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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
______________
SUN HILL INDUSTRIES, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 5112 060916732
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(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation Code Number)
or Organization)
48 Union Street, Stamford, Connecticut 06906-1329, (203) 324-7550
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(Address and Telephone Number of Principal Executive Offices)
48 Union Street, Stamford, Connecticut 06906-1329, (203) 324-7550
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(Address of Principal Place of Business or
Intended Principal Place of Business)
Mr. Benson Zinbarg,
President
Sun Hill Industries, Inc.
48 Union Street,
Stamford, Connecticut 06906
Telephone Number: (203) 324-7550
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(Name, Address and Telephone Number of Agent for Service)
Copies to:
Paul V. Greco, Esq. Steven Wasserman, Esq.
Aieta & Greco Bernstein & Wasserman, LLP
73 Spring Street, Suite 601 950 Third Avenue, 10th Floor
New York, New York 10012 New York, New York 10022
Tel. (212) 334-1222 Tel. (212) 826-0730
Fax (212) 334-1278 Fax (212) 371-4730
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this Registration Statement.
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If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Unit(1) Price(1)
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<S> <C> <C> <C> <C>
Common Stock, par
value $.001 per
share............... 1,150,000 shares(2) $4.00 $4,600,000 $1,586.21
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Class A Redeemable
Common Stock
Purchase
Warrants............ 2,300,000 warrants(3) $.25 $575,000 $ 198.28
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Common Stock
Underlying Class A
Redeemable Common
Stock Purchase
Warrants............ 2,300,000 shares(4) $4.50 $10,350,000 $3,568.97
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Common Stock, par
value $.001 per
share............... 600,000 shares(5) $4.00 $2,400,000 $ 827.59
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Underwriter's
Purchase
Option.............. 100,000 Options(6) $.001 $100.00 $.03
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Common Stock, par
value $.001 per
share, underlying
the Underwriter's
Purchase
Option.............. 100,000 shares(6) $4.80 $480,000 $ 165.52
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</TABLE>
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<TABLE>
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<S> <C> <C> <C> <C>
Class A Redeemable
Common Stock
Purchase Warrants
underlying the
Underwriter's $.30 $60,000
Purchase Option..... 200,000 warrants(6) $ 20.69
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Common Stock, par
value $.001 per
share, underlying the
Class A Redeemable
Common Stock
Purchase Warrants
contained in the
Underwriter's
Purchase Option..... 200,000 shares(6) $4.50 $900,000 $ 310.34
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TOTAL............... ----- ------ ----- $6,677.63
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457
(2) Includes 150,000 shares of Common Stock issuable upon exercise of the
Underwriter's Over-Allotment Option.
(3) Includes 300,000 warrants issuable upon exercise of the Underwriter's
Over-Allotment Option.
(4) Includes 300,000 shares of Common Stock issuable upon the exercise of the
Class A Warrants contained in the Underwriter's Over-Allotment Option.
(5) Represents shares of Common Stock offered by the Initial Selling
Securityholder and the Subsequent Selling Securityholder.
(6) Pursuant to Rule 416, there is also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Underwriter's Purchase Option.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
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SUN HILL INDUSTRIES, INC.
Cross Reference Sheet for Prospectus Under Form SB-2
Form SB-2 Item No. and Caption Caption or Location in Prospectus
- ------------------------------ ---------------------------------
1. Forepart of Registration Statement
and Outside Front Cover of Prospectus Cover Page; Cross Reference
Sheet; Outside Sheet; 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 ....................... Use of Proceeds
5. Determination of Offering Price ....... Cover Page; Risk Factors
6. Dilution .............................. Dilution
7. Selling Securityholders ............... Selling Securityholders
8. Plan of Distribution .................. Outside Front Cover Page of
Prospectus; Selling
Securityholders; Underwriting
9. Legal Proceedings ..................... Business
10. Directors, Executive Officers,
Promoters and Control Persons ....... Management
11. Security Ownership of Certain
Beneficial Owners and Management .... Principal Securityholders
12. Description of Securities ............ Description of Securities
13. Interest of Named Experts and Counsel *
14. Disclosure of Commission Position
on Indemnification for Securities Act
Liabilities ......................... Undertakings
15. Organization within Last Five Years .. *
16. Description of Business .............. Prospectus Summary; 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 - Facilities
19. Certain Relationships and Related
Transactions ........................ Management - Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters ......... Outside Front Cover Page of
Prospectus; Description of
Securities; Shares Eligible for
Future Sale
21. Executive Compensation ............... Management - Executive Compensation
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22. Financial Statements ................. Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ................ *
- ----
* Not applicable or answer is negative.
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SUN HILL INDUSTRIES, INC.
1,100,00 Shares of Common Stock
2,000,000 Class A Redeemable Common Stock Purchase Warrants
Sun Hill Industries, Inc., a Delaware corporation (the "Company"), is
offering for sale 1,000,000 shares (the "Shares") of Common Stock, par value
$.001 per share (the "Common Stock") at $4.00 per Share and 2,000,000 Class A
Redeemable Common Stock Purchase Warrants (the "Class A Warrants") at $.25 per
warrant. See "Risk Factors" and "Description of Securities." The Risk Factor
Section begins on page 11 of this Prospectus.
This offering also includes 100,000 shares of Common Stock (hereinafter,
the "Initial Selling Securityholder Shares") which are owned by the Kookeroonie
Trust (hereinafter, the "Initial Selling Securityholder"), a trust previously
established in December 1993 for the benefit of the family of Mr. Benson
Zinbarg, the President, Chief Executive Officer and Chief Financial Officer of
the Company. The Company will not receive the proceeds of the sale of the
Initial Selling Securityholder Shares. The Initial Selling Securityholder will
receive the proceeds from the sale of the securities to be offered by the
Initial Selling Securityholder. See "Selling Securityholders."
AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "DILUTION" AND "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to
Underwriting the Initial
Discounts and Proceeds to Selling
Price to Public Commissions(1) the Company(2) Securityholder
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<S> <C> <C> <C> <C>
Per Share Offered
by the Company ....... $ 4.00 $ .40 $ 3.60 --
Per Warrant Offered
by the Company ....... $ .25 $ .025 $ .225 --
Total Offered
by the Company ....... $4,500,000 $450,000 $4,050,000 --
Per Share Offered
by the Initial Selling
Securityholder ....... $ 4.00 $ .40 -- $ 3.60
Total Offered by the
Initial Selling
Securityholder ....... $ 400,000 $ 40,000 -- $360,000
TOTAL(3) ............. $4,900,000 $490,000. $4,050,000 $360,000
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</TABLE>
(See Footnotes on Following Page)
BILTMORE SECURITIES, INC.
The date of this Prospectus is ______ __, 1996
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(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance equal to 3% of the
gross proceeds of the offering ($147,000, or $167,250 if the Underwriter's
Over-Allotment Option (as defined below) is exercised in full) and (ii)
options exercisable for a period of four years commencing one year after
the Effective Date entitling the Underwriter to purchase 100,000 shares of
Common Stock at $4.80 per Share and 200,000 Class A Warrants at $.30 per
warrant (the "Underwriter's Purchase Option"). In addition, the Company
has agreed to indemnify the Underwriter against certain civil liabilities
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company,
estimated at $250,000, excluding the Underwriter's non-accountable expense
allowance.
(3) The Company has granted the Underwriter an option, exercisable within 30
days from the Effective Date to purchase up to 150,000 additional shares
of Common Stock and 300,000 additional Class A Warrants upon the same
terms and conditions as set forth above solely to cover over-allotments,
if any ("Underwriter's Over-Allotment Option"). If the Underwriter's
Over-Allotment Option is exercised in full, the total Price to Public,
excluding the sale by the Initial Selling Securityholder will be
$5,175,000, Underwriting Discounts and Commissions will be $517,500 and
Proceeds to the Company will be $4,657,500. See "Underwriting."
The Shares, the Initial Selling Securityholder Shares and the Class A
Warrants are offered separately and may be independently transferred and traded
immediately upon the date on which the registration statement (the "Registration
Statement") of which this prospectus (the "Prospectus") forms a part is declared
effective (the "Effective Date") by the Securities and Exchange Commission (the
"Commission"). Each Class A Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of $4.50 per share for a
period of four years commencing one year after the Effective Date. The Class A
Warrants are subject to redemption by the Company upon 30 days prior written
notice thereof (the "Redemption Notice") at any time after ______ __, 1997 at
$.01 per Class A Warrant if the closing bid price per share of the Common Stock
has equaled or exceeded $7.00 for 20 consecutive trading days ending within five
days of the Company's Redemption Notice. The exercise price and exercise date of
the Class A Warrants are subject to adjustment under certain circumstances
including, without limitation, the recapitalization or reorganization of the
Company and certain corporate combinations. See "Description of Securities." It
is currently anticipated that the initial offering price of the Shares and the
Initial Selling Securityholder Shares will be $4.00 per Share and that the
initial offering price of the Class A Warrants will be $.25 per warrant. The
offering price of the Shares, the Initial Selling Securityholder Shares and the
Class A Warrants as well as the exercise price of the Class A Warrants were
determined arbitrarily by the Company and Biltmore Securities, Inc.
("Biltmore"), the underwriter of this offering (the "Underwriter") and are not
necessarily related to the Company's assets, book value, net worth or any other
established criteria of value. See "Risk Factors" and "Underwriting." The
Company will receive the proceeds (net of certain expenses) of its offering of
the Shares and the Class A Warrants, including the proceeds from the exercise,
if any, of the Class A Warrants. See "Use of Proceeds." Upon completion of the
Company's public offering, management will own an aggregate of 57.4% (54% if the
Over-Allotment Option, as hereinafter defined, is exercised in full) of the then
outstanding Common Stock of the Company.
The Shares, the Class A Warrants and the Initial Selling Securityholder
Shares are offered by the Underwriter on a "firm commitment" basis when, as and
if delivered to and accepted by the Underwriter, and subject to the
Underwriter's right to reject orders in whole or in part and to certain other
conditions. It is expected that delivery of the certificates representing the
Shares, the Class A Warrants and the Initial Selling Securityholder Shares will
be made on or about _____ __, 19__.
2
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The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of an additional 500,000 shares of Common Stock
(the "Subsequent Selling Securityholder Shares") which are owned by Mr. Benson
Zinbarg, the Company's founder, President, Chief Executive Officer and Chief
Financial Officer (the "Subsequent Selling Securityholder") under an Alternate
Prospectus. The Subsequent Selling Securityholder Shares may be sold commencing
eighteen (18) months from the date of this Prospectus subject to earlier release
at the sole discretion of the Underwriter. Certificates evidencing these
securities will bear a legend reflecting such restrictions. The Underwriter may
release the shares held by the Subsequent Selling Securityholder at any time
after all shares subject to the Underwriter's Over-Allotment Option (as
hereinafter defined) have been sold or such option has expired. The
Underwriter's Over-Allotment Option period will expire thirty (30) days
following the date of this Prospectus. In other offerings where the Underwriter
has acted as the managing underwriter, it has released similar restrictions
applicable to selling stockholders prior to the expiration of the lock-up period
and in some cases immediately after the exercise of the Over-Allotment Option or
the expiration of the Over-Allotment period. The resale of the securities held
by the Subsequent Selling Securityholder is subject to prospectus delivery and
other requirements of the Securities Act of 1933, as amended (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 hereby.
Additionally, the Initial Selling Securityholder and the Subsequent Selling
Securityholder may be deemed to be underwriters under the Securities Act. See
"Selling Securityholders." The Company will not receive the proceeds of any sale
of such securities by the Subsequent Selling Securityholder. The Subsequent
Selling Securityholder will receive the proceeds from the sale, if any, of the
securities to be offered by the Subsequent Selling Securityholder. Except as
otherwise set forth herein, the costs incurred in connection with the
registration of such securities are to be borne by the Company. See "Selling
Securityholders."
Prior to this offering, there has been no public market for the Common
Stock or the Class A Warrants, and no assurance may be given that a public
market will develop following the completion of the offering or that, if any
such market does develop, it will be sustained. The Company has applied to have
its Common Stock and the Class A Warrants listed for quotation on the NASDAQ
SmallCap MarketSM ("NASDAQ") under the proposed symbols "SUNC" and "SUNW,"
respectively. There can be no assurance given that the Company will qualify for
the NASDAQ listings or, if it does so qualify, that it will be able to satisfy
on a continuous basis the requirements for quotation of such securities on
NASDAQ. See "Risk Factors - No Assurances of Public Market or NASDAQ Listing,"
"Risk Factors - Penny Stock Regulations" and "Market for the Company's
Securities and Other Related Stockholder Matters."
The Company does not presently file reports and other information with the
Securities and Exchange Commission ("Commission"). However, upon the
effectiveness of this offering the Company will become subject to certain
reporting requirements under the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports and other information with the
Commission. Such reports and other information can be inspected and copied at
the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; at its Northeast Regional Office, 7 World
Trade Center, Suite 1300, New York, New York 10048; and its Midwest Regional
Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The
Company intends to furnish its stockholders with
3
<PAGE>
annual reports containing audited financial statements and such interim reports,
in each case as it may determine to furnish or as may be required by law.
AVAILABLE INFORMATION
The Company has filed with the Commission, in Washington, D.C., a
Registration Statement on Form SB-2, pursuant to the Securities Act of 1933, as
amended, with respect to the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in said
Registration Statement, and the exhibits thereto. For further information with
respect to the Company and the securities offered hereby, reference is made to
such Registration Statement and exhibits which may be inspected without charge
at the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; at its Northeast Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048; and its Midwest Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such
materials can be obtained from the public reference facilities at prescribed
rates. Pursuant to Release 33-7289, the Commission maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission (including
the Company). The address for the Commission web site is (http://www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate and as may be required by law. The Company's fiscal year ends
December 31st.
The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference herein (excluding exhibits) by
contacting the Company at Sun Hill Industries, Inc., 48 Union Street, Stamford,
Connecticut 06906; telephone (203) 324-7550, Attention: President.
_____________________________________________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR THE CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN INTENTION TO PARTICIPATE
IN THE OFFERING, ALL OR A SIGNIFICANT NUMBER OF THE SHARES OF COMMON STOCK AND
CLASS A WARRANTS TO BE SOLD IN THIS OFFERING MAY BE SOLD, IN THE ORDINARY COURSE
OF BUSINESS, TO CUSTOMERS OF THE UNDERWRITER WHICH MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES. ALTHOUGH OTHER
BROKER-DEALERS HAVE
4
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EXPRESSED AN INTENTION TO MAKE A MARKET IN THE COMPANY'S SECURITIES FOLLOWING
THE OFFERING, THERE CAN BE NO ASSURANCE THAT ANY OF SUCH BROKER-DEALERS WILL
ACTUALLY COMMENCE SUCH MARKET-MAKING ACTIVITIES OR, IF COMMENCED, THAT SUCH
ACTIVITIES WILL BE MAINTAINED. BASED UPON THE UNDERWRITER'S EXPERIENCE IN PAST
OFFERINGS, IT IS EXPECTED THAT SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE COMMON STOCK AND/OR THE CLASS A
WARRANTS THROUGH AND/OR WITH THE UNDERWRITER. NO AGREEMENTS OR UNDERSTANDINGS,
WRITTEN OR ORAL, EXIST WITH RESPECT TO THE PURCHASE OR RESALE OF THE SECURITIES
TO BE SOLD IN THIS OFFERING THROUGH OR WITH THE UNDERWRITER AND/OR ITS
AFFILIATES.
ALTHOUGH IT HAS NO LEGAL OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM
TIME TO TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE
COMPANY'S SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BE
A DOMINATING INFLUENCE IN THE MARKET FOR THE SHARES OF COMMON STOCK AND THE
CLASS A WARRANTS. SUCH ACTIVITIES, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME
OR FROM TIME TO TIME. THEREFORE, THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL
OR WILL CONTINUE TO BE A DOMINATING INFLUENCE. THE PRICES AND LIQUIDITY OF THE
SECURITIES OFFERED HEREUNDER MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE OF THE
UNDERWRITER'S PARTICIPATION IN SUCH MARKET. SEE "RISK FACTORS - NO ASSURANCE OF
PUBLIC TRADING MARKET OR CONTINUED QUALIFICATION FOR NASDAQ LISTING." THE
UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
SEE "RISK FACTORS LACK OF PRIOR MARKET FOR SECURITIES OF THE COMPANY" AND
"UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE CONSEQUENCES."
5
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by reference to more detailed
information and the financial statements and notes thereto appearing elsewhere
herein. Unless otherwise specified, all information in this Prospectus (i)
assumes no exercise of (a) the Class A Warrants, (b) the Underwriter's Purchase
Options or (c) options to purchase up to 750,000 shares of Common Stock at $4.00
per share, issuable under a stock option grant to Mr. Benson Zinbarg, the
Company's President, Chief Executive Officer and Chief Financial Officer
pursuant to the Company's 1996 Employee Consultant Stock Option Plan, if the
Company's pre-tax earnings exceed specified amounts ("Employment Options"), and
(ii) gives effect to certain transactions effected immediately prior to the date
of this Prospectus. See "Description of Securities," "Certain Transactions,"
"Underwriting" and "Management - Employment Agreements". Each prospective
investor is urged to carefully read this Prospectus in its entirety, including
but not limited to the Risk Factors.
The Company
Sun Hill Industries, Inc., a Delaware corporation (previously defined and
hereinafter referred to as the "Company") was incorporated pursuant to the laws
of the State of Delaware on October 9, 1996. The Company is the successor to Sun
Hill Industries, Inc., a Connecticut corporation ("Sun Hill - Connecticut")
which was incorporated pursuant to the laws of the State of Connecticut in 1974
for the purpose of making household plastic products of all kinds and varieties
for the mail order industry. The Company was organized by Sun Hill - Connecticut
to enable Sun Hill - Connecticut to merge with and into the Company in November
1996 in order to effectuate a reincorporation in the State of Delaware. See "The
Company." Unless otherwise indicated, references made hereinafter to the Company
include Sun Hill - Connecticut as the context may require.
The Company's executive offices are located at 48 Union Street, Stamford,
Connecticut 06906-1329. Its telephone number is (203) 324-7550.
The Business
The Company is principally a designer, manufacturer and distributor of
Easter, Halloween and Christmas decorative and novelty merchandise. The
Company's product lines include a broad range of indoor and outdoor decorative
products for each of these holidays. Among the Company's products is the giant
Stuff-A-Pumpkin orange leaf bag with a jack-o'-lantern design, which is part of
its Halloween product line. For Easter, the Company produces Easter egg
decorating kits and other related products, some of which incorporate licensed
images of The Walt Disney Company ("Disney"), such as Winnie the Pooh, Mickey
Mouse, 101 Dalmatians and Pocahontas. Recently the Company has reached an
agreement in principle with the Children's Television Workshop ("CTW") for a
license from CTW to incorporate certain of the Sesame Street character images,
such as Bert, Ernie, Big Bird, Cookie Monster and Elmo, into its holiday product
lines. The Company also sells a line of stationery products. The Company sells
its products principally throughout the United States and Canada to many of the
large and small retail chains, mail order organizations and specialty stores.
See "Business."
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6
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The Offering
Securities Offered by the Company
Common Stock.................... 1,000,000 Shares.
Class A Warrants................. 2,000,000 Warrants. Each Class A Warrant
entitles the holder thereof to
purchase one share of Common
Stock at an exercise price of
$4.50 per share for a period
of four years commencing one
year after the Effective Date
and terminating on the earlier
of its expiration date on
_____ __, 19__ or the prior
redemption thereof by the
Company. See "Description of
Securities."
Securities Offered by the
Initial Selling Securityholder and
the Subsequent Selling Securityholder
Common Stock............... 600,000 Shares
Securities Outstanding Prior to the
Company's Offering:
Common Stock................... 1,350,000 Shares
Securities Outstanding After the
Company's Offering
Common Stock(1)............... 2,350,000 Shares
Class A Warrants(2)........... 2,000,000 Warrants
Proposed NASDAQ SmallCap MarketSM
Symbols(3):
Common Stock.................... SUNC
Class A Warrants............... SUNW
- ----------
(1) Does not include (a) 2,000,000 shares of Common Stock issuable upon
exercise of Class A Warrants; (b) 450,000 shares of Common Stock issuable
upon the exercise of the Underwriter's Over-Allotment Option and the Class
A Warrants contained therein; (c) 300,000 shares of Common Stock issuable
upon exercise of the Underwriter's Purchase Options and the Class A
Warrants contained therein; (d) 950,000 shares of Common Stock reserved
for issuance pursuant to the Company's 1996 Employee - Consultant Stock
Option Plan and the Company's 1996 Non-Employee Director Stock Option
Plan. See "Description of Securities," "Certain Transactions," "Executive
Compensation" and "Underwriting."
(2) Does not include the issuance of (a) 300,000 Class A Warrants issuable
upon exercise of the Underwriter's Over-Allotment Option; or (b) 200,000
Class A Warrants issuable upon exercise of the Underwriter's Purchase
Option. See "Underwriting" and "Description of Securities."
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7
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(3) The Company has applied to have its Common Stock and the Class A Warrants
listed for quotation on NASDAQ under the proposed symbols "SUNC" and
"SUNW," respectively. There can be no assurance given that the Company
will be able to satisfy the requirements for quotation of such securities
on NASDAQ or, that if it does so qualify, that it will be able to satisfy
on a continuous basis the requirements for quotation of such securities on
NASDAQ. See "Risk Factors" and "Market for the Company's Securities and
Other Related Stockholder Matters."
Risk Factors
An investment in any of the securities being offered hereby is highly
speculative and involves substantial risks including, but not limited to, the
Company's current seasonal nature of operations, certain licenses subject to
termination or non-renewal, a pledge of substantially all of the Company's
assets in connection with a revolving credit facility, ongoing capital
requirements, the potential need for additional financing, the Company's
reliance on management, "penny stock" regulations, the Underwriter's influence
on the market, industry competition, lack of assurance with respect to quotation
of any of the Company's securities on NASDAQ (or any other quotation market or
exchange), lack of cash dividends and dilution. See "Risk Factors," "Business,"
"Dilution," "Market for the Company's Securities and Other Related Stockholder
Matters" and "Underwriting."
Use of Proceeds
The Company will receive net proceeds of its offer and sale of the Shares
and the Class A Warrants and may receive the proceeds from the exercise of the
Class A Warrants. The Company intends to use the net proceeds from its offering
of the Shares and the Class A Warrants for the following: (i) general working
capital purposes, (ii) repayment of approximately $1,000,000 in bank
indebtednesss; (iii) product development and (iv) acquisitions. The Company will
not receive any of the proceeds from the reoffer and resale of the Common Stock
or the Class A Warrants by subsequent holders thereof. Further, the Company will
not receive any of the proceeds from the sale of shares of Common Stock by the
Initial Sellling Securityholder and the Subsequent Selling Securityholder. See
"Risk Factors - Use of Proceeds Subject to Management Discretion," "Use of
Proceeds," "Business," "Certain Transactions" and "Descriptions of Securities."
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Summary Financial Information
The following summary of selected financial information concerning the
Company, other than "As Adjusted" information reflecting the Company's receipt
and use of the net proceeds of its public offering (see "Use of Proceeds"), has
been derived from the financial statements (including the related notes thereto)
of the Company included elsewhere in this Prospectus (the "Financial
Statements"). This information should be read in conjunction with the Financial
Statements and the section hereof entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The financial information
presented below for each of the fiscal years ended December 31, 1995 and
December 31, 1994 has been derived from audited financial statements. The
financial information presented below for each of the eight month periods ended
August 31, 1996 and August 31, 1995 is unaudited, but in the opinion of
management of the Company, includes all adjustments necessary for a fair
presentation of the results of operations of the Company for the interim periods
presented.
At December 31, 1995
--------------------
Balance Sheet Data
Working Capital(1) ... $ 735,894
Total Assets ......... 6,442,121
Total Liabilities .... 5,305,606
Stockholders Equity(2) 1,136,515
At August 31, 1996
------------------
Actual As Adjusted (3)
------ ---------------
Balance Sheet Data
Working Capital(1) ... $ 1,298,145 $ 4,738,145
Total Assets ......... 8,005,764 10,445,764
Total Liabilities .... 6,357,246 5,357,246
Stockholders Equity(2) 1,648,518 5,088,518
Eight Months Ended August 31,
-----------------------------
1996 1995
---- ----
Statement of Operations Data
Sales - Net ..................... $ 8,401,338 $ 7,953,006
Gross Profit .................... 3,236,875 2,929,945
Income from Operations .......... 764,949 528,588
Net Income ...................... 512,003 305,163
Pro Forma Net Income ............ 353,954
Pro Forma Earnings Per Share .... .26
Weighted Average Number of Common
Shares Outstanding .............. 1,350,000
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December 31,
------------
1995 1994
---- ----
Statement of Operations Data
Sales - Net ..................... $11,372,979 $10,135,823
Gross Profit .................... 4,284,955 4,151,157
Income from Operations .......... 392,226 421,258
Net Income ...................... 173,941 190,361
Pro Forma Net Income ............ 113,445
Pro Forma Earnings Per Share .... .08
Weighted Average Number of Common
Shares Outstanding .............. 1,350,000
- ----------
(1) Working Capital represents total current assets less total current
liabilities.
(2) Gives retroactive effect to the issuance by the Company of an aggregate of
1,350,000 shares of Common Stock to the stockholders of Sun Hill -
Connecticut in connection with the merger of Sun Hill - Connecticut with
and into the Company effective as of November , 1996.
(3) Gives effect to: (a) the sale of the Shares and the Class A Warrants by
the Company; and (b) the receipt and use of the estimated net proceeds of
the Company's public offering of the Shares and the Class A Warrants.
Assumes no exercise of: (i) the Class A Warrants; (ii) the Underwriter's
Over-Allotment Option (or the Class A Warrants issuable upon the exercise
thereof); or (iii) the Underwriter's Purchase Option (or the Class A
Warrants issuable upon exercise thereof). See "Prospectus Summary - The
Offering," "Prospectus Summary - Use of Proceeds," "Risk Factors - Use of
Proceeds Subject to Management Discretion," "Use of Proceeds" and
"Description of Securities."
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<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. SUCH SECURITIES 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 OF THE OTHER INFORMATION SET FORTH
ELSEWHERE IN THIS PROSPECTUS AND THE INFORMATION CONTAINED IN THE FINANCIAL
STATEMENTS, THE NOTES THERETO AND THE DOCUMENTS REFERENCED HEREIN. THE FOLLOWING
IS NOT INTENDED AS, AND SHOULD NOT BE CONSIDERED, AN EXHAUSTIVE LIST.
Current Seasonal Nature of Operations
Due to the seasonal nature of the Company's business and varying product
lines, during the months of March, April, May and June, the Company expends
substantial sums for manufacture and inventory supply and generally has nominal
sales during this period. These capital intensive activities leave the Company
with a low working capital cash reserve during the calendar months of July,
August and September, during which period the Company is also borrowing a
significant portion of the credit available from its credit facility with First
Union Bank of Connecticut ("First Union"). Consequently, if the Company were to
experience an unforeseen adverse event requiring utilization of significant
working capital during such time period, any such expenditure may have a
material adverse effect on the Company's business and operations. See "Business
- - Business Strategy Acquisitions."
Certain License Agreements Subject
to Termination and Non-Renewal
Since 1981, the Company has licensed from Disney the images, names and
graphic representations of certain Disney characters in connection with several
of its Easter line of products for sale in distribution in the United States and
Canada. Currently, the Company utilizes the following licensed images of Disney
- - Mickey Mouse, Minnie Mouse, Donald Duck, Pluto, Goofy, the Hunchback of Notre
Dame, 101 Dalmatians, Winnie the Pooh and Pocahantas. The licenses with Disney
provide for (i) payment of sales royalties and, in some instances, guarantees of
minimum sales royalties; (ii) Disney's subjective approval of all products
incorporating the Disney images and representations, and (iii) termination by
Disney in the event of, among other things: (A) the Company's failure to
manufacture and distribute the articles as provided in each Disney license; (B)
a material breach by the Company which, after notice, remains uncured; (C) the
Company's sale of articles incorporating Disney's character images which have
not received Disney's approval or (D) unauthorized sales of licensed and
approved articles outside of the Company's authorized territory. Further, the
Disney license agreements also provide that Disney is not obligated to renew any
license and if Disney terminates any one license "for cause," (as above
described) it may terminate several or all of its other licenses with the
Company.
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<PAGE>
For the years ended December 31, 1995 and December 31, 1994, sales
revenues derived from the Company's sale of products incorporating the Disney
images were $2,500,000 and $2,034,000, respectively. For the fiscal years 1995
and 1994, these amounts represented 22% and 20%, respectively, of the Company's
total sales revenue. Although the Company's relations with Disney have been good
and the Company has not experienced any difficulties in meeting required minimum
royalty payments or complying with the Disney approval process, no assurance can
be given that such relations will continue as they have previously or that
Disney will continue to approve the Company's products. Any disapprovals of the
Company's products by Disney, or the termination of several or all of the
Company's licenses with Disney, may have a material adverse effect on the
business and operations of the Company. See "Business - Intellectual Property -
Disney Licenses."
In addition, in September 1996, the Company reached an agreement in
principle with the Children's Television Workshop ("CTW") for a license from CTW
to incorporate the images and representations of certain of its Sesame Street
Characters - Bert, Ernie, Big Bird, Cookie Monster and Elmo - on and in
connection with the sale of certain of the Company's products. Although a
written agreement has not yet been signed, and no assurance can be given that
one will be signed, it is anticipated that any license agreement from CTW will
have provisions which are similar to the provisions of the Company's licenses
with Disney. No assurance can be given that any one or more of the Company's
products will meet the approval of CTW or that, once approved, that they will
not be revoked, or that disapproval will result in the termination of the
Company's license with CTW. See "Business - Intellectual Property - CTW
Licenses."
Competition and Low Barriers to Entry
The Company competes for retail shelf space directly with holiday and
novelty manufacturers, independent distributors as well as non-seasonal
manufacturers. In some instances, the Company also competes with large retail
chains who contract manufacture their own merchandise and who may place their
own label thereon. Given the breadth of the Company's competitors as well as the
low barriers to entry which exist in the sale of paper, plastic and cardboard
merchandise, no assurance can be given that the Company can effectively compete
in an environment in which both small, independent distributors as well as
large, highly capitalized retail firms compete. See "Business - Competition."
Ongoing Capital Requirements
The conduct of the Company's business and the continued implementation of
its business plans and operations may require the availability of additional
funds in the future. While the Company currently has no material commitments for
capital or other expenditures, other than as set forth herein, it is the
Company's intention to continue to implement the growth of its business and
expand its operations. Although no assurance can be given, management expects
cash flow from its operations to be sufficient to fund its operations as it has
in the past. Although the Company does not currently anticipate that it will
need the proceeds from the public offering (including the proceeds from the
exercise of the Class A Warrants) to sustain its operations, it intends to
utilize a significant portion of the proceeds for additional product development
and acquisitions as well as for general business expansion purposes, any one or
more of which may require additional financing in the future. There can be no
assurance that the Company will be
12
<PAGE>
able to successfully negotiate or obtain additional financing if such is
required in the future. Nor can there be any assurance that, if available, such
financing will be on commercially acceptable terms or shall be favorable or
acceptable to the Company. The Company currently maintains a line of credit with
First Union pursuant to which the Company may borrow up to $4,500,000. As of the
date hereof, there is approximately $__________ outstanding thereunder, which
amount the Company intends to repay with a portion of the proceeds of the public
offering. In the event that the Company needs additional financing, the absence
thereof or the lack of availability thereof on favorable terms could have a
material adverse impact on the Company. See "Use of Proceeds," "The Company,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Substantially All of the Company's Assets
Pledged As Collateral for Credit Facility
Prior to 1989, the Company had maintained several lines of credit with
various lending institutions. Since 1989, the Company has maintained a credit
facility with First Union and its predecessors in interest. Currently, this
credit facility enables the Company (i) to borrow up to $3,500,000 under a
revolving credit arrangement for its short term working capital needs and (ii)
up to an additional $1,000,000 for the issuance of letters of credit, banker's
acceptances and foreign exchange contract support. As of the date of this
Prospectus, the Company owes First Union $__________ from the money that it has
borrowed from this credit facility. As security and collateral for the credit
facility, the Company has pledged substantially all of its assets (including,
but not limited to, inventory, equipment and accounts receivable) and Mr.
Zinbarg, the Company's President, Chief Executive Officer and Chief Financial
Officer, has (i) personally guaranteed repayment of amounts drawn down on the
credit line and (ii) supplied further security in the form of mortgages on the
building in Stamford, Connecticut, where the Company's principal executive
offices are located, and which building is owned by Mr Zinbarg and leased, in
part, to the Company. See "Certain Transactions." Also, the credit facility
agreement with First Union contains certain financial requirements relating to,
among other things, tangible net worth and how current assets compare to current
liabilities. Although it has never previously defaulted in its repayment
obligations under the current credit facility with First Union, or its
predecessors, the Company can provide no assurance that it can continue to meet
its repayment obligations to First Union or comply with its financial
requirements in the future. In fact, the Company has, on occasion, been in
technical default under certain of the covenants and obligations under its
agreements with First Union. On November 1, 1996, First Union agreed in writing
to waive its rights with regard to any such prior defaults. Should the Company
default in its repayment or other obligations in the future and First Union does
not waive any of its rights and forecloses on any or all of the security pledged
to it, it may have a material adverse effect on the business and operations of
the Company.
Competitive Copies of the Company's Products
In the industry in which the Company operates, it is not infrequent that a
competitor will sense the success of one of the Company's holiday decorative
and/or novelty products and attempt to copy, manufacture and distribute a nearly
identical product. In the industry, these are referred to as "knock-offs." Where
deemed important or necessary, the Company attempts to protect its products by
procuring, where applicable, design and utility patents and trademarks.
13
<PAGE>
Such intellectual property rights do not, by themselves, insure against the
predatory "knock-off" practice of the Company's competitors. Once the Company is
made aware of any such practice and identifies the infringer, it seeks to
enforce its rights where it deems appropriate. The Company will continue and may
increase its efforts to protect its intellectual property where and when it
deems such protection is appropriate. However, no assurance can be provided that
the Company will identify the source of any future "knock-off" product or that,
if identified, that its efforts to seek protection against any infringer, will
be effective. Further, the costs associated with the Company's enforcement of
its intellectual property rights may in certain instances be expensive.
Consequently, and based on the foregoing, no assurance can be provided that the
Company will enforce its rights in each and every instance. See "Business -
Intellectual Property."
Use of Proceeds Subject to Management Discretion
The Company will receive the net proceeds of the sale of the Shares and
Class A Warrants and will receive the proceeds from the exercise, if any, of the
Class A Warrants. The Company intends to use a substantial portion of the net
proceeds of its public offering for the following: (i) general working capital
purposes, (ii) repayment of bank indebtedness; (iii) product development and
(iv) acquisitions. The use of the net proceeds of the Company's public offering
will depend upon the amount of the proceeds received and the timing of the
receipt thereof, and will be subject to the discretion of management. The
Company will not receive any of the proceeds from the reoffer and resale of the
Common Stock or the Class A Warrants by the subsequent holders thereof. In
addition, the Company will not receive any of the proceeds resulting from the
sale of any shares of Common Stock by the Initial Selling Securityholder and the
Subsequent Selling Securityholder. See "Summary - Use of Proceeds," "Use of
Proceeds," "Certain Transactions" and "Description of Securities."
Reliance on Key Management Personnel
The Company's operations are dependent upon the continued efforts and
employment of its senior management. The officers of the Company have the
principal responsibility for management of the Company and are responsible for
making recommendations to the board of directors of the Company (the "Board of
Directors") which exercises final authority over business decisions.
Consequently, the loss of the services of any of the officers or directors could
be detrimental to the Company. The Company principally relies upon the services
of its founder, Mr. Benson Zinbarg, as the President, Chief Executive Officer
and Chief Financial Officer of the Company. Mr. Zinbarg has entered into an
employment agreement with the Company which has an initial term commencing on
January 1, 1997 and expiring on December 31, 2001. Given the importance of Mr.
Zinbarg, the Company has agreed with the Underwriter that it will cause at least
$1,000,000 of key person life insurance for Mr. Zinbarg which names the Company
as beneficiary. See "Management" and "Executive Compensation - Employment
Agreements."
14
<PAGE>
Acquisition Growth Strategy and
No Prior History of Acquisitions
The Company's growth strategy is partially dependent upon its ability to
acquire related product lines and businesses. The Company has no history of
making product line or business acquisitions. Notwithstanding its lack of
experience in this area, the Company intends to acquire these additional product
lines and companies with cash, equity securities (such as common stock or
preferred stock) and/or debt instruments and/or in any combination thereof. To
the extent that the Company issues equity securities in connection with
acquisitions, the percentage ownership of its then current stockholders will be
diluted. See "Business - Business Strategy -Acquisitions" and "Underwriting." No
assurance can be given that the Company will be able to acquire such additional
product lines or businesses, or be able to use its securities, or have the
necessary capital for such acquisitions or that such product lines or businesses
will be successful thereafter. See "Business - Business Strategy -
Acquisitions."
Retail Sales Market Environment
in U.S. and Canada and Significant Customers
For the eight months ended August 31, 1996 and each of the fiscal years
ended December 31, 1995 and December 31, 1994, revenues generated by the
Company's five largest customers accounted for an aggregate of approximately 32%
of the Company's total revenue. The Company expects these customers to continue
to account for a significant portion of its business. However, no single
customer represents more than 8% of the total revenue of the Company, other than
K-Mart, Inc., which represented approximately 12.7% of the total revenue of the
Company, for the eight months ended August 31, 1996 and 6.6% and 4%,
respectively, for each of the fiscal years ended December 31, 1995 and December
31, 1994. If several of the Company's retail chain customers should seek
bankruptcy protection simultaneously, and although the Company maintains credit
risk insurance for some its large customers to offset just such an eventuality,
it could have a serious adverse impact on the business and operations of the
Company. See "Business - Distribution and Customer Base" and "Business -
Insurance."
Reliance on Certain Supplier
The Company has an exclusive requirements supply agreement with a Canadian
supplier regarding certain blow-molded plastics products. In the event of a
disruption in service from this supplier, or in the event that the supplier no
longer desires to abide to the terms of its agreement with the Company, any such
disruption in service could result in an adverse impact on the business and
operations of the Company. See "Business - Supply, Manufacturing and Assembly of
the Company's Products."
Determination of Offering Price of Securities
The public offering price of the Shares and the Class A Warrants as well
as the exercise price of the Class A Warrants were determined arbitrarily by the
Underwriter and the Company and do not necessarily bear any relationship to the
Company's assets, book value, net worth or and other established criteria of
value. Among the factors considered in determining such prices were the
Company's historical performance and growth, management's assessment of the
15
<PAGE>
Company's business potential and earning prospects, the prospects for growth in
the industry in which the Company operates, market prices and prevailing market
conditions generally. The offering price of the Shares, the Class A Warrants and
the exercise price of the Class A Warrants should not be regarded as indicative
of the actual value of any of the securities being offered by the Company. See
"Underwriting."
Immediate and Substantial Dilution
Purchasers of the securities being offered by the Company will suffer
immediate substantial dilution in the net tangible book value of shares of
Common Stock purchased in the amount of $1.84 per share. Additional dilution may
result in the event of the exercise of options granted pursuant to the Company's
1996 Employee Consultant Stock Option Plan and 1996 Non-Employee Director Stock
Option Plan (as hereinafter defined). See "Dilution," "Executive Compensation -
Stock Option Plans," "Description of Securities" and "Certain Transactions."
Absence of Dividends on Common Stock
The Company has not paid any dividends on its shares of Common Stock. The
Company intends to retain all future earnings for use in the development of its
business and does not anticipate paying any cash dividends on the Common Stock
in the foreseeable future. See "Dividend Policy" and "Description of
Securities."
Future Issuances of Stock by the Company; Potential Anti-Takeover Effect
The Company has authorized capital stock of Twenty-Five Million
(25,000,0000) shares of which Twenty Million (20,000,000) shares are shares of
Common Stock, $.001 par value per share and Five Million (5,000,000) shares are
shares of preferred stock, $.001 par value per share (the "Preferred Stock"). As
of the date hereof, there are 1,350,000 shares of Common Stock issued and
outstanding. Although there are no present plans, agreements or undertakings
with respect to the Company's issuance of any shares of stock or related
convertible securities, other than as disclosed herein, the issuance of any such
securities by the Company could have anti-takeover effects insofar as such
securities could be used as a method of discouraging, delaying or preventing a
change of control in the Company. Such issuance could also dilute the public
ownership of the Company. Inasmuch as the Company may, in the future, issue
authorized shares of Common Stock or Preferred Stock without prior stockholder
approval, there may be substantial dilution to the percentage ownership
interests of the Company's stockholders. The Company has agreed with the
Underwriter that it will not issue any equity securities, with certain
exceptions, without the prior written approval of the Underwriter for a period
of 24 months from the Effective Date. However, given that the Company is
authorized to issue more stock, there can be no assurance that the Company will
not seek to do so. In addition, a stockholder's pro rata ownership interest in
the Company may be reduced to the extent of the issuance and/or exercise of any
options or warrants relating to the Common Stock or Preferred Stock (including
exercise of the Underwriter's Over-Allotment Option and the Class A Warrants
included therein, the Underwriter's Purchase Option and the Class A Warrants
included therein and the Class A Warrants). See "Use of Proceeds,"
"Capitalization," "Description of Securities" and "Underwriting."
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Future Sales of Stock by Stockholders
All of the 1,350,000 shares of Common Stock issued and outstanding are
"restricted securities" as that term is defined under the Securities Act and in
the future may only be sold in compliance with Rule 144 promulgated under the
Securities Act or pursuant to an effective registration statement. Rule 144
provides, in essence, that a person (including a group of persons whose shares
are aggregated) who has satisfied a two-year holding period for such restricted
securities may sell within a three-month period, under certain circumstances, an
amount of restricted securities which does not exceed the greater of 1% of that
class of the Company's outstanding securities or the average weekly trading
volume of that class of securities during the four calendar weeks prior to such
sale. In addition, pursuant to Rule 144, persons who are not affiliated with the
Company and who have held their restricted securities for at least three years
are not subject to the quantity limitations or the manner of sale restrictions
of the rule. As of the date hereof, no shares of Common Stock are available for
resale pursuant to Rule 144. However, 600,000 shares of the 1,350,000 shares of
the Company's issued and outstanding shares of Common Stock have been included
in the Registration Statement of which this Prospectus forms a part. A total of
100,000 shares is being offered for sale by the Underwriter on behalf of the
Initial Selling Securityholder on a "firm commitment" basis. Pursuant to an
agreement with the Underwriter, the officers, directors and holders of 5% or
more of the Company's equity securities are restricted from selling their
respective securities for a period of 18 months from the Effective Date, absent
waiver of such restriction by the Underwriter. See "Underwriting." The
Underwriter has waived such restriction with respect to the 100,000 shares being
sold by the Initial Selling Securityholder.
In the event that shares of Common Stock which are not currently salable
become salable by means of registration, eligibility for sale under Rule 144 or
otherwise and the holders of such shares of Common Stock elect to sell such
shares of Common Stock in the public market, there is likely to be a negative
effect on the market price of the Company's securities and on the ability of the
Company to obtain additional equity financing. In addition, to the extent that
such shares of Common Stock enter the market, the value of the Common Stock in
the over-the-counter market may be reduced. No predictions can be made as to the
effect, if any, that sales of the Common Stock and the Class A Warrants or the
availability of the Common Stock and the Class A Warrants for sale will have on
the market price of any of such securities which may prevail from time to time.
Nevertheless, the foregoing could adversely affect such prevailing market
prices. See "Shares Eligible For Future Sale," "Principal Securityholders,"
"Certain Transactions" and "Description of Securities."
Authorization of Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of Preferred Stock with such rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors may, without shareholder approval, issue shares of Preferred Stock
with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of shares of
Common Stock. In addition, the issuance of such Preferred Stock may have the
effect of rendering more difficult, or discouraging, an acquisition of the
Company or changes in control of the Company. However, the Company's ability to
issue such securities is, with certain
17
<PAGE>
exceptions, subject to the prior approval of the Underwriter for a period of 24
months from the Effective Date. See "Underwriting." Although the Company does
not currently intend to issue any shares of Preferred Stock, there can be no
assurance that the Company will not do so in the future and if so that the
rights and preferences granted with respect thereto will not adversely impact or
affect the interests of the existing shareholders. See "Risk Factors Future
Issuances of Stock by the Company; Potential Anti-Takeover Effect."
Financial Risks to Investors in Public Offering
Upon completion of the Company's public offering, the Company's current
stockholders will have paid $5,000 for 1,350,000 shares of Common Stock, or
57.5% of the Company's then outstanding shares of Common Stock, and purchasers
of the Shares and the Class A Warrants in the Company's public offering will
have paid $4,500,000 for 1,000,000 shares of Common Stock or 42.5% of the
Company's then outstanding shares of Common Stock, assuming no exercise of the
Underwriter's Over-Allotment Option or the Underwriter's Purchase Option and no
exercise of the Class A Warrants being offered by the Company pursuant hereto.
Therefore, investors purchasing Shares in the Company's public offering will
bear a substantially greater financial risk than the Company's current
stockholders. See "Dilution."
No Assurance of Public Market or NASDAQ Listing
Prior to the Company's public offering, there has been no public market
for any of the Company's securities. In connection with the Company's public
offering, the Company has applied for the inclusion of its Common Stock and the
Class A Warrants for quotation on NASDAQ under the proposed symbols: "SUNC" and
"SUNW," respectively. Although the Company ostensibly meets NASDAQ's initial
listing requirements, there can be no assurance given that the Company's
securities will be approved for inclusion to be quoted on NASDAQ or, if
approved, that such quotation will otherwise continue. Consequently, no
assurance can be given that a regular trading market for the Common Stock and/or
the Class A Warrants will develop after the completion of the Company's public
offering. If, for any reason, any of such securities are ineligible for
quotation on NASDAQ or a public trading market does not develop, purchasers of
such securities may have difficulty selling their securities should they desire
to do so.
Under recently adopted rules of the National Association of Securities
Dealers, Inc. ("NASD"), in order to qualify for initial listing on NASDAQ, a
company must have, among other things, at least $4,000,000 in total assets,
$2,000,000 in total capital and surplus, $1,000,000 in market value of public
float and a minimum bid price of $3.00 per share. For continued listing, a
company must have, among other things, $2,000,000 in total assets, $1,000,000 in
total capital and surplus, $1,000,000 in market value of public float and a
minimum bid price of $1.00 per share. Although the Company is ostensibly able
initially to satisfy the requirements for quotation on NASDAQ, it may be unable
to satisfy the requirements for continued quotation thereon, and trading, if
any, in the securities being offered hereby would be conducted in the
over-the-counter market in what are commonly referred to as the "pink sheets" of
the National Quotation Bureau, Inc. or on the NASD OTC Electronic Bulletin
Board. As a result, an investor may find it more difficult to dispose of or to
obtain accurate quotations as to the price of such securities.
