<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1997
REGISTRATION NO. 333-9995
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CAPITAL BEVERAGE CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5181 13-3878747
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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)
<TABLE>
<S> <C>
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
</TABLE>
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]
------------------------
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.
================================================================================
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered(1) Per Security(2) Offering Price 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 $6.25(3) $ 5,000,000 $ 1,515.15
- -----------------------------------------------------------------------------------------------------------------------
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 $6.25 $ 2,500,000 $ 757.57
- -----------------------------------------------------------------------------------------------------------------------
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 $7.50 $ 600,000 $ 181.18
- -----------------------------------------------------------------------------------------------------------------------
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 per share(8)....... 300,000 $6.00 $ 1,800,000 $ 545.45
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, issuable
upon conversion of Series A Preferred
Stock(9)....................................... 337,500 $6.00 $ 2,025,000 $ 613.63
- -----------------------------------------------------------------------------------------------------------------------
Class A Warrants(10)............................. 675,000 .25 $ 168,750 $ 51.14
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share,
underlying Class A Warrants(11)................ 675,000 $6.25 $ 4,218,750 $ 1,278.41
- -----------------------------------------------------------------------------------------------------------------------
Total............................................ -- -- -- $ 5,012.49
Previously Paid.................................. -- -- -- $ 9,329.20
Total Amount Due................................. -- -- -- $ --
=======================================================================================================================
</TABLE>
(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, $6.00 has been allocated to the Common Stock
and $.25 has been allocated to each one-half ( 1/2) Class A Warrant ($.50
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 $6.25 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, unless R.D. White & Co., Inc. and the Company consent to the
conversion of all of the Series A Preferred Stock prior to such 180th day.
(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.
(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.
================================================================================
<PAGE> 3
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
------------------------------------------ ------------------------------------------
<C> <S> <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
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>
<PAGE> 4
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") 1,312,500
shares of Common Stock and 675,000 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".
<PAGE> 5
SUBJECT TO COMPLETION, DATED JUNE 16, 1997
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 $6.25 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
$6.25 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 one
(1) year after the date of this prospectus (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 R.D. White & Co., 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 675,000 Class A Warrants and
675,000 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 675,000 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." The
Company will not receive any of the proceeds from the sale of the securities by
the Selling Securityholders.
Prior to the Offering, there has been no public market for any of the
Company's securities. The Company has applied for quotation of Common Stock and
Class A Warrants on the Nasdaq Small Cap Market (NASDAQ) under the symbols
and , respectively, although there can be no assurance that such
application for quotation will be approved. See "Risk Factors -- Effects of
Delisting from NASDAQ SmallCap Market." 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," which begins on Page "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 OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
CALCULATION TABLE
<TABLE>
<CAPTION>
=========================================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNTS AND
COMMISSIONS(1)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Unit.................................................. $6.25 $.625 $5.625
- ---------------------------------------------------------------------------------------------------------
Total..................................................... $5,000,000 $500,000 $4,500,000
=========================================================================================================
</TABLE>
(1) Does not reflect additional compensation to be received by the
Representative in the form of: (i) a non-accountable expense allowance of
$150,000; (ii) the sale of $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; and (iii) 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 fee 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.
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 , 1997 AT THE
OFFICES OF R.D. WHITE & CO., INC., 950 THIRD AVENUE, NEW YORK, NEW YORK 10022.
R.D. WHITE & CO., INC.
THE DATE OF THIS PROSPECTUS OF JUNE , 1997
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.
<PAGE> 6
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. See "Risk
Factors -- Representative's Possible Ability to Dominate or Influence the Market
for the Securities."
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
300,000 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 selling
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.
2
<PAGE> 7
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.
3
<PAGE> 8
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 primary 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 good relationships with various independent Class C
wholesalers within its territory to aide in its efficient distribution of
products throughout its assigned territory, except for Company accounts, each
independent wholesaler 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, 1995 and 1996, VSI had revenues of
approximately $7 million and $12 million, respectively, and net losses of
approximately $15,308 and $178,421, respectively. The Company completed the
merger with VSI effective January 31, 1997. 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 was previously 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
received 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 subsequently went out of existence.
VSI distributed 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.
4
<PAGE> 9
The Company's offices are located at 1111 East Tremont Avenue, Bronx, New
York 10460. Its telephone number is (718) 409-2337.
THE OFFERING
<TABLE>
<S> <C>
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 $6.25 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 War-
rants."
Offering Price.............................. $6.25 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.................... 1,259,000
After this Offering....................... 1,659,000(2)
Proposed Nasdaq Small-Cap Market Trading
Symbols:
Common Stock.............................. CBEV
Units..................................... CBEVA
Class A Warrants.......................... CBEVW
</TABLE>
- ---------------
(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 1,659,000 Class A Warrants, 400,000 are being offered hereby,
675,000 will be offered from time to time by the Selling Securityholders. In
addition, an aggregate of 584,000 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
584,000 Class A Warrants have not been registered under the Securities Act.
Moreover, each holder of such 584,000 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.
5
<PAGE> 10
ESTIMATED NET PROCEEDS
Approximately $4,005,000 after deducting discounts and commissions of
$500,000, the Representative's non-accountable expense allowance of $150,000,
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 wholesalers, to implement the Company's
marketing plan and for general corporate purposes.
ADDITIONAL SECURITIES OFFERED BY SELLING SECURITYHOLDER
This Registration Statement also covers the offer and sale by the Selling
Securityholders of 1,312,500 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 unless
the Representative and the Company agree to the conversion of all of the Series
A Preferred Stock prior to such 180th day; and 675,000 shares of Common Stock
issuable upon exercise of 675,000 Class A Warrants held by the Selling
Securityholders at $6.25 per share.
Up to 675,000 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". The Company will not
receive any proceeds from the sale of the securities by the Selling
Securityholders. The holders of the Series A Preferred Stock have agreed not to
transfer the Series A Preferred Stock or the Common Stock underlying the Series
A Preferred Stock for twelve (12) months without the consent of the Company and
the Representative. The Selling Securityholders have agreed that they will not
offer or sell the Class A Warrants or the Warrant Shares for a period of 120
days after the Effective Date without the consent of the Representative.
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."
6
<PAGE> 11
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 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- -------------------------
1995 1996 1996 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net Sales................................ $6,926,789 $12,233,607 $2,503,597 $1,880,039
Gross Profit............................. 504,300 1,340,025 293,909 257,928
Income (loss) before income taxes........ (11,948) (178,421) 127,834 (145,407)
Net Income (loss)........................ (15,308) (178,421) 115,834 (148,935)
Pro forma Income (loss) before income
taxes(1)............................... (311,948) (406,921) 40,834 (148,935)
Pro forma Net Income (loss)(2)........... $ (311.948) $ (406,921) 24,500 (148,935)
========== ===========
Pro forma Net Income (loss) per Common
Share.................................. $ (.27) $ (.42) $ (.01) (.16)
========== ===========
Weighted Average Number of Common Shares
Outstanding............................ 1,240,909 1,240,909 1,240,909 1,240,909
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA
Working Capital..................................................... $ 141,529 $4,146,529
Total Assets........................................................ 2,403,815 6,408,815
Long-Term Debt...................................................... 675,039 675,039
Stockholders' Equity(4)............................................. 1,048,220 5,303,220
</TABLE>
- ---------------
(1) For 1995 Mr. Carmine Stella received no compensation from either VSI or the
Company. For 1996, Mr. Stella received $125,000 as compensation pursuant to
his employment contract setting forth an annual salary of $300,000 which
became effective August 1, 1996. The pro forma results reflect the impact of
the entire salary for the periods presented.
(2) For the years ended December 31, 1996 and 1995, 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" and "Capitalization."
(4) The Company has never paid cash dividends on its Common Stock. See "Dividend
Policy."
7
<PAGE> 12
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.
DEPENDENCE ON OFFERING PROCEEDS; RECENT LOSSES
VSI incurred a $15,000 loss during fiscal 1995 and, together with the
Company on a combined basis, incurred a loss of $178,421 for the year ended
December 31, 1996 and a loss of $148,935 for the three months ended March 31,
1997. There is no assurance that the Company will operate profitably in the
future. Additionally, while management believes that the Company's present
working capital position is adequate for its needs based on its current
operations, 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.
ACQUISITION OF ADDITIONAL BRANDS
It is estimated that approximately 25% 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. The Company intends to seek the acquisition of distributors with the
distribution rights to other beverage brands of beer, soda, water, tea, juice
and wine coolers. The Company has no intention of acquiring any distributors
from related entities and does not have any present plans, proposals,
arrangements or understandings regarding any acquisitions. See "Use of
Proceeds." 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.
POSSIBLE NEED FOR ADDITIONAL FINANCING
There can be no assurance that the Company will 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",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and "Financial Statements and Notes."
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. The agreement requires
the prior written approval of Pabst if there is a change of control of the
Company. As a result of this offering the Company is required to obtain Pabst's
prior written consent pursuant to the agreement which has not yet been received.
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. See "Business."
8
<PAGE> 13
CONCENTRATION OF CREDIT RISK; DEPENDANCE ON LIMITED NUMBER OF CUSTOMERS
The Company is subject to credit risk through trade receivable and
short-term cash investments. During 1996, approximately 37% and 14%,
respectively, of consolidated net sales were derived from two customers,
respectively.
Although the Company believes that its credit risk is minimized because of
a large customer base, the Company does rely on the payment of the receivables.
Thus the Company's credit risk is dependent upon the financial strength of its
customers. See "Note 10 to Financial Statements."
GOVERNMENT REGULATION
Wholesale and retail distribution of alcoholic beverages is regulated by
federal and state law. The Company's business is highly regulated by federal,
state and local laws and regulations. The Company must comply with extensive
laws and regulations regarding such matters as state and regulatory approval and
licensing requirements, trade and pricing practices, permitted and required
labeling, advertising, promotion and marketing practices, relationships with
distributors and related matters. 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 received from the
BATF and SLA its required licenses. 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. See "Business."
POSSIBLE INCREASE IN GOVERNMENT 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.
POSSIBILITY OF INCREASED GOVERNMENTAL REGULATION
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 reported an operating loss for the three months ended March 31,
1997. The Company's operating results for any particular quarter are not
necessarily indicative of any other results. Additionally, fluctuations
9
<PAGE> 14
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. See "Financial Statements and Notes",
"Managements Discussion and Analysis of Financial Condition and Results of
Operations", and "Business".
DEPENDENCE ON 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.
HIGHLY COMPETITIVE INDUSTRY
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. See "Business -- Competition."
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. Although the Company
has no present intention to do so, it is possible that the Company would hire
affiliates as outside advisors. At present, the Company has no such agreements
with any of its affiliates.
LIMITED NUMBER OF MANAGEMENT PERSONNEL
There is currently only three executive officers of the Company. Following
this Offering, there can be no assurance that, if the Company grows, that
current management will be able to continue to properly manage the Company's
affairs. Further, there can be no assurance that the Company will be able to
identify additional qualified managers on terms economically feasible to the
Company. See "Management."
THE BOARD OF DIRECTORS CONSISTS OF ONE OUTSIDE DIRECTOR
The Board of Directors consists of three members, two of which are
insiders. Accordingly, such individuals will be in a position to control the
actions and decisions of the Board of Directors.
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. See "Business."
10
<PAGE> 15
SELLING SECURITYHOLDERS TO RECEIVE SUBSTANTIAL BENEFITS FROM OFFERING
The Selling Securityholders will receive substantial benefits in connection
with this offering. These benefits include the inclusion of their securities in
the Registrations Statement of which this Prospectus forms a part. The Company
will not receive any of the proceeds upon the sale of the Selling
Securityholders securities and the Company will bear all the costs of the
offering.
POSSIBLE ADVERSE EFFECT OF REDEMPTION OF CLASS A WARRANTS
The Class A Warrants are subject to redemption by the Company 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. See "Description
of Securities Class A 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. See "Dividend Policy" and "Description of Securities."
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. The Company has entered into an employment agreement with Mr. Stella.
Additionally, upon the completion of this Offering, the Company intends to apply
for key personnel life insurance. 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."
ARBITRARY DETERMINATION OF 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".
11
<PAGE> 16
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
other independent wholesalers, implementation of the Company's marketing plan;
and working capital. However, 100% of 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 based on facts and circumstances which may
develop subsequent to the completion of this Offering. See "Business" and "Use
of Proceeds."
UNCERTAINTY OF UNSPECIFIED ACQUISITIONS
Following the closing of this offering, the Company intends to consider and
possibly engage in acquisitions to acquire complementary Beverage Wholesalers
and Brands. The Company has not entered into any negotiations to acquire any
such assets. The Company can make no assurances that it will be able to make
such acquisitions and no assurances can be made that the acquisitions will be
successful. Approximately 39% of the proceeds of this offering have been
allocated for such unspecified acquisitions. See "Use of Proceeds" and
"Business."
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 and
100% of Series B Preferred 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."
RELATED PARTY TRANSACTIONS
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 outstanding was canceled and converted into the right to
receive 3,000 fully paid and non-assessable shares of the Company's Series B
Preferred Stock. In addition, Mr. Stella also holds a partnership interest in
the entity from whom the Company leases property.
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in this offering will incur immediate, substantial dilution of
$4.02 or 68.0% 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."
