to it for such Series B Preferred
Stock, together with the surrender of the certificate or certificates therefor
and the extinguishment of liability thereon (except as aforesaid), shall
constitute full payment of such subscription for Common Stock to be delivered
upon such conversion. Shares of Series B Preferred Stock surrendered for
conversion during the period from the close of business on any record date for
the payment of dividends next preceding any Dividend Payment Date to the opening
of business on the Dividend Payment Date shall be accompanied by payment in
funds acceptable to the Corporation of an amount equal to the dividend payable
on such Dividend Payment Date on the shares being surrendered for conversion.
(d) The Corporation will, as soon as practicable after such deposit of
certificates for Series B Preferred Stock accompanied by the written notice and
the statement above prescribed and the payment of any amount required by the
provisions of paragraph 4(c), deliver at said office to the person for whose
account such Series B Preferred Stock was so surrendered, or to his nominee or
nominees, certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid, together with any cash adjustment of any
fraction of a share as hereinafter provided. Subject to the following provisions
of this paragraph, such conversion shall be deemed to have been made as of the
date of such surrender of the Series B Preferred Stock to be converted; and the
person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series B Preferred Stock shall be treated for all purposes as
the record holder or holders of such Common Stock on such date. The Corporation
shall not be required to convert any shares of Series B Preferred Stock while
the stock transfer books of the Corporation are closed for any purpose; but the
surrender of Series B Preferred Stock for conversion during any period while
such books are so closed shall become effective for conversion immediately upon
reopening of such books, as if the surrender had been made on the date of such
reopening, and conversion shall be at the conversion rate in effect at such
date.
Except as provided in the last sentence of paragraph 4(c) no
adjustments in respect of, or payments of dividends on, shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion, shall be
made upon the conversion of any shares of Series B Preferred Stock; provided,
however, that if any shares shall be converted subsequent to the close of
business on the record date next preceding a Dividend Payment Date but on or
prior to the opening of business on such Dividend Payment Date, the registered
holder of such shares at the close of business on such record date shall be
entitled to receive the dividend payable on such shares on such Dividend Payment
Date notwithstanding the conversion thereof.
- 4 -
<PAGE> 5
(e) The conversion rate shall be subject to adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend on its Common
Stock in shares of its Common Stock, (B) subdivide its outstanding shares
of Common Stock, or (C) combine its outstanding shares of Common Stock
into a smaller number of shares, the conversion rate in effect at the time
of the record date of such dividend, subdivision, or combination shall be
proportionately adjusted so that the holder of any Series B Preferred
Stock surrendered for conversion after such time shall be entitled to
receive the number and kind of shares which he would have owned or have
been entitled to receive had such Series B Preferred Stock been converted
immediately prior to such time. Such adjustment shall be made successively
whenever any event listed above shall occur.
(ii) No adjustment in the conversion rate applicable to a share of
Series B Preferred Stock shall be required unless such adjustment would
require an increase or decrease of at least 1% in such rate; provided,
however, that the Corporation may make any such adjustment at its
election; and provided further, however, that any adjustments which by
reason of this subdivision (ii) are not made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this paragraph 4(e) shall be made to the nearest one-hundredth of a share.
Anything in this paragraph 4(e) notwithstanding, the Corporation shall be
entitled to make such increases in the conversion rate, in addition to
those required by this paragraph 4(e), as it in its discretion shall
determine to be advisable in order that any stock dividend, subdivision or
combination of shares hereafter made by the Corporation to its
stockholders shall not be taxable.
(iii) In case of any consolidation of the Corporation into, or
merger of the Corporation with or into, any other corporation, or in case
of any sale or transfer of all or substantially all of the assets of the
Corporation, or in case of any reclassification of its shares of Common
Stock, the holder of each share of Series B Preferred Stock then
outstanding shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities, cash and other
property receivable upon such consolidation, merger, sale, transfer or
reclassification by a holder of the number of shares of Common Stock of
the Corporation into which such share of Series B Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale,
transfer or reclassification. In any such event, effective provision shall
be made, in the articles or certificate of incorporation of the resulting
or surviving corporation or other corporation issuing or delivering such
shares, other securities, cash or other property or otherwise, so that the
provisions set forth herein for the protection of the conversion rights of
the Series B Preferred Stock shall thereafter be applicable, as nearly as
reasonable may be, to any such other shares of stock and other securities,
cash and other property deliverable upon conversion of the Series B
Preferred Stock remaining outstanding or other
- 5 -
<PAGE> 6
convertible stock or securities received by the holders in place thereof;
and any such resulting or surviving corporation or other corporation
issuing or delivering such shares, other securities, cash or other
property shall expressly assume the obligation to deliver, upon the
exercise of the conversion privilege, such shares, securities, cash or
other property as the holders of the Series B Preferred Stock remaining
outstanding, or other convertible stock or securities received by the
holders in place thereof, shall be entitled to receive, pursuant to the
provisions hereof, and to make provision for the protection of the
conversion right as above provided. In case shares, securities, cash or
other property other than Common Stock shall be issuable or deliverable
upon conversion as aforesaid, then all references to Common Stock in this
paragraph 4(e) shall be deemed to apply, so far as provided and as nearly
as is reasonable, to any such shares, other securities, cash or other
property.
(iv) No fractional interests in Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any share of Series B Preferred Stock, the Corporation will
pay a cash adjustment in respect of such fractional interest in an amount
equal to the liquidation value provided in Paragraph 6 hereof.
(v) In the event that at any time, as a result of any adjustment
made pursuant to this paragraph 4(e), the holder of any share of Series B
Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation other than shares of its
Common Stock, the number of such other shares so receivable upon
conversion of any share of Series B Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provision with respect to the Common Stock contained
in subdivisions (i) to (iv), inclusive, above, with respect to the Common
Stock.
(vi) Whenever any adjustment is required in the number of shares
into which each share of Series B Preferred Stock is convertible, the
Corporation shall forthwith (A) file with the Transfer Agent for the
Series B Preferred Stock a statement describing in reasonable detail the
adjustment in the method of calculation used and (B) cause a copy of such
statement to be mailed to the holders of records of the Series B Preferred
Stock.
(f) Upon any conversion of shares of Series B Preferred Stock, the
shares so converted shall have the status of authorized and unissued shares of
Preferred Stock, unclassified as to series, and the number of shares of
Preferred Stock which the Corporation shall have authority to issue shall not be
decreased by the conversion of shares of Series B Preferred Stock. The
Corporation shall at all times reserve and keep available, out of its authorized
and unissued stock or stock held as treasury stock, solely for the purpose of
effecting the conversion of the Series B
- 6 -
<PAGE> 7
Preferred Stock, such number of shares of its Common Stock as shall from time to
time be sufficient to effect the conversion of all shares of Series B Preferred
Stock from time to time outstanding. For the purpose of this paragraph 4(f), the
full number of shares of Common Stock issuable upon the conversion of all
outstanding shares of Series B Preferred Stock shall be computed as if at the
time of computation of such number of shares of Common Stock all outstanding
shares of Series B Preferred Stock were held by a single holder. The Corporation
shall from time to time, in accordance with the laws of the State of Delaware,
increase the authorized number of shares of its Common Stock if at any time the
number of shares of its Common Stock not outstanding shall not be sufficient to
permit the conversion of all the then outstanding Series B Preferred Stock.
(g) The Corporation will pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series B Preferred Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock in a name other than
that in which the Series B Preferred Stock so converted was registered, and no
such issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax, or has established, to
the satisfaction of the Corporation, that such tax has been paid.
(h) Before taking any action which would cause an adjustment reducing
the conversion rate such that the conversion price would be below the then par
value of the Common Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at the conversion rate as so adjusted."
5. Dividends (a) From and after the date of issuance, the holders of
outstanding shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation, or a duly
authorized committee thereof ("Authorized Board Committee"), to the extent
permitted under the General Corporation Law of the State of Delaware, and before
any dividend or other distribution is declared or paid with respect to
outstanding Junior Securities, cumulative dividends payable annually in arrears
on January 1 in each year (each of such dates is referred to herein as a
"Dividend Payment Date" and the period between consecutive Dividend Payment
Dates is referred to herein as a "Dividend Period") commencing January 1, 1997.
The dividend rate on outstanding shares of Series B Preferred Stock shall be
Twenty-Eight Cents ($.28) per share per annum, payable in either cash or in
shares of Common Stock of the Corporation at the discretion of the Board of
Directors of the Corporation or an Authorized Board Committee, computed on the
basis of a 365-day year and the actual number of days elapsed in each Dividend
Period. Such dividends shall be payable to the holders of record of outstanding
shares of Series B Preferred Stock as their names shall appear on the stock
register of the Corporation on such record date, not more than thirty or less
than ten days preceding each such Dividend Payment Date, as shall be fixed by
the Board of Directors of the Corporation or an Authorized Board Committee, in
advance of payment of each such dividend.
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(b) Dividends on outstanding shares of Series B Preferred Stock shall
be fully cumulative and shall accrue whether or not declared, from the
respective dates of issuance of such shares of Series B Preferred Stock until so
paid. Any accumulated unpaid dividends for past Dividend Periods may be declared
by the Board of Directors of the Corporation or an Authorized Board Committee at
any time in the sole discretion of the Board or such Authorized Board Committee,
and if so declared shall be payable on such date (whether or not a Dividend
Payment Date) as the Board of Directors or such Authorized Board Committee may
establish, to the holders of record of outstanding shares of Series B Preferred
Stock as their names shall appear on the stock register of the Corporation on
such record date, not more than thirty or less than ten days preceding the date
of payment, as shall be fixed by the Board of Directors or an Authorized Board
Committee. No interest or sum of money in lieu of interest shall be payable in
respect of accumulated unpaid dividends on outstanding shares of Series B
Preferred Stock.
(c) Dividends shall not be paid on the outstanding shares of Series B
Preferred Stock for any Dividend Period in which dividends for any prior
Dividend Period have not been paid in full on any Senior Securities or Parity
Securities from time to time outstanding; provided, however, that in the event
such failure to pay accrued dividends is with respect only to Parity Securities,
cash dividends may be declared, paid or set apart for payment, without interest,
pro rata on shares of Series B Preferred Stock and shares of such Parity
Securities so that the amounts of any cash dividends declared, paid or set apart
for payment on outstanding shares of the Series B Preferred Stock and
outstanding shares of such Parity Securities shall in all cases bear to each
other the same ratio that, at the time of such declaration, payment or setting
apart for payment, all accrued but unpaid cash dividends on outstanding shares
of Series B Preferred Stock and outstanding shares of such Parity Securities
bear to each other.
(d) So long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall not (i) except as set forth in subparagraph (c) of this
paragraph 5, declare, pay or set apart for payment any dividend on any
outstanding Parity Securities or Junior Securities (other than a dividend which
is payable in shares of Parity Securities or Junior Securities), (ii) make any
payment on account of, or set apart for payment, money for a sinking or other
similar fund for the purchase, redemption, retirement or other acquisition for
value of any of, or redeem, purchase, retire or otherwise acquire for value any
of, any outstanding Parity Securities or Junior Securities or any convertible
securities, warrants, rights, calls or options exercisable for or convertible
into any Parity Securities or Junior Securities, or (iii) make any distribution
in respect of any outstanding Parity Securities or Junior Securities or any
convertible securities, warrants, rights, calls or options exercisable for or
convertible into any Parity Securities or Junior Securities, in any such case
either directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property (other than distributions or dividends of a
particular class or series of Parity Securities or Junior Securities to holders
of such Parity Securities or Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled by the Corporation
to purchase, redeem or otherwise acquire for value any outstanding Parity
Securities or Junior Securities or any convertible securities, warrants, rights,
calls or options exercisable for or convertible into any Parity Securities or
Junior Securities, unless prior to or concurrently with such declaration,
payment, setting
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<PAGE> 9
apart for payment, purchase, redemption, retirement, other acquisition for value
or distribution, as the case may be, all accrued and unpaid dividends, if any,
on outstanding shares of Series B Preferred Stock not paid with respect to all
Dividend Periods theretofore ended shall have been paid.
(e) Subject to the foregoing provisions of this paragraph 5, the Board
of Directors of the Corporation, or an Authorized Board Committee thereof, may
declare and the Corporation may pay or set apart for payment dividends and other
distributions on any Senior Securities, Parity Securities or Junior Securities
and may purchase or otherwise acquire any Senior Securities, Parity Securities
or Junior Securities or any convertible securities, warrants, rights, calls or
options exercisable for or convertible into any Senior Securities, Parity
Securities or Junior Securities, and in such event the holders of outstanding
shares of Series B Preferred Stock shall not be entitled to share therein;
provided, however, the Corporation shall not declare or pay any dividend or make
any other distribution on any outstanding Senior Securities, Parity Securities
or Junior Securities if the net assets of the Corporation after the payment of
such dividend would be insufficient to pay to the holders of the outstanding
shares of Series B Preferred Stock the entire amount of the liquidation
preference to which such holders are entitled pursuant to paragraph 6 hereof.
6. Liquidation (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, before
any distribution or payment shall be made to the holders of any outstanding
Junior Securities, including the Common Stock, subject to the rights of
creditors, the holders of outstanding shares of Series B Preferred Stock shall
be entitled to be paid out of the assets of the Corporation available for
distribution to stockholders, an amount in cash equal to $4.00 per share,
together with an amount in cash equal to all accrued but unpaid dividends on
such shares to the date fixed for liquidation, dissolution or winding up of the
affairs of the Corporation; provided, however, that the holders of outstanding
shares of Series B Preferred Stock shall not be entitled to receive such
preferential liquidation payments unless prior thereto the preferential
liquidation payments on all outstanding Senior Securities have been paid in
full. Except as provided in the preceding sentence, the holders of outstanding
shares of Series B Preferred Stock shall not be entitled to any distribution in
the event of the liquidation, dissolution or winding up of the affairs of the
Corporation. If, upon such liquidation, dissolution or winding up of the affairs
of the Corporation the assets of the Corporation available for distribution to
the holders of outstanding shares of Series B Preferred Stock and outstanding
Parity Securities shall be insufficient to permit the payment in full to such
holders and to the holders of any outstanding Parity Securities of the full
amount of the preferential liquidation amounts to which they are then entitled,
the entire assets of the Corporation thus available for distribution shall be
distributed among the holders of outstanding shares of Series B Preferred Stock
and holders of outstanding shares of Parity Securities ratably in proportion to
the full amounts to which such holders would otherwise be entitled if such
assets were sufficient to permit payment in full. After the payment of all
preferential liquidation amounts to which the holders of outstanding shares of
Series B Preferred Stock shall be entitled, such holders shall not be entitled
to any further participation in any distribution of the assets of the
Corporation to its stockholders.
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(b) For purposes of this paragraph 6, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with any other
corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, unless such
voluntary sale, conveyance, exchange or transfer shall be in connection with a
plan of liquidation, dissolution or winding up of the affairs of the
Corporation.
7. Voting Rights
The shares of Series B Preferred Stock shall have the following voting
rights in addition to any voting rights set forth in the Certificate of
Incorporation of the Corporation which are applicable to the Preferred Stock.
(a) So long as any shares of the Series B Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of the holders of
at least 66 2/3% of the shares of Series B Preferred Stock then outstanding,
amend, alter or repeal any of the provisions of the Certificate of the
Designations, Powers, Preferences and Rights of the Series B Preferred Stock or
the Certificate of Incorporation of the Corporation, or authorize any
reclassification of the Series B Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series B
Preferred Stock, or authorize any capital stock of the Corporation ranking,
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation, prior to the Series B Preferred Stock.
(b) So long as any shares of the Series B Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of the holders of
at least a majority in voting power of shares of the Series B Preferred Stock
then outstanding, increase the authorized number of shares of Preferred Stock or
create, or increase the authorized number of shares of, any other class of
capital stock of the Corporation ranking on a parity with the Preferred Stock
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation.
(c) In exercising the voting rights set forth in this paragraph 7 or
when otherwise granted voting rights by operation of law, each share of Series B
Preferred Stock shall be entitled to one vote.
(d) Except as set forth herein or as otherwise required by law, holders
of Series B Preferred Stock shall have no special voting rights and their
consent shall not be required for taking any corporate action.
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<PAGE> 11
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this ___ day of
________, 1996.
___________________________________
Robert A. Vessa, Vice President
(Corporate Seal)
ATTEST:
____________________________
Carol Macchiarulo, Secretary
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<PAGE> 1
Exhibit 3.4
ByLaws
<PAGE> 2
BYLAWS
OF
CAPITAL BEVERAGE CORPORATION
A DELAWARE CORPORATION
(AS AMENDED THROUGH APRIL 30, 1996)
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders shall be
held at such place either within or without the State of Delaware as shall be
designated from time to time by the board of directors or stated in the notice
of the meeting.
Section 2. Annual Meeting. Annual meetings of stockholders shall be as
designated from time to time by the board of directors (which shall be in the
case of the first annual meeting not more than thirteen (13) months after the
organization of the corporation and in the case of all other annual meetings, no
more than thirteen (13) months after the date of the prior annual meeting) and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a board of directors, and transact such other business as may properly be
brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. Stockholder List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board, the
president or the secretary and shall be called by the chairman of the board, the
president or the secretary at the request in writing of a majority of the board
of directors, or at the request in writing of stockholders owning twenty-five
percent (25%) or more of the entire capital
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stock of the corporation issued and outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
Section 6. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 8. Voting and Proxies. When a quorum is present at any meeting,
except with respect to the election of directors, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which by express provision of the statutes or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question. Directors
shall be elected by a plurality of the votes cast. Unless otherwise provided in
the certificate of incorporation, each stockholder shall be entitled to one (1)
vote for each share of the capital stock having voting power held by such
stockholder. Each stockholder entitled to vote may vote in person or by a proxy
granted in accordance with Delaware law, but no proxy shall be voted on after
three (3) years from its date, unless the proxy provides for a longer period.
Section 9. Conduct of Meetings. At every meeting of stockholders, the
chairman of the board of directors, or, if a chairman has not been appointed or
is absent, the president, or, if the president is absent, the most senior vice
president present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The secretary, or, in his
absence, the person appointed by the chairman of the meeting, shall act as
secretary of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting. Unless and to the extent
determined by the board of directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
Section 10. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors, or if they do not do so, the chairman of
the meeting, shall appoint one (1) or more inspectors to act at the meeting and
make a written report thereof. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath to execute faithfully the
duties of inspector with strict impartiality and according to the best of his
ability. The inspectors shall: (1) ascertain the number of
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shares outstanding and the voting power of each; (2) determine the shares
represented at a meeting and the validity of proxies and ballots; (3) count all
votes and ballots; (4) determine and retain for a reasonable period a record of
the disposition of any challenges made to any determination by the inspectors;
and (5) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls,
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.
This Section 10 shall not apply to the corporation if it does not have
a class of voting stock that is: (1) listed on a national securities exchange;
(2) authorized for quotation on an inter-dealer quotation system of a registered
national securities association; or (3) held of record by more than 2,000
stockholders.
Section 11. Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
DlRECTORS
Section 1. Number and Term of Office. The number of directors which
shall constitute the whole board shall be not less than two (2) nor more than
nine (9) until changed by amendment to the certificate of incorporation or by a
bylaw amending this Section duly adopted by the stockholders entitled to vote or
by the board of directors. The exact number of directors shall be fixed from
time to time, within the limits specified herein or in the certificate of
incorporation, by a bylaw or amendment thereof duly adopted by the stockholders
or the board of directors. Subject to the foregoing provisions for changing the
number of directors, the number of directors of the corporations is fixed at two
(2). The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. A vacancy in the board of directors shall be
deemed to exist under this Section in the case of the death,
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resignation or removal of any director and no decrease in the number of
directors shall shorten the term of any incumbent director.
Section 3. Powers. The business and affairs of the corporation shall be
managed by or under the direction of its board of directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
Section 4. Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 5. Special Meetings. Special meetings of the board of directors
for any purpose or purposes may be called at any time by one-third (1/3) of the
directors then in office (rounded up to the nearest whole number) or by the
chairman of the board, the president or the secretary. Notice of the time and
place of special meetings shall be given orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
forty-eight (48) hours before the date and time of the meeting; or if in writing
to each director by first class mail, charges prepaid, at least five (5) days,
or by air courier, charges prepaid, at least three (3) days, before the date of
the meeting. A notice need not specify the purpose of any regular or special
meeting of the board of directors.
Section 6. Quorum. At all meetings of the board a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Written Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 8. Participation in Meetings by Conference Telephone. Unless
otherwise restricted by the certificate of incorporation or these bylaws,
members of the board of directors, or any committee designated by the board of
directors, may participate in a meeting of the board of directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 9. Committees of the Board of Directors. The board of directors
may, by resolution passed by a majority of the whole board, designate one (1) or
more committees, each committee to consist of one (1) or more of the directors
of the corporation. The board may designate one (1) or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
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In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
Section 10. Compensation Of Directors. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the board of directors shall
have the authority to fix the compensation of directors. No such compensation
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings or serving on
such committees.
Section 11. Removal Of Directors. Unless otherwise restricted by the
certificate of incorporation or by these bylaws, any director or the entire
board of directors may be removed, with or without cause, by the holders of a
majority of shares entitled to vote at an election of directors.
ARTICLE III
NOTICES
Section 1. Notices. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given in the manner set
forth in Section 5 of Article II of these bylaws.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these bylaws, a waiver thereof, in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
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ARTICLE IV
OFFICERS
Section 1. General. The officers of the corporation shall be chosen by
the board of directors and shall be a chairman of the board and/or a chief
executive officer, a president, a secretary and a treasurer or chief financial
officer. The board of directors may also appoint one or more vice-presidents,
one or more assistant secretaries and assistant treasurers, and such other
officers as they shall deem necessary, to exercise such powers and to perform
such duties as the board shall from time to time determine. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide. The remuneration of officers of the
corporation shall be fixed by the board of directors.
Section 2. Term of Office and Removal. The officers of the corporation
shall hold office until their successors are chosen and qualify. Any officer
elected or appointed by the board of directors may be removed at any time by the
board of directors. Any vacancy occurring in any office of the corporation shall
be filled by the board of directors.
Section 3. Chairman of the Board. The chairman of the board shall
preside at all meetings of stockholders and of the board of directors. The board
at its discretion may designate the chairman of the board as chief executive
officer of the corporation, in which event the chairman of the board shall be
charged with and shall have the control and supervision of all its business and
operations.
Section 4. Chief Executive Officer. The chief executive officer of the
corporation shall have general supervision, direction and control of the
business of the corporation and shall, in the absence of the chairman of the
board, perform the duties of the chairman of the board. The chief executive
officer shall have such other powers and duties as may be prescribed by the
board of directors or these bylaws.
Section 5. President. The president of the corporation shall be the
chief operating officer of the corporation and shall have responsibility for the
day-to-day operation and management of the business of the corporation. The
president shall have such other powers and duties as [may be prescribed by the
board of directors or these bylaws.
Section 6. Vice Presidents. Each vice president shall have such powers
and duties as may be delegated to him by the board of directors. Any vice
president may be designated as executive, senior or assistant. One vice
president may be designated by the board to perform the duties and exercise the
powers of the president in the event of the president's absence or disability.
Section 7. Chief Financial Officer. The chief financial officer shall
have general supervision, direction and control of the financial affairs of the
corporation, including financial planning and budgeting, and, in the absence of
the office of treasurer, shall perform the duties of the treasurer. The chief
financial officer shall have such other powers and duties as may be prescribed
by the board of directors or these bylaws.
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Section 8. Treasurer. The treasurer shall have the responsibility for
maintaining the financial records of the corporation and shall have custody of
all monies and securities of the corporation. He shall make such disbursements
of the funds of the corporation as are authorized and shall render from time to
time an account of all such transactions and of the financial condition of the
corporation. The treasurer shall also perform such other duties as the board of
directors may from time to time prescribe and, in the absence of the office of
chief financial officer, he shall perform the duties of chief financial officer.
Section 9. Secretary. The secretary shall issue all authorized notices
for, and shall keep minutes of, all meetings of the stockholders and the board
of directors. He shall have charge of the corporate books and shall perform such
other duties as the board of directors may from time to time prescribe.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the chairman of the board, the chief executive officer, the
president or a vice-president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
share, the total amount of the consideration to be paid therefor, and the amount
paid thereon shall be specified. Upon the declaration of any dividend upon fully
paid shares, the corporation shall declare a dividend on partly paid shares of
the same class, but only upon the basis of the percentage of the consideration
actually paid thereon.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise required by law, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Facsimile Signatures. Any of or all the signatures on the
certificate may be facsimile. ln case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
8
<PAGE> 9
Section 3. Transfer of Stock. Transfers of stock shall be made only
upon the transfer books of the corporation kept at an office of the corporation
or by transfer agents designated to transfer shares of the stock of the
corporation. Except where a certificate is issued in accordance with Section 4
of this Article V, an outstanding certificate for the number of shares involved
shall be surrendered for cancellation before a new certificate is issued
therefor.
Section 4. Lost, Stolen or Destroyed Certificates. ln the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the board of directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the board of directors, may establish.
Section 6. Record Date. ln order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
ARTICLE VI
lNDEMNIFICATlON OF OFFICERS, DlRECTORS,
EMPLOYEES AND AGENTS
Section 1. Right to Indemnification. The corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is made or
is threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, against all liability and loss suffered and expenses reasonably incurred
by such person in connection therewith. The corporation shall indemnify a person
in connection with a proceeding initiated by such person only if the proceeding
was authorized by the board of directors of the corporation. The corporation may
provide indemnification to employees and agents of the corporation with the same
scope and effect as the indemnification and advancement of expenses provided in
this Article.
9
<PAGE> 10
Section 2. Payment of Expenses. The corporation shall pay the expenses
incurred by a director or officer of the corporation in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in his capacity as a director or
officer in advance of the final disposition of the proceeding shall be made only
upon receipt of an undertaking by the director or officer to repay all amounts
advanced if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this Article or otherwise.
Section 3. Right to Bring Suit. If a claim for indemnification or
payment of expenses under this Article by a director or officer of the
corporation is not paid in full within thirty (30) days after a written claim
therefor has been received by the corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. ln any such
action the corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
Section 4. Rights Not Exclusive. The rights conferred on any person by
this Article shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the corporation's
certificate of incorporation, these bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. The corporation shall have the authority
to enter into such agreements as the board of directors deems appropriate for
the indemnification of present or future directors, officers, employees and
agents of the corporation in connection with their service to the corporation or
any other corporation, partnership, joint venture, trust or other enterprise,
including any employee benefit plan, to which such person is providing services
at the request of the corporation.
Section 5. Effect of Modification. Any repeal or modification of the
foregoing provisions of this Article shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
Section 6. Successors. The rights conferred on any person by this
Article shall continue as to a person who has ceased to be a director, officer,
employee or agent of the corporation and shall inure to the benefit of such
person's heirs, executors and administrators.
Section 7. Definition of Corporation. For purposes of this Article,
reference to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had the power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would have stood with respect to such constituent corporation if its separate
existence had continued.
10
<PAGE> 11
ARTICLE VII
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or, if provided in the certificate of incorporation,
by the board of directors. If the power to adopt, amend or repeal bylaws is
conferred upon the board of directors by the certificate of incorporation, it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
11
<PAGE> 1
Exhibit 4.1
Specimen Common Stock Certificate
<PAGE> 2
NUMBER SHARES
- ------ ------
GRAPHIC OF EAGLE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CAPITAL BEVERAGE CORPORATION
20,000,000 COMMON SHARES WITH A PAR VALUE OF ONE TENTH ($0.001) OF A PENNY
This Certifies that _________________________________________________
is the owner of ____________________________________________ fully paid and
non-assessable Shares of the Capital Stock of the above named Corporation
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed. _____________________________________
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunder
affixed this _______________ day of ______________________ 19_______
_________________________________ _________________________________
Carol Macchiarulo, Secretary Carmine N. Stella, President
CORPORATE SEAL
<PAGE> 3
EXPLANATION OF ABBREVIATIONS
The following abbreviations, when used in the inscription of ownership
on the face of this certificate, shall be construed as if they were written out
in full according to applicable laws or regulations. Abbreviations, in addition
to those appearing below, may be used.
JT TEN As joint tenants with right TEN ENT As tenants by the
of survivorship and not as UNIF GIFT MIN ACT entireties Uniform
tenants in common Gifts to Minors Act
TEN COM As tenants in common CUST Custodian for
For Value Received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________ Shares represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_________________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation with full power of substitution in
the premises.
Dated _____________________________ 19___
In presence of
___________________________________
______________________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
Exhibit 4.2
Specimen Series A Preferred Stock Certificate
<PAGE> 2
NUMBER SHARES
-------- -------
GRAPHIC OF EAGLE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CAPITAL BEVERAGE CORPORATION
1,000,000 PREFERRED SHARES WITH A PAR VALUE OF ONE ($0.01) CENT
SEE LEGEND ON REVERSE SIDE
This Certifies that ___________________________________
________________________________________________ is the owner of
____________________________________________ fully paid and non-assessable
Shares of Capital Stock of the above named Corporation transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
_____________________________________
In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authroized officers and its Corporate Seal
to be hereunder affixed this _______________ day of ______________________
19_______
- ----------------------------- --------------------------------------
Carol Macchiarulo, Secretary Carmine N. Stella, President
CORPORATE SEAL
<PAGE> 3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE
OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO
RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE
SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION IS AVAILABLE.
NOTWITHSTANDING THE ABOVE, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT THE PRIOR CONSENT OF THE COMPANY AND INVESTOR'S
ASSOCIATES, INC. UNTIL THE EXPIRATION OF TWELVE (12) MONTHS
AFTER THE EFFECTIVE DATE OF A REGISTRATION STATEMENT COVERING
SHARES OF COMMON STOCK, $.001 PAR VALUE, OF THE COMPANY
OFFERED IN AN INITIAL PUBLIC OFFERING ("IPO REGISTRATION
STATEMENT").
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
CONVERTED INTO AN EQUAL NUMBER OF SHARES OF COMMON STOCK OF
THE COMPANY AT THE OPTION OF THE HOLDER DURING THE PERIOD
COMMENCING ONE HUNDRED EIGHTY (180) DAYS AFTER THE EFFECTIVE
DATE OF THE IPO REGISTRATION STATEMENT AND TERMINATING THREE
HUNDRED SIXTY (360) DAYS AFTER SUCH EFFECTIVE DATE.
THE DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SET FORTH IN A
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS
(THE "CERTIFICATE") HELD AT THE COMPANY'S MAIN OFFICE AND THE
COMPANY SHALL FURNISH WITHOUT CHARGE A COPY OF THE CERTIFICATE
TO ANY SHAREHOLDER WHO REQUESTS A COPY OF THE CERTIFICATE.
EXPLANATION OF ABBREVIATIONS
The following abbreviations, when used in the inscription of
ownership on the face of this certificate, shall be construed as if they were
written out in full according to applicable laws or regulations. Abbreviations,
in addition to those appearing below, may be used.
<TABLE>
<S> <C> <C> <C>
JT TEN As joint tenants with TEN ENT As tenants by the
right of survivorship UNIF GIFT MIN ACT entireties Uniform Gifts
and not as tenants in to Minors Act
common
TEN COM As tenants in common CUST Custodian for
</TABLE>
For Value Received, __________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
________________________________________________________ Shares represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_________________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation with full power of substitution in
the premises.
Dated _____________________________ 19___
In presence of
- ----------------------------- ---------------------------------
NOTICE THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
Exhibit 4.3
Specimen Series B Preferred Stock Certificate
<PAGE> 2
NUMBER SHARES
-------- -------
GRAPHIC OF EAGLE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CAPITAL BEVERAGE CORPORATION
1,000,000 PREFERRED SHARES WITH A PAR VALUE OF ONE ($0.01) CENT
SERIES B
SEE LEGEND ON REVERSE SIDE
This Certifies that_________________________________________
_________________________________________________ is the owner of
____________________________________________ fully paid and non-assessable
Shares of the Capital Stock of the above named Corporation transferable only on
the books of the Corporation by the holder hereof in person or by duly
authorized Attorney upon surrender of this Certificate properly endorsed.
_____________________________________
In Witness Whereof, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and its Corporate Seal
to be hereunder affixed this _______________ day of ______________________
19_______
- ----------------------------- --------------------------------------
Carol Macchiarulo, Secretary Carmine N. Stella, President
CORPORATE SEAL
<PAGE> 3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE
OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO
RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE
SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
CONVERTED INTO AN EQUAL NUMBER OF SHARES OF COMMON STOCK OF
THE COMPANY AT THE OPTION OF THE HOLDER DURING THE PERIOD
COMMENCING ONE HUNDRED EIGHTY (180) DAYS AFTER THE EFFECTIVE
DATE OF THE IPO REGISTRATION STATEMENT AND TERMINATING THREE
(3) YEARS AFTER SUCH EFFECTIVE DATE.
THE DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SET FORTH IN A
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RIGHTS
(THE "CERTIFICATE") HELD AT THE COMPANY'S MAIN OFFICE AND THE
COMPANY SHALL FURNISH WITHOUT CHARGE A COPY OF THE CERTIFICATE
TO ANY SHAREHOLDER WHO REQUESTS A COPY OF THE CERTIFICATE.
EXPLANATION OF ABBREVIATIONS
The following abbreviations, when used in the inscription of
ownership on the face of this certificate, shall be construed as if they were
written out in full according to applicable laws or regulations. Abbreviations,
in addition to those appearing below, may be used.