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<PAGE>
"Penny Stock" Regulations
The Commission has adopted regulations which define a "penny stock" to be
any equity security that has a market price (as defined) of less than $5.00 per
share, subject to certain exceptions. The Company believes that, as of the date
of this Prospectus the Common Stock and the Class A Warrants may be deemed to be
"penny stocks" as defined by the Exchange Act and the rules and regulations
promulgated thereunder. For any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities, information on the limited market in penny stocks and, if the
broker-dealer is the sole marketmaker, the broker-dealer must disclose this fact
and the broker-dealer's presumed control over the market. In addition, the
broker-dealer must obtain a written acknowledgment from the customer that such
disclosure information was provided and must retain such acknowledgment for at
least three years. Further, monthly statements must be sent to the customer
disclosing current price information for the penny stock held in the account.
While many NASDAQ-listed securities would otherwise be covered by the definition
of penny stock, transactions in a NASDAQ-listed security would be exempt from
all but the sole marketmaker provision for: (i) issuers who have $2,000,000 in
tangible assets ($5,000,000 if the issuer has not been in continuous operation
for three years); (ii) transactions in which the customer is an institutional
accredited investor; and (iii) transactions that are not recommended by the
broker-dealer. In addition, transactions in a NASDAQ-listed security directly
with a NASDAQ marketmaker for such securities would be subject only to the sole
marketmaker disclosure, and the disclosure with respect to commissions to be
paid to the broker-dealer and the registered representative.
The above-described rules may materially adversely affect the liquidity
for the market for the Company's securities. Such rules may also affect the
ability of broker-dealers to sell the Company's securities and may impede the
ability of holders (including, specifically, purchasers in this offering) of the
Common Stock, the Class A Warrants or the Common Stock underlying the Class A
Warrants to sell such securities in the secondary market.
Underwriter's Influence on the Market
Although it has no legal obligation to do so, the Underwriter may from
time to time act as a marketmaker and otherwise effect transactions in the
Company's securities. To the extent the Underwriter acts as a marketmaker in the
Common Stock or the Class A Warrants, it may be a dominating influence in that
market. The price and liquidity of such securities may be affected by the
degree, if any, of the Underwriter's participation in the market inasmuch as a
significant amount of such securities may be sold to customers of the
Underwriter. Such customers subsequently may engage in transactions for the sale
or purchase of such securities through or with the Underwriter. In the event
that marketmaking activities are commenced, the Underwriter may discontinue such
activities at any time or from time to time. See "Underwriting."
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Blue Sky Restrictions on Exercise of Class A Warrants
The Company has applid for the qualification of the sale of the securities
being offered hereby in a limited number of states. Although certain exemptions
in the Blue Sky laws of certain states, other than those states in which such
securities are sought to be qualified, may permit such securities, including the
Class A Warrants, to be transferred to purchasers in such states, the Company
will be prevented from issuing Common Stock upon exercise of the Class A
Warrants in such states unless an exemption from registration or qualification
is available or unless the issuance of Common Stock upon the exercise of the
Class A Warrants is qualified and a current registration statement is in effect.
The Company may decide not to seek or may not be able to obtain qualification of
the issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Class A Warrants reside. In such case, the Class A Warrants of
such purchasers will expire and have no value if such warrants cannot be
exercised. Accordingly, the market for the Class A Warrants may be limited.
Underwriter's Purchase Option
In connection with the Company's offering of the Shares and the Class A
Warrants, the Company will sell to the Underwriter, for nominal consideration,
an option to purchase up to an aggregate of 100,000 shares of Common Stock and
200,000 Class A Warrants. The Underwriter's Purchase Option (as previously
defined) will be exercisable commencing 12 months after the Effective Date of
the Registration Statement of which this Prospectus forms a part and ending four
years from such date at an exercise price of $4.80 per share and $.30 per Class
A Warrant, respectively, subject to certain adjustments. The holder of the
Underwriter's Purchase Option will have the opportunity to profit from a rise in
the market price of the Common Stock, if any, without assuming the risk of
ownership, with a resulting dilution in the interest of other stockholders. The
Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriter's
Purchase Option is outstanding. At any time at which the holder thereof might be
expected to exercise such option, the Company would probably be able to obtain
additional capital on terms more favorable than those provided by the
Underwriter's Purchase Option. The holder of the Underwriter's Purchase Option
will have the right to require registration under the Securities Act of the
securities issuable upon exercise of the Underwriter's Purchase Option and will
have certain "piggy-back" registration rights. The cost to the Company of
effecting any such registration may be substantial. See "Underwriting" and
"Dilution."
Underwriter, Initial Selling Securityholder and Subsequent Selling
Securityholder to Receive Substantial Benefits in Connection with the Offering
The Underwriter will receive substantial benefits from the Company in
connection with this offering. These benefits include underwriting
discounts/commissions, a non-accountable expense allowance, an Underwriter's
Purchase Option and fees in connection with certain financings and/or mergers
and acquisitions which may occur during the two (2) year period following the
closing of this offering. In addition, the Underwriter has been granted certain
rights under the Underwriter's Purchase Option, which rights include the ability
to require the Company to include the Underwriter's securities in a registration
statement under the Act. The exercise of these rights will result in the Company
incurring substantial expenses and may cause
20
<PAGE>
the Company to register an offering of its securities at a time which is
detrimental to the Company's interests. See "Underwriting." The Initial Selling
Securityholder and the Subsequent Selling Securityholder have received the
benefit in this offering of inclusion of their shares of Common Stock in the
Registration Statement of which this Prospectus is a part at the Company's
expense. All of the offering expenses, except for the Underwriter's commission,
will be paid by the Company for the benefit of the Initial Selling
Securityholder and the Subsequent Selling Securityholder.
Litigation Involving Underwriter May Affect Securities
The Company has been advised by the Underwriter that on or about May 22,
1995, the Underwriter and Elliot Loewenstern and Richard Bronson, principals of
the Underwriter, and the Commission agreed to an offer of settlement (the "Offer
of Settlement") in connection with a complaint filed by the Commission in the
United States District Court for the Southern District of Florida alleging
violations of the federal securities laws, Section 17(a) of the Securities Act
of 1933, Section 10(b) and 15(c) of the Securities Exchange Act of 1934, and
Rules 10b-5, 10b-6 and 15c1-2 promulgated thereunder. The complaint also alleged
that in connection with the sale of securities in three (3) IPOs in 1992 and
1993, the Underwriter engaged in fraudulent sales practices. The proposed Offer
of Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The Offer
of Settlement was approved by Judge Gonzales on June 6, 1995. Pursuant to the
final judgment (the "Final Judgment"), the Underwriter:
- was required to disgorge $1,000,000 to the Commission, which amount
was paid in four (4) equal installments on or before June 22, 1995;
- agreed to the appointment of an independent consultant
("Consultant").
Such Consultant was obligated on or before November 1, 1996:
- to review the Underwriter's policies, practices and procedures in
six (6) areas relating to compliance and sales practices;
- to formulate policies, practices and procedures for the Underwriter
and that the Consultant deems necessary with respect to the
Underwriter's compliance and sales practices;
- to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
- to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
- to prepare, if necessary, a supervisory procedures and compliance
manual for the Underwriter, or to amend the Underwriter's existing
manual; and
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- to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired
employees of the Underwriter. The Final Judgment further provides
that, within thirty (30) days of the Underwriter's receipt of the
Report, unless such time is extended, the Underwriter shall adopt,
implement and maintain any and all policies, practices and
procedures set forth in the Report.
The Final Judgment also provides that an independent auditor (the
"Auditor") shall conduct four (4) special reviews of the Underwriter's policies,
practices and procedures, the first such review took place six (6) months after
the Report was delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by the Commission order
are complying with the terms of such orders.
On July 10, 1995, the action against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson has agreed to a suspension from
associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of such suspension. Mr.
Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing upon
the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Company's
stock, and additional brokers do not make a market in the Company's securities,
the market for and liquidity of the Company's securities may be adversely
affected to such an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event, the
market for, liquidity and prices of the Company's securities may not exist. See
"Underwriting." For additional information regarding the Underwriter, investors
may call the National Association of Securities Dealers, Inc. at (800) 289-9999.
Recent State Action Involving Underwriter - Possible Loss of Liquidity
The State of Indiana has commenced an action seeking among other things to
revoke the Underwriter's license to do business in such state. Such proceeding
if ultimately successful may adversely affect the market for and liquidity of
the Company's securities in the State of Indiana if additional broker dealers do
not make a market in the Company's securities. Moreover, should Indiana
investors purchase any of the securities sold in this offering from the
Underwriter prior to the possible revocation of the Underwriter's license in
Indiana, such investors will not be able to resell such securities in such state
through the Underwriter but will be required to retain a new broker dealer firm
for such purpose. The Company cannot ensure that other broker dealers will make
a market in the Company's securities. In the event that the other broker dealers
fail to make a market in the Company's securities, the possibility exists that
the market for and the liquidity of the Company's securities may be adversely
affected to an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event, the
market for, liquidity and prices of the Company's securities may not exist. It
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<PAGE>
should be noted that although the Underwriter may not be the sole market maker
in the Company's securities, it will most likely be the dominant market maker in
the Company's securities. See "Underwriting."
Certain Provisions of Certificate of Incorporation and Bylaws
As previously noted, pursuant to the Company's Certificate of
Incorporation, the Board of Directors of the Company has the authority to issue
up to 5,000,000 shares of Preferred Stock without further action by the
stockholders in one or more series having such preferences, rights and other
provisions as the Board of Directors may designate in providing for the issuance
of such series. Notwithstanding such provisions in the Certificate of
Incorporation, the Company has agreed with the Underwriter, except in certain
circumstances, not to issue any securities for a period of 24 months from the
effective date of this registration except with the prior written consent of the
Underwriter. See "Underwriting." The Certificate of Incorporation and Bylaws
contain provisions which may discourage certain transactions which involve an
actual or threatened change in control of the Company. See "Description of
Securities." As permitted by the Delaware General Corporation Law, the
Certificate of Incorporation provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of the fiduciary duty of care as a director, except under certain
circumstances including, but not limited to, breach of the director's duty of
loyalty to the Company or its stockholders or any transaction from which the
director derived an improper personal benefit. See "Management Indemnification
of Directors and Officers."
Voting Control by Current Officers and Directors
As of the date hereof, Mr. Benson Zinbarg, a director and officer of the
Company owns 1,012,500 shares of Common Stock and the Kookeroonie Trust, of
which Mr. Zinbarg's family members are the beneficiaries, owns 337,500 shares of
Common Stock. Consequently, immediately upon completion of the Company's public
offering of the 1,000,000 Shares and the 2,000,000 Class A Warrants, the
officers and directors of the Company will own or control the voting of 31.9% of
the Company's issued and outstanding shares of Common Stock, assuming the sale
of the securities offered by Mr. Zinbarg and the Kookeroonie Trust (as the
Initial Selling Securityholder and the Subsequent Selling Securityholders) and
assuming no exercise of the Over-Allotment Option, no exercise of the
Underwriter's Purchase Option, no exercise of the Class A Warrants contained
therein and no exercise of the Class A Warrants offered by the Company pursuant
hereto. There are no cumulative voting rights and directors must be elected by a
plurality of the outstanding voting securities entitled to vote. By virtue of
their ownership of the Company's issued and outstanding shares of Common Stock,
the officers and directors of the Company may have the ability to elect the
entire Board of Directors of the Company, control the outcome of any corporate
action requiring more than a majority of the outstanding voting securities
entitled to vote, and consequently, influence the Company's business and
affairs. See "Principal Securityholders" and "Certain Transactions."
Current Prospectus Requirement
During the exercise period of the Class A Warrants, the Company must
maintain and make available a current prospectus. This Prospectus will no longer
be current after ______ ___,
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<PAGE>
1997 (or earlier upon the occurrence of a material event or change which would
render the information herein inaccurate or otherwise misleading). There can be
no assurance given that the Company will not be prevented by financial or other
considerations from maintaining a current prospectus. In the event that a
current prospectus is not available, the Class A Warrants may not be exercisable
and the Company will be precluded from redeeming the Class A Warrants.
Possible Redemption of the Class A Warrants
After ______ __, 1997, in the event that the closing bid price of the
Common Stock exceeds $7.00 for any period of 20 consecutive trading days ending
within five days of the Company's Redemption Notice, the Class A Warrants may be
redeemed by the Company for $.01 per warrant prior to their exercise or
expiration thereof. Although holders of the Class A Warrants will have the right
to exercise their Class A Warrants through the date of redemption, they may be
unable to do so because they lack sufficient funds at the time of redemption, or
they may simply not wish to invest any more money in shares of the Common Stock
at that time. Should a holder of the Class A Warrants fail to exercise such
Class A Warrants or to sell such Class A Warrants on or prior to the redemption
date, such Class A Warrants will have no value beyond their redemption value.
The Company may not redeem the Class A Warrants unless the Company has available
a current prospectus with respect to the Class A Warrants. See "Risk Factors -
Current Prospectus Requirement" above and "Description of Securities - The Class
A Warrants."
Restrictions on Marketmaking Activities During Warrant Solicitation
To the extent that the Underwriter solicits the exercise of the Class A
Warrants from the holders thereof, it may be prohibited pursuant to the
requirements of Rule 10b-6 under the Exchange Act from engaging in marketmaking
activities during such solicitation and for a period of up to nine days
preceding such solicitation. As a result, the Underwriter may be unable to
continue to provide a market for the Company's securities during certain periods
while the Class A Warrants are exercisable. The Underwriter is not obligated to
act as a marketmaker. See "Underwriting."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements (and the related notes thereto) included
elsewhere in this Prospectus.
Overview
The Company was founded with $5,000 in capital in 1974 to develop consumer
products to be sold to the mail order catalog industry.
As the Company grew, required cash was obtained primarily using an
increasing bank line of credit and retained earnings. The Company focused its
product development efforts on decorations for Easter, followed by Halloween and
Christmas. It continues to sell to mail order catalog companies but has found
larger market potential in chain store customers. Emphasis in product and market
development have been made in tandem, but always constrained by the amount of
available capital. This is not uncommon in the holiday decorations business and
management believes, although no assurance can be given, that the prospective
increase of paid-in capital from the proceeds of this proposed public offering
will allow for accelerated growth in both sales volume and net profits.
Plan of Operations
The Company will utilize the net proceeds from the initial public offering
of approximately $3,440,000 for the purposes described in Use of Proceeds.
The Company will seek to increase sales revenues and profitability by
several avenues.
- Increasing Product Development Efforts. The Company has recently entered
into an employment agreement with a product development specialist with over
eight years experience in the Company's industry. It is anticipated that his
proven managerial skills will make the Company's creative department more
effective. The Company will continue to seek similarly qualified new talent.
Further, the Company seeks to develop a summer line of products which management
believes will increase revenue during the months of March, April, May and June.
During this period, the Company has historically experienced nominal sales to
its customers. It is planned that the increased sales volume coupled with
minimal fixed costs will increase profitability.
- Increasing Utilization of Popular Characters in connection with Its
Products. The Company will seek to capitalize on and expand its existing
licensing relationship with The Walt Disney Company ("Disney") by expanding the
Easter product line which incorporates certain licensed characters from Disney.
The Company anticipates capitalizing on its agreement in principle with The
Children's Television Workshop ("CTW") to incorporate its characters into the
Company's existing Easter and Halloween lines as well as developing new products
and pursuing additional advantageous third party licensing agreements.
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- Expansion of Product Line and Imports. In June 1996, the Company
established an alliance, which subsequently has been formalized in contract in
October 1996, with a Hong Kong based trading company whose relationship with the
Company has existed for over 16 years. This will enable the Company to
manufacture products which require labor intensive assembly or decoration at a
reduced expense to the Company as well as to diversify and expand the existing
product line. The Company also plans to add to its product lines by making
strategic business acquisisitions.
- Development of Strategic Alliances, Co-Marketing Efforts and Increased
Sales Presence. In April 1996, the Company entered into exclusive distribution
agreements for Easter products that are produced by Mattel, Colorforms and
Sandylion to the Company's specifications utilizing the Disney licenses. These
products complement the Company's own Easter products licensed from Disney.
Similarly, in July 1996, the Binney & Smith Co. agreed to have the Company
include its value added coupons for its Crayola crayons in the Company's Easter
Egg coloring kits. Further, in conjunction with the agreement with its Asian
supplier, the Company will utilize a portion of the Asian supplier's showroom
facility in Hong Kong to expand into markets which it has previously not
explored.
Results of Operations
Eight Months Ended August 31, 1996 and 1995
The Company's revenues for the eight months ended August 31, 1996 were
$8,401,338 as compared to $7,954,006 for the eight months ended August 31, 1995,
or an increase of $448,332 or 5.6%. This increase was comprised of the
following: Sales for Easter increased approximately 6.2% or approximately
$196,000. This was realized by significant increases in sales to major
retailers, while sales to less influential companies diminished. Halloween sales
also increased by approximately 6.2% or approximately $232,000 which was
achieved by increasing the customer base for this holiday season. Miscellaneous
sales of stationery and mail order products increased by approximately $50,000.
In both the Easter and Halloween seasons, product introductions were
responsible for both the increased sales volume and gross profit. Management
plans to continue to pursue this strategy.
The increase in revenue for 1996 was offset by the increase of accounts
receivable allowance of two customers, resulting in an aggregate write-off of
approximately $75,000.
Selling, general and administrative expenses amounted to $2,471,926 or
approximately 29% of revenues for the eight months ended August 31, 1996 as
compared to $2,401,357 or approximately 30% of revenues for the eight months
ended August 31, 1995. This percentage decrease in selling, general and
administrative expenses was the result of an increase in sales revenues from
$_________ to $________ for the corresponding periods and was accomplished
primarily by reducing product development costs through (i) expanded internal
use of available computer technology for new product packaging and sales
brochures, (ii) reduction in total royalties paid to third parties as a result
of an increase in the level of generic products in the Company's product mix
devoid of third party intellectual property rights and (iii) reduced
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product shipping costs due to an increase in sales to customers with terms of
FOB factory or FOB warehouse. The Company anticipates that FOB factory or FOB
warehouse sales will increase in the future which would reduce the Company's
selling, general and administrative expenses.
Interest expense was reduced to approximately $215,000 for the eight month
period ended August 31, 1996 or 2.6% of sales from approximately $223,000 for
the eight month period ended August 31, 1995 or 2.8% of sales. This decrease was
due primarily to the Company's initiation of the use of customers' letters of
credit to pay for merchandise shipped to them directly from Asia by the Company,
thus enabling the Company to reduce the amount required to be utilized from its
bank line of credit initially used to finance Easter holiday production. Due to
the seasonality of the Company's business, and the ability of the Company's
larger chain store customers to demand payment terms which are more favorable
than net 30 day terms for merchandise sales, the Company finances a significant
portion of operations until payment is received. This is the primary reason for
the amount of working capital necessary to operate the Company as well as
interest charges incurred for borrowing against its credit line.
Gross profit percentage increased from 36.8% at December 31, 1994 to 38.5%
at December 31, 1995 or approximately $300,000, primarily due to management's
efforts to increase sales of product with a higher gross margin contribution.
During the period ending December 31, 1995, Disney increased several of its
license fees and the Company, accordingly, increased the selling price on that
portion of Easter product sales. While increasing the gross margin, these
products also increased selling expense in royalty cost per unit sold.
Net income adjusted before taxes and extraordinary events increased to
$549,782 for the eight month period ended August 31, 1996 as compared to
$305,163 for the eight month period ended August 31, 1995. Thus, the increase
was $244,619 or approximately 80%. For the eight month period ended August 31,
1995, a $122,239 refund of Connecticut state income tax was realized for
previous overpayments for the years of 1989, 1990 and 1991. Therefore, the net
income after taxes and the extraordinary gain was $464,003 or 5.5% of sales for
1996 and $348,011 or 4.4% of sales for 1995. This increase in net profit is
$244,619 or 33%.
Twelve Months Ended December 31, 1995 and 1994
The Company's revenues for the fiscal year ended December 31, 1995 were
$11,372,979 and for the fiscal year ended December 31, 1994, revenues were
$10,135,823. Thus, in fiscal year 1995 there was an increase of sales of
$1,237,156 or 12.2% as compared to the fiscal year 1994. This was achieved by an
increase in the sale of product which contributed a lower gross margin which
serve as Christmas and Halloween decorations and by the increase of $200,000 due
to the sales of $900,000 of low margin direct imports of a new Easter product.
Both, however, involved reduced freight and other overhead expenses because they
were sold on an FOB Hong Kong or USA factory basis. Also the imports were sold
on letter of credit terms which reduced both credit insurance premium costs and
interest expense as these invoices were paid with the customers' letters of
credit when the shipments were made.
The result of the sales increase and shift of the product mix which
contributed a lower gross margin percentage which decreased from 41.0% in 1994
to 37.67% for 1995, but in dollars
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<PAGE>
the gross profit increased by $133,798. In an effort to increase the Company's
gross profit the Company is increasing the import of products from Asia which
require labor intensive decoration or assembly. One such product was recently
offered for sale to customers either to be delivered with other merchandise of
the Company from its Scotia, N.Y. facility or on a direct import basis at a
reduced selling price. Four of the industry's major retailers purchased
merchandise via the latter method. This success gave the Company both a new
window for further product development and increased customer service
satisfaction, in effect, allowing the Company to compete with itself.
Selling, general and administrative expenses for the fiscal year ended
December 31, 1995 and December 31, 1994 were approximately $4,285,000 and
$4,151,000, respectively. This represents an increase of approximately $134,000
or 3.2%. This increase was largely attributable to an increase of $160,000 for a
bonus paid to Mr. Benson Zinbarg, the Company's President, Chief Executive
Officer and Chief Financial Officer, as compared to the bonus paid to Mr.
Zinbarg for the fiscal year 1994. Included in the Company's selling, general and
adminstrative expenses are product development costs which were $426,952 for
1995 and $472,373 for 1994, respectively. This represents 3.8% and 4.7% of
sales. Product development costs are anticipated to increase going forward
because one of the uses of the net proceeds of this offering is to accelerate
and diversify the Company's product development program.
Legal expense of $62,336 for 1995 and $27,357 for 1994, respectively, was
primarily incurred on matters related to protecting the Company's intellectual
property rights. The Company's management is committed to protecting any
infringement of its intellectual property rights.
Income Taxes
Effective ______ __, 199_, the Company terminated its S Corporation
status. The Company is now subject to a corporate level tax for both federal and
state purposes as of that date.
Liquidity and Capital Resources
As of August 31, 1996, the Company's cash balance was $138,921, as
compared to $22,351 at August 31, 1995, representing an increase of $116,570.
For the fiscal years ended December 31, 1995 and 1994, the cash balances were
$143,577 and $62,975, respectively.
In order to maintain its required levels of working capital, the Company
maintains a revolving line of credit with First Union Bank of Connecticut
("First Union") in Stamford, Connecticut. Currently, this credit facility
enables the Company (i) to borrow up to $3,500,000 under a revolving credit
arrangement for its short term working capital needs and (ii) up to an
additional $1,000,000 for the issuance of letters of credit, banker's
acceptances and foreign exchange contract support.
Due to the seasonal nature of the Company's operations, the Company
usually draws down on the credit line with its financial institution to obtain
additional working capital to supplement cash on hand on an as needed basis. The
Company primarily utilizes the line of
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<PAGE>
credit for Easter production and Halloween production. The Company's use of its
credit line incresases during the weeks just prior to these holidays when
accounts receivable are at their highest level.
In addition to its existing credit line with First Union Bank, the Company
has, in the past, relied upon and received the benefit of loans of up to
approximately $990,000 annually from Mr. Benson Zinbarg, the Company's
President, Chief Executive Officer and Chief Financial Officer and Ms. Anita
Dembiczack, the Company's Vice President of Operations and Secretary.
Historically, Mr. Zinbarg's loans have been repaid prior to the conclusion of
each fiscal year, while only accrued interest has been paid to Ms. Dembiczack.
Management believes that the available credit from First Union, together with
the net proceeds of this proposed public offering and operational revenues will
be sufficient to meet its working capital requirements on a going forward basis.
In addition, he Company's efforts in the development of its summer line of
products is expected to increase sales revenue during the period in which sales
have been minimal, specifically during the months of March, April, May and June.
Inflation
While inflation has not had a material effect on the operations of the
Company in the past, there can be no assurance that the Company will be able to
continue to offset the effects thereof through cost increases to its customers
without experiencing a reduction in the demand for its products or that the
impact of inflation on the market will not have a material effect on the
Company.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996, and as adjusted to give effect to: (i) the sale of 1,000,000
Shares of Common Stock and 2,000,000 Class A Warrants offered hereby and the
application of net proceeds of approximately $3,440,000 therefrom. The table is
not adjusted to give effect to the exercise of the Underwriter's Over-Allotment
Option, the exercise of the Class A Warrants or any other outstanding warrants
or options. This table should be read in conjunction with the financial
statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus.
Actual (1) Adusted (2)
------------- -------------
Short-Term Debt $ 3,861,049 $ 2,861,049
------------- -------------
Long-Term Debt 10,874 10,874
Stockholder's Equity:
Common Stock 1,350 2,350
Additional Paid-in Capital 3,650 3,442,650
Retained Earnings 1,643,518 1,643,518
Total Stockholder's Equity 1,648,518 5,088,518
Total Capitalization 5,520,441 5,099,392
- ----------
(1) Does not include the sale of 1,000,000 Shares of Common Stock and
2,000,000 Class A Warrants included in the Offering.
(2) As adjusted balance sheet reflects the sale of 1,000,000 Shares of Common
Stock and 2,000,000 Class A Warrants offered hereby, and the anticipated
net proceeds of $3,440,000 therefrom, after deducting offering expenses of
$960,000 and the Underwriter's consulting fee of $100,000.
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DILUTION
As of August 31, 1996 the Company had an aggregate of 1,350,000 shares of
Common Stock outstanding and a net tangible book value of $1,648,518 or $1.22
per share of Common Stock. "Net Tangible Book Value Per Share" represents the
total amount of the Company's tangible assets, less the total amount of its
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale of 1,000,000 Shares of Common Stock and
2,000,000 Class A Warrants by the Company at the offering prices of $4.00 per
Share and $.25 per warrant, respectively, and the deduction of offering expenses
in the amount of $363,000, and underwriting discounts, commissions and charges
estimated at $697,000 (which amounts include payment of the Underwriter's
Non-Accountable Expense Allowance but without taking into account exercise of
the Over-Allotment Option or the Class A Warrants), the pro forma net tangible
book value of the Company would be $2.17 per share of Common Stock. This amount
represents an immediate dilution (the difference between the price per share of
Common Stock to purchasers in the Company's offering and the pro forma net
tangible book value per share of Common Stock as of August 31, 1996, after
giving effect to the issuance of 1,000,000 shares of Common Stock) of
approximately $1.83 per share of Common Stock to new investors and an immediate
increase of $.95 per share of Common Stock to the Company's present
stockholders. Such increase to the Company's current stockholders is solely
attributable to the cash price paid by purchasers of the Shares and Class A
Warrants offered for sale by the Company.
The following table illustrates the per share dilution as of August 31, 1996:
Public offering price per share (1) ..................... $ 4.00
Net tangible book value per share before giving effect to
the Company's offering (2) ............................ 1.22
Increase per share attributable to the sale of 1,000,000
shares of Common Stock and 2,000,000 Class
A Warrants offered by the Company (2)(3) .............. .95
Pro forma net tangible book value per share
after Offering ........................................ 2.17
----
Dilution per share to the purchasers in the Company's
Offering(3) ........................................... $ 1.83
========
- ----------
(1) Represents the public offering price before deduction of estimated
expenses of the Company's offering, underwriting discounts and
commissions.
(2) Gives retroactive effect to the issuance by the Company of an aggregate of
1,350,000 shares of Common Stock to stockholders of Sun Hill - Connecticut
in connection with the recapitalization of the Company as a result of the
merger of Sun Hill - Connecticut with and into the Company effective as of
November , 1996.
(3) Assumes no exercise of: (a) the Underwriter's Purchase Option (or exercise
of the Class A Warrants included therein); (b) the Over-Allotment Option
(or exercise of the Class A Warrants included therein). See
"Capitalization," "Underwriting," "Certain Transactions" and "Description
of Securities."
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<PAGE>
In the event that the Underwriter exercises the Over-Allotment Option in
full, the pro forma net tangible book value of the Company at August 31, 1996,
reflecting the Company's public offering as set forth above, would be $5,691,518
or approximately $2.28 per share, which would result in dilution to the new
investors of approximately $1.72 per share.
The following table sets forth, as of August 31, 1996, a comparison of the
number of shares of Common Stock acquired by current stockholders from the
Company, the total consideration paid for such shares of Common Stock and the
average price per share paid by current stockholders of Common Stock and to be
paid by the prospective purchasers of Shares offered for sale by the Company
(based upon the anticipated public offering price of $4.00 per share, before
deducting underwriting discounts and commissions and estimated offering
expenses):
<TABLE>
<CAPTION>
Common Stock Acquired Total Consideration
--------------------- -------------------- Average
Number Percent Amount Percent Price Per Share
------ ------- ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
Current Stockholders ...... 1,350,000(1) 57.5% $ 5,000 * .004
New Investors ............. 1,000,000(2) 42.5% 4,000,000(3) 99.9% 4.00
--------- ---- --------- ----
Total ................... 2,350,000 100% 4,005,000 100%
</TABLE>
- ----------
* Less than one percent.
(1) Gives retroactive effect to the issuance by the Company of an aggregate of
1,350,000 shares of Common Stock to stockholders of Sun Hill - Connecticut
in connection with the recapitalization of the Company as a result of the
merger of Sun Hill - Connecticut with and into Sun Hill - Delaware
effective as of November _______, 1996. See "The Company." Does not assume
the sale of the 100,000 Initial Selling Securityholder Shares or any of
the 500,000 Subsequent Selling Securityholder Shares.
(2) Assumes no exercise of: (a) the Underwriter's Purchase Option (or exercise
of the Class A Warrants included therein); (b) the Over-Allotment Option
(or exercise of the Class A Warrants included therein); or (c) the Class A
Warrants. See "Capitalization," "Underwriting," "Certain Transactions" and
"Description of Securities."
(3) Aggregate offering price of the 1,000,000 Shares of Common Stock but
excluding the 2,000,000 Class A Warrants and before deduction of offering
expenses, underwriting discounts and commissions.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares and Class A
Warrants offered hereby, assuming no exercise of the Underwriter's
Over-Allotment Option, an offering price of $4.00 per share of Common Stock and
$.25 per Class A Warrant and after deducting offering expenses estimated to be
$1,060,000 (including the Underwriter's non-accountable expense allowance in the
amount of $147,000 and $100,000 payable to the Underwriter at the closing of the
Offering in connection with financial consulting services) and underwriting
discounts of $450,000 payable by the Company, are estimated to be approximately
$3,440,000. The net proceeds of this offering, excluding the exercise of the
Underwriter's Over-Allotment Option, will be utilized in order of priority by
the Company as listed below for approximately 12 months from the date of this
offering substantially as follows:
Approximate
Proposed Use of Proceeds Amount Percent
------------------------ ------ -------
General Working Capital Purposes(1) ................... $1,400,000 40.7%
Repayment of a Portion of Bank Line of Credit(2) ...... 1,000,000 29.1%
Product Development(3) ................................ 550,000 16.0%
Business Acquisitions(4) .............................. 490,000 14.2%
---------- ----
$3,440,000 100%
- ----------
(1) General working capital purposes contemplates, among other things, the use
of net proceeds of the Company's public offering for general corporate
purposes, including funding the day-to-day operations of the Company and
the Company's future development.
(2) Represents repayment of amounts outstanding under the Company's credit
facility with First Union. Such amounts accrue interest at the rate of
.75% above the prime rate of interest established from time to time by
such bank. Currently, the applicable rate of interest is ____%. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity."
(3) The Company intends to utilize a substantial portion of the use of
proceeds of this offering to develop new and innovative holiday and
novelty merchandise items.
(4) The Company intends to pursue a growth and acquisition strategy and
capitalize on what the Company perceives to be an essentially fragmented
industry. It is anticipated that acquisitions, although no assurance can
be given, would enable the Company to broaden its product line and
customer base. See "Business - Business Strategy - Acquisitions." While
the Company has, during the course of its business, been presented with
acquisition opportunities, the Company does not currently have any
specific agreements, arrangements or understandings relating to or
providing for the acquisition of any such entity; nor is it negotiating
any of the same. However, the Company has identified certain acquisition
candidates internally, but none have yet been approached nor have any
discussions or negotiations ensued. Accordingly, there can be no assurance
given that the Company will succeed in implementing its growth and
acquisition strategy or that such strategy will be successful.
The amounts set forth above are estimates developed by management of the
Company of the allocation of net proceeds of the Company's public offering based
upon the Company's current plans and prevailing economic and industry
conditions. Although the Company does not currently contemplate material changes
in the proposed use of proceeds set forth above, to the extent that management
of the Company finds that adjustment thereto is required, the amounts shown may
be adjusted among the uses indicated above. The Company's proposed use of
proceeds is subject to changes in general, economic and competitive conditions,
timing and management discretion, each of which may change the amount of
proceeds expended for the
33
<PAGE>
purposes intended. The proposed application of proceeds is also subject to
changes in market conditions and the Company's financial condition in general.
See "Risk Factors - Use of Proceeds Subject to Management Discretion." Changes
in general, economic, competitive and market conditions and the Company's
financial condition would include, without limitation, the occurrence of a
national economic slowdown or recession, a significant change in the demand for
holiday and novelty merchandise and the environment in which the Company
operates, and changes in market or industry conditions that would render it
advisable for the Company to pursue internal avenues for expansion rather than
implement plans for business acquisitions. While management of the Company is
not currently aware of the existence or pending threat of any of the foregoing
events, there can be no assurance given that one or more of such events will not
occur. See "Risk Factors" generally, including specifically, "Risk Factors - Use
of Proceeds Subject to Management Discretion" and "Risk Factors - Competition."
Any additional proceeds received upon exercise of the Over-Allotment Option, the
Underwriter's Purchase Option or the Class A Warrants will be added to working
capital and used as management, in its sole discretion, deems appropriate. See
"Risk Factors - Ongoing Capital Requirements."
While there can be no assurance given, the Company believes that the net
proceeds from its public offering and internally generated funds, together with
its line of credit with First Union, will be adequate to satisfy the Company's
working capital needs on a going forward basis. The Company does not currently
anticipate that it will need the proceeds from the potential exercise of Class A
Warrants to fund its working capital needs or to maintain its operations.
However, any proceeds resulting from the exercise of the Class A Warrants will
facilitate and expedite the Company's plans to expand its product line and
operations. In the event that the Company may require additional financing, and
the proceeds of the Class A Warrants are insufficient, the Company may still
require additional other financing in the future in order to expand its
business. The Company is not able at this time to predict the amount or
potential source of such additional funds and has no current commitments to
obtain such funds, other than as set forth herein. There can be no assurance
that additional financing on acceptable terms will be available to the Company
when needed, if at all. See "Risk Factors Ongoing Capital Requirements,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Pending use of the net proceeds from the Company's
public offering, the Company may make temporary investments in short-term, high
grade, interest-bearing instruments.
34
<PAGE>
THE COMPANY
Sun Hill Industries, Inc., a Delaware corporation (previously defined and
hereinafter referred to as the "Company") was incorporated pursuant to the laws
of the State of Delaware on October 9, 1996. The Company is the successor to Sun
Hill Industries, Inc., a Connecticut corporation ("Sun Hill - Connecticut")
which was incorporated pursuant to the laws of the State of Connecticut in 1974
for the purpose of making household plastic products of all kinds and varieties
for the mail order industry. The Company was organized by Sun Hill - Connecticut
to enable Sun Hill - Connecticut to merge with and into the Company in November
1996 in order to effectuate a reincorporation in the State of Delaware. Unless
otherwise indicated, references made hereinafter to the Company include Sun Hill
- - Connecticut as the context may require.
The Company's executive offices are located at 48 Union Street, Stamford,
Connecticut 06906-1329. Its telephone number is (203) 324-7550.
BUSINESS
General
The Company is principally a designer, manufacturer and distributor of
Easter, Halloween and Christmas decorative and novelty merchandise. The
Company's product lines include a broad range of indoor and outdoor decorative
products for each of these holidays. Among the Company's products is the giant
Stuff-A-Pumpkin orange leaf bag with a jack-o'-lantern design, which is part of
its Halloween product line. For Easter, the Company produces Easter egg
decorating kits and other related products, some of which incoroporate licensed
images of the The Walt Disney Company ("Disney"), such as Winnie the Pooh,
Mickey Mouse, 101 Dalmatians and Pocahontas. Recently the Company has reached an
agreement in principle with the Children's Television Workshop ("CTW") for a
license from CTW to incorporate certain of the Sesame Street character images,
such as Bert, Ernie, Big Bird, Cookie Monster and Elmo, into its holiday product
lines. The Company also sells a line of stationery products. The Company sells
its products principally throughout the United States and Canada to many of the
large and small retail chains, mail order organizations and specialty stores.
The Industry
According to a recent study by the National Retail Foundation, Halloween
has become a holiday which generates more commercial revenue than any other day
of the year except Christmas. It has been estimated by trade associations that
Americans spend at least $2.5 billion on Halloween. The Company has, in
particular, experienced substantial growth in the sales of Halloween holiday
merchandise (for both children and adults). Easter has had a long history of egg
decorating, and in the past several years, this holiday has experienced an
emergence of alternative indoor and outdoor decorations as well.
Holiday products are sold to consumers through large chain stores,
mail-order catalogue companies and independent retailers. See "Business -
Distribution and Customer Base." Many
35
<PAGE>
firms manufacture some of their products in Asia and sell on a direct import
basis and from inventory based in the U.S. It is the Company's perception that
smaller firms are increasingly having difficulty keeping current with the rapid
changes in the technology required to service the large retail customers - i.e.,
special uniform packing, bar-code, special labeling and shipment timing
requirements. In many instances, large retailers require computer to computer
purchase order and invoice servicing which is generally beyond the capabilities
of many or most small companies. Also, members of this group often experience
difficulty in getting to present their limited array of products to the
professional buyers who have the responsibility of filling the retail shelves of
all of their respective chain outlets. Given the time constraints and broad
responsibilities of these professional buyers, management believes that it is
the professional buyer's preference and increasing trend to purchase products
exclusively from a few reliable and proven vendors and forego the risk of
utilizing small suppliers. The Company intends to capitalize on its ability to
service these customers and to take advantage of the fragmented nature of the
industry. The Company also feels that it has the technology as well as the
facilities to expand its business. See "Business - Business Strategy."
The Company's Products
General
Indoor and outdoor decorations for Easter, Halloween and Christmas
comprise the Company's principal and primary products. Most of the products are
made of plastic, cardboard and paper (and, in some instances, contain solid
dyes), most are disposable in that they are priced and designed to be used for
only one season and have retail sales prices between $1.00 and $30.00. Some
incorporate a simple electric lighting component (e.g., an illuminated
blow-molded plastic figure - an outdoor Santa, Pumpkin and Bunny).
The various product lines and designs incorporate the principal images of
the holidays, i.e., Easter - bunnies and eggs; Halloween - pumpkins, ghosts and
witches; Christmas - Santa and snowmen. In some cases very popular graphic
images and imprints (e.g., licensed images from Disney - Mickey Mouse, Minnie
Mouse, Goofy, Pluto, Donald Duck, Winnie the Pooh, Daisy, Pocahontas and 101
Dalmatians) are used to increase the marketability and value of a product to the
customer. See "Business - Intellectual Property."
Many of the Company's products are scaled to a point that they are larger
than life - i.e., a 14" plastic egg, Giant Stuff-A-Pumpkin (a 500 lb. equivalent
to a standard pumpkin), a 20' spider or a 10' bat. All packaging for the
Company's products are designed to give the appearance of a coordinated product
line and are often sold in both counter and floor displays consisting of
synergistic grouping of products. See "Business Marketing and Sales."
The Company also produces a group of stationery related items as well as
specialty novelty products for mail order companies. The stationery line
includes such items as coin counters, coin sorters, coin wrappers, memo cubes
and memo pad refills, lap desks and letter initials.
For the fiscal years ended December 31, 1994 and 1995, respectively:
Halloween product line sales represented 43 % and 44% of the Company's gross
revenue; Easter product line sales
36
<PAGE>
represented 38% and 36% of the Company's gross sales revenue, and Christmas
product line sales represented 13% and 11% of the Company's gross sales revenue.
The balance of sales in each such year was the Company's stationery and novelty
product line which accounted for 6% and 9% of the Company's gross sales
revenues, respectively, for the fiscal years ended December 31, 1994 and 1995.
Principal Products
The following is a description of several of the Company's principal
products within the various product lines. This is not a complete list of the
Company's products but rather a sample of the types and kinds of products that
the Company sells.
Easter
Product
Name Description
------- -----------
Egg Art A preprinted, plastic shrink-wrap that when
placed over an egg, and then dipped into hot
water, shrinks to form a decorative skin
around the egg. Some of these kits
incorporate the graphic images and
representations of the Disney characters.
Egg Coloring Kits A broad line of egg coloring kits that
provide different egg decorating effects -
sparkles, swirls, stripes, neon colors,
pastels, stickers, etc. Some of these kits
incorporate the graphic images and
representations of the Disney characters.
Bunny Eggs A set of plastic molded 4" or 5.75" eggs that
have bunny ears. These eggs are capable of
being filled or hung as indoor or outdoor
decorations (design patent issued).
Six-Foot Bunny A stuffable set of plastic bags in the shape
of and painted as a 6' Rabbit (patent
pending).
Giant Plastic Eggs Large 8" and 14" molded plastic eggs used for
indoor or outdoor decoration.
37
<PAGE>
Halloween
Product
Name Description
------- -----------
Pumpkin Leaf Bags A large, orange plastic leaf bag on which is
printed the graphics of a jack-o'-lantern and
when stuffed with leaves, serves as a lawn
decoration simulating a 500 lb. pumpkin, and
other smaller similar type bags (design
patents issued, and utility patent pending).
Oversized Decorations Oversized leaf bag decorations in the form a
giant 11' spider and a 10' bat (design and
utility patents issued).
Pumpkin Man A tall, scarecrow made of oversized,
decorated leaf plastic bags (patent pending).
Pumpkin Decorating Kits Kits for carving and decorating pumpkins into
jack-o'-lanterns for Halloween.
Shadow Magic A projection device that casts the shadow of
Halloween and Christmas images on the outside
of houses and party rooms.
Floating/Hanging Ghosts Hanging plastic decorations in the form of
ghosts (patent issued and patents pending).
Large Illuminated Plastic Blow-molded plastic and painted figures for
Figures out-door decorations in the shape of
Halloween figures having an internal lighting
device (UL listed).
Christmas
---------
Product
Name Description
------- -----------
Christmas Tree A plastic bag designed to be placed around a
Removal Bag Christmas tree that prevents pine needles
from dropping to the floor when disposing of
the Christmas tree.
Gift Sacks Printed, decorative, large and oversized
plastic bags which serve as gift sacks.
38
<PAGE>
Christmas Tree Enables consumer to water and nourish a
Watering System Christmas tree during the holiday season.
and Tree Nutrient
Large Illuminated Blow-molded plastic and painted figures for
Plastic Christmas outdoor decorations in the shape of
Figures traditional Christmas figures and having an
internal lighting device (UL listed).
Stationery
----------
Product
Name Description
------- -----------
Memo Cube A smoke colored, plastic cube containing
layers of multicolored paper.
Coin Counters A set of plastic tubes designed to count
coins in sufficient number for their
appropriate coin wrappers.
Coin Wrappers Paper wrappers for coins.
Summer
Product
Name Description
------- -----------
5-Way Hose An adapter to an outdoor garden hose faucet
Connector enabling five hoses to be used
simultaneously. Facilitates the equivalent of
an inexpensive, underground sprinkler system.
Each of the foregoing product lines are revamped periodically. Products
which do not achieve their projected sales expectations are either repackaged in
a different format or replaced by new products as they are developed. Some of
the Company's products have been sold for several year intervals, certain of
which have been in the Company's product line since the Company's inception.
Product Development
The Company has a product development team comprised of 3 full-time and 3
part-time staff members, with creative input from the Company's President, Chief
Executive Officer and
39
<PAGE>
Chief Financial Officer, Mr. Ben Zinbarg. During each of the fiscal years ended
December 31, 1993, 1994 and 1995, the Company has spent, respectively, $342,345,
$472,397 and $426,951 on product development efforts. To date, the Company has
been issued and presently maintains in force 20 design patents and 7 utility
patents with 5 more utility patents pending in connection with its product
development efforts. See "Business - Intellectual Property."
In the last several years, many new products have been introduced and
incorporated into the Company's product lines. Although no assurance can be
given, it is anticipated that the Company's development team will continue to
develop products at a consistent or increasing pace.
Supply, Manufacturing and
Assembly of the Company's Products
Generally, all of the Company's products are produced externally by a
network of third party custom molders, fabricators, assembly plants and
packaging companies. The Company has, to date, enjoyed good relationships with
each of its third-party manufacturers, fabricators and packaging companies and
does not, although no assurance can be given, anticipate any material problems
with these third parties in the future.
In most instances, the Company designs the majority of its products and
has its molds, tools, dies and printing plates custom made to its specifications
and for its exclusive use. These molds, tools and dies can be used as the
Company sees fit. These pieces of equipment are the Company's property and may
be moved from one manufacturer to another, thus facilitating the Company's
ability to maintain and/or achieve competitive cost and service.
The outsourcing of manufacture, assembly and packaging of the Company's
products is advantageous in several respects. It enables the Company to
ascertain the exact unit cost of each product and, in addition, it often allows
for flexibility in building inventory toward the end of a selling season.
Usually, capacity can be increased or decreased, as the case need be, to
accommodate the Company's demands at any point in time during a holiday selling
season. This outsourcing alleviates the necessity of the Company from having to
maintain its own factory with large staffing and machinery requirements which
would otherwise be necessary if these functions were performed internally.
Outsourcing also avoids the prospect of having to furlough workers during slow
periods.
Blow Molded Plastic Products Supplier
In January 1994, the Company signed an agreement with a blow molded
plastic products supplier whereby the supplier gave exclusive use of 25 molds to
the Company and the Company is required to purchase all of its requirements of
certain blow-molded plastic figures (e.g., large Santa, Snowmen, etc.) from such
supplier for its sale to the mail order trade and to retail stores. The
Agreement was for an initial term of one year, but is automatically renewed each
year, at the Company's election, provided that the Company meets certain
specified minimum annual purchase requirements. During the term of the
Agreement, the supplier is proscribed from selling such products to the retail
trade and mail order industries other than through the Company.