LIMITATIONS ON DIRECTOR LIABILITY
The Company's Articles of Incorporation provide, 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. 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. See "Description of Securities -- Certain By-law
and Charter Provisions."
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
12
<PAGE> 17
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 companies, often unrelated to the operating performance of such companies
and may adversely affect the market prices of the Shares and Class A Warrants.
See "Underwriting", "Description of Securities", and "Financial Statements."
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 $7.50 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 1,259,000 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, and (ii) 584,000 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.
See "Dilution" and "Underwriting".
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION WITH EXERCISE
OF 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. See "Description of Securities."
13
<PAGE> 18
NECESSITY TO MAINTAIN CURRENT 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.
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 Regulation M 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; SHARES ELIGIBLE FOR IMMEDIATE SALE ON BEHALF OF
SELLING SECURITYHOLDERS
Upon consummation of this Offering, an aggregate of 940,909 outstanding
shares of Common Stock, 584,000 outstanding Class A Warrants (and the 584,000
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,
14
<PAGE> 19
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 one-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 two-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", "Underwriting", and "Selling Securityholders."
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop, and therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their shares during a
favorable movement in the market price of the Company's Common Stock which may
have a depressive effect on its price per share.
EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET
The Company has applied for quotation of the Common Stock and Class A
Warrants 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
15
<PAGE> 20
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.
16
<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 $4,005,000 after deducting estimated underwriting
discounts, commissions and other offering expenses at an anticipated public
offering price of $6.25 per Unit. The Company intends to use such net proceeds
as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT PERCENTAGE
------------------------------------------------------------ ------------- ----------
<S> <C> <C>
Acquisition of Inventory(1)................................. $ 900,000 22.5
Acquisition of Beverage Wholesalers(2)...................... 600,000 15.0
Acquisitions of Additional Brands(3)........................ 1,000,000 24.9
Implementation of Sales and Marketing Plan(4)............... 150,000 3.8
Repayment of Convertible Bridge Notes....................... 287,500 7.2
Working Capital(5).......................................... 1,067,500 26.6
---------- -----
TOTAL............................................. $ 4,005,000 100.0
========== =====
</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 Company intends
to seek the acquisition of distributors with the distribution rights to
other beverage brands of beer, soda, water, tea, juice and wine coolers. The
Company has no intention of acquiring any distributors from related entities
and does not have any present plans, proposals, arrangements or
understandings regarding any acquisitions. See "Use of Proceeds." 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 and has no plans, proposals,
arrangements or understandings with respect to such acquisitions. The
Company does not intend to acquire any wholesaler from affiliates of the
Company. 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. 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.
(5) Working capital includes funds for inventory, support of accounts receivable
and the hiring of additional personnel, and the funding of interim quarterly
operating losses.
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 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
17
<PAGE> 22
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.
18
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company. The as
adjusted amounts give effect to the sale of the 800,000 Units offered by the
Company hereby, the application of the estimated net proceeds therefrom and the
conversion of the bridge notes outstanding at March 31, 1997. 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, 1997
--------------------------
AS
ACTUAL ADJUSTED(1)
---------- -----------
<S> <C> <C>
Bridge Notes................................................ $ 250,000 $ --
Long-term debt, net of current portion...................... 675,039 675,039
---------- ----------
Stockholders' equity:
Preferred Stock, par value $.01 per share; 1,000,000
shares authorized; 337,500 Series A shares issued and
outstanding;........................................... 1,215,000 1,215,000
300,000 Series B shares issued and outstanding,........ 3,000 3,000
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(2).......................... 1,241 2,041
Additional paid-in capital.................................. 348,333 4,602,533
Retained earnings (deficit)................................. (519,354) (519,354)
---------- ----------
Total stockholders' equity.................................. 1,048,220 5,303,220
---------- ----------
Total capitalization........................................ $1,973,259 $ 5,978,259
========== ==========
</TABLE>
- ---------------
(1) As adjusted for the issuance of 800,000 shares of the Company included as
part of the Units in this Offering.
(2) 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) 675,000
shares of Common Stock reserved for issuance upon exercise of the Class A
Warrants that were issued in the Company's 1996 Units Financing; (v)
584,000 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.
19
<PAGE> 24
DILUTION
As of March 31, 1997, the Company had a deficiency in its net tangible book
value (total tangible assets, which is net of the amortized cost of the Pabst
license of $1,400,000 at March 31, 1997, less total liabilities) of $(482,563),
or approximately $(.39) 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 $3,903,220,
or $1.91 per share of Common Stock. This represents an immediate dilution of
$4.09 or 68% for each share of Common Stock purchased by public investors and an
immediate increase of $2.30 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.............................................. $6.00
Net deficiency intangible book value per share at December 31, 1996.......... (.39)
Increase in net tangible book value per share of Common Stock attributable
to public investors..................................................... 2.30
-----
Pro forma net tangible book value per share after Offering................... 1.91
-----
Dilution per share to public investors....................................... $4.09
=====
</TABLE>
The following table summarizes as of March 31, 1997 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 $6.00 per share):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
--------------------- ---------------------- ---------
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 1,240,909 60.8 $ 352,574 6.8 $0.28
Public Investors............... 800,000 39.2 4,800,000 93.2 6.00
--------- ----- ---------- -----
Total.......................... 2,040,909 100.0 $5,152,574 100.0 2.52
========= ===== ========== =====
</TABLE>
20
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data at December 31, 1996, for the two
years then ended and as at March 31, 1997 and for the three months ended March
31, 1997 and 1996 have been derived from the financial statements of the Company
and VSI, that are included elsewhere in this Prospectus and that have been
audited by Feldman Radin & Co., P.C. (except that the financial statements as of
March 31, 1997 and for the three months ended March 31, 1997 and 1996 are
unaudited) 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 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". The results of operations for
the three months ended March 31, 1997 and 1996 are unaudited. In management's
opinion, such interim financial statements contain all adjustments necessary for
a fair presentation of financial position and results of operations. The results
of operations for the three months ended March 31, 1997 may not be indicative of
the results of operations for the entire year ending December 31, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- ------------------------
1995 1996 1996 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $6,926,789 $12,233,607 $2,503,597 $1,880,039
Gross Profit........................ 504,300 1,340,025 293,909 257,928
Net Income (Loss)................... (15,308) (178,421) 115,834 (148,935)
Pro Forma Net Income (Loss)(1)(2)... $ (311,948) $ (406,921) $ 24,500 $ (148,935)
========== ===========
Pro Forma Net Income (Loss) Per
Common Share...................... $ (.27) $ (.42) $ (.01) $ (.16)
========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1997
----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital..................... $ 141,529
Total Assets........................ 2,403,825
Long Term Debt...................... 675,039
Stockholders' Equity(3)............. 1,048,220
</TABLE>
- ---------------
(1) For the years presented Mr. Carmine Stella received no compensation from
either VSI or the Company. For the year ended December 31, 1996, Mr. Stella
received a salary of $125,000 pursuant to his employment contract
consummated on August 1, 1996 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, 1996 and 1995, 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) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
21
<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 merger had been consummated on January 3, 1996.
RESULTS OF OPERATIONS
Three months ended March 31, 1997 as compared to three months ended 1996:
Net sales for the three months ended March 31, 1997 were $1,880,039,
reflecting a decrease of approximately $623,558, or approximately 25%, from the
$2,503,597 of net sales for the three months ended March 31, 1996.
Net sales were negatively impacted for this three month period due to the
following reasons:
-- In the first quarter of 1997, total case sales for the Pabst brands were
up from 81,194 cases for the three month period ended March 31, 1996 to
84,048 cases in the first quarter of 1997 or an increase of 2,854 cases.
Although this was a 3.5% increase in case sales, the change in product
mix has caused a substantial decrease in dollar volume. Additionally,
increased competition in the Company's Pabst Product Line resulted in
the Company having to adjust prices downward on certain products which
resulted in lower sales and lower gross margins on those products.
-- Anheuser-Busch continued to negatively impact the Company's sales of
other products by continuing to discount to retail stores within the
Company's sales territory and not to independent wholesalers such as the
Company.
Cost of sales was $1,622,111, or 87% of net sales, for the three months
ended March 31, 1997, as compared to $2,209,688 or 89% of net sales, for three
months ended 1996. The decrease, in dollar volume, of $587,577 in cost of sales
reflects the significantly lower net sales for this three month period of 1997
as compared to three months ended March 31, 1996.
The Company's gross margin was $257,928 or 14% of net sales for the three
months ended March 31, 1997 as compared to $293,909, or 12% of net sales, for
the first quarter of 1996. The decrease, in dollar terms, is a result of
decreased sales in 1997 as compared to the three months ended March 31, 1996. 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
for the three months ended March 31, 1997, as compared to three months ended
March 31, 1996. The Company's gross margins on sales of Pabst products are
higher than on sales of other products.
Selling and delivery expenses were $44,147 in the three months ended March
31, 1997, as compared to $5,611 for three months ended March 31, 1996 reflecting
additional marketing efforts and incentives offered in the 1997 three month
period.
General and administrative expenses were $333,621 for the three months
ended March 31, 1997, as compared to $152,627 for three months ended March 31,
1996. This represents an increase of $180,994, or 119% from March 1997 to March
1996. General and administrative expenses fluctuated upward for three months
ended 1996 to 1997 as a result of increases in salaries (including officers
salaries), office expenses, utilities and repairs and maintenance expenses,
necessary to support our ground level preparation for additional sales volume.
Interest expense was $25,567 for the three months ended March 31, 1997, as
compared to $7,837 for the three months ended March 31, 1996. This represents an
increase of $17,730. The increase in interest expense is a result of higher
borrowing during 1997.
22
<PAGE> 27
RESULTS OF OPERATIONS
Year ended December 31, 1996 ("fiscal 1996") as compared to year 1995 ("Fiscal
1995"):
Net sales for the year ended December 31, 1996 were $12,233,607, reflecting
an increase of approximately $5,306,818, or approximately 77%, from the
$6,926,789 of net sales for the year ended December 31, 1995. Net sales for 1996
were favorably impacted by the Company's acquisition, in January 1996 of its
license to distribute certain products (the "Pabst Products") of the Pabst
Brewery Company in the five boroughs of New York City and certain other
surrounding counties. Net sales for the fiscal 1995 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. The
determination to scale back distribution resulted from the decision of Anheuser
Busch to discontinue the sales discount that it has historically afforded to the
Company's tier of distributors. Without this favorable discount the Company
determined that it would not favorably compete with their primary distributors.
Net sales of Pabst products were approximately $6,700,000 during the fiscal
1996.
Cost of sales was $10,893,587, or 89% of net sales, for fiscal 1996, as
compared to $6,422,489, or 93% of net sales, for fiscal 1995. The increase, in
dollar terms, of $4,471,093 in cost of sales from 1995 to fiscal 1996 reflects
the significantly higher net sales in fiscal 1996 as compared to fiscal 1995.
The Company's gross margin was $1,340,025 or 11% of net sales, in 1996 as
compared to $504,300, or 7.3% of net sales, in fiscal 1995. The increase, in
dollar terms, is a result of increased sales in 1996 as compared to fiscal 1995.
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 fiscal 1996, as compared to fiscal 1995. 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, although there can be no assurances that this will occur, as a result
of increased competition and other factors described in the risk factors section
of this Prospectus.
Selling and delivery expenses were $141,834 in fiscal 1996, as compared to
56,083 for fiscal 1995 reflecting additional marketing efforts and incentives
offered in fiscal 1996.
General and administrative expenses were $1,212,293 for fiscal 1996, as
compared to $445,689 for fiscal 1995. This represents an increase of $766,604,
or 172%, from fiscal 1995 to fiscal 1996. Amortization of intangible assets was
$160,000 in the 1996 Interim Period, as compared to none in fiscal 1995, as a
result of the license acquired in January 1996. The cost of license agreement is
being amortized over ten (10) years. Other general and administrative expenses
fluctuated upward from fiscal 1995 to fiscal 1996 as a result of increases in
salaries (including officers salaries) office expense, utilities and repairs,
maintenance expenses, necessary to support the high level of sales in fiscal
1996 as compared to fiscal 1995.
Interest expense was $164,319 for 1996, as compared to $14,476 for 1995.
This represents an increase of $149,843. The increase in interest expense is a
result of higher borrowings during 1996 as a result of the debt incurred
(approximately $800,000) to acquire the license to distribute Pabst Products, as
well as the amortization of deferred loan costs associated with the 1996 Bridge
Notes.
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 VSI's operating activities generated
positive cash flow of $88,781. 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.
However, in fiscal 1996 the Company utilized approximately $246,000 in
operating activities, as the Company extended credit terms to certain customers,
thereby increasing accounts receivable by ($496,479). Management believes that
this increase was 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.
23
<PAGE> 28
During fiscal 1996, the Company paid $906,491 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 fiscal 1996, the Company sold
$1,350,000 of Units consisting of its 7% Cumulative Convertible Series A
Preferred Stock and Class A Warrants, resulting in net proceeds of $1,215,000,
sold $250,000 of its Convertible Bridge Notes, and borrowed $185,000 from an
officer (and significant stockholder). The note from the officer was repaid
prior to the end of fiscal 1996.