<TABLE>
<S> <C> <C> <C>
JT TEN As joint tenants with right of TEN ENT As tenants by the entireties
survivorship and not as tenants in UNIF GIFT MIN ACT Uniform Gifts to Minors Act
common
TEN COM As tenants in common CUST Custodian for
</TABLE>
For Value Received, __________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
________________________________________________________ Shares represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_________________________________________ Attorney to transfer the said Shares
on the books of the within named Corporation with full power of substitution in
the premises.
Dated _____________________________ 19___
In presence of
- ----------------------------------- --------------------------------------
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
Exhibit 4.5
Form of Convertible Bridge Note
<PAGE> 2
PROMISSORY NOTE
$125,000 April __, 1996
New York, New York
FOR VALUE RECEIVED, CAPITAL BEVERAGE CORPORATION, a Delaware
corporation (the "Maker"), promises to pay to ______________________________
(the "Holder") at such place as Holder may designate in writing, the entire
principal sum of one hundred twenty-five thousand dollars ($125,000), together
with interest at the rate of _____ (___%) percent per annum, on April__, 1997;
provided, however, that if a registration statement ("Registration Statement")
filed under the Securities Act of 1933, as amended (the "Securities Act")
registering shares of Common Stock and Class A Redeemable Common Stock Purchase
Warrants (the "Class A Warrants") of the Maker in a public offering ("Public
Offering") becomes effective prior to the maturity date of this Note, then on
the effective date of such Registration Statement ("Effective Date") this Note
shall automatically be converted into one million two hundred fifty thousand
(1,250,000) Class A Warrants of Maker. The Class A Warrants shall be identical
to the terms and conditions of the Class A Warrants being offered to the public
in the Public Offering.
All payments of principal and interest hereunder shall be payable in
lawful money of the United States of America.
The Maker shall be in default hereunder, at the option of the Holder,
upon the occurrence of any of the following events: (i) the failure by the Maker
to make any payment of principal or interest when due hereunder, and such
failure shall have continued for a period of more than ten (10) days after
notice and reasonable opportunity to cure; (ii) the entering into a decree or
order by a court of competent jurisdiction adjudicating Maker a bankrupt or the
appointing of a trustee of Maker upon the application of any creditor in an
insolvency or bankruptcy proceeding or other creditor's suit; (iii) a court of
competent jurisdiction approving as properly filed, a petition for
reorganization or arrangement filed against Maker under the federal bankruptcy
laws and such decree or order not being vacated within thirty (30) days; (iv)
the pendency of any bankruptcy proceeding or other creditors' suit against
Maker; (v) a petition or answer seeking reorganization or arrangement under the
federal bankruptcy laws with respect to Maker; (vi) an assignment for the
benefit of creditors by Maker; (vii) the Maker consents to the appointment of a
receive or trustee in an insolvency or bankruptcy proceeding or other creditor's
suit; (viii) the existence of any uncured event of default under the terms of
any instrument in writing evidencing a debt to someone other than Holder,
provided, that the Maker is not contesting in good faith by appropriate
proceedings such uncured event of default; (ix) the existence of any judgement
against, or any attachment or property of Maker; or (x) any other condition
which, in good faith determination of the Holder, would materially impair the
timely repayment of this Note.
Upon the occurrence of any event or condition of default hereunder, or
at any time thereafter, Holder at his option may accelerate the maturity of this
Note and declare all of the
<PAGE> 3
indebtedness or any portions thereof to be immediately due and payable, together
with accrued interest thereon, and payment thereof maybe enforced by suit or
other process of law.
If this Note is not paid when due, whether at maturity or by
acceleration, then Maker agrees to pay all reasonable costs of collection and
such costs shall include without limitation all costs, attorneys fees, and
expenses incurred by Holder hereof in connection with any insolvency,
bankruptcy, reorganization, arrangement or similar proceedings involving Holder,
or involving any endorser or guarantor hereof, which in any way affects the
exercise by Holder hereof of its rights and remedies under this Note.
Presentment, demand, protest notices of protest, dishonor and
non-payment of this Note and all notices of every kind are hereby waived.
The terms "Maker" and "Holder" shall be construed to include their
respective heirs, personal representatives, successors, subsequent holders and
assigns.
Regardless of the place of execution or performance, this letter and
the Note shall be governed by, and construed in accordance with, the laws of the
State of New York without giving effect to such state's conflict of laws
provisions. Each of the parties hereto irrevocably consents to the jurisdiction
and venue of the federal and state courts located in the State of New York,
County of New York.
CAPITAL BEVERAGE CORPORATION
By: _______________________________
Carmine N. Stella, President
- 2 -
<PAGE> 1
Exhibit 4.6
Form of Class A Warrants Issued to Certain Members of Management
<PAGE> 2
FORM OF "A" WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY
BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
CAPITAL BEVERAGE CORPORATION
Incorporated Under the Laws of the State of Delaware
No. WA-95-__ _______ Common Stock
Purchase Warrants
CERTIFICATE FOR COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that
________________________________, or registered assigns (the "Registered
Holder"), is the registered owner of the above indicated number of Warrants
expiring on the Expiration Date, as hereinafter defined. One (1) Warrant
entitles the Registered Holder to purchase one (1) share of the common stock,
$.001 par value (a "Share"), of Capital Beverage Corporation., a Delaware
corporation (the "Company"), from the Company at a purchase price of Five
Dollars ($5.00) (the "Exercise Price") at any time during the Exercise Period,
as hereinafter defined, upon surrender of this Warrant Certificate with the
exercise form hereon duly completed and executed and accompanied by payment of
the Exercise Price at the principal office of the Company.
Upon due presentment for transfer or exchange of this Warrant
Certificate at the principal office 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 in exchange for this Warrant Certificate, subject to
the limitations provided herein, upon payment of any tax or governmental charge
imposed in connection with such transfer. Subject to the terms hereof, the
Company shall deliver Warrant Certificates in required whole number
denominations to Registered Holders in connection with any transfer or exchange
permitted hereunder.
2. Restrictive Legend. Each Warrant Certificate and each certificate
representing Shares issued upon exercise of a Warrant, unless such Warrants and
Shares are then registered under the Securities Act of 1933, as amended (the
"Act"), shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD
ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT PROVISIONS OF
FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM
SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.
3. Exercise. Subject to the terms hereof, the Warrants, evidenced by
this Warrant Certificate, may be exercised at the Exercise Price in whole or in
part at any time during the period (the "Exercise Period") commencing on the
date of issuance hereof and terminating at the close of business on the day
prior to the fourth anniversary of the Effective Date of a registration
statement covering the Warrants and the shares of Common Stock underlying such
Warrants (the "Expiration Date"); provided that the Exercise Period shall be
extended and the Expiration Date delayed by one business day for each business
day subsequent to such
<PAGE> 3
effective date on which a prospectus meeting the prospectus delivery
requirements of the Act and covering the issuance of such Shares to and, if
appropriate, the resale of such Shares by, the Registered Holder hereof or the
successors in interest to such Registered Holder is not available. The Exercise
Period may also be extended by the Company's Board of Directors.
A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date (the "Exercise Date") of the surrender to the
Company at its principal offices of this Warrant Certificate with the exercise
form attached hereto executed by the Registered Holder and accompanied by
payment to the Company, in cash or by official bank or certified check, of an
amount equal to the aggregate Exercise Price, in lawful money of the United
States of America.
The person entitled to receive the Shares issuable upon exercise of a
Warrant or Warrants ("Warrant Shares") shall be treated for all purposes as the
holder of such Warrant Shares as of the close of business on the Exercise Date.
The Company shall not be obligated to issue any fractional share interests in
Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip
or cash with respect thereto, and such right to a fractional share shall be of
no value whatsoever. If more than one Warrant shall be exercised at one time by
the same Registered Holder, the number of full Shares which shall be issuable on
exercise thereof shall be computed on the basis of the aggregate number of full
shares issuable on such exercise.
Promptly, and in any event within ten business days after the Exercise
Date, the Company shall cause to be issued and delivered to the person or
persons entitled to receive the same, a certificate or certificates for the
number of Warrant Shares deliverable on such exercise.
The Company may deem and treat the Registered Holder of the Warrants at
any time as the absolute owner thereof for all purposes, and the Company shall
not be affected by any notice to the contrary. The Warrants shall not entitle
the Registered Holder thereof to any of the rights of shareholders or to any
dividend declared on the Shares unless the Registered Holder shall have
exercised the Warrants and thereby purchased the Warrant Shares prior to the
record date for the determination of holders of Shares entitled to such dividend
or other right.
4. Reservation of Shares and Payment of Taxes. The Company covenants
that it will at all times reserve and have available from its authorized Common
Stock such number of shares as shall then be issuable on the exercise of
outstanding Warrants. The Company covenants that all Warrant Shares which shall
be so issuable shall be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Registered Holder shall pay all documentary, stamp or similar taxes
and other government charges that may be imposed with respect to the issuance,
transfer or delivery of any Warrant Shares on exercise of the Warrants. In the
event the Warrant Shares are to be delivered in a name other than the name of
the Registered Holder of the Warrant Certificate, no such delivery shall be made
unless the person requesting the same has paid the amount of any such taxes or
charges incident thereto.
5. Registration of Transfer. The Company shall keep transfer books at
its principal office which shall register Warrant Certificates and the transfer
thereof. On due presentment of any Warrant Certificate for registration of
transfer at such office, the Company shall execute, issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants. All Warrant Certificates presented for
registration of transfer or exercise shall be duly endorsed or be accompanied by
a written instrument or instruments of transfer in form satisfactory to the
Company. The Company may require payment of a sum sufficient to cover any tax or
other government charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for exercise,
or for exchange in case of mutilated Warrant Certificates, shall be promptly
canceled by the Company and thereafter retained by the
2
<PAGE> 4
Company until the Expiration Date. Prior to due presentment for registration of
transfer thereof, the Company may treat the Registered Holder of any Warrant
Certificate as the absolute owner thereof (notwithstanding any notations of
ownership or writing thereon made by anyone other than the Company), and the
Company shall not be affected by any notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate, the Company shall execute and deliver,
in lieu thereof, a new Warrant Certificate representing an equal aggregate
number of Warrants. In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant Certificate
shall be required to indemnify the Company in an amount satisfactory to the
Company. In the event a Warrant Certificate is mutilated, such Certificate shall
be surrendered and canceled by the Company prior to delivery of a new Warrant
Certificate. Applicants for a new Warrant Certificate shall also comply with
such other regulations and pay such other reasonable charges as the Company may
prescribe.
7. Optional Redemption. So long as the closing bid price in the
principal market in which, or on the principal exchange on which, the Shares
trade exceeds one hundred sixty percent (160%) of the Exercise Price for the
twenty (20) consecutive trading days preceding but not including the date of
such call, the Company shall have the right and option to redeem and acquire all
of the Warrants remaining outstanding and unexercised at the date fixed for such
redemption in such notice (the "Redemption Date"), which Redemption Date shall
be at least forty-five (45) days after the date of such notice, for an amount
equal to One-Tenth of One Cent ($.001) per Warrant; provided, however, that the
Registered Holder shall have the right during the period between the date of
such notice and the Redemption Date to exercise the Warrants in accordance with
the provisions of Section 3 hereof and provided further that a prospectus
meeting the prospectus delivery requirements of the Act and covering the
issuance of such Shares to and, if appropriate, the resale of such Shares by,
the Registered Holder hereof or the successors in interest to such Registered
Holder is available during the entire period between such notice and the
Redemption Date. Said notice of redemption shall require the Registered Holder
to surrender to the Company, on the Redemption Date, at the principal executive
offices of the Company, his certificate or certificates representing the
Warrants to be redeemed. Notwithstanding the fact that any Warrants called for
redemption have not been surrendered for redemption and cancellation on the
Redemption Date, after the Redemption Date such Warrants shall be deemed to be
expired and all rights of the Registered Holder of such unsurrendered Warrants
shall cease and terminate, other than the right to receive the redemption price
of $.001 per Warrant for such Warrants, without interest.
In connection with any call hereunder, the Company shall have no
obligation to call any other stock purchase warrant or warrants, whether or not
having similar terms, and no call made pursuant to any other stock purchase
warrant shall obligate the Company to exercise its right and option to make a
call hereunder.
8. Adjustment of Shares. The number and kind of securities issuable
upon exercise of a Warrant shall be subject to adjustment from time to time upon
the happening of certain events, as follows:
(a) Stock Splits, Stock Combinations and Certain Stock
Dividends. If the Company shall at any time subdivide or combine its
outstanding Shares, or declare a dividend in Shares or other securities
of the Company convertible into or exchangeable for Shares, a Warrant
shall, after such subdivision or combination or after the record date
for such dividend, be exercisable for that number of Shares and other
securities of the Company that the Registered Holder would have owned
immediately after such event with respect to the Shares and other
securities for which a Warrant may have been exercised immediately
before such event had the Warrant been exercised immediately before
such event. Any adjustment under this Section 8 (a) shall become
effective at the close of business on the date the subdivision,
combination or dividend becomes effective.
(b) Adjustment for Reorganization, Consolidation, Merger. In
case of any reorganization of the Company (or any other corporation the
stock or other securities of which are at the time
3
<PAGE> 5
receivable upon exercise of a Warrant) or in case the Company (or any
such other corporation) shall merge into or with or consolidate with
another corporation or convey all or substantially all of its assets to
another corporation or enter into a business combination of any form as
a result of which the Shares or other securities receivable upon
exercise of a Warrant are converted into other stock or securities of
the same or another corporation, then and in each such case, the
Registered Holder of a Warrant, upon exercise of the purchase right at
any time after the consummation of such reorganization, consolidation,
merger, conveyance or combination, shall be entitled to receive, in
lieu of the Shares or other securities to which such Registered Holder
would have been entitled had he exercised the purchase right
immediately prior thereto, such stock and securities which such
Registered Holder would have owned immediately after such event with
respect to the Shares and other securities for which a Warrant may have
been exercised immediately before such event had the Warrant been
exercised immediately prior to such event.
In each case of an adjustment in the Shares or other securities
receivable upon the exercise of a Warrant, the Company shall promptly notify the
Registered Holder of such adjustment. Such notice shall set forth the facts upon
which such adjustment is based.
9. Reduction in Exercise Price at Company's Option. The Company's Board
of Directors may, at its sole discretion, reduce the Exercise Price of the
Warrants in effect at any time either for the life of the Warrants or any
shorter period of time determined by the Company's Board of Directors. The
Company shall promptly notify the Registered Holders of any such reduction in
the Exercise Price.
10. Notices. All notices, demands, elections, or requests (however
characterized or described) required or authorized hereunder shall be deemed
given sufficiently if in writing and sent by registered or certified mail,
return receipt requested and postage prepaid, or by facsimile or telegram to the
Company, at its principal executive office, and of the Registered Holder, at the
address of such Holder as set forth on the books maintained by the Company.
11. General Provisions. This Warrant Certificate shall be construed and
enforced in accordance with, and governed by, the laws of the State of Delaware.
Except as otherwise expressly stated herein, time is of the essence in
performing hereunder. The headings of this Warrant Certificate are for
convenience in reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the __ day of December, 1995.
CAPITAL BEVERAGE CORPORATION
By: ____________________________________
Carmine N. Stella, President
4
<PAGE> 6
CAPITAL BEVERAGE CORPORATION
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
-------------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _____
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells,
assigns and transfers unto __________________________________________________
(_______) Warrants, evidenced by the within Warrant Certificate, and does hereby
irrevocably constitute and appoint _______________________________________
Attorney to transfer the said Warrants evidenced by the within Warrant
Certificates on the books of the Company, with full power of substitution.
Dated:____________________ _____________________________
Signature
Notice: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without alteration
or enlargement or any change whatsoever.
Signature Guaranteed: __________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
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<PAGE> 7
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Warrant Certificate)
To Capital Beverage Corporation
The undersigned hereby irrevocably elects to exercise _______
____________________ (______)Warrants, evidenced by the within Warrant
Certificate for, and to purchase thereunder, _____________ _______________
(______) full shares of Common Stock issuable upon exercise of said Warrants and
delivery of $_________ and any applicable taxes.
The undersigned requests that certificates for such shares be
issued in the name of:
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
- -------------------------------- --------------------------------
(Please print name and address
- -------------------------------------------------------------------
- -------------------------------------------------------------------
If said number of Warrants shall not be all the Warrants evidenced
by the within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised by issued in the name of
and delivered to:
- ------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
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<PAGE> 8
Dated: _____________________ Signature:__________________________
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever, or if
signed by any other person the Form of Assignment hereon must be
duly executed and if the certificate representing the shares or any
Warrant Certificate representing Warrants not exercised is to be
registered in a name other than that in which the within Warrant
Certificate is registered, the signature of the holder hereof must
be guaranteed.
Signature Guaranteed: ___________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
3
<PAGE> 1
Exhibit 4.7
Form of Class A Warrant Issued in 1996 Private Placement Financing
<PAGE> 2
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE COMMON STOCK ISSUABLE UPON
EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY
BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION
FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE. NOTWITHSTANDING THE
ABOVE, THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON
STOCK FOR WHICH SUCH SECURITIES ARE EXERCISABLE MAY NOT BE SOLD, TRANSFERRED,
MADE SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF WITHOUT THE PRIOR CONSENT OF THE COMPANY AND INVESTOR'S ASSOCIATES, INC.
UNTIL THE EXPIRATION OF FOUR (4) MONTHS AFTER THE EFFECTIVE DATE OF A
REGISTRATION STATEMENT COVERING SUCH SECURITIES.
CAPITAL BEVERAGE CORPORATION
Incorporated Under the Laws of the State of Delaware
No. WB96-01 _______ Common Stock
Purchase Warrants
CERTIFICATE FOR COMMON STOCK
PURCHASE WARRANTS
1. Warrant. This Warrant Certificate certifies that
________________________________, or registered assigns (the "Registered
Holder"), is the registered owner of the above indicated number of Warrants
expiring on the Expiration Date, as hereinafter defined. One (1) Warrant
entitles the Registered Holder to purchase one (1) share of the common stock,
$.001 par value (a "Share"), of Capital Beverage Corporation., a Delaware
corporation (the "Company"), from the Company at a purchase price of Five
Dollars ($5.00) (the "Exercise Price") at any time during the Exercise Period,
as hereinafter defined, upon surrender of this Warrant Certificate with the
exercise form hereon duly completed and executed and accompanied by payment of
the Exercise Price at the principal office of the Company.
Upon due presentment for transfer or exchange of this Warrant
Certificate at the principal office 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 in exchange for this Warrant Certificate, subject to
the limitations provided herein, upon payment of any tax or governmental charge
imposed in connection with such transfer. Subject to the terms hereof, the
Company shall deliver Warrant Certificates in required whole number
denominations to Registered Holders in connection with any transfer or exchange
permitted hereunder.
2. Restrictive Legend. Each Warrant Certificate and each
certificate representing Shares issued upon exercise of a Warrant, unless such
Warrants and Shares are then registered under the Securities Act of 1933, as
amended (the "Act"), shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE
OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO
RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE
SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR
QUALIFICATION IS APPLICABLE.
NOTWITHSTANDING THE ABOVE, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE AND THE SHARES OF COMMON STOCK FOR WHICH SUCH
<PAGE> 3
SECURITIES ARE EXERCISABLE MAY NOT BE SOLD, TRANSFERRED, MADE
SUBJECT TO A SECURITY INTEREST, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF WITHOUT THE PRIOR CONSENT OF THE COMPANY
AND INVESTOR'S ASSOCIATES, INC. UNTIL THE EXPIRATION OF FOUR
(4) MONTHS AFTER THE EFFECTIVE DATE OF A REGISTRATION
STATEMENT COVERING SUCH SECURITIES"
3. Exercise. Subject to the terms hereof, the Warrants,
evidenced by this Warrant Certificate, may be exercised at the Exercise Price in
whole or in part at any time during the period (the "Exercise Period")
commencing on the date hereof and terminating at the close of business on the
day prior to the fourth anniversary of the effective date of a registration
statement covering the Warrants and the shares of Common Stock underlying such
Warrants (the "Expiration Date"); provided that the Exercise Period shall be
extended and the Expiration Date delayed by one business day for each business
day subsequent to such effective date on which a prospectus meeting the
prospectus delivery requirements of the Act and covering the issuance of such
Shares to and, if appropriate, the resale of such Shares by, the Registered
Holder hereof or the successors in interest to such Registered Holder is not
available. The Exercise Period may also be extended by the Company's Board of
Directors.
A Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date (the "Exercise Date") of the
surrender to the Company at its principal offices of this Warrant Certificate
with the exercise form attached hereto executed by the Registered Holder and
accompanied by payment to the Company, in cash or by official bank or certified
check, of an amount equal to the aggregate Exercise Price, in lawful money of
the United States of America.
The person entitled to receive the Shares issuable upon
exercise of a Warrant or Warrants ("Warrant Shares") shall be treated for all
purposes as the holder of such Warrant Shares as of the close of business on the
Exercise Date. The Company shall not be obligated to issue any fractional share
interests in Warrant Shares issuable or deliverable on the exercise of any
Warrant or scrip or cash with respect thereto, and such right to a fractional
share shall be of no value whatsoever. If more than one Warrant shall be
exercised at one time by the same Registered Holder, the number of full Shares
which shall be issuable on exercise thereof shall be computed on the basis of
the aggregate number of full shares issuable on such exercise.
Promptly, and in any event within ten business days after the
Exercise Date, the Company shall cause to be issued and delivered to the person
or persons entitled to receive the same, a certificate or certificates for the
number of Warrant Shares deliverable on such exercise.
The Company may deem and treat the Registered Holder of the
Warrants at any time as the absolute owner thereof for all purposes, and the
Company shall not be affected by any notice to the contrary. The Warrants shall
not entitle the Registered Holder thereof to any of the rights of shareholders
or to any dividend declared on the Shares unless the Registered Holder shall
have exercised the Warrants and thereby purchased the Warrant Shares prior to
the record date for the determination of holders of Shares entitled to such
dividend or other right.
4. Reservation of Shares and Payment of Taxes. The Company
covenants that it will at all times reserve and have available from its
authorized Common Stock such number of shares as shall then be issuable on the
exercise of outstanding Warrants. The Company covenants that all Warrant Shares
which shall be so issuable shall be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof.
The Registered Holder shall pay all documentary, stamp or
similar taxes and other government charges that may be imposed with respect to
the issuance, transfer or delivery of any Warrant Shares on exercise of the
Warrants. In the event the Warrant Shares are to be delivered in a name other
than the name of the Registered Holder of the Warrant Certificate, no such
delivery shall be made unless the person requesting the same has paid the amount
of any such taxes or charges incident thereto.
2
<PAGE> 4
5. Registration of Transfer. The Warrants represented by this
Warrant Certificate are separately transferable from the Series A Preferred
Stock issued with such Warrants when and if any shares of the Company's Common
Stock are registered under the Act. Unless otherwise consented to by the Company
and Investor's Associates, Inc., the Warrants represented by this Certificate,
and the shares of Common Stock issuable upon exercise thereof, may be
transferred in whole or in part, commencing four (4) months after the effective
date of a registration statement covering such securities; provided, however,
that any such transfer shall comply with all applicable federal and state
securities laws and, if requested by the Company, the Registered Holder shall
deliver to the Company an opinion of counsel to that effect, in form and
substance reasonably acceptable to the Company. Warrant Certificates to be
transferred shall be surrendered to the Company at its principal office. The
Company shall execute, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the transfer
shall be entitled to receive.
The Company shall keep transfer books at its principal office
which shall register Warrant Certificates and the transfer thereof. On due
presentment of any Warrant Certificate for registration of transfer at such
office, the Company shall execute, issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants. All Warrant Certificates presented for
registration of transfer or exercise shall be duly endorsed or be accompanied by
a written instrument or instruments of transfer in form satisfactory to the
Company. The Company may require payment of a sum sufficient to cover any tax or
other government charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for
exercise, or for exchange in case of mutilated Warrant Certificates, shall be
promptly canceled by the Company and thereafter retained by the Company until
the Expiration Date. Prior to due presentment for registration of transfer
thereof, the Company may treat the Registered Holder of any Warrant Certificate
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company), and the Company shall
not be affected by any notice to the contrary.
6. Loss or Mutilation. On receipt by the Company of evidence
satisfactory as to the ownership of and the loss, theft, destruction or
mutilation of this Warrant Certificate, the Company shall execute and deliver,
in lieu thereof, a new Warrant Certificate representing an equal aggregate
number of Warrants. In the case of loss, theft or destruction of any Warrant
Certificate, the individual requesting issuance of a new Warrant Certificate
shall be required to indemnify the Company in an amount satisfactory to the
Company. In the event a Warrant Certificate is mutilated, such Certificate shall
be surrendered and canceled by the Company prior to delivery of a new Warrant
Certificate. Applicants for a new Warrant Certificate shall also comply with
such other regulations and pay such other reasonable charges as the Company may
prescribe.
7. Optional Redemption. So long as the closing bid price in
the principal market in which, or on the principal exchange on which, the Shares
trade exceeds one hundred sixty percent (160%) of the Exercise Price for the
twenty (20) consecutive trading days preceding but not including the date of
such call, the Company shall have the right and option to redeem and acquire all
of the Warrants remaining outstanding and unexercised at the date fixed for such
redemption in such notice (the "Redemption Date"), which Redemption Date shall
be at least forty-five (45) days after the date of such notice, for an amount
equal to One-Tenth of One Cent ($.001) per Warrant; provided, however, that the
Registered Holder shall have the right during the period between the date of
such notice and the Redemption Date to exercise the Warrants in accordance with
the provisions of Section 3 hereof and provided further that a prospectus
meeting the prospectus delivery requirements of the Act and covering the
issuance of such Shares to and, if appropriate, the resale of such Shares by the
Registered Holder hereof or the successors in interest to such Registered
Holder, is available during the entire period between such notice and the
Redemption Date. Said notice of redemption shall require the Registered Holder
to surrender to the Company, on the Redemption Date, at the principal executive
offices of the Company, his certificate or certificates representing the
Warrants to be redeemed. Notwithstanding the fact that any Warrants called for
redemption have not been surrendered for redemption and cancellation on the
Redemption Date, after the Redemption Date such Warrants shall be
3
<PAGE> 5
deemed to be expired and all rights of the Registered Holder of such
unsurrendered Warrants shall cease and terminate, other than the right to
receive the redemption price of $.001 per Warrant for such Warrants, without
interest.
In connection with any call hereunder, the Company shall have
no obligation to call any other stock purchase warrant or warrants, whether or
not having similar terms, and no call made pursuant to any other stock purchase
warrant shall obligate the Company to exercise its right and option to make a
call hereunder.
8. Adjustment of Shares. The number and kind of securities
issuable upon exercise of a Warrant shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
(a) Stock Splits, Stock Combinations and
Certain Stock Dividends. If the Company shall at any time
subdivide or combine its outstanding Shares, or declare a
dividend in Shares or other securities of the Company
convertible into or exchangeable for Shares, a Warrant shall,
after such subdivision or combination or after the record date
for such dividend, be exercisable for that number of Shares
and other securities of the Company that the Registered Holder
would have owned immediately after such event with respect to
the Shares and other securities for which a Warrant may have
been exercised immediately before such event had the Warrant
been exercised immediately before such event. Any adjustment
under this Section 8 (a) shall become effective at the close
of business on the date the subdivision, combination or
dividend becomes effective.
(b) Adjustment for Reorganization,
Consolidation, Merger. In case of any reorganization of the
Company (or any other corporation the stock or other
securities of which are at the time receivable upon exercise
of a Warrant) or in case the Company (or any such other
corporation) shall merge into or with or consolidate with
another corporation or convey all or substantially all of its
assets to another corporation or enter into a business
combination of any form as a result of which the Shares or
other securities receivable upon exercise of a Warrant are
converted into other stock or securities of the same or
another corporation, then and in each such case, the
Registered Holder of a Warrant, upon exercise of the purchase
right at any time after the consummation of such
reorganization, consolidation, merger, conveyance or
combination, shall be entitled to receive, in lieu of the
Shares or other securities to which such Registered Holder
would have been entitled had he exercised the purchase right
immediately prior thereto, such stock and securities which
such Registered Holder would have owned immediately after such
event with respect to the Shares and other securities for
which a Warrant may have been exercised immediately before
such event had the Warrant been exercised immediately prior to
such event.
In each case of an adjustment in the Shares or other
securities receivable upon the exercise of a Warrant, the Company shall promptly
notify the Registered Holder of such adjustment. Such notice shall set forth the
facts upon which such adjustment is based.
9. Reduction in Exercise Price at Company's Option. The
Company's Board of Directors may, at its sole discretion, reduce the Exercise
Price of the Warrants in effect at any time either for the life of the Warrants
or any shorter period of time determined by the Company's Board of Directors.
The Company shall promptly notify the Registered Holders of any such reduction
in the Exercise Price.
10. Registration Rights.
(a) Certain Definitions. As used in this Section 10, the
following definitions shall apply:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Act.
"Holder" means any holder of a Warrant or outstanding
Registerable Securities.
4
<PAGE> 6
"Registerable Securities" means the Warrant Shares issued or
issuable upon the exercise of a Warrant, provided, however,
that Registerable Securities shall not include any Shares and
other securities which have previously been registered and
sold to the public.
"Registration Expenses" means all expenses incurred by the
Company in complying with Section 10(b) including, without
limitation, all registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any
special audits incident to or required in connection with any
such registration. Registration Expenses shall not include
selling commissions, discounts or other compensation paid to
underwriters or other agents or brokers to effect the sale.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act (and any post-effective amendments filed in connection
therewith), and the declaration of the effectiveness of such registration
statement.
(b) Registration. The Company shall:
(i) Following the original issuance of the
Warrants represented by this Warrant Certificate at such time
as the Company first prepares and files with the Commission a
registration statement on an appropriate form that would
permit inclusion of the Registrable Securities in such
registration statement or amendment to such a registration
statement, include the Registrable Securities among the
securities being registered pursuant to such registration
statement. The Company shall diligently prosecute such
registration statement to effectiveness. Such registration
statement shall cover both the issuance of Warrant Shares upon
exercise of this Warrant and, to the extent appropriate, the
resale of such Warrant Shares by the Holder. The Company will
promptly notify the Holder regarding (i) the filing of such
registration statement and all amendments thereto, (ii) the
effectiveness of such registration statement and any
post-effective amendments thereto, (iii) the occurrence of any
event or condition that causes the prospectus that is part of
such registration statement no longer to comply with the
requirements of the Act, and (iv) any request by the
Commission for any amendment or supplement to such
registration statement or any prospectus relating thereto;
(ii) Prepare and file with the Commission
such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and
current and to comply with the provisions of the Act with
respect to the issuance, sale or resale of the Registerable
Securities, including such amendments and supplements as may
be necessary to reflect the intended method of disposition of
the Holder, but for no longer than one hundred eighty (180)
days subsequent to the Expiration Date or the Redemption Date;
(iii) Furnish to each Holder such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other
documents as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the
Registerable Securities by such Holder;
(iv) Use its best efforts to register or
qualify the Registrable Securities under such securities or
blue sky laws of any state as a Holder may reasonably request,
and do any and all other acts which may be reasonably
necessary or advisable to enable such Holder to dispose of
Registrable Securities in such jurisdictions;
(v) Use its best efforts to comply with all
applicable rules and regulations of the Commission, including
without limitation the rules and regulations relating to the
periodic reporting requirements under the Securities Exchange
Act of 1934, as amended; and
5
<PAGE> 7
(vi) Make available for inspection by the Holder or by any
underwriter, attorney, accountant or other agent acting for such Holder in
connection with the disposition of Registrable Securities, in each case upon
receipt of an appropriate confidentiality agreement, all corporate records,
documents and properties as may be reasonably requested.
(c) Expenses of Registration. All Registration Expenses
incurred in connection with the registration, qualification or compliance
pursuant to Section 10(b) hereof shall be borne by the Company.
(d) Indemnification. In the event any of the Registerable
Securities are included in a registration statement under this Section 10:
(i) The Company will indemnify each Holder,
each of its officers and directors and partners and each
person controlling such Holder within the meaning of Section
15 of the Act, and each underwriter, if any, and each person
who controls any underwriter within the meaning of Section 15
of the Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, or other
document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the
Company of any rule or regulation promulgated under the Act
applicable to the Company in connection with any such
registration, qualification or compliance, and the Company
will reimburse the Holder, each of its officers and directors
and partners and each person controlling such Holder, each
such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises
out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon
and in conformity with written information furnished to the
Company by such Holder or underwriter for use therein.
(ii) In order to include Registerable
Securities in a registration statement under this Section 10,
a Holder will be required to indemnify the Company, each of
its directors and officers, its legal counsel and independent
accountants, each underwriter, if any, of the Company's
securities covered by such registration statement, each person
who controls the Company or such underwriter within the
meaning of Section 15 of the Act, and each other selling
shareholder, each of its officers and directors and partners
and each person controlling such selling shareholder within
the meaning of Section 15 of the Act, against all claims,
losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and
will reimburse the Company, such holders, such directors,
officers, counsel, accountants, persons, underwriters or
control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in
conformity with written information furnished to the Company
by the Holder for use therein.
(iii) Each party entitled to indemnification
under this Section (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be
sought, and
6
<PAGE> 8
shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be approved by the
Indemnified Party (which approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such
defense at such Indemnified Party's expense. No Indemnifying
Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
(iv) If the indemnification provided for in
this Section is held by a court of competent jurisdiction to
be unavailable to an Indemnified Party with respect to any
loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying the
Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party with respect to such loss,
liability, claim, damage or expense in the proportion that is
appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party in connection with the
statements or omissions that resulted in such loss, liability,
claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the
Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of material fact or the
omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
statement or omission.