40
<PAGE>
Asian Supplier
Although most of the manufacture, assembly and packaging of the Company's
products has previously been performed in the U.S. and Canada, the Company does
import some of its products from Asia. Since 1980, the Company has been doing
business with a Hong Kong based trading company that has served as one of the
Company's principal Asian suppliers. In October 1996, the Company reached an
agreement with this Asian supplier to act as its exclusive sales agent in the
United States, Mexico and Canada for the Company's holiday and decorative
products. Conversely, and as part of the arrangement, the Asian supplier will
act as a non-exclusive marketing agent for the Company's products in Asia.
The arrangement with the Asian supplier contemplates that products will be
purchased by the Company from the supplier directly for import and then sold by
the Company to its customers under the Company's trademarks and packaging. This
arrangement, in effect, increases the number of products that the Company may
offer for sale to its customers. In connection with the arrangement with this
Asian supplier, the Company shall be permitted to utilize a portion of the
supplier's Hong Kong show room to promote and sell its line of products in Asia
and, conversely, the Company will utilize a portion of its showroom in New York
City to promote and sell these products.
The Company has no written agreements with any of its other paper and
plastic product suppliers with respect to the supply of products for the
Company's inventory. To date, the relationships with each of such suppliers have
been good and, although no assurance can be given, the Company expects these
relationships to continue as they have in the past.
Distribution and Customer Base
The Company sells to most of the major mass retail discount and many of
the drug merchandising chains in the U.S. including, but not limited to,
Walmart, K-Mart, Caldor, Target, Walgreens, CVS, Eckerds and Revco. The Company
also sells its products to major supermarket chains (e.g., A&P, Kroger,
Safeway), toy stores (e.g.,Toys R Us), craft stores (e.g., Michaels), party
stores (e.g., Partyland, Party City, Party Experience), Gift stores (e.g.,
Hallmark), hardware stores (e.g., Cotter, Ace, Servistar), wholesalers (e.g.,
Super Value, Flemming, Associated Wakefern), mail order catalog companies (e.g.,
Oriental Trading, Current Inc., Harriet Carter Gifts, LTD. and National
Syndications). In addition to the foregoing, the Company sells some of its
products to be used as premium items. These are used by customers to add some
additional value to their own products. The Company's recent customers in this
category have been Nestle, Cadbury Schweppes and Shell Oil.
The Company also sells its products in Canada and several of its Canadian
customers are: Zellers, Canadian Tire, Firco and National Grocers as well as
Canadian affiliates of American mass retail discount stores (e.g., Walmart and
K-Mart).
Over the past ten (10) years, no single customer of the Company has ever
accounted for more than thirteen percent (13%) of the Company's revenue during
any applicable fiscal year.
41
<PAGE>
For the fiscal year ended December 31, 1995, no single customer accounted for
more than 8% of the Company's sales for 1995.
In the past, the Company has experienced customer bankruptcies. Because
the Company's customer base is broad and diversified, and although no assurance
can be given, the Company believes that it can continue as it has in the past to
sufficiently withstand the bankruptcy of one or more of its customers. The
Company maintains credit risk insurance for certain of its customers to lessen
the effect of just such an eventuality. See "Risk Factors - Retail Sales Market
Environment in U.S. and Canada and Significant Customers."
Marketing, Advertising and Sales
Marketing.
The Company's products are marketed in a variety of ways. Products are
marketed either as an assortment of product all having one licensed character
theme in common i.e., dye kits, eggs, baskets, toys; or as an assortment having
one type of item consisting of several licenses i.e., dye kits with Mickey, Pooh
& Lion King. Popular character images are licensed from third parties and
incorporated into the products to enhance their appeal and capitalize on proven
licenses to reduce the obsolescence of products. See "Business Intellectual
Property Disney Licenses and CTW Licenses."
When the Company introduces new products, it tests their commercial
viability with both customers and ultimate consumers. However, once a new
product has been launched, the Company provides its customers with product sales
literature, product samples and/or prototypes in order to facilitate purchasing
decisions. In addition, the Company utilizes floor displays and power panels
(displays that are hung near the end of a retail store's aisle) in connection
with its marketing efforts for its products.
As an essential part of the Company's marketing strategy, it revises old
successful products with improvements and packaging changes and introduces new
products for each holiday season to retain current customers and attract new
ones. See "Business - Product Development." No assurance can be given that the
marketing strategies devised by the Company will be effective as compared to
those strategies of the competitors. See "Risk Factors - Retail Sales Market
Environment in U.S. and Canada."
Advertising.
Presently, the Company makes no use of television and radio and limited
use of print advertising. In this connection, the Company does some cooperative
advertising with its major customers to promote its products in their
advertising circulars and in their stores.
Sales.
The Company has a variety of means of selling its products, each tailored
to meet the specific requirements of its various customers. Most of the largest
mass merchandise customers are serviced by manufacturers representatives
supplemented by the efforts of the Company's own
42
<PAGE>
sales staff personnel. Currently, the Company is utilizing 20 different
manufacturers representative organizations. These manufacturers representatives
are compensated by the Company on a commission basis that is 5% of net sales
directly attributable to the efforts of the representative.
When utilizing a manufacturers representative for the large mass
merchandise customers, sales calls are made by a team comprised of the
manufacturer representative together with Company management. This approach is,
in the Company's view, effective because it provides the representative with the
ability to have a Company executive present the Company's product lines and
enables the customer to direct questions about the products directly to the
Company. This process also helps maintain direct relationships between the
Company and its customers, decreasing the Company's dependency on the
manufacturers representatives.
Small independent retail customers are serviced on behalf of the Company
by either wholesalers, or a second group of sales representatives who specialize
in this market - currently numbering approximately 12. These sales
representatives are also paid on a commission basis, but generally at a higher
commission rate than the manufacturers representatives, but not greater than 15%
of net sales. All sales in Canada are handled by one representative group that
also maintains a warehouse and re-shipping facility in Richmond Hill, Ontario.
In some instances, customer accounts are handled only a direct basis by
the Company. Mail order customers, export sales and premium sales are all
serviced directly by the Company. Four individuals currently comprise the
Company's internal sales staff.
Intellectual Property Rights
As the Company creates new products for its various product lines, to the
extent it considers appropriate, and/or to the extent available, it seeks to
protect its proprietary interest in such products through patent, trademark, and
copyright laws. It also makes use of nondisclosure/confidentiality agreements
with its employees.
As of the date hereof, the Company has been issued and has in force 20
U.S. design patents and 7 U.S. utility patents relating to its various products
and currently has 5 U.S. utility patent applications pending. There can be no
assurance that the patents that are pending with the United States Patent and
Trademark Office will be issued, or that issued patents will not be challenged
successfully or will commercially benefit or adequately protect the Company.
Furthermore, there can be no assurance that competitors will not design around
patents issued to the Company. In addition, going forward, the Company may
choose not to maintain in force certain of its patents.
During the course of its operations, the Company has, from time to time,
received the benefit of utilizing, on a royalty-free basis, some patents issued
and registered in the name of the Company's President, Chief Executive Officer
and Chief Financial Officer, Mr. Benson Zinbarg. On November , 1996 and for no
additional consideration and as part of his employment agreement with the
Company, Mr. Zinbarg assigned and transferred to the Company all of his rights
in and to any inventions, patents and patent applications concerning the
Company's products. See "Executive Compensation - Employment Agreement" and
"Certain Transactions."
43
<PAGE>
Regarding its trademarks, the Company currently has in force 4 registered
trademarks in the U.S. These are as follows: Egg Art, Window Art,
Stuff-A-Pumpkin and Pumpkin Patch. In addition, the Company has 4 trademark
applications pending with the United States Patent and Trademark Office. There
can be no assurance that the trademark registration applications pending with
the United States Patent and Trademark Office will result in registered
trademarks, or that registered trademarks will not be challenged successfully or
will commercially benefit or adequately protect the Company. In addition, going
forward, the Company may choose not to maintain in force certain of its
trademarks.
Generally, once the Company is made aware of the violation of any of its
protectable intellectual property interests, it seeks to defend these rights.
However, it is often not possible to identify the source of any infringing
product or, if identified, the alleged infringer may be difficult to pursue or
the Company's actions may be ineffective. Over the past several years, the
Company has collected between approximately $600,000 to $700,000 in damages
and/or royalties in the aggregate in these types of infringement actions. This
success may not be duplicated in the future. It is the Company's intention to
maintain its enforcement policy and even become more aggressive at defending its
creativity. However, the costs associated with the Company's enforcement of its
intellectual property rights may in certain instances be very expensive and
litigation can result in substantial diversion of the resources of the Company,
and consequently, no assurance can be provided that the Company will enforce its
rights in each and every instance. See "Risk Factors - Competitive Copies of the
Company's Products."
From time to time, the Company may be notified that it is infringing
certain patents and other intellectual property rights of others. As claims
arise, the Company evaluates their merits. No assurance can be given that
licenses will be obtainable on commercially acceptable terms, that damages for
infringement will not be assessed or that litigation will not occur. The failure
to obtain necessary licenses or other rights or litigation arising out of any
such claims could have a material adverse effect on the Company's business,
financial condition and operating results.
The Company also, from time-to-time, licenses intellectual property rights
from third persons pursuant to various royalty or other compensation
arrangements. Further, and as an additional incentive for several of its product
development staff members, the Company will enter into a royalty-sharing
arrangement regarding certain products. To date, none of these licensing or
royalty-sharing arrangements have proven to be of significant consequence to the
Company or its operations. However, no assurance can be given that any such
royalty sharing or licensing arrangement will not become material to the
Company's operations in the future.
Disney Licenses.
Since 1981, the Company has licensed from Disney the images, names and
graphic representations of certain Disney characters in connection with several
of its Easter line of products for sale in distribution in the United States and
Canada. Currently, the Company utilizes the following licensed images of Disney
- - Mickey Mouse, Minnie Mouse, Donald Duck, Pluto, Goofy, the Hunchback of Notre
Dame, 101 Dalmatians, Winnie the Pooh and Pocahontas. The licenses with Disney
provide for (i) payment of sales royalties and, in some instances, guarantees of
minimum sales royalties; (ii) Disney's subjective approval of all products
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incorporating the Disney images and representations, and (iii) termination by
Disney in the event of, among other things: (A) the Company's failure to
manufacture and distribute the articles as provided in each Disney license; (B)
a material breach by the Company which, after notice, remains uncured; (C) the
Company's sale of articles incorporating Disney's character images which have
not received Disney's approval or (D) unauthorized sales of licensed and
approved articles outside of the Company's authorized territory. Further, the
Disney license agreements also provide that Disney is not obligated to renew any
license and if Disney terminates any one license "for cause," (as above
described) it may terminate one, several or all of its licenses with the
Company.
For the years ended December 31, 1995 and December 31, 1994, sales
revenues derived from the Company's sale of products incorporating the Disney
images were $2,500,000 and $2,034,000, respectively. For the fiscal years 1995
and 1994, these amounts represented 22% and 20%, respectively, of the Company's
total sales revenue. Although the Company's relations with Disney have been good
and the Company has not experienced any difficulties in meeting required minimum
royalty payments or complying with the Disney approval process, no assurance can
be given that such relations will continue as they have previously or that
Disney will continue to approve the Company's products. Any disapprovals of the
Company's products by Disney, or the termination of several or all of the
Company's licenses with Disney, may have a material adverse effect on the
business and operations of the Company. See "Risk Factors - Certain License
Agreements Subject to Termination and Non-Renewal - Disney Licenses."
The Company's licenses from Disney require an aggregate payment of
approximately $118,250 in connection with the Company's redomestication
transaction and this public offering. The Company is treating this expenditure
as a cost associated with this Offering. See "Use of Proceeds."
In addition, in September 1996, the Company reached an agreement in
principle with the Children's Television Workshop ("CTW") for a license from CTW
to incorporate the images and representations of certain of its Sesame Street
Characters - Bert, Ernie, Big Bird, Cookie Monster and Elmo - on and in
connection with its Easter and Halloween line of products. Although a written
agreement has not yet been signed, and no assurance can be given that one will
be signed, it is anticipated that any license agreement from CTW will have
provisions which are similar to the provisions of the Company's licenses with
Disney. No assurance can be given that any one or more of the Company's products
will meet the approval of CTW or that, once approved, that they will not be
revoked, or that the CTW license will not be renewed and may be terminated. See
"Risk Factors - Certain License Agreements Subject to Termination and
Non-Renewal - Children's Television Workshop License."
Business Strategy
The Company recognizes that it has several opportunities to capitalize on
both its current position in the market as well as on the general composition of
the industry itself. See "Business - Industry." The opportunities perceived by
the Company are in the following categories: product development, import,
strategic alliances and co-marketing efforts, geographic market expansion,
business acquisition and the addition of a summer product line.
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Product Development.
Management plans to use a portion of the proceeds of this offering to
enhance its ability to bring new and innovative holiday decorative and novelty
products to the market place. The Company has already conceptualized a large
number of products that, as of the date hereof, are undeveloped. In management's
view, many of these are commercially viable and should be brought to market. It
is the Company's intention to utilize a portion of the proceeds of this offering
in connection with these product development efforts including, but not limited
to, building product prototypes, test-marketing and field research. The Company
has recently hired two (2) additional employees to accelerate its current pace
of product development.
Imports.
In order to broaden the Company's existing product lines, the Company will
seek to develop relationships with third parties as additional sources of supply
of products outside of the United States. In the past, the Company has purchased
products from Asia and Canada. See "Business - Supply, Manufacture and Assembly
of the Company Products."
Strategic Alliances and Co-Marketing Efforts.
To build upon the Company's existing relationships with large retail
chains at Halloween and Easter, the Company has developed cross-promotional
working relationships with several manufacturers of products that are compatible
and synergistic with the Company's. It is the Company's intention to develop
further these strategic marketing efforts. As an example, the Company currently
has an informal arrangement with Binney & Smith ("B&S"), a Disney licensed
manufacturer of Crayola brand crayons who utilizes the imprint of Disney's
Winnie the Pooh, whereby B&S discount coupons were packaged with the Company's
Easter egg coloring kits. The Company has had discussions with other Disney
licensees to do similar cross promotions. This type of promotional device allows
third parties to have the benefit of the Company's presence in the Easter and
Halloween sections of major retailers and simultaneously enables the Company to
add value to its products by the addition of discount coupons for recognized
brand products. The Company has also, with the consent of Disney, engaged in
other cross-promotional arrangements with Colorforms, Sandylion and Mattel, who
are making to the Company's specifications activity kits, stickers and a plush
toy, respectively, and all are utilizing intellectual property licensed from
Disney by the Company.
Geographic Market Expansion.
The Company believes that the exporting of egg coloring kits as crafts to
those countries that have egg decorating as part of their respective culture
(e.g., Eastern Europe and some Asian countries) is currently a potentially large
and unexploited commercial market. The Company will direct a portion of its
efforts in developing these markets. No assurance can be given that the Company
will be able to successfully develop this previously unexploited market.
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Acquisitions.
The Company intends to pursue an acquisition strategy and acquire and
develop businesses and product lines having Christmas, Halloween, Easter and
Summer products and/or additional customers. Management of the Company believes
that the businesses so acquired will benefit from the expertise and facilities
of the Company adding to the combined revenues and net income. The Company
intends to use a portion of the proceeds of the Company's public offering for
such business acquisitions. See "Use of Proceeds." While the Company has, during
the course of conducting its business, been presented with acquisition
opportunities, the Company does not currently have any specific agreements,
arrangements or understandings relating to or providing for the acquisition of
any such entity; nor is it negotiating any of the same.
The Company intends to acquire such additional companies and/or product
lines using a combination of cash, equity securities (such as common stock or
preferred stock) and debt instruments. See "Risk Factors Growth Strategy and
Acquisition Activities" and "Underwriting." To the extent that the Company
issues equity securities in connection with acquisitions, the equity interest of
its then current stockholders may be diluted. There can be no assurance given,
however, that the Company will be able to acquire such additional companies
and/or product lines, that it will be able to use its securities in connection
with such purchases or that it will have the necessary capital resources to
purchase such companies and/or product lines.
The Company could be subject to liabilities arising from an acquisition in
the event the Company assumes unknown or contingent liabilities or in the event
such liabilities are imposed on the Company under theories of successor
liability. Prior to making acquisitions, the Company will conduct a due
diligence investigation of purchasing only selected assets and assuming only
selected liabilities of an acquisition candidate. The Company may also seek to
obtain indemnification from selling parties. However, if the Company became
subject to such a liability of sufficient magnitude and was unable to enforce
its rights of indemnification against the acquired companies or selling parties,
such liability could have a material adverse effect on the Company's financial
condition and results of operations.
Management intends to integrate the companies and/or product lines it may
acquire to bring controls, economies of scale and standardized policies and
procedures to all of its offices, and to centralize a number of functions that
are performed on an individual basis. The Company intends to centralize finance,
cash management, warehousing and inventory management, accounting, insurance,
marketing, purchasing and human resources functions. There can be no assurance
given that the Company will be able to successfully integrate the business of
the companies and/or product lines it acquires or to successfully centralize or
standardize certain functions or policies or that such centralization or
standardization will result in cost reductions or better service.
Competition
The Company competes in the holiday decoration and novelty market as well
as the stationery market with small, independent organizations, divisions of
major consumer product companies, several large retail chains who contract
manufacture products for their own private label and other non-seasonal
manufacturers. The Company's principal competitors in the Easter,
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Christmas and Halloween Product decorations markets are: Fun World (including
its Easter Unlimited Division) Union Products, General Foam, Paas (a Division of
Schering Plough), Empire of Carolina, Paper Magic & Burwick and Spearhead (all
divisions of CSS) and Santa's Best. The Company's principal competitors in the
stationery product line are Newell, Olympic and Rubbermaid.
Some of the Company's major competitors, including large retail chains and
divisions of major consumer product organizations, have substantially greater
financial resources than those of the Company. In some instances, the Company
also competes with large retail chains who contract manufacture their own
merchandise and who may place their own label thereon. However, the Company
believes that it has competed and can continue to do so effectively with such
organizations because of the overall fragmented nature of the industry as well
as the Company's creative product development capabilities and existing
long-term relationships with its customers.
Insurance
The Company maintains blanket product liability insurance in the amount of
up to $1,000,000 per occurrence, $2,000,000 in the aggregate for any year and,
in addition, it maintains a $2,000,000 general umbrella protection policy
regarding all of its products. The Company also maintains general premises
liability insurance for each of the properties leased by it directly. In
addition, the Company maintains some credit risk insurance for certain of its
accounts receivable. In order to obtain additional credit risk insurance to
adequately protect the Company against most or all of its accounts receivable,
the Company would be required to pay premiums which would be commercially
unreasonable to the Company. While the Company otherwise believes its insurance
policies to be sufficient in amount of coverage for its current operations,
there can be no assurance that coverage will continue to be available in
adequate amounts or at reasonable cost, and there can be no assurance that the
insurance proceeds, if any, will adequately cover the full extent of loss
resulting from any claims.
Employees
The Company currently employs 24 individuals, of which 20 are full-time
employees and 4 are part-time employees. Of these persons, 6 are in executive
management, 8 have administrative responsibilities, 4 are salespersons and 6 are
in product development. In addition, and during the peak periods when packing
and shipping requirements are inordinately heavy, the Company hires part-time
workers to meet the required demands of such periods.
The Company is not a party to any collective bargaining agreement and the
Company's employees are not represented by any labor union. The Company
considers its relationship with its employees to be excellent.
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Government Regulation
In some instances, the Company's products are subject to federal and state
labeling requirements regarding child safety and, in some instances, the
Company's egg dye products (which are non-toxic) are registered with the state
authorities. In addition, and although not required, certain of the Company's
products which contain an electrical component are approved by Underwriters
Laboratories Inc. and/or the Canadian Standards Association. The effect, if at
all, of government regulations which may result from any legislative or
administrative action in the future cannot be accurately predicted.
Environmental Protection Compliance
The Company believes that it currently is in compliance with all federal
and state environmental regulations pertaining to its product components. For
example, the Company makes no use of lead-based paints and does not make any use
of non-food grade dyes in connection with its products. The Company has no
knowledge of any federal, state or local environmental regulations which affect
its business activities with which it is not in compliance. The Company has not
expended any capital to comply with environmental protection statutes and does
not anticipate that such expenditures will be necessary.
Legal Proceedings
In April 1995, the Company was sued in an action styled Richard Salem,
Trustee for Janet Labor, and Arthur Thomas d/b/a Jan-Art Packaging v. Sun Hill
Industries, Inc., which is currently pending in Connecticut Superior Court (the
"Connecticut Action"). The Connecticut Action was brought to enforce an amended
default judgment obtained against the Company on February 23, 1993 in the
Superior Court for the Commonwealth of Massachusetts in the sum of $166,000.00
with interest thereon from November 13, 1989 in the sum of $29,381.93, and the
costs of the action (the "Massachusetts Action"). In its complaint in the
Massachusetts Action, plaintiffs had alleged that the Company's purported
refusal to provide work to the plaintiffs constituted a breach of contract for
their packaging services. At present, discovery is continuing and the Company is
currently unable to assess the outcome of the matter. However, the Company is
vigorously defending the action and believes it has meritorious defenses.
Currently, the Company has been advised that its counsel is considering a motion
for summary judgment in the Connecticut Action on the grounds that the
Massachusetts court lacked jurisdiction over the Company when it rendered its
judgment. Prior to the engagement of its current counsel in such action, the
Company was represented by another attorney. In a separate action against such
attorney, the Company is seeking to recoup losses sustained by the Company, if
any, arising out of his previous representation of the Company in this matter.
The Connecticut Action has been set for trial on July 27, 1997.
On August 14, 1996, the Company commenced an action in the United States
District Court for the Eastern District of New York against two companies
located in New York, Easter Unlimited, Inc. ("EUI"), C.R. Seasons, Ltd. ("CRS")
and two Hong Kong based companies, JETMAX LIMITED ("JETMAX"), and Sun Wing
Plastic Manufacturing, Ltd. ("Sun Wing"), as defendants for trademark and trade
dress infringement in violation of the Lanham Act, 15 U.S.C. Sections 1116 and
1125 and for unfair competition under New York's General Business Law and
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its common law. The basis of the action was the manufacture and distribution by
defendants of certain halloween decorations, which were copies of, or
confusingly similar to, the Company's products, and which used the Company's
name, trademark, and trade dress. The Company sought unspecified damages, and
its costs and fees, and preliminary and permanent injunctive relief barring
defendants from continuing to manufacture, distribute or sell the pirated
Halloween decorations and requiring defendants to turn over any such products to
the United States Marshall for the Eastern District of New York for destruction.
On August 14, 1996, the court issued an ex parte temporary restraining order
barring the continued manufacture, distribution and sale of certain specified
pirated products and the use of the Company's name and trade dress by defendants
and ordering the seizure of all such products in defendant EUI's or CRS's
possession which bore the Company's name. A hearing was set on the Company's
motion for a preliminary injunction for August 29, 1996. All defendants were
then duly served with the summons, complaint, order to show cause and supporting
papers.
Prior to the hearing scheduled for August 29, 1996, defendant EUI and the
Company entered into a stipulation settling the action against EUI, whereby EUI
represented that it had never manufactured or sold any pirated Company products
and that it would not manufacture or sell any such pirated products in the
future. The action was discontinued without costs to either party and without
prejudice to the Company's right to renew its action should EUI's
representations prove false and without prejudice to EUI's right to contest any
of the Company's claims. The stipulation settling the action as against EUI was
so ordered by the court on August 29, 1996. Defendants CRS and JETMAX had
appeared and at their counsel's request, the hearing on the Company's motion was
then adjourned to September 20, 1996. The failure of defendant Sun Wing to
appear or answer was noted, but the question of Sun Wing's default was reserved
for the adjourned hearing.
Prior to the adjourned hearing, the Company and defendants CRS and JETMAX
entered into a stipulation with the Company settling the action as against CRS
and JETMAX. Pursuant to the stipulation, CRS represented that it had never
manufactured, distributed, or sold any pirated products and CRS agreed to
promptly destroy any pirated Halloween products in its possession and to give
proof of same to the Company. CRS and JETMAX also agreed to provide documents
concerning any receipt of such products by CRS or any sales of such products in
the United States by JETMAX in 1995 and 1996 and to refrain from any such sales
in the future. The parties agreed that the stipulation was without prejudice to
renewal of the Company's action if the defendants' representations were false or
they breached the agreement and that the court would retain jurisdiction to
enforce the stipulation against CRS and JETMAX, which consented to personal
jurisdiction in the Eastern District of New York. The stipulation provided for
the action to be discontinued as against CRS and JETMAX without costs and the
stipulation was so ordered by the court on Setpember 20, 1996.
Despite having been served with the summons, complaint, order to show
cause and other papers in this action, and despite written notice of its default
and of the rescheduling of the hearing on the Company's motion, defendant Sun
Wing never appeared, answered or otherwise responded to this action. On
September 20, 1996, the court granted the Company's oral motion for a default
judgment against defendant Sun Wing as to liability. The court scheduled an
inquest into the Company's damages for November 25, 1996. The court also granted
the Company's application for the discharge of its previously filed undertaking
and the return of the
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$25,000.00 cash deposit the Company had posted as security for the temporary
restraining order the court had issued.
The Company has not yet determined the extent to which it has suffered
damages as a result of Sun Wing's actions. Such a determination may prove to be
difficult in view of the location of Sun Wing and its failure to appear before
the court. At minimum, the Company presently intends to obtain a judgment
against Sun Wing for permanent injunctive relief and for the Company's costs,
including its reasonable attorney's fees.
Facilities
Warehouse Facility. The Company leases on a "net-lease" basis
approximately 120,000 square feet of rentable warehouse space at 804
Corporations Park, Scotia, New York 12303. Pursuant to the terms of the "net
lease," the Company is responsible for the payment of allocable real property
taxes, ground maintenance, insurance and utilities. The lease is for an initial
term of five (5) years commencing on April 1, 1994 and expiring on March 31,
1999, subject to renewal for an additional five (5) year term on at least six
months advance notice. The monthly rent varies and is currently approximately
$13,000 per month (inclusive of the expenses) and, upon its renewal, is subject
to adjustment based on the Consumer Price Index for "All Urban Consumers NY - NJ
- - CT" as published by the U.S. Department of Labor.
Executive Offices, Administration and Product Development Facility. The
Company, pursuant to 3 separate lease agreements with Mr. Benson Zinbarg, the
Company's President, Chief Executive Officer and Chief Financial Officer, leases
an aggregate of approximately 10,000 square feet of rentable space at 48 Union
Street, Stamford, Connecticut 06906 for its principal executive offices,
administration and product development facilities. See "Certain Transactions."
The leases are for a term of 5 years, each commencing on September 1, 1996 and
expiring on December 31, 2001 and provide for a cumulative annual rent of
approximately $136,000 payable in monthly installments.
Toy Fair Showroom Facility. For purposes of the Company's participation in
the annual Toy Fair Convention in New York City, the Company leases showroom
space comprised of approximately 1,000 square feet of space at The Toy Center,
located at 200 Fifth Avenue, New York, New York. The term of the lease is for a
10 year initial period with an annual rent of approximately $27,000 for the
first year (expiring November 30, 1996) and approximately $24,000 for each year
thereafter.
Hong Kong Showroom Facility. As part of its arrangement with its Asian
supplier, the Company is entitled to use up to 1,000 square feet of showroom
space in its Asian supplier's showroom for the purposes of promoting its
products. The use of such space coincides with the term of its agreement with
the Asian supplier which is for an initial term expiring on December 31, 1999,
is on a "rent-free" basis and subject to automatic renewal unless the Company
provides notice to the contrary at least thirty (30) days prior to the
termination of the initial term or any renewal term.
The Company considers its current facilities adequate for its operations.
In the event that any of such leases are terminated or not otherwise renewed,
management believes that the
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Company would be able to lease adequate space elsewhere upon terms comparable to
or as favorable as those set forth in the current leases.
The Company does not intend to invest in real estate or interests in real
estate, real estate mortgages, or securities of or interests in persons
primarily engaged in real estate activities for the foreseeable future.
DIVIDEND POLICY
The Company has not, to date, paid and does not anticipate paying any
dividends on its Common Stock in the foreseeable future. The Company currently
intends to retain all working capital and earnings, if any, for use in the
Company's business operations and in the expansion of its business. See
"Description of Securities - Common Stock."
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position with the Company
---- --- -------------------------
Benson Zinbarg........... 59 Chief Executive Officer,
President, Chief Financial
Officer and Director
Saul Feit................ 57 Vice President - Sales
Anita Dembiczak.......... 61 Vice President - Operations,
Secretary
Nancy Mimoun............. 36 Vice President - Creative
Development, Assistant
Secretary, Treasurer
Robert A. Breakstone..... 58 Director
Ernest D. Fanwick........ 70 Director
Bernard Spear............ 58 Director
Benson Zinbarg founded the Company in 1974 and has, prior to September
1996, been its sole director. Mr. Zinbarg has continuously served as its
President, Chief Executive Officer and Chief Financial Officer since inception.
Mr. Zinbarg received a B.S. in Chemical Engineering from Columbia University in
1959 and a Masters degree in Industrial Management
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in 1963 from The New York Institute of Technology. Mr. Zinbarg is considered an
expert in the field of plastics engineering.
Saul Feit has been affiliated with the Company since 1989 and has been,
during the past five (5) years been Vice President of Sales for the Company.
Bernard Spear has been an advisor to the Company since 1991 and became a
member of the Company's Board of Directors in October 1996. Mr. Spear has been
affiliated with Kirschner & Pasternack, a firm of certified public accountants
since 1992. Also, since July 1, 1992, Mr. Spear has been a member of each of the
Board of Directors and Investment Committee of The Roosevelt Financial Group
Inc., a registered investment advisory firm, and since July 1, 1992, a member of
the Board of Directors of P.R. Services, Ltd., a record keeping firm for client
portfolios. Since July 1, 1993, Mr. Spear has also been a member of the Board of
Advisors to Earl Graves, Ltd., whose major businesses include publishing,
soft-drink distribution and special event promotion. From 1970 through 1981, Mr.
Spear was a partner in Reminick, Aarons & Company, a firm of certified public
accountants. Mr. Spear received a Bachelors of Science degree in accounting from
Brooklyn College in 1963.
Ernest D. Fanwick has been an advisor to the Company since 1986 and became
a member of the Company's Board of Directors in October 1996. From 1983 to 1989,
Mr. Fanwick served as Vice President, Secretary and General Counsel to Burndy
Corporation, a New York Stock Exchange listed company. Since April 1989, Mr.
Fanwick has been retired. Mr. Fanwick received a Bachelors of Science degree in
Electrical Engineering from Pennsylvania State University in 1948 and a J.D.
Degree in 1951 from Columbia University School of Law.
Robert A. Breakstone has been an advisor to the Company since 1995 and
became a member of the Company's Board of Directors in October 1996. From 1989
through 1995, Mr. Breakstone served as the Executive Vice President and Chief
Operating Officer of GTECH Holdings Corporation ("GTECH"), a New York Stock
Exchange listed company, and a provider of on-line, high speed, high security
transaction processing systems to governments worldwide. Subsequent to his
retirement from GTECH, Mr. Breakstone became the president of Landmark
International Group, a privately held provider of business development,
consulting and financial services. Prior to 1989, Mr. Breakstone has held the
following positions with the following companies: (i) From 1985 to 1989
President and Chief Executive Officer of Healthtex, Inc., a manufacturer and
distributor of branded childrens' wear; (ii) From 1974 to 1985, a Group Vice
President and director of Chesebrough Ponds Inc., a consumer products
organization, and (iii) From 1970 to 1974, a Vice President and Group Executive
with Chase Manhattan Bank, N.A. Mr. Breakstone holds a B.S. in Mathematics and
an M.B.A. in Finance from the City College of New York.
Anita Dembiczak has been employed full time by the Company since 1978 and
became Vice President of Operations and Secretary in 1990.
Nancy Mimoun has, except for a 3-year leave of absence, been continuously
employed by the Company in various capacities since 1975 and became Treasurer in
1994. In October 1996, Ms. Mimoun became Vice President, Creative Development
and an Assistant Secretary for the Company. Ms. Mimoun received a Bachelor of
General Studies degree from the University
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of Connecticut in 1993. Ms. Mimoun is the daughter of Mr. Benson Zinbarg, the
Company's President, Chief Executive Officer and Chief Financial Officer.
All officers of the Company are elected to serve in such capacities until
the next annual meeting of the Board of Directors of the Company and until their
successors are duly elected and qualified.
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers
provided that this provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) arising
under Section 174 of the Delaware General Corporation law; or (iv) for any
transaction from which the director derived an improper personal benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under a corporation's
bylaws, any agreement, vote of shareholders or otherwise.
The Company's certificate of incorporation eliminates the personal
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. See "Executive
Compensation - Remuneration of Directors."
Employment Agreements
The Company has entered into an employment agreement with Mr. Benson
Zinbarg. See "Executive Compensation - Employment Agreement" for a more detailed
description of the employment agreement. Pursuant to the provisions of this
employment agreement, in the event that Mr. Zinbarg is not re-elected to serve
as a member of the Board of Directors, he may terminate his employment with the
Company and will, in such event, be entitled to receive his base salary as set
forth in such employment agreement for the remainder of the term thereof as
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would otherwise be in effect had he not exercised his right to terminate his
employment. See "Executive Compensation - Employment Agreements."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during each of the Company's last three fiscal
years by all individuals who served as the Company's Chief Executive Officer
during the last fiscal year and the Company's most highly compensated executive
officers who served as such during the last fiscal year and were compensated at
or greater than $100,000 per annum.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
------------------------------------------ -------------------- -------- (All
Other Annual Restricted Other
Name and Compensation Stock Options/ LTIP Compen-
Principal Year Salary($) Bonus ($) Awards($) SARs Payouts sation ($)
Position ---- --------- ----- ------------ ---------- -------- ------- ----------
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Benson
Zinbarg...... '95 $135,000 $200,000 ------ ------ ------ ------ ------
Preisdent '94 $135,000 $ 50,000 ------ ------ ------ ------ ------
Chief '93 $135,000 $ 41,500 ----- ----- ------ ------ ------
Executive
Officer
Chief
Financial
Officer
Saul Feit '95 $94,000 ------- ------ ------ ------ ------ -----
V.P. - Sales '94 $94,000 $ 8,000 ------ ------ ------ ------ -----
'93 $94,000 $ 20,000 ------ ------ ------ ------ -----
</TABLE>
55
<PAGE>
Employment Agreement
In November 1996, the Company entered into an employment agreement with
Mr. Benson Zinbarg, a stockholder and director of the Company (the "Zinbarg
Employment Agreement') for Mr. Zinbarg to act as the Company's President, Chief
Executive Officer and Chief Financial Officer for a term of five (5) years
commencing as of January 1, 1997 and expiring on December 31, 2001. The Zinbarg
Employment Agreement provides for a base salary of $125,000 per annum and also
provides for annual incentive bonus compensation. The annual incentive bonus
compensation payable to Mr. Zinbarg shall be equal to five percent (5%) of
pre-tax income in excess of $500,000. Further, the Zinbarg Employment Agreement
provides that Mr. Zinbarg may participate in the Company's 1996 Employee -
Consultant Stock Option Plan. See "Executive Compensation - Stock Option Plans"
below. Pursuant to the terms of the Zinbarg Employment Agreement, Mr. Zinbarg is
to receive the employment benefits afforded other employees of the Company
including health, disability, life and dental insurance coverage and is entitled
to utilize a Company automobile.
The Zinbarg Employment Agreement provides that his employment shall
terminate upon his death or permanent disability and permits the Company to
terminate his employment for "cause." Under the Zinbarg Employment Agreement,
"cause" is defined to include (i) gross negligence or willful misconduct
materially injurious to the Company; (ii) the conviction of Mr. Zinbarg of a
felony; (iii) the incarceration of Mr. Zinbarg following any conviction which
would restrict his ability to perform under his agreement and (iv) a material
breach of the Zinbarg Employment Agreement which remains uncured after notice
thereof. Further, in the event that Mr. Zinbarg is not nominated or re-elected
to serve as a member of the Company's Board of Directors, he may terminate his
employment with the Company and will, in such event, be entitled to continue to
receive his base salary as set forth in the Zinbarg Employment Agreement for the
remainder of the term thereof as would otherwise be in effect had he not
exercised his right to terminate his employment. The Zinbarg Employment
Agreement also contains certain confidentiality and non-competition provisions
which are operative during its term and for a period of time after termination
thereof.
Remuneration of Directors
Employee directors receive no compensation for acting as directors or
attending meetings of directors. Non-employee (or "outside") directors will
receive $1,000 per meeting for each meeting which each such director attends and
options to purchase 5,000 shares of Common Stock each year pursuant to a formula
in the Company's 1996 Outside Director Stock Option Plan (as hereinafter
defined), one-half of which vest and are immediately exercisable upon the grant
and the balance vesting one (1) year thereafter. All directors are entitled to
reimbursement of reasonable travel and lodging expenses related to attending
meetings of directors.
Messrs. Spear, Breakstone and Fanwick who are the Company's current
outside directors, previously received, as members of the Board of Advisors of
Sun Hill - Connecticut, $500 per quarter for advising the Company on business
and related issues.
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<PAGE>
Employee Benefit Plans
The Company provides all full-time permanent employees, including
executive officers, with group life, medical, and disability insurance on a
non-discriminatory basis. The Company also maintains an Employee Profit Sharing
Plan (the "Employee Profit Sharing Plan") which is designated as a "Top Heavy"
plan under the Internal Revenue Code of 1986, as amended. In order to become
eligible for the Company's Employee Profit Sharing Plan, an employee must have
served the Company for at least 1 year and, thereafter, the employees interest
becomes vested 20% per year for a period of five years, after which time the
employee is fully vested. The Company's contributions to the Plan are
discretionary and, historically, have never been greater than 15% of each
employees salary. During the fiscal years 1993, 1994 and 1995, the Company made
no contributions to the Profit Sharing Plan.
Stock Option Plans
In November 1996, the Board of Directors adopted and the Company's
stockholders approved the 1996 Employee - Consultant Stock Option Plan (the
"1996 Employee - Consultant Stock Option Plan") and the 1996 Non-Employee
Director Stock Option Plan (the "1996 Non-Employee Director Option Plan";
collectively, the 1996 Employee - Consultant Stock Option Plan and the 1996
Non-Employee Director Option Plan are hereinafter referred to as the "Stock
Option Plans").
The 1996 Employee - Consultant Stock Option Plan provides for the grant of
options which qualify as incentive stock options ("Incentive Options") under the
Internal Revenue Code of 1986, as amended, to be issued to officers and
employees, as well as options which do not so qualify ("Non-Qualified Options")
to be issued to the Company's officers, employees and consultants. The 1996
Employee - Consulant Stock Option Plan provides for the grant of options with
respect to, in the aggregate, up to 950,000 shares of Common Stock (which number
is subject to adjustment in the event of the Company's declaration of stock
dividends, stock splits, reclassifications and the occurrence of other similar
events). The Company has reserved 950,000 shares of Common Stock for issuance
under the 1996 Employee - Consultant Stock Option Plan. On November , 1996, and
pursuant to the 1996 Employee and Consultant Stock Option Plan, Mr. Benson
Zinbarg, the Company's President, Chief Executive Officer and Chief Financial
Officer was granted an aggregate of 750,000 options which, to the extent
permitted by law, are to be Incentive Options exercisable at $4.40 per share and
the balance, to be Non-Qualified Options exercisable at $4.00 per share, all of
which are exercisable as follows: (i) 250,000 options if the Company realizes
pre-tax income of at least $1,000,000 in any fiscal year, (ii) 250,000 options
if the Company realizes pre-tax income of at least $2,000,000 in any fiscal
year, and (iii) 250,000 options if the Company realizes at least $3,000,000 in
any fiscal year. In the case of the Incentive Stock Options awarded to Mr.
Zinbarg, they are for a term of five years and in the case of Non-Qualified
Options, they are for a term of ten years.
Non-employee directors of the Company may participate in the 1996
Non-Employee Director Option Plan pursuant to which they may only be granted
Non-Qualified Options on a non-discretionary basis pursuant to a formula set
forth therein. Pursuant to such formula, each non-employee director elected to
office shall receive a ten-year Non-Qualified Option to purchase 5,000 shares of
Common Stock at an exercise price equal to the "fair market value" (as
57
<PAGE>
such term is defined in the Stock Option Plan) of the Common Stock on the date
of grant thereof. One-half of such options vest immediately and the balance vest
one year thereafter. The 1996 Non-Employee Director Option Plan provides for the
grant of options with respect to, in the aggregate, up to 100,000 shares of
Common Stock (which number is subject to adjustment in the event of the
Company's declaration of stock dividends, stock splits, reclassifications and
the occurrence of other similar events). The Company has reserved 100,000 shares
of Common Stock for issuance under the 1996 Non-Employee Director Option Plan.
As a consequence of the adoption of the 1996 Non-Employee Director Option
Plan on November __________, 1996 and, pursuant to the terms thereof, Messrs.
Breakstone, Fanwick and Spear were each awarded 5,000 Non-Qualified Options
exercisable at $4.00 per share, 2,500 of which options vested immediately and
the balance of which will vest on the one-year anniversary of the award date.
Pursuant to their terms, the Stock Option Plans are to be administered by
a committee established by the Board of Directors comprised of at least two (2)
non-employee directors (the "Compensation and Stock Option Committee"). The
Compensation and Stock Option Committee, in the case of the Employee -
Consultant Stock Option Plan, determines the persons to whom options are
granted, the number of shares of stock subject to an option, the period during
which options may be exercised and the exercise price thereof. The Stock Option
Plans place restrictions on the grant of options to persons who are, at the time
of grant, members of the Stock Option Committee and, if no such committee is
established, on the grant of options to directors.
CERTAIN TRANSACTIONS
Since the Company's inception, and from time to time on an as needed
basis, Mr. Zinbarg has been lending money to the Company to enable it to sustain
its operations. These loans have ranged up to $954,000 for any fiscal year and
have borne interest at the then prevailing market rates. Traditionally, the
Company has repaid these loans to Mr. Zinbarg close to the conclusion of each
fiscal year together with accrued and unpaid interest thereon. For the fiscal
years ended December 31, 1994 and December 31, 1995, Mr. Zinbarg loaned the
Company the aggregate principal amounts of $470,000 and $954,000, respectively,
at the interest rate of 9.5% per annum. These respective loans have been repaid
to Mr. Zinbarg at the conclusion of each of 1994 and 1995 and the interest
payments thereunder amounted to $36,112 and $67,658, respectively. From January
1, 1996 through the date hereof, Mr. Zinbarg has loaned the aggregate principal
amount of $954,000 to the Company. Of this principal amount, $500,000 has been
repaid and $450,000 is currently due and owing as of the date of this
Prospectus. Approximately $56,700 in interest has accrued and remains unpaid
with respect to the loans Mr. Zinbarg has made during 1996. It is the Company's
intention to repay the principal amounts under such loans together with accrued
and unpaid interest thereon to Mr. Zinbarg prior to the completion of the
Offering.
Since the Company's inception, and from time to time, several patents
relating to some of the Company's products which have issued have previously
been registered in the name of Mr.
58
<PAGE>
Zinbarg. The Company has had the benefit of the use of all of such patents on a
royalty-free basis. On November 1, 1996, and for no additional consideration,
and as part of Mr. Zinbarg's employment agreement with the Company, Mr. Zinbarg
agreed to assign to the Company all of his rights to his inventions relating to
the Company's products as well as the patents which have issued and are
registered in his name and all of his interests in and to any patent
applications pending with respect to the Company's products.
The Company, as a prime tenant, leases from Mr. Zinbarg three units in an
industrial condominium building where the Company's principal executive offices
and research and development facilities are located. Pursuant to 3 separate
5-year lease agreements all dated September 19, 1996, Mr. Zinbarg leases the
Company an aggregate of approximately 10,000 square feet of rentable space at 48
Union Street, Stamford, Connecticut for a cumulative annual rent of
approximately $136,000 payable to Mr. Zinbarg in monthly installments.
In connection with the Company's credit facility with First Union, Mr.
Zinbarg has (i) supplied First Union with his personal guarantee of repayment of
the Company's indebtedness thereunder together with interest and penalties
thereon and (ii) supplied First Union with mortgages on the condominium units he
owns in the industrial building where the Company's principal executive offices
are located as additional collateral.
On January 29, 1993, Ms. Anita Dembiczak, the Company's Secretary, loaned
$90,000 in principal amount to the Company at the rate of .75% above the
applicable prime rate at the time. This loan is repayable on demand. While the
loan is outstanding, interest accrues and is compounded to principal monthly.
During the years ended December 31, 1993, 1994 and 1995, respectively, the
following interest amounts accrued under the loan to Ms. Dembiczak - $6,504,
$7,350, and $10,481. From January 1, 1996 through October 31, 1996, the amount
of $9,563 in interest has accrued under this loan. Accordingly, since inception
and through October 31, 1996, the Company owes $90,000 in principal and
approximately $34,000.00 in interest to Ms. Dembiczak. It is the Company's
intention to repay these amounts owing to Ms. Dembiczak prior to the completion
of the Offering.
After discussions with First Union in October 1996, with whom the Company
has an existing credit facility, the Company has agreed to cause its officers to
execute and deliver an agreement to subordinate any officer loans to First
Union, and expressly permitting repayment of such loans.
PRINCIPAL SECURITYHOLDERS
The following table sets forth, as of the date hereof, certain information
with respect to stock ownership of: (i) all persons known by the Company to be
beneficial owners of 5% or more of its outstanding Common Stock, (ii) each of
the Company's executive officers and directors, and (iii) all directors and
executive officers as a group (seven persons). Unless otherwise indicated, the
beneficial owners have sole voting and investment power over the shares of
Common Stock listed below.
59
<PAGE>
<TABLE>
<CAPTION>
% of Outstanding
Shares of
Common Stock
Beneficially Owned (1)
----------------------
Number of Shares
Beneficially Owned Prior to After
Name and Address of Beneficial Owner Prior to Offering Offering Offering
- ------------------------------------ ----------------- -------- --------
<S> <C> <C> <C>
Mr. Benson Zinbarg(2)
48 Union Street
Stamford, CT 06906 ............. 1,012,500 74.2% 21.7%(4)
The Kookeroonie Trust
c/o Joan Zinbarg
320 Chestnut Hill Road
Stamford, CT 06906(3) .......... 337,500 24.8% 10.1%(5)
Mr. Robert A. Breakstone
c/o Landmark International Group
4 Landmark Square, Suite 300
Stamford, CT 06906 ............. 2,500 * *
Mr. Ernest D. Fanwick
1403 Newfield Avenue
Stamford, Connecticut 06905 .... 2,500 * *
Mr. Bernard Spear
c/o P.R. Services, Ltd.