During the three months ended March 31, 1997, cash used in operating was
approximately $78,000; accounts receivable declined by approximately $143,000;
and accounts payable declined by approximately $94,000.
The Company expected that capital expenditures necessary to the
implementation of its marketing strategies in the next year will not be
significant because the Company's existing capital assets are sufficient with
respect to its current expansion plans.
Except for historical facts contained herein, the foregoing paragraphs
contain statements of a forward-looking nature relating to future events or the
future financial performance of the Company. Prospective investors are cautioned
that such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, prospective investors should
specifically consider the various factors set forth under the caption risk
factors in this Prospectus.
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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 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
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<PAGE> 30
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.
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
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<PAGE> 31
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 wholesalers ("Wholesalers") 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 recently
implemented strategy includes the hiring of 15 direct sales personnel who
service the marketing territory. The Company has also streamlined the sale
process by reorganizing the sale territory and increasing the supervision of the
sales staff.
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. In addition to employing a sales staff, the Company employs
sales supervisors who recommend sales policies and incentive programs to the
Wholesalers in order to motivate these Wholesalers and their 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 other Wholesalers 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.
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.
Consistent with the Company's plan to expand its customer base, it expects
to incur additional selling and marketing costs of approximately $150,000 in the
next fiscal year. Such estimates have been derived from managements plans and
budgets for 1997.
DISTRIBUTION
The Company has implemented a strategy to achieve effective distribution of
Pabst Products in the Territory. Under this strategy, the Company acts as an
exclusive distributor for Pabst Products, subject to
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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 relies on independent, licensed beverage wholesalers that
are responsible for hiring and maintaining their own staffs, maintaining
trucking fleets to distribute Products to the wholesale and/or retail customers.
The Company's objective in utilizing these alternate means of distribution
to service each sector within the Territory is to increase effective sales and
distribution of all Pabst Products while not incurring the total expense of such
sales and distribution efforts. Specific strategies include: developing sales
incentives with the cooperation of Pabst representatives for wholesalers 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 wholesalers who reverse
such pattern; scheduling monthly promotions for all on-premises accounts; and
utilizing and promoting "Brewery Rebate" programs.
VSI
The Company believes that the VSI acquisition provides an excellent
opportunity for the Company to expand its distribution network. VSI is a
wholesale and retail distributor of beverage products. VSI operates exclusively
from its warehouse facility in the Bronx and is centrally located within its
acquired Pabst distribution territory and serves as its central headquarters for
Capital Beverage. VSI has been in business for over five (5) years and the
Company believes that it has developed an extensive distribution network. VSI
also has highly experienced management personnel and maintains a Class C liquor
license which permits it to engage in both wholesale and retail sales.
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 for the premises located at 1111 East Tremont Avenue, Bronx, New York
10460, 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 for the premises located at 415 DeVoe Avenue, Bronx, New York 10460,
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.
EMPLOYEES
As of April 15, 1997, the Company employed a staff of 20, including two (2)
sales supervisors, one (1) sales manager, fourteen (14) 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.
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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 April
15, 1997, 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. The Company's business is highly regulated by federal,
state and local laws and regulations. The company must comply with extensive
laws and regulations regarding such matters as state and regulatory approval and
licensing requirements, trade and pricing practices, permitted and required
labeling, advertising, promotion and marketing practices, relationships with
distributors and related matters. 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 received from the
BATF and SLA its required licenses. 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.
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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 completed the Merger with VSI on January 3, 1997. All
of the outstanding capital stock of VSI was 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 received
300,000 shares of the Company's Series B Preferred Stock in consideration for
his interest in VSI.
VSI distributed beer, soda, bottled water and other beverages primarily in
the New York City metropolitan area. Customers of VSI consisted 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
distributed 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 June 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. Subsequently, in January 1997, these two (2) investors transferred
the Convertible Bridge Notes to nine (9) unaffiliated investors. 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 Investors
Associates Inc. as its exclusive placement agent (the "Placement Agent") in
connection with such private placement. As compensation for services as
Placement Agent, the Company paid Investors Associates Inc. 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 June 1997, the holders of all of the Convertible Bridge
Note waived their right to convert the notes into Class A Warrants. The
Convertible Bridge Notes will be repaid in full with the proceeds of this
offering.
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MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- --------------------------------- --- ------------------------------------------------------
<S> <C> <C>
Carmine N. Stella................ 45 President, Chief Executive Officer, Chairman of the
Board
Anthony Stella................... 46 Vice President -- Sales and Marketing
Carol Macchiarulo................ 41 Secretary and Treasurer
Eugene Fernandez, Jr............. 35 Director
</TABLE>
Carmine N. Stella -- Mr. Stella has served as President, Chief Executive
Officer and Chairman of the Board of Directors and an employee 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.
Anthony Stella -- Mr. Stella has served as Vice President -- Sales and
Marketing and an employee of the Company since inception. Mr. Stella has acted
as executive sales manager for Vito Santoro, Inc., Gotham Wholesale Beer, Inc.,
Miller Home Service, Inc. and College Point Beer Distributors over the past 15
years.
Carol Macchiarulo -- Ms. Macchiarulo has served as Secretary and Treasurer
and an employee 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 residential 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.
In 1996, Mr. Carmine Stella, Mr. Anthony Stella and Ms. Macchiarulo received
salaries of $115,500, $63,000 and $42,700, respectively.
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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 By-laws 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> 37
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>
PERCENT OF
CLASS(1)
AMOUNT AND NATURE OF BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OFFERING OFFERING
---------------------------------------------- ----------------------- ---------- --------
<S> <C> <C> <C>
Carmine N. Stella(2)(3)....................... 759,091 58.80 36.3
Eugene Fernandez, Jr.(2)(4)................... 379,545 30.00 18.4
Anthony Stella(2)(5).......................... 177,273 14.30 8.7
Carol Macchiarulo(2)(6)....................... 12,500 1.00 .6
All Officers and Directors as a Group: (3
Persons).................................... 1,151,136 86.66 54.1
</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 354,545 shares of Common
Stock owned of record owned by Mr. Fernandez. 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 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, beginning six (6) months after the
Effective Date upon exercise of 167,000 Class A Warrants held by Mr.
Fernandez.
(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.
Macchiarulo 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 subject to Mr. Stella's 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; (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 675,000 Class A Warrants and 675,000 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 675,000 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").
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 conversion of all of the Series A Preferred
Stock prior to the 180th day and the transfer of the Common Stock prior to one
year after the Effective Date.
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)
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 Company will not receive any proceeds from the sale of the securities
by the Selling Securityholders.
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.
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<PAGE> 39
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.
The Underwriter has no agreements or understandings with any of the Selling
Shareholders with respect to the purchase or sale of their securities.
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 canceled. In January 1996, in order to facilitate the
raising of additional capital for the Company, Mr. Fernandez and American
Marketing & Sales, Ltd. voluntarily agreed to the cancellation of 600,000 and
900,000 of the Class A Warrants, respectively, that had previously been issued
to them in order to change the capital structure of the Company.
In December 1995, the Company entered into a lease with East Tremont
Partners for the premises located at 415 DeVoe Avenue, Bronx, New York 10460,
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 for the premises located at 1111 East Tremont Avenue, Bronx, New York
10460 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 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 canceled and
converted into the right to receive 3,000 fully paid and non-assessable shares
of the Company's Series B Preferred Stock and such shares of the Preferred Stock
will be distributed to Mr. Stella. 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
35
<PAGE> 40
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.
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.
Although the Company has no present intention of entering into any
affiliated transactions, the Company believes that material affiliated
transactions between the Company and its directors, officers, principal
shareholders or any affiliates thereof should be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.
With respect to each of the foregoing transactions, the Company believes
that the terms of such transactions were as fair to the Company as could be
obtained from an unrelated third party. Future transactions with affiliates will
be on terms no less favorable than could be obtained from unaffiliated parties
and will be approved by a majority of the independent and/or disinterested
members of the board of directors.
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
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<PAGE> 41
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) 1,259,000 Class
A Warrants to purchase an aggregate of 1,259,000 shares of Common Stock held by
twenty-six (26) 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 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
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<PAGE> 42
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 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
38
<PAGE> 43
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 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.
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<PAGE> 44
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."
The holder of each Class A Warrant is entitled, upon payment of the
exercise price of $6.25, to purchase one share of the Company's Common Stock.
Unless previously redeemed, the Class A Warrants are exercisable at any time
commencing one (1) year after the Effective Date until the close of business on
the day prior to the fifth 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
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<PAGE> 45
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 1,659,000 Class A Warrants
outstanding. Of such 1,659,000 Class A Warrants, 400,000 are being registered
hereby and are freely tradeable immediately upon issuance, 675,000 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 584,000 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 584,000
Class A Warrants has agreed that he will not exercise such warrants prior to the
expiration of 180 days after the Effective Date.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation and By-laws 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 By-laws 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, By-laws 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
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<PAGE> 46
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
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 canceled.
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
42
<PAGE> 47
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 1,659,000 Class A Warrants to be
outstanding after this Offering for 1,659,000 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 4,337,409 shares
of Common Stock after this Offering.
Not all of the Company's outstanding securities are being registered
hereby. Of the 4,337,409 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), 2,632,500 shares of Common Stock are being registered hereby and
1,824,909 shares of Common Stock are not being registered hereby. Of the
1,659,000 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), 1,075,000 Class A Warrants are being registered hereby and
584,000 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, 584,000 outstanding Class A Warrants (and the 584,000
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.
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<PAGE> 48
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 one year has 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 two years previously may resell his or her securities without
compliance with the foregoing requirements under Rule 144.
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 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.
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<PAGE> 49
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>
NUMBER OF
REPRESENTATIVE UNITS
------------------------------------------------------------------ ---------
<S> <C>
R.D. White & Co., Inc.............................................
.........................................
.........................................
</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 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
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<PAGE> 50
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 Regulation M 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 Regulation M, 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 a period,
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.
The Underwriter has not entered into any plans, proposals, agreements or
understandings with any of the Selling Securityholders with respect to the
purchase or sale of the Selling Securityholders' shares. In the event the
Underwriter enters into any transaction with Selling Securityholders involving
the sale of five percent (5%), but less than ten percent (10%) of the shares
registered by Selling Securityholders in the aggregate hereunder, the Company
will file a "sticker" supplement to this Registration Statement pursuant to Rule
424(c) of the Securities Act. Further, in the event the Underwriter enters into
a transaction with Selling Securityholders involving the sale of ten percent
(10%) or greater of the Selling Securityholders' shares, in the aggregate,
registered hereunder, the Company shall have to file a post-effective amendment
to this Registration Statement.
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.
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).
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.
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<PAGE> 51
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.
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<PAGE> 52
CAPITAL BEVERAGE CORPORATION
FINANCIAL STATEMENTS
INDEX
YEARS ENDED DECEMBER 31, 1996 AND
1995 AND THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 (THE FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996 ARE UNAUDITED)
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
INDEPENDENT AUDITORS' REPORT........................................................ F-2
FINANCIAL STATEMENTS
Balance Sheet..................................................................... F-3
Statement of Operations........................................................... F-4
Statement of Stockholders' Equity................................................. F-5
Statement of Cash Flows........................................................... F-6
Notes to Financial Statements..................................................... F-7
</TABLE>
F-1
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
Capital Beverage Corporation
Bronx, New York
We have audited the accompanying balance sheet of Capital Beverage
Corporation as of December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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, 1996
and the results of its operations and its cash flows for each of the years in
the two-year period ended December 31, 1996 in conformity with generally
accepted accounting principles.
FELDMAN RADIN & CO., P.C.