(e) Information by Holder. Each Holder of Registerable
Securities included in any registration shall furnish to the Company such
information regarding such Holder, such securities and the distribution proposed
by such Holder as the Company may request in writing.
11. Notices. All notices, demands, elections, or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently if in writing and sent by registered or certified
mail, return receipt requested and postage prepaid, or by facsimile or telegram
to the Company, at its principal executive office, and of the Registered Holder,
at the address of such Holder as set forth on the books maintained by the
Company.
12. General Provisions. This Warrant Certificate shall be
construed and enforced in accordance with, and governed by, the laws of the
State of Delaware. Except as otherwise expressly stated herein, time is of the
essence in performing hereunder. The headings of this Warrant Certificate are
for convenience in reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of the __ day of ___________, 1996.
CAPITAL BEVERAGE CORPORATION
By:
---------------------------------
Title:
---------------------------------
7
<PAGE> 9
CAPITAL BEVERAGE CORPORATION
The following abbreviations, when used in the inscription on
the face of this instrument, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
------------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _____
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ___________________________ hereby sells,
assigns and transfers unto __________________________________________________
(_______) Warrants, evidenced by the within Warrant Certificate, and does hereby
irrevocably constitute and appoint _______________________________________
Attorney to transfer the said Warrants evidenced by the within Warrant
Certificates on the books of the Company, with full power of substitution.
Dated:____________________ _____________________________
Signature
Notice: The above signature must correspond with the name as written upon the
face of the Warrant Certificate in every particular, without alteration
or enlargement or any change whatsoever.
Signature Guaranteed: __________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
1
<PAGE> 10
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Warrant Certificate)
To Capital Beverage Corporation
The undersigned hereby irrevocably elects to exercise _______
____________________ (______)Warrants, evidenced by the within Warrant
Certificate for, and to purchase thereunder, _____________ _______________
(______) full shares of Common Stock issuable upon exercise of said Warrants and
delivery of $_________ and any applicable taxes.
The undersigned requests that certificates for such shares be
issued in the name of:
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
- -------------------------------- --------------------------------
(Please print name and address
- -------------------------------------------------------------------
- -------------------------------------------------------------------
If said number of Warrants shall not be all the Warrants
evidenced by the within Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised by issued in the
name of and delivered to:
- ------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
2
<PAGE> 11
Dated: _____________________ Signature:__________________________
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without
alteration or enlargement or any change whatsoever, or if signed by any
other person the Form of Assignment hereon must be duly executed and if
the certificate representing the shares or any Warrant Certificate
representing Warrants not exercised is to be registered in a name other
than that in which the within Warrant Certificate is registered, the
signature of the holder hereof must be guaranteed.
Signature Guaranteed: ___________________________________________
SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE
FOLLOWING STOCK EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK
EXCHANGE, AMERICAN STOCK EXCHANGE, OR MIDWEST STOCK EXCHANGE.
3
<PAGE> 1
Exhibit 4.8
Form of Representative's Unit Purchase Option Agreement
<PAGE> 2
This Option will be void after 5:00 P.M. on _____________, 2001.
UNDERWRITER'S PURCHASE OPTION
To Subscribe for and Purchase Up to 80,000 Units
with each Unit consisting of
One (1) share of Common Stock, $.001 par value
and One-Half (1/2) Class A Redeemable Common
Stock Purchase Warrant of
CAPITAL BEVERAGE CORPORATION
(Transferability Restricted as Provided in Paragraph 2 below.)
THIS CERTIFIES THAT, FOR VALUE RECEIVED Investors Associates,
Inc. (the "Representative"), or registered assigns, is entitled to subscribe for
and purchase from Capital Beverage Corporation, a company incorporated under the
laws of the State of Delaware (hereinafter the "Company"), at the price of $6.06
per unit at any time during the four year period commencing one year after the
effective date ("Effective Date") of the Company's Registration Statement (the
"Registration Statement"), up to 80,000 Units ("Units") each Unit consisting of
one (1) share of Common Stock, $.001 par value and one-half (1/2) Class A
redeemable common stock purchase warrant of the Company, subject, however, to
the provisions and upon the terms and conditions hereinafter set forth.
1. The rights represented by this Underwriter's Purchase
Option (the "Option") may be exercised by the holder hereof, in whole or part
(but not as to a fractional share), by the surrender of this Option (properly
endorsed, if required), at the principal office of the transfer agent for the
Company (or such other office or agency of said transfer agent as it may
designate by notice in writing to the holder hereof, at the address of such
holder appearing on the books of the Company at any time within the period
above-named), with payment to said transfer agent for the account of the
Company, by cash or by certified check or bank draft, of the purchase price for
such Units. The Company agrees that the Units so purchased shall be and be
deemed to be issued to the holder thereof as the record owner of such Units as
of the close of business on the date on which this Option shall have been
surrendered and payment made for such Units as aforesaid. Certificates for the
securities underlying the Units so purchased shall be delivered to the holder
hereof within a reasonable time, not exceeding ten days, after the rights
represented by this Option shall have been so exercised, and, unless this Option
has expired, a new Option representing the number of Units, if any with respect
to which this Option shall not have been exercised shall also be issued to the
holder hereof within such time.
<PAGE> 3
2. This Option shall be restricted from sale, transfer,
assignment, or hypothecation for a period of one year except to the officers
and/or partners of the Representative or to members of a Selling Group (the
"Selling Group") of registered broker-dealers, their officers or partners, if
any, formed by the Representative. The Units and the securities issuable or
issued upon exercise of this Option shall not be transferable for a period of
one year from the date of their issuance except to the officers and/or partners
of the Representative or to members of a Selling Group of registered
broker-dealers, their officers or partners, if any, formed by the
Representative. All securities issued upon any exercise of this Option shall be
issued in reliance upon one or more exemptions from the Act and any applicable
state securities laws, and may not be sold, pledged, assigned, transferred or
otherwise disposed of except pursuant to an effective registration statement or
a written opinion of counsel that registration is not required. Each certificate
representing any such securities will bear a restrictive legend substantially to
the effect of the foregoing sentence. Unless registered pursuant to Paragraph 3
of this Option, purchasers of such securities shall take them subject to the
foregoing restrictions.
3. The holder of this Option, and any transferee of any holder
of this Option, by acceptance hereof, agrees that, prior to the disposition of
any securities purchased upon the exercise hereof, circumstances might require
registration of such securities under the Securities Act of 1933, as amended,
(the "Act"), as then in force, or any similar Federal Statute then in force,
and, therefore, such holder will give written notice to the Company, expressing
such holder's intention of effecting any such disposition, and describing
briefly such holder's intention as to the disposition to be made of securities
previously issued upon the exercise hereof. Promptly upon receiving such notice,
the Company shall present copies thereof to counsel for the Company and to
counsel for the Representative and the provisions of the following sub-clauses
shall apply.
(a) If, in the written opinion of such counsel, the proposed
disposition does not require registration under the Act, as then in force, or
any similar Federal statute then in force, or any applicable state securities
law, of the securities issuable or issued upon the exercise of this Option, the
Company shall, as promptly as practicable, notify the holder hereof of such
opinion, whereupon such holder shall be entitled to dispose of such securities
previously issued upon the exercise hereof, all in accordance with the terms of
the notice delivered by such holder to the Company.
(b) If, in the opinion of either such counsel, such proposed
disposition requires such registration or qualification pursuant to the Act, of
the securities issuable or issued upon the exercise of this Option, the Company
shall promptly give written notice to all the holders of the Options at the
respective addresses thereof shown on the books of the Company, of a proposed
registration statement under the Act, as then in force, or any similar Federal
statute then in force, with respect to securities issuable or issued upon
- 2 -
<PAGE> 4
exercise of the Options and the Company, shall as expeditiously as possible, use
its best efforts to effect such registration statement at the sole expense of
the holder or holders of the Option or Options seeking such registration, on one
occasion only, except as provided below, under such Act or similar statute of:
(i) The securities issuable or issued upon the
exercise of this Option,
(ii) All such securities of the Company issuable or
issued upon exercise of Options, the holder(s) of which shall have made written
request to the Company for the registration thereof, within 30 days after giving
such written notice by the Company, all to the extent requisite to permit the
sale of securities referred to in the foregoing clause (i), upon the terms of
offering supplied in writing to the Company by the holder(s) thereof, and upon
the effectiveness of such registration statement. Notwithstanding the foregoing,
the Company shall not be required to effect more than one such registration
statement pursuant to this subparagraph 3(b), and shall not be required to
effect any such registration statement except upon written request of the
Representative. Notwithstanding anything else to the contrary contained herein,
the Company shall not be required to effect any such registration statement
prior to one year after the Effective Date of the Registration Statement and
shall not be required to do so after the expiration of four (4) years from the
Effective Date of the Registration Statement. If the Company, at any time during
the five (5) year period commencing on the Effective Date of the Registration
Statement, proposes to register under the Act (except by a registration
statement on Form S-8 or Form S-4 or any successor forms thereto) any of its
securities to raise capital from the public, it will give written notice
pursuant to this Paragraph 3(b)(ii) to all holders of Options and all registered
holders of securities issued upon exercise of the Options (collectively, the
"Registered Holders"), of its intention to do so and, on the written request of
Registered Holders to register such Warrants and/or number of securities, given
within twenty (20) days after receipt of any such notice, the Company will cause
all such securities which the Registered Holders shall all have requested the
registration or qualification thereof to be included in such registration
statement proposed to be filed by the Company. All expenses of such offering
shall be borne by the Company, except the Registered Holders will pay their
respective portion of underwriting fees and discounts applicable to such
offering with respect to the securities sold thereby in an amount to be
determined pro rata according to the number of securities sold by each
participant in such offering. The number of securities to be included in such an
underwriting may be reduced (pro rata among the requesting Registered Holders)
if and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
therein by the Company or the price at which such securities could be sold to
the public; provided, however, that if any securities are to be included in such
underwriting for the account of any person or persons other than any of the
Registered Holders hereof, the number of securities to be included therein for
the account of such Registered Holders shall be reduced pro rata with
- 3 -
<PAGE> 5
the other securities requested to be included for the account of such other
person or persons. In addition to such rights, the Company will give at least 30
days prior written notice of filing thereof to (a) each holder of Options, and
(b) each holder of securities who shall have received the same upon the exercise
of Options previously held by such holder. If, and to the extent, requested by
any such holder in writing within 20 days after the receipt of any such notice,
the Company will use its best efforts, to register or qualify for exemption,
under Regulation A all or any part of the securities issuable upon exercise of
the Options referred to in the foregoing sub-clause (a) and/or the Common Stock
referred to in the foregoing sub-clause (b) under such Act or statute or in the
case of a Regulation A offering, the Options referred to herein, concurrently
with the registration or qualification of such other securities, in a manner
appropriate to permit the distribution of such securities or options by such
holders upon the terms of offering by such holders concurrently with the making
of the aforesaid written request.
The Company agrees to indemnify and hold harmless the holder
of this Option, or of securities issuable or issued upon the exercise hereof
from and against any claims or liabilities caused by any untrue statement of a
material fact, or omission to state a material fact required to be stated, in
any such registration statement or prospectus or offering circular, except
insofar as such claims or liabilities are caused by any such untrue statements
or omission based on information furnished in writing to the Company by such a
holder, or by any other such holder, affiliated with the holder who seeks
indemnification, as to which the holder hereof, by acceptance hereof, agrees to
indemnify and hold harmless the Company.
If this Option, or any securities issuable pursuant hereto,
requires declaration or registration with, or approval of, any governmental
official authority (other than registration under the Act, or similar Federal
statute at the time in force), before such securities may be issued on the
exercise hereof, the Company, at its sole expense, will take all requisite
action in connection with such declaration, and will use its best efforts to
cause such securities and/or this Option to be duly registered or approved.
4. The Company covenants and agrees that all securities that
may be issued upon exercise of the rights represented by this Option will, upon
issuance, be validly issued, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue). The
Company further covenants and agrees that, during the period within which the
rights represented by this Option may be exercised, the Company will at the time
have authorized and reserved, a sufficient number of securities to provide for
the exercise of the rights represented by this Option.
- 4 -
<PAGE> 6
5. (a) If at any time or from time to time, the Company shall,
by subdivision, consolidation or reclassification of shares, or otherwise,
change as a whole the outstanding shares of Common Stock into a different number
or class of securities, the number and class of securities as so changed shall,
for the purpose of each Option and the terms and conditions hereof, replace the
securities outstanding immediately prior to such change, and the Option purchase
price in effect, and the number of securities purchasable under each Option,
immediately prior to the date on which such change shall become effective and
shall be proportionately adjusted.
(b) Irrespective of any adjustment or change in the
Option purchase price or the number of securities actually purchasable under
each Option of like tenor, the Options theretofore and thereafter issued may
continue to express the Option purchase price per securities and the number of
securities purchasable thereunder as the Option purchase price per security and
the number of security purchasable were expressed on the Warrants when initially
issued.
(c) If at any time while any Option is outstanding,
the Company shall consolidate with or merge into another corporation, firm or
entity, or otherwise enter into a form of business combination, the holder
hereof shall thereafter be entitled upon exercise hereof to purchase, with
respect to each share purchasable hereunder immediately prior to the date on
which such consolidation, merger, or other form of business combinations shall
become effective, the securities or property to which a holder of one (1) share
would have been entitled upon such consolidation or merger, without any change
in, or payment in addition to, the Option purchase price in effect immediately
prior to such merger or consolidation, and the Company shall take such steps in
connection with such consolidation or merger as may be necessary to assure that
all the provisions of each Warrant shall thereafter be applicable, as nearly as
reasonably may be, in relation to any securities or property thereafter
deliverable upon the exercise of each Option. The Company shall not effect any
such consolidation, merger or other form of business combination unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting therefrom shall assume, by written instrument executed and mailed to
the registered holder of the Option, the obligation to deliver to such holder
such securities or property as, in accordance with foregoing provisions, such
holder shall be entitled to purchase.
(d) Upon the happening of any event requiring an
adjustment of the Option purchase price hereunder, the Company shall forthwith
give written notice thereof to the registered holder of each Option stating the
adjusted Option purchase price and the adjusted number of securities purchasable
upon the exercise thereof resulting from such event, and setting forth in
reasonable detail the method or calculation and the facts on which such
calculation is based. The certificate of the Company's independent public
accountant shall be conclusive evidence of the correctness of any computation
made
- 5 -
<PAGE> 7
hereunder. In the event any voluntary or involuntary dissolution, liquidation or
winding-up of the Company shall at any time be proposed, the Company shall give
at least 30 days prior written notice thereof to the registered holder of each
Warrant, stating the date on which such event is to take place and the date
(which shall be at least 30 days after the giving of such notice) as of which
the holders of Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such dissolution,
liquidation or winding-up (on which date, in the event such dissolution,
liquidation or winding-up shall actually take place, each Option and rights with
respect thereto shall terminate). Notice pursuant to this paragraph shall be
given by certified mail, postage prepaid, return receipt requested, addressed to
the registered holder of each Option at the address of such holder appearing in
the records of the Company.
6. In case at any time during the period this Option shall be
exercisable:
(a) The Company shall pay any dividend payable in
stock on its Common Stock, or make any distribution to the holders of its Common
Stock; or
(b) The Company shall offer for subscription pro rata
to the holders of its Common Stock any additional securities of stock of any
class, or other rights; or
(c) There shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation, merger
or other form of business combination of the Company with, or sale of all or
substantially all its assets to another corporation; or
(d) There shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give to the holder of
this Option, (i) at least 30 days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights, or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale or other form of business combination, dissolution, liquidation or
winding-up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale or other form of business combination, dissolution,
liquidation or winding-up, at least 30 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
sub-clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the foregoing
(ii) and shall also specify when the holder of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, consolidation, reclassification, merger, sale or other
- 6 -
<PAGE> 8
form of business combination, dissolution, liquidation or winding-up, as the
case may be. Each written notice shall be given by certified mail, postage
prepaid, return receipt requested, addressed to the holder of the Option at the
address of such holder as shown on the books of the Company.
7. As used herein, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Options, and shall also include any capital stock of any class of the
Company thereafter authorized that shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding-up of the Company; provided that the shares purchasable
pursuant to this Option shall include only shares of such class referred to in
the first paragraph hereof designated in the Company's Certificate of
Incorporation as Common Stock on the date of the original issue of Options, or,
in the case of any reorganization, reclassification, consolidation, merger or
sale of assets of the character referred to in subparagraph 5(c) hereof, the
stocks, securities or assets provided for in such paragraph.
8. This Option is exchangeable, upon its surrender by the
registered holder at such office or agency of the Company, for new Options or
like tenor, representing, in the aggregate, the right to subscribe for and
purchase the number of Units that may be subscribed for and purchased hereunder,
each of such new Options to represent the right to subscribe for and purchase
such number of Units as shall be designated by the registered holder at the time
of each surrender provided, that each new Option issued pursuant to this
Paragraph 8 and the holder thereof shall be subject to the terms and conditions
contained herein. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Option, and, in the case of any
such loss, theft, or destruction, upon delivery of a bond of indemnity
satisfactory to the Company, or in the case of any such mutilation, upon
surrender or cancellation of this Option the Company will issue to the
registered holder a new Option of like tenor, in lieu of this Option, that may
be subscribed for and purchased hereunder. Nothing herein is intended to
authorize the transfer of this Option, except as permitted under Paragraph 2.
9. Prior to the exercise of this Option, the Holder shall not
be entitled to any of the rights of a stockholder of the Company, including,
without limitation, the right as a stockholder to (i) vote or consent, (ii)
receive dividends or other distributions made to stockholders or (iii) receive
notice of, or attend, any meetings of stockholders of the Company.
10. Any notice, demand or delivery to be made pursuant to the
provisions of this Option shall be sufficiently given or made if sent by first
class mail, postage prepaid, addressed (i) in the case of the holder, to his
last known address appearing on the books
- 7 -
<PAGE> 9
of the Company maintained for such purpose, or (ii) in the case of the Company,
to its principal office referred to above. The Holder and the Company may each
designate a different address by notice to the other pursuant to this Section.
11. This Option and rights evidenced hereby shall inure to the
benefit of, and be binding upon, the Company and its successors and assigns.
12. The Option may not be modified or amended except by
written agreement of the parties.
13. The Option shall be governed by the laws of the State of
New York.
IN WITNESS WHEREOF, Capital Beverage Corporation caused this
Option to be signed by its duly authorized officer under its corporate seal, to
be dated this _________ day of 1996.
____________________________
Carmine N. Stella, President
Capital Beverage Corporation
ATTEST:
_________________________
Herman Epstein, Chairman
Investors Associates, Inc.
- 8 -
<PAGE> 1
Exhibit 10.1
Agreement with Consolidated Beverage Corp. Relating to Pabst Distribution Rights
<PAGE> 2
THIS AGREEMENT is made this [undated] day of June 1995 by and between
CONSOLIDATED BEVERAGE CORP., a New York Corporation, with its principal offices
located at 235 West 154th Street, New York, New York 10039 ("CONSOLIDATED") and
CARMINE STELLA, ROBERT BLAIR, RICHARD E. HELLER, with offices located at 1101
East Tremont Avenue, Bronx, New York 10460 (the "BUYER");
WHEREAS, CONSOLIDATED has been and remains a exclusive primary
wholesale distributor in good standing of certain beer and malt products,
including specifically "PABST BLUE RIBBON," "HAMM'S," and ANDEKER brands of beer
and "OLD ENGLISH 800" brand of malt liquor ("PABST PRODUCTS") in portions of the
City and State of New York ("TERRITORY");
WHEREAS, BUYER desires to purchase and obtain the PABST PRODUCTS'
distribution rights now held by CONSOLIDATED and commercially exploited by it as
an essential part of its ongoing business; and
WHEREAS, CONSOLIDATED is willing to sell and transfer said PABST
PRODUCTS' distribution rights and the associated ongoing business generated
thereby, and to consent to BUYER's appointment as a primary wholesale
distributor for the TERRITORY;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
1. CONSOLIDATED represents that the Brand Products and the TERRITORY in
which these products are presently sold by CONSOLIDATED are as follows:
City of New York
Borough of Manhattan: All PABST brands except OLYMPIA BEER and OLYMPIA
LIGHT BEER. These brands include PABST BLUE RIBBON BEER, PABST EXTRA
<PAGE> 3
LIGHT BEER, PABST LIGHT BEER, PABST BLUE RIBBON DRAFT BEER, ANDEKER BEER, OLDE
ENGLISH "800" MALT LIQUOR, HAMM'S BEER, HAMM'S SPECIAL LIGHT BEER, HAMM'S
GENUINE DRAFT BEER, BIG BEAR MALT LIQUOR, and OLD TANKARD ALE.
Borough of the Bronx: OLDE ENGLISH "800" MALT LIQUOR, HAMM'S BEER,
HAMM'S SPECIAL LIGHT BEER, HAMM'S GENUINE DRAFT BEER AND ANDEKER.
Borough of Queens: OLDE ENGLISH "800" MALT LIQUOR, in that portion of
Queens County situated west and north of the following described boundary line,
to wit:
Starting at a point in Flushing Bay at the boat basin; thence
southerly along Grant Central Parkway to the intersection of
Union Turnpike and Interboro Parkway to the Wester Boundary of
Queen County, thence northerly along the wester boundary of
Queens County to the East River, being the terminal of Queens
County.
HAMM'S BEER, HAMM'S SPECIAL LIGHT BEER, HAMM'S GENUINE DRAFT BEER,
ANDEKER BEER, OLD TANKARD ALE and BIG BEAR MALT LIQUOR.
Borough of Brooklyn (County of Kings). HAMM'S BEER, HAMM'S SPECIAL
LIGHT BEER, HAMM'S GENUINE DRAFT BEER, ANDEKER BEER, OLD TANKARD ALE and BIG
BEAR MALT LIQUOR.
Borough of Staten Island (County of Richmond). OLD ENGLISH "800" MALT
LIQUOR and ALL PABST BRANDS except OLYMPIA BEER and OLYMPIA LIGHT BEER.
- 2 -
<PAGE> 4
Suffolk and Nassau Counties. BIG BEAR MALT LIQUOR.
Westchester County: HAMM'S BEER, HAMM'S SPECIAL LIGHT BEER,
HAMM'S GENUINE DRAFT BEER and BIG BEAR MALT LIQUOR.
HAMM'S products sold in that portion of Westchester County situated
south of Interstate Highway No. 287, but not including the Towns of Ardsley and
Dobbs Ferry.
State of New York: OLD TANKARD ALE.
2. CONSOLIDATED hereby agrees to sell and transfer, and BUYER agrees to
purchase and accept, all of CONSOLIDATED's right, title and interest in, to and
under the distribution rights now held and commercially exploited by
CONSOLIDATED for PABST PRODUCTS within the TERRITORY as set forth in paragraph
one (1) of this Agreement. Reference herein to "PABST PRODUCTS' distribution
rights" includes that part of CONSOLIDATED's ongoing customer relationships
directly associated with its continuing undertakings to market, sell, physically
distribute and merchandise PABST PRODUCTS purchased from the Pabst Brewing
Company. Such sale is subject to a final accounting of all verifiable amounts
between the Pabst Brewing Company and CONSOLIDATED BEVERAGE CORP. The rights to
any accounts receivable are hereby retained by CONSOLIDATED and shall survive
the closing of this sale Agreement.
3(a). The closing of the sale and transfer of distribution rights and
BUYER's commencement as a primary wholesale distributor of PABST PRODUCTS in the
TERRITORY, whereby it will purchase such products directly from the brewer as is
contemplated by this Agreement, shall take place on September 15, 1995, or
sooner if possible.
- 3 -
<PAGE> 5
(b) The parties agree to provide each other with such documents
reasonably requested in order to consummate the transaction contemplated by this
Agreement or appropriate to facilitate the exercise by one or other of them of
any right granted or reserved to either of them hereunder. The identity of the
customers of CONSOLIDATED in the TERRITORY shall be given to the BUYER by
CONSOLIDATED at the closing.
4. BUYER may assign this Agreement in his sole discretion to a
Corporation of which he is the principal shareholder upon five (5) days' written
notice to CONSOLIDATED.
5. In consideration of the sale of the PABST PRODUCTS' distribution
rights as hereinabove described, the BUYER shall pay CONSOLIDATED the total
amount of TWO MILLION ($2,000,000.00) DOLLARS as follows:
(a) A deposit of FIVE THOUSAND ($5,000.00) DOLLARS to be paid
to CONSOLIDATED's attorney to be held in escrow by him upon the signing of this
Agreement.
(b) The sum of SEVEN HUNDRED NINETY-FIVE THOUSAND
($795,000.00) DOLLARS which will be paid by certified check or bank check by the
BUYER to CONSOLIDATED at the time of the closing.
(c) (i) The balance of the purchase price or ONE MILLION TWO
HUNDRED THOUSAND ($1,200,000.00) DOLLARS, which includes an interest rate to be
determined by the parties shall be paid by the BUYER to CONSOLIDATED over a
period of ten (10) years at a rate of TEN THOUSAND ($10,000.00) DOLLARS which
included interest per month from the date of closing until the final month of
the ten-year period when the final payment shall be made which shall include the
full balance of monies owed.
- 4 -
<PAGE> 6
(ii) The balance of the purchase price to be paid over the
stated ten (10) year period shall be secured by a series of notes to be executed
by the BUYER in favor of CONSOLIDATED. If this Agreement is assigned to a
Corporation, such Corporation shall also be bound by such notes as evidenced by
an appropriate Resolution of the Corporation o\and the signing of such notes by
an authorized representative of such Corporation.
(d) If BUYER defaults on any such monthly payment, the full
amount of the unpaid balance of the purchase price shall become immediately due
and payable unless the default is cured by the BUYER within five (5) days of
receiving written notice from CONSOLIDATED of the default in payment. If the
default is not cured by the BUYER all distribution rights of Pabst products
conveyed to the BUYER in this Agreement shall revert to CONSOLIDATED, and no
further claim(s) of ownership of such rights shall be made by the BUYER or his
assignee.
(e) The initial payment of FIVE THOUSAND ($5,000.000) DOLLARS
by the BUYER to CONSOLIDATED SHALL BE REFUNDABLE TO THE BUYER only if the BUYER
does not obtain the necessary written consent of Pabst Brewing Company to this
transaction and agreement of sale and fails to obtain the approval of Pabst
Brewing Company for the distribution rights which are the subject of this
Agreement.
6. The time period between the date this Agreement is executed and
September 11, 1995, or such other date on which the parties may agree the
closing shall take place, shall be known and referred to as "THE EXTENSION
PERIOD." CONSOLIDATED in its sole discretion may cancel this contract at any
time after the Extension Period on fifteen (15) days notice to the BUYER.
Throughout said EXTENSION PERIOD, the BUYER shall continue to
- 5 -
<PAGE> 7
deal with CONSOLIDATED fairly and in good faith and in a nondiscriminatory
manner. BUYER agrees to allow and facilitate the purchase and resale of PABST
PRODUCTS during this EXTENSION PERIOD by CONSOLIDATED as would take place in the
normal course of business. Also during this EXTENSION PERIOD, BUYER shall do no
act which, directly or indirectly will have the effect of depriving CONSOLIDATED
from obtaining the full benefits of the transaction contemplated by this
Agreement or which is in any way prejudicial to CONSOLIDATED's interest, rights
or benefits under this Agreement, including without limitation, conduct which
may adversely affect CONSOLIDATED's historical rates or redemption of empty
containers of PABST PRODUCTS or acts which will have the effect of terminating,
modifying, altering, supplanting, or otherwise, directly or indirectly,
interfering with CONSOLIDATED's rights to purchase all PABST PRODUCTS on
nondiscriminatory terms and conditions directly from the Pabst Brewing Company
and to be the exclusive primary source of PABST PRODUCTS to retail and wholesale
outlets within the TERRITORY.
7. This Agreement may be executed in separate counterparts, each of
which shall be deemed an original, but all of which shall together constitute
but one and the same instrument.
- 6 -
<PAGE> 8
8. This Agreement contains the entire Agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
proposals, both oral and written, negotiations, representations, commitments,
writings, agreements and other communications between the parties. Any
amendment, modification or waiver of any provision of this Agreement shall be by
a writing signed by both parties.
IN WITNESS WHEREOF, the parties execute this Agreement as of the date
first set forth above.
CONSOLIDATED BEVERAGE CORP.
By: Its President:
s/ ALBERT M. THOMPSON s/ CARMINE STELLA
- -------------------------- ----------------------------
ALBERT M. THOMPSON CARMINE STELLA
Buyer
s/ ROBERT BLAIR
----------------------------
ROBERT BLAIR
s/ RICHARD E. HELLER
----------------------------
RICHARD E. HELLER
- 7 -
<PAGE> 9
ASSIGNMENT
In consideration of the payment of Ten Dollars ($10.00) and other good and
valuable consideration, the undersigned, Carmine Stella, Robert Blair and
Richard E. Heller, hereby assign any and all rights and obligations that each of
them may have under that certain agreement dated June 1995 by and between the
undersigned and Consolidated Beverage Corporation to Capital Beverage
Corporation.
IN WITNESS WHEREOF, each of the undersigned has set his hand hereunto as of this
sixth day of December 1995.
/S/ CARMINE STELLA
------------------------------
CARMINE STELLA
/S/ ROBERT BLAIR
------------------------------
ROBERT BLAIR
/S/ RICHARD E. HELLER
------------------------------
RICHARD E. HELLER
<PAGE> 10
Addendum to
June 1995 Purchase Agreement
The parties agree that the terms and conditions of the Agreement
entered into on June 1995 shall be in full force and effect upon the completion
by the Buyer of the following conditions:
1. The closing shall take place on January 3, 1996, in the offices of
Morrison & de Roos, located at 230 Park Avenue, Suite 1610, New York, New York
10169, at 2 p.m. The purchase price is ONE MILLION SIX HUNDRED THOUSAND DOLLARS
to be paid as follows: an initial payment of EIGHT HUNDRED THOUSAND DOLLARS on
closing; the remainder in a series of notes at 9% interest over ten years. The
balance of the monies owed by the purchaser to the seller as evidenced by such
notes shall not allow for prepayment by the purchaser. If on closing the Buyer
cannot pay the full EIGHT HUNDRED THOUSAND DOLLARS, the Buyer will pay to Seller
the sum of $650,000.00 on January 3, 1996 which monies shall be non-refundable.
The balance of the initial payment of EIGHT HUNDRED THOUSAND DOLLARS,
$150,000.00 shall be paid on January 10, 1996, with time of the essence. In the
event the balance is not paid to the account of the Seller by the Buyer for any
reason on January 10, 1996, then the Contract of Sale shall be null and void and
all of the rights conveyed by the Seller at the closing shall immediately revert
from the Buyer to the Seller, with the monies paid by the Buyer to the Seller at
closing forfeited to the Seller. Such forfeiture shall be considered damages for
breach of this Agreement since it is understood and agreed by the parties that
under the circumstances damages would be impractical and extremely difficult to
fix and in such event this Agreement shall be of no further force and effect.
This provision shall survive the closing.
2. The amount of $150,000.00 due to the Seller on January 10, 1996 as
the balance of the Initial Payment on the Purchase Price shall be memorialized
in a Note signed by the Buyer in favor of the Seller on the date of closing. If
Seller declares a default under Paragraph 1 of this Agreement, then such Note
shall be void and unenforceable.
3. The $5,000 paid by the Buyer to the Seller under the terms of the
Agreement of June 1995 between CONSOLIDATED BEVERAGE CORP. and CAPITAL BEVERAGE
CORPORATION as assignee of CARMINE STELLA, is hereby agreed by the Buyer to be
forfeited to the Seller as part of the damages sustained by the Seller as a
consequence of the default by the Buyer of the original Agreement of June 1995.
4. In the event that there is a default under this Agreement and it
becomes necessary for any party hereto to employ the services of an attorney
either to enforce or to terminate this Agreement, with or without litigation,
the losing party or parties to the controversy shall pay to the successful party
or parties a reasonable attorney's fee and, in addition, such reasonable costs
and expenses as are incurred in enforcing or terminating this Agreement.
<PAGE> 11
5. In the event of default under this Agreement by any party hereto,
and if such default is waived by the other party or parties, such waiver shall
not constitute a waiver of any subsequent defaults by any party, and shall not
serve to vary the terms of this Agreement.
6. The parties hereto, on June 1995, executed a Receipt and Agreement
To Sell and Purchase. Said Agreement and all the provisions thereof are
incorporated herein and by reference made a part hereof, insofar as they do not
conflict with the provisions of this Agreement. In the event that any of the
provisions of the Receipt and Agreement To Sell and Purchase conflict with the
provisions of this Agreement, this Agreement shall prevail.
7. The Deed of Sale executed on January 3, 1996 by the purchaser shall
be held in escrow by EDWARD A. MORRISON, ESQ. pursuant to the escrow agreement
of even date herewith.
8. Seller acknowledges and approves the assignment of the Purchase
Agreement dated June 1995 from CARMINE N. STELLA, RICHARD E. HELLER and ROBERT
BLAIR to CAPITAL BEVERAGE CORPORATION.
9. Seller represents that his Pabst Master Distributorship is in effect
and no legal proceedings are pending by Pabst to terminate same.
10. It is hereby expressly understood and agreed by the parties hereto
that there are no representations, covenants, or agreements between the parties
hereto with reference to the conveyance of the rights herein except as herein
specifically set forth in this Agreement.
11. This contract shall not be assigned by Buyer without the prior
written consent of Seller. Such consent by Seller shall not be unreasonably
withheld.
12. This Agreement shall inure to the benefit of and be binding on the
heirs, executors, administrators, assigns, devisees, and legatees of the parties
hereto.