63 Wall Street
New York, New York(6) .......... 2,500 * *
All Executive Officers& Directors
as a Group (7 persons) ........ 1,357,500(6) 100% 31.7%
----------- --- ----
</TABLE>
- ----------
* Less than one percent (1%)
(1) Unless otherwise noted, all of such shares are owned of record by each
individual named as beneficial owner and such individual has sole voting
power and dispositive power with respect to the shares of Common Stock
owned by each of them. Such person's percentage ownership is determined by
assuming that the options or convertible securities held by such person
are exercisable within 60 days from the date hereof have been exercised or
converted, as the case may be. Does not give effect to the exercise of:
(a) the Underwriter's Purchase Option; (b) the Over-Allotment Option; or
(c) the Class A Warrants.
(2) A director and officer of the Company.
(3) The Kookeroonie Trust (the "Trust") was established on December 30, 1993
by Mr. Benson Zinbarg, as grantor, for the benefit of Mr. Zinbarg's two
daughters - Ms. Nancy Mimoun, a Vice President, Assistant Secretary and
Treasurer of the Company, and Ms. Joyce Zinbarg. Both of Mr. Zinbarg's
daughters are over the age of 18 and do not reside with Mr. Zinbarg.
Pursuant to the terms of the Trust, Ms. Joan Zinbarg, Mr. Zinbarg's wife,
is named as the trustee of the Trust and, in addition, Mr. Bernard Spear,
a director of
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<PAGE>
the Company, is named as the Trustee of any trust established under the
Trust. The Trust, by its express terms, proscribes the voting by Mr.
Zinbarg (if he were to become a trustee) or his spouse of any shares of
any "controlled corporation" within the meaning of Section 2036(b) of the
Internal Revenue Code. The Trust further proscribes Mr. Zinbarg and his
spouse from participating in any decision regarding the discretionary
accumulation, payment or allocation of principal or income to or for any
beneficiary of the Trust. These two express proscriptions preclude the
ability of Mr. or Mrs. Zinbarg in any way to vote or dispose of any shares
of Common Stock of the Company held by and in the name of the Trust. In
such an event, the power to vote or dispose of such shares would be in the
discretion of Mr. Spear, as the other named trustee. Mr. Spear has no
arrangement with Mr. Zinbarg or his spouse regarding the voting of or
disposition of any shares of Common Stock held by the Trust and disclaims
any beneficial ownership interest therein. However, Mr. Zinbarg does under
the express provisions of the Trust, and in certain circumstances, have
the right to reacquire the Trust's principal at any time (including any
shares of the Company's Common Stock held by the Trust) by subsituting
therefor property having an equivalent value at the time of such
reacquisition. Both Mr. Zinbarg and his spouse herein expressly disclaim
any beneficial ownership interest in the Trust.
(4) Includes 500,000 shares of Common Stock included in the Registration
Statement of which this Prospectus forms a part and assumes the sale
thereof upon effectiveness of such Registration Statement.
(5) Includes 100,000 shares of Common Stock included in the Registration
Statement of which this Prospectus forms a part and assumes the sale
thereof upon effectiveness of such Registration Statement.
(6) Includes all shares held in the Trust established partially for the
benefit of Ms. Mimoun, an officer and director, as well as options for an
aggregate of 7,500 shares granted to the Company's three (3) non-employee
directors upon the adoption of the Company's 1996 Non-Employee Director
Option Plan. See "Stock Option Plans."
As of the date of this Prospectus, except as otherwise set forth herein,
there are no agreements or other arrangements or understandings known to the
Company concerning the voting of the Common Stock of the Company or otherwise
concerning control of the Company. There are no preemptive rights applicable to
any of the Company's securities. See "Description of Securities."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
All of the 1,350,000 shares of Common Stock outstanding prior to the
Company's public offering are "restricted securities" as that term is defined
under the Securities Act and in the future may only be sold in compliance with
Rule 144 promulgated under the Securities Act or pursuant to an effective
registration statement. Rule 144 provides, in essence, that a person (including
a group of persons whose shares are aggregated) who has satisfied a two-year
holding period for such restricted securities may sell within any three-month
period, under certain circumstances, an amount of restricted securities which
does not exceed the greater of 1% of that class of the Company's outstanding
securities or the average weekly trading volume of that class of securities
during the four calendar weeks prior to such sale. In addition, pursuant to Rule
144, persons who are not affiliated with the Company and who have held their
restricted securities for at least three years are not subject to the quantity
limitations or manner of sale restrictions of the rule. As of the date hereof,
no shares of Common Stock are available for resale pursuant to Rule 144.
However, 600,000 shares of the 1,350,000 shares of the Company's issued and
outstanding Common Stock have been included in the Registration Statement of
which this Prospectus forms a part. Of these shares, 100,000 shares are being
purchased by the Underwriter from the Initial Selling Securityholder on a "firm
commitment" basis and 500,000 shares are being offered by the Subsequent Selling
Securityholder under an Alternate Prospectus. Pursuant to an agreement with the
Underwriter, the officers, directors and holders of 5% or more of the Company's
equity securities are restricted from selling their respective securities for a
period of eighteen (18) months from the Effective Date, absent waiver of such
restriction by the Underwriter. See "Underwriting." The Company expects that the
Underwriter will waive such restriction during the three months following the
Effective Date to the extent necessary to allow the 500,000 shares of the
Subsequent Selling Securityholder to be sold. A sale of shares by the Company's
current stockholders, whether pursuant to Rule 144 or otherwise, may have a
depressing effect upon the market price of the Common Stock in any market for
the Company's securities that may develop. To the extent that these shares enter
the market, the value of the Common Stock in the over-the-counter market may be
reduced. See "Risk Factors," "Principal Securityholders" and "Description of
Securities."
In April 1990, the Commission adopted Rule 144A, which permits unlimited
resales of restricted securities of any issuer provided that the purchaser is a
Qualified Institutional Buyer (as that term is defined therein) that at the end
of its most recent fiscal year has assets invested in securities that were
purchased for a total of more than $100 million. Rule 144A allows holders of
restricted shares of the Company to sell their shares of Common Stock to such
institutions without regard to any volume or other restrictions.
In the event that shares of Common Stock which are not currently saleable
become saleable by means of registration, eligibility for sale under Rule 144 or
otherwise and the holders of such shares of Common Stock elect to sell such
shares of Common Stock in the public market, there is likely to be a negative
effect on the market price of the Company's securities and on the ability of the
Company to obtain additional equity financing. No predictions can be made as to
the effect, if any, that sales of the Shares and the Class A Warrants or the
availability of the Common Stock and the Class A Warrants for sale will have on
the market price of such securities prevailing from time to time. Nevertheless,
the foregoing could adversely affect
62
<PAGE>
prevailing market prices. See "Risk Factors," "Principal Securityholders,"
"Certain Transactions" and "Description of Securities."
Prior to the Company's public offering, there has been no public market
for any of the securities of the Company. Sales of substantial amounts of shares
of Common Stock, pursuant to Rule 144, Rule 144A or otherwise, could adversely
affect the market price of the Common Stock, and/or the Class A Warrants, and
may make it more difficult for the Company to sell equity securities in the
future at a time and price that it deems appropriate. See "Risk Factors - Future
Sales of Common Stock by the Company's Stockholders."
DESCRIPTION OF SECURITIES
Common Stock
The Company is currently authorized to issue 25,000,000 shares of Common
Stock, having a par value of $.001 per share. As of the date hereof, there are
1,350,000 shares of Common Stock issued and outstanding and there are two
holders of record of Common Stock. Each share of Common Stock entitles the
holder thereof to one vote on each matter submitted to the stockholders of the
Company for a vote thereon. The holders of Common Stock: (i) have equal ratable
rights to dividends from funds legally available therefor when, as and if
declared by the Board of Directors; (ii) are entitled to share ratably in all of
the assets of the Company available for distribution to holders of Common Stock
upon liquidation, dissolution or winding up of the affairs of the Company; (iii)
do not have preemptive, subscription or conversion rights, or redemption or
sinking fund provisions applicable thereto; and (iv) as noted above, are
entitled to one non-cumulative vote per share on all matters submitted to
stockholders for a vote at any meeting of stockholders. The Company has not paid
any dividends on its Common Stock to date. The Company anticipates that, for the
foreseeable future, it will retain earnings, if any, to finance the continuing
operations of its business. The payment of dividends will depend upon, among
other things, capital requirements and operating and financial conditions of the
Company.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 5,000,000 shares of Preferred Stock, $.001 par value per share. None of
such Preferred Stock has been designated or issued. The Board of Directors is
authorized to issue shares of Preferred Stock from time to time in one or more
series and, subject to the limitations contained in the Certificate of
Incorporation and any limitations prescribed by law, to establish and designate
any such series and to fix the number of shares and the relative conversion
rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights. If
the Board of Directors authorizes the issuance of shares of Preferred Stock with
conversion rights, the number of shares of Common Stock outstanding could
potentially be increased by up to the authorized amount. Issuance of shares of
Preferred Stock could, under certain circumstances, have the effect of delaying
or preventing a change in control of the Company and may adversely affect the
rights of
63
<PAGE>
holders of Common Stock. Also, the Preferred Stock could have preferences over
the Common Stock (and other series of preferred stock) with respect to dividends
and liquidation rights.
Class A Warrants
Each Class A Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $4.50 per share for a period of four years
commencing one year after the Effective Date of the Registration Statement of
which this Prospectus forms a part. The exercise price and/or the exercise date
of each Class A Warrant is subject to adjustment under certain circumstances
including, without limitation, the following: (i) the Company's issuance of
Common Stock for less than its fair market value; (ii) the Company's issuance of
a dividend in Common Stock; (iii) the subdivision of outstanding shares of
Common Stock; (iv) the recapitalization or reorganization of the Company; (v)
the merger or consolidation of the Company with or into another company; and
(vi) the sale of all or substantially all of the assets of the Company. Each
Class A Warrant is redeemable upon 30 days prior written notice by the Company
at a redemption price of $.01 per warrant at any time after _____ __, 19___,
provided that the closing bid price of the Common Stock, as reported by NASDAQ
(or such other principal exchange on which the Common Stock is then quoted), the
NASD OTC Electronic Bulletin Board or the National Quotation Bureau, Inc., as
the case may be, equals or exceeds $7.00 per share for 20 consecutive trading
days ending within five days prior to the date of the Company's notice of
redemption. Pursuant to the terms of the Class A Warrants, the Company has the
right, upon 30 days prior written notice to all holders of the Class A Warrants
and subject to compliance with Rule 13e-4 under the Exchange Act (including the
filing of Schedule 13E-4), to reduce the exercise price and/or extend the term
of the Class A Warrants.
Prior to the Company's public offering as described herein, there has been
no established trading market for any of the Company's securities. See "Risk
Factors - No Assurance of Public Market or Continued NASDAQ Listing" and "Market
for the Company's Securities and Related Stockholder Matters."
Transfer and Warrant Agent
Continental Stock Transfer & Trust Company, New York, New York is the
Registrar and Transfer Agent for the Common Stock and Warrant Agent for the
Class A Warrants.
Business Combination Provisions
The Company has expressly elected to be subject to Section 203 of the
Delaware General Corporation Law regulating "business combinations" (defined to
include a broad range of transactions) between Delaware corporations and
"interested stockholders" (defined as persons who have acquired at least 15% of
a corporation's stock). Under the law, a corporation subject to Section 203 may
not engage in any business combination with any interested stockholder for a
period of three years from the date such person became an interested stockholder
unless certain conditions are satisfied. Section 203 contains provisions
enabling a corporation to avoid the statute's restrictions.
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<PAGE>
Anti-Takeover Measures
The Company's Certificate of Incorporation and Bylaws contain provisions
that could discourage potential takeover attempts and prevent shareholders from
changing the Company's management. The Certificate of Incorporation provides for
the issuance of up to 5,000,000 shares of Preferred Stock having such rights and
preferences as the Board of Directors shall determine. The Bylaws provide that
certain vacancies on the Board of Directors shall be filled only by a majority
of the remaining directors then in office. See "Management."
In addition, the Company's Bylaws provide that no proposal by a
shareholder shall be presented for vote at a special or annual meeting of
shareholders unless such shareholder shall, not later than the close of business
on the fifth day following the date on which notice of the meeting is first
given to shareholders, provide the Board of Directors or the Secretary of the
Company with written notice of intention to present a proposal for action at the
forthcoming meeting of shareholders, which notice shall include the name and
address of such shareholder, the number of voting securities he or she holds of
record and which he or she holds beneficially, the text of the proposal to be
presented at the meeting and a statement in support of the proposal. Any
shareholder may make any other proposal at an annual meeting or special meeting
of shareholders and the same may be discussed and considered, but unless stated
in writing and filed with the Board of Directors or the Secretary prior to the
date set forth above, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 60 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business proposed by
a shareholder (acting in such capacity) shall be acted upon at such annual
meeting unless stated and filed as described above.
MARKET FOR THE COMPANY'S SECURITIES
AND RELATED STOCKHOLDER MATTERS
Prior to the Company's public offering as described herein, there has been
no public market for the Shares or the Class A Warrants and no assurance may be
given that a regular trading market will develop following completion of the
Company's public offering or that, if any such market does develop, it will be
sustained. In connection with the Company's public offering, the Company has
applied for inclusion of the Shares and the Class A Warrants for quotation on
NASDAQ under the symbols "SUNC" and "SUNW," respectively. No assurance can be
given that, despite the Company's ability to comply with the financial
requirements for listing, approval for the quotation of its securities on NASDAQ
will be given. Even assuming that the Common Stock and the Class A Warrants are
approved for quotation on NASDAQ, there can be no assurance given that the
Company will be able to satisfy the requirements for continued quotation of such
securities on NASDAQ or that such quotation will otherwise continue. See "Risk
Factors - No Assurance of Public Market or Continued NASDAQ Listing." As of the
date hereof, there are two holders of record of the Common Stock.
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<PAGE>
UNDERWRITING
General
Subject to the terms and conditions set forth in the Underwriting
Agreement by and between the Company and the Underwriter (the "Underwriting
Agreement"), the Company has agreed to sell to the Underwriter, on a "firm
commitment" basis, an aggregate of 1,000,000 shares of Common Stock and
2,000,000 Class A Warrants. The Underwriter has also agreed to purchase on a
"firm commitment" basis, an aggregate of 100,000 shares of Common Stock from the
Initial Selling Securityholder.
The Common Stock and Class A Warrants being offered to the public by the
Company are being offered at a price of $4.00 per share and $.25 per warrant,
respectively, as set forth on the cover page of this Prospectus. The shares of
Common Stock and Class A Warrants are offered by the Underwriter subject to: (i)
the Underwriter's receipt and acceptance; (ii) the Underwriter's right to reject
any order in whole or in part ; (iii) approval of certain legal matters by
counsel to the Underwriter; and (iv) to certain other conditions specified in
the Underwriting Agreement.
The Company has agreed to sell the Shares of Common Stock and Class A
Warrants to the Underwriter at a discount of 10% of the public offering price
thereof. The Company has also agreed to pay the Underwriter the Non-Accountable
Expense Allowance (as previously defined) equal to 3% of the aggregate offering
price of the Shares and the Class A Warrants ($25,000 of which was advanced to
the Underwriter). Pursuant to the provisions of the Underwriting Agreement, in
the event that the Company's public offering is terminated for any reason, the
Underwriter shall be reimbursed for all accountable expenses incurred by it. Any
amounts previously paid shall be credited against any amounts due.
The Underwriter has advised the Company that sales to certain dealers may
be made at the public offering price less a concession not in excess of $______
per Share or $______ per Class A Warrant. Upon completion of the Company's
public offering, the public offering price and other selling terms may be
changed by the Underwriter. The Underwriter does not intend to confirm sales of
more than 1% of the Shares and Class A Warrants offered hereby to any accounts
over which it exercises discretionary authority.
Prior to the Company's public offering, there has been no public trading
market for the Shares of Common Stock or the Class A Warrants. The offering
price of the Shares and the exercise price of the Class A Warrants were
determined by the Company and the Underwriter. The major factors considered by
the Company and the Underwriter in determining the public offering price of the
Shares of Common Stock, the Class A Warrants and the exercise price of the Class
A Warrants, in addition to prevailing market conditions, were the Company's
historical performance and growth, management's assessment of the Company's
business potential and earning prospects, the prospects for growth in the
industry in which the Company operates, and the foregoing factors in relation to
market valuations of other similar companies. The public offering price may not
bear any relationship to the Company's assets, book value, net worth or other
criteria of value applicable to the Company.
66
<PAGE>
The Over-Allotment Option
The Company has granted to the Underwriter the Over-Allotment Option which
is exercisable for a period of 30 days following the Effective Date of the
Registration Statement of which this Prospectus forms a part to purchase up to
150,000 shares of Common Stock and 300,000 Class A Warrants (equal to an
aggregate of up to 15% of the number of Shares of Common Stock and Class A
Warrants being offered by the Company to the public) for the purpose of covering
over-allotments. The Over-Allotment Option is exercisable upon the same terms
and conditions as are applicable to the sale of the Shares and the Class A
Warrants.
The Underwriter's Purchase Option
As part of the consideration to the Underwriter for its services in
connection with the public offering described herein, the Company has agreed to
issue to the Underwriter, for nominal consideration, the Underwriter's Purchase
Option to purchase up to 100,000 shares of Common Stock and 200,000 Class A
Warrants (an aggregate of up to 10% of the number of the Shares and Class A
Warrants being offered by the Company to the public). The Underwriter's Purchase
Option will be exercisable commencing one year after the Effective Date and
ending four years thereafter at an exercise price of $4.80 per share of Common
Stock and $.30 per Warrant, respectively (120% of the public offering price,
respectively, of the Common Stock and the Class A Warrants). The Underwriter's
Purchase Option will be restricted from exercise, sale, transfer, assignment or
hypothecation, except to officers of the Underwriter and members of the selling
group and/or their officers or partners, for a period of one year from the
Effective Date and will, thereafter, be exercisable for a period of four years.
The exercise price of the Underwriter's Purchase Option was arbitrarily
determined by the Company and the Underwriter and should not be deemed to
reflect any estimate of the intrinsic value of either the Underwriter's Purchase
Option, the Common Stock, the Class A Warrants and the Common Stock therein
contained. The Underwriter's Purchase Option will also contain certain
anti-dilution and adjustment provisions.
During the period in which the Underwriter's Purchase Option is
exercisable, the holders thereof are given the opportunity to profit from a rise
in the market price of the Common Stock and the Class A Warrants, which may
result in a dilution of the interest of the stockholders. The Company may find
it more difficult to raise additional equity capital if it should be needed for
the business of the Company while the Underwriter's Purchase Option is
outstanding. At any time when the holders thereof might be expected to exercise
such Options and the underlying securities, the Company would probably be able
to obtain additional equity capital on terms more favorable than those provided
by the Underwriter's Purchase Option. Any profit realized on the sale of
securities issuable upon the exercise of the Underwriter's Purchase Option may
be deemed additional underwriting compensation.
Registration Rights
In connection with the underwriting of the Company's public offering, the
Company has granted to the Underwriter certain "piggy back" and "demand"
registration rights. Pursuant to the terms of the Underwriting Agreement, the
Company has granted to the Underwriter, for a
67
<PAGE>
period of seven years commencing one year from the Effective Date, the right to
include for registration, the Underwriter's Purchase Option (including the
underlying securities) in the event that the Company files a registration
statement under the Securities Act relating to the public sale of any of its
securities. Consequently, the "piggy back" registration rights are only
operative if the Company otherwise files a registration statement. In addition,
the Company has agreed, for a period of five years from the Effective Date, to
register under the Securities Act: (i) on one occasion and at its expense, the
Underwriter's Purchase Option (including the underlying securities) upon the
request of the holders of 50% or more of the Underwriter's Purchase Option
(including the underlying securities); and (ii) on one occasion and at the
holder's expense, the Underwriter's Purchase Option (including the underlying
securities) upon the request of any holder thereof.
Consulting Fees and Finder's Fees
The Company has also agreed, pursuant to the provisions of a 2-year
consulting agreement which was required pursuant to the Underwriting Agreement,
to pay the Underwriter a consulting fee (the "Consulting Fee") in the amount of
$200,000 for the Underwriter to act as an advisor to the Company with respect to
mergers and acquisitions, and general business management. The Consulting Fee is
payable upon the completion of the Offering.
No finder has been associated with the Company's public offering as
described herein; nor does the Company have any obligation to pay a finder's fee
to anyone in connection with any pending transaction involving the Company.
Warrant Solicitation Fee
Beginnning one year after the Effective Date, and to the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission, the Company has agreed to pay to the Underwriter a warrant
solicitation fee equal to 4% of the exercise price for each solicited Warrant
exercised, payable upon exercise of the Warrant. However, no compensation will
be paid to the Underwriter in connection with the exercise of the warrants if
(a) the market price of the underlying shares of Common Stock is lower than the
exercise price of the Warrants, (b) the Warrants are held in a discretionary
account, except where prior specific written approval for the exercise has been
received, (c) the Warrants are exercised in an unsolicited transaction, (d) the
Underwriter has not provided bona fide services in connection with the
solicitation of the Warrant, (e) the holder of the Warrant has not in writing
designated the Underwriter as the party to receive the solicitation fee, or (f)
these compensation arrangements have not been disclosed at the time of the
exercise. In addition, unless granted an exemption by the Commission from Rule
10b-6 under the Exchange Act, the Underwriter will be prohibited from engaging
in any market making activities or solicited brokerage activities with regard to
the securities until the later of the termination of such solicitations activity
or the termination by waiver or otherwise of any right the Underwriter may have
to receive a fee for the exercise of the Warrants following such solicitation.
68
<PAGE>
Other Terms of the Underwriting
The Company has agreed not to issue, sell, offer to sell, grant any option
relating to the sale of or otherwise dispose of (directly or indirectly) any of
the Company's equity securities (including securities convertible into,
exercisable for or exchangeable into equity securities), without the
Underwriter's prior written consent, except for issuances pursuant to: (i) the
exercise of the Underwriter's Unit Purchase Option; (ii) the Company's public
offering of securities described herein; (iii) a declaration of dividends,
recapitalization, reorganization or similar transaction; (iv) acquisitions (in
whole or in part), mergers, consolidations, joint ventures and other
combinations or (v) a stock incentive or option plan, for 24 months from the
Effective Date. In addition, each officer, director and stockholder who owns 5%
or more of the Company's equity securities has agreed not to sell, transfer,
convey, pledge, hypothecate or otherwise dispose of the respective securities of
the Company owned by them for a period of 18 months from the Effective Date
without the Underwriter's prior approval.
Indemnification
The Company has agreed to indemnify the Underwriter and others against
certain liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be provided
to officers, directors or persons controlling the Company, the Company has been
informed that, in the opinion of the Commission, such indemnification is against
public policy and is therefore unenforceable. The Underwriter has agreed to
indemnify the Company, its directors, and each person who controls it within the
meaning of Section 15 of the Securities Act with respect to any statement or
omission from the Registration Statement, the Prospectus or any amendment or
supplement thereto if such statement or omission was made in reliance upon
information furnished in writing to the Company by the Underwriter specifically
for or in connection with the preparation of the Registration Statement, the
Prospectus or any such amendment or supplement thereto.
Actions Involving the Underwriter
The Company has been advised by the Underwriter that on or about May 22, 1995,
the Underwriter and Elliot Loewenstern and Richard Bronson, principals of the
Underwriter, and the Commission agreed to an offer of settlement (the "Offer of
Settlement") in connection with a complaint filed by the Commission in the
United States District Court for the Southern District of Florida alleging
violations of the federal securities laws, Section 17(a) of the Securities Act
of 1933, Section 10(b) and 15(c) of the Securities Exchange Act of 1934, and
Rules 10b-5, 10b-6 and 15c1-2 promulgated thereunder. The complaint also alleged
that in connection with the sale of securities in three (3) IPOs in 1992 and
1993, the Underwriter engaged in fraudulent sales practices. The proposed Offer
of Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The Offer
of Settlement was approved by Judge Gonzales on June 6, 1995. Pursuant to the
final judgment (the "Final Judgment"), the Underwriter:
- was required to disgorge $1,000,000 to the Commission, which amount
was paid in four (4) equal installments on or before June 22, 1995;
69
<PAGE>
- agreed to the appointment of an independent consultant
("Consultant").
Such Consultant was obligated on or before November 1, 1996:
- to review the Underwriter's policies, practices and procedures in
six (6) areas relating to compliance and sales practices;
- to formulate policies, practices and procedures for the Underwriter
and that the Consultant deems necessary with respect to the
Underwriter's compliance and sales practices;
- to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
- to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
- to prepare, if necessary, a supervisory procedures and compliance
manual for the Underwriter, or to amend the Underwriter's existing
manual; and
- to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired
employees of the Underwriter. The Final Judgment further provides
that, within thirty (30) days of the Underwriter's receipt of the
Report, unless such time is extended, the Underwriter shall adopt,
implement and maintain any and all policies, practices and
procedures set forth in the Report.
The Final Judgment also provides that an independent auditor (the
"Auditor") shall conduct four (4) special reviews of the Underwriter's policies,
practices and procedures, the first such review took place six (6) months after
the Report was delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by the Commission order
are complying with the terms of such orders.
On July 10, 1995, the action against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson has agreed to a suspension from
associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of such suspension. Mr.
Loewenstern has agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing upon
the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Company's
stock, and additional brokers do not make a market in the Company's securities,
the market for and liquidity of the Company's securities may be adversely
affected to such an extent that public security holders may not have
70
<PAGE>
anyone to purchase their securities when offered for sale at any price. In such
event, the market for, liquidity and prices of the Company's securities may not
exist. See "Underwriting." For additional information regarding the Underwriter,
investors may call the National Association of Securities Dealers, Inc. at (800)
289-9999.
Recent State Action Involving Underwriter - Possible Loss of Liquidity
The State of Indiana has commenced an action seeking among other things to
revoke the Underwriter's license to do business in such state. Such proceeding
if ultimately successful may adversely affect the market for and liquidity of
the Company's securities in the State of Indiana if additional broker dealers do
not make a market in the Company's securities. Moreover, should Indiana
investors purchase any of the securities sold in this offering from the
Underwriter prior to the possible revocation of the Underwriter's license in
Indiana, such investors will not be able to resell such securities in such state
through the Underwriter but will be required to retain a new broker dealer firm
for such purpose. The Company cannot ensure that other broker dealers will make
a market in the Company's securities. In the event that the other broker dealers
fail to make a market in the Company's securities, the possibility exists that
the market for and the liquidity of the Company's securities may be adversely
affected to an extent that public security holders may not have anyone to
purchase their securities when offered for sale at any price. In such event, the
market for, liquidity and prices of the Company's securities may not exist. It
should be noted that although the Underwriter may not be the sole market maker
in the Company's securities, it will most likely be the dominant market maker in
the Company's securities. See "Underwriting."
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part also
relates to the offer and sale of up to 600,000 shares of Common Stock previously
issued to the Initial Selling Securityholder and the Subsequent Selling
Securityholder. Such shares of Common Stock are to be offered and sold by the
Initial Selling Securityholder and the Subsequent Selling Securityholder. A
total of 100,000 of such shares are being purchased by the Underwriter from the
Initial Selling Securityholder on a "firm commitment" basis. The other 500,000
shares of such securities are expected to become tradable on or about the date
of this Prospectus. Sales of shares of Common Stock to be offered by the
Subsequent Selling Securityholder, or even the potential of such sales, would
likely have an adverse effect on the market prices of the securities being
offered for sale by the Company. The freely tradable shares of the Common Stock
(the public float), upon the Effective Date of the Registration Statement of
which this prospectus forms a part and upon the consummation of the transactions
contemplated herein, will be 1,600,000 shares of Common Stock, of which 500,000
shares may be sold by the Subsequent Selling Securityholder (assuming approval
by the Underwriter).
71
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
being offered by the Company will be passed upon for the Company by Aieta &
Greco, New York, New York. Certain legal matters relating to patents, trademarks
and copyrights will be passed upon for the Company by the Law Offices of David
Gordon, Stamford, Connecticut. Certain legal matters will be passed upon for the
Underwriters by Bernstein & Wasserman, LLP, New York, New York.
EXPERTS
The Financial Statements of the Company included in this Prospectus to the
extent and for the periods indicated in their report have been reported on by
Moore Stephens, P.C., New York, New York, independent certified public
accountants, as stated in their report appearing herein, and have been included
herein in reliance upon such report given on the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a registration statement on Form SB-2 under the Securities Act
with respect to the shares of Common Stock and the Class A Warrants offered
hereby. This Prospectus does not contain all of the information set forth in the
registration statement and the exhibits theret. For further information with
respect to the Company and the securities offered hereby, reference is made to
the registration statement and exhibits. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the registration statement. The registration
statement, including the exhibits thereto, may be inspected wtihout charge at
the Securities and Exchange Commission's principal office at judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; at its Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and its
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of all or any part thereof may be obtained from such
office upon payment of the prescribed rates.
72
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
INDEX
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page to Page
------------
<S> <C> <C>
Independent Auditor's Report.................................................... F-1 .........
Balance Sheets as of August 31, 1996 [Unaudited] and December 31, 1995.......... F-2 ......... F-3
Statements of Operations for the eight months ended August 31, 1996 and
1995 [Unaudited] and for the years ended December 31, 1995 and 1994............. F-4 .........
Statements of Stockholders' Equity for the years ended December 31, 1995
and 1994 and the eight months ended August 31, 1996 [Unaudited]................. F-5 .........
Statements of Cash Flows for the eight months ended August 31, 1996
and 1995 [Unaudited] and for the years ended December 31, 1995 and 1994......... F-6 ......... F-7
Notes to Financial Statements................................................... F-8 ......... F-16
</TABLE>
. . . . . . . . . . . . . . .
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
Sun Hill Industries, Inc.
Stamford, Connecticut
We have audited the accompanying balance sheet of Sun Hill
Industries, Inc. as of December 31, 1995, and the related statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Sun Hill
Industries, Inc. as of December 31, 1995, and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants.
New York, New York
October 3, 1996,
except as to Note 5 for
which the date is
November 1, 1996.
F-1
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31, December 31,
1 9 9 6 1 9 9 5
---------- ----------
[Unaudited]
<S> <C> <C>
Assets:
Current Assets:
Cash $ 138,921 $ 143,577
Accounts Receivable - Net 4,240,823 2,204,342
Inventory 3,159,610 3,524,156
Prepaid Expenses and Sundry Receivables 53,563 103,431
Deferred Income Taxes 51,600 47,901
---------- ----------
Total Current Assets 7,644,517 6,023,407
Property and Equipment - Net 352,513 407,895
Other Asset:
Security Deposits 8,734 10,819
---------- ----------
Total Assets $8,005,764 $6,442,121
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-2
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 31, December 31,
1 9 9 6 1 9 9 5
---------- ----------
[Unaudited]
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable and Accrued Expenses $2,438,023 $2,278,141
Line of Credit 2,900,000 2,900,000
Equipment Notes Payable 11,049 19,372
Loan Payable - Related Parties 950,000 90,000
Income Tax Payable 47,300 --
---------- ----------
Total Current Liabilities 6,346,372 5,287,513
Long-Term Liability:
Equipment Notes - Net of Current Portion 10,874 18,093
---------- ----------
Total Liabilities 6,357,246 5,305,606
---------- ----------
Commitments and Contingencies -- --
---------- ----------
Stockholders' Equity:
Preferred Stock - $.001 Par Value, 5,000,000 Shares
Authorized, No Stock Issued and Outstanding -- --
Common Stock - $.001 Par Value, 25,000,000
Shares Authorized; 1,350,000 Shares Issued and
Outstanding at August 31, 1996 and December 31,
1995, Respectively 1,350 1,350
Additional Paid-in Capital 3,650 3,650
Retained Earnings 1,643,518 1,131,515
---------- ----------
Total Stockholders' Equity 1,648,518 1,136,515
---------- ----------
Total Liabilities and Stockholders' Equity $8,005,764 $6,442,121
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-3
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight months ended Years ended
August 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------------ ------------ ------------ ------------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Sales $ 8,401,338 $ 7,953,006 $ 11,372,979 $ 10,135,823
Cost of Sales 5,164,463 5,023,061 7,088,024 5,984,666
------------ ------------ ------------ ------------
Gross Profit 3,236,875 2,929,945 4,284,955 4,151,157
Selling, General and Administrative
Expenses 2,471,926 2,401,357 3,892,729 3,729,899
------------ ------------ ------------ ------------
Income from Operations 764,949 528,588 392,226 421,258
------------ ------------ ------------ ------------
Other Income [Expense]:
Interest Expense (215,197) (223,425) (334,714) (223,335)
Interest Income 30 -- 3,027 3,027
Other -- -- -- (17,029)
------------ ------------ ------------ ------------
Other Income [Expense] - Net (215,167) (223,425) (331,687) (237,337)
------------ ------------ ------------ ------------
Income Before Provision for
Income Tax 549,782 305,163 60,539 183,921
[Provision For] Benefit of
Income Tax (37,779) 42,850 113,402 6,440
------------ ------------ ------------ ------------
Net Income: Historical 512,003 $ 348,013 173,941 $ 190,361
============ ============
Charge in Lieu of Income
Taxes 158,049 60,496
------------ ------------
Pro Forma Net Income $ 353,954 $ 113,445
============ ============
Pro Forma Earnings Per
Share: Net Income $ .26 $ .08
============ ============
Weighted Average Number
of Shares 1,350,000 1,350,000
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-4
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Total
Number of Amount Paid-in Retained Stockholder's
Shares [At Par] Capital Earnings Equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance - December 31,
1994 1,350,000 $ 1,350 $ 3,650 $ 957,574 $ 962,574
Net Income -- -- -- 173,941 173,941
---------- ---------- ---------- ---------- ----------
Balance - December 31,
1995 1,350,000 1,350 3,650 1,131,515 1,136,515
Net Income -- -- -- 512,003 512,003
---------- ---------- ---------- ---------- ----------
Balance - August 31,
1996 [Unaudited] 1,350,000 $ 1,350 $ 3,650 $1,643,518 $1,648,518
========== ========== ========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-5
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight months ended Years ended
August 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
----------- ----------- ----------- -----------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 512,003 $ 348,013 $ 173,941 $ 190,361
----------- ----------- ----------- -----------
Adjustments to Reconcile Net Income to
Net Cash [Used For] Provided by
Operating Activities:
Provision for Doubtful Accounts 82,707 50,451 75,676 104,973
Deferred Taxes (3,699) 2,899 5,762 (9,585)
Depreciation and Amortization 73,361 62,824 80,338 90,498
Inventory Allowance (75,085) (37,830) (37,830) 86,907
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable (2,119,188) (2,205,016) 9,619 (1,370,854)
Inventory 439,631 591,109 316,594 (749,696)
Prepaid Expenses and Sundry
Receivables 49,868 (11,955) (11,564) 16,262
Security Deposits 2,085 -- (3,247) 10,503
Increase [Decrease] in:
Accounts Payable and Accrued
Expenses 159,882 319,127 (330,022) 1,071,168
Income Taxes Payable 47,300 74,600 -- (7,267)
Profit-Sharing Plan Contribution
Payable -- -- -- (83,868)
----------- ----------- ----------- -----------
Total Adjustments (1,343,138) (1,153,791) 105,326 (840,959)
----------- ----------- ----------- -----------
Net Cash - Operating Activities (831,135) (805,778) 279,267 (650,598)
----------- ----------- ----------- -----------
Investing Activities:
Acquisition of Property and Equipment (17,979) (4,400) (106,794) (172,632)
----------- ----------- ----------- -----------
Financing Activities:
Proceeds of Loan Payable -- 35,000 35,000 --
Repayment of Loans Payable (15,542) (7,682) (17,380) (10,366)
Proceeds of Short-Term Debt 2,550,000 1,350,000 3,400,000 3,275,000
Repayment of Short-Term Debt (2,550,000) (1,450,000) (3,500,000) (2,575,000)
Proceeds from Related Parties 860,000 854,000 954,000 750,000
Repayment to Related Parties -- -- (954,000) (750,000)
----------- ----------- ----------- -----------
Net Cash - Financing Activities 844,458 781,318 (82,380) 689,634
----------- ----------- ----------- -----------
Net [Decrease] Increase in Cash (4,656) (28,860) 90,093 (133,596)
Cash - Beginning of Periods 143,577 53,484 53,484 187,080
----------- ----------- ----------- -----------
Cash - End of Periods $ 138,921 $ 24,624 $ 143,577 $ 53,484
=========== =========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-6
<PAGE>
SUN HILL INDUSTRIES, INC.
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight months ended Years ended
August 31, December 31,
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
[Unaudited] [Unaudited]
<S> <C> <C> <C> <C>
Supplementary Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 129,576 $ 184,214 $ 330,190 $ 215,985
Income Taxes $ 1,635 $ 1,892 $ 1,892 $ 10,339
Income Taxes Refunded $ -- $ 122,239 $ 122,239 $ --
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-7
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[1] Principles of Organization and Business
Sun Hill Industries, Inc., a Delaware corporation (the "Company"), was
incorporated pursuant to the laws of the State of Delaware on October 9, 1996.
The Company is the successor to Sun Hill Industries, Inc., a Connecticut
corporation ("Sun Hill - Connecticut") which was incorporated pursuant to the
laws of the State of Connecticut in 1974. The Company was organized to enable
Sun Hill - Connecticut to merge with and into the Company in November 1996 in
order to effectuate a reincorporation in the State of Delaware. Pursuant to the
terms of the merger, an aggregate of 1,350,000 shares of Common Stock were
issued to the two stockholders of Sun Hill - Connecticut by virtue of the
automatic conversion of their shares of Sun Hill - Connecticut to shares of the
Company. These financial statements have been prepared giving retroactive
effect to the merger.
The Company manufactures plastic home-decor products for Easter, Halloween and
Christmas. In addition, the Company produces a full line of egg coloring kits
for Easter and produces novelty stationery products.
[2] Summary of Significant Accounting Policies
[A] Risk Concentrations - Financial investments, which potentially subject the
Company to concentrations of credit risk, consist principally of cash and
accounts receivables.
At December 31, 1995, the Company had deposits in financial institutions which
exceeded the $100,000 federally insured limit. The excess of the institution's
deposit liability to the Company over the federally insured limit amounted to
$284,972. In addition, the Company had $128,922 on deposit in a Canadian Bank
account which is insured in the amount of $60,000. The Company has not
experienced any losses with either financial institution.
Accounts receivable arise from the sale of products to mass merchandisers,
drugstores, supermarkets, distributors, mail order catalog houses and specialty
retailers throughout the United States and Canada. In the normal course of
business, the Company provides credit to customers under standard terms without
requiring collateral.
At December 31, 1995 and during the year ended December 31, 1995, the Company
purchased accounts receivable credit insurance ["credit insurance"] for
selected major accounts whose balance exceeds certain criteria in order to
limit its exposure to losses from uncollectible accounts. In addition, the
Company continually reviews accounts receivable and provides an allowance for
doubtful accounts for accounts receivable deemed uncollectible and not covered
by the credit insurance. The Company does believe that its accounts receivable
credit risk exposure is limited. Such estimate of the financial strength of
such customers may be subject to change in the near term.
The Company has 13 licensing agreements with a company in the entertainment
industry. As of December 31, 1995, revenues attributable to these agreements
were approximately 20% of total revenue. A cross-termination provision exists
in each of the licensing agreements whereby if one of the licensing agreements
were terminated for cause, any one, several or all of such licensing agreements
could also be terminated. The Company may not be able to replace these
licensing rights. The loss of several or all of these agreements could have a
material effect on the Company's operations.
[B] Revenue Recognition - The Company's policy is to record revenues when
inventory is shipped to customers.
F-8
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #2
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[C] Foreign Currency Exchange - International sales, which are denominated in a
foreign currency totaled less than 10 percent of total sales for the years
ended December 31, 1995 and 1994. The Company records gains and losses from
such foreign currency sales if there is a difference in the foreign exchange
rate of the U.S. dollar and foreign currency when the sale is made and the
accounts receivable are collected. For the years ended December 31, 1995 and
1994, foreign gains or losses were immaterial. In addition, accounts receivable
totaling approximately $300,000 are subject to possible loss from future
foreign currency exchange fluctuations. In addition, the Company does maintain
a cash account in Canada [See Note 2A] which is subject to possible loss from
future currency exchange fluctuations. No transaction adjustment was required
at December 31, 1995 since the fluctuation of the foreign currency was not
significant during 1995. However, foreign currency exchange rate fluctuations
may be significant in the near term.
[D] Accounts Receivable - The Company records accounts receivable net of an
allowance for doubtful accounts of approximately $174,000 and an allowance for
future returns of approximately $178,000 at December 31, 1995 [See Note 2A]
[E] Inventory - Inventory is stated at the lower of moving average cost or
market.
[F] Property and Equipment and Depreciation - Property and equipment are stated
at cost. Depreciation is computed over the estimated useful lives of the
assets, using the straight-line and accelerated methods (declining balance), as
follows:
Asset Estimated Life
----- --------------
Furniture and Fixtures 7 years
Equipment, Molds and Autos 5 years
Leasehold Improvements 5 -7 years
[G] Income Taxes - The Company elected S corporation status under the Internal
Revenue Code in 1992. Income is passed through to the stockholders who are
liable for income taxes on this income. A provision for Connecticut and New
York State corporate income taxes has been made based on statutory rates. Pro
forma net income and earnings per share are presented as if the corporation
were a C corporation and subject to federal income taxes at statutory rates.
[H] Pro Forma Earnings Per Share - Pro forma earnings per share are based on
1,350,000 shares issued [See Notes 1 and 12A] for all periods presented. Shares
or equivalents issued within a one year period prior to the initial filing of
the initial public offering of the registration statement are treated as
outstanding for all periods presented. Common stock issued, based on the use of
the treasury stock method, had no dilutive or anti-dilutive effect on pro forma
earnings per share.
[I] Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimated.
F-9
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #3
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies [Continued]
[J] Advertising - Advertising expense is primarily composed of shared print
advertising with various customers which is expensed in the period incurred.
Advertising expense amounted to $182,007 and $177,939 for the years ended
December 31, 1995 and 1994, respectively.
[K] Stock Options and Similar Equity Instruments Issued to Employees - The
Company uses the intrinsic value method to recognize compensation, which is
based on the difference between the fair market value of the common stock and
the exercise price at the grant date.
[3] Inventory
Inventory consists of the following at December 31, 1995:
Raw Materials $ 1,832,561
Finished Goods 1,691,595
---------------
Total $ 3,524,156
----- ===============
[4] Property and Equipment
Property and equipment consist of the following at December 31, 1995:
Molds $ 493,788
Machinery and Equipment 49,230
Automobiles and Trucks 113,887
Computer Equipment 33,571
Furniture and Fixtures 98,212
Leasehold Improvements 75,311
---------------
Total 863,999
Less: Accumulated Depreciation and Amortization 456,104
---------------
Total $ 407,895
----- ===============
Depreciation and amortization expense for the years ended December 31, 1995 and
1994 totaled $80,338 and $90,498, respectively.
[5] Short-Term Debt - Line of Credit
At December 31, 1995, the Company owed $2,900,000 to a commercial bank
representing borrowings against a credit line of $3,000,000 pursuant to a line
of credit agreement [credit agreement]. The loan bears interest at prime plus
3/4 percent. This line of credit expires on October 31, 1996. Due to the
seasonal nature of the Company's business, the range of outstanding borrowings
against the line of credit in 1995 was $1,550,000 to $3,000,000. Interest
expense incurred on the loan was $248,655 and $177,279 for the years ended
December 31, 1995 and 1994, respectively [See Note 12G].
Substantially all of the Company's assets are pledged as collateral for this
line of credit, and the Company is required to be in compliance with various
financial and nonfinancial covenants of this credit line agreement. In
addition, the loan is personally guaranteed by one of the Company's
stockholders.
F-10
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #4
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[5] Short-Term Debt - Line of Credit [Continued]
At December 31, 1995, the Company was in technical violation of several
financial and nonfinancial covenants of this credit agreement. At November 1,
1996, the bank waived, indefinitely, its rights with respect to any covenant
violations occurring prior to November 30, 1996.
The weighted average interest rate on this short term debt was 9.375% and
8.125% for the years ended December 31, 1995 and 1994, respectively. The prime
rate at December 31, 1995 was 8.75% [See Note 12G].
[6] Related Party Transactions
During 1995, the Company borrowed and repaid in full $954,000 of loans from one
of its stockholders, who is also an officer of the Company. Interest on the
loans at prime plus 3/4 percent amounted to $67,658 in 1995. During 1994,
interest incurred on loans from the stockholder amounted to $36,112. In
addition, at December 31, 1995 and 1994, the Company owed $90,000 to an officer
of the Company. The loan bears interest at prime plus 3/4 percent and is
payable on demand. Interest expense accrued on this loan amounted to $10,481
and $7,350 in 1995 and 1994, respectively. The weighted average interest rate
on this short-term debt was 9.5% for the years ended December 31, 1995 and
1994. In addition, the Company incurred and paid $136,148 to one of its
stockholders for each of the years ending December 31, 1995 and 1994 for the
rental of its facilities, located in Connecticut.
[7] Equipment Notes Payable
At December 31, 1995 equipment notes payable consist of the following:
Note payable to a finance company bearing interest at 12 percent
per annum, payable in 36 monthly installments of $1,162
[including principal and interest] maturing on May 1998 and
collateralized by equipment. $ 29,142
Note payable to a commercial bank bearing interest at 9.9 percent
per annum, payable in 36 monthly installments of $1,076
[including principal and interest], maturing on September 1,
1996 and collateralized by an automobile. 8,323
-----------
Total Loans Payable 37,465
Less: Current Portion (19,372)
-----------
Long-Term Portion $ 18,093
----------------- ===========
The maturity of the loans payable at December 31, 1995 is as follows:
Years Ending
December 31,
- ------------
1996 $ 19,372
1997 12,447
1998 5,646
-----------
Total $ 37,465
----- ===========
F-11
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #5
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[8] Fair Value of Financial Instruments
For certain financial statements, including cash and cash equivalents, trade
receivables and trade payables, related party debt and short-term debt, it was
estimated that the carrying amount approximated fair value of these instruments
because of their short maturities. The fair value of the Company's long-term
equipment notes are estimated based on current rates at which the Company could
borrow funds with similar maturities. The Company estimates that the carrying
amount of long-term debt approximates fair value.
[9] Profit-Sharing Plan
The Company has a profit-sharing plan covering substantially all of its
employees. The benefits are based on years of service and eligible
compensation. The Company's funding policy is to contribute, based on
profitability, a discretionary amount determined by management. The Company
incurred no expense of the plan for the years ended December 31, 1995 and 1994.