New York, New York
March 31, 1997
F-2
<PAGE> 54
CAPITAL BEVERAGE CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 88,248 $ 126,927
Accounts receivable -- trade, net of allowance for doubtful
accounts of $20,000 and $50,000 respectively.................. 353,253 496,479
Inventories...................................................... 379,240 343,344
Prepaid expenses................................................. 1,354 1,521
---------- ----------
TOTAL CURRENT ASSETS..................................... 822,095 968,271
PROPERTY AND EQUIPMENT, less accumulated depreciation
of $57,343....................................................... 47,657 50,327
OTHER ASSETS
Intangible assets, less accumulated amortization of $200,000 and
160,000 respectively.......................................... 1,400,000 1,440,000
Deferred registration costs...................................... 130,783 130,783
Due from affiliate............................................... -- 57,837
Deposits......................................................... 3,290 3,290
---------- ----------
$ 2,403,825 $2,650,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 106,358 $ 104,904
Accrued expenses and taxes....................................... 93,531 174,315
Notes Payable -- Bridge Loans.................................... 250,000 250,000
Current portion of long-term debt................................ 58,552 56,886
Accrued dividends on preferred stock............................. 172,125 136,500
---------- ----------
TOTAL CURRENT LIABILITIES................................ 680,566 722,605
---------- ----------
LONG-TERM DEBT..................................................... 675,039 695,123
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, 1997 and December 31, 1996;
liquidation preference $1,350,000............................. 1,215,000 1,215,000
7% Cumulative Series B Preferred Stock, par value $.01;
300,000 shares issued and outstanding......................... 3,000 3,000
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....................................... 348,333 348,333
Retained earnings (deficit)...................................... (519,354) (334,794)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY............................... 1,048,220 1,232,780
---------- ----------
$ 2,403,825 $2,650,508
========== ==========
</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,
-------------------------- -------------------------
1996 1995 1997 1996
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Net sales.............................. $12,233,607 $6,926,789 $1,880,039 $2,503,597
Cost of goods sold..................... 10,893,582 6,422,489 1,622,111 2,209,688
----------- ---------- ---------- ----------
GROSS PROFIT........................ 1,340,025 504,300 257,928 293,909
COSTS AND EXPENSES:
Selling and delivery................... 141,834 56,083 44,147 5,611
General and administrative............. 1,212,293 445,689 333,621 152,627
----------- ---------- ---------- ----------
1,354,127 501,772 377,768 158,238
----------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS....... (14,102) 2,528 (119,840) 135,671
----------- ---------- ---------- ----------
INTEREST EXPENSE......................... 164,319 14,476 25,567 7,837
----------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........ (178,421) (11,948) (145,407) 127,834
INCOME TAXES............................. 3,360 3,528 12,000
----------- ---------- ---------- ----------
NET INCOME (LOSS)........................ (178,421) (15,308) (148,935) 115,834
PRO-FORMA INCOME TAXES................... -- -- -- 40,542
----------- ---------- ---------- ----------
PRO-FORMA NET INCOME (LOSS).............. $ (178,421) $ (15,308) $ (148,935) $ 75,292
=========== ========== ========== ==========
PRO-FORMA NET INCOME (LOSS)
PER COMMON SHARE....................... $ (0.24) $ (0.03) $ (0.16) $ 0.06
=========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES................................. 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 January 1, 1995....... $ -- $ 3,000 1,240,909 $1,241 $ 45,759 $ 51,032 $ 101,032
Net loss.................... -- -- -- -- -- (15,308) (15,308)
Contribution by principal
stockholder............... -- -- -- -- 302,574 -- 302,574
Dividends payable to
preferred shareholders.... -- -- -- -- -- (21,000) (21,000)
Distributions............... -- -- -- -- -- (23,300) (23,300)
------- ---------- --------- ----- -------- ---------- ----------
Balance December 31, 1995..... -- 3,000 1,240,909 1,241 348,333 (8,576) 343,998
Net loss.................... -- -- -- -- -- (178,421) (178,421)
Issuance of Preferred Stock,
less related costs........ 337,500 1,215,000 -- -- -- -- 1,215,000
Dividends payable to
preferred shareholders.... -- -- -- -- -- (115,500) (115,500)
Distributions to Common
Shareholders.............. -- -- -- -- -- (32,297) (32,297)
------- ---------- --------- ----- -------- ---------- ----------
Balance December 31, 1996..... 337,500 1,218,000 1,240,909 1,241 348,333 (334,794) 1,232,780
Net loss for the period..... -- -- -- -- -- (148,935) (148,935)
Dividends on preferred
stock..................... -- -- -- -- -- (35,625) (35,625)
------- ---------- --------- ----- -------- ---------- ----------
Balance March 31, 1997
(Unaudited)................. 337,500 $1,218,000 1,240,909 $1,241 $348,333 $(519,354) $ 1,048,220
======= ========== ========= ===== ======== ========== ==========
</TABLE>
See notes to financial statements
F-5
<PAGE> 57
CAPITAL BEVERAGE CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
--------------------- ---------------------
1996 1995 1997 1996
---------- -------- --------- ---------
(UNAUDITED)
---------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ (178,421) $(15,308) $(148,935) $ 115,834
---------- -------- --------- ----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 170,423 10,167 42,670 42,542
Changes in assets and liabilities:
(Increase) decrease in accounts receivable... (496,479) -- 143,226 (273,521)
(Increase) decrease in inventories........... 117,096 38,272 (35,896) (124,800)
(Increase) decrease in prepaid expenses...... 5,887 3,771 167 517
(Increase) decrease in other assets.......... -- 4,728 -- --
(Decrease) increase in accounts payable and
accrued expenses........................... 135,446 47,151 (79,330) 53,711
---------- -------- --------- ----------
(67,627) 104,089 70,837 (301,551)
---------- -------- --------- ----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES...................................... (246,048) 88,781 (78,098) (185,717)
---------- -------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Pabst rights..................... (800,000) -- -- (800,000)
---------- -------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of note payable -- other................ (106,491) -- (18,418) --
Payment of note payable -- bank................. -- (42,000) -- (10,500)
Proceeds from Bridge loans...................... 250,000 -- --
Deferred registration costs..................... (130,783) -- -- (221,195)
Due from affiliate.............................. (52,837) (5,000) 57,837 --
Issuance of preferred stock..................... 1,215,000 -- -- 1,300,000
Distributions to stockholder.................... (32,297) (23,300) -- (11,197)
---------- -------- --------- ----------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES...................................... 1,142,592 (70,300) 39,419 1,057,108
---------- -------- --------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 96,544 18,481 (38,679) 71,391
CASH AND CASH EQUIVALENTS -- BEGINNING OF
PERIOD.......................................... 30,383 11,902 126,927 30,383
---------- -------- --------- ----------
CASH AND CASH EQUIVALENTS -- END OF PERIOD........ $ 126,927 $ 30,383 $ 88,248 $ 101,774
========== ======== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 144,319 $ 14,476 $ 10,567 $ 7,837
========== ======== ========= ==========
Cash paid for taxes............................. $ 3,360 $ 11,877 $
========== ======== ========= ==========
</TABLE>
See notes to financial statements
F-6
<PAGE> 58
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
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. The Company entered into an Agreement and Plan
of Merger with Vito Santoro, Inc., ("VSI"), a company related by common
ownership interests (the "Merger") on January 31, 1997. All of the issued and
outstanding common shares of VSI were canceled and all of its assets and
liabilities will be transferred to Capital. VSI subsequently went out of
existence. In addition, the existing sole stockholder of VSI (who is also a
significant stockholder of the Company), received 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.
In accordance with Staff Accounting Bulletin Topic 5G, issued by the
Securities and Exchange Commission, the Merger has been accounted as a
combination of commonly controlled entities and is recorded at the transferors
historical cost basis. 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.
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 the initial term of the agreement which is ten years.
Revenue Recognition -- Wholesale sales are recognized at the time the order
is shipped. Retail sales are net of returns and exclude sales tax.
F-7
<PAGE> 59
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)
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.
Deferred Registration Costs -- Costs incurred in the preparation of the
registration statement regarding the Company's proposed Initial Public Offering
of its common stock, including legal and professional fees, have been deferred
at December 31, 1996. Such costs will be charged to Paid In Capital upon the
successful completion of the offering and charged to operations if the offering
is not consummated.
Earnings per common share -- Earnings per common share are computed by
dividing net earnings available to common shareholders (net income less
preferred stock dividends) by the weighted average number of common shares and,
as appropriate, dilutive common stock equivalents outstanding for the period.
Common stock options are considered to be common stock equivalents.
Interim financial statements -- The unaudited condensed consolidated
financial statements as of March 31, 1997 and 1996 and for the quarterly periods
then ended include all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for
interim periods are not necessarily indicative of the results which may be
expected for the entire year.
3. ACQUISITION OF RIGHTS TO DISTRIBUTE CERTAIN PRODUCTS
In January 1996, the Company acquired from Consolidated Beverage
Corporation the exclusive rights to distribute Pabst Products within the
Territory.
In consideration for these rights the Company is to pay Consolidated
Beverage Corporation the sum of $1,600,000 payable 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. Additionally, the agreement
requires the prior written approval of Pabst Brewing Corporation if any of the
following occur; (a) there is a change in ownership, sale, transfer, assignment,
or other disposition which results in a change in control of the Company's
business. For purposes of the agreement, the term change in control means record
or beneficial ownership of the following: (a) 33 percent or more of the
Company's voting stock; (b) 33 percent or more interest in the Company's
business, or (c) 33 percent or more interest in an entity which owns 51% or more
of the Company's common stock. As a result of the contemplated initial public
offering of the Company's common shares, the Company is required to obtain
Pabst's prior written consent pursuant to the terms discussed herein. Such
written consent has not yet been received.
Pabst may terminate the agreement immediately upon the occurrence of any of
the following events: (a) assignment or attempted assignment for the benefit of
creditors of the Company or insolvency of the Company; (b) institution of
voluntary or involuntary bankruptcy proceedings or for receivership or
dissolution; (c) nonpayment by the Company of sums oast due and owing to Pabst,
which sums continue to remain owing
F-8
<PAGE> 60
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)
upon the expiration of twenty (20) days after written notice of non-payment to
the Company by Pabst; (d) fraudulent conduct of the Company; (e) 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; (f)
attempted assignment of the Distributorship Agreement by the Company or change
in control of the Company's business without the prior written approval of
Pabst; (g) violation by the Company of its obligations to sell Pabst Products
(as defined) 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 the Pabst Products and protect their quality.
Pabst may also terminate the distributorship agreement if (a) the Company
fails to perform its duties and responsibilities in the reasonable judgment of
Pabst or (b) the Company breaches any of its responsibilities contained in the
Distributorship Agreement.
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 7% Cumulative Convertible Preferred Stock.
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 canceled. 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 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 the Company's underwriter and the Company
consent to the exercise of the option prior to the 180th day.
The terms of the Series A and B Preferred Stock are substantially similar
except that the Series A ranks senior to the Series B with respect to payment of
dividends and payment upon liquidation of the Company. Additionally, the Series
B Preferred Stock is convertible into common shares at any time during the three
year period commencing 180 days after the effective date of the Company's
initial public offering. The preferred shares have a liquidation preference of
$4.00 per share.
Common stock warrants -- During 1996, in connection with the issuance of
the preferred stock referred to above, the Company issued 675,000 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
F-9
<PAGE> 61
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)
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 an aggregate of
584,000 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,
1996
------------
<S> <C>
Equipment....................................................... $ 37,000
Furniture and fixtures.......................................... 8,000
Leasehold improvements.......................................... 60,000
--------
$105,000
Less: Accumulated depreciation and amortization................. 54,673
--------
Total................................................. $ 50,327
========
</TABLE>
7. LONG TERM DEBT
In connection with the acquisition of the exclusive rights to distribute
certain beer and malt liquor products in the Greater New York City area. The
Company issued a note to the seller of such right. The note is payable in 120
monthly installments of principal and interest of $10,000 yielding an effective
interest rate of 9%. The note is collateralized by the distribution agreement.
<TABLE>
<S> <C>
Total Debt........................................................ $752,009
Less current portion.............................................. 56,886
--------
Long-term Debt.................................................... $695,123
========
</TABLE>
Five year maturities of the long-term debt are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
<S> <C> <C>
1997 $56,886
1998.............................................................. 57,298
1999.............................................................. 62,480
2000.............................................................. 68,130
2001.............................................................. 74,292
</TABLE>
8. BRIDGE FINANCING
In June 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. Subsequently, in January 1997, these two (2) investors transferred
the Convertible Bridge Notes to nine (9) unaffiliated investors. 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 Investors
Associates Inc. as its exclusive placement agent (the "Placement Agent") in
connection with such private placement. As compensation for services as
Placement Agent, the Company paid Investors Associates Inc. a selling commission
equal to 10%
F-10
<PAGE> 62
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)
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 June 1997, the holders of all of the Convertible Bridge Note waived
their right to convert the notes into Class A Warrants. The Convertible Bridge
Notes will be repaid in full with the proceeds of this offering.
9. DUE TO SHAREHOLDER
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 quarter ended March 31, 1996. The Company
repaid Mr. Stella during the second and third fiscal quarters of 1996.
10. 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 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.
The following minimum rental payments are due with respect to the
aforementioned leases:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------
<S> <C> <C>
1997................................................................ 125,250
1998................................................................ 126,000
1999................................................................ 127,750
2000................................................................ 128,500
2001................................................................ 55,000
Total minimum rental payments............................. $562,500
</TABLE>
The Company entered into an employment agreement with its Chief Executive
Officer, effective August 1, 1996, pursuant to which the officer receives an
annual salary of $300,000. This officer received no compensation from either the
Company or Vito Santoro, Inc. for the year ended December 31, 1995. For the year
ended December 31, 1996, the officer received compensation of $125,000 pursuant
to the agreement.
F-11
<PAGE> 63
CAPITAL BEVERAGE CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995 -- (CONTINUED)
11. INCOME TAXES
The income tax provision consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C> <C>
Federal: Current........................................... $ -- $ --
Deferred.......................................... -- --
------ ------
-- --
------ ------
State: Current........................................... -- 3,360
Deferred.......................................... -- --
------ ------
-- 3,360
------ ------
Total Tax Provision................................ $ -- $3,360
====== ======
</TABLE>
The tax provision for 1996 and 1995 differs from the amount computed using
the statutory federal income tax rate since VSI 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. Effective January 31, 1997, VSI merged into Capital Beverage
Corporation and went out of existence, thereby terminating its "S" Corporation
election. Subsequent to January 31, 1997, any earnings of the Company will be
fully subject to federal, state and local income taxes.
Pro forma income taxes have been provided to reflect the taxes that would
have been provided as if the Company had not operated as an 'S' Corporation.
12. 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
mitigated to a degree because of management's knowledge of the local marketplace
and the relative creditworthiness of the customers to which it extends credit.