- 2 -
<PAGE> 12
13. This Agreement shall be interpreted in accordance with the laws of
the State of New York in force at the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement.
Dated January 3, 1996 CAPITAL BEVERAGE CORPORATION
By: /S/ CARMINE STELLA
-----------------------------
CARMINE STELLA, PRESIDENT
CONSOLIDATED BEVERAGE CORP.
By: /S/ ALBERT N. THOMPSON
-----------------------------
ALBERT N. THOMPSON
- 3 -
<PAGE> 13
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
On this 3rd day of January 1996 before me personally came Carmine
Stella to me known, who being by me duly sworn, did depose and Bay that he
resides at _________________ and that he is the President of CAPITAL BEVERAGE
CORPORATION the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by the Board
of Directors of said corporation and that he signed his name thereto by like
order.
/S/ EDWARD MORRISON
- ---------------------------
Notary Public
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK)
On this 3rd day of January 1996 before me personally came Albert N.
Thompson to me known, who being by me duly sworn, did depose and say that he
resides at _________________ and that he is the President of CONSOLIDATED
BEVERAGE CORP., the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by the Board
of Directors of said corporation and that he signed his name thereto by like
order.
/S/ EDWARD MORRISON
- ---------------------------
Notary Public
- 4 -
<PAGE> 1
Exhibit 10.2
Form of Note to Consolidated Beverage Corporation
<PAGE> 2
_____________, 19__
$10,000.00
___________ after date, for value received, I promise to pay
to the order of Consolidated Beverage Corp. Ten Thousand only Dollars at
Consolidated Beverages Corp., 235 West 154th Street, New York, NY with interest
at nine (9) percent included.
This note is one of a series of 120 notes of even date herewith,
aggregating $789,416.93.
It is understood and agreed that in the event of the non-payment of any
one of said series and such default continue for a period of seven (7) days,
then at the option of the holder of any of the said notes, all or any part of
the remaining unpaid notes shall forthwith become due and payable. The failure
to assert this right shall not be deemed a waiver thereof.
No._______ Due ___________________ , 19_____
Capital Beverage Corporation
By _________________________________
Carmine Stella, Pres.
<PAGE> 1
Exhibit 10.3
Bill of Sale from Consolidated Beverage Corp. to the Registrant
<PAGE> 2
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS,
THAT Consolidated Beverage Corp. of
235 West 154th Street, New York, New York 10039
Party of the first part, for and in consideration of the sum of One Million Six
Hundred Thousand ($1,600,000.00) Dollars lawful money of the United States to
in hand paid, at or before the ensealing and delivery of these
presents by
Capital Beverage Corporation of
1111 East Tremont Avenue, Bronx, New York 10460
party of the second part, the receipt whereof is hereby acknowledged has
bargained and sold, and by these presents does grant and convey unto the said
party of the second part, heirs, executors, administrators, successors and
assigns
all right under the distribution rights of the "Pabst Blue Ribbon," "Hamm's,"
and "Andeker" brands of beer and "Olde English 800" brand of malt liquor in
portions of the City and State of New York ("Territory") now held by party of
the first part and as set forth in Schedule "A" annexed hereto.
TO HAVE AND TO HOLD the same unto the said party of the second
part, heirs, executors, administrators, successors and assigns forever, AND does
for its heirs, executors and administrators, covenant and agree, to and with the
said party of the second part, to warrant and defend the sale of the aforesaid
interests in the distribution rights hereby sold unto the said party of the
second part, heirs, executors, administrators, successors and assigns, against
all and every person and persons whomsoever.
AND DOES FURTHER COVENANT AND AGREE, to and with the said
party of the second part, that it will not re-establish, re-open, be engaged in,
nor in any manner whatsoever become interested, directly or indirectly, either
as employee, as owner, as partner, as agent, or as stockholder, director or
officer of a corporation, or otherwise, in any business, trade or occupation
similar to the one hereby sold, within those territories.
IN WITNESS WHEREOF, the party of the first part has set its
hand and seal or caused these presents to be signed by its proper corporate
officers and caused its proper corporate seal to be hereto affixed, the 3rd day
of January 1996.
Signed, Sealed and Delivered
in the Presence of
<PAGE> 3
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
ALBERT N. THOMPSON, being duly sworn deposes and says:
That he is President of Consolidated Beverage Corp., a corporation
organized under the laws of the State of New York, and having its principal
office at 235 West 154th Street, New York, New York 10039;
The corporation is now the sole owner of all of the goods and chattels
described and more specifically enumerated in the schedule hereto annexed and
made part of the foregoing bill of sale.
That your deponent states that there are no mortgages, liens,
conditional sales agreement or other encumbrances of whatever nature or
description affecting the said goods and chattels set forth in the foregoing
schedule and that they are absolutely free and clear thereof;
That this affidavit is made for the express purpose and with the intent
of inducing Capital Beverage Corporation to purchase the property set forth and
described in the foregoing bill of sale, knowing full well that it will rely
upon this affidavit and pay a good and valuable consideration.
Sworn to before me this
3 day of January 1996.
/s/ Edward A. Morrison
EDWARD A. MORRISON
Notary Public, State of New York
No. 31-4922324 /s/ ALBERT N. THOMPSON
Qualified in New York County ------------------------------
Commission Expires February 8, 1996 Albert N. Thompson
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK)
On the day of nineteen hundred and before me
came Albert N. Thompson, to me known, who, being by me duly sworn, did depose
and say that he resides at No. , that he is the
President of Consolidated Beverage Corp., the corporation described in, and
which executed, the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of said corporation; and that he
signed his name thereto by like order.
/s/ EDWARD A. MORRISON
EDWARD A. MORRISON
Notary Public, State of New York
No. 31-4922324
Qualified in New York County
Commission Expires February 8, 1996
<PAGE> 4
SCHEDULE A
TO
BILL OF SALE
DATED JANUARY 3, 1996
The following "Pabst Products" shall be covered by this Agreement:
PABST BLUE RIBBON BEER, PABST EXTRA LIGHT BEER, PABST LIGHT BEER, PABST
BLUE RIBBON DRAFT BEER, ANDEKER BEER, OLDE ENGLISH "800" MALT LIQUOR,
OLYMPIA BEER, OLYMPIA LIGHT BEER, HAMM'S BEER, HAMM'S SPECIAL LIGHT
BEER, HAMM'S GENUINE DRAFT BEER, BIG BEAR MALT LIQUOR, OLD TANKARD ALE.
OLYMPIA BEER AND OLYMPIA LIGHT BEER TERMINATED 12/12/94
TERRITORY: In the State of New York:
FOR ALL BRANDS:
That portion of NEW YORK COUNTY situated between 181st Street on the north and
96th Street on the south, including both sides of said streets.
FOR HAMM'S BEER, HAMM'S SPECIAL LIGHT BEER AND HAMM'S GENUINE DRAFT
BEER:
BRONX BOROUGH.
That portion of WESTCHESTER COUNTY situated south of Interstate Highway No. 287,
but not including the Towns of Ardsley and Dobbs Ferry.
FOR OLYMPIA BEER AND OLYMPIA LIGHT BEER: TERMINATED 12/12/94
BRONX BOROUGH
All of KINGS, NEW YORK, QUEENS and WESTCHESTER COUNTIES.
FOR BIG BEAR MALT LIQUOR:
All of SUFFOLK and NASSAU COUNTIES.
FOR OLDE ENGLISH "800" MALT LIQUOR
BRONX BOROUGH.
All of RICHMOND COUNTY.
That portion of QUEENS COUNTY situated west and north of the following described
boundary line, to-wit: Starting at a point in Flushing Bay at the boat basin;
thence southerly along Grand Central Parkway to the intersection of Union
Turnpike and Interboro Parkway; thence westerly along Interboro Parkway to the
western boundary of Queens County; thence northerly along the western boundary
of Queens County to the East River, being the terminal of Queens County.
<PAGE> 5
In NEW YORK COUNTY (Manhattan), south of 96th Street, north of 181st Street,
River to River, not including either side of said street.
FOR OLD TANKARD ALE:
THE STATE OF NEW YORK.
FOR PABST BLUE RIBBON BEER, PABST EXTRA LIGHT BEER, PABST GENUINE DRAFT BEER,
ANDEKER BEER, OLYMPIA BEER, OLYMPIA LIGHT BEER, HAMM'S BEER, HAMM'S SPECIAL
LIGHT BEER AND HAMM'S GENUINE DRAFT BEER:
All of RICHMOND COUNTY.
OLYMPIA BEER AND OLYMPIA LIGHT BEER TERMINATED 12/12/94
<PAGE> 1
Exhibit 10.4
Distributorship Agreement with Pabst Brewing Company
<PAGE> 2
PABST BREWING COMPANY
DISTRIBUTORSHIP AGREEMENT
This Agreement is made in triplicate by and
between PABST BREWING COMPANY, a Delaware corporation
(hereinafter called "Pabst"), and the undersigned
distributor (hereinafter called "Distributor").
W I T N E S S E T H :
QUALITY PRODUCTS WHEREAS, Pabst is engaged in the manufacture and
sale of quality fermented malt beverages; and
AUTHORITY TO SELL WHEREAS, Distributor desires that Pabst grant to
Distributor the authority to sell only the particular Pabst
products described in Paragraph 1 hereof (hereinafter
collectively referred to as "Pabst Products");
MAXIMIZE SALES WHEREAS, Pabst and Distributor each desire to
exercise good faith in the performance of their respective
responsibilities hereinafter described in order to maximize
the good will and sales of the Pabst Products;
NOW, THEREFORE, it is mutually agreed:
1. TERRITORY. (A) The following shall be effective
during any and all periods in which state or federal law or
regulation, or an order of any court or agency with proper
jurisdiction, does not prohibit same:
EXCLUSIVE Pabst hereby appoints Distributor as its sole
TERRITORY distributor for the Pabst Products defined, identified, and
described in Exhibit A, appended hereto and incorporated
herein by reference, for sale in the territory defined,
identified, and described in Exhibit B. appended hereto and
incorporated herein by reference (hereinafter referred to as
the "Territory"). The fact that Distributor may currently
use, subject to Paragraph 2(B) herein, a warehouse located
outside the Territory to store and ship Pabst Products does
not relieve Distributor of its obligations under this
subparagraph (A). Distributor has paid no consideration to
Pabst in exchange for said appointment.
SALES ONLY IN Distributor shall aggressively solicit and seek to
TERRITORY service every retail account in the Territory, and shall use
its best efforts to market, promote, and sell Pabst Products
and protect their quality. Distributor shall neither sell
nor supply Pabst Products to customers located outside
<PAGE> 3
of the Territory, nor to any entity Distributor believes or
has reason to believe, will sell or supply Pabst Products
directly or indirectly to retail locations located outside
of the Territory.
MORE EFFECTIVE The parties to this Agreement recognize that the
COMPETITORS exclusive distribution and the territorial nature of the
relationship created by this Agreement will enable
Distributor and Pabst to compete more effectively and
efficiently with other brewers and their distributors,
including those brewers with larger sales volumes and market
shares, to more effectively marshall and utilize their
respective resources and their marketing and promotional
talents in support of such competitive efforts, to help
insure that proper attention is given to quality standards
and their continuing monitoring and control, and to help
ensure performance and compliance with the other programs,
obligations, and objectives described in this Agreement.
PRIMARY (B) If the provisions of subparagraph (A) above
MARKETING are or shall be prohibited by any applicable state or
RESPONSIBILITY federal law or regulation, or prohibited by an order of any
(ALTERNATIVE) court with proper jurisdiction, the provisions of this
subparagraph (B) shall apply in lieu of the provisions of
subparagraph (A). In such event, Pabst appoints Distributor
as a distributor for the Pabst Products defined, identified,
and described in Exhibit A, appended hereto and incorporated
herein by reference, within the area of primary marketing
responsibility (hereinafter referred to as the "Territory")
defined, identified, and described in Exhibit B, appended
hereto and incorporated herein by reference. The fact that
Distributor may currently use, subject to Paragraph 2(B)
herein, a warehouse located outside the Territory to store
and ship Pabst Products does not relieve Distributor of its
obligations under this Paragraph. Distributor has paid no
consideration to Pabst in exchange for such appointment.
Distributor shall aggressively solicit and seek to
service every retail account in the Territory, and shall use
its best efforts to market, promote, and sell Pabst Products
and protect their quality.
ANNUAL SALES AND 2. RESPONSIBILITY OF DISTRIBUTOR. The duties and
MARKETING PLAN responsibilities of Distributor may be modified or augmented
by an annual sales and marketing plan (hereinafter referred
to as the "ASMP") depending on the particular marketing
circumstances in the Territory. Said ASMP shall be submitted
to Pabst on at least an annual basis and shall be subject to
the approval of the Pabst Sales Department. If Distributor
does not submit an ASMP acceptable to Pabst, the duties and
responsibilities listed below shall remain in full force and
effect in the interim and Distributor shall have thirty (30)
days to provide an acceptable ASMP after written
2
<PAGE> 4
demand. The duties and responsibilities of Distributor
include, but are not limited to, the following:
CONTACT PROGRAM (A) Establishment and maintenance of a planned
overall sales and/or delivery contact program on a
continuing basis, including a call frequency program for
retail accounts and/or a plan of route selling, and
maintenance of current sales records for all retail accounts
sold and a current nonbuying accounts list with a
corresponding call frequency program. The records described
in this subparagraph will be made available to Pabst upon
request and reasonable notice.
WAREHOUSE (B) Establishment and maintenance of a place of
FACILITIES business in the Territory (any exceptions thereto must be
approved in writing by Pabst), including adequate, clean,
and orderly distribution and warehouse facilities, which
facilities meet Pabst's physical and quality standards, some
of which are set forth in Exhibit C, appended hereto and
incorporated herein by reference.
STOCK ROTATION (C) Establishment and maintenance of stock
rotation procedures for Pabst Products in the warehouse, on
trucks, and in retail accounts to the extent permitted by
law, and adherence to all stated policies of Pabst in regard
to overage Pabst Products. Said stock rotation procedures
and overage product procedures are set forth in Exhibit C,
appended hereto and incorporated herein by reference, and
may be amended from time to time by Pabst, in its sole
discretion. In the event that overage Pabst Products are
found in the possession of Distributor or in the possession
of an account to whom Distributor sold such overage Pabst
Products, Distributor shall destroy such overage Pabst
Products, in compliance with applicable law, and replace
such overage Pabst Products with fresh Pabst Products at no
cost to the account. Distributor's cost of destruction and
replacement of overage Pabst Products shall be absorbed by
Distributor or Pabst, depending upon which party is
responsible for the overage Pabst Products condition.
Determining responsibility for and cost of the overage Pabst
Products condition shall rest solely with the Pabst Regional
Manager, in whose territory Distributor is located, who
shall act reasonably and in good faith, and such destruction
shall be overseen by Pabst field personnel designated by
such Regional Manager.
DELIVERY (D) Establishment and maintenance of a fleet of
EQUIPMENT over-the-road trucks (unless use of rail or common carrier
makes such unnecessary) and local delivery equipment and
maintenance of such trucks and equipment in a neat and clean
condition and in good state of repair; and maintenance of
Pabst Products identification, of a type and specification
established by Pabst, on an amount of equipment and uniforms
at least
3
<PAGE> 5
proportionate to the amount of Pabst Products sold to the
total amount of beer sold by Distributor.
POINT-OF-SALE (E) Cooperation with Pabst in the distribution of
MATERIALS AND point-of-sale materials necessary to support the Pabst
COOP Products, maintenance and storage of point-of-sale materials
MERCHANDISING in an appropriate area of the warehouse, responsibility for
neatness, proper handling, and cleanliness within said
warehouse, and responsibility for the installation and
maintenance of such materials in retail accounts.
Cooperation with Pabst regarding shared media, cooperative
merchandising, and promotional activities where lawful.
MANAGER'S (F) Personal involvement of Distributor's
PERSONAL Designated Manager (as that term is defined in subparagraph
INVOLVEMENT (I) herein) or owner in maintaining continuous, frequent,
and satisfactory contact with all licensed accounts and
special opportunity events.
ADEQUATE CAPITAL (G) Maintenance of adequate capital and cash flow
AND CASH FLOW to insure competitive strength in facilities, inventory,
equipment, personnel, advertising, and promotions. The Pabst
Credit Department shall, in its sole discretion, require
Distributor to supply a current financial statement and
additional security if necessary.
TRAINING (H) Maintenance of a continuous in-house training
PROGRAMS program where practicable, and attendance at sales meetings
and training schools scheduled by Pabst.
CONFIDENTIAL (I) Establishment and maintenance of accurate and
BUSINESS RECORDS current sales and inventory reports and all other reports,
records, marketing plans, and financial information, which
may reasonably be required by Pabst from time to time, and
submission of such materials to Pabst promptly when
requested. Said information shall be kept strictly
confidential at all times by both Pabst and Distributor.
SUFFICIENT (J) Maintenance of sufficient inventories and mix
INVENTORIES AND of package types of the various brands listed as Pabst
PACKAGE MIX Products, as reasonably requested and made available by
Pabst, and justified by the market conditions which exist in
the Territory.
DESIGNATED (K)(1) Selection of an individual Designated
MANAGER Manager (who may also be an owner), approved by Pabst, who
will be responsible for overall operations on a day-to-day
basis. The Designated Manager shall be qualified,
authorized, and dedicated to handle the goals and objectives
of Pabst and the obligations of the distributorship as they
pertain to
4
<PAGE> 6
Distributor's operations. Pabst shall have the right to
continue to review the performance of the Designated Manager
from time to time.
LOSS OF (2) Notification to Pabst in writing within
DESIGNATED fifteen (15) days should Distributor, for any reason, lose
MANAGER its Designated Manager. Within thirty (30) days of the time
Distributor ceases to have a Designated Manager, submission
to Pabst of a written application for approval of a new
Designated Manager who meets the above requisites to manage
Distributor's business and to promote and sell Pabst
Products in accordance with the terms and provisions of this
Agreement. Pabst shall have thirty (30) days from receipt of
written notice of Distributor's proposed selection to
approve or disapprove the proposed Designated Manager.
Failure by Pabst to act within such time frame shall be
construed as an initial approval of the proposed Designated
Manager.
RIGHT TO (3) Nothing contained in this Agreement shall
TERMINATE be interpreted to limit the right of Distributor to
DESIGNATED terminate the employment of the Designated Manager or to
MANAGER change the Designated Manager's duties so that he is no
longer managing the business. In the event of such action,
Distributor immediately, thereafter be obligated to follow
the procedures set forth in subparagraph (2) above for
selecting a new Designated Manager.
ORDERS SUBJECT TO 3. TERMS OF SALE. Any orders for Pabst Products
WRITTEN APPROVAL placed by Distributor with Pabst shall be subject to written
PROMOTIONAL approval of Pabst at its office in Milwaukee, Wisconsin, and
PERIODS Pabst shall not be obligated to fill any such order except
upon such written acceptance by Pabst at its Milwaukee
office. The prices, terms of sale, and eligibility for a
promotional period shall be determined as of the date of
shipment. Pabst reserves the right to reschedule the order
if necessary because of production considerations or other
unusual causes.
PRICES AND TERMS All sales made to Distributor by Pabst shall be
DETERMINED BY upon such terms and prices as may be approved by the Pabst
PABST Credit and Pricing Departments from time to time and in
their sole discretion. In addition to payment of the
purchase price of such Pabst Products, Distributor shall pay
to Pabst such deposits as may be established by Pabst for
barrels, kegs, cases, bottles, pallets, and dunnage
materials in which said Pabst Products may be contained.
Upon the return of said empty barrels, kegs, cases, bottles,
pallets, and dunnage materials by the Distributor to Pabst,
at such places as Pabst may direct and in the same condition
as they were delivered to Distributor less ordinary wear and
tear, Pabst will, at its election, either refund to
Distributor or credit to its account the amount of deposit
paid by Distributor for such barrels, kegs, cases, bottles,
pallets, and dunnage materials as are properly
5
<PAGE> 7
returned in required condition; the terms and conditions of
return are to be fixed by Pabst. The Pabst Credit Department
shall exercise due diligence in issuing credits due and
owing Distributor and under no circumstances shall
Distributor withhold monies due Pabst for alleged credits
due Distributor unless and until Pabst has approved such
credits.
PLACE OF DELIVERY Delivery of all Pabst Products upon orders placed
OF PRODUCTS by Distributor with Pabst and accepted by Pabst shall be
made f.o.b. a Pabst plant or from such other location as
Pabst may select. Title to such Pabst Products shall pass to
Distributor upon delivery thereof to the carrier and all
risk of loss thereafter shall be that of Distributor, as the
owner of the Pabst Products.
SECURITY INTEREST Distributor hereby grants to Pabst a security
GRANTED PABST interest in the Pabst Products to secure the performance or
payment of all obligations and indebtedness of whatever kind
or nature owed by Distributor to Pabst. Any exception must
be granted by Pabst in writing, which exception shall not be
unreasonably withheld. Upon Pabst's request, Distributor
shall execute any and all documents necessary for the
perfection of Pabst's security interest in such collateral.
For the sole purpose of preserving, retaining, and enforcing
such security interest, Pabst, in addition to any other
means of enforcing such security interest, may have the
carrier to whom delivery is made issue an order bill of
lading to Pabst or its agent. Such bill of lading, properly
endorsed, with sight draft for the purchase price attached
thereto, may be forwarded to a bank or any other person
selected by Pabst. Distributor shall promptly pay said draft
upon presentation, and will thereupon receive said order
bill of lading and become entitled to possession of the
shipment upon payment of the sums due the carrier. It is
expressly understood that notwithstanding the manner or mode
of shipment herein provided, the title to and ownership of
the Pabst Products shall pass to Distributor, with a
security interest reserved to Pabst, at the place where the
Pabst Products are delivered to the carrier.
IMPOSSIBILITY OF 4. FORCE MAJEURE. Anything herein to the contrary
PERFORMANCE notwithstanding, Pabst shall not be liable or responsible in
any way directly or indirectly for losses, damages, or
otherwise, for or by reason of any failure to fill or ship,
or for any delay in filling or shipping, any orders or
portions of orders for Pabst Products, if such failure or
delay is due, in whole or in part, to war, fire, flood,
strike, lockout, labor or employee troubles, accident, Acts
of God, acts of public enemies, acts, demands, laws or
regulations of the United States or any other governmental
body, failure or interruption of or delay in the usual means
of transportation, failure, diminishment, or interruption of
the sources of
6
<PAGE> 8
supply of Pabst with respect to any material used in the
manufacture or packaging of Pabst Products, or to any other
cause whatever beyond or partly beyond the control of Pabst,
whether such cause shall be of the same or of a similar
nature as those hereinbefore enumerated, or of a different
or dissimilar nature. In any such event, Pabst may suspend
the filling or shipment of any orders or portions of orders
of Distributor until the cause of such failure or delay in
filling or shipping shall have been entirely removed.
Whenever Pabst Products are not in sufficient supply to
satisfy all of its distributors' demands at any one time in
any area of Pabst's distribution orbits, Pabst alone shall
have the discretion to apportion such limited quantities to
whatever distributors and territories it so desires, which
apportionment shall be reasonably decided in good faith
based on sound business reasons. This Paragraph shall be
deemed and considered part of each and every order hereafter
placed with Pabst by Distributor and the conditions and
agreements herein shall constitute a part of such order to
the same extent as though written therein.
USE OF TRADEMARK 5. TRADEMARKS, TRADE NAMES, OR LOGOS RELATED TO
THE PABST PRODUCTS. Distributor acknowledges Pabst's
exclusive ownership and rights in and to the various
trademarks and trade names relating to Pabst's business or
products. Pabst grants to Distributor a non-exclusive,
non-assignable, non-licensable privilege to use Pabst's
trademarks and trade names in distributing, advertising, and
promoting the sale of Pabst Products. The rights granted
herein shall terminate upon termination of this Agreement.
RESERVATION OF Upon Pabst's request, Distributor shall change or
RIGHT TO PABST discontinue the way in which Distributor uses any Pabst
trademarks or trade names. Pabst's trademarks and trade
names shall remain the exclusive property of Pabst, and
Pabst reserves all rights in and to such trademarks and
trade names, including the right to license its trademarks
and trade names on all goods and services. Distributor shall
not manufacture or have manufactured for sale any
merchandise bearing Pabst trademarks and trade names,
without prior written approval by Pabst.
REMOVAL OF Distributor agrees, prior to transferring property
TRADEMARK UPON to another, to remove Pabst trademarks or trade names.
SALE OR Distributor agrees not to use Pabst's trademarks or
TERMINATION tradenames in Distributor's corporate or business name,
without Pabst's prior written approval. If such approval is
or has been given by Pabst, Distributor agrees to
discontinue all such use and formally change any such name,
at its own expense, immediately upon termination of this
Agreement.
7
<PAGE> 9
NINETY (90) DAY 6. TERMINATION BY DISTRIBUTOR. Distributor may
NOTICE BY terminate this Agreement for any reason upon ninety (90)
DISTRIBUTOR days prior written notice by certified mail to the Vice
President - Sales and the General Counsel of Pabst.
Distributor's cessation of business operations shall
constitute a constructive termination of this Agreement
effective the date such operations cease. In the event of
such termination by Distributor, Pabst's sole obligation is
to purchase inventory at laid-in cost. Pabst shall not be
obligated to purchase any other assets of Distributor or pay
any other moneys for any reason except deposits due on
cooperage, if any.
RETURN OF Distributor shall deliver to Pabst all signs,
POINT-OF-SALE point-of-sale material, and any other materials relating or
MATERIAL referring to Pabst or any of its products or trademarks,
trade names, or logos in the possession or custody of
Distributor, its agents or employees, which shall have been
received by Distributor, and Pabst shall pay to Distributor
such costs Distributor incurred to acquire such advertising
material less diminution of value.
IMMEDIATE 7. IMMEDIATE TERMINATION BY PABST. Pabst may
TERMINATION immediately terminate and cancel this Agreement, upon
written notice, in the event of any of the following:
ATTEMPTED (A) Assignment or attempted assignment for the
ASSIGNMENT OR benefit of creditors by Distributor or insolvency of
INSOLVENCY Distributor.
BANKRUPTCY (B) Institution of voluntary or involuntary
proceedings in bankruptcy or under insolvency laws, or
proceedings for reorganization under the Federal Bankruptcy
Laws or their equivalent, or for receivership or dissolution
by or against Distributor. Distributor shall be relieved of
termination under this Paragraph if, in the case of an
involuntary bankruptcy or receivership, Distributor can
provide a written Court order to the Pabst General Counsel,
within seven (7) days of termination, stating that said
proceeding has been unconditionally dismissed.
NONPAYMENT (C) Nonpayment by Distributor of sums past due and
owing to Pabst, if said sum remains due and owing twenty
(20) days after written notice of such nonpayment has been
received by Distributor.
FRAUD (D) Fraudulent conduct of Distributor in any of
its dealings with Pabst or the Pabst Products or any
governmental body or agency.
8
<PAGE> 10
LOSS OF LICENSE (E) Loss by Distributor through revocation,
failure to secure renewal, or suspension, for a period of
thirty (30) days or more, of any federal, state, or local
license required by law of Distributor or necessary in
carrying out Distributor's duties as a Distributor of Pabst
Products.
ASSIGNMENT OR (F) Attempted assignment of this Agreement by
CHANGE IN Distributor or change in control of Distributor's business,
CONTROL as described more fully in Paragraph 15 herein, without the
prior written consent of Pabst.
REPEATED (G) Failure by Distributor to attempt to cure
DEFICIENCIES deficiencies after receipt of notice thereof pursuant to
Paragraph 8 herein; or if the same or similar violation
occurs more than twice within twelve (12) months of the last
cure of deficiencies of which Distributor received notice
pursuant to Paragraph 8 herein.
(H) Violation by Distributor of Paragraph l(A) of
this Agreement.
PURCHASE In any event of termination for any of the above
OF INVENTORY causes, Pabst shall not make payment of any type to
Distributor, except Pabst shall purchase from Distributor,
and Distributor shall sell to Pabst, Distributor's inventory
of Pabst Products at an amount equal to the sum of the
laid-in cost of such inventory, plus a handling charge of
$.10 per case, $.50 per half barrel, and $.25 per quarter
barrel.
RETURN OF Distributor shall deliver to Pabst all signs,
POINT-OF-SALE point-of-sale material, and any other materials relating or
referring to Pabst or any of its products or trademarks,
trade names, or logos in the possession or custody of
Distributor which shall have been received by Distributor,
and Pabst shall pay to Distributor such costs as Distributor
incurred to acquire such advertising material less any
diminution of value.
NINETY (90) DAY 8. DEFICIENCY TERMINATION. Pabst may also
TERMINATION terminate this Agreement pursuant to the following terms and
conditions:
CAUSE FOR (A) Failure to perform duties and responsibilities
DEFICIENCY as described in Paragraph 2 of this Agreement, and as may be
TERMINATION modified from time to time by the ASMP, shall be cause for
termination, at the option and reasonable judgment of Pabst.
Acceptable sales volume shall not necessarily be the sole
criterion to determine acceptable performance under the
terms of Agreement. Pabst shall have the right to evaluate
Distributor's overall performance under the duties and
responsibilities of this Agreement and the ASMP. Failure to
meet one or more of said duties or responsibilities shall be
cause for termination of this Agreement, at the option of
Pabst.
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<PAGE> 11
OTHER BREACHES (B) Other breaches by Distributor of any of its
MAY BE CAUSE FOR obligations contained herein or other policies, as amended,
TERMINATION and made a part hereof from time to time shall be cause for
termination of this Agreement, at the option and reasonable
judgment of Pabst.
NOTICE OF (C) Notice of deficiencies and proposed
DISSATISFACTION termination under this Paragraph shall be given to
AND OPPORTUNITY Distributor by Pabst and shall set forth in adequate detail
TO CURE sufficient to reasonably apprise Distributor of the breaches
of performance or item(s) of dissatisfaction of Pabst with
Distributor. Such notice shall further specify an
appropriate period of time, which shall not in any case be
less than ninety (90) days from the date of such written
notice from Pabst, during which Distributor shall have the
opportunity to initiate and maintain appropriate curative
and remedial measures and procedures for the purpose of
eliminating or overcoming the items of Pabst's
dissatisfaction. Pabst's District Manager shall work with
Distributor to cure said items of dissatisfaction. Pabst
shall have the option, in its sole discretion, to withdraw
said notice at any time and for any reason.
(D) In the event of termination under this
Paragraph 8:
FORMULA FOR (i) Pabst shall pay to Distributor an amount
TERMINATION equal to twice the net earnings of Distributor (before
REIMBURSEMENT federal and state income taxes) on account of the sale and
distribution of Pabst Products during the immediately
preceding annual accounting period of Distributor. "Net
earnings" are the net proceeds from the sale of Pabst
Products during said period, less all direct and indirect
costs and expenses (except income taxes) incurred with
respect to Pabst Products during such period, and shall be
determined in accordance with generally accepted accounting
principles consistently applied. Such earnings shall in no
event exceed the amount of the income (before federal and
state tax) as shown by Distributor on its federal income tax
returns for said annual accounting period, subject to audit
adjustments, if any. In the event of a dispute as to the
amount of such net earnings before federal and state income
taxes earned by Distributor on account of the sale and
distribution of Pabst Products, Pabst and Distributor shall
mutually agree upon one (1) neutral arbitrator. The
determination by the selected arbitrator of such net
earnings shall be binding upon both Pabst and Distributor.
The cost of such audit shall be shared equally by Pabst and
Distributor.
PURCHASE OF (ii) Pabst shall purchase from Distributor,
INVENTORY and Distributor shall sell to Pabst, Distributor's entire
inventory of salable Pabst Products, at an amount equal to
the laid-in cost of such inventory, plus a handling charge
of $.10 per case, $.50 per half barrel, and $.25 per quarter
barrel.
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<PAGE> 12
PURCHASE OF (iii) Distributor shall deliver to Pabst all
POINT-OF-SALE signs, point-of-sale material, and any other materials
relating or referring to Pabst or any of its products, or
trademarks, trade names, or logos in the possession or
custody of Distributor, which shall have been received by
Distributor, and Pabst shall pay to Distributor such costs
as Distributor incurred to acquire such advertising material
less diminution value.
PURCHASE (iv) If requested in writing by
OF VEHICLES Distributor, Pabst shall purchase from Distributor at the
then fair market value those local delivery vehicles
regularly used by Distributor in the sale and distribution
of Pabst Products and which were painted in accordance with
the approved Pabst truck painting program. Fair market value
shall be determined by an independent appraiser mutually
satisfactory to Distributor and Pabst. The cost of such
appraisal shall be shared equally by Pabst and Distributor.
If requested in writing by Distributor, Pabst will assist
Distributor to obtain a purchaser for any other physical
assets of Distributor used exclusively in the distribution
of Pabst Products.
EXTENSION OF (E) If, prior to expiration of the ninety (90) day
NINETY (90) DAY period provided for in Paragraph 8 above, Pabst has received
PERIOD written notice from Distributor advising of a bona fide
proposed assignee of the distributorship as evidenced by a
signed buy-sell agreement stating that such assignment shall
be effective, subject only to Pabst's approval as required
herein, Pabst shall extend the ninety (90) day notice for a
period and upon terms sufficient to determine if approval
can be granted. Such extension shall be given with a
complete reservation of all Pabst's rights contained herein
and shall not constitute a waiver thereof. Such extensions
may be granted more than once, at Pabst's sole discretion,
depending upon the particular circumstances and needs of
both Pabst and Distributor. Upon the request of Distributor,
Pabst shall provide assistance to Distributor in finding a
qualified assignee.
INTRODUCTION OF 9. UNIFORM TERMINATION OF DISTRIBUTOR AGREEMENTS.