[10] Income Taxes
Deferred tax assets are determined based on the difference between financial
reporting and tax basis of assets and liabilities and are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Historical income tax provision/benefit consists of the
following:
December 31,
1 9 9 5 1 9 9 4
--------- ---------
Current Tax [Provision] Benefit:
Federal $ -- $ --
State - Refund 122,239 --
--------- ---------
Totals 122,239 --
--------- ---------
Deferred Tax [Provision] Benefit:
Federal -- --
State (8,837) 6,440
--------- ---------
Totals (8,837) 6,440
--------- ---------
Income Tax Benefit $ 113,402 $ 6,440
------------------ ========= =========
Charges in lieu of income taxes consists of the following for the year ended
December 31, 1995:
Current Provision $ 35,378
Deferred Provision 25,118
--------
Income Tax Provision $ 60,496
-------------------- ========
Temporary differences between the financial reporting and tax basis of assets
consisted of the following at December 31, 1995:
State Income Taxes:
Deferred Tax Assets:
Accounts Receivable $ 8,634
Inventory 39,267
--------
Total $ 47,901
----- ========
F-12
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #6
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[10] Income Taxes [Continued]
The differences between the historical provision/benefit for income taxes and
income taxes computed using the U.S. federal income tax rate were as follows:
December 31,
1 9 9 5 1 9 9 4
------- -------
Federal Statutory Rate 34.0% 34.0%
State Income Taxes 7.9 4.0
State Income Tax Refund (194.9) --
Benefit of S Corporation Status (34.0) (34.0)
------- -------
Actual Rate (187.0)% 4.0%
----------- ======= =======
The charge in lieu of income taxes was calculated using the federal statutory
rates currently in effect.
During the year ended December 31, 1995, the Company received and recorded
refunds of state income taxes paid and recorded in prior years. They did not
provide a benefit in prior years because such refunds were a result of a
successful action brought by the Company against the State of Connecticut which
was approved in 1995.
[11] Commitments and Contingencies
[A] Leases - The Company has cancelable and noncancelable operating lease
agreements for its office, showrooms and warehouse facilities which include
contingent rentals as defined and renewal options. The Company's minimum future
lease payments under noncancelable operating leases are as follows:
Premises - Premises -
Years Ended Related Unrelated
December 31, Total Party Parties
- ------------ ------------ ------------ ------------
1996 $ 162,490 $ 136,148 $ 26,342
1997 160,592 136,148 24,444
1998 160,592 136,148 24,444
1999 160,592 136,148 24,444
2000 160,592 136,148 24,444
Thereafter 221,133 90,765 130,368
------------ ------------ ------------
Totals $101,025,991 $ 771,505 $ 254,486
------ ============ ============ ============
Total rental expense was $336,431 in 1995 and $386,966 in 1994 including
contingent rental and amounts due under a cancelable lease.
F-13
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #7
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[11] Commitments and Contingencies [Continued]
[B] Litigation - The Company is a defendant in a case, currently pending in
Connecticut Superior Court [the "Connecticut Action"]. The Connecticut Action
was brought to enforce an amended default judgment obtained against the Company
on February 23, 1993 in the Superior Court for the Commonwealth of
Massachusetts in the sum of $166,000 with interest thereon from November 13,
1989 in the sum of $29,382, and the costs of the action [the "Massachusetts
Action"]. In their complaint in the Massachusetts Action, plaintiffs had
alleged that the Company's purported refusal to ship work to the plaintiffs
constituted a breach of contract for their packaging services. At present,
discovery is continuing, and the Company is currently unable to assess the
outcome of the matter. However, the Company is vigorously defending the action
and believes it has meritorious defenses. Currently, the Company is considering
a motion for summary judgment in the Connecticut Action on the grounds that the
Massachusetts court lacked jurisdiction over the Company when it rendered its
judgment. Prior to the engagement of its current counsel in such action, the
Company was represented by another attorney. In a separate action against such
attorney, the Company is seeking to recoup losses sustained by the Company, if
any, arising out of his previous representation of the Company in this matter.
Plaintiffs in the Connecticut Action began the deposition of the prior attorney
on June 20, 1996, with additional time reserved for its continuation. Finally,
the Connecticut Action has been set for trial on July 27, 1997. No amounts have
been accrued in the financial statements regarding this case. However, due to
the uncertainties in the legal process, it is at least reasonably possible that
management's view of the outcome could change in the near term.
[C] The Company has several licensing agreements with an entertainment company
with a minimum contract guarantee. At December 31, 1995, the Company was
obligated for approximately 125,000 in royalty guarantees that expire at
various times through March 1998.
[12] Subsequent Events [Unaudited]
[A] Proposed Initial Public Offering - The Company is offering for public sale
1,000,000 shares of common stock at an exercise price of $4.00 per share and
2,000,000 Class A Redeemable Common Stock Purchase Warrants at $0.25 per
warrant, with an exercise price of $4.50 per warrant subject to adjustment.
Although no assurance can be given that the proposed initial public offering
will be successful, the Company intends to utilize the net proceeds from the
proposed initial public offering of approximately $3,440,000 for the partial
repayment of current debt, expansion of product development and acquisitions
and working capital purposes [See Notes 12D and 12F].
[B] The 1996 Employee - Consultant Stock Option Plan - This Plan provides for
the grant of options which qualify as incentive stock options ["Incentive
Options"] under the Internal Revenue Code of 1986, as amended, to be issued to
officers and employees, as well as options which do not so qualify ["Non-
Qualified Options"] to be issued to the Company's officers, employees and
consultants. The 1996 Employee - Consultant Stock Option Plan provides for the
grant of options with respect to, in the aggregate, up to 950,000 shares of
common stock [which number is subject to adjustment in the event of the
Company's declaration of stock dividends, stock splits, reclassifications and
the occurrence of other similar events]. The Company has reserved 950,000
shares of common stock for issuance under the 1996 Employee - Consultant Stock
Option Plan. In November 1996, an executive employee of the Company was granted
options to purchase up to an aggregate of 750,000 shares which are exercisable
based upon the Company achieving certain specified pre-tax income earning
levels as follows:
Earnings Before Taxes Shares to be Issued
--------------------- -------------------
$ 1,000,000 250,000
$ 2,000,000 250,000
$ 3,000,000 250,000
F-14
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #8
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[12] Subsequent Events [Unaudited] [Continued]
[B] The 1996 Employee - Consultant Stock Option Plan [Continued] - When it is
probable that the above earnings will be achieved, Sun Hill will recognize
compensation expense equal to the difference between the fair market value of
the underlying common stock and the exercise price at the time performance
conditions are achieved. Issuance of the shares could result in substantial
compensation expense to Sun Hill in future years.
[C] Non-Employee Directors Option Plan ["NQO Plan"] - Non-employee directors of
the Company may participate in the NQO Plan for outside directors pursuant to
which they may only be granted Non- Qualified Options on a non discretionary
basis pursuant to a formula set forth therein. Pursuant to such formula, each
nonemployee director elected to office shall receive a ten year non-qualified
option to purchase 5,000 shares of common stock at an exercise price equal to
the "fair market value" [as such term is defined in the Stock Option Plan] of
the common stock on the date of grant thereof. One-half of such options vest
immediately and the balance vest one year thereafter. The NQO Plan for outside
directors provides for the grant of options with respect to, in the aggregate,
up to 100,000 shares of common stock. The Company has reserved 100,000 shares
of common stock for issuance under the NQO Plan for outside directors.. In
November 1996, the Company's three outside directors were each granted options
to purchase an aggregate of 5,000 shares pursuant to the formula provisions of
the NQO Plan for outside directors, 2,500 of which are immediately exercisable
by each of them. In November, the Company recognized $13,200 of compensation
expense based upon the issuance of these options.
[D] Underwriter's Purchase Options - As a part of consideration of its services
in connection with the Company's proposed initial public offering described
herein [See Note 12A], the Company has agreed to issue to the Underwriter, for
nominal consideration, an option to purchase up to 100,000 shares of common
stock and 200,000 Class A Warrants at an exercise price of 120% of the public
offering price of such shares and warrants for a four year period commencing
one year after the effective date of the proposed initial public offering. The
non-cash cost of such options, representing a cost of raising capital, will be
approximately $264,000 and will be recorded as a charge and credit to
stockholders' equity when options are issued.
[E] Consulting Agreement - Pursuant to the proposed underwriting agreement, the
Company anticipates entering into a two year consulting agreement with the
underwriter to provide services with its mergers and acquisitions and general
business management. The fee for such services will be $100,000 and is payable
upon the completion of proposed initial public offering.
[F] Employment Agreement - In November 1996, the Company entered into an
employment agreement with the President, Chief Executive Officer and Chief
Financial Officer for an initial term of five years commencing on January 1,
1997 and terminating on December 31, 2001 providing for a salary of $125,000
per annum with a cash bonus equal to five percent [5%] of the Company's pre-tax
income in excess of $500,000.
[G] Line of Credit - On October 4, 1996, the Company extended the line of
credit with the financial institution to October 31, 1997. The available line
of credit is $4,500,000 at an interest rate of prime plus 3/4%. All collateral
and guarantees remain the same [See Note 5].
F-15
<PAGE>
SUN HILL INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS, Sheet #9
[Information as of and for the eight months ended August 31, 1996 and
1995 are Unaudited]
- ------------------------------------------------------------------------------
[13] Authoritative Pronouncements
The Financial Accounting Standards Board ["FASB"] issued the Statement of
Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in March of
1995. SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
Adoption of SFAS No. 121 is not expected to have a material impact on the
Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
recognition for stock options and similar equity instruments issued to
employees as contrasted to the intrinsic valued based method of accounting
prescribed by Accounting Principles Board ["APB"] Opinion No. 25, "Accounting
for Stock Issued to Employees." The recognition requirements of SFAS No. 123
are effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Company will continue to apply Opinion No. 25 in
recognizing its stock based employee arrangements. The disclosure requirements
of SFAS No. 123 are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company will adopt the disclosure
requirements on January 1, 1996. SFAS 123 also applies to transactions in which
an entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for based on the fair value
of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable. This requirement is effective
for transactions entered into after December 15, 1995.
[14] Unaudited Interim Statements
The financial statements for the eight months ended August 31, 1996 and 1995
are unaudited; however, in the opinion of management, all adjustments which are
necessary in order to make the interim financial statements not misleading have
been made. The results for interim periods are not necessarily indicative of
the results to be obtained for a full fiscal year.
. . . . . . . . . . . . . . .
F-16
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form
SB-2 of our report dated October 3, 1996 [Except for Note 5 as to which the
date is November 1, 1996], accompanying the financial statements of Sun Hill
Industries, Inc. and to the use of our name and the statements with respect to
us as appearing under the heading "Experts" in the Prospectus.
MOORE STEPHENS, P.C.
Certified Public Accountants.
New York, New York
November 11, 1996
F-17
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Undrwriters. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any
security other than the Securities offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
Securities 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 any person to whom it is unlawful to make such offer
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof, or that there has been no change in the affairs of the Company since the
date hereof.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ...................................................
RISK FACTORS .........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .........................................................
CAPITALIZATION .......................................................
DILUTION .............................................................
USE OF PROCEEDS ......................................................
THE COMPANY...........................................................
BUSINESS..............................................................
DIVIDEND POLICY.......................................................
MANAGEMENT............................................................
EXECUTIVE COMPENSATION................................................
CERTAIN TRANSACTIONS..................................................
PRINCIPAL SECURITYHOLDERS.............................................
SHARES ELIGIBLE FOR FUTURE SALE.......................................
DESCRIPTION OF SECURITIES.............................................
MARKET FOR THE COMPANY'S SECURITIES
AND RELATED STOCKHOLDER MATTERS.....................................
UNDERWRITING..........................................................
SELLING SECURITYHOLDERS...............................................
LEGAL MATTERS.........................................................
EXPERTS...............................................................
ADDITIONAL INFORMATION................................................
FINANCIAL STATEMENTS..................................................
Until , 1997, (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
this is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to unsold allotments and subscriptions.
================================================================================
1,100,000 Shares of Common Stock
2,000,000 Class A Warrants
SUN HILL INDUSTRIES, INC.
--------------
PROSPECTUS
--------------
BILTMORE SECURITIES, INC.
_______ ___, 199
================================================================================
<PAGE>
PROSPECTUS
500,000 Shares
SUN HILL INDUSTRIES, INC.
This Prospectus relates to the offering of 500,000 shares of common stock
("Common Stock" or "Shares"), par value $.001 per share, of Sun Hill Industries,
Inc., a Delaware corporation (the "Company"). All of the 500,000 shares of
Common Stock being offered are owned by Mr. Benson Zinbarg, President, Chief
Executive Officer and Chief Financial Officer of the Company (hereinafter
referred to as the "Subsequent Selling Securityholder"). The Shares offered
hereby may not be transferred for eighteen (18) months from the date hereof,
subject to earlier release at the sole discretion of Biltmore Securities, Inc.,
which is acting as the underwriter in connection with a public offering of the
Company's securities (the "Underwriter"). The certificates evidencing such
securities include a legend with such restrictions. The Underwriter may release
the Shares held by the Subsequent Selling Securityholder at any time after all
securities subject to the Over-Allotment Option have been sold or such option
has expired. The Over-Allotment Option will expire thirty (30) days from the
date of this Prospectus. In other offerings where the Underwriter has acted as
the managing underwriter, it has released similar restrictions applicable to
selling stockholders prior to the expiration of the lock-up period and in some
cases immediately after the exercise of the Over-Allotment Option or the
expiration of the Over-Allotment Option period. See "Description of Securities"
and "Selling Securityholders."
The Securities offered by this Prospectus may be sold from time to time by
the Subsequent Selling Securityholder or its transferees. No underwriting
arrangements have been entered into by the Subsequent Selling Securityholder.
The distribution of the securities by the Subsequent Selling Securityholder 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 dealers for resale of
such shares 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 Subsequent Selling Securityholder in connection with sales of the
Shares. Transfers of the securities may also be made pursuant to applicable
exemptions under the Securities Act of 1933, as amended (the "Securities Act"),
including but not limited to sales under Rule 144 under the Securities Act.
The Subsequent Selling Securityholder and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the Shares offered, and any profits realized or
commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify the Subsequent Selling Securityholder against certain
liabilities, including liabilities under the Securities Act.
AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN INVOLVES A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "DILUTION" AND "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996
Alt-1
<PAGE>
On the date hereof, the Company commenced pursuant to the Registration
Statement of which this Prospectus is a part a public offering of 1,100,000
shares of Common Stock and 2,000,000 Class A Warrants. See "Initial Public
Offering." Subject to the terms and conditions of the Underwriting Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed, on a "firm commitment" basis,
to purchase 1,000,000 shares from the Company, if any are purchased, and an
aggregate of 100,000 Shares from the Kookeroonie Trust, a trust established for
the benefit of the family of Mr. Benson Zinbarg, the Company's President, Chief
Executive Officer and Chief Financial Officer. The Underwriter has advised the
Company that it proposed to offer the shares of Common Stock and Class A
Warrants to the public at $4.00 per share and $.25 per warrant, respectively and
the shares of Common Stock of the Initial Selling Securityholder at $4.00 per
share and that they may allow to certain dealers who are NASD members, and such
dealers may reallow, concessions not to exceed $ per share. After the
initial public offering, the public offering price, concessions and reallowance
may be changed by the Underwriter.
The Company will not receive any of the proceeds from the sale of the
Shares by the Subsequent Selling Securityholder. All costs incurred in the
registration of the Shares of the Subsequent Selling Securityholder are being
borne by the Company. See "Selling Securityholders."
The Company intends to furnish its security holders with annual reports
containing audited financial statements and the audited report of the
independent certified public accountants and such interim reports as it deems
appropriate or as may be required by law. The Company's fiscal year ends
December 31st.
Alt-2
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities Offered by Company(1)(4)
Common Stock............................................... 1,000,000 Shares
Class A Common Stock Purchase Warrants..................... 2,000,000 Warrants
Securities Offered by Initial Selling Securityholder(2)
Common Stock............................................... 100,000 Shares
Securities Offered by Subsequent Selling Securityholder
Common Stock............................................... 500,000 Shares
Common Stock Outstanding Prior to Offering(3)................. 1,350,000 Shares
Common Stock Outstanding After the Offering (4)............... 2,350,000 Shares
Comparative Common Stock Ownership Upon Completion of Offering
Present Shareholders (1,350,000)(3)(5)(6).................. ____%
Public Shareholders (1,100,000)(4)(5)(6)................... ____%
Use of Proceeds............................................... General Working Capital, Repayment of Bank Indebtedness and
Business Acquisitions
Proposed NASDAQ SmallCap Market(SM) Symbols
Common Stock............................................... SUNC
Class A Common Stock Purchase Warrants..................... SUNW
</TABLE>
(1) The Company is offering 1,000,000 Shares and 2,000,000 Class A Common Stock
Purchase Warrants, on a "firm commitment" basis at a price of $4.00 per
Share and $.25 per warrant, respectively. See "Description of Securities."
(2) The Initial Selling Securityholder is offering 100,000 shares of Common
Stock on a "firm commitment" basis, at a price of $4.00 per share.
(3) See "Principal Securityholders."
(4) Assumes the issuance of 1,000,000 shares of Common Stock as part of the
offering. Does not include shares of Common Stock issuable upon the exercise
of (i) the Underwriter's Over-Allotment Option to purchase up to 150,000
shares of Common Stock and 300,000 Class A Warrants and 300,000 additional
shares issuable upon the exercise thereof, and (iii) the Underwriter's
Purchase Option to purchase up to 100,000 additional shares of Common Stock
and 200,000 Class A Warrants and 200,000 additional shares issuable upon the
exercise thereof.
(5) See "Dilution."
(6) Assumes the sale of (i) 1,000,000 shares of Common Stock by the Company in
the Initial Public Offering and (ii) 100,000 shares of Common Stock by the
Initial Selling Securityholder. Does not assume the sale of the Subsequent
Selling Securityholders' shares of Common Stock.
(7) The Company's intended use of net proceeds from the sale of the shares in
the Initial Public Offering.
Alt-3
<PAGE>
INITIAL PUBLIC OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to the Initial Public Offering of 1,000,000 Shares
by the Company and 100,000 shares of Common Stock by the Initial Selling
Securityholder was declared effective by the Securities and Exchange Commission
("Commission"), Washington, D.C. 20549, and the Company commenced the sale of
shares offered thereby. Sales of Securities under this Prospectus by the
Subsequent Selling Securityholder or even the potential of such sales may have
an adverse effect on the market price of the Company's securities.
Alt-4
<PAGE>
SELLING SECURITYHOLDER
The registration statement of which this Prospectus is a part also
covers the registration of an additional 500,000 shares of Common Stock. These
shares of Common Stock are being offered by Mr. Benson Zinbarg, the Company's
President, Chief Executive Officer and Chief Financial Officer. Assuming that
(i) the Company sells the 1,000,000 shares of Common Stock offered in the
Initial Public Offering, (ii) the Initial Selling Securityholder sells 100,000
shares of Common Stock in the Initial Public Offering and (iii) Mr. Zinbarg, as
the Subsequent Selling Securityholder, sells all 500,000 shares of Common Stock
offered hereby, then Mr. Zinbarg will own 512,500 shares or 21.8% of the
Company's issued and outstanding shares of Common Stock.
The 500,000 shares of Common Stock described above may be sold
commencing eighteen (18) months from the date of this Prospectus subject to
earlier release at the sole discretion of the Underwriter. The Underwriter may
release the securities held by the Subsequent Selling Securityholder at any time
after all securities subject to the Over-allotment Option have been sold or such
option has expired. The Over-Allotment Option will expire 30 days from the date
of this Prospectus. In other offerings where the Underwriter has acted as the
managing underwriter, it has released similar restrictions applicable to selling
stockholders prior to the expiration of the lock-up period and in some cases
immediately after the exercise of the Over-Allotment Option or the expiration of
the Over-Allotment Option period. The resale of the securities of the Subsequent
Selling Securityholder is subject to prospectus delivery and other requirements
of the Securities Act of 1933, as amended. 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 hereby.
The Company is paying for the benefit of the Subsequent Selling
Securityholder certain of his expenses in connection with this offering. These
expenses consist of $ (nonaccountable expense allowance attributable to
the shares being sold by the Subsequent Selling Securityholder); $ (SEC
filing fee attributable to the Subsequent Selling Securityholders' securities);
$ (based on a pro rata share of blue sky legal expenses and filing fees);
$ (based upon a pro rata portion of accounting fees and expenses) for a
total of $ .
The securities offered hereby may be sold from time to time directly by
the Subsequent Selling Securityholder. Alternatively, the Subsequent Selling
Securityholder may from time to time offer such securities through underwriters,
dealers and agents. The distribution of securities by the Subsequent Selling
Securityholder 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 shares 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 Subsequent Selling Securityholder in connection
with such sales of securities. The Subsequent Selling Securityholder and
intermediaries through whom such securities are sold may be deemed
"underwriters" within the
Alt-5
<PAGE>
meaning of the Act with respect to the securities offered, and any profits
realized or commissions received may be deemed underwriting compensation. The
Subsequent Selling Securityholder may also elect to sell such securities
pursuant to one or more exemptions from registration under the Act, including
but not limited to sales under Rule 144.
At the time of a particular offer of securities is made by or on behalf of
the Subsequent Selling Securityholder, to the extent required, a Prospectus will
be distributed which will set forth the numbers of shares of Common Stock being
offered and the terms of the offering, including the name or names of the
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares purchased from the Subsequent Selling Securityholder and
any discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in a distribution of the
securities of the Company offered by this Prospectus may not simultaneously
engage in market-making activities with respect to such securities of the
Company during the applicable "cooling-off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Subsequent Selling Securityholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rule 10b-6 and 10b-7, in connection with
transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Subsequent Selling Securityholder.
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time directly by
the Subsequent Selling Securityholder. Alternatively, the Subsequent Selling
Securityholder may from time to time offer such Securities through underwriters,
dealers or agents. The distribution of the Securities by the Subsequent Selling
Securityholder 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 shares as principals, including the Underwriter, 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 Subsequent Selling
Securityholder in connection with such sales of Securities. The Subsequent
Selling Securityholder and intermediaries through whom such Securities are sold
may be deemed "underwriters" within the meaning of the Securities Act with
respect to the Securities offered, and any profits realized or commission
received may be deemed underwriting compensation. The Subsequent Selling
Securityholder may also transfer the Securities pursuant to applicable
exemptions from registration under the Securities Act including Rule 144 under
such Act.
At the time a particular offer of Securities is made by or on behalf of
the Subsequent Selling Securityholder, to the extent required, a Prospectus will
be distributed which will set forth the numbers of shares of Common Stock being
offered and the terms of the offering, including the name or names of the
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for shares purchased from the Subsequent Selling Securityholder and
Alt-6
<PAGE>
any discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in a distribution of the
securities of the Company offered by this Prospectus may not simultaneously
engage in market-making activities with respect to such securities of the
Company during the applicable "cooling-off" period (nine days) prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Subsequent Selling Securityholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation, Rule 10b-6 and 10b-7, in connection with
transactions in such securities, which provisions may limit the timing of
purchases and sales of such securities by the Subsequent Selling Securityholder.
Alt-7
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company or the Underwriters. This Prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any
security other than the Securities offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to buy any of the
Securities 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 any person to whom it is unlawful to make such offer
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof, or that there has been no change in the affairs Company since the date
hereof.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...................................................
RISK FACTORS.........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................
CAPITALIZATION.......................................................
DILUTION.............................................................
USE OF PROCEEDS......................................................
THE COMPANY..........................................................
BUSINESS.............................................................
DIVIDEND POLICY......................................................
MANAGEMENT...........................................................
EXECUTIVE COMPENSATION...............................................
CERTAIN TRANSACTIONS.................................................
PRINCIPAL SECURITYHOLDERS............................................
SHARES ELIGIBLE FOR FUTURE SALE......................................
DESCRIPTION OF SECURITIES............................................
MARKET FOR THE COMPANY'S SECURITIES AND RELATED STOCKHOLDER MATTERS..
UNDERWRITING.........................................................
SELLING SECURITYHOLDERS..............................................
LEGAL MATTERS........................................................
EXPERTS..............................................................
ADDITIONAL INFORMATION...............................................
FINANCIAL STATEMENTS.................................................
Until , 1997, (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to unsold allotments and subscriptions.
================================================================================
500,000 Shares
SUN HILL INDUSTRIES, INC.
---------------
PROSPECTUS
---------------
BILTMORE SECURITIES, INC.
__________ __, 199_
================================================================================
Alt-8
<PAGE>
PART II
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, under which
jurisdiction the Company is incorporated, empowers a corporation 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 by reason of the fact that he or she
is or was a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify against expenses (including attorneys'
fees) and, other than in respect of an action by or in the right of the
corporation, against judgments, fines and amounts paid in settlement actually
and reasonably incurred in connection with such action, suit or proceeding if
the person indemnified acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. In the case of an action by or in the
right of the corporation, no indemnification of expenses may be made in respect
to any claim, issue or matter as to which such person shall have been adjudged
to be liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action was brought shall determine that,
despite the adjudication of liability, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 of the General Corporation Law of Delaware further provides that to
the extent a director, officer, employee or agent of the corporation has been
successful in the defense of any action, suit or proceeding referred to above or
in the defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith.
The Certificate of incorporation and By-Laws of the Company require the
Company to indemnify its Directors and officers to the fullest extent permitted
by the General Corporation Law of the State of Delaware.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the Company's estimate of the expenses to
be incurred by it in connection with the offering, excluding underwriter
discounts and commissions. Although this registration statement includes shares
of the Company's Common Stock to be sold by the Initial Selling Securityholder
and the Subsequent Selling Securityholder, no portion of the below enumerated
expenses will be paid by such individuals, but rather shall be borne by the
Company.
II-1
<PAGE>
Item Amount
---- ------
Securities and Exchange Commission/
Registration fee and other documents.... $ 7,000.00
NASD Filing Fee ............................. $ 3,000.00
"Blue-Sky" expenses and counsel fees........ $ 40,000.00 *
NASDAQ Stock Market Listing Fee ............. $ 10,000.00
Printing and Engraving Fees ................. $ 60,000.00 *
Fees and Expenses of Company's counsel...... $ 65,000.00 *
Accounting Fees ............................. $ 45,000.00 *
Transfer Agent/Warrant Agent, Registrar
Fees ................................... $ 5,000.00 *
Miscellaneous ............................... $ 15,000.00 *
-------------
TOTAL: $250,000.00*
- ----------
*Estimate
Item 26. Recent Sales of Unregistered Securities.
Other than the issuance of an aggregate of 1,350,000 shares of Common
Stock to the Initial Selling Securityholder and the Subsequent Selling
Securityholder on November 7, 1996 that resulted from the conversion of their
shares of common stock of Sun Hill - Connecticut (in connection with the
Company's redomestication to Delaware), there have been no other sales of
unregistered securities for the past three (3) years. This issuance was made in
reliance upon the exemption available under Section 4(2) of the Securities Act
of 1933, as amended as a transaction not involving any "public offering."
Item 27. Exhibits.
Exhibit Description
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
2.1* Certificates of Merger of the Registrant
3.1 Articles of Incorporation of the Company dated October 9, 1996
3.2 By-Laws of the Company
4.1*** Specimen Common Stock Certificate
4.2* Specimen Class A Common Stock Purchase Warrant
4.3 Form of Warrant Agreement
4.4 Form of Underwriter's Purchase Option
5.1* Opinion of Aieta & Greco concerning legality of securities
being registered pursuant to this Registration Statement
9.1*** Kookeroonie Trust Agreement dated December 30, 1993
10.1 1996 Non-Employee Director Stock Option Plan
10.2 1996 Employee and Consultant Stock Option Plan
II-2
<PAGE>
10.3*** The Company's "Top Heavy" Profit Sharing Plan and Trust
10.4*** The Company's Profit Sharing Plan and Trust Summary Plan
Description
10.5 Executive Employment Agreement between the Company and Mr.
Benson Zinbarg dated as of November 1, 1996
10.6*** Modification Agreement dated as of October 4, 1996 between
the Company and First Union Bank of Connecticut f/k/a "First
Fidelity Bank"
10.7*** Revolving Credit Agreement dated February 27, 1995 between
the Company and First Union Bank of Connecticut f/k/a "First
Fidelity Bank"
10.8*** Letter of Credit Agreement dated February 27, 1995 between
the Company and First Union Bank of Connecticut f/k/a "First
Fidelity Bank"
10.9*** Guaranty and Suretyship Agreement dated February 27, 1995
between Mr. Benson Zinbarg and First Union Bank of
Connecticut f/k/a "First Fidelity Bank"
10.10*** General Security Agreement dated February 27, 1995 between
the Company and First Union Bank of Connecticut f/k/a "First
Fidelity Bank"
10.11*** Revolving Credit Amendment dated December 1, 1995 by and
among Mr. Benson Zinbarg, the Company and First Union Bank of
Connecticut f/k/a "First Fidelity Bank"
10.12*** Letter of Credit Agreement Amendment by and among the
Company, Mr. Benson Zinbarg and First Union Bank of
Connecticut f/k/a "First Fidelity Bank"
10.13*** Replacement Commercial Revolving Promissory Note dated
October 4, 1996 in the principal amount of $3,500,000 having
the Company as Maker
10.14*** Letter Agreement between Sun Hill Industries, Inc. and First
Union dated November 1, 1996 re: waiver of breaches, consent
to IPO and redomestication merger transaction.
10.15*** Lease Agreement dated April 1, 1996 between The Latham Four
Partnership and Sun Hill Industries, Inc., as amended, re:
Warehouse Facilities
10.16 Lease Agreement dated September 19, 1996 between Benson
Zinbarg and Sun Hill Industries, Inc., as amended re: Unit 1B
at 48 Union Street, Stamford, CT
10.17 Lease Agreement dated September 19, 1996 between Benson
Zinbarg and Sun Hill Industries, Inc. re: Unit 4 at 48 Union
Street, Stamford, CT
10.18 Lease Agreement dated June 19, 1995 between Benson Zinbarg
and Sun Hill Industries, Inc. re: Unit 3 at 48 Union Street,
Stamford, CT
10.19*** Lease Agreement dated November 6, 1995 between Sun Hill
Industries, Inc. and 200 Fifth Avenue Associates re: Toy
Building Space
10.20*** Promissory Note of the Company dated January 5, 1996 to Mr.
Benson Zinbarg in the principal amount of $50,000 bearing
interest at the rate of .75% over the Union Trust Company
prime rate.
10.21*** Promissory Note of the Company dated January 23, 1996 to Mr.
Benson Zinbarg in the principal amount of $200,000 bearing
interest at the rate of .75% over the Union Trust Company
prime rate.
10.22*** Promissory Note of the Company dated February 1, 1996 to Mr.
Benson Zinbarg in the principal amount of $200,000 bearing
interest at the rate of .75% over the Union Trust Company
prime rate.
II-3
<PAGE>
10.23*** Promissory Note of the Company dated February 21, 1996 to Mr.
Benson Zinbarg in the principal amount of $175,000 bearing
interest at the rate of .75% over the Union Trust Company
prime rate.
10.24*** Promissory Note of the Company dated March 18, 1996 to Mr.
Benson Zinbarg in the principal amount of $25,000 bearing
interest at the rate of .75% over the Union Trust Company
prime rate.
10.25*** Promissory Note of the Company dated April 16, 1996 to Mr.
Benson Zinbarg in the principal amount of $85,000 bearing
interest at the rate of .75% over the Union Trust Company
prime rate.
10.26*** Form of Confidentiality Agreement between the Company and its
Employees.
10.27*** Equipment Lease Agreement dated July 7, 1995 between the
Company and Vanguard Financial Service Corp. re: Sale lease
back of Blow Molds
10.28*** Rental Agreement between the Company and Working Capital
Technologies of America re: computer hardware work stations
and related software.
10.29** Agency and Sales Agreement between the Company and its
principal Asian Supplier re: Exclusive Sales Arrangement for
North America
10.30** Requirements Agreement dated the 12th day of January 1994
between the Company and its Blow Molded Plastics Supplier
21 Subsidiaries of the Company.
23.1 Consent of Moore Stephens P.C.
23.2 Consent of Law Offices of David Gordon
23.3* Consent of Aieta & Greco (to be filed by amendment in Exhibit
5.1)
- ----------
* To be filed by Amendment.
** The confidential portions of such exhibits have been purposefully
omitted and made the subject of an application for confidential
treatment of even date herewith pursuant to Rule 406 of Regulation C as
promulgated under the Securities Act of 1933, as amended.
*** Pursuant to a continuing hardship exemption granted to the
Company by the Commission on November 21, 1996 under Rule 202
of Regulation S-T, these exhibits are being filed initially and
contemporaneously herewith in paper format.
Item 28. Undertakings.
1. The Company hereby undertakes to file, during any period in which
offers and sales of its securities are being made, a post-effective amendment to
this registration statement to:
(a) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and
(c) Include any additional or changed material information on the plan of
distribution.
2. The Company hereby further undertakes, for determining liability under
the Securities Act, to treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
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<PAGE>
3. The Company hereby further undertakes to file a post-effective
amendment to remove from registration any of the securities that remain unsold
at the end of the offering.
4. The Company hereby further undertakes to provide to the underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "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 Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the 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 a
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.
6. Because the Company will rely on Rule 430A under the Securities Act,
the Company hereby further undertakes that:
(a) For determining any liability under the Securities Act, it will
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon rule 430A and contained in a form of
prospectus filed by the Company under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declares it effective.
(b) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the city of Stamford,
State of Connecticut on November 21, 1996.
SUN HILL INDUSTRIES, INC.
By /s/ Benson Zinbarg
---------------------------------
Mr. Benson Zinbarg, President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
--------- ----- ----
President, Chief Executive
Officer, Chief Financial
Officer, Principal Account-
/s/ Benson Zinbarg ing Officer and Director November 21, 1996
- -----------------------
Benson Zinbarg
/s/ Bernard Spear November 21, 1996
- -----------------------
Bernard Spear Director
/s/ Ernest D. Fanwick November 21, 1996
- -----------------------
Ernest D. Fanwick Director
November 21, 1996
- -----------------------
Robert A. Breakstone Director
II-6
<PAGE>
1,000,000 Shares,
2,000,000 Class A Common Stock Purchase Warrants
and 100,000 Initial Selling
Securityholder Shares
SUN HILL INDUSTRIES, INC.
UNDERWRITING AGREEMENT
New York, New York
October __, 1996
Biltmore Securities, Inc.
6700 N. Andrews Avenue
Fort Lauderdale, Florida 33309
Sun Hill Industries, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter") (i) 1,000,000 shares (the
"Shares") of Common Stock, par value $.001 per share (the "Common Stock") and
(ii) 2,000,000 Common Stock Purchase Warrants (the "Warrants"), each to purchase
one share of Common Stock at $4.50 per share from _____________, 1997 until
___________, 2001, subject to redemption, in certain instances. In addition, the
initial selling securityholder listed on the signature page hereof (the "Initial
Selling Securityholder") proposes to sell to you an aggregate of 100,000 shares
of Common Stock (the "Initial Selling Securityholder Shares").
You have advised the Company and Initial Selling Securityholder that you
desire to purchase the Shares, the Warrants and the Initial Selling
Securityholder Shares. The Company and Initial Selling Securityholder confirm
the agreements made by them with respect to the purchase of the Shares; the
Warrants and Initial Selling Securityholder Shares by the Underwriter as
follows:
1. Representations and Warranties of the Company. The
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Company represents and warrants to, and agrees with you that:
(a) A registration statement (File No. 33-____________) on Form SB-2
relating to the public offering of the Shares, the Warrants and the Initial
Selling Securityholder Shares, including a form of prospectus subject to
completion, copies of which have heretofore been delivered to you, has been
prepared in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission under the Act and one or more amendments to such
registration statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act and as have been provided to and approved by you prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by you prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the Prospectus (as
hereinafter defined); the term "Preliminary Prospectus" means each Prospectus
subject to completion filed with such Registration Statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
Registration Statement or prospectus is amended or such prospectus is
supplemented, after
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the effective date of such registration statement, the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the prospectus
as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the First
Closing Date (as hereinafter defined)(i) the Registration Statement and
Prospectus will in all material respects conform to the requirements of the Act
and the Rules and Regulations; and (ii) neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
statements therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus on page 2 with
respect to stabilization, the paragraph under the heading "Underwriting"
relating to concessions to certain dealers, the two legends on page 4 of the
Prospectus, all descriptions involving litigation of the Underwriter, the
"Underwriting" Section of the Prospectus and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company and each of its subsidiaries (the "Subsidiaries")
have been duly incorporated and at validly existing as corporations in good
standing under the laws of their respective jurisdictions of incorporator, with
full corporate power and authority to own its properties and conduct its
business as described in the Prospectus and is duly qualified or licensed to do
business as a foreign corporation and is in good standing in each other
jurisdiction in which the nature of its business or the character or location of
its properties requires such qualification, except where the failure to so
qualify will not
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materially adversely affect the Company's or Subsidiaries business, properties
or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company, including the predecessors of the Company, as of ______________, 1996
is as set forth in the Prospectus under "Capitalization"; the shares of issued
and outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued and are fully paid and nonassessable; except as set
forth in the Prospectus, no options, warrants, or other rights to purchase,
agreements or other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the Company have
been granted or entered into by the Company; and the capital stock conforms to
all statements relating thereto contained in the Registration Statement and
Prospectus.
(e) The Shares and Initial Selling Securityholder Shares are duly
authorized, and when issued and delivered pursuant to this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable and free of
preemptive rights of any security holder of the Company. Neither the filing of
the Registration Statement nor the offering or sale of the Shares or Initial
Selling Securityholder Shares as contemplated in this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock, except as described
in the Registration Statement.
The Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
benefits provided by the warrant agreement pursuant to which such Warrants are
to be issued (the "Warrant Agreement"), which will be substantially in the form
filed as Exhibit __ to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized, validly
issued, fully paid and non-assessable,
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and free of preemptive rights and no personal liability will attach to the
ownership thereof. The Warrant Agreement has been duly authorized and, when
executed and delivered pursuant to this Agreement, will have been duly executed
and delivered and will constitute the valid and legally binding obligation of
the Company enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles. The Warrants and Warrant
Agreement conform to the respective descriptions thereof in the Registration
Statement and Prospectus.
The shares of Common Stock and the Warrants contained in the
Purchase Option (as defined as the Underwriter's Purchase Option in the
Registration Statement) have been duly authorized and, when duly issued and
delivered, such securities will constitute a valid and legally binding
obligation of the Company enforceable in accordance with its terms and entitled
to the benefits provided by the Purchase Option, except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles and the indemnification
contained in paragraph 7 of the Purchase Option may be unenforceable. The shares
of Common Stock included in the Purchase Option (and the shares of Common Stock
issuable upon exercise of the Warrants included therein) when issued and sold,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement and the Purchase Option have been duly and
validly authorized, executed, and delivered by the Company. The Company has full
power and authority to authorize, issue, and sell the Shares and Warrants to be
sold by it hereunder on the terms and conditions set forth herein, and no
consent, approval, authorization or other order of any governmental authority is
required in connection with such authorization, execution and delivery or in
connection with the authorization, issuance, and sale of the Shares, the
Warrants or the Purchase Option, except such as may be required under the Act or
state securities laws.
(g) Except as described in the Prospectus, or which would not have a
material adverse effect on the condition
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(financial or otherwise), business prospects, net worth or properties of the
Company(a "Material Adverse Effect"), the Company and Subsidiaries are not in
material violation, breach, or default of or under, and consummation of the
transactions herein contemplated and the fulfillment of the terms of this
Agreement will not conflict with, or result in a material breach or violation
of, any of the terms or provisions of, or constitute a material default under,
or result in the creation or imposition of any material lien, charge, or
encumbrance upon any of the property or assets of the Company or the
Subsidiaries pursuant to the terms of, any material indenture, mortgage, deed of
trust, loan agreement, or other material agreement or instrument to which the
Company or the Subsidiaries is a party or by which the Company or the
Subsidiaries may be bound or to which any of the property or assets of the
Company is subject, nor will such action result in any violation of the
provisions of the articles of incorporation or the by-laws of the Company or the
Subsidiaries, as amended, or any statute or any order, rule or regulation
applicable to the Company of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company or the Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and Subsidiaries have good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to their business; subject to the
qualifications stated in the Prospectus, all of the material leases and
subleases under which the Company or the Subsidiaries is the lessor or sublessor
of properties or assets or under which the Company or the Subsidiaries holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and, except as described in the Prospectus, the
Company or the Subsidiaries are not in default in any material respect with
respect to any of the terms or provisions of any of such leases or subleases,
and, to the best knowledge of the Company, no claim has been asserted by anyone
adverse to rights of the Company and Subsidiaries of lessor, sublessor, lessee,
or sublessee under any of the leases or subleases mentioned above, or affecting
or questioning the right of the Company or the Subsidiaries to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
and the Subsidiaries owns or
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<PAGE>
lease all such properties described in the Prospectus as are necessary to its
operations as now conducted and, except as otherwise stated in the Prospectus,
as proposed to be conducted as set forth in the Prospectus.
(i) Moore Stephens, P.C., who has given its reports on certain
financial statements filed with the Commission as a part of the Registration
Statement, are with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The combined/consolidated financial statements, and schedules
together with related notes, set forth in the Prospectus or the Registration
Statement present fairly the financial position and results of operations and
changes in cash flow position of the Company and the Subsidiaries on the basis
stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. To the best of the Company's knowledge,
said statements and schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a basis which is
consistent during the periods involved except as disclosed in the Prospectus and
Registration Statement. The information set forth under the caption "Selected
Financial Data" in the Prospectus fairly present, on the basis stated in the
Prospectus, the information included therein.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company or the Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the ordinary
course of business, which would have a Material Adverse Effect, and there has
not been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or the Subsidiaries or any issuance of options,
warrants or other rights to purchase the capital stock of the Company or the
Subsidiaries or any Material Adverse Effect or any development involving, so far
as the Company or the Subsidiaries can now reasonably foresee, a prospective
Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not
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<PAGE>
now pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency or body, which might result in any Material Adverse Effect,
nor are there any actions, suits or proceedings related to environmental matters
or related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company exist or to the knowledge
of the Company, are threatened which might be reasonably expected to have a
Material Adverse Effect.
(m) Except as disclosed in the Prospectus, the Company have filed
all necessary federal, state, and foreign income and franchise tax returns
required to be filed as of the date hereof and have paid all taxes shown as due
thereon; and there is no tax deficiency which has been asserted against the
Company.
(n) Except as disclosed in the Registration Statement, the Company
and each of the Subsidiaries has sufficient licenses, permits, and other
governmental authorizations currently necessary for the conduct of its business
or the ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights,
and licenses necessary for the conduct of such business and has not received any
notice of conflict with the asserted rights of others in respect thereof. To the
best knowledge of the Company, none of the activities or business of the Company
and the Subsidiaries is in violation of, or cause the Company or the
Subsidiaries to violate, any law, rule, regulation, or order of the United
States, any state, county, or locality, or of any agency or body of the United
States or of any state, county or locality, the violation of which would have a
Material Adverse Effect.
(o) The Company and the Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law.
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(p) On the First Closing Date (as hereinafter defined) all transfer
or other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be paid
in connection with the sale and transfer of the Shares, the Warrants and Initial
Selling Securityholder Shares to the Underwriter hereunder will have been fully
paid or provided for by the Company and Initial Selling Securityholder and all
laws imposing such taxes will have been complied with in all material respects.
(q) All contracts and other documents of the Company and the
Subsidiaries which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement,
the Company has no other subsidiaries.
(s) Except as disclosed in the Registration Statement, the Company
and the Subsidiaries has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company or the Subsidiaries for services as a finder in connection with the
proposed public offering.
(t) Except as disclosed in the Prospectus, no officer,
director, or stockholder of the Company has any National
Association of Securities Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Shares, the Warrants
and Initial Selling Securityholder Shares.
(a) Subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties, and agreements herein contained,
(i) the Company agrees to issue and sell to the Underwriter, and the Underwriter
agrees to buy from the Company at $3.60 per Share, at the place and time
hereinafter specified, 1,000,000 Shares (the "First Shares") (ii) the Company
agrees to issue and sell to the Underwriter and the Underwriter agrees to buy
from the Company at $.225 per Warrant at the place
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and time hereafter specified 2,000,000 Warrants (the "First Warrants") and (iii)
the Initial Selling Securityholder agrees to sell to the Underwriter, and the
Underwriter agrees to buy from the Initial Selling Securityholder at $3.60 per
share of Initial Selling Securityholder Shares at the place and time hereafter
specified, 100,000 shares of Common Stock.
Delivery of the First Shares, the First Warrants and Initial
Selling Securityholder Shares against payment therefor shall take place at the
offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York (or
at such other place as may be designated by agreement between the Underwriter
and the Company) at 10:00 a.m., New York time, on ____________, 1996, or at such
later time and date as the Underwriter may designate in writing to the Company
at least two business days prior to such purchase, but not later than
_____________, 1996 such time and date of payment and delivery for the First
Shares and the Warrants and Initial Selling Securityholder being herein called
the "First Closing Date."
(b) Intentionally Omitted.
(c) The Company will make the certificates for the securities
comprising the Shares and the Warrants to be purchased by the Underwriter
hereunder available to the Underwriter for checking at least two full business
days prior to the First Closing Date. The certificates shall be in such names
and denominations as the Underwriter may request, at least three full business
days prior to the First Closing Date. Delivery of the certificates at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriter.
Definitive certificates in negotiable form for the Shares and
the Warrants to be purchased by the Underwriter hereunder will be delivered by
the Company to the Underwriter for the account of the Underwriter against
payment of the respective purchase prices by the Underwriter, by wire transfer
in immediately available funds, payable to the Company.
It is understood that the Underwriter proposes to offer the
Shares, the Warrants and Initial Selling Securityholder Shares to be purchased
hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the
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Registration Statement becomes effective.
3. Covenants of the Company and the Initial Selling Securityholder. The
Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the Prospectus
and any amendment or supplement thereto with the Commission in the manner and
within the time period required by Rule 424(b) under the Act. Upon notification
from the Commission that the Registration Statement has become effective, the
Company will so advise the Underwriter and will not at any time, whether before
or after the effective date, file any amendment to the Registration Statement or
supplement to the Prospectus of which the Underwriter shall not previously have
been advised and furnished with a copy or to which the Underwriter or its
counsel shall have reasonably objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by the Underwriter of the distribution of the Shares, the
Warrants and Initial Selling Securityholder Shares contemplated hereby (but in
no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, the Company will prepare and file with the Commission, promptly upon
the Underwriter's request, any amendments or supplements to the Registration
Statement or Prospectus which, in the opinion of counsel to the Company and the
Underwriter, may be reasonably necessary or advisable in connection with the
distribution of the Shares, the Warrants and Initial Selling Securityholder
Shares.