Short-term cash investments are placed with high credit quality financial
institutions, thereby limiting the amount of credit exposure.
The Company's operations, and therefore its revenues are concentrated in
the New York City Metropolitan area. Additionally, the majority of the Company's
revenues are derived from the sale of alcoholic beverages. Downturns in New York
City's economic activities and/or negative changes in the publics perception of
the consumption of alcoholic beverages may adversely affect the Company's
operations.
13. MAJOR CUSTOMER AND SUPPLIER INFORMATION (INFORMATION WITH RESPECT TO THE
INTERIM PERIODS ENDED MARCH 31, 1996 AND MARCH 31, 1997 IS UNAUDITED)
During the year ended December 31, 1996, sales to two significant customers
represented approximately 37% and 14% of net sales in that year, respectively.
During 1996, purchases of Pabst products were approximately $5,400,000.
Sales to two significant customers represented approximately 43% and 12% of
net sales and 45% and 13% of net sales for the three months ended March 31, 1996
and March 31, 1997, respectively.
F-12
<PAGE> 64
======================================================
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................ 3
Prospectus Summary.................... 4
The Company........................... 4
The Offering.......................... 5
Summary Financial Information......... 7
Risk Factors.......................... 8
Use of Proceeds....................... 17
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Information........ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 25
Management............................ 31
Principal Shareholders................ 33
Selling Securityholders............... 34
Certain Transactions.................. 35
Description of Securities............. 36
Securities Eligible for Future Sale... 43
Underwriting.......................... 45
Legal Matters......................... 47
Experts............................... 47
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (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
------------------------
R.D. WHITE & CO., INC.
, 1997
======================================================
<PAGE> 65
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.
ALTERNATE PROSPECTUS
SUBJECT TO COMPLETION, DATED JUNE 16, 1997
CAPITAL BEVERAGE CORPORATION
675,000 CLASS A WARRANTS
1,312,500 SHARES OF COMMON STOCK, $.001 PAR VALUE
This Prospectus relates to the offer and sale of 675,000 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 675,000 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 R.D. White & Co., 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.
Each Class A Warrant entitles the holder to purchase one (1) share of
Common Stock at a price of $6.25 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 1,312,500 shares of
Common Stock. Of such shares, (i) an aggregate of 675,000 may be offered and
sold by the Selling Securityholders upon their exercise of their Class A
Warrants or, alternatively, such 675,000 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 conversion of
all of the Series A Preferred Stock prior to the 180th day and the transfer of
the Common Stock prior to one year after the Effective 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 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."
------------------------
The date of this Prospectus is , 1997.
<PAGE> 66
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 1,659,000 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 NUMBER OF NUMBER OF PERCENT OF
CLASS A WARRANTS CLASS A WARRANTS CLASS A WARRANTS CLASS A WARRANTS
OWNED PRIOR TO OFFERED FOR ACCOUNT OWNED AFTER OWNED AFTER
NAME 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).............. 192,000 25,000 167,000 10.0
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
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 20.0
Marie Jackson.................... 12,500 12,500 0 0
William Lutz..................... 12,500 12,500 0 0
Pacesetter Personnel Services,
Inc............................ 25,000 25,000 0 0
Carol Rodopoulus................. 25,000 25,000 0 0
Ira M. Hariton................... 25,000 25,000 0 0
Worldwide Temporary Services,
Inc............................ 25,000 25,000 0 0
Cornelius Murphy................. 12,500 12,500 0 0
Stephen Pechenik................. 25,000 25,000 0 0
</TABLE>
ALT-2
<PAGE> 67
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF PERCENT OF
CLASS A WARRANTS CLASS A WARRANTS CLASS A WARRANTS CLASS A WARRANTS
OWNED PRIOR TO OFFERED FOR ACCOUNT OWNED AFTER OWNED AFTER
NAME OF SECURITYHOLDER OFFERING OF SECURITYHOLDER OFFERING OFFERING
- --------------------------------- ---------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Anna Ferrante and Rocco Ferrante,
as joint tenants............... 12,500 12,500 0 0
</TABLE>
- ---------------
(1) In addition to the 25,000 Class A Warrants being offered hereby, Mr.
Fernandez is the beneficial holder of 167,000 other Class A Warrants. Such
167,000 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.
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 675,000 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
SHARES OWNED SHARES OFFERED FOR OWNED AFTER OWNED AFTER
NAME 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(1).................... 392,045 37,500 354,545 8.0
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(2)................... 784,091 375,000 409,091 16.0
Marie Jackson.......................... 18,750 18,750 0 0
William Lutz........................... 18,750 18,750 0 0
Pacesetter Personnel Services, Inc..... 37,500 37,500 0 0
</TABLE>
ALT-3
<PAGE> 68
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NUMBER OF COMMON NUMBER OF COMMON COMMON SHARES COMMON SHARES
SHARES OWNED SHARES OFFERED FOR OWNED AFTER OWNED AFTER
NAME OF SECURITYHOLDER PRIOR TO OFFERING SECURITYHOLDER OFFERING OFFERING
- --------------------------------------- ----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Carol Rodopoulus....................... 37,500 37,500 0 0
Ira M. Hariton......................... 37,500 37,500 0 0
Worldwide Temporary Services, Inc...... 37,500 37,500 0 0
Cornelius Murphy....................... 18,750 18,750 0 0
Stephen Pechenik....................... 37,500 37,500 0 0
Anna Ferrante and Rocco Ferrante, as
joint tenants........................ 18,750 18,750 0 0
</TABLE>
- ---------------
(1) In addition to the 25,000 Class A Warrants being offered hereby, Mr.
Fernandez is the beneficial holder of 167,000 other Class A Warrants. Such
167,000 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.
ALT-4
<PAGE> 69
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.
ALT-5
<PAGE> 70
ALTERNATE
======================================================
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............... 3
Prospectus Summary................... 4
The Company.......................... 4
The Offering......................... 5
Summary Financial Information........ 7
Risk Factors......................... 8
Use of Proceeds...................... 17
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Financial Data.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 25
Management........................... 31
Principal Shareholders............... 33
Selling Securityholders.............. 34
Certain Transactions................. 35
Description of Securities............ 36
Securities Eligible for Future
Sale............................... 43
Underwriting......................... 45
Legal Matters........................ 47
Experts.............................. 47
Index to Financial Statements........ F-1
</TABLE>
======================================================
======================================================
CAPITAL BEVERAGE CORPORATION
675,000
CLASS A WARRANTS
1,312,500
SHARES OF COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1997
======================================================
<PAGE> 71
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> 72
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>
<S> <C>
SEC Registration fee.................................................... $ 8,892
NASD filing fee......................................................... 3,098
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........................................................... 53,010*
--------
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 June 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 Investors Associates Inc. as its exclusive
placement agent (the "Placement Agent") in connection with such private
placement. As compensation for the services as Placement Agent, the Company paid
the Investors Associates Inc. 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 June
1997, the holders of all of the Convertible Bridge Note waived their right to
convert the notes into Class A Warrants. The Convertible Bridge Notes will be
repaid in full with the proceeds of this offering.
II-2
<PAGE> 73
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.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGES
- ----------- --------------------------------------------------------------------- ------------
<C> <S> <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.**
4.5 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.**
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>
- ---------------
** Previously filed.
II-3
<PAGE> 74
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.
(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.
If the Company becomes aware subsequent to the effective date of this
registration statement that either the Underwriter, or any other underwriter or
dealer intends to acquire securities from any Selling Securityholder or if the
Underwriter waives any lock-up agreement, a post-effective amendment will be
required to reflect the acquisition of 10% or more of the Company's unrestricted
securities and a sticker supplement will be required if the amount involved
falls between the range of 5% and 10% of the Company's unrestricted securities.
The Underwriter has not entered into any plans, proposals, agreements or
understandings with any of the Selling Securityholders with respect to the
purchase or sale of the Selling Securityholders' shares. In the event the
Underwriter enters into any transaction with Selling Securityholders involving
the sale of five percent
II-4
<PAGE> 75
(5%), but less than ten percent (10%) of the shares registered by Selling
Securityholders in the aggregate hereunder, the Company will file a "sticker"
supplement to this Registration Statement pursuant to Rule 424(c) of the
Securities Act. Further, in the event the Underwriter enters into a transaction
with Selling Securityholders involving the sale of ten percent (10%) or greater
of the Selling Securityholders' shares, in the aggregate, registered hereunder,
the Company shall have to file a post-effective amendment to this Registration
Statement.
II-5
<PAGE> 76
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 June 16, 1997.
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 June , 1997, by the following
persons in the capacities indicated:
<TABLE>
<CAPTION>
NAME TITLE
- --------------------------------------------- ---------------------------------------------
<C> <S>
/s/ CARMINE N. STELLA Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer (Principal Executive
Carmine N. Stella Officer)
/s/ CAROL MACCHIARULO Secretary and Treasurer (Principal Financial
- --------------------------------------------- and Accounting Officer)
Carol Macchiarulo
/s/ EUGENE FERNANDEZ Director
- ---------------------------------------------
Eugene Fernandez
</TABLE>
II-6
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------------------------------
<C> <S>
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.**
4.5 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.**
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.
** Previously filed.
<PAGE> 1
EXHIBIT 4.9
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of June 1997 between
Capital Beverage Corporation, a Delaware corporation, having
its principal place of business at 1111 East Tremont
Avenue, Bronx, New York 10460 (the "Company") and Continental
Stock Transfer and Trust Company, as Warrant Agent, having
its principal place of business at 2 Broadway, New York, New
York 10004 (the "Warrant Agent")
WITNESSETH:
WHEREAS, the Company proposes to issue and sell to the
public 800,000 Units (each Unit consisting of one share (1)
of Common Stock, $.001 par value (the "Shares") and one half
(1/2) Class A Redeemable Common Stock Purchase Warrant (the
"Warrants"). 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, to be evidenced by
certificates substantially in the form of Exhibit A annexed
hereto (the "Warrant Certificate"), and entitling the
registered holder thereof to purchase one share of Common
Stock; and
WHEREAS, the Warrants will have an exercise price of
$6.25 per share of Common Stock, subject to certain
adjustments (the "Warrant Price") , will be exercisable
commencing one (1) year after the date of the prospectus
(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 "Last Exercise Date");
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to
act in connection with the issuance, registration, transfer,
exchange and replacement of the Warrant Certificates and
exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set
forth in this Agreement the terms and conditions upon which
the Warrant Certificates shall be issued, transferred,
exchanged and placed and the Warrants exercised, and to
provide for the rights of the holders of the Warrants;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and
other good and valuable consideration, the receipt of which
is hereby acknowledged, and the respective undertakings
herein below set forth, the Company and the Warrant Agent
agree as follows:
ARTICLE I
ISSUANCE AND EXECUTION OF WARRANTS
SECTION 1.01 - The Company hereby appoints the Warrant
Agent to act on behalf of the Company in accordance with the
terms and conditions herein set forth, and the Warrant Agent
hereby accepts such appointment and agrees to perform the
same in accordance with such provisions.
SECTION 1.02. The Warrant Certificates for the Warrants
shall be issued in registered form only. The text of the
Warrant Certificate including the form of assignment and
subscription to printed on the reverse side thereof shall be
substantially in the form of Exhibit A annexed hereto, which
text is hereby incorporated in this Agreement by reference as
though fully set forth herein and to whose terms and
conditions the Company and the Warrant Agent hereby agree.
Each Warrant Certificate shall evidence the right, subject to
the provisions of this Agreement and of such Warrant
Certificate, to purchase the number of validly issued, fully
paid and non-assessable shares of Common Stock, as that term
is defined in Section 1.05 of this Agreement, stated therein,
free of preemptive rights, subject to adjustment as provided
in Article III of this Agreement.
SECTION 1.03. Upon the written order of the Company, signed
by the President or any Vice President, and the Secretary,
Treasurer, Assistant Secretary or Assistant Treasurer of the
Company, the Warrant Agent shall issue and register Warrants
in the names and denominations specified in that order, and
will countersign and deliver Warrant Certificates evidencing
the same in accordance with that order. Each Warrant
Certificate shall be dated the date of its countersignature.
Each Warrant Certificate all be executed on behalf of the
Company by the manual or facsimile signature of the President
of the Company, under its corporate seal, affixed or
facsimile, attested by the manual or facsimile signature of
the Secretary of the Company and shall be countersigned
manually by the
<PAGE> 3
Warrant Agent. The Warrant Certificates shall not be valid for
any purpose unless so countersigned. In case any officer whose
facsimile signature has been placed upon any Warrant
Certificate shall have ceased to be such before such Warrant
Certificate is issued, it may be issued with the same effect as
if such officer had not ceased to be such on the date of
issuance,
SECTION 1.04. Except as otherwise expressly stated herein,
all terms used in this Agreement have the meanings provided in
the Warrant Certificate.