NEW DISTRIBUTOR Pabst shall also have the right to terminate this Agreement
AGREEMENT under the following circumstances: (A) Pabst
contemporaneously terminates all other agreements
substantially similar in nature to the form of this
Agreement, which Pabst has with all its other United States
distributors; and (B) Pabst gives at least ninety (90) days
written notice of such termination. If, subsequent to the
sending of said ninety (90) day notice of termination
pursuant to this subparagraph, Pabst enters into a new
distributor contract with any of its other distributors in
the United States, Distributor shall have the right to enter
into a new contract of substantially the same form and
substance.
11
<PAGE> 13
PRESERVATION OF 10. TEMPORARY REMEDIAL MEASURES. Pabst shall have
DISTRIBUTOR'S the right, upon the circumstances described in either
ACCOUNTS Paragraph 7 or Paragraph 8 herein, to effect its own
reasonable actions to help Distributor cure such violations
and preserve its territory and accounts therein and value
thereof including, but not limited to, a temporary
assignment of another distributor to help service the
Territory.
DISTRIBUTOR NOT 11. INDEPENDENT CONTRACTOR. This Agreement shall
AN AGENT OR PABST not be construed in any way to constitute Distributor an
agent or employee of Pabst for any purpose whatsoever.
Distributor, in purchasing, distributing, selling, and
otherwise performing hereunder, acknowledges that it is an
independent contractor engaged in Distributor's own
independent and entirely separate business and shall
therefore make independent business decisions and seek its
own legal advice. Under no circumstances shall Pabst be
liable for any loss of profit or damages incurred by
Distributor or for any part of Distributor's sales
promotion, organization, business investment, operating or
other expenses whether of the same or a different nature;
and irrespective of whether such loss of profits, damage, or
expenses are incurred or are alleged to have been incurred
prior to, during, or after the existence of this Agreement,
or whether such loss of profits or such expenses shall be
incurred or shall be alleged to have been incurred prior to,
upon, after, or due to, the termination of this Agreement.
PARTIAL 12. PARTIAL TERMINATION. Pabst reserves the right
TERMINATION to assign any individual brand of beer listed as a Pabst
Product under this Agreement to another Distributor if: (A)
in the reasonable judgment of Pabst, Distributor cannot or
does not adequately promote and market such brand of beer;
and (B) Pabst follows the notice procedures described in
Paragraph 8 herein. Pabst also reserves the right to effect
a termination of part of Distributor's Territory if: (A) in
the reasonable judgment of Pabst, Distributor cannot or does
not adequately promote and market the Pabst Products in that
part of the Territory; and (B) Pabst follows the notice
procedures described in Paragraph 8 herein. This Agreement
shall be amended accordingly by means of written
notification by Pabst to Distributor.
BRAND 13. WITHDRAWAL OF BRANDS. Pabst shall have the
WITHDRAWAL right, at any time, to discontinue the distribution of any
of the Pabst Products on a national, regional, or
market-by-market basis.
CHANGE OF 14. CHANGE OF CONTROL. This Agreement shall
CONTROL terminate pursuant to the provisions of Paragraph 7 herein
if any of the following occurs without the prior written
approval of Pabst, which written approval shall not be
unreasonably withheld:
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<PAGE> 14
DEFINITION OF (A) There is a change in ownership, sale,
"CONTROL" transfer, assignment, or other disposition which results in
a change in control of Distributor's business. For purposes
of this Agreement, the term "control" shall mean record or
beneficial ownership of the following: (i) 33 percent or
more of Distributor's voting stock; (ii) 33 percent or more
interest in Distributor's business; or (iii) 33 percent or
more interest in an entity which owns 51 percent or more of
Distributor's voting stock.
CHANGE OF (B) Any change in the form of business entity
BUSINESS ENTITY being utilized by Distributor.
CHANGE OF (C) Any sale, transfer, assignment. or other
TERRITORY disposition of all or a portion of the Territory by
Distributor.
BUY-SELL (D) Distributor enters into any "buy-sell
AGREEMENT agreement," stock option, or trust agreement which may, at
some time, result in a change in control.
APPOINTMENT OF (E) Distributor appoints a sub-distributor to
SUB-DISTRIBUTOR service all or any portion of the Territory with Pabst
Products (unless such appointment is required by law).
INFORMATION TO Prior to Pabst granting its written approval,
BE SUPPLIED PABST Distributor and the proposed successor shall supply all such
detailed information, including but not limited to marketing
plan of the proposed successor, regarding proposals
described in subparagraphs (A)-(E) herein as Pabst may
require. Pabst shall have at least sixty (60) days or such
length of time as is necessary in order to approve or not
approve the proposal.
RELATIONSHIP If Pabst shall have given its written approval of
WITH SUCCESSOR a successor distributor, Pabst shall continue its business
DISTRIBUTOR relationship with such successor only in accordance with and
upon execution of Pabst's then customary form of distributor
agreement by the successor distributor and Distributor shall
make this condition part of any agreement Distributor
reaches with the proposed successor distributor.
All information, which is submitted pursuant to
Paragraph 14, shall be kept strictly confidential by Pabst,
Distributor and the proposed successor and/or assignee.
TRANSFER TO HEIRS Notwithstanding any other provision contained in
this Paragraph 14, the prior approval of Pabst shall not be
required for the transfer of control upon death to the
heir(s) or legatee(s) of the Distributor but all other
provisions of this Agreement shall remain in full force and
effect.
13
<PAGE> 15
DEFINITION OF 15. MISCELLANEOUS PROVISIONS. (A) As used herein,
DISTRIBUTOR the term "Distributor" shall not include any person or
entity who is engaged exclusively in the sale of Pabst
Products for consumption outside of the United States.
AGREEMENT (B) This Agreement shall be subject to such
SUBJECT TO change, modification, amendment, or termination, in whole or
MODIFICATION BY in part, as may be provided for or required by the terms of
COURT OR any final order, judgment, decree, or interpretation entered
FEDERAL AUTHORITY by a court of competent jurisdiction or by federal or state
regulatory authorities which have been or shall acquire
jurisdiction for any such purpose over Pabst or Distributor,
without damages to Pabst or Distributor. To the extent
applicable, if state or local laws require longer or
otherwise differing termination notice period, procedures,
or justifications, then this Agreement is amended to
incorporate such requirements.
GOVERNING LAW (C) This Agreement is subject to and shall be
governed by the laws of the jurisdiction in which the
Territory is located, and the provisions of this Agreement
shall be deemed to be separable and the invalidity of any
provision thereof shall not affect the validity of the
remainder.
ENTIRE AGREEMENT (D) The parties agree that this Agreement embodies
EMBODIED HEREIN all the terms, agreements, understandings between the
parties hereto. No prior or contemporaneous oral or written
statements shall modify, amend or affect the meaning of the
provisions herein. It is further agreed that neither this
Agreement nor any of the terms hereof may be changed or
modified or waived, except in writing duly approved and
signed by the President or a Vice President of Pabst, and
that no officer, agent, or employee of Pabst, except the
President or a Vice President of Pabst, has or shall have
any authority to contract for Pabst, or bind Pabst upon any
contract whatsoever, or to waive any of the rights of Pabst,
or to give any consent hereunder or in connection herewith.
THIS AGREEMENT (E) Any and all Prior agreements between the
SUPERSEDES ANY parties hereto or their predecessors relating to the
PRIOR AGREEMENTS purchase, sale, and distribution of Pabst Products have been
and are terminated, and this Agreement supersedes any and
all such prior agreements. Pabst releases Distributor, and
Distributor releases Pabst, of and from any and all
liabilities, actions, causes of action, suits, debts,
damages, claims, and demands, whatsoever in law or in
equity, arising or alleged to have arisen under, out of,
with respect to, or during the existence of, any such prior
agreement or agreements, except for any right of refund or
credit to which Distributor may be entitled by reason of any
unrefunded deposit with Pabst or by reason of a return to
Pabst of empty barrels, kegs, cases, bottles, pallets,
dunnage materials, or other materials, and except for any
14
<PAGE> 16
money or moneys due or payable or to become due or payable
to Pabst by reason of the sale to Distributor of Pabst
Products, or any materials or supplies, or by reason of
moneys advanced or loaned by Pabst to Distributor. No
changes in, additions to, or erasures of any printed portion
of this Agreement (otherwise than in completing the blank
spaces) shall form any part of this Agreement.
HEADINGS NOT (F) Bold face margin headings are intended for
CONTROLLING indexing purposes only and are not a part of the actual text
of the Agreement which is controlling and binding on the
parties.
(THIS AGREEMENT CONTINUES ON PAGE 16)
15
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
this 12th day of February, 1996.
CAPITAL BEVERAGE CORP.
---------------------------------------------------
Name of Distributor
1111 East Tremont Ave.
---------------------------------------------------
Address
Bronx, NY 10460
---------------------------------------------------
City, State, Zip Code
Distributor is a Corp.
----------------------------------
(Sole Proprietorship, Partnership, or Corporation)
If a corporation, state of incorporation is N.Y.
--------
By /s/ Carmine N. Stella
-----------------------------------------------
Partner, President (Delete One)
By /s/ Carol A. Macchiarulo
-----------------------------------------------
Secretary (Delete One)
(All partners must sign.)
PABST BREWING COMPANY
By /s/ Lutz Issleib
----------------------------------------------
President
16
<PAGE> 18
EXHIBIT A
TO
PABST BREWING COMPANY
DISTRIBUTORSHIP AGREEMENT
DATED February 12, 1996
---------------------------
As provided in Paragraph 1 of this Agreement, the following "Pabst
Products" shall be covered under this agreement:
PABST BLUE RIBBON BEER, PABST EXTRA LIGHT BEER, PABST LIGHT BEER, PABST
GENUINE BEER, PABST ICE DRAFT BEER, PABST N/A BEER, ANDEKER BEER, HAMM'S
BEER, HAMM'S SPECIAL LIGHT BEER, HAMM'S GENUINE DRAFT BEER, BIG BEAR MALT
LIQUOR, OLDE ENGLISH "800" MALT LIQUOR, OLDE ENGLISH "800" GENUINE DRAFT
MALT LIQUOR, "800" ICE MALT LIQUOR, OLD TANKARD ALE.
CAPITAL BEVERAGE CORP.
---------------------------------------------
Name of Distributor
1111 EAST TREMONT AVENUE
---------------------------------------------
Address
BRONX, NEW YORK 10460
---------------------------------------------
City, State, Zip Code
Distributor is a Corporation
By /s/ CARMINE N. STELLA
------------------------------------------
Owner / President (Delete One)
By /s/ CAROL A. MACCHIARULO
------------------------------------------
Secretary (Delete One)
(All Partners Must Sign.)
PABST BREWING COMPANY
By /s/ Lutz Issleib
------------------------------------------
President
17
<PAGE> 19
EXHIBIT B
TO
PABST BREWING COMPANY
DISTRIBUTORSHIP AGREEMENT
DATED February 12, 1996
--------------------------------
In the State of New York:
FOR ALL BRANDS:
BOROUGH OF MANHATTAN.
BOROUGH OF STATEN ISLAND (COUNTY OF RICHMOND).
FOR HAMM'S BEER, HAMM'S SPECIAL LIGHT BEER AND HAMM'S GENUINE DRAFT BEER, OLDE
ENGLISH "800" MALT LIQUOR, OLD ENGLISH "800" GENUINE DRAFT MALT LIQUOR AND "800"
ICE MALT LIQUOR:
BOROUGH OF BRONX.
FOR HAMM'S BEER, HAMM'S SPECIAL LIGHT BEER AND HAMM'S GENUINE DRAFT BEER:
That portion of WESTCHESTER COUNTY situated south of Interstate Highway No. 287,
but not including the Towns of Ardsley and Dobbs Ferry.
<TABLE>
<S> <C>
FOR OLDE ENGLISH "800" MALT LIQUOR, CAPITAL BEVERAGE CORP.
OLDE ENGLISH "800" GENUINE DRAFT -----------------------------------
MALT LIQUOR AND "800" ICE MALT Name of Distributor
LIQUOR:
1111 EAST TREMONT AVENUE
-----------------------------------
BRONX BOROUGH. Address
That portion of QUEENS COUNTY situated BRONX, NEW YORK 10460
west and north of the following described -----------------------------------
boundary line, to-wit: Starting at a pont in City, State, Zip Code
Flushing Bay at the boat basin; thence southerly
along Grand Central Parkway to the intersection of Distributor is a Corporation
Union Turnpike and Interboro Parkway to the
western boundary of Queens County, thence By /s/ CARMINE N. STELLA
northerly along the western boundary of Queens --------------------------------
County to the East River, being the terminal of Owner / President (Delete One)
Queens County.
By /s/ CAROL A. MACCHIARULO
-------------------------------
FOR OLD TANKARD ALE: Secretary (Delete One)
(All Partners Must Sign.)
THE STATE OF NEW YORK.
PABST BREWING COMPANY
By /s/ Lutz Issleib
-------------------------------
President
</TABLE>
18
<PAGE> 20
EXHIBIT C
TO
PABST BREWING COMPANY
DISTRIBUTORSHIP AGREEMENT
1. The terms "Overage Product" and "Overage Pabst Products" are both
defined for purposes of the Distributorship Agreement as: Pabst Products which
remain in inventory longer than the time periods described in Paragraph 3 of
this Exhibit, Pabst Products which are spoiled, or Pabst Products which for any
reason are not of good quality.
2. Pabst Products must be rotated within Distributor's warehouse to
ensure that any packaged Past Products which remain in inventory are not more
than sixty (60) days old and any draft Pabst Products which remain in inventory
are not more than thirty (30) days old. Such products must be delivered to
licensees no later than said respective dates.
3. In each retail outlet Pabst Products must be rotated so that all
packaged Pabst Products which are held for sale to consumers are not over one
hundred and twenty (120) days old and all draft Pabst Products held for sale to
consumers are not over forty-five (45) days old. Such products must be disposed
of on said respective dates.
4. "Rotation" means that the oldest Pabst Products are made available for
sale first.
(a) In Distributor's warehouse the inventory on the floor and in the
trucks shall be rotated in strict compliance with these policies.
(b) Distributor shall refrain from overselling any retailer in order
to avoid starting a chain of events which may cause a retailer to have
over age Pabst Products.
(c) All areas of the retailer's store, i.e., the backroom, the
shelves, the coolers, and the displays must be rotated. Any large
quantities of Pabst Products in a retailer's stock must be given strict
and immediate attention.
5. Distributor shall use its best efforts to keep the packages Pabst
Products at a temperature less than 80 degrees F and draft Pabst Products at a
temperature less than 45 degrees F at all times when stored in Distributor's
warehouse.
6. It two (2) warehouses are used for extra storage purposes in
anticipation of heavy selling seasons or unusual situations, Distributor has the
added responsibility of rotating both warehouses equally and with extra care.
7. As with all other functions of Distributor's business, Distributor
shall remain responsible for the proper training and education of each of his
employees with respect to the above policies and procedures.
19
<PAGE> 1
Exhibit 10.5
Agency Agreement with Vito Santoro, Inc.
<PAGE> 2
AGENCY AGREEMENT
AGREEMENT dated as of this 12th day of February 1996 by and between
Capital Beverage Corporation, a Delaware corporation with principal offices at
1111 East Tremont Avenue, Bronx, New York ("Capital") and Vito Santoro, Inc., a
New York corporation with principal offices at 1111 East Tremont Avenue, Bronx,
New York ("Agent").
W I T N E S S E T H :
WHEREAS, pursuant to a certain Distributorship Agreement dated as of
February 12, 1996 (the "Distributorship Agreement"), between Capital and the
Pabst Brewing Company ("Pabst"), Capital has been appointed the exclusive
distributor for certain products ("Pabst Products") manufactured by Pabst within
the territory set forth in such Distributorship Agreement ("Territory"); and
WHEREAS, as of the date hereof Capital does not possess the required
licenses from the New York State Liquor Authority or the Bureau of Alcohol,
Tobacco and Firearms ("Required Licenses") to act as a distributor for alcoholic
beverages within the Territory; and
WHEREAS, Agent has all Required Licenses to act as a distributor of
Pabst Products within the Territory; and
WHEREAS, Capital will apply for all Required Licenses to distribute
alcoholic products, including but not limited to Pabst Products, within the
State of New York; and
WHEREAS, Agent and Capital intend to enter into a merger transaction
("Merger") pursuant to which Agent will be merged into Capital, with Capital as
the surviving corporation; and
<PAGE> 3
WHEREAS, in contemplation of the Merger, Agent and Capital will apply
to the New York State Liquor Authority for authorization to transfer all
Required Licenses presently held by Agent to Capital; and
WHEREAS, Capital wishes to appoint Agent as its agent to distribute
Pabst Products within the Territory pending its receipt of its Required
Licenses; and
WHEREAS, in contemplation and in consideration of the Merger, Agent is
willing to act as the agent for Capital in connection with the distribution of
Pabst Products within the Territory, subject to the terms and conditions
contained herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties do
hereby agree as follows:
1. Appointment of Agent. Capital hereby appoints Agent as its agent to
perform all of its obligations under the Distributorship Agreement until it
shall receive its Required Licenses, and Agent hereby accepts such appointment.
2. Duties of Agent. Agent hereby agrees to distribute Pabst Products in
the Territory on behalf of Capital in accordance with the terms Distributorship
Agreement. Agent further agrees to collect all revenues and pay all expenses in
connection with the business of distributing Pabst Products within the Territory
and to hold any and all net income derived from the conduct of such business for
the account and benefit of Capital. Agent agrees that it shall remit such net
income to Capital within five (5) days after receipt of the Required Licenses by
Capital.
- 3 -
<PAGE> 4
3. Termination. Either party may terminate this Agreement upon sixty
(60) days' prior written notice to the other party hereto.
4. Successor Agent. In the event Agent or Capital shall terminate the
Agency's services under this Agreement, then on or before the effective date of
such termination, Agent shall remit to a successor agent designated in writing
by Capital all net income then being held by Agent in accordance with the
provisions of paragraph 2 hereof, together with an accounting of all revenues,
expenses and net income during the term of its appointment hereunder.
5. Indemnification by Capital. Capital hereby agrees to indemnify Agent
and its officers, directors and shareholders ("Agent's affiliates") against any
and all actions, proceedings, claims, damages, losses, costs and expenses
(including but not limited to reasonable attorneys' fees) ("Losses") incurred by
Agent or Agent's Affiliates arising out of the performance by Agent of its
obligations hereunder other than any such Losses incurred as a result of the
intentional or negligent conduct of Agent.
6. Indemnification by Agent. Agent hereby agrees to indemnify Capital
and its officers, directors and shareholders ("Capital Affiliates") against any
and all Losses incurred by Capital or Capital Affiliates arising out of the
negligent action or omissions or intentional misconduct by Agent in the
performance of its obligations hereunder.
7. Further Assurances. Each of Agent and Capital agree, from time to
time without further consideration and each at its own expense, to execute and
deliver to the other such other documents, and to take such other action, as the
other party hereto may reasonably request in order to effectuate the purposes
and interest of this Agreement.
- 4 -
<PAGE> 5
8. Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of, and shall be
enforceable by the respective parties hereto, together with their respective
successors and assigns.
9. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to its subject matter and supersedes all prior
agreements and understandings between the parties with respect to the subject
matter hereof. This Agreement may not be amended or otherwise changed other than
by a writing executed by each of the parties hereto.
10. Non Assignable. None of the rights or obligations of the parties
hereto under this Agreement may be assigned without the written consent of the
other party hereto.
11. Headings. The captions contained in this Agreement are for
reference purposes only and shall not in any way affect the interpretation of
this Agreement.
12. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when personally delivered or
mailed by certified mail, return receipt requested, as follows:
If to Agent:
Vito Santoro, Inc.
1111 East Tremont Avenue
Bronx, New York 10460
Attention: Mr. Carmine Stella
If to Capital:
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
Attention: Mr. Eugene Fernandez
- 5 -
<PAGE> 6
or to such other address as either party may have furnished to the other in
writing in accordance with the terms hereof.
13. Governing Law. This Agreement shall be governed by and be construed
and enforced in accordance with the laws of the state of New York, without
regard to its conflict of laws rules.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
IN WITNESSETH WHEREOF, this Agreement is hereby executed on behalf of
each of the parties hereto as of the day and year first above written.
VITO SANTORO, INC.
By: /S/ CARMINE N. STELLA
-------------------------------
Carmine N. Stella, President
CAPITAL BEVERAGE CORPORATION
By: /S/ EUGENE FERNANDEZ
-------------------------------
Eugene Fernandez, Director
- 6 -
<PAGE> 1
Exhibit 10.7
1996 Incentive Stock Option Plan
<PAGE> 2
CAPITAL BEVERAGE CORPORATION
INCENTIVE STOCK OPTION PLAN
CAPITAL BEVERAGE CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (hereinafter referred to as the
"Company"), hereby adopts the following Incentive Stock Option Plan for certain
of its officers and key employees:
1. PURPOSE.
This Inventive Stock Option Plan (herein referred to as the "Plan") is
intended to advance the interests of the Company by providing officers and other
key employees having substantial responsibility for the direction and management
of the Company or its subsidiaries with an opportunity to acquire a proprietary
interest in the Company and an additional incentive to promote its success and
to encourage them to remain in the employ of the Company. The Plan is intended
to permit stock options granted under the Plan to qualified as incentive stock
options ("Incentive Stock Options") under Section 422A of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"). All options granted
under the Plan are herein referred to as "Options".
2. ADMINISTRATION.
The Plan shall be administered by a Stock Option Committee (the
"Committee") of not less than two (2) and not more than four (4) directors of
the Company who shall be appointed by its Board of Directors. The Committee may
adopt rules and regulations from time to time for carrying out the Plan. The
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive. The Committee may consult with counsel, who may
be counsel to the Company, and shall not incur any liability for any action
taken in good faith in reliance upon the advice of counsel.
3. ELIGIBILITY.
The Committee shall grant Options only to officers and other key
employees of the Company who perform services of major importance in the
management, operation and development of the business of the Company, and it
shall determine the number of shares to be allocated to each Option. The Company
shall effect the grant of Options under the Plan in accordance with
determinations made by the Committee pursuant to the provisions of the Plan by
execution and delivery of written instruments in a form approved by the
Committee. All persons to whom Options are granted must be employees of the
Company.
<PAGE> 3
4. STOCK.
The Company has authorized the Committee to appropriate and to grant
Options for and to issue and sell for the purpose of the Plan an aggregate of
Three Hundred Fifty Thousand (350,000) shares of the common stock of the
Company. Options to purchase any shares issued pursuant to the Plan that for any
reason expire or are terminated unexercised may be reissued under the Plan. The
Company shall not be required to issue or deliver any certificate for shares of
its stock purchased upon the exercise of any part of an Option before (i)
completion of any registration or other qualification of such shares under any
state or federal law or ruling or regulation of any governmental regulatory body
that the Company shall, in its sole discretion, determine is necessary or
advisable, or (ii) the Board of Directors shall have been advised by counsel
that the issuance of such shares is exempted from any such registration or
qualification of such shares. In this regard the Committee shall be able to
require the execution of an "investment letter" in standard form prior to the
issuance of any shares purchased upon the exercise of any part of an Option.
Before the granting of any Option hereunder, Optionee must agree that no share
of stock transferred to him pursuant to this Plan may be disposed of by him
within two (2) years from the date of the granting of the Option nor within one
(1) year after the transfer of such share to said Optionee.
5. TAX CHARACTER OF OPTIONS.
The Committee shall have discretion to designate whether Options shall
be Incentive Stock Options or non-statutory options. All Options granted shall
be Incentive Stock Options, subject to the limitations described in Section 10,
unless the Committee determines otherwise.
6. PRICE.
Except as to Options to which the provisions of paragraph 16 apply, the
purchase price of each share of stock covered by an Option granted hereunder
shall be equal to the fair market value per share of the Company's common stock
on the date the Option is granted. As to Options to which the provisions of
paragraph 16 apply, the purchase price of each share of stock covered by such
Option granted hereunder shall be at least one hundred ten percent (110%) of the
fair market value per share of the Company's common stock on the date the Option
is granted. If the stock is traded in the over-the-counter market, such fair
market value shall be deemed to be the mean between the asked and the bid prices
on such day as reported by NASDAQ. If the stock is traded on an exchange, such
fair market value shall be deemed to be the mean of the high and low prices at
which it is quoted or traded on such day on the exchange on which it generally
has the greatest trading volume. If the stock is not traded on either an
over-the-counter market or on an exchange, the fair market value shall be set by
the Committee in good faith based upon all relevant facts and circumstances
pursuant to any and all regulations issued by the Internal Revenue Service.
2
<PAGE> 4
7. DURATION AND EXERCISE OF OPTIONS.
A. Except as to Options to which the provisions of paragraph 16 hereof
apply, the Option period shall be ten (10) years from the date the Option is
granted, and as to Options to which the provisions of paragraph 15 apply, the
Option period shall be five (5) years from the date the Option is granted,
except that either such period shall be reduced with respect to any Option as
outlined below in the event of death or termination of employment or retirement
of the Optionee; provided further that the Committee may, in the case of merger,
consolidation, dissolution or liquidation, accelerate the expiration date and
the dates on which any part of the Option shall be exercisable for all of the
shares covered thereby, but the effectiveness of such acceleration, and any
exercise of the Option pursuant thereto in excess of the number of shares for
which it would have been exercisable in the absence of such acceleration, shall
be conditioned upon the consummation of the merger, consolidation, dissolution
or liquidation.
B. The exercise of any Option and delivery of the optioned shares shall
be contingent upon receipt by the Company of the full purchase price in cash.
C. No Option may be exercised more than thirty (30) days after
termination of employment of the Optionee except as hereinafter provided.
D. Except as otherwise provided herein, or unless otherwise determined
by the Committee, every Option granted hereunder shall, upon its grant, be only
exercisable for twenty-five percent (25%) of the shares covered thereby on each
of the first, second and third anniversaries of the grant thereof.
E. Options granted under the Plan may be exercised, if otherwise
timely, (i) within three (3) months after retirement, other than retirement by
reason of disability, of the Optionee at or after the age of sixty-five (65)
years, if such retirement occurs on or after one year following the grant of any
Option hereunder, and (ii) within three (3) months after retirement occurring at
any age by reason of disability. In any such case, the Option may not be
exercised for more than the number of shares, if any, as to which it was
exercisable by the Optionee immediately before such retirement; provided that if
such retirement was by reason of disability, the Option shall in any case be
exercisable for at least fifty percent (50%) of the shares covered thereby; and
provided further that if such retirement occurred when or after the Optionee
attained the age of sixty-five (65) years, the Option shall be exercisable for
all of the shares covered thereby.
F. If an Optionee shall die while employed by the Company or within
three (3) months after retirement, such Option may be exercised (to the extent
that the Optionee would have been entitled to do so at the date of his death) by
the legatees, personal representative or distributees of the Optionees during
the balance of the term thereof or within one year of the date of the Optionee's
death, whichever is shorter.
3
<PAGE> 5
G. If Optionee is, at the time of exercise, a person who is regularly
required to report his ownership and changes of ownership of the common stock of
the Company to the Securities and Exchange Commission and is subject to short
swing profit liability under the provisions of Section 16(b) of the Securities
Exchange Act of 1934 as the same, or any replacement rule, now exists, or may,
from time to time, be amended, then the Optionee may only exercise Options and
Release Rights during the period beginning on the third business day and ending
on the twelfth business day following the release for publication of quarterly
or annual summary statements of sales and earnings. This condition shall be
deemed to be satisfied if the specified financial data appears (i) on a wire
service, (ii) in a financial news service, (iii) in a newspaper of general
circulation, or (iv) is otherwise made publicly available, and shall remain in
effect so long as it does not violate the law or any rule or regulation adopted
by appropriate governmental authority.
H. Options may be exercised in whole or in part, but only with respect
to whole shares of stock.
8. NON-TRANSFERABILITY OF OPTIONS.
An Option, by its terms, shall not be transferable otherwise than by
will or by the laws of descent and distribution, and an Option may be exercised
during the lifetime of the Optionee only by him.
9. EFFECT OF STOCK DIVIDENDS, ETC.
The Committee shall make appropriate adjustments in the price of the
shares and the number allotted or subject to allotment if there are any changes
in the common stock of the Company by reason of stock dividends, stock splits,
reverse stock splits, recapitalizations, mergers or consolidations.
10. REORGANIZATION.
If (a) the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, (b) all or substantially all
of the property of the Company is acquired by another corporation, or (c) the
Company is reorganized, then the Company, or the corporation assuming the
obligations of the Company, shall by action of its Board of Directors either:
(i) make equitable provisions so that the excess of the aggregate fair
market value of the shares subject to the Options over the option price of such
shares immediately after the merger, consolidation or reorganization of the
Company, is equivalent to the excess of the aggregate fair market value of the
shares subject to such Options over the option price of such shares immediately
before such merger, consolidation or reorganization of the Company, or
4
<PAGE> 6
(ii) give written notice to the employee that the Stock Options shall
be terminated if they are not exercised within a prescribed period after the
date of such notice.
11. LIMITATIONS ON INCENTIVE STOCK OPTIONS.
Notwithstanding anything in this Plan to the contrary, the aggregate
fair market value (determined at the time of grant) of stock for which an
employee is granted Incentive Stock Options under all plans of the Company shall
not exceed $100,000 per calendar year.
12. EXPIRATION AND TERMINATION OF THE PLAN.
Options may be granted under the Plan at any time until the Plan is
terminated by the Board of Directors of the Company or until such earlier date
when termination of the Plan shall be required by applicable law. If not sooner
terminated, the Plan shall terminate automatically on that date which is ten
years from the earlier of the date on which the Plan was originally approved by
the shareholders of the Company or the date on which this Plan was adopted.
13. AMENDMENTS.
The Board of Directors of the Company may from time to time make such
changes in and additions to the Plan as it may deem proper; provided that no
change shall be made that increases (except pursuant to Section 9) the total
number of shares covered by the Plan, or effects any change in who may receive
Options under the Plan or materially increases the benefits accruing to
Optionees hereunder unless such change is authorized by the holders of the
common stock of the Company. Notwithstanding the foregoing, the Board of
Directors of the Company may amend the Plan, without stockholder approval, to
the extent necessary to cause Incentive Stock Options granted under the Plan to
meet the requirements of Section 422A of the Internal Revenue Code.
14. INTERPRETATION.
The terms of this Plan are subject to all present and future
regulations and rulings of the Secretary of the Treasury or his delegate
relating to the qualification of Incentive Stock Options under Section 422A of
the Internal Revenue Code. If any provision of the Plan conflicts with any such
regulation or ruling, then that provision of the Plan shall be void and of no
effect.
15. EFFECTIVE DATE OF THE PLAN.
This Plan shall not become effective until adopted by the Board of
Directors of the Company and shall not be effective unless it is approved by the
stockholders of the Company within twelve (12) months from the date of such
adoption pursuant to Reg. Section 14a 422A-2.
5
<PAGE> 7
16. TEN PERCENT OR GREATER SHAREHOLDERS.
Anything to the contrary contained herein notwithstanding, no Option
shall be granted hereunder to any individual if at the time such Option is
granted such individual owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of Company or its parent or
subsidiary corporations, unless at the time such Option is granted the Option
price is at least one hundred ten percent (110%) of the fair market value of the
stock subject to the Option and such Option by its terms is not exercisable
after the expiration of five (5) years from the date of such Option is granted.
Any Option which does not comply with the terms of this paragraph shall be void.
CAPITAL BEVERAGE CORPORATION
By: /S/ CARMINE N. STELLA
--------------------------------
Carmine N. Stella, President
6
<PAGE> 1
Exhibit 10.8
Agreement with Carmine N. Stella relating to Option to Acquire Vito
Santoro, Inc.
<PAGE> 2
OPTION AGREEMENT
December 6, 1995
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
Attention: Mr. Eugene Fernandez, Director
Re: Proposed Merger of Vito Santoro Inc. d/b/a Caribe Distributors
into Capital Beverage Corporation
The undersigned, Carmine Stella ("Optionor"), as owner of all of the
outstanding shares of capital stock of Vito Santoro Inc., d/b/a Caribe
Distributors ("Caribe"), in consideration of the payment to Optionor of $10.00
and other good and valuable consideration, receipt of which is hereby
acknowledged, hereby grants to Capital Beverage Corporation, a Delaware
corporation ("Optionee" or "Capital"), an option (the "Option") to purchase all
of the capital stock of of Caribe upon the terms set forth hereinbelow. Said
Option shall be exercisable by written notice given by Optionee to Optionor at
any time from and after the date hereof until June 30, 1996.
The foregoing Option is expressly conditioned on the successful
completion of the offer and sale by Optionee of at least 20 units (the "Units")
offered pursuant to that certain Private Placement Memorandum, dated as of the
date hereof (the "Private Placement Memorandum"), and Optionee's entering into
an exclusive distributorship agreement with Pabst Brewing Company ("Pabst")
pursuant to which Optionee will become the exclusive distributor of certain
products manufactured by Pabst within the Territory (as such term is defined in
the Private Placement Memorandum).
DESCRIPTION OF STOCK OF CAPITAL
It is understood and agreed that the capitalization of Capital and
Caribe, respectively, on the date hereof is as follows:
Common Stock
The Certificate of Incorporation of Capital authorizes the issuance of
up to 20,000,000 shares of Common Stock, par value $.001 per share ("Capital
Common Stock"), of which 2,127,273 shares are issued and outstanding as of the
date hereof. The holders of shares of Capital Common Stock: (i) have equal
ratable rights to dividends from funds legally available therefor when, as and
if declared by the Board of Directors of Capital; (ii) are entitled to share
ratably in all of the assets of Capital available for distribution to holders of
Capital Common Stock upon liquidation, dissolution of winding up of the affairs
of Capital; and (iii) do not have preemptive or subscription rights, and there
are no redemption or sinking fund provisions applicable thereto.