As soon as the Company is advised thereof, the Company will advise
the Underwriter, and provide the Underwriter copies of any written advice, of
the receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for an amendment of the Registration Statement or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance by the Commission or any state or regulatory body of
any stop order or other order or threat thereof
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suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Shares and the Warrants for offering in
any jurisdiction, or of the institution of any proceedings for any of such
purposes, and will use its best efforts to prevent the issuance of any such
order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to the Underwriter copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Shares, the Warrants and the Initial Selling Securityholder
Shares for such period as in the opinion of counsel to the Underwriter and the
Company the use thereof is required to comply with the applicable provisions of
the Act and the Rules and Regulations. In case of the happening, at any time
within such period as a Prospectus is required under the Act to be delivered in
connection with sales by the Underwriter or any dealer, of any event of which
the Company has knowledge and which has a Material Adverse Effect on the Company
or the securities of the Company, or which in the opinion of counsel for the
Company and counsel for the Underwriter should be set forth in an amendment of
the Registration Statement or a supplement to the Prospectus in order to make
the statements therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Units or Selling Stock or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Rules and Regulations,
the Company will notify the Underwriter promptly and forthwith prepare and
furnish to the Underwriter copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as the
Underwriter may reasonably request, in order that the Prospectus, as so amended
or supplemented, will not contain any untrue statement of a material fact or
omit to state any material facts necessary in order to make the statements in
the Prospectus, in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or supplement
to the Registration Statement or amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriter, except that in
case the Underwriter is required, in connection with the sale of the Shares, the
Warrants
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<PAGE>
or Initial Selling Securityholder Shares to deliver a Prospectus nine months or
more after the effective date of the Registration Statement, the Company will
upon request of and at the expense of the Underwriter, amend or supplement the
Registration Statement and Prospectus and furnish the Underwriter with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
The Company will comply with the Act, the Rules and Regulations and
the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Shares, the Warrants and Initial Selling Securityholder Shares.
(b) The Company will furnish such information as may be required and
to otherwise cooperate and use its best efforts to qualify to register the
Shares, the Warrants and the Initial Selling Securityholder Shares for sale
under the securities or "blue sky" laws of such jurisdictions as the Underwriter
may designate and will make such applications and furnish such information as
may be required for that purpose and to comply with such laws, provided the
Company shall not be required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent of service of process in any
jurisdiction in any action other than one arising out of the offering or sale of
the Shares, the Warrants or the Initial Selling Securityholder Shares. The
Company will, from time to time, prepare and file such statements and reports as
are or may be required to continue such qualification in effect for so long a
period as the counsel to the Company and the Underwriter deem reasonably
necessary.
(c) If the sale of the Shares and the Warrants provided for herein
is not consummated as a result of the Company not performing its obligations
hereunder in all material respects, the Company shall pay all costs and expenses
incurred by it which are incident to the performance of the Company's
obligations hereunder, including but not limited to, all of the accountable out
of pocket expenses of the Underwriter up to $100,000.00 (including the
reasonable fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in writing
immediately upon the effectiveness of
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such registration statement, and (ii) obtain and keep current a listing in the
Standard & Poors or Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act of 1934, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to the Underwriter during the period ending five
(5) years from the date hereof, (i) as soon as practicable after the end of each
fiscal year, but no earlier than the filing of such information with the
Commission a balance sheet of the Company and any of its subsidiaries as at the
end of such fiscal year, together with statements of income, surplus and cash
flow of the Company and any subsidiaries for such fiscal year, all in reasonable
detail and accompanied by a copy of the certificate or report thereon of
independent accountants; (ii) as soon as practicable after the end of each of
the first three fiscal quarters of each fiscal year, but no earlier than the
filing of such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request. Notwithstanding the above, reports
provided by the Company to the Commission shall be deemed satisfactory for the
foregoing purposes.
(f) If the Company has an active subsidiary or subsidiaries, such
financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to the Underwriter at or before the
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
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<PAGE>
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon the Underwriter's order, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriter may reasonably request.
The Company will deliver to the Underwriter on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to the
Underwriter as soon as it is practicable to do so but in no event later than 90
days after the end of twelve months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Shares and the Warrants substantially for the purposes set forth under "Use of
Proceeds" in the Prospectus, and will file such reports with the Commission with
respect to the sale of the Shares and the Warrants and the application of the
proceeds therefrom as may be required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the Commission
any amendments or supplements to the Registration Statement, Preliminary
Prospectus or Prospectus and take any other action, which in the opinion of
counsel to the Underwriter and counsel to the Company, may be reasonably
necessary or advisable in connection with the distribution of the Shares, the
Warrants and the Initial Selling Securityholder Shares, and will use its best
efforts to cause the same to become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number
of its authorized but unissued securities which are issuable upon exercise of
the Purchase Option outstanding from time
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to time.
(l) (1) For a period of eighteen (18) months from the effective
date of the Registration Statement, no shareholder prior to
the offering will, directly or indirectly, publicly offer,
sell (including any short sale), grant any option for the sale
of, acquire any option to dispose of, or otherwise dispose of
any shares of Common Stock without the prior written consent
of the Underwriter, other than as set forth in the
Registration Statement. In order to enforce this covenant, the
Company shall impose stop-transfer instructions with respect
to the shares owned by every shareholder prior to the offering
until the end of such period (subject to any exceptions to
such limitation on transferability set forth in the
Registration Statement). If necessary to comply with any
applicable Blue-sky Law, the shares held by such shareholders
will be escrowed with counsel for the Company or otherwise as
required. This Section shall not apply to the sale of the
Selling Stock.
(2) except for the issuance of shares of capital stock by the
Company in connection with a dividend, recapitalization,
reorganization or similar transactions or as result of the
exercise of warrants or options disclosed in or issued or
granted pursuant to plans disclosed in the Registration
Statement, the Company shall not, for a period of eighteen
(18) months following the effective date of the Registration
Statement, directly or indirectly, offer, sell or issue any
shares of its capital stock, or any security exchangeable or
exercisable for, or convertible into, shares of the capital
stock, without the prior written consent of the Underwriter.
(m) Upon completion of this offering, the Company will make all
filings required, including registration under the Securities Exchange Act of
1934, to obtain the listing of the Common Stock, and Warrants in the NASDAQ
system, and will use its best efforts to effect and maintain such listing or a
listing on a
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national securities exchange for at least five years from the date of this
Agreement to the extent that the Company has at least 300 record holders of
Common Stock.
(n) Except for the transactions contemplated by this Agreement or as
otherwise permitted by law, the Company represents that it has not taken and
agrees that it will not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Shares, the Warrants or
the Initial Selling Securityholder Shares or to facilitate the sale or resale of
the Securities.
(o) On the First Closing Date and simultaneously with the delivery
of the Shares, the Warrants and the Initial Selling Securityholder Shares, the
Company shall execute and deliver to you the Purchase Option. The Purchase
Option will be substantially in the form filed as Exhibit __ to the Registration
Statement.
(p) Intentionally Omitted
(q) Within sixty (60) days of the First Closing Date, the Company
will have in force key person life insurance on the life of Mr. Jonathan Lasko
in an amount of not less than $1,000,000.00, payable to the Company, and will
use its best efforts to maintain such insurance for a three year period.
(r) So long as any Warrants are outstanding and the exercise price
of the Warrants is less than the market price of the Common Stock, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of a Warrant and to furnish to the Underwriter and each
dealer as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Warrants unless a registration statement covering the securities underlying the
Warrants has been declared effective by the Commission and remains current at
least until the date fixed for redemption.
(s) For a period of five (5) years from the Effective
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Date, the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission.
(t)Intentionally Omitted
(u) The Company agrees to pay to the Underwriter a finder's fee of
5.0% of the first $3,000,000.00, 4.0% of the next $3,000,000.00, 3.0% of the
next $2,000,000.00, 2% of next $2,000,000.00 and 1% of the excess, if any, over
$10,000,000.00, of the aggregate consideration received by the Company with
respect to any transaction (including, but not limited to, mergers,
acquisitions, joint ventures, and any other capital business transaction for the
Company) introduced to the Company by the Underwriter and consummated by the
Company (an "Introduced Consummated Transaction") during the five (5) year
period commencing on the effective date of the Registration Statement. The
entire amount of any such finder's fee due and payable to Underwriter shall be
paid in full by certified funds or cashier's check payable to the order of
Underwriter or in cash, in each case in the discretion of the Company, at the
first closing of the Introduced Consummated Transaction for which the finder's
fee is due. For the purposes hereof, a party shall not be deemed to be
introduced by the Underwriter unless and until (a) a written disclosure of the
identity of such prospective party shall have been given by the Underwriter and
received by the Company during the period; (b) such party was not previously
known to the Company; and (c) such party shall have commenced substantive
negotiations with the Company relating to a Introduced Consummated Transaction
during such five (5) year period.
(v) The Company agrees to pay the Underwriter a warrant solicitation
fee of 4.0% of the exercise price of any of the Warrants exercised beginning one
(1) year after the Effective Date (not including warrants exercised by the
Underwriter) if (a) the market price of the Company's Common Stock on the date
the Warrant is exercised is greater than the exercise price of the Warrant, (b)
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the exercise of the Warrant was solicited by the Underwriter and the Underwriter
is specifically designated in writing by the Warrantholder as having solicited
the exercise of the Warrant, (c) the Warrant is not held in a discretionary
account except where prior written specific approval has been obtained, (d)
disclosure of the compensation arrangement is made upon the sale and exercise of
the Warrants, (e) soliciting the exercise is not in violation of Rule 10b-6
under the Exchange Act, and (f) solicitation of the exercise is in compliance
with the NASD Notice to Members 81-38 (September 22, 1981).
4. Conditions of Underwriters' Obligation. The obligations of the
Underwriter to purchase and pay for the Shares, the Warrants and the Initial
Selling Securityholder Shares which it has agreed to purchase hereunder, are
subject to the accuracy (as of the date hereof, and as of the First Closing
Date) of and compliance with the representations and warranties of the Company
herein, to the performance by the Company of its obligations hereunder, and to
the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 a.m., New York time, on
the day following the date of this Agreement, or at such later time or on such
later date as to which the Underwriter may agree in writing; on or prior to the
First Closing Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that or a
similar purpose shall have been instituted or shall be pending or, to the
Underwriter's knowledge or to the knowledge of the Company or the Initial
Selling Securityholder, shall be contemplated by the Commission; any request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission; and no stop order shall be in effect
denying or suspending effectiveness of such qualification nor shall any stop
order proceedings with respect thereto be instituted or pending or threatened.
If required, the Prospectus shall have been filed with the Commission in the
manner and within the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the opinion,
dated as of the First Closing Date, of the Law Offices of Aieta & Greco, P.C.,
counsel for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the
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effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of their respective
jurisdictions of incorporation, with all requisite corporate power and authority
to own its properties and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each other jurisdiction in which
the ownership or leasing of its properties or conduct of its business requires
such qualification except where the failure to qualify or be licensed will not
have a Material Adverse Effect;
(ii) the authorized capitalization of the Company as of
______________, 1996 is as set forth under "Capitalization" in the Prospectus;
all shares of the Company's outstanding Common Stock requiring authorization for
issuance by directors have been duly authorized and upon payment of
consideration therefor, will be validly issued, fully paid and non-assessable
and conform in all material respects to the description thereof contained in the
Prospectus; to such counsel's knowledge the outstanding shares of Common Stock
of the Company have not been issued in violation of the preemptive rights of any
shareholder and the shareholders of the Company do not have any preemptive
rights or other rights to subscribe for or to purchase, nor are there any
restrictions upon the voting or transfer of, any of the Common Stock except as
provided in the Prospectus; the Common Stock, the Warrants, the Purchase Option,
and the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the Shares and Initial Selling
Securityholder Shares have been, and the shares of Common Stock to be issued
upon exercise of the Warrants and the Purchase Option, upon issuance in
accordance with the terms of such Warrants, the Warrant Agreement and Purchase
Option will have been duly authorized and, when issued and delivered in
accordance with their respective terms, will be duly and validly issued, fully
paid, non-assessable, free of preemptive rights and no personal liability will
attach to the ownership thereof; to the best of our knowledge all prior sales by
the Company of the Company's securities have been made in compliance with or
under an exemption from registration under the Act and applicable state
securities laws; a sufficient number of shares of Common Stock has been reserved
for issuance upon exercise
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of the Warrants and Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale of the
Shares, the Warrants or the Initial Selling Securityholder Shares as
contemplated by this Agreement gives rise to any registration rights other than
those which have been waived or satisfied for or relating to the registration of
any shares of Common Stock or as otherwise being exercised in connection with
the concurrent offering;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed, and delivered by the
Company;
(iv) the certificates evidencing the shares of Common Stock
comply with the Delaware General Corporation Law; the Warrants will be
exercisable for shares of Common Stock in accordance with the terms of the
Warrant Agreement and at the prices therein provided for;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which would materially adversely
affect the business, property, financial condition, or operations of the
Company; or which question the validity of the Securities, this Agreement, the
Warrant Agreement, or the Purchase Option, or of any action taken or to be taken
by the Company pursuant to this Agreement, the Warrant Agreement, or the
Purchase Option; to such counsel's knowledge there are no governmental
proceedings or regulations required to be described or referred to in the
Registration Statement which are not so described or referred to;
(vi) the execution and delivery of this Agreement, the
Purchase Option, or the Warrant Agreement and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a breach or violation of, or constitute
a default under the certificate or articles of incorporation or by-laws of the
Company or to the best knowledge of counsel after due inquiry, in the
performance or observance of any material obligations, agreement, covenant, or
condition contained in any bond, debenture, note, or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture, or other
21
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agreement or instrument to which the Company is a party or by which it or any of
its properties is bound or in violation of any order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality, or court,
domestic or foreign, the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for that purpose have been instituted or are pending before, or threatened by,
the Commission; the Registration Statement and the Prospectus (except for the
financial statements and other financial data contained therein, or omitted
therefrom, as to which such counsel need express no opinion) as of the Effective
Date comply as to form in all material respects with the applicable requirements
of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President and Chief Executive Officer of the Company with respect to the
Registration Statement and Prospectus and such discussions did not disclose to
such counsel any information which gives such counsel reason to believe that the
Registration Statement or any amendment thereto at the time it became effective
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus or any
supplement thereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make statements therein, in light of
the circumstances under which they were made, not misleading (except, in the
case of both the Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial statements, notes
thereto, and other financial information (including without limitation, the pro
forma financial information) and schedules contained therein, as to which such
counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company is a party are
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accurate and fairly present in all material respects the information required to
be shown, and such counsel is familiar with all contracts and other agreements
referred to in the Registration Statement and the Prospectus and any such
amendment or supplement or filed as exhibits to the Registration Statement, and
such counsel does not know of any contracts or agreements to which the Company
is a party of a character required to be summarized or described therein or to
be filed as exhibits thereto which are not so summarized, described, or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale, or delivery of the Shares, the
Warrants or the Initial Selling Securityholder Shares by the Company or the
Initial Selling Securityholder, in connection with the execution, delivery, and
performance of this Agreement by the Company or the Initial Selling
Securityholder or in connection with the taking of any action contemplated
herein, or the issuance of the Purchase Option or the Securities underlying the
Purchase Option, other than registrations or qualifications of the Shares, the
Warrants and the Initial Selling Securityholder Shares under applicable state or
foreign securities or Blue Sky laws and registration under the Act; and
(xi) the Shares and the Warrants have been duly authorized for
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ").
Such opinions shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the laws of
the United States or of the States of Delaware and New York upon opinions of
counsel satisfactory to the Underwriter, in which case the opinion shall state
that they have no reason to believe that the Underwriter and they are not
entitled to so rely.
(c) At the First Closing Date, you shall have received the opinion
of ______________________, special patent and trademark counsel, in form and
substance satisfactory to you, identifying any patent and trademark searches
conducted with respect to the
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Company's patents and trademarks and patent and trademark applications and
providing that the description in the Registration Statement with respect to the
status of such patent and trademark applications is accurate, that the Company
owns the entire right, title and interest in and to such patents and trademarks
and patent and trademark applications as described in the Prospectus and has not
received any notice of conflict with the asserted rights of others in respect
thereof and that the statements on the Prospectus under the captions "Prospectus
Summary-The Company", "Risk Factors-Dependence on Patents and Proprietary
Rights" and "Business-Patent Applications" are true and correct.
(d) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(e) The Underwriter shall have received a letter prior to the
effective date of the Registration Statement and again on and as of the First
Closing Date from Moore Stephens, P.C., independent public accountants for the
Company, substantially in the form reasonably acceptable to the Underwriter.
(f) At the First Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of the First
Closing Date and the Company shall have performed all of its obligations
hereunder and satisfied all the conditions on its part to be satisfied at or
prior to such First Closing Date; (ii) the Registration Statement and the
Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and shall in all material respects conform to the
requirements thereof, and neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto shall contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; (iii) there shall
have been, since the respective dates as of which information is given, no
Material Adverse Effect, or to the Company's knowledge, any development
involving a prospective Material Adverse Effect from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
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Statement and Prospectus indicate might occur after the effective date of the
Registration Statement, and the Company shall not have incurred any material
liabilities or entered into any material agreement not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus;
(iv) except as set forth in the Prospectus, no action, suit, or proceeding at
law or in equity shall be pending or threatened against the Company which would
be required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company before or by any commission,
board, or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling, or finding would have a Material Adverse Effect,
(v) the Underwriter shall have received, at the First Closing Date, a
certificate signed by the President and the Chief Executive Officer of the
Company, dated as of the First Closing Date, evidencing compliance with the
provisions of this subsection (e) and (vi) the Underwriter shall have received,
at the First Closing Date, such opinions, certificates, letters and other
documents as it reasonably requests.
(g) Intentionally Omitted.
(h) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the First
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Shares, the Warrants or Initial Selling Securityholder Shares and
no proceedings for the taking of such action shall have been instituted or shall
be pending, or, to the knowledge of the Underwriter or the Company, shall be
contemplated by the Commission or the NASD. The Company represents that at the
date hereof it has no knowledge that any such action is in fact contemplated by
the Commission or the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date indicated,
this Agreement and all obligations of the Underwriter under this Agreement may
be canceled at, or at any time prior to, the First Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by telegram
at or prior to the First Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company and the
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Initial Selling Securityholder. The obligation of the Company and the Initial
Selling Securityholder to sell and deliver the Shares, the Warrants and the
Initial Selling Securityholder Shares is subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 a.m. New York time, on the day following the date of this Agreement,
or on such later date as the Company and the Underwriter may agree in writing.
(b) At the First Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the Act
or any proceedings therefor initiated or threatened by the Commission.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, claims, damages, or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to which
such Underwriter and such controlling person may become subject, under the Act
or otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages, or liabilities; insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Shares, the Warrants and the
Initial Selling Securityholder Shares under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or
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arise out of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be required to indemnify the
Underwriter and any controlling person or be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage, or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such Preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto; provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses, claims,
damages, liabilities, or litigation arising from the sale of Shares or Warrants
to any person if a copy of the Prospectus was not delivered to such person at or
prior to the written confirmation of the sale to such person. This indemnity
will be in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act
against any losses, claims, damages, or liabilities joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and reasonable attorneys' fees) to which the
Company or any such director, nominee, officer, or controlling person or Selling
Stockholder may become subject under the Act or otherwise, and to reimburse, as
incurred, the Company and the other indemnified parties under this Section 6(b)
for any legal or other expenses reasonably incurred in connection with
investigating, defending against, or appearing as a third party witness in
connection with any losses, claims, damages or liabilities insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact
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contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, and Blue Sky Application
executed by the Underwriter for that purpose containing written information
specifically furnished by the Underwriter and filed in any state or other
jurisdiction in order to qualify any or all of the Shares or Warrants and
Initial Selling Securityholder Shares under the securities laws thereof, or
arise out of or are based upon the omission or the alleged omission to state in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or in any Blue Sky Application, a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or any Blue Sky Application in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter specifically for use in the preparation thereof and for any
violation by the Underwriter in the sale of such Shares or Warrants or the
Initial Selling Securityholder Shares of any applicable state or federal law or
any rule, regulation or instruction thereunder relating to violations based on
unauthorized statements by Underwriter or its representatives, provided that
such violation is not based upon any violation of such law, rule, or regulation
or instruction by the party claiming indemnification or inaccurate or misleading
information furnished by the Company or its representatives, including
information furnished to the Underwriter as contemplated herein. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) The Initial Selling Securityholder will indemnify and hold
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Act and the Underwriter and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against any losses, claims, damages, or liabilities joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and reasonable attorneys'
fees) to which the Company or any such director, nominee, officer, or
controlling person or
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the Underwriter or such controlling person may become subject under the Act or
otherwise, and to reimburse, as incurred, the Company and the other indemnified
parties and the Underwriter and such controlling persons under this Section 6(c)
for any legal or other expenses reasonably incurred in connection with
investigating, defending against, or appearing as a third party witness in
connection with any losses, claims, damages or liabilities insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, and Blue Sky
Application executed by the Initial Selling Securityholder from whom
indemnification is sought under this Section 6(c) ("Indemnifying Initial Selling
Securityholder") for that purpose containing written information specifically
furnished by such Indemnifying Initial Selling Securityholder and filed in any
state or other jurisdiction in order to qualify any or all of the Shares, the
Warrants and the Initial Selling Securityholder Shares under the securities laws
thereof, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or any Blue Sky Application in reliance upon and in conformity with written
information furnished to the Company or the Underwriter by such Initial
Indemnifying Initial Selling Securityholder specifically for use in the
preparation thereof and for any violation by such Initial Indemnifying Selling
Securityholder in the sale of such Shares, the Warrants or the Initial Selling
Securityholder Shares of any applicable state or federal law or any rule,
regulation or instruction thereunder relating to violations based on
unauthorized statements by such Initial Indemnifying Selling Securityholder or
their representatives, provided that such violation is not based upon any
violation of such law, rule, or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the
Company, the Underwriter, or their representatives, including information
furnished to the Initial Selling Securityholder as contemplated herein. This
indemnity agreement will be in addition to any liability which the Initial
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Selling Securityholder may otherwise have. The liability of the Initial Selling
Securityholder under the provisions of this Section 6(c) shall be a percentage
equal to the percentage that the net proceeds received by such Initial Selling
Securityholder from the sale of his Common Stock in the event it cannot be
determined who was at fault.
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is advisable
for the indemnified party to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, it
30
<PAGE>
being understood, however, that the indemnifying party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnified party. If it is ultimately determined
that indemnification is not permitted, then an indemnified party will return all
monies advanced to the indemnifying party.
7. Contribution. In order to provide for just and equitable contribution
under the Act in any case in which the indemnification provided in Section 6
hereof is requested but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case,
then the Company, Underwriter and the Initial Selling Securityholder shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees) (after contribution from others) in such proportions
that (a) the Underwriter is responsible in the aggregate for that portion of
such losses, claims, damages, or liabilities represented by the percentage that
the underwriting discount per Share and Warrant appearing on the cover page of
the Prospectus bears to the public offering price appearing thereon, (b) each
Initial Selling Securityholder is responsible for that portion of such losses,
claims, damages or liabilities represented by the percentage that the net
proceeds received by such Initial Selling Securityholder from the sale of his
Common Stock bears to the aggregate net proceeds received by the Company from
the sale of the Shares and the Warrants, and (c) the Company shall be
responsible for the remaining portion, provided, however, that if such
allocation is not permitted by applicable law, then such losses, claims, damages
or liabilities shall be allocated in such proportion as is appropriate to
reflect relative benefits but also
31
<PAGE>
the relative fault of the Company, the Initial Selling Securityholder and the
Underwriter, in the aggregate, in connection with the statements or omissions
which resulted in such damages and other relevant equitable considerations shall
also be considered. The relative fault shall be determined by reference to,
among other things, whether in the case of an untrue statement of a material
fact or the omission to state a material fact, such statement or omission
relates to information supplied by the Company, the Initial Selling
Securityholder or the Underwriter and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such untrue
statement or omission. The Company, the Initial Selling Securityholder and the
Underwriter agree that it would not be just and equitable if the respective
obligations of the Company, the Initial Selling Securityholder and the
Underwriter to contribute pursuant to this Section 7 were to be determined by
pro rata or per capita allocation of the aggregate damages or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section 7. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. If the full amount of the contribution specified in this
paragraph is not permitted by law, then the Underwriter and each person who
controls the Underwriter, the Initial Selling Securityholder and the Company,
its officers, directors, and controlling persons shall be entitled to
contribution from one another to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company,
Initial Selling Securityholder and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of
the Shares, the Warrants and the Initial Selling Securityholder Shares to the
Underwriter is consummated, the Company will pay all costs and expenses incident
to the performance of this Agreement by the Company including, but not limited
to, the
32
<PAGE>
fees and expenses of counsel to the Company and of the Company's accountants;
the costs and expenses incident to the preparation, printing, filing, and
distribution under the Act of the Registration Statement (including the
financial statements therein and all amendments and exhibits thereto),
Preliminary Prospectus, and the Prospectus, as amended or supplemented, the fee
of the NASD in connection with the filing required by the NASD relating to the
offering of the Shares, the Warrants and the Initial Selling Securityholder
Shares contemplated hereby; all expenses, including reasonable fees not to
exceed $50,000 (which does not include blue sky filing fees) and disbursements
of counsel to the Underwriter, in connection with the qualification of the
Shares, the Warrants and the Initial Selling Securityholder Shares under the
state securities or blue sky laws which the Underwriter shall designate; the
cost of printing and furnishing to the Underwriter copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus, this Agreement, and the
Blue Sky Memorandum, any fees relating to the listing of the Shares and the
Warrants on NASDAQ or any other securities exchange; the cost of printing the
certificates representing the securities comprising the Shares and the warrants;
fees for bound volumes and prospectus memorabilia; and the fees of the transfer
agent and warrant agent. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock, or other tax imposed by any jurisdiction) on
sales to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the
First Closing Date pay to the Underwriter a non-accountable expense allowance of
$147,000, representing the non-accountable expense allowance attributed to the
Shares, the Warrants and the Initial Selling Securityholder Shares,
respectively. In the event the transactions contemplated hereby are not
consummated by reason of any action by the Underwriter (except if such
prevention is based upon a breach by the Company or the Initial Selling
Securityholder of any covenant, representation, or warranty contained herein or
because any other condition to the Underwriter's obligations hereunder required
to be fulfilled by the Company or the Initial Selling Securityholder is not
fulfilled) the Company and Initial Selling Securityholder shall not be liable
for
33
<PAGE>
any expenses of the Underwriter, including the Underwriter's legal fees. In the
event the transactions contemplated hereby are not consummated by reason of the
Company or the Initial Selling Securityholder being unable to perform its
obligations hereunder in all material respects, the Company shall be liable for
the actual accountable out-of-pocket expenses of the Underwriter, including
reasonable legal fees, not to exceed in the aggregate $100,000.00.
(c) Except as disclosed in the Registration Statement, no person is
entitled either directly or indirectly to compensation from the Company, from
the Underwriter or from any other person for services as a finder in connection
with the proposed offering, and the Company and the Underwriter each agree to
indemnify and hold harmless the other, against any losses, claims, damages, or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Underwriter or person may become
subject insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by reason of
such person's or entity's influence or prior contact with the indemnifying
party.
9. Effective Date. The Agreement shall become effective upon its execution
except that the Underwriter may, at its option, delay its effectiveness until
11:00 a.m., New York time on the first full business day following the effective
date of the Registration Statement, or at such earlier time on such business day
after the effective date of the Registration Statement as the Underwriter in its
discretion shall first commence the initial public offering of the Shares, the
Warrants and the Initial Selling Securityholder Shares. The time of the initial
public offering shall mean the time of release by the Underwriter of the first
newspaper advertisement with respect to the Shares, the Warrants and the Initial
Selling Securityholder Shares, or the time when the the Shares, the Warrants and
the Initial Selling Securityholder Shares are first generally offered by the
Underwriter to dealers by letter or telegram, whichever shall first occur. This
Agreement may be terminated by the Underwriter at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14, and
15 shall remain in effect notwithstanding such
34
<PAGE>
termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement, except
for Sections 3(c), 6, 7, 8, 12, 13, 14, and 15 hereof, may be terminated at any
time prior to the First Closing Date, by the Underwriter if in the Underwriter's
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriter for the resale of the Shares, the Warrants or the Initial
Selling Securityholder Shares agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident, or other calamity, or from any labor
dispute or court or government action, order, or decree, which has caused a
Material Adverse Effect, (ii) trading in securities on the New York Stock
Exchange or the American Stock Exchange having been suspended or limited, (iii)
material governmental restrictions having been imposed on trading in securities
generally (not in force and effect on the date hereof), (iv) a banking
moratorium having been declared by federal or New York state authorities, (v) an
outbreak of major international hostilities involving the United States or other
substantial national or international calamity having occurred, (vi) a pending
or threatened legal or governmental proceeding or action relating generally to
the Company's or any of the Subsidiaries' business, or a notification having
been received by the Company, of the threat of any such proceeding or action,
which would have a Material Adverse Effect;(vii) except as contemplated by the
Prospectus, the Company is merged with or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs; (viii)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Underwriter to have a material adverse impact on the business,
financial condition, or financial statements of the Company and its Subsidiaries
taken as a whole, (ix) any material adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any Material Adverse Effect having occurred,
since the respective dates of which information is given
35
<PAGE>
in the Registration Statement and Prospectus.
(b) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
10, the Company shall be promptly notified by the Underwriter, by telephone or
telegram, confirmed by letter.
11. Purchase Option. At or before the First Closing Date, the Company will
sell the Underwriter or its designees at a price per option equal to one hundred
for a consideration of $100, and upon the terms and conditions set forth in the
form of Purchase Option annexed as Exhibit ___ to the Registration Statement, a
Purchase Option to purchase an aggregate of 100,000 Shares and 200,000 Warrants.
In the event of conflict in the terms of this Agreement and the Purchase Option
with respect to language relating to the Purchase Option, the language of the
Purchase Option shall control.
12. Representations and Warranties of the Underwriter. The Underwriter
represents and warrants to the Company and the Initial Selling Securityholder
that it is registered as a broker-dealer in all jurisdictions in which it is
offering the Shares, the Warrants and the Initial Selling Securityholder Shares
and that it will comply with all applicable state or federal laws relating to
the sale of the Shares, the Warrants and the Initial Selling Securityholder
Shares, including but not limited to, violations based on unauthorized
statements by the Underwriter or its representatives.
13. Representations, Warranties and Agreements to Survive Delivery. The
respective indemnities, agreements, representations, warranties, and other
statements of the Company and the Underwriter and the undertakings set forth in
or made pursuant to this Agreement will remain in full force and effect until
three years from the date of this Agreement, regardless of any investigation
made by or on behalf of the Underwriter, the Company, the Initial Selling
Securityholder or any of its officers or directors or any controlling person and
will survive delivery of and payment of the the Shares, the Warrants and the
Initial Selling Securityholder Shares and the termination of this Agreement.
14. Notice. Any communications specifically required hereunder to be in
writing, if sent to the Underwriter, will be
36
<PAGE>
mailed, delivered, or telecopied and confirmed to them at Biltmore Securities,
Inc., 6700 N. Andrews Avenue, Fort Lauderdale, Florida 33309, with a copy sent
to Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022, Attention:
Steven F. Wasserman, Esq., or if sent to the Company or the Initial Selling
Securityholder, will be mailed, delivered, or telecopied and confirmed to it at
48 Union Street, Stamford, CT 06906 Attention: Mr. Benson Zinbarg, with a copy
sent to Aieta & Greco, 73 Spring Street, Suite 601, New York, NY 10012, Attn:
Paul V. Greco, Esq. Notice shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.
15. Parties in Interest. The Agreement herein set forth is made solely for
the benefit of the Underwriter, the Company, Initial Selling Securityholder, any
person controlling the Company or the Underwriter, and directors of the Company,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors, assigns and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriter of the Shares, the Warrants or the Initial Selling Securityholder
Shares.
16. Applicable Law. This Agreement will be governed by, and
construed in accordance with, of the laws of the State of New York
applicable to agreements made and to be entirely performed within
New York.
17. Counterparts. This agreement may be executed in one or more
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more counterparts have been signed by each of the
parties hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
18. Entire Agreement; Amendments. This Agreement constitutes the entire
agreement of the parties hereto and supersedes all prior written or oral
agreements, understandings, and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in writing, signed by the
Underwriter and the Company and the Initial Selling Securityholder.
37
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with its
terms.
Very truly yours,
SUN HILL INDUSTRIES, INC.
By: __________________________
Name:
Title:
Initial Selling Securityholder
By: _____________________________
Benson Zinbarg Trustee
for the Kookerounie Trust
The undersigned is executing this Agreement solely to be bound by the
provisions of Section 6 hereof.
Aieta & Greco
By: _____________________________
Paul V. Greco, Principal
38
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
BILTMORE SECURITIES, INC.
By:__________________________
Name:
Title:
39
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO
OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE
CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY
SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE.
SUN HILL INDUSTRIES, INC.
1,000,000 SHARES OF COMMON STOCK
AND
2,000,000 CLASS A COMMON STOCK PURCHASE WARRANTS
AND
100,000 INITIAL SELLING SECURITYHOLDER SHARES
SELECTED DEALERS AGREEMENT
_____________________, 1996
Dear Sirs:
1. Biltmore Securities, Inc., named as the Underwriter in the enclosed
Preliminary Prospectus (the "Representative" or "Underwriter"), proposes to
offer on a firm commitment basis, subject to the terms and conditions and
execution of the Underwriting Agreement, 1,000,000 Shares (the "Shares") of
common stock par value $.001 per share (the "Common Stock") of Sun Hill
Industries, Inc. (the "Company") 2,000,000 Class A Common Stock Purchase
Warrants (the "Warrants") and 100,000 Shares of Common Stock which are owned by
the Kookeroonie Trust (the "Initial Selling Securityholder Shares"). The Shares,
the Warrants and the Initial Selling Securityholder Shares are more particularly
described in the enclosed Preliminary Prospectus, additional copies of which, as
well as the Prospectus (after effective date), will be supplied in reasonable
quantities upon request.
2. The Underwriter is soliciting offers to buy the Shares, the Warrants
and the Initial Selling Securityholder Shares, upon the terms and conditions
hereof, from Selected Dealers, who are to act as principals, including you, who
are (i) registered with the Securities and Exchange Commission (the
"Commission") as broker-dealers under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and members in good standing with the National
Association of Securities Dealers, Inc. (the "NASD"), or (ii) dealers of
institutions with their principal place of business located outside the United
States,
<PAGE>
its territories and possessions and not registered under the 1934 Act who agree
to make no sales within the United States, its territories and possessions or to
persons who are nationals thereof or residents therein and, in making sales, to
comply with the NASD's interpretation with respect to free-riding and
withholding. The Shares, the Warrants and the Initial Selling Securityholder
Shares are to be offered to the public at a price of $4.00 per Share, $.25 per
Warrant and $4.00 per Initial Selling Securityholder Share, respectively.
Selected Dealers will be allowed a concession of not less than _____% of the
offering price. You will be notified of the precise amount of such concession
prior to the effective date of the registration statement (the "Effective
Date"). The offer is solicited subject to the issuance and delivery of the
Shares, the Warrants and the Initial Selling Securityholder Shares and their
acceptance by the Underwriter, to the approval of legal matters by counsel and
to the terms and conditions as set forth herein.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the registration
statement covering the Shares, the Warrants and the Initial Selling
Securityholder Shares has become effective with the Commission. Subject to the
foregoing, upon execution by you of the Offer to Purchase below and the return
of same to us, you shall be deemed to have offered to purchase the number of the
Shares, Warrants and Initial Selling Securityholder Shares set forth in your
offer on the basis set forth in paragraph 2 above. Any oral notice by us of
acceptance of your offer shall be immediately followed by written or telegraphic
confirmation preceded or accompanied by a copy of the Prospectus. If a
contractual commitment arises hereunder, all the terms of this Selected Dealers
Agreement shall be applicable. We may also make available to you an allotment to
purchase Shares, Warrants and Initial Selling Securityholder Shares, but such
allotment shall be subject to modification or termination upon notice from us
any time prior to an exchange of confirmations reflecting completed
transactions. All references hereafter in this Agreement to the purchase and
sale of the Shares, Warrants and Initial Selling Securityholder Shares assume
and are applicable only if contractual commitments to purchase are completed in
accordance with the foregoing.
4. You agree that in re-offering the Shares, Warrants and Initial Selling
Securityholder Shares, if your offer is accepted after the Effective Date, you
will make a bona fide public distribution of same. You will advise us upon
request of the Shares, Warrants and Initial Selling Securityholder Shares
purchased by you remaining unsold, and we shall have the right to repurchase
such Shares, Warrants and Initial Selling Securityholder Shares upon demand at
the public offering price less the concession as set forth in paragraph 2 above.
Any of the Shares, Warrants and Initial Selling Securityholder Shares purchased
by you pursuant to this Agreement are to be re-offered by you to the public at
the public
2
<PAGE>
offering price, subject to the terms hereof and shall not be offered or sold by
you below the public offering price before the termination of this Agreement.
5. Payment for the Shares, Warrants and Initial Selling Securityholder
Shares which you purchase hereunder shall be made by you on such date as we may
determine by certified or bank cashier's check payable in New York Clearinghouse
funds to Biltmore Securities, Inc. Certificates for the securities shall be
delivered as soon as practicable at the offices of Biltmore Securities, Inc.,
6700 N. Andrews Avenue, Fort Lauderdale, Fl. 33309. Unless specifically
authorized by us, payment by you may not be deferred until delivery of
certificates to you.
6. A registration statement covering the offering has been filed with the
Commission in respect to the Shares, the Warrants and the Initial Selling
Securityholder Shares. You will be promptly advised when the registration
statement becomes effective. Each Selected Dealer in selling the Shares, the
Warrants and the Initial Selling Securityholder Shares pursuant hereto agrees
(which agreement shall also be for the benefit of the Company) that it will
comply with the applicable requirements of the Securities Act of 1933, as
amended and of the 1934 Act and any applicable rules and regulations issued
under said Acts. No person is authorized by the Company or by the Representative
to give any information or to make any representations other than those
contained in the Prospectus in connection with the sale of the Shares, the
Warrants and the Initial Selling Securityholder Shares. Nothing contained herein
shall render the Selected Dealers a member of the underwriting group or partners
with the Representative or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel that the Shares, Warrants and Initial Selling Securityholder
Shares have been qualified for sale or are exempt under the respective
securities or blue sky laws of such states, but we have not assumed and will not
assume any obligation or responsibility as to the right of any Selected Dealer
to sell the Shares, Warrants or Initial Selling Securityholder Shares in any
state.
8. The Underwriter shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or arising
thereunder. The Underwriter shall not be under any liability to you, except such
as may be incurred under the Securities Act of 1933, as amended and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part shall
be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed.
3
<PAGE>
Nothing herein contained shall be deemed a commitment on our part to sell you
any of the Shares, the Warrants or the Initial Selling Securityholder Shares;
such contractual commitment can only be made in accordance with the provisions
of paragraph 3 hereof.
10. You represent that you are a member in good standing of the National
Association of Securities Dealers, Inc. ("Association") and registered as a
broker-dealer or are not eligible for membership under Section I of the By-Laws
of the Association who agree to make no sales within the United States, its
territories, or possessions or to persons who are nationals thereof or residents
therein and, in making sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. Your attention is called to the
following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of the Rules of
Fair Practice of the Association and the interpretations of said Section
promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d) Securities Act
Release #4150; and (e) Securities Act Release #4968 requiring the distribution
of a Preliminary Prospectus to all persons reasonably expected to be purchasers
of shares from you at least 48 hours prior to the time you expect to mail
confirmations. You, if a member of the Association, by signing this Agreement,
acknowledge that you are familiar with the cited law, rules, and releases, and
agree that you will not directly and/or indirectly violate any provisions of
applicable law in connection with your participation in the distribution of the
Shares, Warrants and Initial Selling Securityholder Shares.
11. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire offering
has been distributed and closed, bid for or purchase the Shares, Warrants or
Initial Selling Securityholder Shares or their component securities in the open
market or otherwise make a market in such securities or otherwise attempt to
induce others to purchase such securities in the open market. Nothing contained
in this paragraph 11 shall, however, preclude you from acting as agent in the
execution of unsolicited orders of customers in transactions effectuated for
them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for or
purchases in the open market in connection with such stabilization any of the
Shares, Warrants or Initial Selling Securityholder Shares sold to you hereunder
and not effectively placed by you, the Underwriter may charge you the Selected
Dealer's concession originally allowed you on the Shares, Warrants and Initial
Selling Securityholder Shares so purchased, and you agree to pay such amount to
us on demand.
4
<PAGE>
13. By submitting an Offer to Purchase you confirm that your net capital
is such that you may, in accordance with Rule 15c3-1 adopted under the 1934 Act,
agree to purchase the number of the Shares, Warrants and Initial Selling
Securityholder Shares you may become obligated to purchase under the provisions
of this Agreement.
14. You agree that (i) you shall not recommend to a customer the purchase
of the Shares, Warrants or Initial Selling Securityholder Shares unless you
shall have reasonable grounds to believe that the recommendation is suitable for
such customer on the basis of information furnished by such customer concerning
the customer's investment objectives, financial situation and needs, and any
other information known to you, (ii) in connection with all such determinations,
you shall maintain in your files the basis for such determination, and (iii) you
shall not execute any transaction in the Shares, the Warrants or the Initial
Selling Securityholder Shares in a discretionary account without the prior
specific written approval of the customer.
15. All communications from you should be directed to us at the office of
the Underwriter, Biltmore Securities, Inc., 6700 N. Andrews Avenue, Fort
Lauderdale, Fl. 33309. All communications from us to you shall be directed to
the address to which this letter is mailed.
Very truly yours,
BILTMORE SECURITIES, INC.
By: ______________________________
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE _____
DAY OF _____________________, 1995
[Name of Dealer]
By: ______________________________
Name:
Title:
<PAGE>
To: Biltmore Securities, Inc.
6700 N. Andrews Avenue
Fort Lauderdale, Fl. 33309
We hereby subscribe for _____________ shares (the "Shares") of Sun Hill
Industries, Inc., each Share consisting of one (1) share of common stock, par
value $.001 per share (the "Common Stock") and ____ Common Stock purchase
warrants (the "Warrants"), each to purchase one share of Common Stock and ____
Initial Selling Securityholder Shares in accordance with the terms and
conditions stated in the foregoing letter. We hereby acknowledge receipt of the
Prospectus referred to in the first paragraph thereof relating to said Shares,
Warrants and Initial Selling Securityholder Shares. We further state that in
purchasing said Shares, Warrants and Initial Selling Securityholder Shares we
have relied upon said Prospectus and upon no other statement whatsoever, whether
written or oral. We confirm that we are a dealer actually engaged in the
investment banking or securities business and that we are either (i) a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD") or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions and not registered as a
broker or dealer under the Securities Exchange Act of 1934, as amended, who
hereby agrees not to make any sales within the United States, its territories or
its possessions or to persons who are nationals thereof or residents therein. We
hereby agree to comply with the provisions of Section 24 of Article III of the
Rules of Fair Practice of the NASD, and if we are a foreign dealer and not a
member of the NASD, we also agree to comply with the NASD's interpretation with
respect to free-riding and withholding, to comply, as though we were a member of
the NASD, with the provisions of Sections 8 and 36 of Article III thereof as
that Section applies to non-member foreign dealers.
[Name of Dealer]
___________________________________
By: ______________________________
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Address
___________________________________
___________________________________
Dated _____________________, 1996
3
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State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "SUN HILL INDUSTRIES, INC.", FILED IN THIS OFFICE ON THE NINTH
DAY OF OCTOBER, A.D. 1996, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
-----------------------------------
GREAT SEAL OF THE STATE OF DELAWARE
LOGO
1793 - 1847 - 1907
-----------------------------------
[SEAL] /s/ Edward J. Freel
-------------------
Edward J. Freel, Secretary of State
2671794 8100 AUTHENTICATION: 8142019
960294900 DATE: 10-10-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SUN HILL INDUSTRIES, INC.
FIRST: The name of the corporation (the "Corporation") is SUN HILL
INDUSTRIES, INC.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801
and the name of the registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business and purposes to be conducted, promoted
and carried on are:
a. To engage in the design, manufacture, storage, distribution and sale of
holiday, seasonal and novelty merchandise items as well as pet and stationery
products of every kind and character.
b. In connection with the foregoing, to engage in any similar business
which, in the judgment of the board of directors may be of use or advantage to
the Corporation.
c. To acquire, construct, maintain, develop, improve, rent, use, mortgage
and dispose of real property and interests and estates and rights therein.
d. To guarantee, purchase, or otherwise acquire, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock, bonds, or other evidence of indebtedness created by other corporations,
and while the holder of such stock, to exercise all the rights and privileges of
ownership, including the right to vote therein, to the same extent as a natural
person might or could do.
e. To enter into, make and perform contracts of every kind for any lawful
purpose, without limit as to amount, with any person, firm, association or
corporation, town, city, county, state, territory or government.
f. To borrow money, issue bonds, debentures or obligations, and to secure
the same by mortgage, pledge, deed of trust or otherwise.
g. To purchase, hold, sell and transfer the shares of its capital stock.
h. To have one or more officers and to conduct any or all of its operations
and business and to promote its objects within or without the State of Delaware,
without restrictions as to place or amount.
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i. To do any or all of the things set forth as principal, agent,
contractor, trustee, or otherwise, alone or in the company with others.
j. To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware, now or hereinafter in
effect.
FOURTH: The total number of shares of capital stock which the Corporation
shall have the authority to issue is 25,000,000 shares, of which 20,000,000
shares shall be designated "Common Stock" and have a par value of $.001 per
share, and 5,000,000 shares shall be designated "Preferred Stock" and have a par
value of $.001 per share.
All shares of Common Stock will be equal to each other, and each holder of
record of Common Stock shall have one vote for each share outstanding in his
name on the books of the Corporation and shall be entitled to vote said stock.
The Preferred Stock shall be issued from time to time in one or more series
with such distinctive serial designations and (1) may have such voting powers,
full or limited, or may be without voting powers; (2) may be subject to
redemption at such time or times and at such prices; (3) may be entitled to
receive dividends (which may be cumulative or noncumulative) at such rate or
rates, on such conditions, and at such times, and payable on any other class or
classes of stock; (4) may have such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation; and (5) may be made convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation, at
such price or prices or at such rates of exchange and with such adjustments; all
as shall hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such Preferred Stock from time to time adopted by the
board of directors pursuant to the authority so to do which is hereby granted
and expressly vested in the board of directors.
The Board of Directors shall have authority to cause the Corporation to
issue from time to time, without any vote or other action by the shareholders,
any or all shares of stock of the Corporation of any class or series at any time
authorized, and any securities convertible into or exchangeable for any such
shares, and any options, rights or warrants to purchase or acquire any such
shares, in each case to such persons and on such terms (including as a dividend
or distribution on or with respect to, or in connection with a split or
combination of, the outstanding shares of stock of the same or any other class
or series) as the board of directors from time to time in its discretion
lawfully may determine; provided, that the consideration for the issuance of
shares of stock of the Corporation (unless issued as such a dividend or
distribution or in connection with such a split or combination) shall not be
less than the par value of such shares. Shares so issued shall be fully-paid
stock, and the holders of such stock shall not be liable to any further calls or
assessments thereon.