SECTION 1.05. The term "Common Stock" shall mean the
aggregate number of shares that the Company, by its Certificate
of Incorporation, as from time to time amended, is authorized
to issue, which are not limited to a fixed sum or percentage of
the book value in respect of the rights of the holders thereof
to participate in dividends or in distribution of assets upon
the voluntary or involuntary liquidation, dissolution, or
winding up the Company.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS,
CALL OF WARRANTS AND TRADING OF WARRANT
SECTION 2.01. (1) Each whole Warrant shall entitle the
person in whose name at the time the Warrant shall be
registered upon the books to be maintained by the Warrant Agent
for that purpose (the "Warrant Holder") subject to the
provisions of the Warrant Certificates and of this Agreement,
to purchase from the Company at any time after its date of
issuance and on or after the Effective Date but at or before
the Last Exercise Date, the number of shares of Common Stock
stated therein, as adjusted, at the Warrant Price in effect at
such date, payable in full at the time of purchase in the
manner provided in Section 2.02 of this Agreement.
(2) Each Warrant shall be exercisable in
accordance with the terms herein and in the Warrant Certificate
which among other offerings contains certain terms as to the
Warrant Price.
SECTION 2.02. (1) The Warrant Holder may only exercise a
Warrant, in whole but not in part, (each one-half (1/2) Class A
Warrant may only be exercised in combination with another
one-half (1/2) Class A Warrant), to be able
<PAGE> 4
to surrender of the Warrant Certificate, with the form of
subscription thereon duly executed by the Warrant Agent at its
corporate office, together with the Warrant Price for each
share of Common Stock to be purchased in lawful money of the
United States, or by certified check, bank draft, or postal or
express money order payable in United States Dollars to the
order of the Company.
(2) Upon receipt of a Warrant Certificate with the form
of election to purchase thereon duly executed and accompanied
by payment of the aggregate Warrant Price for the shares of
Common Stock for which the Warrant is then being exercised the
Warrant Agent shall requisition from the transfer agent
certificates for the total number of the shares of Common
Stock, as defined in Section 1.05 of this Agreement, for which
the Warrant is being exercised in such names and denominations
as are required for delivery to the Warrant Holder, and the
Warrant Agent shall thereupon deliver such certificates to or
in accordance with the instructions of the Warrant Holder. The
Company covenants and agrees that it has duly authorized and
directed its transfer agent (and will authorize and direct all
its future transfer agents) to comply with all such requests
of the Warrant Agent.
(3) In case any Warrant Holder shall exercise his
Warrant with respect to less than all of the shares of Common
Stock that may be purchased under the Warrant, a new Warrant
Certificate for be balance shall be countersigned and
delivered to or upon the order of the Warrant Holder.
(4) The Company covenants and agrees that it will pay
when due and make payable any and all taxes which may be
payable in respect to the issuance of Warrants, or the
issuance of any shares of Common Stack upon the exercise of
warrants. However, neither the Company nor the Warrant Agent
shall be required to issue or deliver any Warrant Certificate
or shares of Common Stock in a name other than that of the
Warrant Holder at the time of surrender if any tax is payable
in respect of such transfer until the person requesting the
same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has
been paid. In the event that any transfer tax is due and
payable, the Warrant Agent shall be under no obligation to
issue or deliver any Warrant Certificate or shares of Common
Stock in a name other than that of the Warrant Holder until
the Company has notified the Warrant Agent that the transfer
tax if any, has been paid, or in the alternative, that no
transfer tax is due and payable by reason of an exemption.
<PAGE> 5
(5) The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently
account to the Company for all moneys received by the Warrant
Agent for the purchase of shares of Common Stock upon the
exercise of Warrants.
(6) The Warrant Agent covenants and agrees that upon
the exercise of any of the Warrants, the Warrant Agent shall
provide written notice to the Company and to R. D. White and
Company, Inc. (the "Underwriter") at its offices, the expense
of which notice shall be borne by the Company. Each notice
shall contain the name of the exercising Warrant Holder, the
number of shares of Common Stock that the Warrant Holder has
elected to purchase, the purchase price paid on a per share
basis and the cumulative number of Warrants exercised by all
of the Warrant Holders as of the date of the transaction
which is the subject of the aforesaid notice. Such notice
shall be made on the date of the exercise of the Warrant.
Nothing contained herein shall be construed so as to prevent
the Warrant Agent from providing the information required in
this Section 2.02(6) in a consolidated or tabular form,
provided that all other provisions of this Section are
complied with.
(7) The Warrant Agent covenants and agrees that it
shall provide a list of each and every holder of the Warrants
to the Company and the Underwriter at such time or from time
to time as shall be required by the Company or the
Underwriter, but in no event shall such a list be provided
less frequently than once per annum at a date as shall be
determined by the Company.
SECTION 2.03. The Company may, subject to the conditions
set forth herein, redeem all, but not less than all, the
Warrants then outstanding at 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 Warrants on
all twenty (20) days of the trading days ending prior to the
day that notice is given; and (iii) holders of the Warrants
shall have had exercise rights until the close of business on
the date fixed for redemption. Notice will be effective upon
mailing and the time of mailing is the "Effective Date of The
Notice". The Notice will state a redemption date not less
than forty five (45) days from the Effective Date of the
Notice (the "Redemption Date"). No Notice shall be mailed
unless all funds necessary to pay for redemption of all
Warrants then outstanding shall have first been set aside by
the Company in trust with the
<PAGE> 6
Warrant Agent for the benefit of all Warrant Holders so as to
be and continue to be available therefor. The redemption
price to be paid to the Warrant Holders will be 6.25 for each
share of Common Stock of the Company to which the Warrant
Holder would then be entitled upon exercise of the Warrant
being redeemed, as adjusted from time to time as provided
herein (the "Redemption Price"). In the event the number of
shares of Common Stock issuable upon exercise of the Warrant
being redeemed are adjusted pursuant to Article II hereof,
then upon each such adjustment the Redemption Price will be
adjusted by multiplying the Redemption Price in effect
immediately prior to such adjustment by a fraction, the
numerator of which is the number of shares of Common Stock
issuable upon exercise of the Warrant being redeemed
immediately prior to such adjustment and the denominator of
which is the number of shares of Common Stock issuable upon
exercise of such Warrant being redeemed immediately after
such adjustment. The Warrants may only be redeemed if the
Company has in effect a current Registration Statement or
post-effective amendment covering the shares underlying the
Warrants. The Warrant Holders may exercise their Warrants
between the Effective Date of The Notice and the Redemption
Date, such exercise being effective if done in accordance
with Section 2.02(l), and if the Warrant Certificate, with
form of election to purchase duly executed and the Warrant
Price, as applicable for such Warrant subject to redemption
far each share of Common Stock to be purchased is actually
received by the Warrant Agent at its office located at 2
Broadway, New York, New York 10005, no later than 5:00 P.M.
New York Time on the Redemption Date.
If any Warrant Holder does not wish to exercise any
Warrant being redeemed, he should mail such Warrant to the
Warrant Agent at its office located at 2 Broadway, New York,
New York 10005 after receiving the notice of redemption
required by this Section. If such notice of redemption shall
have been so mailed, and if on or before the Effective Date
of the Notice all funds necessary to pay for redemption of
all Warrants then outstanding shall have been set aside by
the Company in trust with the Warrant Agent for the benefit
of all Warrant Holders so as to be and continue to be
available therefor, then, on and after said Redemption Date,
notwithstanding that any Warrant subject to redemption shall
not have been surrendered for redemption, the obligation
evidenced by all Warrants not surrendered for redemption or
effectively exercised shall be deemed no longer outstanding,
and all rights with respect thereto shall forthwith cease and
terminate, except only the right of the holder of each
Warrant subject to redemption
<PAGE> 7
to receive the Redemption Price for each share of Common Stock to
which he would be entitled if he exercised the Warrant upon
receiving notice of redemption of the Warrant subject to redemption
held by him.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK
PURCHASABLE AND OF WARRANT PRICE
SECTION 3.01- In case the Company shall at any time after the
date of this Agreement (i) declare a dividend on the outstanding
Common Stock in shares of its capital stock, (ii) subdivide the
outstanding Common Stock, (iii) combine the outstanding Common Stock
into a smaller number of shares, or (iv) issue any shares of its
capital stock by reclassification of the Common Stock (including any
such reclassification in connection with a consolidation or merger
in which the Company is the continuing corporation), then, in each
case, the Warrant Price, and the number and kind of shares
receivable upon exercise in effect at the time of the record date
for such dividend or of the effective date of such subdivision,
combination, or reclassification shall be proportionately adjusted
so that the holder of any warrant exercised after such time shall be
entitled to receive the aggregate number and kind of shares which if
such warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination, or
reclassification. Such adjustment shall be made successively
whenever any event listed above shall occur.
SECTION 3-02. In case the Company shall issue rights, options, or
warrants to all holders of Common Stock entitling them to subscribe
for or purchase Common Stock or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a
conversion price per share, if a security convertible into or
exchangeable for common Stock) less than the "current market price
per share of Common Stock (as defined in Section 3.04 of this
Article III) on such record date, then, in such case, the Warrant
Price shall be adjusted by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of
<PAGE> 8
shares of Common Stock so to be offered (or the aggregate
initial conversion price of the convertible securities to be
offered) would purchase at such "current market price" and of
which the denominator shall be the number of shares of Common
Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for
subscription purchase (or into which the convertible or
exchangeable securities so to be offered are initially
convertible or exchangeable) - such adjustment shall become
effective at the close of business on such record date;
provided, however, that, to the extent the shares of Common
Stock (or securities convertible to or exchangeable for
shares of common Stock) are not delivered, the Warrant Price
shall be readjusted after the expiration of such rights,
options, or warrants (but only with respect to Warrants
exercised after such expiration), to the Warrant Price which
would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis
of delivery of only the number of shares of Common Stock or
securities convertible into or exchangeable for shares of
Common Stock) actually issued. In case any subscription price
may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration
shall be as determined in good faith by the board of
directors of the Company, whose determination shall be
conclusive absent manifest error. Shares of Common Stock
owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for
the purpose of any such computation.
SECTION 3-03. In case the Company shall distribute to all
holders of Common Stock (including any such distribution made
to the stockholders of the Company in connection with a
consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or
assets (other then cash dividends distributions and dividends
payable in shares of Common Stock) subscription rights,
options, or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase
shares of Common Stock (excluding those referred to in
Section 3.02 of this Article III), then, in each case, the
Warrant Price shall be adjusted by multiplying the Warrant
Price in effect immediately prior to the record date for the
determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be
the "current market price" per share of Common Stock (as
defined in Section 3.04 of this Article III) on such record
date, less the fair market value (as determined in good faith
by the board of directors of the Company, whose determination
shall be conclusive absent manifest error) of the portion of
the
<PAGE> 9
evidences of indebtedness or assets so to be distributed, or
of such subscription rights, options, or warrants,
convertible or exchangeable securities containing the right
to subscribe for or purchase shares of Common Stock,
applicable to the share, and of which the denominator shall
be such "current market price" per share of Common Stock.
Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of such
distribution retroactive to the record date for the
determination of stockholders entitled to receive such
distribution.
SECTION 3.04. For the purpose of any computation under
Sections 3.02 and 3.03 of this Article III, the "current
market price" per share of Common Stock on any date shall be
deemed to be the average of the daily closing prices for the
30 consecutive trading days commencing 45 trading days
before such date. The closing price for each day shall be
the last reported sales price regular way or, in case no
such reported sale takes place on such day, the closing bid
price regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the
highest reported bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or a
similar organization if NASDAQ is no longer reporting such
information. If on any such date the Common Stock is not
quoted in any such organization, the fair value of the
Common Stock on such date, as determined in good faith by
the board of directors of the Company, whose determination
shall be conclusive absent manifest error, shall be used.
SECTION 3.05. No adjustment in the Warrant Price shall be
required if such adjustment is less than $.001; provided,
however, that any adjustments which by reason of this
Section 3.05 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
All calculations under this Article III shall be made to the
nearest cent or to the nearest one-thousandth of a share, as
the case may be.
SECTION 3.06. In any case in which this Article III shall
require that an adjustment in the Warrant Price be made
effective as or a record data for a specified event the
Company may elect to defer until the occurrence of such
event issuing to the holder of
<PAGE> 10
any Warrant exercised later such record date the shares, if
any, issuable upon such exercise over and above the shares,
if any, issuable upon such exercise on the basis of the
Warrant Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence
of the event requiring such adjustment.
SECTION 3.07. Upon each adjustment of the Warrant Price as
a result of the calculations made in Section 3.01, 3.02, or
3.03 of this Article III, each Warrant outstanding prior to
the making of the adjustment in the Warrant Price shall
thereafter evidence the right to purchase, at the adjusted
Warrant Price, that number of shares (calculated to the
nearest thousandth) obtained by dividing (A) the product
obtained by multiplying the number of shares purchasable upon
exercise of a Warrant prior to adjustment of the number of
shares by the Warrant Price in effect prior to adjustment of
the Warrant Price by (B) the Warrant Price in effect after
such adjustment of the Warrant Price.