<PAGE> 3
Each share of Capital Common Stock is entitled to one non-cumulative
vote per share on all matters on which stockholders may vote at meetings of
stockholders. Shares of Capital Common Stock are not convertible into any other
securities of Capital. Except as otherwise required by law, and the provisions
of the Certificate of Incorporation of Capital, the holders of the Capital
Common Stock shall vote together as a single class on all matters.
Preferred Stock
The Certificate of Incorporation of Capital authorizes the issuance of
up to 1,000,000 shares of Preferred Stock, $.01 par value, per share. Up to
375,000 shares of such Preferred Stock have been designated as 7% Cumulative
Preferred Stock, Series A (the "Series A Preferred Stock"). The Board of
Directors is authorized to issue other shares of Preferred Stock from time to
time in one or more series, which shall be subject to the limitations contained
in such series, and to fix the number of shares and the relative conversion
rights, voting rights, terms of redemption (including sinking fund provisions)
and liquidation preferences of any such series. If shares of Preferred Stock
with voting rights are issued, such issuance could affect the voting rights of
the holders of Capital's Capital Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of a new classes or
series of capital stock with voting rights.
Warrants
Capital has issued and intends to issue Common Stock Purchase Warrants
to (i) certain officers, directors and promoters of Capital; (ii) purchasers of
units of securities offered pursuant to the Private Placement Memorandum; (iii)
purchasers of units of securities in a proposed Bridge Financing; (iv)
purchasers of units of securities in a proposed initial public offering to be
effected by Capital under the Securities Act of 1933; and (v) the underwriter in
the aforementioned proposed initial public offering. All of such warrants are
described in the Private Placement Memorandum, which description is incorporated
herein by reference.
DESCRIPTION OF STOCK OF CARIBE
The total number of shares of Capital stock which Caribe (hereinafter
sometimes referred to as the "Non-Surviving Corporation") is authorized to issue
is 200 Common Shares, each assigned no par value. Of such authorized shares, 100
shares are issued and outstanding as of the date hereof and are owned by
Optionor, free and clear of all liens and encumbrances.
TERMS OF MERGER
Optionor and Optionee each represents to the other that the respective
Boards of Directors of Capital and Caribe, as the case may be, deem it desirable
and in the best interests of their respective corporations, and the shareholders
thereof, that Caribe be merged with and into Capital, and that the transaction
qualify as a "Reorganization" within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, and Section 252 of the Delaware
Corporation Law. Optionor and Optionee hereby agree that, if Optionee exercises
its Option, Caribe shall merge with and into Capital, which shall be the
surviving
- 2 -
<PAGE> 4
corporation (hereinafter sometimes referred to as the "Surviving Corporation").
On the effective date of the merger (the "Effective Date"), the
separate existence of the Non-Surviving Corporation shall cease and the
Surviving Corporation shall succeed to all the rights, privileges, immunities,
and franchises, and all the property, real, personal and mixed, of the
Non-Surviving Corporation, without the necessity for any separate transfer. The
Surviving Corporation shall thereafter be responsible and liable for all
liabilities and obligations of the Non-Surviving Corporation, and neither the
rights of creditors nor any liens on the property of the Non-Surviving
Corporation shall be impaired by the merger.
Conversion of Shares
The manner and basis of converting the shares of the Non-Surviving
Corporation into shares of the Surviving Corporation shall be as follows:
(a) All of the shares of Common Stock of Caribe, the Non-Surviving
Corporation, that are issued and outstanding on the Effective
Date shall be cancelled and shall be converted into a right to
receive that number of shares of 7% Cumulative Convertible
Preferred Stock, Series B (the "Series B Preferred Stock"), of
Capital (with each such share having a value of $4.00) that is
equal to the fair market value of Caribe, as such value may be
determined by an independent appraiser that is mutually
acceptable to Optionor and Optionee. Such Series B Preferred
Stock shall have substantially the same terms and limitations
as the Optionee's Series A Preferred Stock previously
authorized by the Optionee's Board of Directors and contained
in the Certificate of Designations relating to such Series A
Preferred Stock that has been filed with the Secretary of
State of the State of Delaware on the date hereof, except that
the Series B Preferred Stock shall be junior in right to the
Series A Preferred Stock with respect to payment of dividends
and payment upon liquidation and shall be convertible into
shares of Common Stock of Capital, on a share for share basis,
for three (3) years after the effective date of Capital's
Registration Statement covering an initial public offering of
its Common Stock.
(b) After the Effective Date of the merger, Optionor shall
surrender his certificate representing his shares of Common
Stock of the Non- Surviving Corporation to the Surviving
Corporation or to its duly appointed agent, in such manner as
the Surviving Corporation shall require. On receipt of such
certificate, the Surviving Corporation shall issue and
exchange therefor certificates for shares of Series B
Preferred Stock in the Surviving Corporation representing that
number of shares of such stock to which Optionor is entitled
as provided above.
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<PAGE> 5
(c) The Optionor shall be entitled to receive dividends on shares
of Series B Preferred Stock commencing on the Effective Date
of the merger.
Articles of Incorporation
The Articles of Incorporation of the Surviving Corporation shall
continue to be its Articles of Incorporation following the Effective Date of the
merger.
Bylaws
The Bylaws of the Surviving Corporation shall continue to be its Bylaws
following the Effective Date of the merger.
Directors and Officers
The Directors and Officers of the Surviving Corporation on the
Effective Date of the merger shall continue as the directors and officers of the
Surviving Corporation for the full unexpired terms of their offices and until
their successors have been elected or appointed and qualified.
Limitation on Business Activities
Neither Caribe nor Capital shall, prior to the Effective Date of the
merger, engage in any activity or transaction other than in the ordinary course
of business, except that they each shall take all action necessary or
appropriate under law to consummate the merger and that Capital may effect any
transaction proposed to be taken by it as described in the Private Placement
Memorandum.
Approval of Shareholders
The formal Agreement of Merger shall be prepared by Weber & Weber,
attorneys for Capital, and shall be submitted for the approval of the
shareholders of the constituent corporations in the manner provided by
applicable law on or before June 15, 1996 or at such other time as the Boards of
Directors of the constituent corporations may agree.
Effective Date
The Effective Date of the merger shall be the date when a Certificate
of Merger is issued by the Secretary of State of the State of Delaware.
Abandonment of Merger
The merger may be abandoned by action of the Board of Directors of
either the Surviving or the Non-Surviving Corporation at any time prior to the
Effective Date on the happening of either of the following events:
(a) If the merger is not approved by the shareholders of the
Surviving Corporation; or
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<PAGE> 6
(b) If, in the judgment of the Board of Directors of either the
Surviving or Non-Surviving Corporation, the Merger would be
impractical due to the number of dissenting shareholders
asserting appraisal rights under the applicable state law.
MISCELLANEOUS
This Option Agreement may be executed in any number of counterparts,
and each such counterpart shall constitute an original instrument.
This Option Agreement has been executed by Optionor both in his
individual capacity and as sole director, president and sole shareholder of
Caribe, and on behalf of Capital by its Director pursuant to the authorization
of its Board of Directors as of the date and year first written above.
/S/ CARMINE STELLA
---------------------------------
Carmine Stella, Optionor
VITO SANTORO, INC. d/b/a
CARIBE DISTRIBUTORS
By: /S/ CARMINE N. STELLA
----------------------------------
Carmine N. Stella, President
AGREED TO AS OF THIS
6th DAY OF DECEMBER, 1995
CAPITAL BEVERAGE CORPORATION, OPTIONEE
By: /S/ EUGENE FERNANDEZ
----------------------------------
Eugene Fernandez, Director
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<PAGE> 1
Exhibit 10.9
Merger Agreement Relating to Vito Santoro, Inc.
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of June 25, 1996 by and among Vito Santoro, Inc. (D/B/A
Caribe Distributors), a New York corporation (hereinafter referred to as the
"Company"), Capital Beverage Corporation, a Delaware corporation (hereinafter
referred to as "Capital Beverage") and, with regard to certain issues concerning
the escrow of stock, Carmine N. Stella, an individual residing at Norwood, New
Jersey (hereinafter referred to as "Stella").
RECITALS
WHEREAS, The Boards of Directors of the Company and Capital Beverage each
deem it advisable that the Company merge into Capital Beverage pursuant to the
General Corporation Law of the State of Delaware ("Delaware Law") and the
Business Corporation Law of the State of New York;
WHEREAS, The Board of Directors of the Company and Capital Beverage each
has adopted and approved this Agreement and directed that this Agreement be
submitted to a vote of each corporation's shareholders; and
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that the Company shall
merge into Capital Beverage on the following terms, conditions and other
provisions:
I
TERMS AND CONDITIONS
1.01 MERGER. The Company shall be merged with and into Capital Beverage,
and Capital Beverage shall be the surviving corporation (the "Merger"),
effective upon the date when a duly executed Certificate of Merger is filed with
the Secretary of State of Delaware (the "Effective Date"). The closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
10:00 a.m. on the date that the Effective Date occurs or at such other time as
the parties hereto shall mutually agree. The place of the Closing shall be at
the offices of Weber & Weber, 300 Rabro Drive, Suite 114, Hauppauge, New York
11788.
1.02 EFFECT OF MERGER.
(a) On the Effective Date, the separate corporate existence of the
Company shall cease and the corporate existence of Capital Beverage, as governed
by Delaware Law, shall continue unimpaired and unaffected by the Merger.
(b) On the Effective Date, each share of the Company's Common
Stock issued and outstanding shall be automatically cancelled and retired and
cease to exist and shall be converted into and exchanged for the right to
receive fully paid and nonassessable shares of Capital Beverage 7 % Cumulative
Convertible Preferred Stock, Series B (the "Preferred Stock") with those
designations, powers, preferences
<PAGE> 3
and rights as set forth in the Certificate of Designation for the Preferred
Stock, in form attached hereto as Exhibit A and incorporated by this reference
(the "Certificate of Designation") in accordance with the Exchange Ratio (as
defined below). No fractional shares shall be issued pursuant to the Merger.
Each shareholder who would otherwise be entitled to receive a fractional share
shall receive, in lieu thereof, a cash payment equal to Four Dollars ($ 4.00)
multiplied by such fraction of a share. The shares of the Company's Common Stock
so converted shall cease to exist as such and shall exist only as shares of
Preferred Stock and, where applicable, the right to receive payment in lieu of
fractional shares. The Exchange Ratio shall be three thousand (3,000) shares of
Preferred Stock for one (1) share of the Company's Common Stock. A copy of the
appraisal of the Company prepared by 1st Class Management, Inc. is attached
hereto as Exhibit B and incorporated herein by this reference.
(c) Any shares of Common Stock held in the treasury of the Company,
shall, by virtue of the Merger and without any action on the part of Capital
Beverage or the Company, be cancelled and retired and cease to exist. No cash,
securities or other consideration shall be paid or delivered in exchange for
such Common Stock under this Agreement.
1.03 ESCROW AGREEMENT. On the Effective Date as security for the
representations and warranties of the Company contained in Article IV hereof,
the covenants of the Company contained in Article VI hereof, and the
indemnification agreement contained in Article XII hereof, the parties agree
that all of the Preferred Stock received in connection with the Merger shall be
deposited in escrow with the escrow agent under the escrow agreement (the
"Escrow Agreement") in the form attached hereto as Exhibit C and incorporated by
this reference, which Preferred Stock shall be held and disbursed by the escrow
agent as provided for in the Escrow Agreement.
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<PAGE> 4
II.
CHARTER DOCUMENTS; DIRECTORS AND OFFICERS
2.01 CAPITAL BEVERAGE CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Certificate of Incorporation of Capital Beverage, as in effect on the Effective
Date, shall continue to be the Certificate of Incorporation of Capital Beverage
until further amended in accordance with the provisions thereof and applicable
law. The By-Laws of Capital Beverage without change or amendment until further
amended in accordance with the provisions thereof and applicable law.
2.02 CAPITAL BEVERAGE DIRECTORS AND OFFICERS. The directors of Capital
Beverage shall continue in office for their current terms and until their
successors are elected and qualified, or until their death, resignation or
removal. The officers of Capital Beverage shall remain officers of Capital
Beverage on the Effective Date and shall serve at the pleasure of the Board of
Directors.
III.
SHAREHOLDER APPROVAL
3.01 SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
holders of Capital Beverage's Common Stock at a special meeting to be duly
called and held for such purpose by Capital Beverage. The date of such meeting
shall be determined by the Board of Directors of Capital Beverage, but shall be
held as soon as practicable after the date of this Agreement.
3.02 EFFECT OF DISAPPROVAL. The consummation of the Merger and the other
transactions contemplated by this Agreement is subject to the satisfaction of
the condition that prior to or on the Effective Date the principal terms of this
Agreement shall have been approved by the holders of Capital Beverage's Common
Stock pursuant to Section 3.01 hereof. In the event that the holders of Capital
Beverage Common Stock do not approve the Merger, this Agreement shall terminate
pursuant to section 11.01(c) hereof.
IV.
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
In order to induce Capital Beverage to enter into this Agreement and the
Escrow Agreement, the Company represents and warrants to Capital Beverage as
follows:
4.01 ORGANIZATION, AUTHORIZATION AND VALID AND BINDING AGREEMENT.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has the
corporate power and authority to enter into this
3
<PAGE> 5
Agreement and the Escrow Agreement, to carry out the transactions contemplated
hereby, to own and lease the properties and other assets it presently owns or
leases and to carry on its business as presently conducted.
(b) The execution and delivery of this Agreement and the Escrow
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of the Company and
the resolutions adopted by the Board of Directors of the Company evidencing such
authorization, a copy of which resolutions has been certified by the Secretary
of the Company and is being delivered to Capital Beverage at the Closing, were
duly and validly adopted, have not been modified, revoked or rescinded in any
respect and are in full force and effect. No corporate or other proceedings on
the part of the Company are necessary to authorize this Agreement and the Escrow
Agreement, or the transactions contemplated hereby or thereby.
(c) This Agreement and the Escrow Agreement constitute valid and
binding agreements of the Company, enforceable against the Company in accordance
with their terms except that (i) such enforcement may be subject to applicable
bankruptcy, reorganization, insolvency or other laws, now or hereafter in
effect, affecting creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(d) The copy of the Certificate of Incorporation, and all
amendments thereto, of the Company, as certified by the Secretary of State of
the State of New York, and of the By-Laws, as amended to date, of the Company,
as certified by its Secretary, being delivered herewith to Capital Beverage are
true, complete and correct copies of the Certificate of Incorporation and
By-Laws of the Company, as amended and presently in effect.
(e) The Company is duly licensed or qualified to do business as a
foreign corporation, and is in good standing in every domestic and foreign
jurisdiction in which the Company is required to be so licensed or qualified,
except where the failure to be so qualified will not have a materially adverse
impact upon the business or financial condition of Capital Beverage after the
Merger.
4.02 CAPITALIZATION.
(a) The authorized capital stock of the Company consists solely of
$700.00 shares of Company Common Stock, no par value per share, of which 100
shares are outstanding and owned by Stella as the beneficial and record owner
thereof.
(b) Except for 100 shares of Company Common Stock, there are no
shares of capital stock or other securities of the Company outstanding. There
are no outstanding (i) securities convertible into or exchangeable for capital
stock of the Company; (ii) contracts, commitments agreements, plans,
understandings, arrangements or restrictions to which the Company is a party or
by which it is bound relating to any shares of capital stock or other securities
of the Company (including the shares of Company Common Stock); or (iii) any
options, warrants, or other rights to purchase or subscribe for capital stock
4
<PAGE> 6
of the Company, whether or not outstanding. There are no former holders of
shares of capital stock of the Company or of options, warrants or other rights
to purchase or subscribe for capital stock of the Company which have a right to
receive any Preferred Shares being issued by Capital Beverage pursuant to
Section 1.02(b) hereof.
4.03 SUBSIDIARIES. The Company does not own, directly or indirectly, any
capital stock or other equity interest in any corporation, partnership or other
business organization nor does the Company own any subsidiaries or have any
affiliates or associates.
4.04 NO VIOLATION. Except as set forth in Section 4.04 of the Disclosure
Schedule, to the Company's knowledge (as hereinafter defined) none of the
execution or delivery of this Agreement or the Escrow Agreement, the
consummation of the transactions contemplated hereby or thereby or the
compliance with any of the provisions hereof and thereof, (i) requires the
approval or consent of any governmental agency, (ii) violates or will violate
any statute or law or any rule, regulation, order, award, judgment or decree of
any court or governmental authority, affecting the Company in any way, (iii)
violates or conflicts with or constitutes a material default under the
Certificate of Incorporation or ByLaws, as amended, or of any material contract,
commitment, agreement, understanding, arrangement, trust or restriction of any
kind to which the Company is a party or by which it is bound or (iv) will cause,
(with or without material notice, the passage of time or both), the maturity of
any debt, liability or obligation of the Company to be accelerated, or will
materially increase any such liability or obligation.
4.05 FINANCIAL STATEMENTS. The Company has heretofore delivered to Capital
Beverage (a) audited balance sheets of the Company as of its fiscal year end for
1994 and 1995 and audited statements of income, changes in stockholder's equity
and statements of cash flows of the Company for the two years ended December 31,
1995, reported on by Chaifetz & Schreiber, P.C., independent certified
accountants, whose unqualified reports thereon are included therewith, (b) an
unaudited balance sheet of the Company as of March 31, 1996 and unaudited
statements of income, changes in stockholder's equity and cash flows of the
Company for the three months ended March 31, 1996 (the "Three Month Balance
Sheet").
4.06 NO UNDISCLOSED LIABILITIES. Except for liabilities reflected or
reserved against on the December 31, 1995 Balance Sheet referred to in Section
4.05 or the Three Month Balance Sheet or disclosed in Section 4.06 of the
Disclosure Schedule, as of March 31, 1996, to the Company's knowledge, the
Company did not have any liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, (including, without limitation,
liabilities for taxes and interest, penalties and other charges payable with
respect thereto (i) arising out of any transaction entered into prior thereto
except in each instance customary obligations incurred in the ordinary course of
business to make payments or to otherwise perform after such date and not
required to be disclosed therein or in the rates thereto under generally
accepted accounting principles.
5
<PAGE> 7
4.07 ABSENCE OF CERTAIN CHANGES.
(a) Except as and to the extent set forth in Section 4.07 of the
Disclosure Schedule or as reflected in the 1995 Balance Sheet, since December
31, 1995, the Company has operated in all material respects in the ordinary
course consistent with past practices, and has not:
(i) Suffered any material adverse change in its financial
condition, assets or liabilities,
(ii) Declared, paid or made, or set aside for payment or making,
any dividend or other distribution in respect of its capital stock or other
securities, or directly or indirectly redeemed, purchased or otherwise acquired
any of its capital stock or other securities.
(b) Except as and to the extent set forth in Section 4.07 of the
Disclosure Schedule, since December 31, 1995, the Company has not made any
individual capital expenditures or commitments in excess of $60,000.00 or
$250,000 in the aggregate for additions to property, plant, equipment or
intangible capital assets.
4.08 CERTAIN TAX MATTERS.
(a) The Company has timely filed all Tax Returns (as hereinafter
defined) required to be filed by it up to and including the date of this
Agreement and has timely paid all Taxes (as hereinafter defined) due or claimed
to be due from it by any taxing authority. The Company has heretofore caused to
be delivered or made available to Capital Beverage copies of all Tax Returns
filed for all taxable periods commencing with 1993 through the taxable year
1994. To the Company's knowledge, all Tax Returns filed by the Company are
accurate and correct. To the Company's knowledge, no Tax Return of the Company
is presently under examination by a taxing authority. To the Company's
knowledge, there are no material liens with respect to Taxes upon any of the
properties or assets of the Company; except as set forth in Section 4.08 of the
Disclosure Schedule, there are no claims asserted for Taxes against the Company
by any taxing authority.
(b) For purposes of this Agreement, (i) the term "Taxes" shall
mean all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, license, payroll
and franchise taxes, imposed by the United States, or any state, county, local
or foreign government or subdivision or agency thereof, and such term shall
include any interest, penalties or additions attributable to such assessments;
and (ii) the term "Tax Return" shall mean any report, return or other
information required to be supplied to a taxing authority in connection with
Taxes.
4.09 TITLE TO PROPERTIES, ENCUMBRANCES. The Company does not own any
real property. Except as set forth in Section 4.09 of the Disclosure Schedule,
the Company has valid title free and clear of any claim or encumbrance
material to the operation of the Company except for liens, if any, for current
taxes not yet due and payable and except for tangible personal property
disposed of since December 31, 1995 in the ordinary course of business, to
all of its personal properties and assets, tangible and intangible,
6
<PAGE> 8
including, without limitation, all the properties and assets reflected in the
1995 Balance Sheet and Three Month Balance Sheet.
4.10 LEASES. Section 4.10 of the Disclosure Schedule contains a complete
list of each lease pursuant to which the Company leases real or personal
property. The Company has heretofore delivered or made available to Capital
Beverage complete and accurate copies of all such leases.
4.11 PATENTS, TRADEMARKS, COPYRIGHTS.
(a) Section 4.11 of the Disclosure Schedule contains an accurate
and complete description of all domestic and foreign patents, trademarks,
trademark registrations, logos, trade names, assumed names, copyrights and
copyright registrations and all applications therefor, presently owned or held
by the Company or under which the Company owns or holds any license, or in which
the Company owns or holds any direct or indirect interest; and no others are
necessary for the conduct of the present business of the Company. To the best
knowledge of the Company, no products sold by the Company, nor any patents,
formulae, know-how, secrets, trademarks, trademark registrations, logos, trade
names, assumed names, copyrights, copyright registrations, or designations used
in its business, infringe on any patents, trademarks or copyrights, or any other
rights, of any person. No claims have been asserted by any person to the use of
any such patents, trademarks, trademark registrations, logos, trade names,
assumed names, copyrights and copyright registrations or challenging or
questioning the validity or effectiveness of any such license or agreement, and
to the best knowledge of the Company, there is no valid basis for any such
claim.
4.12 LITIGATION. Except as set forth in Section 4.12 of the Disclosure
Schedule, there is no claim, action, suit, proceeding or investigation pending
or, to the Company's knowledge, threatened against the Company, in any court or
administrative agency which, if adversely determined, will materially and
adversely affect Capital Beverage after the closing.
4.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 4.13 of the Disclosure Schedule and sets forth all
employee benefit plans of the Company.
(b) Each of the Employee Benefit Plans maintained or contributed
to by the Company is, in all material respects, in compliance with applicable
laws.
4.14 BANK ACCOUNTS. Section 4.14 of the Disclosure Schedule sets forth the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all persons authorized to draw thereon or to have
access thereto.
4.15 CONTRACTS AND COMMITMENTS. Except as set forth in Section 4.15 of the
Disclosure Schedule:
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<PAGE> 9
(a) The Company does not have any contracts which involve the
expenditure by the Company after December 31, 1995 of more than $100,000 for any
individual contract. The legal enforceability after the Effective Date by the
Company of all of its contracts and commitments will not be affected in any
manner by the execution and delivery of this Agreement or the Escrow Agreement,
or the consummation of the transactions contemplated hereby and thereby.
(b) No purchase commitment of the Company, or by which the Company
is bound, is in excess of the normal, ordinary and usual requirements of the
respective businesses of the Company
(c) The Company is not a party to or bound by: (i) any outstanding
contracts with officers, employees, agents, consultants, advisors, salesmen and
sales representatives, that are not cancellable by the Company on notice of not
longer than thirty days and without liability, penalty or premium; (ii) any
agreement or arrangement providing for the payment of any bonus or commission
based on sales or earnings; (iii) any collective bargaining or employment
agreements; or (iv) any agreements that contain any severance or termination
pay, liabilities or obligations.
(d) The Company has not given any power of attorney (whether
revocable or irrevocable) to any person, firm or corporation that is or may
hereafter be in force for any purpose whatsoever.
(e) The Company is not in default, and, to the best knowledge of
the Company, there is no basis for any valid claim of default, in any material
respect under any contracts made or obligations owed by it.
4.16 RETURNS AND CANCELLATIONS. Except as disclosed in Section 4.16 of the
Disclosure Schedule, as of the date of this Agreement, to the Company's
knowledge there are no claims to returns, or trial use arrangements which could
result in the return of, in excess of any aggregate of $100,000 of beverage
products to the Company by reason of alleged over shipments, defective or
unsatisfactory products, the expiration of trial use arrangements or otherwise.
There are no beverage products in the hands of customers under an understanding
that such products would be returnable other than pursuant to the standard
returns policy of the Company.
4.17 CUSTOMERS AND SUPPLIERS. Section 4.17 of the Disclosure Schedule
contains an accurate and complete list of the names and addresses of all
customers representing 10% or more of the Company's total annual sales of
beverage products during the fiscal year ended December 31, 1995, and the 10
largest suppliers from whom the Company purchased supplies, inventory or
equipment during the fiscal year ended December 31, 1995.
4.18 PERSONNEL. Section 4.18 of the Disclosure Schedule sets forth the
names, ages and titles of all members of the Board of Directors and officers of
the Company and all employees of the Company earning in excess of $50,000 per
annum, and the annual rate of compensation (including bonuses) being paid to,
and the accrued vacation time of, each such member of the Board of Directors,
officer and employee of the Company as of the most recent practicable date.
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<PAGE> 10
4.19 LABOR DIFFICULTIES. Except as and to the extent set forth in Section
4.19 of the Disclosure Schedule, to the Company's knowledge, the Company is in
compliance with all federal, state and local laws respecting employment and
employment practices, except where the failure to so comply will not have a
materially adverse impact upon the business or financial condition to Capital
Beverage after the merger.
4.20 COMPLIANCE WITH APPLICABLE LAW. To the Company's knowledge, the
Company has not been in violation of or is presently in violation of, in respect
of its operations, real property, machinery, software and equipment, all other
property, practices and all other aspects of its businesses, any applicable law,
regulation, or ordinance, judgment or decree of any governmental authority
(federal, state, local or otherwise) (collectively, "Laws"), including but not
limited to the Federal Occupational Safety and Health Act, ERISA, the United
States Copyright Act, all Laws relating to the safe conduct of business, and all
Laws relating to environmental protection and conservation except where failure
to so comply will not have a materially adverse impact upon the business or
financial condition of Capital Beverage after the merger. Except as accurately
and completely described in Section 4.20 of the Disclosure Schedule, the Company
has not received any notification of any material failure of the Company to
comply with any of such Laws.
4.21 ABSENCE OF QUESTIONABLE PAYMENTS. Neither the Company, nor any of its
employees or affiliates has at any time made any improper illegal political
contributions, bribes or kickbacks.
4.22 CERTAIN REPRESENTATIONS. Where in this Agreement the phrase "To the
Company's knowledge" is used, the Company has made no independent investigation
of the matters stated with respect to which such representation is provided.
Accordingly, a breach of a representation shall exist only if the following
conditions are fulfilled:
(i) The senior management officers of the Company had actual
knowledge that said representation was false when made, and;
(ii) No officer director or shareholder of Capital Beverages
(excluding Carmine Stella) also had knowledge that said representation was false
or inaccurate.
V.
REPRESENTATIONS AND WARRANTIES BY CAPITAL BEVERAGE
Capital Beverage hereby represents and warrants to the Company and Stella
as follows:
5.01 ORGANIZATION AND CORPORATE POWER. Capital Beverage is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to enter into this
Agreement and the Escrow Agreement to carry out the transactions contemplated
hereby and thereby.
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5.02 AUTHORIZATION. The execution and deliver of this Agreement and the
Escrow Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of Capital
Beverage.
5.03 VALID AND BINDING AGREEMENT OF CAPITAL BEVERAGE. This Agreement and
the Escrow Agreement constitute valid and binding agreements of Capital
Beverage, enforceable against Capital Beverage in accordance with their terms
except that (i) such enforcement may be subject to applicable bankruptcy,
reorganization, insolvency or other laws, nor or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
5.04 PREFERRED STOCK. The Preferred Stock to be issued to Stella pursuant
to Section 1.02 hereof shall be duly authorized, validly issued, fully paid and
non-assessable and will conform to the description of such shares set forth in
the Certificate of Designation.
VI.
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
In order to induce Capital Beverage to enter into this Agreement and the
Escrow Agreement, The Company hereby warrants and represents:
6.01 NO VIOLATIONS. Neither the execution and delivery of this Agreement
or the Escrow Agreement nor the consummation of the transactions contemplated
hereby or thereby will violate the provisions of any indenture, agreement or
other instrument to which he is a party or may be bound.
6.02 AUTHORIZATION. The execution and deliver of this Agreement and the
Escrow Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of the Company.
6.03 LITIGATION. There is no litigation, proceeding, governmental
investigation or other action pending or threatened against the Company which
would prevent the Company from performing any of its agreements and covenants or
fulfilling any of its obligations under this Agreement or the Escrow Agreement.
6.04 TITLE TO SHARES. Stella is the lawful beneficial and record owner of,
and has good and marketable title to, the shares of the Company to be delivered
by him hereunder, free and clear of all liens, charges, security interests and
encumbrances, which Shares constitute all of the outstanding shares of Capital
Beverage Common Stock. On the date of the Closing, Stella shall be the
beneficial and record owner of the shares of Capital Beverage Common Stock to be
delivered by him hereunder and shall deliver good and marketable title thereto
to Capital Beverage, free and clear of all liens, charges, security interests
and encumbrances.
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6.05 TAXES; TAX RETURNS. Except as may have previously been disclosed to
Capital Beverage, the Company has filed all federal and state income tax returns
and all other applicable tax returns required to have been filed by him (unless
the time for filing has been properly extended) and has paid the taxes shown to
be due on any such returns and no waivers or extensions of the statutory period
of limitation within which assessments may be made have been granted with
respect to any such return.
VII.
CERTAIN COVENANTS OF THE PARTIES WITH RESPECT TO TAX MATTERS
7.01 Certain Tax Matters.
(a) Each party will provide the other with such assistance as may
reasonably be requested by either of them in connection with the preparation of
any Tax Return, any audit or other examination by any Taxing authority, or any
judicial or administrative proceedings relating to liability for Taxes, and each
will retain and provide the other with any records or information which may be
relevant to such return, audit or examination, proceedings or determination. The
party requesting assistance hereunder shall reimburse the other party for
reasonable expenses incurred in providing such assistance. Any information
obtained pursuant to this Section or pursuant to any other section hereof
providing for the sharing of information or the review of any Tax Return or
other schedule relating to Taxes shall be kept confidential by the parties
hereto.
(b) Capital Beverage shall notify Stella in writing of any dispute
by any taxing authority concerning any Tax Return of the Company filed with
respect to any taxable year or period ending on or before the Effective Date.
Capital Beverage shall keep Stella apprised of the development of any such
dispute, and shall not enter into any settlement or fail to appeal any adverse
decision or determination, if such decision or determination would result in any
recovery or Taxes as an adjustment out of the Escrow Fund pursuant to Article
XII hereof, without Stella's approval, which approval shall not be unreasonably
withheld.
7.02 Tax Free Statutory Merger.
This merger is intended to qualify as a tax-free statutory merger
pursuant to Section 368 (a)(1)(A) of the IRC. The Merger will be effectuated by
Capital Beverage on the day of the closing and under the terms of Section 368
(a)(1)(A) of the IRC should be tax free to all parties to the Merger. The
Company will cooperate with Capital Beverage to execute any documents needed to
effectuate the merger.
11
<PAGE> 13
VIII.
ADDITIONAL COVENANTS AND AGREEMENTS
It is further agreed as follows:
8.01 CONDUCT OF BUSINESS BY THE COMPANY AND CAPITAL BEVERAGE. Prior to the
Effective Date, if any, and which this Agreement is earlier terminated pursuant
to Section 11.01 hereof (the "Termination Date"), and except as has been
previously disclosed to the other, the Company and Capital Beverage shall: (i)
conduct their respective operations according to their ordinary and usual course
of business, as they have done in the past.
8.02 INVESTIGATION. Subject to applicable law, the Company and Capital
Beverage shall each afford to one another and to one another's officers,
employees, accountants, counsel and other authorized representatives reasonable
access, throughout the period prior to the earlier of the Effective Date or the
Termination Date, to its plants, properties, books and records.
IX.
CONDITIONS TO THE MERGER
9.01 THE COMPANY'S CONDITIONS TO THE MERGER. The obligation of the Company
to effect the Merger shall be subject, at their option, to the following
conditions:
(a) That the Company shall receive from Weber & Weber, counsel for
Capital Beverage, an opinion, dated the date of the Effective Date, in form and
substance satisfactory to counsel for the Company, to the effect that: (i)
Capital Beverage is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and pursuant to Section 1301 of
the Business Corporation Law is duly authorized to do business in New York State
and has corporate power and authority to consummate the transactions
contemplated by this Agreement and the Escrow Agreement; and (ii) this Agreement
and the Escrow Agreement have been duly authorized, executed and delivered by
Capital Beverage, and, except as rights to indemnification hereunder may be
limited by applicable law, this Agreement and the Escrow Agreement are valid and
binding obligations of Capital Beverage, and all corporate action by Capital
Beverage required in order to effect the transactions contemplated hereby and
thereby has been taken. In rendering the foregoing opinion, such counsel may
rely on certificates of public authorities and, as to matters of fact, on
certificates of officers of Capital Beverage.