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FIFTH: The name and mailing address of the incorporator is as follows:
Mr. Benson Zinbarg
Sun Hill Industries, Inc.
48 Union Street
Stamford, Connecticut 06906-1329
SIXTH: Unless otherwise provided in the resolution or resolutions of the
board of directors providing for the issue of any series of the Preferred Stock,
cumulative voting of shares of the Corporation's capital stock shall not be
permitted or allowed.
SEVENTH: No stockholder of this Corporation shall, because of his ownership
of stock, have a pre-emptive or other right to purchase, subscribe for, or take
any part of any issue of stock or any security convertible into or carrying
options or warrants to purchase stock of this Corporation.
EIGHTH: The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than three
nor more than twelve directors. The exact number of directors shall be
determined from time to time by resolution adopted by the Board of Directors.
Any additional director elected to fill a newly created directorship resulting
from an increase in the number of directors shall hold office only until the
next annual meeting of shareholders and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Directors shall be elected by the affirmative vote of the holders of shares
of stock representing a plurality of the total number of shares present in
person or by proxy at the meeting entitled to vote in such election. Any vacancy
on the board of directors, whether resulting from an increase in the number of
directors or otherwise, may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall hold office for the unexpired term for which his predecessor
was elected.
No director shall be removed from office except for cause, and only upon
the affirmative vote of the holders of two-thirds (2/3) of the shares then
entitled to vote at an election of directors.
NINTH: Meetings of the board of directors and of the stockholders may be
held from time to time within or without the State of Delaware at such times and
places as may be designated in the by-laws or resolutions of the board of
directors.
TENTH: In furtherance and not in limitation of the powers hereinabove
conferred, or conferred by the statutes and laws of the State of Delaware, the
board of directors shall have the following powers:
a. To make, alter, amend, or repeal the by-laws for the Corporation.
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b. To designate by resolution passed by a majority of the whole board of
directors, an executive committee and such other committees as the board of
directors shall deem desirable, each committee to consist of at least one (1)
member of the board of directors, which committee or committees, to the extent
provided in such resolution or in the by-laws, shall have and may exercise the
powers of the board of directors in the intervals between meetings of the board,
in the management of the business and affairs of the Corporation.
ELEVENTH: No contract or transaction between the Corporation and one (1) or
more of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one (1) or
more of its directors or officers, are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board of directors or
the committee, and the board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
b. The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the board of directors, a committee
or the shareholders.
d. For purposes of this Article ELEVENTH, common or disinterested directors
may be counted in determining the presence of a quorum at a meeting of the board
of directors or of a committee which authorizes the contract or transaction.
TWELFTH: The officers and directors of the Corporation shall be subject to
the doctrine of corporate opportunities only insofar as it applies to business
opportunities in which the Corporation has expressed an interest as determined
from time to time by the Corporation's board of directors as evidenced by
resolutions appearing in the Corporation's minute book and as otherwise properly
evidenced and provided for in contracts of employment or similar agreements
between the Corporation and its executive officers. When such areas of interest
are delineated, all such business opportunities within such areas of interest
which come to the attention of the officers, directors and other members of
management of the Corporation shall be disclosed promptly to the Corporation and
made available to it. The board of directors may reject any business opportunity
presented to it and thereafter, any officer, or director, or other member of
management may avail himself of such opportunity. Until such time as the
Corporation, through its board of directors, has designated an area of interest,
the officers, directors and other members of management of the Corporation shall
be free to engage in such areas of interest on their own and the provisions
hereof shall not limit the rights of any officer, director or other member of
management of the Corporation to continue a business existing prior to the time
that such area of
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interest is designated by the Corporation. This Article TWELFTH shall not be
construed to release any employee of the Corporation (other than an officer,
director, or a member of management) from any duties which he may have to the
Corporation.
THIRTEENTH: A. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
B. The Corporation shall, to the full extent permitted by, and in all
manners permissible under the laws of the State of Delaware indemnify any person
made, or threatened to be made, a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he
or she is or was a director, officer, employee or agent of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, and such indemnification shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of his
or her heirs, executors and administrators. As used in this Article THIRTEENTH,
the term Corporation shall include each wholly-owned subsidiary of any
predecessor of the Corporation and the Corporation or any predecessor of this
Corporation.
FOURTEENTH: If the Delaware General Corporation Law or other applicable law
requires that a vote or other action to be taken by stockholders of the
Corporation to authorize or approve any merger or consolidation of the
Corporation with or into any other business entity or any sale, lease or
exchange of all or substantially all of the Corporation's property or assets or
the dissolution of the Corporation, no such vote or other action shall be of any
force and effect unless such transaction shall be approved by the affirmative
vote of the holders of two-thirds (2/3) of the outstanding shares, or any class
or series thereof, entitled to vote thereon, unless such transaction shall have
first been approved by the Board of Directors, in which event such action may be
taken upon the affirmative vote of a majority of such shares or any class or
series thereof.
FIFTEENTH: A. Elections of directors need not be by ballot unless the
Bylaws of the Corporation shall so provide.
B. Any action required to be taken at any annual or special meeting of
stockholders of the Corporation may only be taken without a meeting by written
consent setting forth the action so taken if such written consent shall be
dated, signed and delivered to the Corporation's Secretary by the holders of not
less than all of the issued and outstanding shares entitled to vote on such
matter or any class or series thereof.
SIXTEENTH: A. The Corporation may purchase or redeem its own shares in the
manner and on the conditions permitted and provided in Section 160 of the
Delaware General Corporation Law or other applicable law, and as may be
authorized by the board of directors. Shares so purchased shall be considered
treasury shares, and may be reissued and disposed of as authorized
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<PAGE>
by law, or may be canceled and the capital stock reduced, as the Board of
Directors may, from time to time, determine in accordance with applicable law.
B. The board of directors shall have such power and authority with respect
to capital, surplus and dividends, including allocation, increase, reduction,
utilization, distribution and payment, as is permitted and provided in Sections
154, 170 and 244 of the Delaware General Corporation Law or other applicable
law.
SEVENTEENTH: Except as otherwise provided in this Certificate of
Incorporation, amendments to this Certificate of Incorporation, including,
without limitation, any increase or reduction of capital stock, shall require
the affirmative vote of the holders of two-thirds (2/3) of the outstanding
shares, or any class or series thereof, entitled to vote thereon, unless such
amendments shall have first been approved by the Corporation's Board of
Directors, in which event such amendments may be adopted upon the affirmative
vote of a majority of such shares or any class or series thereof.
EIGHTEENTH: Except as may be otherwise required by applicable law, the sale
and any other transfer of fully paid stock of the Corporation shall be free from
any restrictions or all liens imposed by the Corporation.
NINETEENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said organization shall,
if sanctioned by the court to which said application has been made, be binding
on all the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of this Corporation, as the case may be, and also on this
Corporation.
IN WITNESS WHEREOF, THE UNDERSIGNED, being the sole incorporator
hereinbefore named, for the purpose of forming a corporation pursuant to
Delaware General Corporation Law, does sign this certificate, hereby declaring
that the facts herein are true, this 6th day of October, 1996.
/s/ Benson Zinbarg
--------------------
Benson Zinbarg
<PAGE>
BYLAWS
OF
SUN HILL INDUSTRIES, INC.
(a Delaware Corporation)
ARTICLE I. OFFICES
1.1. The registered office of the Corporation in the State of Delaware
shall be located at 1209 Orange Street, Wilmington, Delaware 19801 and the
registered agent of the Corporation at such registered office shall be The
Corporation Trust Company or such other office or registered agent as the board
of directors may designate in accordance with the applicable provisions of the
Delaware General Corporation Law.
1.2. The Corporation may have offices at such other places within or
without the State of Delaware as the board of directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II. STOCKHOLDERS
2.1. All meetings of the stockholders shall be held at such place within
or without the State of Delaware as the board of directors may designate in the
notice of the meetings.
2.2. The annual meeting of stockholders for the election of directors, and
the transaction of such other business as may properly be brought before the
meeting, shall be held at 2:00 p.m. on the third Tuesday of May each year, or at
such other date and time as shall be designated by the board of directors and
stated in the notice of the meeting, or, if such day is a generally observed
business holiday, on the first business day thereafter.
2.3. At least 10 days before every meeting of stockholders, the officer
who has charge of the stock ledger of the Corporation shall prepare and make a
list of the stockholders entitled to vote, arranged alphabetically and certified
by the secretary, showing the address of each stockholder and the number and
class of shares held by each such stockholder on the record date for the
meeting. Such list shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at last 10 days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE>
2.4. Except as provided in sections 2.5 and 2.8 hereof, any number of
stockholders, who are present in person or represented by proxy at any meeting,
together holding at least a majority of the votes entitled to be cast thereat,
constitute a quorum for the transaction of business despite the subsequent
withdrawal or refusal to vote of any stockholder; provided, however, if such
meeting has been called to consider a variation of the rights of any class or
series of issued shares or any other matter where a separate vote by class or
classes is required, the holders of at least a majority of the issued and
outstanding shares of each class or series, present in person or represented by
proxy at such meeting and entitled to vote thereat, shall constitute a quorum
for the purpose of considering such variation of such rights or other matter.
2.5. Except as otherwise required by express provision of law or the
Certificate of Incorporation, in which case such express provision shall govern,
when a quorum is present at any meeting, a majority of the votes cast by
stockholders present in person or represented by proxy at any meeting shall
decide any question brought before such meeting, except that directors shall be
elected by a plurality of the votes of the shares present in person or by proxy.
2.6. At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person, or by proxy appointed by an
instrument in writing subscribed by such stockholder. The proxy need not be a
stockholder of the Corporation. Each stockholder shall have one vote for each
share of common stock and such other number of votes for each share of stock
granted greater or lesser voting rights in accordance with the Certificate of
Incorporation, registered in his name on the books of the Corporation at the
time of the meeting or on the record date for the determination of stockholders
entitled to vote at the meeting if the board of directors shall have fixed such
a record date.
2.7. Adjournment of any annual or special meeting of stockholders for a
period not in excess of 30 days may be taken without new notice being given
unless a new record date is fixed for the adjourned meeting.
2.8. If less than a quorum is in attendance at any time for which a
meeting is called, the meeting may, after the lapse of at least half an hour, be
adjourned by a majority of the votes cast by stockholders present or represented
and entitled to vote thereat. If notice of such adjourned meeting is sent to the
stockholders entitled to vote at the meeting stating that the previous meeting
failed for lack of a quorum, then any number of stockholders, present in person
or represented by proxy, and together holding at least a majority of the
outstanding shares entitled to vote thereat, shall constitute a quorum at the
adjourned meeting.
2.9. Special meetings of the stockholders for any purpose or purposes may
be called by the president or by resolution of the directors, and shall be
called upon a written request therefor, stating the purpose or purposes thereof,
delivered to the secretary and signed by the president or by a majority of the
directors. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice of the meeting.
2.10. Written or printed notice stating the place, day and hour of the
meeting and, if a special meeting, the general purpose or purposes for which the
meeting is called, shall (unless applicable Delaware law requires otherwise) be
given not less than 10 nor more than 60 days before the date of the meeting,
either personally or by mail, or by prepaid telegram or telex, by or
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at the direction of the president, or the secretary, or of the persons calling
the meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, addressed to the stockholder at his address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid. If notice
is given by telegram, such notice shall be deemed to be given when delivered to
the telegraph company.
2.11. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting, or at any adjournment of a
meeting, of stockholders; or entitled to express consent to corporate action in
writing without a meeting; or entitled to receive payment of any dividend or
other distribution or allotment of any rights; or entitled to exercise any
rights in respect of any change, conversion, or exchange of stock; or for the
purpose of any other lawful action; the board of directors may fix, in advance,
a record date, which shall not precede the date upon which the resolution fixing
the record date is adopted by the board of directors, and which record date
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other action, nor more than 10 days after the
date upon which the resolution fixing the record date to determine the
stockholders entitled to express such written consent is adopted by the board of
directors. If no record date is fixed, (i) the record date for determining
stockholders entitled to notice of or to vote at any meeting shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived by all stockholders, at the close of business on the day
next preceding the day on which the meeting is held; (ii) and if prior action by
the board of directors is not required under applicable Delaware law, the record
date for determining stockholders entitled to express consent to corporate
action without a meeting shall be the first date on which a signed consent is
delivered to the Corporation; and (iii) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating to such other
purpose, including, without limitation, in connection with the solicitation of
written consents from stockholders where prior action by the board of directors
is required under applicable Delaware law. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
2.12. Any action required or permitted to be taken at any annual or
special meeting of stockholders of the Corporation may only be taken without a
vote if a consent in writing setting forth the action so taken shall be dated
and signed by the holders of all of the outstanding shares that would be
entitled to vote thereon at a meeting, and shall be delivered to the
Corporation. Any such consent may be in counterparts and shall be effective as
of the date of the last signature thereon needed to make it effective unless
otherwise provided therein; provided that within sixty days of the earliest
dated consent delivered to the Corporation written consents signed by a
sufficient number of stockholders to take action are delivered to the
Corporation. Such consent shall be filed with the minutes of proceedings of the
stockholders.
2.13 Any stockholder who intends to make a proposal to be presented for
vote at any annual or special meeting of stockholders of the Corporation must
provide the Board of Directors or the Secretary of the Corporation with written
notice of such intention not later than the close of business on the fifth day
following the date on which notice of such annual or special meeting is given to
the Corporation's stockholders. The notice shall include the name and address of
the
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stockholder, the number of voting securities he or she holds of record and which
he or she holds beneficially, the text of the proposal to be presented at the
meeting and a statement in support of the proposal. Any stockholder may make any
other proposal at an annual or special meeting of stockholders and the same may
be discussed and considered, but unless stated in writing as herein provided and
filed with the Board of Directors or Secretary of the Corporation prior to the
date hereinabove set forth, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the stockholders taking place 60 days
or more thereafter. This section 2.13 of these by-laws shall not prevent the
consideration and approval or disapproval at any annual meeting of the reports
of officers, directors, and committees; but in connection with such reports, no
new business proposed by a stockholder (acting in such capacity) shall be acted
upon at such annual meeting unless stated and filed as hereinabove described.
ARTICLE III. DIRECTORS
3.1. The Board of Directors shall consist of such number of members as
shall be determined from time to time by action of the board of directors in
accordance with the Certificate of Incorporation. The board of directors may
increase or decrease the number of directors as may be appropriate provided,
however, that no decrease shall have the effect of shortening the term of any
incumbent director. In any election of dirctors, provided a quorum is present,
the persons receiving a plurality of the votes cast in person and by proxy,
shall be elected as directors. Each director shall serve for a term of one year
and until his successor is duly elected and qualified or until his death,
resignation, retirement, disqualification or removal.
3.2. Any vacancy occurring in the board of directors may be filled by the
affirmative vote of a majority of the remaining members of the board of
directors though less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase in
the number of directors shall be filled by the affirmative vote of a majority of
directors then in office or by an election at an annual meeting or at a special
meeting of stockholders called for that purpose. A director chosen to fill a
position resulting from an increase in the number of directors shall hold office
for a term expiring at the next annual meeting of stockholders.
3.3. Meetings of the board of directors shall be held at such place within
or without the State of Delaware as may from time to time be fixed by resolution
of the board of directors or as may be specified in the notice or waiver of
notice of any meeting. Meetings may be held at any time upon the call of the
President or any two (2) of the directors in office by oral, telegraphic,
facsimile transmission or written notice, duly served or sent or mailed to each
director not less than one (1) day before such meeting. Meetings may be held at
any time and place without notice if all the directors are present, or if those
not present shall in writing or by telegram or cable or facsimile transmission
waive notice thereof. A regular meeting of the board of directors may be held
without notice immediately following the annual meeting of stockholders at the
place where such annual meeting is held. Regular meetings of the board may also
be held without notice at such time and place as shall from time to time be
determined by resolution of the board of directors. Members of the board of
directors or any committee of the board may participate in a meeting of such
board or committee by means of conference telephone or similar communication
equipment by means of which all persons participating in the meeting can hear
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each other, and participation in the meeting pursuant thereto shall constitute
presence in person at such meeting.
3.4. At all meetings of the board, a majority of the directors in office
and qualified shall constitute a quorum for the transaction of business, and the
action of a majority of the directors present at any meeting at which a quorum
is present shall constitute the action of the board of directors, unless the
concurrence of a greater proportion is required for such action by law, the
Certificate of Incorporation or these Bylaws. If a quorum is not present at any
meeting of directors, a majority of the directors present at the meeting may
adjourn the meeting from time to time, without notice other than announcement of
the adjournment at the meeting, until a quorum is present. If a quorum be
present, the directors present may continue to act by vote of a majority of a
quorum until adjournment, notwithstanding the subsequent withdrawal of enough
directors to leave less than a quorum or the refusal of any directors present to
vote.
3.5. Any action which may be taken at a meeting of the board or any
committee thereof, may be taken by a consent in writing signed by all of the
directors or by all members of the committee, as the case may be, and filed with
the records of proceedings of the board or committee.
3.6. Directors may receive such compensation and expense reimbursement as
the board by resolution may from time to time determine.
3.7. The board of directors is charged with the management of the business
of the Corporation, and subject to any restrictions imposed by law, the
Certificate of Incorporation or these Bylaws, and subject to the provisions of
Article V hereof, may exercise all the powers of the Corporation. Without
prejudice to such general powers, the directors have the following specific
powers:
(a) From time to time, to devolve the powers and duties of any officer
upon any other person for the time being.
(b) To confer upon any officer the power to appoint, remove and suspend,
and fix and change the compensation of subordinate officers, agents and factors.
(c) To determine who shall be entitled to vote, or to assign and transfer
any shares of stock, bonds, debentures or other securities of other corporations
being held by this Corporation.
(d) To delegate any of the powers of the board to any standing or special
committee or to any officer or agent (with power to subdelegate) upon such terms
as they deem fit.
3.8. Directors may be removed from office only for cause and only upon the
affirmative vote of the holders of not less than two-thirds (2/3) of the
outstanding shares of stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class.
3.9. The resignation of a director shall take effect on receipt of notice
of such resignation by the president or secretary, or on any later date, not
more than sixty days after such receipt.
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ARTICLE IV. COMMITTEES
4.1. The board of directors may delegate to an Executive Committee
whatever powers the board in its discretion may deem fit to so delegate. If an
Executive Committee is appointed, the president shall be a member, and at least
two other members of the board of directors shall likewise be members, and the
committee shall have all of the powers of the board when the board is not in
session, except the power to declare dividends, make or alter Bylaws, fill
vacancies on the board or the Executive Committee, change the membership of the
executive committee, or as otherwise prohibited by applicable law.
4.2. The board of directors may delegate to an Audit Committee the power
to recommend the engagement and discharge of independent auditors of the
Corporation, to direct and supervise special investigations, to review with the
independent auditors the plan and results of the Corporation's procedures for
internal auditing, and such other powers as are customarily exercised by audit
committees of publicly owned corporations.
4.3. The board of directors may delegate to a Compensation and Option
Committee the power to review and determine salaries for officers and key
employees, to administer the Corporation's stock option plans and determine to
whom stock options should be granted, the number of shares to be optioned and
the option price to be paid, and to review and determine bonuses and other
special awards of employee compensation and benefits.
4.4. The board of directors shall have the power to designate such other
committees, and for such other purposes, as the board may deem necessary or
appropriate. Any committee designated by the board shall keep regular minutes of
its proceedings and shall report the same to the board when required, but no
approval by the board of any action properly taken by a committee shall be
required.
4.5. If the board fails to designate the chairman of any committee, the
president shall be chairman if he serves on such committee. Each committee shall
meet at such times as it shall determine, and at any time on call of the
chairman. A majority of a committee constitutes a quorum, and the committee may
take action either by vote of a majority of the members present at any meeting
at which there is a quorum or by written consent of all of the members. In case
of absence or disqualification of a member of a committee at any meeting
thereof, the qualified members present, whether or not they constitute a quorum,
may unanimously appoint a director to act in place of the absent or disqualified
member. The board has power to change the members of any committee at any time,
to fill vacancies, and to discharge any committee at any time.
ARTICLE V. OFFICERS
5.1. The officers of the Corporation shall be a president, one or more
vice-presidents, a treasurer, a secretary, and such other officers as may, from
time to time, be elected or appointed by the board. Any two or more offices may
be held by the same person (except the offices of secretary and treasurer), and,
none need be a director; provided that no person holding more than
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one office may sign, in more than one capacity, any certificate or other
instrument required by law to be signed by two officers unless another officer
of the Corporation shall also sign such instrument or certificate.
5.2. The officers of the corporation shall be elected by the board of
directors at its first meeting after adoption of these Bylaws and thereafter
annually at the first meeting of the board of directors held after each annual
meeting of the stockholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided.
5.3. Any officer, employee or agent elected or appointed by the board of
directors may be removed, with or without cause, by the affirmative vote of a
majority of the board of directors.
5.4. A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the board of directors for the
unexpired portion of the term.
5.5. The president shall preside at meetings of the directors and
stockholders. Subject to the direction of the board of directors, he is the
chief executive officer of the Corporation, with general authority to manage the
Corporation's business and power to make contracts in the ordinary course of
business; shall see that all orders and resolutions of the board are carried
into effect and direct the other officers in the performance of their duties;
has power to execute all authorized instruments; and shall have general
authority to perform all acts incident to the office of president, or which are
authorized or required by law, or which are incumbent upon him under the
provisions of the Certificate of Incorporation and these Bylaws.
5.6. Each vice-president (if any) shall have such powers, and shall
perform such duties, as shall be assigned to him by the board of directors or
the president, and, in the order determined by the board, shall, in the absence
or disability of the president, perform his duties and exercise his powers.
5.7. The secretary shall give, or cause to be given, notice of all
meetings of stockholders, directors or committees, and all other notices
required by law or by these Bylaws, and in the case of his absence or refusal or
neglect to do so, any such notice may be given by the president or the directors
upon whose request the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the stockholders, of the
directors, and of committees in a book to be kept for that purpose. Except as
otherwise determined by the directors, he has charge of the original stock
books, transfer books and stockledgers, and shall act as transfer agent in
respect of the stock and other securities issued by the Corporation. He has
custody of the seal of the Corporation, and shall affix it to all instruments
requiring it; and he shall perform such other duties as may be assigned to him
by the directors or the president.
5.8. The treasurer shall have custody of all funds, securities, evidences
of indebtedness and other valuable documents of the Corporation. He shall
receive and give, or cause to be given, receipts and acquittances for monies
paid in an account of the Corporation, and shall pay out of the funds on hand
all just debts of the Corporation of whatever nature, when due. He shall
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enter, or cause to be entered, in books of the Corporation to be kept for that
purpose, full and accurate accounts of all monies received and paid out on
account of the Corporation, and, whenever required by the president or the
directors, he shall render a statement of his accounts.
He shall keep or cause to be kept such books as will show a true record of
the expenses, gains, losses, assets and liabilities of the Corporation. The
duties and responsibilities assigned to the treasurer in this paragraph may be
delegated by the president or by the Board to a controller or other chief
accounting officer.
He shall perform all of the other duties incident to the office of
treasurer. Upon termination of his tenure, he will restore to the Corporation
all property of the corporation under his control. If required by the board of
directors, he shall give the Corporation a bond in such sum with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
5.9. The president may designate one or more assistant secretaries or
assistant treasurers or controllers who shall have such duties as may be
delegated to them by the president or by the secretary or the treasurer,
respectively.
5.10. Compensation of the officers shall be fixed from time to time by the
board of directors and no officer shall be prevented from receiving such
compensation by reason of the fact that he is also a director of the
Corporation.
ARTICLE VI. CAPITAL STOCK
6.1. Certificates of stock, numbered and signed by the president or a
vice-president, and by the treasurer or secretary, or assistant treasurer or
assistant secretary, shall be issued to each stockholder, certifying the number
of shares owned by him in the Corporation. Every certificate of the stock shall
state the name of the Corporation, that the Corporation is incorporated under
the laws of Delaware, the name of the registered holder of shares represented
thereby, the number, class, designation, registrar and transfer agencies, if
any, of the shares represented thereby, and par value.
6.2. A new certificate of stock may be issued to a stockholder upon
transferring part of his holding of stock for the balance of that holding or in
place of any certificate theretofore issued by the Corporation, alleged to have
been worn out, lost, stolen, mutilated or destroyed, or mailed and not received,
on such terms as to evidence of loss, theft or destruction and indemnity and
payment of expenses reasonably incurred by the Corporation in investigating such
evidence as the directors may determine but otherwise free of charge and (in the
case of mutilation or wearing out) on delivery up of the old certificate.
6.3. Shares of stock of the Corporation are transferable only on its
books, by the holders thereof in person or by their duly authorized attorneys or
legal representatives, and upon such transfer, the old certificates shall be
surrendered to the person in charge of the stock-transfer
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records, by which they shall be cancelled, and new certificates shall thereupon
be issued. A record shall be made of each transfer, and whenever a transfer is
made for collateral security, and not absolutely, it shall be so expressed in
the entry of the transfer. The board may make regulations concerning the
transfer of shares, and may in their discretion authorize the transfer of shares
from the names of deceased persons whose estates are not administered, upon
receipt of such indemnity as they may require. The registration of transfers of
stock or of any class of stock may be suspended at such times and for such
periods (not exceeding thirty days in any year) as the directors may determine.
6.4. The board may appoint and remove one or more transfer agents and
registrars for any class of stock. If such appointments are made, the transfer
agents shall effect original issuances of stock certificates and transfers of
shares, record and advise the corporation and one another of such issuances and
transfers, countersign and deliver stock certificates, and keep the stock,
transfer and other pertinent records; and the registrars shall prevent
over-issues by registering and countersigning all stock certificates issued. A
transfer agent and registrar may be identical.
6.5. Except as otherwise provided by law, the Corporation, and its
directors, officers and agents, may recognize and treat a person registered on
its records as the owner of shares, as the owner in fact thereof for all
purposes, and as the person exclusively entitled to have and to exercise all
rights and privileges incident to the ownership of such shares, and rights under
this section 6.5 shall not be affected by an actual or constructive notice which
the Corporation, or any of its directors, officers or agents, may have to the
contrary.
6.6. Except as otherwise provided by law or the Certificate of
Incorporation, dividends upon the stock of the Corporation may be declared by
the board of directors at any regular or special meeting. Dividends may be paid
in cash, in property, or in shares of stock.
6.7. The board of directors may create and abolish reserves out of funds
of the Corporation available for dividends for any proper purposes. Funds so
reserved shall not be available for payment of dividends, purchase or redemption
of shares, or transfer to capital surplus or stated capital.
6.8. Where a certificate of stock is countersigned (i) by a transfer agent
other than the Corporation or its employee or (ii) by a registrar other than the
Corporation or its employee, any other signature on the certificate may be
facsimile. In case any officer, transfer agent, or registrar who has signed, or
whose facsimile signature or signatures have been placed upon, any such
certificate shall cease to be such officer, transfer agent, or registrar,
whether because of death, resignation, or otherwise, before such certificate is
issued, the certificate may nevertheless be issued by the Corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.
ARTICLE VII. MISCELLANEOUS PROVISIONS
7.1. All checks, drafts, other orders for the payment of money, and notes
or other evidences of indebtedness, issued in the name of the Corporation, shall
be signed by such officer
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or officers, agent or agents of the Corporation and in such manner as shall,
from time to time, be determined by the board of directors or a committee
thereof.
7.2. Whenever any notice is required by these Bylaws to be given, personal
notice is not meant unless expressly so stated; any notice is sufficient if
given by depositing the same in a mail receptacle in a sealed post-paid envelope
addressed to the person entitled thereto at his last known address as it appears
on the records of the Corporation; and such notice is deemed to have been given
on the day of such mailing.
7.3. Whenever any notice of time, place or purpose of any meeting of
stockholders, directors or committee is required by law, the Certificate of
Incorporation or these Bylaws, a waiver thereof in writing, signed by the person
or persons meeting before or after the holding thereof, or actual attendance at
the meeting of stockholders in person or by proxy or at the meeting of directors
or committee in person, is equivalent to the giving of such notice except as
otherwise provided by law.
7.4. The board of directors may adopt for and on behalf of the Corporation
a fiscal or a calendar year.
7.5. The board of directors may adopt a corporate seal, which seal has
inscribed thereon the name of the Corporation. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
Failure to affix the seal shall not, however, affect the validity of any
instrument.
ARTICLE VIII. INDEMNIFICATION
8.1. The Corporation shall 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, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
8.2. The Corporation shall 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, officer, employee
or agent of the Corporation, or is or was serving at the request of the
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Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(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 interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
8.3. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 8.1 and 8.2 of this Article
VIII, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
8.4. Any indemnification under sections 8.1 and 8.2 of this Article VIII
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in sections 8.1 and 8.2 of this Article
VIII. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders of the
Corporation.
8.5. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII. Such expenses (including
attorneys' fees) incurred by other employees and agents shall be paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
8.6. The indemnification and advancement of expenses provided by this
Article VIII shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
8.7. The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
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against him and incurred by him in any such 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 this Article VIII.
8.8. For purposes of this Article VIII, references to the "Corporation"
shall include, in addition to the Corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article VIII with respect to the Corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
8.9. For purposes of this Article VIII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
VIII.
8.10. The indemnification and advancement of expenses provided by this
Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person.
8.11. The foregoing provisions of this Article VIII shall be deemed to be
a contract between the Corporation and each director, officer, employee or agent
who serves in such capacity at any time while this Bylaw is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing or any action, suit or proceeding theretofore brought based in whole or
in part upon any such state of facts.
ARTICLE IX. AMENDMENTS
9.1. Bylaws of the Corporation may be adopted, amended or repealed by the
board of directors at any regular meeting or at any special meeting, if notice
of such amendment or repeal is contained in the notice of such special meeting.
Bylaws may also be amended or repealed by the stockholders at a meeting of
stockholders, provided notice of the proposed Bylaw, amendment or repeal be
contained in the notice of such meeting of stockholders.
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WARRANT AGREEMENT
AGREEMENT, dated as of this ___ day of October 1996, by and between SUN
HILL INDUSTRIES, INC., a Delaware corporation ("Company"), and
________________________, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with a public offering of (i) 1,000,000 shares (the
"Shares") of the Company's Common Stock, $.001 par value ("Common Stock") and
(ii) 2,000,000 Common Stock Purchase Warrants (the "Warrants") pursuant to an
underwriting agreement (the "Underwriting Agreement") dated October __, 1996
between the Company and certain of its stockholders and Biltmore Securities,
Inc. ("Biltmore"), and the issuance to Biltmore or its designees of a Purchase
Option to purchase 200,000 additional Warrants,(the "Purchase Option"), the
Company will issue up to 2,200,000 Warrants, consisting of 2,000,000 Warrants in
the initial offering, and 200,000 Warrants contained in the Purchase Option;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
<PAGE>
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of 25,000,000 authorized shares, $.001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution, or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (1) only shares of such class designated
in the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of the Warrants or (ii), in the case of any reclassification,
change, consolidation, merger, sale, or conveyance of the character referred to
in Section 9(c) hereof, the stock, securities, or property provided for in such
section or (iii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon exercise of the Warrants as a
result of a subdivision or combination or a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at _____________,
New York, New York.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which
the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean October __, 1997.
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be $4.50 per share with respect to the Warrants, subject to
adjustment from time to time pursuant
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to the provisions of Section 9 hereof, and subject to the Company's right, in
its sole discretion, upon thirty (30) days written notice, to reduce the
Purchase Price upon notice to all warrant holders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.01 per Warrant.
(g) "Registered Holder" or "Holder" shall mean as to any Warrant and
as of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean _____________ as the Company's
transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on October __, 2001 or the Redemption Date as defined in Section 8, whichever is
earlier at which time, all outstanding Warrants shall be and become void and all
rights of all holders thereof and under this Agreement shall cease; provided
that if such date shall in the State of New York be a holiday or a day on which
banks are authorized or required to close, then 5:00 P.M. (New York time) on the
next following day which in the State of New York is not a holiday or a day on
which banks are authorized or required to close. Upon thirty (30) days written
notice to all warrantholders, the Company shall have the right to extend the
warrant expiration date.
2. Appointment of Warrant Agent; Warrants and Issuance of
Warrant Certificates.
(a) The Company hereby appoints the Warrant Agent to act as Agent
for the Company in accordance with the provisions set forth in this Agreement,
and the Warrant Agent hereby accepts such appointment.
(b) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon the
exercise thereof, in accordance with
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the terms hereof, subject to modification and adjustment as provided in Section
9.
(c) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued, and delivered by the Warrant Agent.
(d) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 2,200,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed, or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the Purchase
Option; and (vi) those issued at the option of the Company, in such form as may
be approved by the its Board of Directors, to reflect any adjustment or change
in the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 9 hereof.
(f) Pursuant to the terms of the Purchase Option, Biltmore may
purchase up to 200,000 additional Warrants.
3. Form and Execution of Warrant Certificates.
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(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers, or other marks of identification or
designation and such legends, summaries, or endorsements printed, lithographed,
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage or to the requirements of Section 2(c). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange, or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter W.
(b) Warrant Certificates shall be executed on behalf of the Company
by its President, or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. Warrants may only be
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exercised for purchase of whole shares of Common Stock. The rights of purchase
represented by the Warrants shall be exercisable, at the election of the
Registered Holders thereof, either in full or from time to time in part.
Warrants may be exercised upon surrender to the Company at the principal office
of the Warrant Agent, of the certificate or certificates evidencing the Warrants
to be exercised (except as otherwise provided herein), together with the form of
election to purchase on the reverse thereof duly filled in and signed and upon
payment to the Warrant Agent for the account of the Company of the purchase
price for the number of shares of Common Stock issuable on exercise of the
Warrants then being exercised. Payment of the aggregate purchase price shall be
made in cash or by certified or official bank check. A Warrant shall be deemed
to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall deposit the proceeds received from the exercise of a Warrant and
shall notify the Company in writing of the exercise of the Warrants. Promptly
following, and in any event within five (5) business days after the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise (plus a certificate for any remaining
unexercised Warrants of the Registered Holder), unless prior to the date of
issuance of such certificates the Company shall instruct the Warrant Agent to
refrain from causing such issuance of certificates pending clearance of checks
received in payment of the Purchase Price pursuant to such Warrants. Upon the
exercise of any Warrant and clearance of the funds received, the Warrant Agent
shall promptly remit the payment received for the Warrant to the Company or as
the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such
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number of shares of Common Stock as shall then be issuable upon the exercise of
all outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, upon payment of the
Purchase Price and at the time of delivery, be duly and validly issued, fully
paid, nonassessable, and free from all taxes, liens, and charges with respect to
the issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange or eligible for inclusion in each automated quotation
system, if any, on which the other shares of outstanding Common Stock of the
Company are then listed or eligible for inclusion.
(b) The Company is not obligated to deliver any shares of Common
Stock pursuant to the exercise of any Warrant unless the appropriate required
registration with, or approval of, any governmental authority has been obtained;
provided, however, that if any securities to be reserved for the purpose of
exercise of Warrants hereunder require registration with, or approval of, any
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will, to
the extent the Purchase Price is less than the Market Price (as hereinafter
defined), in good faith and as expeditiously as reasonably possible, endeavor to
secure such registration or approval and will use its reasonable efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws. With respect to any such securities, however, Warrants may not be
exercised by, or shares of Common Stock issued to, any Registered Holder in any
state in which such exercise would be unlawful. The Company is not obligated to
qualify the shares of Common Stock issuable upon exercise of the Warrants for
sale in any jurisdiction where any Registered Holder thereof may reside,
however, the Company is obligated to endeavor to seek registration or approval
for the sale of the shares of Common Stock issuable upon exercise of the
Warrants in those states in which Warrants were sold pursuant to the Company's
initial registration statement pursuant to the Underwriting Agreement and in
such other states in which an exemption from registration is available.
(c) The Company shall pay all documentary, stamp, or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or
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delivery of any shares of Common Stock upon exercise of the Warrants; provided,
however, that if the shares of Common Stock are to be delivered in a name other
than the name of the Registered Holder of the Warrant Certificate representing
any Warrant being exercised, then no such delivery shall be made unless the
person requesting the same has paid to the Warrant Agent the amount of transfer
taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for such time
as it is acting as such to requisition the Company's Transfer Agent from time to
time for certificates representing shares of Common Stock issuable upon exercise
of the Warrants, and the Company will authorize the Transfer Agent to comply
with all such proper requisitions. The Company will file with the Warrant Agent
a statement setting forth the name and address of the Transfer Agent of the
Company for shares of Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue, and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its Corporate Office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or
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<PAGE>
be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder or the Registered Holder's attorney-in-fact
duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such Holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant Agent
of evidence satisfactory to them of the ownership of and loss, theft,
destruction, or mutilation of any Warrant Certificate and (in case of loss,
theft, or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
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8. Redemption.
(a) Subject to the provisions of paragraph 2(f) hereof, on not less
than thirty (30) days notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $.01 per Warrant, provided that the Market Price of the
Company's Common Stock exceeds 175% of the initial public offering price of the
Common Stock (the "Target Price") subject to adjustment as set forth in Section
8(f) below. "Market Price" for the purpose of this Section 8 shall mean (i) the
average closing bid price for any twenty (20) consecutive trading days ending
within five (5) days prior to the date of the notice of redemption, of the
Common Stock as reported by the National Association of Securities Dealers, Inc.
Automatic Quotation System or (ii) the last reported sale price, for twenty (20)
consecutive trading days ending within five (5) days of the date of the notice
of redemption, on the primary exchange on which the Common Stock is traded, if
the Common Stock is traded on a national securities exchange; provided, however,
that the Company may not under any circumstances call for the redemption of any
of the Warrants issued to the Underwriter in relation to the Purchase Option.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the
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<PAGE>
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (1) to whom notice was not mailed or (2) whose
notice was defective and then only to the extent that the Registered Holder is
prejudiced thereby. An affidavit of the Warrant Agent or of the Secretary or an
Assistant Secretary of the Company that notice of redemption has been mailed
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of one
or more Warrant Certificates evidencing Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Holder a sum in cash
equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Target
Price shall be proportionally adjusted by the ratio which the total number of
shares of Common Stock outstanding immediately prior to such event bears to the
total number of shares of Common Stock to be outstanding immediately after such
event.
9. Adjustment of Exercise Price and Number of Shares of Common Stock or
Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock
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<PAGE>
for a consideration per share less than the Market Price of the Common Stock (as
defined in Section 8) on the date of the sale or issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision, or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f) below) for the
issuance of such additional shares would purchase at such current market price
per share of Common Stock, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively whenever such
an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the
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<PAGE>
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization, or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization, or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage, or other financing transaction), the Company shall cause effective
provision to be made so that each Holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization, or other change,
consolidation, merger, sale, or conveyance by a Holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization, or other
change, consolidation, merger, sale, or conveyance. Any such provision shall
include a provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger, or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate
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<PAGE>
corporation or entity shall assume, by written instrument executed and delivered
to the Warrant Agent, 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 the other obligations
under this Agreement. The foregoing provisions shall similarly apply to
successive reclassification, capital reorganizations, and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales, or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder, and the Redemption Price
therefor as were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to Biltmore and to each Registered
Holder of Warrants at his last address as it shall appear on the registry books
of the Warrant Agent. No failure to mail such notice nor any defect therein or
in the mailing thereof shall affect the validity thereof except as to the Holder
to whom the Company failed to mail such notice, or except as to the Holder whose
notice was defective. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
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(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the purchase
of, Common Stock or any securities convertible into or exchangeable for Common
Stock without the payment of any further consideration other than cash, if any
(such convertible or exchangeable securities being herein called "Convertible
Securities"), or (2) the issuance by the Company, without the receipt by the
Company of any consideration therefor, of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants, or options shall consist of
cash, whether or not such rights, warrants, or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants,
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants, or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional
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<PAGE>
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities) is less than the
fair market value of the Common Stock (determined in accordance with the
provisions of Section 10 hereof) on the date of the issuance or sale of such
rights, warrants, or options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such rights, warrants, or options or upon
the conversion or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants, or options) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities) is less than the fair market value of
the Common Stock (determined in accordance with the provisions of Section 10
hereof) on the date of the sale of such Convertible Securities, then the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights of conversion,
exchange, or exercise of any of the securities referred to in subsection (iii)
above or any other securities of the Company convertible, exchangeable, or
exercisable for shares of Common Stock, for any reason other than an event that
would require adjustment to prevent dilution, so that the consideration per
share
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<PAGE>
received by the Company after such modification is less than the Market Price on
the date prior to such modification, the Purchase Price to be in effect after
such modification shall be determined by multiplying the Purchase Price in
effect immediately prior to such event by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding multiplied by the
Market Price on the date prior to the modification plus the number of shares of
Common Stock which the aggregate consideration receivable by the Company for the
securities affected by the modification would purchase at the Market Price and
of which the denominator shall be the number of shares of Common Stock
outstanding on such date plus the number of shares of Common Stock to be issued
upon conversion, exchange, or exercise of the modified securities at the
modified rate. Such adjustment shall become effective as of the date upon which
such modification shall take effect.
(vi) On the expiration of any such right, warrant, or option
or the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (1) had the adjustments
made upon the issuance or sale of such rights, warrants, options, or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants, or options or
upon the conversion or exchange of such Convertible Securities and (2) had
adjustments been made on the basis of the Purchase Price as adjusted under
clause (1) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options, or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
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(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
(i) upon the sale or exercise of the Warrants, including
without limitation the sale or exercise of any of the Warrants or Common Stock
comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants, or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of such
Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in an exempt transaction under securities laws unless the issuance or
sale price is less than 85% of the fair market value of the Common Stock on the
date of issuance, in which case the adjustment shall only be for the difference
between 85% of the fair market value and the issue or sale price;
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges and/or consolidates
into or is acquired by the Company or from which the Company acquires assets and
some or all of the consideration consists of equity securities of the Company,
in proportion to their stock holdings of such corporation immediately
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<PAGE>
prior to the acquisition but only if no adjustment is required pursuant to any
other provision of this Section 9;
(vii) upon the issuance or exercise of options or upon the
issuance or grant of stock awards granted to the Company's directors, employees
or consultants under a plan or plans adopted by the Company's Board of Directors
and approved by its stockholders (but only to the extent that the aggregate
number of shares excluded hereby and issued after the date hereof shall not
exceed ten percent (10%) of the Company's Common Stock at the time of issuance).
For the purposes of determining whether the consideration received by the
Company is less than the Market Price in connection with any issuance of stock
to the Company's directors, employees or consultants under plans adopted by the
Company's Board of Directors and approved by its stockholders, the consideration
received shall be deemed to be the amount of compensation to the director,
employee or consultant reported by the Company in connection with such issuance;
(viii) upon the issuance of Common Stock to the Company's
directors, employees or consultants under a plan or plans which are qualified
under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona fide public
offering pursuant to a firm commitment underwriting.
(h) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(i) If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant, or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding, the
rights, warrants, or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants, or options being granted by the Company, the Registered
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<PAGE>
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this section 9(i), that
exercise of warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. In such event, the Company may at its option elect to round
up the number of shares to which the Holder is entitled to the nearest whole
share or to pay cash in respect of fractional shares in accordance with the
following: With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(a) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current market value shall be
the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of the Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of the Warrant; or
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount
20
<PAGE>
determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No Holder of Warrants shall,
as such, be entitled to vote or to receive dividends or be deemed the holder of
Common Stock that may at any time be issuable upon exercise of such Warrants for
any purpose whatsoever, nor shall anything contained herein be construed to
confer upon the Holder of Warrants, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, or conveyance or otherwise), or to receive notice
of meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this Agreement
are vested in the respective Registered Holders of the Warrants, and any
Registered Holder of a Warrant, without consent of the Warrant Agent or of the
Holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every Holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company,
the Warrant Agent and every other Holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
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(b) The Company and the Warrant Agent may deem and treat the person
in whose name the Warrant Certificate is registered as the holder and as the
absolute, true, and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same shall thereupon be delivered to the Warrant Agent and
canceled by it and retired. The Warrant Agent shall also cancel Common Stock
following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination, or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity, value, or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any Holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered, or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any
22
<PAGE>
act or omission in connection with this Agreement except for its own negligence
or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory
to it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order, or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order, or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it harmless
against any and all losses, expenses, and liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the Warrant Agent in
the execution of its duties and powers hereunder except losses, expenses, and
liabilities arising as a result of the Warrant Agent's negligence or wilful
misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or wilful misconduct), after giving thirty
(30) days prior written notice to the Company. The Warrant Agent may be removed
by like notice from the Company to the Warrant Agent. At least fifteen (15) days
prior to the date such resignation or removal is to become effective, the
Warrant Agent or the Company shall cause a copy of such notice of resignation or
removal to be mailed to the Registered Holder of each Warrant Certificate at the
Company's expense. Upon such resignation or removal, or any inability of the
Warrant Agent to act as such hereunder, the Company shall appoint a new warrant
agent in writing. If the Company shall fail to make such appointment within a
period of
23
<PAGE>
fifteen (15) days after such removal or after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction in the
State of New York for the appointment of a new warrant agent. Any new warrant
agent, whether appointed by the Company or by such a court, shall be a bank or
trust company having a capital and surplus, as shown by its last published
report to its stockholders, of not less than $50,000,000 or a stock transfer
company. After acceptance in writing of such appointment by the new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties, and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act, or deed and the former Warrant Agent shall deliver and transfer
to the successor warrant agent any property at the time held by it hereunder;
but if for any reason it shall be necessary or expedient to execute and deliver
any further assurance, conveyance, act, or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning or removed
Warrant Agent and shall forthwith cause a copy of such notice to be mailed to
the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate. If at the time such successor to the Warrant Agent shall succeed to
the agency created by this Agreement, any of the Warrants 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 so countersigned; and if at the time any of the Warrants shall not have
been countersigned, any successor to the Warrant Agent may
24
<PAGE>
countersign such Warrants in the name of the predecessor Warrant Agent or in the
name of the successor Warrant Agent; and, in all such cases, the Warrants shall
have the full force provided in the Warrants and in this Agreement.
In any case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignatures under its prior
name and deliver such Warrants so countersigned; and, in case at the time any of
the Warrants shall have not been countersigned, the Warrant Agent may
countersign such Warrants either in its prior name or in its changed name; and,
in all such cases, such Warrants shall have the full force provided in the
Warrants and in this Agreement.
The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not the Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company if so authorized by the Company or for any other legal
entity.
16. Modification of Agreement. The Warrant Agent and the Company may by
supplemental agreement make any changes or corrections in this Agreement (a)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (b) that they may deem necessary or desirable and which shall not
adversely affect the interests of the Holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented, or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law.