SECTION 3.08. In case of any capital reorganization of the
Company, or of any reclassification of the Common Stock
(other than a reclassification of the Common Stock referred
to in Section 3.01 of this Article III), or in the case of
the consolidation of the Company with or the merger of the
Company into any other corporation or of the sale, transfer,
or lease of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation or
other entity, each Warrant shall after such capital
reorganization, reclassification of Common Stock,
consolidation, merger, sale, transfer, or lease, be
exercisable, on the terms and conditions specified in this
Agreement, for the number of shares of stock or other
securities, assets, or cash to which a holder of the number
of shares purchasable (at the time of such capital
reorganization, reclassification of Common Stock,
consolidation, merger, sale, transfer, or lease) upon
exercise of such Warrant would have been entitled upon such
capital reorganization, reclassification of Common Stock,
consolidation, merger, sale, transfer, or lease; and in any
such case, if necessary, the provisions set forth in this
Article III with respect to the rights and interests
thereafter of the holders or the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock other securities,
assets, or cash thereafter deliverable on the exercise of the
Warrants. The subdivision or combination of shares
<PAGE> 11
of Common Stock at any time outstanding into a greater or
lesser number of shares shall not be deemed to be a
reclassification of the Common Stock for the purposes of this
subsection. The Company shall not effect any such
consolidation, merger, transfer, or lease, unless prior to or
simultaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such
consolidation or merger or the Corporation purchasing,
receiving, or leasing such assets or other appropriate
corporation or entity shall expressly assume, by written
instrument in form satisfactory to the Underwriter and duly
executed and delivered to each holder of a Warrant, the
obligation to deliver to the holder of each Warrant such
shares of stock, securities, or assets as, in accordance with
the foregoing provisions, such holders may be entitled to
purchase and to perform the other obligations of the Company
under this Agreement.
SECTION 3.09. The Company may make such reductions in the
Warrant Price, in addition to those required by this Article
III, as it shall, in its sole discretion, determine to be
advisable.
ARTICLE IV
OTHER PROVISIONS EFFECTING RIGHTS OF
WARRANT HOLDERS
SECTION 4.01. No Warrant Holder, as such shall be entitled
to vote or receive dividends or be deemed the holder of shares
of Common Stock for any purposes, nor shall anything contained
in any Warrant Certificate be construed to confer upon any
Warrant Holder, as such, any of the rights of a shareholder of
the Company or any right to vote, give or withhold consent to
any action by the Company, whether upon any recapitalization,
issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise; receive dividends or
subscription rights, or otherwise, until in connection with
the exercise of any Warrant, such Warrant shall have been
surrendered and the purchase price or the shares of Common
Stock for which such Warrant is being exercised shall have
been received by the Warrant Agent; provided, however, that
any such surrender and payment on any date when the stock
transfer books of the Company shall be closed shall constitute
the person or persons in whose name or names the certificate
or certificates for those shares of Common Stock are to be
issued as the record holder or holders thereof for all
purposes at the opening of business on
<PAGE> 12
the next succeeding day on which such stock transfer books are
open and the Warrant surrendered shall not be deemed to have
been exercised, in whole or in part, as the case maybe, until
such next succeeding day on which stock transfer books are
open.
SECTION 4.02. The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record any
publication, mailing or notice which it shall provide to all
of its shareholders of record. For purposes of this Section
4.02, the Warrant Holders of record shall be those Warrant
Holders who are of record on a date even with the date chosen
by the Company for the purpose of determining the shareholders
of record who shall be entitled to receive such publication,
mailing or notice.
SECTION 4.03. If any Warrant Certificate is lost, stolen,
mutilated or destroyed, the Company and the Warrant Agent may,
on such terms as to indemnity or otherwise as they may in
their discretion reasonably impose which shall, in the case of
a mutilated Warrant Certificate, include the surrender
thereof, issue a new Warrant Certificate of like denomination
and tenor as, and in substitution for, the Warrant Certificate
so lost, stolen, mutilated or destroyed.
SECTION 4.04. (1) The Company covenants and agrees that at
all times it shall reserve and keep available for the exercise
of outstanding Warrants such number of authorized shares of
Common Stock as are sufficient to permit the exercise in full
of such Warrants and that it will make available to the
Warrant Agent from time to time a number of duly executed
certificates representing shares of Common Stock sufficient
therefor.
(2) The Company shall secure the listing, upon official
notice of issuance, of shares of Common Stock issuable upon
exercise of Warrants upon any securities exchange upon which
shares of Common Stock become listed.
(3) The Company covenants that all shares of Common
Stock issued on exercise of Warrants shall be validly issued,
fully paid, non-assessable and free of preemptive rights.
(4) The Company shall use its best efforts to secure
the effective registration of the Warrants and the shares of
Common Stock issuable upon exercise of the Warrants under the
Securities Act of 1933, as amended (the "Act"), and to
register or qualify such Warrants and shares of Common Stock
under the laws of any
<PAGE> 13
states in which the sale of the Warrants was registered or
qualified and shall use its reasonable good faith efforts to
register and qualify such Warrants and shares of Common Stock
in such additional states and jurisdictions as may be
appropriate; provided, however, that the Company shall have
no obligation to register such Warrants and shares of Common
Stock or maintain the effectiveness of such registration or
qualification, as aforesaid, in the event that, by amendment
to the Act or otherwise, such registration or qualification
is not required at the time such warrants and shares of
Common Stock are to be issued or, if permitted by applicable
Federal securities laws or the rules and regulations
promulgated thereunder, at any time when the relationship of
the Warrant Price to the then current market price of the
Company's Common Stock makes it unlikely that any Warrants
will be exercised.
(5) The Company will furnish to the Warrant Agent,
upon request, an opinion of counsel satisfactory to the
Warrant Agent the effect that (i) a Registration Statement
under the Act is then in effect with respect to shares of
Common Stock issuable upon exercise of the Warrants and that
the prospectus included therein complies as to form in all
material respects, except as to financial statements,
including schedules, and other accounting and financial data,
as to which such counsel need express no opinion, with the
requirements of the Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission")
thereunder; or (ii) a Registration Statement under the Act
with respect to said shares of Common Stock is not required.
In the event that said opinion states that such a
Registration Statement is in effect, the Company will from
time to time furnish the Warrant Agent with current
prospectuses meeting the requirements of the Act and such
rules and regulations in sufficient quantity to permit the
Warrant Agent to deliver a prospectus ("Prospectus") to each
Warrant Holder upon exercise thereof. The Company further
agrees to pay all fees, costs and expenses in connection with
the preparation and delivery to the Warrant Agent of the
foregoing opinions and Prospectuses and the above mentioned
registrations and other actions, and to immediately notify
the Warrant Agent in the event that (i) the Commission shall
have issued or threatened to issue any order preventing or
suspending the use of any Prospectus; (ii) at any time any
Prospectus shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading; or (iii) for any reason it shall be necessary to
amend or supplement any Prospectus in order to comply with
the Act.
<PAGE> 14
SECTION 4.05. If the number of shares purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 3.07
of Article IV, the Company shall not be required to issue
fractions of shares upon exercise of the Warrants or to
distribute share certificates which evidence fractional shares
in lieu of fractional shares, there shall be paid to the
registered holders of Warrant Certificates at the time such
Warrants are exercised as herein provided an amount in cash
equal to the same fraction of the current market value of a
share. For purposes of this Section 4.05, the current market
value of a share issuable upon the exercise of a Warrant shall
be the closing price of a share of Common Stock, as determined
pursuant to the second and third sentences of Section 3.04, for
the trading day immediately prior to the date of such exercise.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
SECTION 5.01. Prior to due presentment for registration of
transfer of any Warrant, the Company and the Warrant Agent may
deem and treat the Warrant Holder as the absolute owner of such
warrant, notwithstanding any notation of ownership or other
writing thereon, for the purpose of any exercise thereof and
for all other purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary.
ARTICLE VI
CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
SECTION 6.01. The Company will from time to time promptly
pay, subject to the provisions of Section 2.02 of this
Agreement, all taxes and charges that may be imposed upon the
Company or the Warrant Agent in respect of the issuance or
delivery of shares of Common Stock upon the exercise of
Warrants.
<PAGE> 15
SECTION 6.02 (1) The Warrant Agent may resign and be
discharged from its duties under this Agreement upon thirty
(30) days notice in writing, mailed to the Company by
registered or certified mail, and to each Warrant Holder. The
Company may remove the Warrant Agent or any successor warrant
agent upon thirty (30) days notice in writing, mailed to the
Warrant Agent or successor Warrant Agent, as the case may be,
by registered or certified mail, and to each Warrant Holder;
provided, however, the Company shall appoint a new Warrant
Agent as hereinafter provided and such removal shall not
become effective until a successor Warrant Agent has been
appointed and has accepted such appointment. If the Warrant
Agent shall resign or shall otherwise become capable of
acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment
within a period of thirty (30) days after it has been
notified in writing of such resignation or incapability by
the Warrant Agent by a Warrant Holder, who shall, with such
notice, submit his Warrant Certificate for inspection by the
Company, then any Warrant Holder may apply to any court of
competent jurisdiction or the appointment of a successor to
the Warrant Agent. Any successor Warrant Agent, whether
appointed by the Company or by such a court shall be a
registered transfer agent, bank or trust company, subject to
the terms and conditions of this Section 6.02, in good
standing and incorporated under the laws of any State of the
United States, having its principal office in the United
States of America. After appointment, the successor Warrant
Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as
Warrant Agent without further act or deed. The former Warrant
Agent shall deliver and transfer to the successor Warrant
Agent any property at the time held by it hereunder and
execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Failure to give any notice
provided for in this section, however, or any defect therein,
shall not affect the legality or validity of the resignation
or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.
(2) Any corporation into which the Warrant Agent may
be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder
without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case at the
time such successor to the Warrant
<PAGE> 16
Agent shall succeed to the agency created by this Agreement,
any of the Warrant Certificates shall have been countersigned
but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent
and deliver such Warrant Certificates so countersigned, and
in case at that time any of the Warrant Certificates shall
not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant Certificate in its own
name or in the name of the successor Warrant Agent; and in
all such cases such Warrant Certificates shall have the full
force provided in the Warrant Certificates and this
Agreement.
In case at any time the name of the Warrant Agent
shall be changed and at such time any of the Warrant
Certificates shall have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under this
prior name and deliver Warrant Certificates so countersigned;
and in case at that time any of the Warrant Certificates
shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior
name or in its changed name; and in all such cases such
Warrant Certificates shall have the full force provided in
the Warrant Certificates and in this Agreement.
SECTION 6.03. The Company agrees to pay the Warrant Agent
from time to time, on demand of the Warrant Agent, reasonable
compensation for all services rendered by it hereunder and
also as reasonable expenses and counsel fees and other
disbursements of any kind incurred in the administration and
execution of this Agreement and the exercise and performance
of its duties hereunder. The Company also agrees to indemnify
the Warrant Agent for, and to hold it harmless against, any
loss, liability or expense, incurred without gross
negligence, willful misconduct or bad faith on the part of
the Warrant Agent, arising out of or in connection with the
acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of
liability in the premises.
SECTION 6.04. The Company covenants and agrees that it
shall, at the Company's expense, provide to the Warrant Agent
copies of its current prospectus in such quantity as to
enable the Warrant Agent to deliver one copy of such current
prospectus to such Warrant Holder who shall exercise his
rights under a Warrant. Notwithstanding anything else
contained in this Section 6.04, the Company shall not be
obligated to provide copies of its current prospectus for the
purpose of allowing the Warrant Agent to deliver
<PAGE> 17
such copies to any Warrant Holder who delivers all of his
redeemable warrants for redemption pursuant to Section 2.03
or who shall notice the Company of his intent to permit
redemption of all of his Warrants pursuant to Section 2.03
herein or to any person who shall hold any Warrant subject to
the terms of this Agreement after the earlier of the
Redemption Date or the Last Exercise Date of the Warrants.
SECTION 6.05. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following
terms and conditions, by all of which the Company and the
holders of Warrant Certificates, by their acceptance thereof,
shall be bound:
(1) Whenever in the performance of its duties under
this Agreement the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by
the Company prior to taking or suffering any action
hereunder, that fact or matter, unless other evidence in
respect thereof be herein specifically prescribed, may be
deemed to be conclusively proved and established by a
certificate signed by the President or the Secretary of the
Company and delivered to the Warrant Agent. That certificate
shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the
provisions of this Agreement reliance upon that certificate.
(2) The Warrant Agent shall be liable hereunder only
for its own gross negligence or willful misconduct.
(3) The Warrant Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained
in this Agreement or in the Warrant Certificates, except its
countersignature thereof, or be required to verify the same,
but all such statements and recitals are and shall be deemed
to have been made by the Company only.
(4) The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement
or the execution and delivery hereof, except the due
execution hereof by the Warrant Agent, or in respect of the
validity or execution of any Warrant Certificate, except its
countersignature thereof; nor shall it be responsible for any
Warrant Certificate; nor shall it be responsible for the
adjustment of the Warrant Price or the making of any change
in the number of shares of Common Stock required under the
provisions of Article III of this Agreement or
<PAGE> 18
responsible for the manner, method or amount of any such
change or the ascertaining of the existence of facts that
would require any such adjustment or change except with
respect to the exercise of Warrant Certificates after actual
notice of any adjustment of the Warrant Price; nor shall it
by any act under this Agreement be deemed to make any
representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued
pursuant to this Agreement or any Warrant Certificate or as
to whether any share of Common Stock will when issued be
validly issued, fully paid, non-assessable and free of
preemptive rights.