(b) Any and all consents, permits, authorizations, approvals and
orders necessary to the consummation of the Merger shall have been obtained,
including, without limitation, any necessary consent of the Bureau of Alcohol,
Tobacco and Firearms ("BAT") and the New York State Liquor Authority ("NYSLA").
9.02 CAPITAL BEVERAGE'S CONDITIONS TO THE MERGER. The obligation of
Capital Beverage to effect the Merger shall be subject, as its option, to the
following conditions:
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<PAGE> 14
(a) Capital Beverage shall have received from MANNING, RAAB, DEALY &
STURM an opinion, dated the date of the Effective Date, in form and substance
satisfactory to counsel for the Company, to the effect that (i) the Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York; and (ii) this Agreement and the Escrow Agreement have
been duly authorized, executed and delivered by the Company, and, except as
rights to indemnification hereunder may be limited by applicable law, are valid
and binding obligations of the Company and all corporate action by the Company
required in order to effect the transactions contemplated hereby and thereby
have been taken. In rendering the foregoing opinion, such counsel may rely on
certificates of public authorities and, as to matters of fact, on certificates
of officers of the Company.
(b) Any and all consents, permits, authorizations, approvals and
orders necessary to consummation of the Merger shall have been obtained,
including any necessary consents of the BAT and NYSLA.
9.03 LIMITATION OF LIABILITY.
(a) Notwithstanding any provision of this Agreement to the contrary,
the Company shall have no liability on any basis under this Agreement for a
breach of representation in Article 4 hereof unless monetary damages for any
breach of representation exceeds $60,000.00 per breach or exceeds $250,000.00 in
the aggregate of all such breaches; in which event the Company's liability shall
be only for said damages in excess of that amount.
(b) Under no circumstances shall Stella be personally liable to
Capital Beverage or its shareholders for any debts or costs to defend claims
(including attorneys' fees) for taxes or otherwise of the Company.
(c) If Capital Beverage has any claim arising out of this
agreement or this transaction, it shall be limited solely to its right to pursue
recovery of all or part of the Preferred Stock which is being held in Escrow as
part of this transaction.
X.
TRANSFER OF ASSETS AND LIABILITIES
On the Effective Date, the rights, privileges, powers and franchises, both
of a public as well as of a private nature, of each of the Company and Capital
Beverage shall be vested and possessed by Capital Beverage, subject to all
disabilities, duties and restrictions of or upon each of the Company and Capital
Beverage; and all rights, privileges, powers and franchises of each of the
Company and Capital Beverage, and all property, real, personal and mixed, of
each of the Company and Capital Beverage, and all debts due to each of the
Company and Capital Beverage on whatever account, and all things in action or
belonging to each of the Company and Capital Beverage shall be transferred to
and vested in Capital Beverage; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter as effectually
the property of Capital Beverage as they were of the Company and Capital
13
<PAGE> 15
Beverage, and the title to the real estate vested by deed or otherwise in either
of the Company or Capital Beverage shall not revert or be in any way impaired by
reason of the Merger; provided, however, that the liabilities of the Company and
Capital Beverage and of their shareholders, directors and officers shall not be
affected and all rights of creditors and all liens upon any property of either
of the Company or Capital Beverage shall be preserved unimpaired and any claim
existing or action or proceeding pending by or against either the Company or
Capital Beverage may be prosecuted to judgment as if such Merger had not taken
place except as they may be modified with the consent of such creditors and all
debts, liabilities and duties of or upon each of the Company and Capital
Beverage shall attach to Capital Beverage, and may be enforced against it to the
same extent as if such debts, liabilities and duties had been incurred or
contracted by it. The parties hereto agree that from time to time and as and
when requested by Capital Beverage, or by its successors or assigns, to the
extent permitted by law, the officers and directors of the Company or Capital
Beverage are fully authorized in the name of the Company or otherwise to execute
and deliver all such deeds, assignments, confirmations, assurances and other
instruments and to take or cause to be taken all such action as is required to
vest, perfect, confirm in or assure Capital Beverage title to and possession of
all of said property, rights, privileges, powers and franchises and otherwise to
carry out the intent and purposes of this Merger Agreement.
XI.
TERMINATION, WAIVER, AMENDMENT.
11.01 TERMINATION OR ABANDONMENT. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and abandoned at any
time before completion of the filing require to be made under Article II hereof,
whether before or after adoption and approval of the Agreement by the
shareholders of the Company and Capital Beverage:
(a) By mutual consent of the Company, Capital Beverage and Stella:
(b) By the Company at any time after August 31, 1996, if, by that
date, the conditions set forth in Sections 9.01 and Article III hereof shall not
have been met or waived; or
(c) By Capital Beverage at any time after August 31, 1996, if, by
that date, the conditions set forth in Section 9.02 and Article III hereof shall
not have been met or waived.
In the event of termination and abandonment under this section 11.01, this
Agreement shall forthwith become void and there shall be no liability on the
part of the Company, Capital Beverage or Stella or their respective officers and
directors.
11.02 AMENDMENT OR SUPPLEMENT. At any time before or after approval and
adoption of this Agreement by the shareholders of the Company and Capital
Beverage and prior to the Effective Date, this Agreement may be amended or
supplemented in a writing executed by Stella and the duly authorized officers
and/or directors of the Company and Capital Beverage with respect to any of the
terms contained
14
<PAGE> 16
herein except that, (i) there shall be no amendment to the provisions of Article
II without the approval of the Board of Directors of both corporations, and (ii)
there shall be no amendment to the provisions with respect to the Exchange Ratio
of [Preferred Shares] as provided herein unless such change is made with the
approval of the Boards of Directors of both corporations before the shareholders
of Capital Beverage have approved this Agreement.
11.03 EXTENSION OF TIME, WAIVER, ETC. At any time prior to the Effective
Date, the parties hereto, by writing executed by Stella and the duly authorized
officers and/or directors of the Company and Capital Beverage, may (i) extend
the time for the performance of any of the obligations or other acts of the
parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions contained herein
except the conditions set forth in Article III hereof; provided that no failure
or delay by any party hereto in exercising any right hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right hereunder.
Any agreement on the part of any party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of such
party.
XII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
12.01 SURVIVAL OF REPRESENTATIONS. All representations. warranties and
agreements made by any party in this Agreement or pursuant thereto shall survive
the Closing Date until the second anniversary of the Closing Date, but all
claims made by virtue of such representations, warranties and agreements shall
be made under, and subject to the limitations set forth in this Agreement.
12.02 AGREEMENT TO INDEMNIFY. Subject to the terms and conditions of this
Article XII, the Company hereby agree, to indemnify, defend and hold harmless
Capital Beverage and each officer and director of Capital Beverage
(collectively, the "Buyer Group") from and against all Liabilities (as defined
in the Escrow Agreement) asserted against, resulting to, imposed upon or
incurred by any member of the Buyer Group, directly or indirectly, by reason of
or resulting from a breach of any agreement, representation or warranty of the
Company contained in or made pursuant to this Agreement.
12.03 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities of
the Indemnifying Parties under Section 12.03 hereof with respect to a Notice of
Claim (as defined in the Escrow Agreement) resulting from the assertion of
Liabilities by third parties shall be subject to the following terms and
conditions:
(a) Capital Beverage or any member of the Buyer Group against whom
any such Claim is asserted will give Stella prompt notice of any such Claim, and
Stella will undertake the defense thereof by representatives of its own
choosing.
15
<PAGE> 17
(b) In the event Stella, within seven (7) days after notice of any
Claim fails to give notice of his agreement to defend, or thereafter fails to
promptly defend, Capital Beverage or any member of the Buyer Group against whom
such Claim has been asserted will (upon further notice to Stella) have the right
to undertake the defense, compromise or settlement of such Claim on behalf of
and for the account and risk of the Indemnifying Parties subject to the right of
Stella to assume such defense at any time prior to settlement, compromise or
final determination thereof.
(c) Anything in this Section 12.03 to the contrary notwithstanding,
(i) if there is a reasonable probability that a Claim may materially and
adversely affect Capital Beverage or any other member of the Buyer Group other
than a result of money damages or other money payments, Capital Beverage or such
member shall have the right, at its own cost and expense, to reasonably defend,
compromise or settle such Claim and (ii) the Indemnifying Parties shall not,
without Capital Beverage's or such member's written consent, settle or
compromise any Claim or consent to entry of any judgment which does not include
as an unconditional term thereof the giving by the claimant or the plaintiff to
Capital Beverage and/or such member, as the case may be, a release from all
liability in respect of such Claim.
(d) In the event there is a Final Determination (as defined in the
Escrow Agreement) of any Liability, the Escrow Agent shall dispose of the Escrow
Fund as provided in the Escrow Agreement.
12.04 CAPITAL BEVERAGE INDEMNITY. Subject to the terms and conditions of
this Article XII, Capital hereby agrees to indemnify, defend and hold harmless
Stella from and against all claims, losses, damages or liabilities arising out
of or incurred by Stella directly or indirectly, by reason of or resulting from
a breach of any agreement, representation or warranty of Capital Beverage
contained in or made pursuant to this Agreement or the Escrow Agreement.
12.05 REMEDIES CUMULATIVE. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any remedies
against the other party hereto.
XIII.
MISCELLANEOUS
13.01 EXPENSES. Whether or not the Merger is consummated, neither party
shall be responsible for the expenses or fees incurred by the other party.
13.02 PARTIES IN INTEREST. All the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by
the respective successors and assigns of the parties hereto.
16
<PAGE> 18
13.03 ENTIRE AGREEMENT. This Agreement, including the exhibits, schedules,
lists and other documents and writings referred to herein or delivered pursuant
hereto, which form a part hereof, and the Escrow Agreement contain the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or in the Escrow Agreement. This Agreement
and the Escrow Agreement supersede all prior agreements and understandings
between the parties with respect to its subject matter hereof and thereof.
13.04 HEADINGS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.05 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or mailed (registered or certified mail,
postage prepaid, return receipt requested) as follows:
If to the Company prior to the Effective Date:
Vito Santoro, Inc. (D/B/A/ Caribe Distributors)
1111 East Tremont Avenue
Bronx, New York 10460
Attention: Carmine Stella
Copy to: Manning, Raab, Dealy & Sturm
440 Park Avenue South - 7th Floor
New York, New York 10016
Attention: William J. Dealy, Esq.
If to Stella:
Carmine N. Stella
1111 East Tremont Avenue
Bronx, New York 10460
Copy to: Manning, Raab, Dealy & Sturm
440 Park Avenue South - 7th Floor
New York, New York 10016
Attention: William J. Dealy, Esq.
If to Capital Beverage or, after the Effective Date, the Company:
17
<PAGE> 19
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
Attention: Eugene Fernandez
Copy to: Weber & Weber
300 Rabro Drive
Hauppauge, New York 11788
Attention: William E. Weber, Esq.
or such other address or such additional recipient as any part may have
furnished to the others in writing in accordance herewith, except that notices
of change address shall only be effective upon receipt.
13.06 ARBITRATION AND GOVERNING LAW. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of New York.
In the event of any dispute or controversy between or among the parties hereto,
arising under, out of or in connection with or in any way affecting or in
relation to this Agreement, the parties agree to submit such dispute to binding
arbitration, pursuant to the Commercial Arbitration Rules of the American
Arbitration Association before an arbitrator in the City of New York whose
decision shall be final and binding upon the parties hereto with the same force
and effect as a judgment entered by a court of competent jurisdiction and the
parties agree that judgment may be entered on any award or decision rendered by
the arbitrator in any court having jurisdiction located within the City and
County of New York. Any action brought for preliminary or injunctive relief or
with regard to the rights of the parties to litigate must also be brought in the
State or Federal Courts located in the City and County of New York.
18
<PAGE> 20
13.07 COUNTERPARTS. This Merger Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Merger Agreement is hereby executed on behalf of
each of the parties hereto and attested by their respective officers thereunto
duly authorized.
VITO SANTORO, INC.
(D/B/A CARIBE DISTRIBUTORS)
a New York corporation
Attest:
/S/ CAROL MACCHIARULO By: /S/ CARMINE N. STELLA
- --------------------- --------------------------
Secretary Carmine N. Stella,
Chairman of the Board
CAPITAL BEVERAGE CORPORATION
a Delaware corporation
Attest:
/S/ CAROL MACCHIARULO By: /S/ EUGENE FERNANDEZ
- --------------------- ------------------------
Secretary Eugene Fernandez, Director
AS TO THE PROVISIONS
REGARDING THE ESCROW:
/S/ CARMINE N. STELLA
19
<PAGE> 21
DISCLOSURE SCHEDULE FOR AGREEMENT
AND PLAN OF MERGER BY AND BETWEEN VITO SANTORO, INC. D/B/A/
CARIBE DISTRIBUTORS AND CAPITAL BEVERAGE, INC.
dated as of June 26, 1996
i. 4.04 The Company has a "C" license to distribute beer and
non-alcoholic beverages. It is intended that the "C" license
will be transferred to Capital Beverage Corporation which will
be handled by Capital's attorneys.
ii. 4.05 See the Financial Statements submitted on behalf of the
Company by Chaifetz & Schreiber, P.C. and Feldman, Radin &
Co., P.C.
iii. 4.06 See the Balance Sheet prepared by Chaifetz & Schreiber,
P.C. and Feldman, Radin & Co., P.C. through March 31, 1996.
The Company does not have claims which are not reflected in
the Financial Statements or set forth below to the actual
knowledge of its officers.
iv. 4.07 The Company has not made any individual Capital
expenditures in excess of $60,000.00 or $250,000.00 in the
aggregate for additions to property, plant, equipment or
intangible Capital assets during the period from December 31,
1995 through the present date.
v. 4.08 The Company is currently on extension to file the
corporate tax return for the year 1995. There are no material
tax liens filed against the Company at this time.
vi. 4.09 The Company does not own any real property.
vii. 4.10 The Company leases the property at its current business
address at 415 Devoe Avenue Bronx, New York and 1111 East
Tremont Avenue Bronx, New York. (Copies of the leases have
been provided to Capital Beverage).
viii. 4.11 The Company uses the trade name "Caribe" and a logo which
is used with the name "Caribe" (A copy of the logo has been
provided to Capital Beverage). The Company does not own any
registered patents, trademarks or copyrights.
ix. 4.12 Litigation. The Company is involved in the following
litigations and/or claims:
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(i) a claim for $11,736.00 by Colonia Insurance Company through Global
Facilities, Inc. The claim is disputed by the Company. (A copy of the relevant
correspondence has been provided to Capital Beverage).
(ii) Adela Oropeza v. Caribe Products d/b/a/ Caribe Wholesale, et. al.
This is a negligence case involving an accident in which Caribe and the landlord
have been sued. This case is being defended by the insurance company. (Copies of
the pleadings and relevant documents have been provided to Capital Beverage).
(iii) There is a claim by Crystal America or Premium Beverage Packers for
$27,665.00 for Product against Capital Beverage Corp. which may involve Caribe.
The claim is disputed by Capital and Caribe. (Copies of the relevant documents
and correspondence have been provided to Capital Beverage).
(iv) Nagibe Altai v. Caribe. Suit against Caribe for assault by an alleged
employee of Caribe. This matter is being defended by the insurance company.
(Copies of the pleadings, correspondence and relevant documents have been
provided to Capital Beverage).
(v) Higgins v. Caribe Beverages, Inc. This is a negligence claim which is
being defended by the insurance company. The Plaintiff lost his foot in an
accident and is suing in negligence. This matter is being handle by insurance
counsel Rende, Ryan and Downes. (Copies of the correspondence and relevant
documents have been provided to Capital Beverage).
(vi) Pepsi Cola, Inc. v. Ponce Beverage Corp. d/b/a/ Caribe Beverage. This
claim arose before Caribe took over the business. (Copies of the Summons and
Complaint, correspondence and relevant documents have been provided to Capital
Beverage).
(vii) Claim by Citibank for balance of $696.35. Caribe disputes this claim
since Caribe has a counterclaim for $11,000.00 (A copy of the relevant documents
and correspondence has been provided to Capital Beverage).
x. 4.13 There are no employee benefit plans for the Company other
than health insurance for management employees and the routine
commitment to sick days, vacations and bereavement leave. The
Company does not have a collective bargaining agreement with a
union.
xi. 4.14 The Company maintains a checking account at Chemical Bank
400 Rella Blvd. Suffrin, New York 10901. The signatories on
the checking account are:
1. Carmine Stella, President
2. Anthony Stella, Sales Manager
3. Carol Macchiarulo, Secretary
The account number is: 590-008-412
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xii. 4.15 Caribe has an ongoing relationship by which it
distributes beer for Capital Beverage. Obviously, Capital
Beverage is fully informed of that relationship.
(i) Caribe routinely buys products from certain beer and soda
distributors. For example, Caribe buys Heineken from Oak Distributors. Caribe's
purchases of these products exceeds $100,000.00 per year. Caribe has no written
commitment with Oak Distributors, but has a course of dealing.
4.15(c) not applicable.
4.15(d) not applicable.
4.15 (e) See the litigations and claims listed above.
Also, Caribe has received a notice dated June 12, 1996 regarding a claim
for $8,250.00 for additional coverage with regard to workers compensation
insurance premiums. Caribe is investigating this matter with its insurance
broker. (A copy of the notice has been provided to Capital Beverage). See claim
of Crystal America referred to above.
xiii. 4.16 There are no current claims for returns except for the
claim regarding the Product of Crystal America. However,
returns are routinely made by customers and are handled by
Caribe on a case by case basis.
There are also regular returns of used beverage containers ("UBC") for
deposits pursuant to the Beverage Container Law. By law, Caribe must pay $0.05
for each UBC returned provided that the UBC is appropriately returned.
xiv. 4.17 A list of the customers of Caribe which includes all
customers representing 10 percent or more of the Company's
total annual sale of beverage products during 1995 is
attached. A list containing the names of the ten largest
suppliers from whom the Company purchased products during 1995
is also attached.
xv. 4.18 The employees of the Company earning in excess of $50,000
per year are Carmine Stella, President - 44 yrs old, Anthony
Stella, Sales Manager - 45 yrs old, and Carol Macchiarulo,
Secretary - 40 yrs old.
xvi. 4.19 not applicable.
xvii. 4.20 Caribe receives routine tickets for relatively minor
violations regarding dirty sidewalks, etc.
(a) See notice regarding workman's compensation insurance listed above.
xviii. 4.21 not applicable.
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Exhibit A
CAPITAL BEVERAGE CORPORATION
Certificate of Designations, Powers,
Preferences and Rights of the
7% Cumulative Convertible Preferred Stock, Series B
($.01 Par Value)
Liquidation Value $4.00 per Share
-------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------
The undersigned, a Vice President of Capital Beverage Corporation, a
Delaware corporation (hereinafter called the"Corporation"), DOES HEREBY CERTIFY
that the following resolution has been duly adopted by the Board of Directors of
the Corporation:
RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation (the "Board of Directors") by the
provisions of the Certificate of Incorporation of the Corporation, there hereby
is created, out of the 1,000,000 shares of preferred stock, $.01 par value, of
the Corporation authorized in Article 5 of its Certificate of Incorporation (the
"Preferred Stock"), a series of Preferred Stock of the Corporation consisting of
Three Hundred Thousand (300,000) shares, which series shall have the following
designations, powers, preferences, rights, qualifications, limitations and
restrictions (in addition to the designations, powers, preferences, rights,
qualifications, limitations and restrictions set forth in the Certificate of
Incorporation of the Corporation which are applicable to the Preferred Stock):
1. Designation; Number of Shares; Stated Value
The designation of said series of the Preferred Stock shall be 7%
Cumulative Convertible Preferred Stock, Series B (the "Series B Preferred
Stock"). The number of shares of Series B Preferred Stock shall be limited to
Three Hundred Thousand (300,000). The liquidation value of the Series B
Preferred Stock shall be $4.00 per share. The shares of Series B Preferred Stock
shall be issued as full shares and shall have a stated value of $4.00.
2. Number of Shares
The Board of Directors reserves the right by subsequent amendment of
this resolution from time to time to decrease the number of shares which
constitute the Series B Preferred Stock (but not below the number of shares
thereof then outstanding) and, subject to anything to the contrary set forth in
the
<PAGE> 25
Certificate of Incorporation of the Corporation applicable to the Preferred
Stock, to subdivide the number of shares, the stated value per share and the
liquidation value per share of the Series B Preferred Stock and in other
respects to amend, within the limitations provided by law, this resolution and
the Certificate of Incorporation of the Corporation.
3. Rank
The shares of Series B Preferred Stock shall, subject to the
provisions of paragraphs 5 and 6 hereof, with respect to the payment of
dividends and upon the liquidation, dissolution or winding up of the affairs of
the Corporation, rank (i) senior and prior to the common stock, par value $.001
per share, of the Corporation (the "Common Stock") and any other class or series
of capital stock of the Corporation hereafter issued the terms of which
specifically provide that shares of such class or series shall rank junior to
the shares of the Series B Preferred Stock (collectively, the "Junior
Securities"); (ii) on a parity with any other class or series of capital stock
of the Corporation hereafter issued the terms of which specifically provide that
shares of such class or series shall rank on a parity with the shares of the
Series B Preferred Stock (collectively, the "Parity Securities"); and (iii)
junior to the 7% Cumulative Preferred Stock, Series A, of the Corporation and to
any other class or series of capital stock of the Corporation hereafter issued
the terms of which specifically provide that shares of such class or series
shall rank senior to shares of Series B Preferred Stock (collectively, the
"Senior Securities").
4. Conversion Rights
(a) Each share of the Series B Preferred Stock shall be convertible
at the option of the holder thereof into fully paid and nonassessable shares of
Common Stock of the Corporation at the rate of one (1) share of Common Stock for
each share of Series B Preferred Stock. Such conversion may be effected at the
option of the holder of shares of Series B Preferred Stock during the period
commencing one hundred eighty (180) days and terminating at the close of
business on the day prior to the third anniversary of the effective date of a
registration statement filed pursuant to the Securities Act of 1933, as amended,
offering shares of the Company's Common Stock, $.001 par value, in an initial
public offering.
(b) The Common Stock deliverable upon conversion of Series B
Preferred Stock shall be Common Stock of the Corporation, par value $.001 per
share, as constituted at the date of this certificate, except as otherwise
provided in subdivision (i), (iii) and (v) of paragraph 4(e).
(c) In order for any holder of Series B Preferred Stock to convert
the same into Common Stock, he shall surrender the certificate or certificates
for such Series B Preferred Stock at the office of the Transfer Agent for the
Series B Preferred Stock, which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank, or
accompanied by proper instruments of transfer to the Corporation or in blank,
and shall give written notice to the Corporation at such office that he elects
so to convert such Series B Preferred Stock, and state in writing therein the
name or names in which he wishes the certificate or certificates for Common
Stock to be issued. Every such notice of such election to convert shall
constitute a contract between the holder of such Series B Preferred Stock and
the Corporation, whereby the holder of such Series B Preferred Stock shall be
deemed to subscribe for the amount of Common
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<PAGE> 26
Stock which he shall be entitled to receive upon such conversion, and, in
satisfaction of such subscription, to deposit the Series B Preferred Stock to be
converted and to release the Corporation from all liability thereunder (except
to deliver the shares deliverable upon conversion thereof), and thereby the
Corporation shall be deemed to agree that the amount paid to it for such Series
B Preferred Stock, together with the surrender of the certificate or
certificates therefor and the extinguishment of liability thereon (except as
aforesaid), shall constitute full payment of such subscription for Common Stock
to be delivered upon such conversion. Shares of Series B Preferred Stock
surrendered for conversion during the period from the close of business on any
record date for the payment of dividends next preceding any Dividend Payment
Date to the opening of business on the Dividend Payment Date shall be
accompanied by payment in funds acceptable to the Corporation of an amount equal
to the dividend payable on such Dividend Payment Date on the shares being
surrendered for conversion.
(d) The Corporation will, as soon as practicable after such deposit
of certificates for Series B Preferred Stock accompanied by the written notice
and the statement above prescribed and the payment of any amount required by the
provisions of paragraph 4(c), deliver at said office to the person for whose
account such Series B Preferred Stock was so surrendered, or to his nominee or
nominees, certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid, together with any cash adjustment of any
fraction of a share as hereinafter provided. Subject to the following provisions
of this paragraph, such conversion shall be deemed to have been made as of the
date of such surrender of the Series B Preferred Stock to be converted; and the
person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series B Preferred Stock shall be treated for all purposes as
the record holder or holders of such Common Stock on such date. The Corporation
shall not be required to convert any shares of Series B Preferred Stock while
the stock transfer books of the Corporation are closed for any purpose; but the
surrender of Series B Preferred Stock for conversion during any period while
such books are so closed shall become effective for conversion immediately upon
reopening of such books, as if the surrender had been made on the date of such
reopening, and conversion shall be at the conversion rate in effect at such
date.
Except as provided in the last sentence of paragraph 4(c) no
adjustments in respect of, or payments of dividends on, shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion, shall be
made upon the conversion of any shares of Series B Preferred Stock; provided,
however, that if any shares shall be converted subsequent to the close of
business on the record date next preceding a Dividend Payment Date but on or
prior to the opening of business on such Dividend Payment Date, the registered
holder of such shares at the close of business on such record date shall be
entitled to receive the dividend payable on such shares on such Dividend Payment
Date notwithstanding the conversion thereof.
(e) The conversion rate shall be subject to adjustment as follows:
(i) In case the Corporation shall (A) pay a dividend on its
Common Stock in shares of its Common Stock, (B) subdivide its outstanding
shares of Common Stock, or (C) combine its outstanding shares of Common
Stock into a smaller number of shares, the conversion rate in effect at
the time of the record date of such dividend, subdivision, or combination
shall be proportionately adjusted so
3
<PAGE> 27
that the holder of any Series B Preferred Stock surrendered for conversion
after such time shall be entitled to receive the number and kind of shares
which he would have owned or have been entitled to receive had such Series
B Preferred Stock been converted immediately prior to such time. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(ii) No adjustment in the conversion rate applicable to a
share of Series B Preferred Stock shall be required unless such adjustment
would require an increase or decrease of at least 1% in such rate;
provided, however, that the Corporation may make any such adjustment at
its election; and provided further, however, that any adjustments which by
reason of this subdivision (ii) are not made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this paragraph 4(e) shall be made to the nearest one-hundredth of a share.
Anything in this paragraph 4(e) notwithstanding, the Corporation shall be
entitled to make such increases in the conversion rate, in addition to
those required by this paragraph 4(e), as it in its discretion shall
determine to be advisable in order that any stock dividend, subdivision or
combination of shares hereafter made by the Corporation to its
stockholders shall not be taxable.
(iii) In case of any consolidation of the Corporation into, or
merger of the Corporation with or into, any other corporation, or in case
of any sale or transfer of all or substantially all of the assets of the
Corporation, or in case of any reclassification of its shares of Common
Stock, the holder of each share of Series B Preferred Stock then
outstanding shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities, cash and other
property receivable upon such consolidation, merger, sale, transfer or
reclassification by a holder of the number of shares of Common Stock of
the Corporation into which such share of Series B Preferred Stock might
have been converted immediately prior to such consolidation, merger, sale,
transfer or reclassification. In any such event, effective provision shall
be made, in the articles or certificate of incorporation of the resulting
or surviving corporation or other corporation issuing or delivering such
shares, other securities, cash or other property or otherwise, so that the
provisions set forth herein for the protection of the conversion rights of
the Series B Preferred Stock shall thereafter be applicable, as nearly as
reasonable may be, to any such other shares of stock and other securities,
cash and other property deliverable upon conversion of the Series B
Preferred Stock remaining outstanding or other convertible stock or
securities received by the holders in place thereof; and any such
resulting or surviving corporation or other corporation issuing or
delivering such shares, other securities, cash or other property shall
expressly assume the obligation to deliver, upon the exercise of the
conversion privilege, such shares, securities, cash or other property as
the holders of the Series B Preferred Stock remaining outstanding, or
other convertible stock or securities received by the holders in place
thereof, shall be entitled to receive, pursuant to the provisions hereof,
and to make
4
<PAGE> 28
provision for the protection of the conversion right as above provided. In
case shares, securities, cash or other property other than Common Stock
shall be issuable or deliverable upon conversion as aforesaid, then all
references to Common Stock in this paragraph 4(e) shall be deemed to
apply, so far as provided and as nearly as is reasonable, to any such
shares, other securities, cash or other property.
(iv) No fractional interests in Common Stock shall be issued
upon conversion of shares of Series B Preferred Stock. Instead of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any share of Series B Preferred Stock, the Corporation will
pay a cash adjustment in respect of such fractional interest in an amount
equal to the liquidation value provided in Paragraph 6 hereof.
(v) In the event that at any time, as a result of any
adjustment made pursuant to this paragraph 4(e), the holder of any share
of Series B Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than shares
of its Common Stock, the number of such other shares so receivable upon
conversion of any share of Series B Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provision with respect to the Common Stock contained
in subdivisions (i) to (iv), inclusive, above, with respect to the Common
Stock.
(vi) Whenever any adjustment is required in the number of
shares into which each share of Series B Preferred Stock is convertible,
the Corporation shall forthwith (A) file with the Transfer Agent for the
Series B Preferred Stock a statement describing in reasonable detail the
adjustment in the method of calculation used and (B) cause a copy of such
statement to be mailed to the holders of records of the Series B Preferred
Stock.
(f) Upon any conversion of shares of Series B Preferred Stock, the
shares so converted shall have the status of authorized and unissued shares of
Preferred Stock, unclassified as to series, and the number of shares of
Preferred Stock which the Corporation shall have authority to issue shall not be
decreased by the conversion of shares of Series B Preferred Stock. The
Corporation shall at all times reserve and keep available, out of its authorized
and unissued stock or stock held as treasury stock, solely for the purpose of
effecting the conversion of the Series B Preferred Stock, such number of shares
of its Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series B Preferred Stock from time to time
outstanding. For the purpose of this paragraph 4(f), the full number of shares
of Common Stock issuable upon the conversion of all outstanding shares of Series
B Preferred Stock shall be computed as if at the time of computation of such
number of shares of Common Stock all outstanding shares of Series B Preferred
Stock were held by a single holder. The Corporation shall from time to time, in
accordance with the laws of the State of Delaware, increase the authorized
number of shares of its
5
<PAGE> 29
Common Stock if at any time the number of shares of its Common Stock not
outstanding shall not be sufficient to permit the conversion of all the then
outstanding Series B Preferred Stock.
(g) The Corporation will pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series B Preferred Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock in a name other than
that in which the Series B Preferred Stock so converted was registered, and no
such issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax, or has established, to
the satisfaction of the Corporation, that such tax has been paid.
(h) Before taking any action which would cause an adjustment
reducing the conversion rate such that the conversion price would be below the
then par value of the Common Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at the conversion rate as so adjusted."
5. Dividends (a) From and after the date of issuance, the holders of
outstanding shares of Series B Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors of the Corporation, or a duly
authorized committee thereof ("Authorized Board Committee"), to the extent
permitted under the General Corporation Law of the State of Delaware, and before
any dividend or other distribution is declared or paid with respect to
outstanding Junior Securities, cumulative dividends payable annually in arrears
on January 1 in each year (each of such dates is referred to herein as a
"Dividend Payment Date" and the period between consecutive Dividend Payment
Dates is referred to herein as a "Dividend Period") commencing January 1, 1997.
The dividend rate on outstanding shares of Series B Preferred Stock shall be
Twenty-Eight Cents ($.28) per share per annum, payable in either cash or in
shares of Common Stock of the Corporation at the discretion of the Board of
Directors of the Corporation or an Authorized Board Committee, computed on the
basis of a 365-day year and the actual number of days elapsed in each Dividend
Period. Such dividends shall be payable to the holders of record of outstanding
shares of Series B Preferred Stock as their names shall appear on the stock
register of the Corporation on such record date, not more than thirty or less
than ten days preceding each such Dividend Payment Date, as shall be fixed by
the Board of Directors of the Corporation or an Authorized Board Committee, in
advance of payment of each such dividend.
(b) Dividends on outstanding shares of Series B Preferred Stock
shall be fully cumulative and shall accrue whether or not declared, from the
respective dates of issuance of such shares of Series B Preferred Stock until so
paid. Any accumulated unpaid dividends for past Dividend Periods may be declared
by the Board of Directors of the Corporation or an Authorized Board Committee at
any time in the sole discretion of the Board or such Authorized Board Committee,
and if so declared shall be payable on such date (whether or not a Dividend
Payment Date) as the Board of Directors or such Authorized Board Committee may
establish, to the holders
6
<PAGE> 30
of record of outstanding shares of Series B Preferred Stock as their names shall
appear on the stock register of the Corporation on such record date, not more
than thirty or less than ten days preceding the date of payment, as shall be
fixed by the Board of Directors or an Authorized Board Committee. No interest or
sum of money in lieu of interest shall be payable in respect of accumulated
unpaid dividends on outstanding shares of Series B Preferred Stock.
(c) Dividends shall not be paid on the outstanding shares of Series
B Preferred Stock for any Dividend Period in which dividends for any prior
Dividend Period have not been paid in full on any Senior Securities or Parity
Securities from time to time outstanding; provided, however, that in the event
such failure to pay accrued dividends is with respect only to Parity Securities,
cash dividends may be declared, paid or set apart for payment, without interest,
pro rata on shares of Series B Preferred Stock and shares of such Parity
Securities so that the amounts of any cash dividends declared, paid or set apart
for payment on outstanding shares of the Series B Preferred Stock and
outstanding shares of such Parity Securities shall in all cases bear to each
other the same ratio that, at the time of such declaration, payment or setting
apart for payment, all accrued but unpaid cash dividends on outstanding shares
of Series B Preferred Stock and outstanding shares of such Parity Securities
bear to each other.
(d) So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not (i) except as set forth in subparagraph
(c) of this paragraph 5, declare, pay or set apart for payment any dividend on
any outstanding Parity Securities or Junior Securities (other than a dividend
which is payable in shares of Parity Securities or Junior Securities), (ii) make
any payment on account of, or set apart for payment, money for a sinking or
other similar fund for the purchase, redemption, retirement or other acquisition
for value of any of, or redeem, purchase, retire or otherwise acquire for value
any of, any outstanding Parity Securities or Junior Securities or any
convertible securities, warrants, rights, calls or options exercisable for or
convertible into any Parity Securities or Junior Securities, or (iii) make any
distribution in respect of any outstanding Parity Securities or Junior
Securities or any convertible securities, warrants, rights, calls or options
exercisable for or convertible into any Parity Securities or Junior Securities,
in any such case either directly or indirectly, and whether in cash, obligations
or shares of the Corporation or other property (other than distributions or
dividends of a particular class or series of Parity Securities or Junior
Securities to holders of such Parity Securities or Junior Securities), and shall
not permit any corporation or other entity directly or indirectly controlled by
the Corporation to purchase, redeem or otherwise acquire for value any
outstanding Parity Securities or Junior Securities or any convertible
securities, warrants, rights, calls or options exercisable for or convertible
into any Parity Securities or Junior Securities, unless prior to or concurrently
with such declaration, payment, setting apart for payment, purchase, redemption,
retirement, other acquisition for value or distribution, as the case may be, all
accrued and unpaid dividends, if any, on outstanding shares of Series B
Preferred Stock not paid with respect to all Dividend Periods theretofore ended
shall have been paid.
(e) Subject to the foregoing provisions of this paragraph 5, the
Board of Directors of the Corporation, or an Authorized Board Committee thereof,
may declare and the Corporation may pay or set apart for payment dividends and
other distributions on any Senior Securities, Parity
7
<PAGE> 31
Securities or Junior Securities and may purchase or otherwise acquire any Senior
Securities, Parity Securities or Junior Securities or any convertible
securities, warrants, rights, calls or options exercisable for or convertible
into any Senior Securities, Parity Securities or Junior Securities, and in such
event the holders of outstanding shares of Series B Preferred Stock shall not be
entitled to share therein; provided, however, the Corporation shall not declare
or pay any dividend or make any other distribution on any outstanding Senior
Securities, Parity Securities or Junior Securities if the net assets of the
Corporation after the payment of such dividend would be insufficient to pay to
the holders of the outstanding shares of Series B Preferred Stock the entire
amount of the liquidation preference to which such holders are entitled pursuant
to paragraph 6 hereof.`
6. Liquidation (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, before
any distribution or payment shall be made to the holders of any outstanding
Junior Securities, including the Common Stock, subject to the rights of
creditors, the holders of outstanding shares of Series B Preferred Stock shall
be entitled to be paid out of the assets of the Corporation available for
distribution to stockholders, an amount in cash equal to $4.00 per share,
together with an amount in cash equal to all accrued but unpaid dividends on
such shares to the date fixed for liquidation, dissolution or winding up of the
affairs of the Corporation; provided, however, that the holders of outstanding
shares of Series B Preferred Stock shall not be entitled to receive such
preferential liquidation payments unless prior thereto the preferential
liquidation payments on all outstanding Senior Securities have been paid in
full. Except as provided in the preceding sentence, the holders of outstanding
shares of Series B Preferred Stock shall not be entitled to any distribution in
the event of the liquidation, dissolution or winding up of the affairs of the
Corporation. If, upon such liquidation, dissolution or winding up of the affairs
of the Corporation the assets of the Corporation available for distribution to
the holders of outstanding shares of Series B Preferred Stock and outstanding
Parity Securities shall be insufficient to permit the payment in full to such
holders and to the holders of any outstanding Parity Securities of the full
amount of the preferential liquidation amounts to which they are then entitled,
the entire assets of the Corporation thus available for distribution shall be
distributed among the holders of outstanding shares of Series B Preferred Stock
and holders of outstanding shares of Parity Securities ratably in proportion to
the full amounts to which such holders would otherwise be entitled if such
assets were sufficient to permit payment in full. After the payment of all
preferential liquidation amounts to which the holders of outstanding shares of
Series B Preferred Stock shall be entitled, such holders shall not be entitled
to any further participation in any distribution of the assets of the
Corporation to its stockholders.
(b) For purposes of this paragraph 6, neither the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with any other
corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, unless such
voluntary sale, conveyance, exchange or transfer shall be in connection with a
plan of liquidation, dissolution or winding up of the affairs of the
Corporation.
8
<PAGE> 32
7. Voting Rights
The shares of Series B Preferred Stock shall have the following
voting rights in addition to any voting rights set forth in the Certificate of
Incorporation of the Corporation which are applicable to the Preferred Stock.
(a) So long as any shares of the Series B Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of the holders of
at least 66 2/3% of the shares of Series B Preferred Stock then outstanding,
amend, alter or repeal any of the provisions of the Certificate of the
Designations, Powers, Preferences and Rights of the Series B Preferred Stock or
the Certificate of Incorporation of the Corporation, or authorize any
reclassification of the Series B Preferred Stock, so as in any such case to
affect adversely the preferences, special rights or powers of the Series B
Preferred Stock, or authorize any capital stock of the Corporation ranking,
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation, prior to the Series B Preferred Stock.
(b) So long as any shares of the Series B Preferred Stock remain
outstanding, the Corporation will not, either directly or indirectly or through
merger or consolidation with any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of the holders of
at least a majority in voting power of shares of the Series B Preferred Stock
then outstanding, increase the authorized number of shares of Preferred Stock or
create, or increase the authorized number of shares of, any other class of
capital stock of the Corporation ranking on a parity with the Preferred Stock
either as to payment of dividends or upon liquidation, dissolution or winding up
of the Corporation.
(c) In exercising the voting rights set forth in this paragraph 7 or
when otherwise granted voting rights by operation of law, each share of Series B
Preferred Stock shall be entitled to one vote.
(d) Except as set forth herein or as otherwise required by law,
holders of Series B Preferred Stock shall have no special voting rights and
their consent shall not be required for taking any corporate action.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and
do affirm the foregoing as true under the penalties of perjury this ___ day of
________, 1996.
_______________________________
Robert A. Vessa, Vice President
(Corporate Seal)
ATTEST:
_____________________________
Carol Macchiarulo, Secretary
9
<PAGE> 33
Exhibit B
1st CLASS MANAGEMENT INC. 1968
Business Brokers Licensed Real Estate Brokers Registered Mortgage Brokers NYS
Banking Dept.
Suite 3410 Suite 307
One Penn Plaza 900 Walt Whitman Rd
New York, N.Y. 10119 Melville, N.Y. 11747
(212) 643-8190 (516) 547-0290
---------------------------------------------------
APPRAISAL REPORT
VITO SANTORO, INC. D/B/A CARIBE DISTRIBUTORS
1st Class Management, Inc. has been engaged in the enterprise of business
appraisal, management, consulting and brokerage since 1968. It specializes in
small, closely held businesses with sales under 10 million dollars annually and
assets valued at 5 million dollars or less. Max T. Krotman, Esq. graduated the
Cornell University, School of Industrial & Labor Relations in 1967 with a
concentration in economics. He graduated Columbia Law School in 1970 with
honors, and has been active in 1st Class Management, Inc. since its inception.
1st Class Management, Inc. has been asked to conduct a short form
appraisal for determining the value of the business of "Caribe" for purposes of
evaluating it as a going concern. It has a general knowledge of the field in
which the business operated, has reviewed the preliminary financial statements
of Caribe for 1994 and 1995, and interviewed the management of Caribe for
additional information. It has not done an independent audit or verified any
information furnished by Caribe. The nature and uniqueness of Caribe makes it
impossible to evaluate it with certainty and only by actually selling the
business to an informed third party could its current value be accurately
determined.
NATURE OF THE BUSINESS
Caribe operates a business located at 1111 East Tremont Avenue, Bronx, New
York 10460, distributing beer, soda, and other beverages to wholesale and retail
sellers of such beverages primarily in the New York metropolitan area. It has
been in business under the management of Carmine Stella for five years and
developed a customer base of approximately 700 grocery operations which pick up
and purchase merchandise COD at the Premises and 50 wholesalers who pick up and
purchase on the same terms. Caribe does not own or lease any vehicles for the
distribution of its beverages. It is a non-exclusive wholesaler of all the
beverages its sells. It sells many brands, none of which constitute more than
30% of its total sales and its depends on Anheuser Busch products for only
approximately 15% of total sales.
Caribe has an experienced management team headed by Carmine Stella, a
chief executive with an accounting background and 16 years experience in the
wholesale beer and beverage business. In addition, sales are supervised by a
team of seven people with a combined 40 years experience in this business. The
Caribe warehouse facility is large enough to store six million dollars in
merchandise and is located at the intersection point of key highways in the
Bronx, making it central for deliveries to and pick-ups by customers in a market
area serving ten to twelve million people. In addition, Caribe has a long
established relationship with Chemical Bank, which enables it to conduct large
commercial transactions.
<PAGE> 34
Budweiser
In the last few years, Anheuser Busch has increased the volume of its
products which it distributes through wholly owned subsidiaries and franchised
distributors and reduced the proportion of its products which were sold through
independents like Caribe. As a result, Caribe's volume of Budweiser sales
dropped from approximately $3.9 million in 1994 to less than $1.3 million 1995.
METHOD OF ANALYSIS
We did not apply a capitalized income method to evaluate Caribe. In 1995,
such method would compute to a value well below the fair market value of the
Business. Profits were only about $30,000 and a five time or ten time multiple
of earnings would value the Business below its product inventory of around
$500,000.
Replacement cost would be an excellent method of appraisal, but
replacement cost is very difficult to measure because the replacement value of
the lease itself in such an ideal location is difficult to measure, as is the
cost of developing the experience, the staff and the name in the industry.
As of the end of 1995, we estimate a value for Caribe of between
$1,000,000 and $1,500,000. We do this not on the basis of projected earnings or
of a total of its hard and intangible assets, but rather what a buyer would pay
for a business of this type. Of course such a valuation is speculative unless
the transaction actually occurs with an informed purchaser. The value of this
business is based upon its access to the beverage market Caribe provides through
its network of customers, its experienced management, sales force, and support
staff. This provides the infrastructure for development of a much larger
business. The network of customers is particularly valuable because they
purchase merchandise and pick it up themselves, without transportation cost to
Caribe, and pay a reasonable mark-up. The business also of greater value because
it is not dependent upon sale of Budweiser products, which are the least
reliable source in the current business because Budweiser has, from time to
time, sought to reclaim Budweiser sales by such licensed people.
Caribe has its greatest value as a ready-to-go vehicle for additional
products or additional geographic areas. Because the existing business shows a
profit, either additional products or additional market generate gross profits
that go straight to the bottom line. Hence the value of the present business
becomes enormous as the base for the next period of growth.
Custom in the beverage industry is to value a wholesale/retail business at
ten percent of its wholesale cash and carry volume plus one-third of its retail
volume plus 100% of its inventory. This "rule of thumb" in this case happens to
corroborate the estimated value set forth above. To $500,000 in inventory, add
$133,000, which is 33% of $500,000 retail sales as represented plus $640,000,
which is 10% of the remaining $6.4 million in cash and carry wholesale sales.
The rule of thumb value is $1,273,000.
Sincerely yours,
/S/ MAX T. KROTMAN
Max T. Krotman
2
<PAGE> 35
Exhibit C
ESCROW AGREEMENT
AGREEMENT (hereinafter referred to as "Escrow Agreement") dated ______ __,
1996 among CAPITAL BEVERAGE CORPORATION, a Delaware corporation (hereinafter
referred to as "Capital"), VITO SANTORO, INC. (D/B/A Caribe Distributors), a New
York corporation (hereinafter referred to as the "Company"), CARMINE N. STELLA,
an individual residing at Norwood, New Jersey (hereinafter referred to as
"Stella"), and _________________________ (hereinafter referred to as the "Escrow
Agent").
Background
The Company, Capital and Stella have entered into an Agreement and Plan of
Merger dated as of June 25, 1996 (the "Agreement"), whereby the Company will be
merged with and into Capital (the "Merger"). Under Section 1.03 of the
Agreement, all of the 7% Cumulative Convertible Preferred Stock, Series B of
Capital received by Stella in the Merger (the "Preferred Shares") are required
to be deposited by him with the Escrow Agent in order to secure the accuracy of
the Company's representations and warranties and the performance of its
obligations under the Agreement.
NOW THEREFORE, it is hereby agreed as follows:
1. Deposit of Shares in Escrow. Contemporaneously with the execution and
delivery of this Escrow Agreement, Stella shall deposit the Preferred Shares in
escrow with Escrow Agent. Escrow Agent shall hold said Preferred Shares,
together with all dividends and other earnings thereon, and all additions,
substitutions and other property for which the same may be invested or for which
the same may be exchanged (the "Escrow Fund"), in escrow on the terms and
subject to the conditions set forth in this Escrow Agreement.
2. Investments. Escrow Agent shall invest and reinvest all cash, if any,
in the Escrow Fund in U.S. treasury bills, notes and bonds, securities issued or
guaranteed by U.S. Government agencies or instrumentalities (including GNMA,
FNMA, FHA and FMAC), municipal securities rated AA or higher by S&P or Aa or
higher by Moody's and money market accounts at Escrow Agent. If on the date of
any distribution to be made by Escrow Agent hereunder, Escrow Agent has
insufficient cash in the Escrow Fund to make such distribution, Escrow Agent
shall, to the extent necessary, liquidate, as promptly as practicable, all or a
portion of the investments held in the Escrow Fund as it, in its sole judgment,
deems appropriate.
3. Representations and Warranties to Escrow Agent. Capital hereby
represents and warrants to Escrow Agent that it has transferred to Stella good
and marketable title to the Preferred Shares, free and clear of all liens,
claims, or encumbrances on the date hereof. Stella hereby represents and
warrants to the Escrow Agent that he is the sole owner of the Preferred Shares
and, except as set forth herein, such shares are not encumbered or subject to
any obligation
<PAGE> 36
of Stella. No pledge or assignment of the Preferred Shares is outstanding,
except as herein provided and in the Agreement.
4. Release of Escrow. Escrow Agent shall hold the Escrow Fund in its
possession until authorized hereunder to delivery the Escrow Fund or any
specified portion thereof in accordance with this Section 4.
A. Subject to the provisions of Section 4B, on the second
anniversary of the closing of the Merger (the "Closing"), all cash, securities
and other property then being held in escrow hereunder shall be distributed by
Escrow Agent to Stella.
B. Notwithstanding Section 4A, if within two (2) years from the date
of the Closing, Capital shall give Escrow Agent one or more notices (each, a
"Notice of Claim") pursuant to Article XII of the Agreement, that Capital is
asserting against the Company a right of indemnity with respect to a Liability
(hereinafter defined), then Escrow Agent shall continue to hold that portion of
the Escrow Fund which is equal to the Claim Amount (hereafter defined) in escrow
until there has been a Final Determination (hereinafter defined) with respect
thereto. "Claim Amount" means the greater of (i) the aggregate of the amounts
set forth in all Notices of Claim delivered at the time of reference to Escrow
Agent which have not been paid by Escrow Agent pursuant to a Final
Determination, or (ii) the amount required to be held in escrow pursuant to
Section 4A. Any Notice of Claim shall set forth such summary information with
respect to the Liability as is then reasonably available to Capital and
Capital's good faith estimate as to the amount of such Liability (which estimate
shall not in any way affect Capital's right within two (2) years of the Closing
to assert a right of indemnity with respect to the Liability in greater or
different amount). Upon Escrow Agent's receipt of evidence satisfactory to it of
a Final Determination, Escrow Agent shall promptly distribute to Capital that
amount of cash and that number of Preferred Shares then being held by it in the
Escrow Fund representing the amount of the Liability which is the subject of the
Final Determination. Except as may otherwise be provided in this Section 4B each
Preferred Share shall be deemed to have a fair market value of four dollars ($4)
in determining the number of Preferred Shares equal to the Liability; provided,
however, that within fifteen (15) days after a Final Determination either Stella
or Capital may request that the then fair market value of such Preferred Shares
be determined by an independent appraiser acceptable to Capital and Stella and,
in such event, such Preferred Shares shall have a value as so determined by such
independent appraiser. In the event that the amount of any Liability would cause
Escrow Agent to release a fractional share of the Preferred Shares, Escrow Agent
may release a full share in lieu of the fractional share and Capital shall
reimburse the Escrow Fund for the difference between the fair market value of
such share and the incremental portion of the Liability attributable to such
share. Capital shall contemporaneously forward to Stella a copy of each Notice
of Claim and each notice from Capital to Escrow Agent specifying the amount of
any Liability that was previously the subject of a Notice of Claim.
-2-
<PAGE> 37
C. For purposes of this Escrow Agreement:
(i) "Liabilities" means any and all debts, losses, liabilities
(including any liability for taxes), claims, damages, obligations, payments
(including those arising out of any demand, assessment, settlement, judgment or
compromise), costs and expenses (including reasonable fees and expenses of
counsel incurred in investigating, preparing and defending any action),
including, without limitation, any of the foregoing arising under, out of, or in
connection with (a) any claim, action, suit or proceeding, order, judgment or
decree of any court, governmental body or other regulatory or administrative
agency or commission, (b) any award of any arbitrator of any kind, or (c) any
law, rule, regulation, contract, commitment or undertaking, in all cases subject
to the terms, conditions and limitations of the Agreement including, inter alia,
the limitations contained in Section 4.22 and Sections 9.03 (a), (b) and (c)
thereof. Stella shall have the right to select counsel to act on behalf of
Capital in defense of any claim for which a Claim Notice has been issued.
(ii) A "Final Determination" means: (a) Escrow Agent's receipt
of notice from Capital instructing Escrow Agent to distribute to Capital an
amount equal to any Liability specified in any Notice of Claim or other notice
previously received by Escrow Agent, provided that Escrow Agent has not received
a written objection from Stella to such Notice of Claim or other notice within
30 days of the date on which the same was received by the Escrow Agent; (b) an
agreement between Capital and Stella concerning Stella's or the Company's right
of indemnity with respect to a Liability that was the subject of a Notice of
Claim; or (c) the entry of a binding arbitration award or a final order, decree
or judgment of a court as to Capital's right to indemnity with respect to a
Liability that was the subject of a Notice of Claim or as to a denial of the
subject matter of a Notice of Claim.
5. Concerning Escrow Agent.
A. Escrow Agent shall be paid a fee for its services hereunder in
accordance with the Fee Schedule annexed hereto as Annex I (the "Fee Schedule").
Escrow Agent shall be reimbursed for its expenses in accordance with the Fee
Schedule.
B. Escrow Agent undertakes to faithfully perform all duties which it
deems necessary to effectuate the provisions of this Escrow Agreement. Escrow
Agent shall not be liable for any action taken by it in good faith and believed
by it to be authorized or within the rights or powers conferred upon it by this
Escrow Agreement and may consult with counsel of its own choice and shall have
full and complete authorization and protection for any action taken or suffered
by it hereunder in good faith.
C. Buyer and Stella each release Escrow Agent from any act done or
omitted to be done by Escrow Agent in good faith in the performance of its
duties hereunder, and Capital and Stella hereby jointly and severally agree to
indemnify Escrow Agent for, and to hold Escrow Agent harmless against, any loss,
cost, liability or expense incurred or suffered by Escrow Agent without willful
misconduct or gross negligence on the part of Escrow Agent arising out of or in
connection with its entering into this Escrow Agreement and carrying out its
duties hereunder,
-3-
<PAGE> 38
including all costs and expenses (including legal fees and disbursements) of
defending itself against any claim or liability.
D. In the event of any controversy between Capital and Stella as to
the rights of either party with respect to the Escrow Fund, Escrow Agent shall
have the right to bring a proceeding in a court of competent jurisdiction to
resolve the controversy and pending such resolution, may deposit the Escrow Fund
with the court and thereupon, Escrow Agent shall be relieved of all obligations
hereunder.
E. In the event Escrow Agent shall take action pursuant to paragraph
D hereof, Escrow Agent shall be entitled to reasonable attorneys' fees and its
costs and expenses in connection with such proceeding. Capital shall bear all of
such costs and expenses.
6. Termination of Escrow Agreement.
A. This Escrow Agreement shall terminate upon the first to occur of
the following:
(i) payment of the entire Escrow Fund by Escrow Agent to
Capital or Stella pursuant to Section 4;
(ii) the giving of notice of termination to Escrow Agent by
both Capital and Stella, which notice shall contain instructions to Escrow Agent
as to the disposition of the Escrow Fund;
(iii) the entry of a binding arbitration award or a final
order, decree or judgment of a court (following the determination of all appeals
or the expiration of the time fixed by statute for the taking of any appeal)
directing Escrow Agent as to the disposition of the Escrow Fund.
B. If this Escrow Agreement is terminated pursuant to A(i) or A(ii)
above, Escrow Agent shall deliver the remaining portion of the Escrow Fund by
wire transfer of sameday funds and any other documents or instruments deposited
by Capital or Stella hereunder to the person or persons specified in the notice,
order, decree or judgment, as the case may be. Upon such delivery or the
termination of this Escrow Agreement pursuant to (A)(i) above, all of the
respective rights and obligations hereunder of the parties shall cease, except
that Section 7 shall survive the termination of this Escrow Agreement.
7. Assignment. This Escrow Agreement may be assigned by any party (other
than Escrow Agent) to any permitted assignee of such party's rights under the
Agreement; provided that any such assignment shall be void unless (i) written
notice thereof shall be given to the other parties (including Escrow Agent) and
(ii) the assignee shall have agreed in writing to be bound by this Escrow
Agreement.
-4-
<PAGE> 39
8. Certain Obligations of Capital, Stella and the Company. Capital shall
be liable to Escrow Agent for fees and expenses payable to Escrow Agent under or
in connection with this Escrow Agreement.
9. Impact of Court Orders. Notwithstanding anything to the contrary stated
or implied elsewhere in this Escrow Agreement, Escrow Agent shall (and shall be
entitled to) carry out and implement any and all (a) final arbitration awards,
(b) temporary restraining orders and preliminary injunctions issued by any court
and (c) final orders, decrees and judgments of any court (but in the case of
this clause (c), only after the determination of any and all appeals or the
expiration of the time for the taking of any appeal).
10. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, or if mailed by
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses, or at such other address for any such party as shall be
specified by like notice:
(a) If to Capital, addressed to:
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
Attention: Mr. Eugene Fernandez
with a copy to:
Weber & Weber
300 Rabro Drive
Hauppauge, New York 11788
Attention: William E. Weber, Esq.
(b) If to Stella or the Company addressed to:
Mr. Carmine N. Stella
c/o Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
with a copy to:
Manning, Raab, Dealy & Sturm
440 Park Avenue South
Seventh Floor
New York, New York 10016
-5-
<PAGE> 40
(c) If to Escrow Agent, addressed to:
___________________________
___________________________
___________________________
11. Entire Agreement, Governing Law, Amendments, etc. This Escrow
Agreement (a) constitutes the entire agreement and supersedes all other prior
and contemporaneous agreements and understandings, both written and oral, among
the parties with regard to the subject matter hereof, (b) is not intended to
confer upon any person not a party hereto any rights or remedies hereunder or
with respect to the subject matter hereof, (c) shall be governed by, construed
and enforced in accordance with, the internal substantive laws (but not the law
governing choice of law) of the State of New York, (d) may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute a single agreement, (e) may be amended
only by a document signed by all of
-6-
<PAGE> 41
the parties hereto and (f) may be waived with respect to any provision only by a
document signed by the party entitled to the benefit of such provision.
IN WITNESS WHEREOF, each of the parties has caused this Escrow Agreement
to be executed and delivered by its duly authorized representative of the date
first above written.
CAPITAL BEVERAGE CORPORATION
By: _____________________________
Eugene Fernandez
Title: Director
VITO SANTORO, INC.
(D/B/A Caribe Distributors)
By: _____________________________
Carmine N. Stella
Title: President
_____________________________
Carmine N. Stella, individually
[NAME OF ESCROW AGENT]
By: _____________________________
Name:
Title:
-7-
<PAGE> 1
Exhibit 10.10
Form of Consulting Agreement with Horatio Management Services Corp.
<PAGE> 2
CAPITAL BEVERAGE CORPORATION
1111 EAST TREMONT AVENUE
BRONX, NEW YORK 10460
July , 1996
Horatio Management Services Corp. (the "Consultant")
411 Hacksensack Avenue, Lobby Level
Hacksensack, New Jersey 07601
Attention: Mr. Herman Epstein, Chairman
Ladies and Gentlemen:
This is to confirm he mutual understanding between Consultant and
Capital Beverage Corporation (the "Company") as follows:
The Company acts as a master distributor for certain beer and malt
liquor products manufactured by Pabst Brewing Company in Manhattan, Brooklyn,
Bronx, Queens, Staten Island and Westchester County (the "Territory"). Thus, all
in-Territory orders for the Pabst Products flow directly through the Company.
The Company has established a number of geographical sectors within the
Territory and entered into arrangements with a number of depots to distribute
the Pabst Products throughout the Territory.
The Consultant is experienced in the retail industry, including
management, operation, leasing of such depots, and financing of real and
personal property and is willing to render consulting services to the Company
with respect to such matters.
The Company has previously employed and is desirous of continuing to
obtain the services of Consultant to assist in various functions relating to the
depots as more fully described below.
A. Consultant Services.
Consultant agrees during the term hereof to render the following
services as and when the same may be requested by the Company:
(a) to advise and report upon the operation of the depots and in
connection therewith to assist the Company in evaluating the performance of any
management company or personnel responsible for the day-to-day management of the
depots, to review the monthly
<PAGE> 3
management reports and other reports prepared by such day-to-day manager and to
make recommendations to the Company with respect to the manner of the operation
and management of the depots;
(b) to supervise and inspect repairs, replacements and maintenance done
at the depots;
(c) to advise upon prospective lease locations or future depots and to
assist the Company in lease negotiations to obtain the most favorable lessor
concessions;
(d) to advise in connection with proposed acquisitions of existing
distribution depots, including analysis of the target company's operations,
fitness expertise, financial and structure;
(e) to assist in the preparation of, and review and make
recommendations with respect to, budgets prepared by or on behalf of the Company
in connection with the future operations of the depots;
(f) to assist in the preparation of marketing brochures and to seek
contracts and relationships with professional and trade organizations to foster
the business of the Company;
(g) to consult with the Company and its personnel to facilitate and
expedite filings with and presentations to the state liquor authorities;
(h) to seek sources of lending commitments; and
(i) to render such further advice and reports as may be reasonable and
appropriate under the circumstances in connection with the ownership, management
or financing of the depots.
Consultant shall furnish the foregoing services through its officers
and employees from time to time as may be requested by Company and shall be
rendered in New York City or other areas in which the depots are located, or at
the Consultant's offices in Bergen County, New Jersey, as required, in which
former cases Consultant shall be reimbursed for actual out-of-pocket travel
expenses (not to exceed $1,000 per trip) incurred in connection with requests by
Company thereunder upon submission of proper vouchers and related invoices.
B. Consultant's Compensation.
In consideration of the services to be performed by Consultant pursuant
to Paragraph A hereof, Company shall pay to Consultant a fee (the "Agent's Fee")
of $5,000 per month in advance (but in no event less than $60,000 payable upon
the next ensuing closing of an offering of the Company's equity securities, and
an additional $60,000 upon the first anniversary thereof) by good check made
payable to Consultant to be delivered to Consultant as herein provided. The
Agent's Fee shall be deemed earned upon execution and delivery
2
<PAGE> 4
hereof and will be nonrefundable, but represents Consultant's sole and exclusive
compensation by reason of this transaction or otherwise in respect of the
Depots, except as herein expressly provided.
C. Term and Termination.
This Agreement will remain in full force and effect until ______ __,
1998. In the event Consultant shall default hereunder, Company's sole and
exclusive remedy shall be to notify Consultant and in the event Consultant shall
fail to cure the default within thirty (30) days following receipt of such
notice, Company may make an application for arbitration of the dispute as below
provided. In the event the panel shall rule in favor of the Company, Company
shall have the option to terminate this Agreement on thirty days' notice to
consultant.
D. General.
Consultant is an independent contractor, and this agreement will not be
construed in any way as creating a joint venture or employment between the
Company and Consultant. Consultant acknowledges and agrees that with respect to
its employees it is solely responsible for withholding, collecting, and paying
employment taxes, filing information returns, and performing all other duties
imposed upon employers under applicable Federal, state, and local laws, rules
and regulations.
Any notice or other communication under in connection with or pursuant
to this Agreement shall be in writing and signed, and will be deemed to be given
when personally delivered or three (3) days after the day when sent by certified
or registered mail, postage prepaid, with return receipt requested, and
addressed to the respective parties at their above addresses or to any other
addresses to which either party may notify the other.
This Agreement constitutes a personal services contract and,
accordingly, may not be assigned, except as to an affiliate or successor in
interest, and any purported assignment in violation of this provision shall be
void, and shall constitute an event of default hereunder.
This Agreement will be governed by the laws of the State of New York
without giving effect to the choice of law or conflict of laws provisions
thereof.
This Agreement (i) sets forth the entire understanding of the parties
with respect to the subject matter hereof, (ii) incorporates and merges any and
all previous agreements, understandings and communications, oral or written, and
(iii) may not be modified, amended or waived except by a specific written
instrument duly executed by the party against whom such modification amendment
or waiver is sought to be enforced.
3
<PAGE> 5
The headings of the sections of this Agreement are for the convenience
of reference only and will not affect the meaning or operation of this
Agreement.
In the event that any provision of this Agreement will be considered
void, voidable, illegal, or invalid for any reason, such provision will be of no
force and effect only to the extent that it is so declared void, voidable,
illegal, or invalid. All of the provisions of this agreement not specifically
found to be so deficient will remain in full force and effect.
Any controversy or claim arising under this agreement shall be
submitted to arbitration in New York City in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof, costs to be borne equally.
Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the enclosed duplicate of this
Agreement.
Sincerely yours,
CAPITAL BEVERAGE CORPORATION
By: _______________________________
Carmine N. Stella, President
Confirmation acknowledged:
HORATIO MANAGEMENT SERVICES CORP.
By: ________________________________
Herman Epstein, Chairman
4
<PAGE> 1
Exhibit 10.11
Form of Agreement with Investors Associates, Inc. Relating to Acquisition
Transactions
<PAGE> 2
July __, 1996
Mr. Carmine N. Stella
President
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, NY 10460
Dear Mr. Stella:
You have agreed that Investors Associates, Inc. ("Investors
Associates") and or its subsidiaries may act as finder or financial consultants
in various transactions in which Capital Beverage Corporation (the "Company")
and or its subsidiaries may be involved, such as mergers, acquisitions or joint
ventures. The Company hereby agrees that in the event that Investors Associates
shall introduce to the Company another party or entity, and that as a result of
such introduction, a transaction is consummated with such party or entity (or an
affiliate thereof), the Company shall pay to Investors Associates a finder's fee
as follows:
a. 5% of the first $1,000,000 of the consideration paid in such
transaction;
b. 4% of the consideration in excess of $1,000,000 and up to
$2,000,000;
c. 3% of the consideration in excess of $2,000,000 and up to
$3,000,000; and
d. 2% of any consideration in excess of $3,000,000.
The fee due Investors Associates shall be paid in cash at the
closing of the particular transaction, and whether or not the transaction
involves stock, or a combination of stock and cash, or is made on an installment
sale basis. By way of example, if the transaction involves securities of the
acquiring entity (whether the Company if its is the acquiring party or the other
entity if the Company is the selling party) having a value
<PAGE> 3
totalling $5,000,000, the case consideration to be paid by the Company to
Investors Associates at closing shall be $160,000.
This Agreement shall be effective July __, 1996 and shall
expire July __, 2001.
Notwithstanding anything herein to the contrary, if the
Company shall, within 180 days immediately following the termination of the five
(5) year period provided above, consummate a transaction with any party
introduced by Investors Associates to the Company prior to the termination of
said five year period, the Company shall also pay Investors Associates the fee
determined above.
Neither any advice rendered by Investors Associates nor any
communication from Investors Associates in connection with the services
performed by Investors Associates pursuant to this letter agreement will be
quoted, in whole or in part, nor will any such advice or communication or the
name of Investors Associates be referred to, in any report, document, release or
other communication, whether written or oral, prepared, issued or transmitted by
the Company or any officer, directors or stockholder, employee, agent or
representative of the Company, without the prior written authorization of
Investors Associates.
The Company represents and warrants to Investors Associates
that Investors Associates's engagement hereunder has been duly authorized and
approved by the Board of Directors of the Company, and that this letter
agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company.
(SIGNATURE PAGE TO FOLLOW)
<PAGE> 4
Please signify your agreement to the foregoing at the place
indicated below.
Very truly yours,
INVESTORS ASSOCIATES, INC
By:
--------------------------------
HERMAN EPSTEIN, CHAIRMAN
ACCEPTED AND AGREED TO:
CAPITAL BEVERAGE CORPORATION
By:
--------------------------------
CARMINE N. STELLA, PRESIDENT
<PAGE> 1
Exhibit 23.1
Consent of Feldman, Radin & Co. P.C.
<PAGE> 2
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 for
Capital Beverage Corporation, of our report, dated July 26, 1996, relating to
the financial statements of Capital Beverage Corporation as of December 31,
1995 and for the year then ended, and the reference to our firm under the
captions Selected Financial Data and Experts in the Registration Statement.
Feldman Radin & Co., P.C.
Certified Public Accountants
New York, N.Y.
August , 1996