(5) The Warrant Agent and any shareholder, director,
officer or employee of the Warrant Agent may buy, sell or
deal in any of the Warrant Certificates or other securities
of the Company to retain a pecuniary interest in any
transaction in which the Company may be interested or
contract with or lend money to or otherwise act as fully and
freely as though it was not Warrant Agent or subject to this
Agreement. Nothing herein shall preclude the Warrant Agent
from acting in any other capacity for the Company or for any
other legal entity.
(6) The Warrant Agent is hereby authorized and
directed to accept instructions with respect to the
performance of its duties hereunder from any officer or
assistant officer of the company, and to apply to any such
officer or assistant officer for advice or instructions in
connection with its duties and shall not be liable for any
action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officer or
assistant officer.
(7) The Warrant Agent may consult with its counsel or
other counsel satisfactory to it, including counsel for the
Company, and the opinion of such counsel shall be full and
complete authorization and protection in respect of any
action taken, offered, or omitted by it hereunder in good
faith and in accordance with the opinion of such counsel.
(8) The Warrant Agent shall incur no liability to the
Company or to any holder of any Warrant for any action taken
by it in reliance upon any Warrant Certificate or
certificate for Common Stock, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be
signed, executed, and where necessary, certified or
acknowledged, by the proper person or persons
<PAGE> 19
SECTION 6.06. The Warrant Agent may, without the consent or concurrence of
the Warrant Holders, by supplemental agreement or otherwise, concur with the
Company in making any changes or corrections in this Agreement that it shall
have been advised by counsel, who may be counsel for the Company, are required
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error herein contained, and which shall
not be inconsistent with the provisions of the Warrant Certificates, provided
such changes or corrections do not adversely affect the privileges or immunities
of the Warrant Holders.
SECTION 6.07. All the Covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 6.08. Forthwith upon the appointment after the date thereof of any
transfer agent for the Common Stock, or of any subsequent transfer agent for the
Common Stock, the Company will file with the Warrant Agent a statement setting
forth the name and address of such transfer agent.
SECTION 6.09. Notice or demand pursuant to this Agreement to be given or
made by the Warrant Agent or by any Warrant Holder to or on the Company shall be
sufficiently given or made and effective on the third business day after posting
thereof, unless otherwise provided in this Agreement, if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Company with the Warrant Agent) as follows:
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
notice or demand pursuant to this Agreement to be given or made by the Company
or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed
<PAGE> 20
(until another address is filed in writing by the Warrant Agent
with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
notice or demand pursuant to this Agreement to be given or made
by the Company or the Warrant Agent to or on the Underwriter
shall be sufficiently given or made and effective on the third
business day after posting thereof, unless otherwise provided
in this Agreement, if sent by first-class mail, postage
prepaid, addressed until another address is filed in writing by
the Underwriter with the Company) as follows:
R.D. White and Company, Inc.
950 Third Avenue
New York, NY 10022
notice or demand pursuant to this Agreement to be given or made
by the Company or the Warrant Agent to or on any Warrant Holder
shall be sufficiently given or made and effective on the third
business day after posting thereof, unless otherwise provided
in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known
address as it shall appear in the records of the Company, if
such notice shall be given by the Company or, if such notice
shall be given by the Warrant Agent, as it shall appear on the
register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to
this Agreement on the Warrant Agent, Company or Underwriter
shall be promptly forwarded by the recipient thereof to each of
the Company, Warrant Agent or Underwriter who shall not have
received or made such demand or notice.
SECTION 6.10. The validity, interpretation and performance
of this Agreement and the Warrants shall be governed by the
laws of the State of New York.
<PAGE> 21
SECTION 6.11. Nothing in this Agreement shall be
construed to give to any person or corporation other than the
parties hereto and the Warrant Holders any right, remedy or
claim under promise or agreement hereof all covenants,
conditions, stipulations, promises and agreements contained in
this Agreement shall be for the sole and exclusive benefit of
the Company and the Warrant Agent and their successors and of
the Warrant Holders, and their heirs, representatives,
successors, assigns and transferees.
SECTION 6.12. A copy of this Agreement shall be available
for inspection by any Warrant Holder during the regular
business hours and at the corporate office of the Warrant
Agent in New York, New York, at which time the Warrant Agent
may require any Warrant Holder to submit his Warrant
Certificate for inspection by it.
SECTION 6.13. This Agreement shall terminate on the Last
Exercise Date, or such earlier date upon which all Warrants
have been exercised, except that the Warrant Agent shall
account to the Company pursuant to Paragraph (5) of Section
2.02 of this Agreement for all cash held by it. The provisions
of Section 6.03 and 6.04 of this Agreement shall survive such
termination.
SECTION 6.14. The Article headings in this Agreement are
for convenience only and are not part of this Agreement and
shall not affect the interpretation thereof.
SECTION 6.15. This Agreement may be executed in any number
counterparts, each of which is so executed shall be deemed to
be an original, and all such counterparts shall together
constitute but one and the same agreement.
ATTEST: CAPITAL BEVERAGE CORPORATION
________________________ ____________________________
ATTEST: CONTINENTAL STOCK TRANSFER AND
TRUST COMPANY
________________________ ______________________________
<PAGE> 1
EXHIBIT 5.1
[WEBER & WEBER LETTERHEAD]
June 11, 1997
Board of Directors
Capital Beverage Corporation
1111 East Tremont Avenue
Bronx, New York 10460
RE: CAPITAL BEVERAGE CORPORATION
REGISTRATION STATEMENT ON FORM SB-2
Gentlemen:
We have acted as counsel Capital Beverage Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a registration statement (the "Registration Statement") on Form
SB-2, File No. 333-9995, under the Securities Act of 1933, relating to the
public offering (a) by the Company of 800,000 units (the "Units"), each
consisting of one (1) share of the Company's Common Stock, par value $.001 per
share (the "Common Stock") and one-half (1/2) Class A Redeemable Common Stock
Purchase Warrants (the "Class A Warrants"), (b) 300,000 shares of Common Stock
by a selling Stockholder, (c) 337,500 shares of Common Stock issuable upon
conversion of 337,500 Series A Preferred Stock by a Selling Stockholder and (d)
3,175,000 Class A Warrants and 3,175,000 shares of Common Stock underlying the
Class A Warrants by Selling Securityholders.
We have examined the Certificate of Incorporation and the By-Laws of the
Company, the minutes of the various meetings and consents of the Board of
Directors of the Company, drafts of the Underwriting Agreement relating to the
offering of the Units, drafts of the Warrant Agreement and Unit Purchase Option,
draft forms of certificates representing the Common Stock and the Class A
Warrants, originals or copies of such records of the Company, agreements,
certificates of public officials, certificates of officers and representatives
of the Company and others, and such other documents, certificates, records,
authorizations, proceedings, statutes and judicial decisions as we have deemed
necessary to form the basis of the opinion expressed below. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to originals of all
documents submitted to us as copies thereof. As to various questions of fact
material to such opinion, we have relied upon statements and certificates of
officers and representatives of the Company and others.
<PAGE> 2
Board of Directors
June 11, 1997
Page 2
- --------------------------------------------------------------------------------
Based on the foregoing, we are of the opinion that:
1. All shares of Common Stock included in the Units have been duly
authorized and, when issued and sold in accordance with the Registration
Statement, will be validly issued, fully paid and nonassessable.
2. The Class A Warrants and the Unit Purchase Option have been
duly authorized and, when issued and sold in accordance with the Registration
Statement, will be validly issued, fully paid and nonassessable.
3. The shares of Common Stock and Class A Warrants included in the
Selling Securityholder's Securities have been duly authorized, validly issued,
fully paid and nonassessable; and, when sold in accordance with the
Registration Statement will continue to be duly authorized, validly issued,
fully paid and nonassessable.
4. The shares of Common Stock issuable upon exercise of the Class
A Warrants, the Unit Purchase Option and the Class A Warrants included in the
Selling Securityholder's Securities have been duly authorized and reserved for
issuance and, when issued in accordance with the terms of the Class A Warrants,
the Unit Purchase Option or the Class A Warrants included in the Selling
Securityholder's Securities, as the case may be, will be duly authorized,
validly issued, fully paid and nonassessable.
We hereby consent to be named in the Registration Statement, the
Prospectus and the Selling Securityholder Prospectus as attorneys who have
passed upon legal matters in connection with the offering of the securities
offered thereby under the caption "Legal Matters."
We further consent to your filing a copy of this opinion as an exhibit
to the Registration Statement.
Very truly yours,
WEBER & WEBER, ESQ.
W&W/
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into by the undersigned parties
effective the 1st day of October, 1996.
The parties to this Agreement are Carmine N. Stella ("Stella") and
Capital Beverage Corporation ("Capital").
WHEREAS, Vito Santoro, Inc. d/b/a Caribe Beverage ("Caribe") has been
merged into Capital;
WHEREAS, Stella had been the President and Chief Executive Officer of
Caribe;
WHEREAS, Stella has been and is the President and Chief Executive
Officer of Capital;
WHEREAS, prior to the public offering of its common stock by Capital,
Capital wishes to enter into a written employment agreement with Stella and
Stella wishes to enter into a written employment agreement with Capital, the
parties agree to enter into this agreement;
Capital agrees to employ Stella as its President and Chief Executive
Officer ("CEO") in accordance with the terms and conditions set forth below:
1. TERM: Stella will be employed by Capital as the President, Chairman
of the Board of Directors and Chief Executive Officer of Capital for a period
of three (3) years from the aforementioned effective date of this Agreement
("Effective Date").
2. DUTIES AND RESPONSIBILITIES OF EMPLOYEE
Stella will have the following duties and responsibilities as well as
the authority to perform the same:
a. Executive Management of Capital;
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b. Scheduling and chairing of Directors' Meetings; and
c. Reporting to Board of Directors regarding Executive
Management of Capital.
3. BASE SALARY: Capital will pay to Stella the base salary of Three
Hundred Thousand ($300,000.00) Dollars per year payable in equal weekly
payments for the period of three (3) years from the Effective Date.
3.2 ADDITIONAL COMPENSATION: In addition to the base salary, Stella
will receive the following:
a. Stella will participate in whatever executive stock option
plan is agreed upon by the Board of Directors and Stella shall receive stock
options in accordance with such plan(s);
b. Stella will continue to receive the use of a luxury car in
keeping with the past practice of Caribe and Capital, including monthly rental
payments, maintenance, insurance costs and fuel;
c. Capital will continue to maintain in full force and effect
the One Million ($1,000,000.00) Dollar Life Insurance Policy previously
maintained by Caribe and/or Capital on Stella to benefit Stella's heirs in the
event of his death;
d. Capital will continue to maintain in full force and effect
the health and welfare coverage on Stella and his family which was previously
maintained by Caribe and/or Capital or any equivalent coverage through a
different carrier; and
e. In the event that the Board of Directors of Capital approve
a pension plan for its executives and/or employees, Stella will be covered by
and receive benefits from said plan.
4. BUSINESS EXPENSES: Capital shall reimburse Stella for all expenses
reasonably incurred in the performance of his duties under this Agreement
including, but not limited to, travel
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and lodging, entertainment, telephone, professional memberships, attendance at
industry functions, such as the Empire State Beer Distributors Convention,
work-related educational courses and the cost of professional publications,
club memberships, food shows and automobile expenses as set forth above.
5. VACATION POLICY: Stella shall be entitled to paid vacation of four
(4) weeks per year, including vacation during the first year of the contract.
If Stella does not use his four (4) weeks of vacation, he may carry any unused
vacation over to following years.
6. PERSONAL DAYS AND HOLIDAYS: Stella shall be entitled to be
reimbursed for six (6) personal days per year and to sick days in keeping with
Capital's policy regarding executives. Stella shall be entitled to holidays in
accordance with Capital's company policy.
7. LEAVE OF ABSENCE AND BEREAVEMENT LEAVE: Capital will provide Stella
with up to four (4) weeks per year of paid leave time for the use of Stella for
health purposes or for family purposes, if deemed necessary by Stella. Stella
shall be afforded five (5) days bereavement leave in the event of the death of
any member of his family.
8. SEVERANCE: If Stella ceases to be employed by Capital for any
reason, Stella will receive four (4) weeks pay for each year of service with
Caribe and/or Capital. Such payment will be pro-rated for the portion of
Stella's final year of service.
9. DISPUTES AND ARBITRATION
All claims or controversies concerning this Agreement or
arising in any way out of the performance of this Agreement or the relationship
of the parties established pursuant to this Agreement, shall be resolved by
arbitration in the City and State of New York, in accordance with the
Commercial Rules of the American Arbitration Association by a panel of three
arbitrators
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appointed by the American Arbitration Association.
10. ENTIRE AGREEMENT
This written contract contains the entire agreement between the
parties and all prior representations, promises or discussions are merged and
superseded by this written contract.
Capital Beverage Corporation
By: /s/ Carol A. Macchiaralo
------------------------
By: /s/ Carmine N. Stella
------------------------
CARMINE N. STELLA
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of our
report dated March 31, 1997 relating to the financial statements of Capital
Beverage Corporation as of December 31, 1996 and for each of the years in the
two year period then ended and the reference to our firm under the captions
"Selected Financial Data" and "Experts" in the accompanying Prospectus.
/s/ FELDMAN RADIN & CO., P.C.
--------------------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants
June 11, 1997
New York, New York