25
<PAGE>
17. Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid as
follows: if to the Registered Holder of a Warrant Certificate, at the address of
such Holder as shown on the registry books maintained by the Warrant Agent; if
to the Company, 48 Union Street, Stamford, CT 06909, Attention: President, or at
such other address as may have been furnished to the Warrant Agent in writing by
the Company; and if to the Warrant Agent, at its corporate office.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Warrant Agent, and their respective successors
and assigns, and the holders from time to time of Warrant Certificates. Nothing
in this Agreement is intended or shall be construed to confer upon any other
person any right, remedy, or claim, in equity or at law, or to impose upon any
other person any duty, liability, or obligation.
20. Termination. This Agreement shall terminate on the Warrant Expiration
Date or such earlier date upon which all Warrants have been exercised, except
that the Warrant Agent shall account to the Company for cash held by it and the
provisions of Section 15 hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several counterparts,
which taken together shall constitute a single document.
22. Captions. The captions of the sections and subsections of this
Agreement have been inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.
23. Certain Terminology. As used herein, the singular number shall include
the plural, the plural shall include the singular, and the use of any gender
shall include all genders. Except where the context otherwise requires,
references to "this section" or words of similar import shall be deemed to refer
to the entire
26
<PAGE>
section and not a particular subsection and references to "hereunder", "herein",
"hereof" or words of similar import shall be deemed to refer to the entire
Agreement and not the particular section or subsection.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SUN HILL INDUSTRIES, INC.
By: ______________________________
Name:
Title:
[Warrant Agent]
By: ______________________________
Name:
Title:
27
<PAGE>
EXHIBIT A
[Form of Face of Warrant Certificate]
No. W Warrants
VOID AFTER 5:00 P.M. NEW YORK CITY TIME CUSIP: _____________
ON OCTOBER __, 2001
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SUN HILL INDUSTRIES, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.001 par value ("Common Stock"), of SUN HILL INDUSTRIES, INC., a Delaware
corporation (the "Company"), at any time between the Effective Date (as herein
defined) and the Expiration Date (as hereinafter defined), upon the presentation
and surrender of this Warrant Certificate with the Subscription Form on the
reverse hereof duly executed, at the corporate office of ____________________ as
Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of
$4.50 (the "Purchase Price") in lawful money of the United States of America in
cash or by official bank or certified check made payable to SUN HILL INDUSTRIES,
INC.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated October __, 1996,
by and between the Company and the Warrant Agent. Copies of the Warrant
Agreement are on file at the office of the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
<PAGE>
Upon thirty days prior written notice to the holder thereof, the Company
has the right to reduce the Purchase Price and/or extend the term of the
Warrants.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Effective Date" shall mean October __, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on October
__, 2001, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right
2
<PAGE>
to vote or to receive dividends or other distributions, and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a redemption
price of $.01 per Warrant at any time after one (1) year from October __, 1996
if, and only if, (i) the average closing bid price for any twenty consecutive
trading days ending within five (5) days prior to the date of the notice of
redemption of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System, or (ii) the last reported
sale price for twenty consecutive trading days ending within five (5) days of
the date of the notice of redemption on the primary exchange on which the Common
Stock is traded, if the Common Stock is traded on a national securities
exchange, equals or exceeds 175% of the initial public offering price of the
Common Stock. Notice of redemption shall be given not later than the thirtieth
day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to this Warrant except to receive the $.01 per
Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to any principles
or rules of conflicts of law.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
SUN HILL INDUSTRIES, INC.
By: ______________________________
Name:
Title:
Date: _____________________________
[Seal]
COUNTERSIGNED:
[ ]
____________________________________
as Warrant Agent
By: ______________________________
Name:
Title:
4
<PAGE>
[Form of Reverse of Warrant Certificate]
SUBSCRIPTION FORM
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - .....Custodian......
(Cust) (Minor)
under Uniform Gifts to Minors
Act.................
(State)
Additional abbreviations may also be used though not in the above list.
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
____________________________________________
(please insert taxpayer identification or other identifying number)
and be delivered to
____________________________________________
____________________________________________
____________________________________________
<PAGE>
____________________________________________
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
____________________________________________
____________________________________________
____________________________________________
(Address)
__________________________________
(Date)
__________________________________
(Taxpayer Identification Number)
Signature Guaranteed: ______________________________________
The undersigned represents that the exercise of the within Warrant was solicted
by Biltmore Securities, Inc. If not solicited by Biltmore Securities, Inc.,
please write "unsolicited" in the space below. Unless otherwise indicated, it
will be assumed that the exercise was solicited by Biltmore Securities, Inc.
________________________________________________________________________________
(Write "Unsolicited" on above line if not solicted by Biltmore Securities, Inc.)
Dated:______________ ____________________________________
Signature
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
2
<PAGE>
FOR VALUE RECEIVED, ________________ hereby sells, assigns, and
transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
_________________________________
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE GRANTOR INSTITUTION WHICH IS A PARTICIPANT IN THE
SECURITIES TRANSFER ASSOCIATION PROGRAM.
3
<PAGE>
Option to Purchase
100,000 Shares of Common Stock and
200,000 Class A
Common Stock Purchase Warrants
SUN HILL INDUSTRIES, INC.
PURCHASE OPTION
Dated: , 1996
THIS CERTIFIES that BILTMORE SECURITIES, INC., 6700 N. Andrews Avenue,
Fort Lauderdale, Fl. 33309 (hereinafter sometimes referred to as the "Holder"
which shall include any permitted transferee hereunder), is entitled to purchase
from SUN HILL INDUSTRIES, INC., a Delaware corporation (hereinafter referred to
as the "Company"), at the prices and during the periods as hereinafter
specified, up to 100,000 Shares of the Company's Common Stock ("Additional
Shares") and 200,000 Class A Common Stock Purchase Warrants ("Additional
Warrants"). This option, as defined herein, consists of Shares of the Company's
Common Stock, $.001 par value, as now constituted (the "Shares") and Class A
Common Stock Purchase Warrants, to purchase one (1) share of Common Stock as now
constituted at an exercise price of $4.50 per share (the "Warrants"). The
Warrants are exercisable until ____________________, 2001.
The Additional Shares and Additional Warrants have been registered under a
Registration Statement on Form SB-2 (File No. 33-__________) declared effective
by the Securities and Exchange Commission on ___________________, 1996 (the
"Registration Statement"). This Option (the "Option") to purchase 100,000
Additional Shares and 200,000 Additional Warrants was originally issued pursuant
to an underwriting agreement between the Company and Biltmore Securities, Inc.
as underwriter (the "Underwriter"), in connection with a public offering of
1,000,000 Shares (the "Public Shares") and 2,000,000 Class A Common Stock
Purchase Warrants (the "Public Warrants") through the Underwriter.
<PAGE>
Except as specifically otherwise provided herein, the Additional Shares
and the Additional Warrants issued pursuant to this Option shall bear the same
terms and conditions as described under the caption "Description of Securities"
in the Registration Statement, and the Warrants shall be governed by the terms
of the Warrant Agreement dated as of ___________________, 1996, executed in
connection with such public offering (the "Warrant Agreement"), and except that
the Holder shall have registration rights under the Securities Act of 1933, as
amended (the "Act"), for the Option, the Additional Shares and the Additional
Warrants and the shares of Common Stock underlying the Additional Warrants, as
more fully described in paragraph 6 of this Option. In the event of any
reduction of the exercise price of the Public Warrants the same changes to the
Additional Warrants shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with paragraph 8 of this Option, and during
the periods as follows:
(a) Between ___________________, 1997 and ___________________, 2001,
inclusive, the Holder shall have the option to purchase Additional Shares
hereunder at a price of $5.40 per Additional Share (subject to adjustment
pursuant to paragraph 8 hereof) (the "Exercise Price") and the option to
purchase Additional Warrants hereunder at a price of $.30 per Additional
Warrant.
(b) After ___________________, 2001, the Holder shall have no right
to purchase any Additional Shares or Additional Warrants hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the applicable Exercise Price then in effect for the number of Additional
Shares or Additional Warrants specified in the above-mentioned purchase form
together with applicable stock transfer taxes, if any; and (iii) delivery to the
Company of a duly executed agreement signed by the person(s)' designated in the
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purchase form to the effect that such person(s) agree(s) to be bound by the
provisions of paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7
hereof. This Option shall be deemed to have been exercised, in whole or in part
to the extent specified, immediately prior to the close of business on the date
this Option is surrendered and payment is made in accordance with the foregoing
provisions of this paragraph 2, and the person or persons in whose name or names
the certificates for Shares and Warrants shall be issuable upon such exercise
shall become the Holder or Holders of record of such Shares and Warrants at that
time and date. The Shares and Warrants and the certificates for the Shares and
Warrants so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) days, after the rights represented by this Option shall
have been so exercised. The Exercise Price may be paid, at the sole option of
the Holder, in cash, by check or by the surrender to the Company of that number
of the Additional Shares or Additional Warrants which is calculated by
multiplying (i) the total number of the Additional Shares or Additional Warrants
by (ii) the Exercise Price and (iii) dividing the product by the then current
inside offer, on the date of exercise, of the underlying securities (the
"Cashless Exercise Price"). The Cashless Exercise Price may be tendered pro rata
by the holder or holders of less than all the Shares and Warrants hereunder as
the case may be.
3. For a period of one (1) year from the Effective Date, this Option shall
not be transferred, sold, assigned, or hypothecated, except that it may be
transferred to successors of the Holder, and may be assigned in whole or in part
to any person who is an officer of the Holder during such period. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 3 hereof; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same number of
Additional Shares and/or Additional Warrants as are purchasable hereunder.
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<PAGE>
4. The Company covenants and agrees that all Additional Shares and
Additional Warrants purchased hereunder and the Common Stock which may be issued
upon exercise of the Warrants will, upon issuance and payment thereon, be duly
and validly issued, fully paid and nonassessable, and no personal liability will
attach to the Holder thereof. The Company further covenants and agrees that
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Additional Warrants.
5. This Option shall not entitle the Holder to any voting,
dividend, or other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the Company
shall advise the Holder or its transferee, whether the Holder holds the Option
or has exercised the Option and holds the Additional Shares or Additional
Warrants, by written notice at least thirty (30) days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the Act
covering any securities of the Company, for its own account or for the account
of others (other than a registration statement on Form S-4 or S-8 or any
successor forms thereto), and will for a period of four (4) years commencing one
(1) year from the effective date of the Registration Statement, upon the request
of the Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Option, all or any of the the Additional Shares, the Additional Warrants or
the Common Stock issuable upon the exercise of the Warrants (the "Registrable
Securities"). The Company shall supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates; provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action; and do any and
all other acts and things which may be reasonably necessary or desirable to
enable such Holders to consummate the
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<PAGE>
public sale or other disposition of the Registrable Securities, and furnish
indemnification in the manner provided in paragraph 7 hereof. The Holder shall
furnish information and indemnification as set forth in paragraph 7, except that
the maximum amount which may be recovered from the Holder shall be limited to
the amount of proceeds received by the Holder from the sale of the Registrable
Securities. The Company shall use its best efforts to cause the managing
underwriter or underwriters of a proposed underwritten offering to permit the
Holders of Registrable Securities requested to be included in the registration
to include such securities in such underwritten offering on the same terms and
conditions as any similar securities of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such offering advises the Holders of Registrable Securities that the total
amount of securities which they intend to include in such offering is such as to
materially and adversely affect the success of such offering, then the amount of
securities to be offered for the accounts of Holders of Registrable Securities
shall be eliminated, reduced, or limited to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount, if
any, recommended by such managing underwriter or underwriters (any such
reduction or limitation in the total amount of Registrable Securities to be
included in such offering to be borne by the Holders of Registrable Securities
proposed to be included therein pro rata). The Holder will pay its own legal
fees and expenses and any underwriting discounts and commissions on the
securities sold by such Holder and shall not be responsible for any other
expenses of such registration.
(b) If any 50% Holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such Holder desires to register under the Act this Option, the
Additional Shares, or any of the Additional Warrants under such circumstances
that a public distribution (within the meaning of the Act) of any such
securities will be involved then the Company will promptly, but no later than
sixty (60) days after receipt of such notice, subject, however, to the
availability of audited financial statements that comply with applicable
securities laws, rules and regulations, file a post-effective amendment to the
current Registration Statement or a new registration statement pursuant to the
Act, to the end that the Option, the Additional Shares and/or the Additional
Warrants may be publicly sold under the Act as promptly as practicable
thereafter
5
<PAGE>
and the Company will use its best efforts to cause such registration to become
and remain effective for a period of 120 days (including the taking of such
steps as are reasonably necessary to obtain the removal of any stop order);
provided that such Holder shall furnish the Company with appropriate information
in connection therewith as the Company may reasonably request in writing. The
50% Holder (which for purposes hereof shall mean any direct or indirect
transferee of such Holder) may at its option during the period set forth in
paragraph 1(a) hereof request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only one occasion during the term
of this Option. The Holder may at its option during the period set forth in
paragraph 1(a) hereof request the registration of the Option and/or any of the
securities underlying the Option in a registration statement made by the Company
as contemplated by Section 6(a) or in connection with a request made pursuant to
this Section 6(b) prior to acquisition of the Additional Shares or Additional
Warrants issuable upon exercise of the Option and even though the Holder has not
given notice of exercise of the Option. The 50% Holder may, at its option,
request such post-effective amendment or new registration statement during the
described period with respect to the Option, the Additional Shares and/or the
Additional Warrants and/or the Common Stock issuable upon the exercise of the
Warrants, and such registration rights may be exercised by the 50% Holder prior
to or subsequent to the exercise of the Option. Within ten (10) business days
after receiving any such notice pursuant to this subsection (b) of paragraph 6,
the Company shall give notice to the other Holders of the Options, advising that
the Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other Holders. Each Holder electing to include its Registrable Securities
in any such offering shall provide written notice to the Company within twenty
(20) days after receipt of notice from the Company. The failure to provide such
notice to the Company shall be deemed conclusive evidence of such Holder's
election not to include its Registrable Securities in such offering. Each Holder
electing to include its Registrable Securities shall furnish the Company with
such appropriate information (relating to the intentions of such Holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of the first such post-effective amendment or new
registration statement shall be borne by
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the Company, except that the Holders shall bear the fees of their own counsel
and any underwriting discounts or commissions applicable to any of the
securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a registration
statement would have a material adverse effect on the consummation of such
offering, (iv) the Company is subject to an underwriter's lock-up as a result of
an underwritten public offering and such underwriter has refused in writing, the
Company's request to waive such lock-up, (v) if notice is given within 120 days
of the end of the Company's fiscal year, in such case, such postponement may
only be until the Company's audited financial statements are finally prepared
for filing with its Annual Report on Form 10-KSB, or (vi) the Company is
prohibited by law from proceeding with such filing. In the event of such
postponement, the Company shall be required to file the registration statement
pursuant to this Section 6(b), within sixty (60) days of the consummation or
termination of the event requiring such postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six (6) months (and for up to an additional three (3) months
if requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such Holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service of
process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
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(c) The term "50% Holder" as used in this paragraph 6 shall mean the
Holder of at least 50% of the Shares and the Warrants underlying the Option
(considered in the aggregate) and Additional Shares and shall include any owner
or combination of owners of such securities, which ownership shall be calculated
by determining the number of shares of Common Stock issued pursuant to this
Option held by such owner or owners as well as the number of shares then
issuable upon exercise of the Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement relating
to the Option or any Additional Shares or Additional Warrants issued or issuable
upon the exercise of any Options, is filed under the Act, amended or
supplemented, the Company will indemnify and hold harmless each Holder of the
securities covered by such registration statement, amendment, or supplement
(such Holder being hereinafter called the "Distributing Holder"), and each
person, if any, who controls (within the meaning of the Act) the Distributing
Holder, against any losses, claims, damages, or liabilities, joint or several,
to which the Distributing Holder, or any such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any such registration statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or supplement thereto,
or arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such controlling
person for any legal or other expenses reasonably incurred by the Distributing
Holder or such controlling person or underwriter in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage, or liability (or actions in respect
thereof) arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder or any other Distributing Holder, for use in the
preparation thereof.
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<PAGE>
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each person,
if any, who controls the Company (within the meaning of the Act) against any
losses, claims, damages, or liabilities, joint and several, to which the Company
or any such director, officer, or controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in said registration
statement, said preliminary prospectus, said final prospectus, or said amendment
or supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus, or said amendment
or supplement in reliance upon and in conformity with written information
furnished by such Distributing Holder for use in the preparation thereof; and
will reimburse the Company or any such director, officer, or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to
9
<PAGE>
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. With respect to the Additional Shares and the Additional Warrants, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of this Option shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Notwithstanding anything to the contrary contained in the
Warrant Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this Subsection (a) (and a corresponding adjustment to the number of
Additional Shares and Additional Warrants is made pursuant to Subsection (d)
below), the exercise price of the Warrants shall be adjusted so that it shall
equal the price determined by multiplying the exercise price of the Warrants by
a fraction, the denominator of which shall be the number of shares of Common
Stock outstanding immediately after giving effect to such action and the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such action. In such event, there shall be no adjustment to
the number of shares of Common Stock or other securities issuable upon exercise
of the Warrants. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall fix a record date for the
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<PAGE>
issuance of rights or warrants to all Holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (e) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of Additional Shares or Additional Warrants
by the product of the Exercise Price in effect immediately prior to the date of
such issuance multiplied by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise 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 Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of Additional
Shares or Additional Warrants by the product of the Exercise Price in effect
immediately prior thereto multiplied by a fraction, the numerator of which shall
be the total number of
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<PAGE>
shares of Common Stock outstanding multiplied by the current market price per
share of Common Stock (as defined in Subsection (e) below), less the fair market
value (as determined by the Company's Board of Directors) of said assets or
evidences of indebtedness so distributed or of such rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such current market price per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of this Option
is adjusted pursuant to Subsections (a), (b), or (c), above, the number of
Additional Shares or Additional Warrants purchasable upon exercise of this
Option shall simultaneously be adjusted by multiplying the number of Additional
Shares or Additional Warrants initially issuable upon exercise of this Option by
the Exercise Price in effect on the date hereof and dividing the product so
obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or (c)
above, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for twenty (20) consecutive
business days before such date. The closing price for each day shall be the last
sale price regular way or, in case no such reported sale takes place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least ten cents
($0.10) in such price; provided, however, that any adjustments which by reason
of this Subsection (f) are not required to be made shall be carried forward and
taken
12
<PAGE>
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 8 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section 8
to the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Section 8, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Additional Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than twenty(20) days after any request for
such an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Additional Shares and Additional Warrants
issuable upon exercise of this Option and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to the Holder, at
the address set forth herein, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors (who
may be the regular accountants employed by the Company) to make any computation
required by this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder thereafter shall become entitled to
receive any shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of this Option shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock
contained in Subsections (a) to (g), inclusive above.
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<PAGE>
9. This Agreement shall be governed by and in accordance
with the laws of the State of Delaware.
IN WITNESS WHEREOF, Sun Hill Industries, Inc., has caused this Option to
be signed by its duly authorized officers under its corporate seal, and this
Option to be dated ___________, 1996.
SUN HILL INDUSTRIES, INC.
By: ______________________________
Names:
Title:
(Corporate Seal)
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<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder,
Additional Shares and Additional Warrants of Sun Hill Industries, Inc.,
each Additional Share consisting of one share of $.001 Par Value Common Stock
and each Additional Warrant consisting of one Class A Common Stock Purchase
Warrant, and herewith makes payment of $______________ therefor, and requests
that the Warrants and certificates for shares of Common Stock be issued in the
name(s) of, and delivered to ________________________ whose address(es) is
(are)_________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase Additional Shares
and Additional Warrants represented by the foregoing Option to the extent
of _____ Additional Shares and _____ Additional Warrants, and appoints ___
attorney to transfer such rights on the books of Sun Hill Industries, Inc.
with full power of substitution in the premises.
Dated:
By: _______________________________
Address:
_______________________________
_______________________________
_______________________________
In the presence of:
<PAGE>
THE 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
OF
SUN HILL INDUSTRIES, INC.
* * * * *
ARTICLE I
PURPOSE
It is the purpose of the Plan to promote the interests of the Company and
its stockholders by attracting and retaining qualified Outside Directors by
giving them the opportunity to acquire a proprietary interest in the Company and
an increased personal interest in its continued success and progress. The
Options granted hereunder shall not be qualified as "incentive stock options"
within the meaning of Section 422(b) of the Code.
ARTICLE II
DEFINITIONS
As used herein the following terms have the following meanings:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means any act of (i) fraud upon or with respect to, (ii)
intentional misrepresentation to or with respect to, or (iii)
embezzlement, misappropriation or conversion of assets or
opportunities of, the Company or any direct or indirect
majority-owned subsidiary of the Company.
(c) A "Change in Control" shall be deemed to have taken place if (i)
any person or group of persons (as defined in Rule 13d-5 under the
Securities Exchange Act of 1934), together with its affiliates,
becomes the beneficial owner (other than directly from the Company)
of 25% or more of the voting power of the Company's then outstanding
securities entitled generally to vote for the election of directors
of the Board or (ii) the occurrence of or the approval by the
Company's stockholders of the merger or consolidation of the Company
with any other corporation, the sale of any substantial portion of
the assets of the Company or the liquidation or dissolution of the
Company unless, in the case of a merger or consolidation, the
Continuing Directors in office immediately prior to such merger or
consolidation will constitute at least two-thirds of the directors
constituting the board of directors of the surviving corporation of
such merger or consolidation and any parent (as such term is defined
in Rule 12b-2 under the Securities Exchange Act of 1934) of such
corporation.
For purposes of this subsection (c) of Article II, "Continuing
Director" shall mean any person who is a member of the Board on the
Effective Date of this
<PAGE>
Plan or any person who subsequently becomes a member of the Board if
such person's initial nomination for election or an initial election
to the Board is recommended or approved by the Board (at a time when
at least two-thirds of the directors then serving are Continuing
Directors).
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan, which
shall consist of not less than two (2) "Non-Employee Directors," as
such term is defined in Rule 16b-3(b)(3)(i) promulgated under the
Securities Exchange Act of 1934, as amended, each having the
requisite qualifications thereunder to satisfy the requirements of
Rule 16b-3.
(f) "Common Stock" means the $.001 par value Common Stock of the
Company.
(g) "Company" means SUN HILL INDUSTRIES, INC., a Delaware
corporation.
(h) "Disability" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which
has lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
(i) "Effective Date" means November 7, 1996
(j) "Fair Market Value" means the closing "bid" price of the
Company's Common Stock on the date in question as quoted on the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or on any successor national stock exchange on
which the Common Stock is then traded, provided, however, that if on
the date in question there is no public market for the Company's
Shares and they are neither quoted on "NASDAQ" nor traded on a
national securities exchange, then the Committee shall, in its sole
discretion and best judgment, determine the Fair Market Value.
(k) "Holder" means an Outside Director to whom an Option has been
granted under the Plan.
(l) "Option" means any option to purchase shares of Common Stock
granted pursuant to the provisions of the Plan.
(m) "Outside Director" means an individual who (i) is now, or
hereafter becomes, a member of the Board and (ii) is a "Non-Employee
Directors" as such term is defined in Rule 16b-3(b)(3)(i)
promulgated under the Securities Exchange Act of 1934, as amended.
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(n) "Plan" means this 1996 Non-Employee Director Stock Option Plan
for Outside Directors of Sun Hill Industries, Inc.
(o) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934,
as amended, or any successor rule or regulation.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
no authority, discretion or power to select the participants who will receive
Options, to grant Options, to set the number of shares to be covered by any
Option, or to set the exercise price or the period within which the Options may
be exercised, or to alter any other terms or conditions specified herein, except
in the sense of administering the Plan subject to the express provisions of the
Plan and except in accordance with Section 6.02 hereof. Subject to the foregoing
limitations, the Committee shall have authority and power to adopt such rules
and regulations and to take such action as it shall consider necessary or
advisable for the administration of the Plan, and to construe, interpret and
administer the Plan. The decisions of the Committee relating to the Plan shall
be final and binding upon the Company, the Holders and all other persons. No
member of the Committee shall incur any liability by reason of any action or
determination made in good faith with respect to the Plan or any stock option
agreement entered into pursuant to the Plan.
ARTICLE IV
OPTIONS
4.01 Participation. Each Outside Director shall be granted Options to
purchase Common Stock under the Plan on the terms and conditions herein
described.
4.02 Stock Option Agreements. Each Option granted under the Plan shall be
evidenced by a written stock option agreement entered into by the Company and
the Holder to whom the Option is granted, which agreement shall include,
incorporate or conform to the following terms and conditions, and such other
terms and conditions not inconsistent therewith or with the terms and conditions
of this Plan as the Committee considers appropriate in each case:
(a) Option Grant Dates. An Option shall be granted initially as of
the Effective Date to each Outside Director who is serving the
Company as a director as of such date. Thereafter, an Option shall
be granted to each Outside Director who is serving the Company as a
director on each annual anniversary of the Effective Date (e.g.,
each November 7 thereafter). The date of grant of an Option pursuant
to the Plan shall be referred to hereinafter as the "Grant Date" of
such Option.
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(b) Number of Shares. Each Option shall entitle the Holder to
purchase, in accordance with such Option and the Plan, 5,000 shares
of Common Stock, subject to adjustment in accordance with Section
5.02 hereof.
(c) Exercise Price. The price at which each share of Common Stock
covered by an Option may be purchased shall be the Fair Market Value
of the Common Stock on the Grant Date.
(d) Exercisability and Option Period. Subject to the provisions of
paragraph (e) below:
(i) the number of whole shares of Common Stock equal to
one-half of the number of shares of Common Stock subject to
such Option shall first become exercisable immediately on the
Grant Date of the Option and the remaining shares of Common
Stock subject to such Option shall first become exercisable on
the first anniversary of the Grant Date of the Option; and
(ii) Each Option shall remain exercisable for a period of ten
years from the Grant Date of the Option (the "Option Period").
(e) Termination of Service, Death, Etc. The provisions of paragraph
(d) above to the contrary notwithstanding:
(i) If the Holder of an Option is removed from the Board for
Cause or resigns from the Board upon request of the remaining
Board members within the Option Period due to Cause, the
unexercised portion of the Option, whether or not then
exercisable, shall automatically terminate as of the effective
date of such removal or resignation;
(ii) If the Holder of an Option resigns from the Board for
reasons other than (a) cause, (b) a Change of Control or (c)
Disability prior to the date all shares subject to such Option
have become exercisable in accordance with paragraph (d)
above, the unexercisable portion of the Option shall be
forfeited upon the effective date of such resignation;
(iii) If the Holder of an Option is removed from the Board on
account of or following a Change of Control, or resigns from
the Board upon request of the remaining Board members within
the Option Period on account of or following a Change of
Control, the unexercisable portion of the Option shall become
immediately exercisable upon the effective date of such
removal or resignation;
(iv) If, within the Option Period, the Holder of an Option (A)
is not re-elected to the Board, or is removed from the Board
on account of or following a Change of Control, or resigns
from the Board upon the request of the remaining Board members
on account of or following a Change of Control or for any
reason other than Cause, (B) resigns from the Board due to
Disability or (C) dies while a Board
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member, then the person entitled to exercise the Option may
within the 20-day period immediately following the effective
date of the removal, resignation, termination as a member of
the Board or date of death, as the case may be, retain the
Option and exercise same in accordance with its terms within
the remaining Option Period.
(f) Transferability. An Option granted under the Plan shall not be
transferable by a Holder, otherwise than by will or by the laws of
descent and distribution, and during the lifetime of the Holder the
Option shall be exercisable only by the Holder.
(g) Exercise, Payments, Etc. Each stock option agreement shall
provide that the option granted thereunder may be exercised, in
whole or in part, by the Holder at any time or (with respect to
partial exercises) from time to time during the Option Period,
subject to the provisions of the stock option agreement and the
Plan, and that the method for exercising the Option shall be by the
delivery to the Secretary of the Company of, or by sending by United
States registered or certified mail, postage prepaid, addressed to
the Company (to the attention of the Secretary) of, written notice
signed by the Holder specifying the number of shares of Common Stock
with respect to which such Option is being exercised. Such notice
shall be accompanied by the full amount of the purchase price of
such shares, in cash. Any such notice shall be deemed to have been
given on the date on which the same was deposited in a regularly
maintained receptacle for the deposit of the United States mail,
addressed and sent as above-stated. In addition to the foregoing,
promptly after demand by the Company, the exercising Holder shall
pay to the Company an amount equal to applicable withholding taxes,
if any, due in connection with such exercise. In the event of the
death of the Holder of an Option, the executor or administrator of
the Holder's estate (or anyone who shall have acquired the Option by
will or pursuant to the laws of descent and distribution) may
exercise the Option in accordance with the provisions of the stock
option agreement.
(h) Restrictions; Securities Exchange Listing. All certificates for
shares of Common Stock delivered upon the exercise of Options under
the Plan shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission and any applicable federal or state securities
laws, and the Committee may cause a legend or legends to be placed
on such certificates to make appropriate reference to such
restrictions. If the shares of Common Stock are traded on a national
securities exchange, the Company shall not be required to deliver
any Shares covered by an Option unless and until such Shares have
been admitted for trading on such securities exchange.
ARTICLE V
AUTHORIZED COMMON STOCK
5.01 Common Stock. The total number of shares as to which Options may be
granted pursuant to the Plan shall be 100,000 shares of the Common Stock in the
aggregate, except as such number of shares shall be adjusted from and after the
Effective Date in accordance with the provisions of Section 5.02 hereof. If any
outstanding Option under the Plan shall expire or be
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terminated for any reason, the shares of Common Stock allocable to the
unexercised portion of such Option shall again be available for grant under the
Plan.
5.02 Adjustments Upon Changes in Common Stock. In the event the Company
shall effect a split of the Common Stock or a dividend payable in Common Stock,
or in the event the outstanding Common Stock shall be combined into a smaller
number of shares, the maximum number of shares as to which Options may be
granted under the Plan and the number of shares to be covered by any Option not
yet granted as provided in Section 4.02(b) shall be increased or decreased
proportionately. In the event that before delivery by the Company of all of the
shares of Common Stock in respect of which any Option has been granted under the
Plan, the Company shall have effected such a split, dividend or combination, the
shares still subject to the Option shall be increased or decreased
proportionately so that the aggregate Exercise Price for all the then optioned
shares shall remain the same as immediately prior to such split, dividend or
combination.
In the event of a reclassification of the Common Stock not covered by the
foregoing, or in the event of a liquidation or reorganization, including a
merger, consolidation or sale of assets, the Committee shall make such
adjustments, if any, as it may deem appropriate in the number, purchase price
and kind of shares covered by the unexercised portions of Options theretofore
granted under the Plan. The provisions of this Section 5.02 shall only be
applicable if, and only to the extent that, the application thereof does not
conflict with any valid governmental statute, regulation or rule.
ARTICLE VI
GENERAL PROVISIONS
6.01 Termination of Plan. The Plan shall terminate whenever the Board
adopts a resolution to that effect. If not sooner terminated in accordance with
the preceding sentence, the Plan shall terminate at the close of business on
November 6, 2006. After termination of the Plan, no Options shall be granted
under the Plan, but the Company shall continue to recognize, and perform its
obligations with respect to, Options previously granted.
6.02 Amendment of the Plan. The Committee may from time to time amend,
modify, suspend or terminate the Plan. Nevertheless, no such amendment,
modification, suspension or termination shall (a) impair any Options theretofore
granted under the Plan or deprive any Holder of any shares of Common Stock which
such holder might have acquired through or as a result of the Plan, or (b) be
made without the approval of the holders of a majority of the outstanding shares
of Common Stock of the Company where such change would (i) increase the total
number of shares of Common Stock as to which Options may be granted under the
Plan or decrease the exercise price at which Options may be granted under the
Plan (other than as provided in Section 5.02 hereof), (ii) materially alter the
class of persons eligible to be granted Options under the Plan, (iii) materially
increase the benefits accruing to Holders under the Plan or (iv) extend the term
of the Plan or the Option Period specified in Section 4.02(d) hereof.
Notwithstanding the foregoing, the provisions of this Plan relating to (a)
the number of shares of Common Stock covered by, and the exercise price of,
Options granted under the Plan,
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(b) the timing of grants of Options under the Plan and (c) the class of persons
eligible to be granted Options under the Plan shall not be amended more than
once every six months, other than to comport with changes in the Code,
applicable securities laws, or the rules thereunder.
6.03 Treatment of Proceeds. Proceeds from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company.
6.04 Effectiveness. This Plan shall become effective as of the Effective
Date. This Plan and each Option granted or to be granted hereunder is
conditional and shall be of no force and effect, and no Option shall be
exercised, unless and until the Plan has been approved by (X) the affirmative
vote of the holders of a majority of the shares of Common Stock present, or
represented, and entitled to vote at a meeting of stockholders or (Y) by the
written consent of the holders of all of the issued and outstanding shares of
Common Stock of the Company.
6.05 Section Headings. The section headings included herein are only for
convenience, and they shall have no effect on the interpretation of the Plan.
6.06 Gender and Number. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
6.07 Applicable Law. All questions arising with respect to the provisions
of the Plan shall be determined by application of the laws of the State of
Connecticut except to the extent preempted by Federal law.
6.08 Effect of Securities Exchange Act of 1934. With respect to persons
subject to Section 16 of the Securities Exchange Act of 1934 (the "1934 Act"),
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision of the Plan or action by the Committee in administering the Plan fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
IN WITNESS WHEREOF, this Plan has been executed at Stamford, Connecticut
on this 7th day of November, 1996.
SUN HILL INDUSTRIES, INC.
By /s/ Benson Zinbarg
-----------------------------
Benson Zinbarg, President and
Chief Executive Officer
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SUN HILL INDUSTRIES, INC.
1996 EMPLOYEE AND CONSULTANT STOCK OPTION PLAN
* * * *
SECTION 1
PURPOSES.
SUN HILL INDUSTRIES, INC. (the "Company") desires to afford certain of its
key employees, officers and consultants who are responsible for the continued
growth of the Company an opportunity to acquire a proprietary interest in the
Company, and thus to create in such individuals an increased in and greater
concern for the welfare of the Company and its subsidiaries.
The Company, by means of this Employee and Consultant Stock Option Plan
(the "Plan"), seeks to retain the services of persons now holding key positions
and to secure the services of persons capable of filling such positions.
The stock options offered pursuant to the Plan are a matter of separate
inducement and are not in lieu of any salary or other compensation for the
services of any key employee or consultant.
The stock options granted under the Plan are intended to be either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not meet the requirements
for incentive stock options.
SECTION 2
DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or
indirectly through one or more intermediaries, is controlled by the Company and
(ii) any entity in which the Company has a significant equity interest.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(c) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan, which shall consist
of not less than two (2) "Non-Employee Directors," as such term is defined in
Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of 1934, as
amended, each having the requisite qualifications thereunder to satisfy the
requirements of Rule 16b-3.
<PAGE>
(d) "Company" shall mean "SUN HILL INDUSTRIES, INC., a Delaware
corporation.
(e) "Eligible Person" shall mean any employee, officer or consultant
providing services to the Company or any Affiliate who the Committee determines
to be an Eligible Person. A director of the Company who is not also an employee
of the Company or an Affiliate shall not be an Eligible Person.
(f) "Fair Market Value" shall mean the closing "bid" price of the
Company's Shares on the date in question as quoted on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or on any successor
national stock exchange on which the Common Stock is then traded, provided,
however, that if on the date in question there is no public market for the
Company's Shares and they are neither quoted on "NASDAQ" nor traded on a
national securities exchange, then the Committee shall, in its sole discretion
and best judgment, determine the Fair Market Value.
(g) "Incentive Stock Option" shall mean an option granted under the
Plan that is intended to meet the requirements of Section 422 of the Code or any
successor provision.
(h) "Non-Qualified Stock Option" shall mean an option granted under
the Plan that is not intended to be an Incentive Stock Option.
(i) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(j) "Option Agreement" shall mean any written agreement, contract or
document evidencing any Option granted under the Plan.
(k) "Participant" shall mean an Eligible Person designated to be
granted an Option under the Plan.
(l) "Person" shall mean any individual, corporation, partnership,
association, limited liability company, association or trust.
(m) "Plan" shall mean this 1996 Employee and Consultant Stock Option
Plan, as amended from time to time.
(n) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(o) "Shares" shall mean shares of Common Stock, $.001 par value, of
the Company.
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SECTION 3
ADMINISTRATION.
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject to the express provisions of the Plan and
to applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the types of Options (e.g., whether
Incentive Stock Options or Non-Qualified Stock Options) to be granted to each
Participant under the Plan; (iii) determine the number of Shares to be covered
by each Option; (iv) determine the terms and conditions of any Option Agreement;
(v) amend the terms and conditions of any Option Agreement and accelerate the
exercisability of Options covered thereunder; (vi) determine whether, to what
extent and under what circumstances Options may be exercised in cash, Shares or
other property, or canceled, forfeited or suspended; (vii) determine whether, to
what extent and under what circumstances Options shall be deferred either
automatically or at the election of the holder thereof or the Committee; (viii)
interpret and administer the Plan and any instrument or Option Agreement
relating to, or Option granted under the Plan; (ix) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (x) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Option shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Option granted under the Plan and any employee of the Company or any
Affiliate.
SECTION 4
AVAILABLE SHARES SUBJECT TO OPTION.
(a) Shares Available. The total number of Shares for which Options may be
granted pursuant to the Plan shall be 950,000 Shares of the Common Stock in the
aggregate, subject to adjustment as provided in Section 4(c). If any Shares
covered by an Option or to which an Option relates are not purchased or are
forfeited, or if an Option otherwise expires, then the number of Shares counted
against the aggregate number of Shares available under the Plan with respect to
such Option, to the extent of any such forfeiture or termination, shall again be
available for Options under the Plan.
(b) Accounting for Shares Covered by an Option. For purposes of this
Section 4, the number of Shares covered by an Option shall be counted on the
date of grant of such Option against the aggregate number of Shares available
for granting Options under the Plan.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar rights to purchase Shares or other securities of the Company or
other similar
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corporation transaction or event affects the Shares subject to Option grants
under the Plan such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares which may thereafter be made the subject of Options;
(ii) the number of Shares subject to outstanding Option awards; (iii) the
purchase or exercise price with respect to any Option, provided, however, that
the number of Shares covered by an Option or to which such Option relates shall
always be a whole number.
(d) Incentive Stock Options. Notwithstanding the foregoing, the number of
Shares available for granting Incentive Stock Options under the Plan shall not
exceed 950,000, subject to adjustment as provided in the Plan and Section 422 or
424 of the Code or any successor provisions.
SECTION 5
ELIGIBILITY.
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Option and the terms of any
Option, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full or part-time employees (which term as
used herein includes, without limitation, officers and directors who are also
employees) and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
SECTION 6
OPTION AWARDS.
The Committee is hereby authorized to grant Options to Participants with
the following terms and conditions and with such additional terms and conditions
not inconsistent with the provisions of the Plan as the Committee shall
determine:
(i) Exercise Price. The purchase price per Share purchasable under
an Option shall be determined by the Committee, provided, however, that
such purchase price shall not be less than 100% of the Fair Market Value
of a Share on the date of grant of such Option, provided further, however,
that in the case of an Incentive Stock Option granted to a Participant
who, at the time such Option is granted, owns Shares of the Company or
shares of any subsidiary corporation or parent corporation of the Company
which possesses more than ten percent (10%) of the total combined voting
power of all classes of shares of the Company or of any subsidiary
corporation or parent corporation of the Company (hereinafter, a "10%
Shareholder), the purchase price for each Share shall be such amount as
the Committee in its best judgment shall determine to be not less than one
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hundred ten percent (110%) of the Fair Market Value per Share at the date
the Incentive Stock Option is granted. In determining stock ownership of a
Participant for any purposes under the Plan, the rules of Section 424(d)
of the Code shall be applied, and the Committee may rely on
representations of fact made to it by Participant and believed by it to be
true.
(ii) Option Term. The term of each Option shall be fixed by the
Committee which in any event shall not exceed a term of ten (10) years
from the date of the grant, provided, however, that the term of any
Incentive Stock Option granted to any 10% Shareholder shall not be
exercisable after the expiration of five (5) years from the date such
Incentive Stock option was granted.
(iii) Maximum Grant of Incentive Stock Options. The aggregate Fair
Market Value (determined on the date the Incentive Stock Option is
granted) of Shares subject to an Incentive Stock Option (when first
exercisable) granted to a Participant by the Committee in any calendar
year shall not exceed $100,000.
(iv) Time and Method of Exercise. Subject to the provisions of the
Plan, the Committee shall determine the time or times at which an Option
may be exercised in whole or in part and the method or methods by which,
and the form or forms (including, without limitation, cash, Shares,
promissory notes, other securities, other property, or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant exercise price) in which, payment of the exercise price with
respect thereto may be made or deemed to have been made.
(v) Limits on Transfer of Options. No Option shall be transferable
by a Participant otherwise than by will or by the laws of descent and
distribution; provided, however, that, if so determined by the Committee,
a Participant may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the Participant and
receive any Shares purchased with respect to any Option upon the death of
the Participant. Each Option shall be exercisable during the Participant's
lifetime only by the Participant or, if permissible under applicable law,
by the Participant's guardian or legal representative. No Option or Shares
underlying any Option shall be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or
encumbrance thereof shall be void and unenforceable against the Company or
any Affiliate.
(vi) Restrictions; Securities Exchange Listing. All certificates for
Shares delivered upon the exercise of Options under the Plan shall be
subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations and
other requirements of the Securities and Exchange Commission and any
applicable federal or state securities laws, and the Committee may cause a
legend or legends to be placed on such certificates to make appropriate
reference to such restrictions. If the Shares or other securities are
traded on a national securities exchange, the Company shall not be
required to deliver any Shares covered by an Option unless and until such
Shares have been admitted for trading on such securities exchange.
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(vi) Termination of Employment. (A) Upon termination of the
employment or consultancy, as the case may be, of any Participant, an
Option previously granted to the Participant, unless otherwise specified
by the Committee in the Option, shall, to the extent not theretofore
exercised, terminate and become null and void, provided that:
(a) if the Participant shall die while in the employ of the
Company or during either the three (3) month or one (1) year period,
whichever is applicable, specified in clause (b) below and at a time
when such Participant was entitled to exercise an Option as herein
provided, the legal representative of such Participant, or such
Person who acquired such Option by bequest or inheritance or by
reason of the death of the Participant, may, not later than one (1)
year from the date of death, exercise such Option, to the extent not
theretofore exercised, in respect of any or all of such number of
Shares as specified by the Committee in such Option; and
(b) with respect to Participants who are employees, if the
employment of any employee to whom such Option shall have been
granted shall terminate by reason of the Employee's retirement (at
such age or upon such conditions as shall be specified by the Board
of Directors), disability (as described in Section 22(e)(3) of the
Code) or dismissal by the employer other than for cause (as defined
below), and while such employee Participants entitled to exercise
such option as herein provided, such employee Participant shall have
the right to exercise such Option so granted, to the extent not
theretofore exercised, in respect of any or all of such number of
Shares as specified by the Committee in such Option, at any time up
to and including (i) three (3) months after the date of such
termination of employment in the case of termination by reason of
retirement or dismissal other than for cause and (ii) one (1) year
after the date of termination of employment in the case of
termination by reason of disability.
(B) If a Participant voluntarily terminates his or her
employment or consultancy, as the case may be, or is discharged for cause,
any Option granted hereunder shall, unless otherwise specified by the
Committee in the Option, forthwith terminate with respect to any
unexercised portion thereof.
(C) If an Option granted hereunder shall be exercised by
the legal representative of a deceased or disabled Participant, or by a
person who acquired an Option granted hereunder by bequest or inheritance
or by reason of death of any such person, written notice of such exercise
shall be accompanied by a certified copy of letters testamentary or
equivalent proof of the right of such legal representative or other person
to exercise such Option.
(D) For all purposes of the Plan, the term "for cause"
shall mean, (i) with respect to a Participant who is a party to a written
employment or consultancy agreement
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with the Company, as the case may be, which contains a definition of "for
cause" or "cause" (or words of like import) for purposes of termination of
employment or consultancy thereunder by the Company, "for cause" or "cause"
as defined in the most recent of such agreements, or (ii) in all other
cases, as determined by the Committee, in its sole discretion, that one or
more of the following has occurred: (W) any failure by a Participant to
substantially perform his or her employment or consultancy duties, as the
case may be, which shall not have been corrected within thirty (30) days
following written notice thereof, (X) any engaging by such Participant in
misconduct or, in the case of an officer Participant, any failure or
refusal by such officer Participant to follow the directions of the
Company's Board of Directors or Chief Executive Officer of the Company
which, in either case, is injurious to the Company or any Affiliate, (Y)
any breach by a Participant of any covenant contained in the instrument
pursuant to which an Option is granted, or (Z) such Participant's
conviction of or entry of a plea of nolo contendere in respect of any
felony, or of a misdemeanor which results in or is reasonably expected to
result in economic or reputational injury to the Company or any of its
Affiliates.
SECTION 7
AMENDMENT AND TERMINATION; ADJUSTMENTS.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Option Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Option Agreement,
without the approval of the stockholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would cause Rule 16b-3 to become unavailable with respect to the
Plan;
(ii) would violate the rules or regulations of any national
securities exchange on which the Shares of the Company are traded or the
rules or regulations of the National Association of Securities Dealers,
Inc. that are applicable to the Company; or
(iii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Option Grants. The Committee may waive any conditions or
rights of the Company under any outstanding Option grant, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Option grant, prospectively or retroactively, without
the consent of the Participant or holder or beneficiary thereof, except as
otherwise herein provided.
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(c) Correction of Defects, Omissions and Inconsistencies. The Committees
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Option in the manner and to the extent it shall deem desirable
to carry the Plan into effect.
SECTION 8
INCOME TAX WITHHOLDING; TAX BONUSES.
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, which are the sole and absolute responsibility of a
Participant, are withheld or collected from such Participant. In order to assist
a Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise of any Option, the Committee, in its
discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise of any Option with a Fair Market Value equal to the amount of such
taxes or (ii) delivering to the Company Shares other than the Shares issuable
upon exercise of the applicable Option with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the date
that the amount of tax to be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Option under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise in order to provide funds to pay all or a portion of federal and
sate taxes due as a result of such exercise. The Committee shall have full
authority in its discretion to determine the amount of any such tax bonus.
SECTION 9
GENERAL PROVISIONS.
(a) No Rights to Option Grants. No Eligible Person, Participant or other
Person shall have any claim to be granted an Option under the Plan, and there is
no obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Options granted under the Plan. The terms and
conditions of Options need not be the same with respect to any Participant or
with respect to different Participants.
(b) Option Agreements. No Participant will have rights under an Option
granted to such Participant unless and until an Option Agreement shall have been
duly executed on behalf of the Company. Each Option Agreement shall set forth
the terms and conditions of any Option granted to a Participant consistent with
the provisions of this Plan.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
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(d) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate may at any time dismiss a Participant from
employment free from any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Option Agreement.
(e) Governing Law. The validity, construction and effect of the Plan or
any Option granted hereunder, and any rules and regulations relating to the Plan
or any Option granted hereunder, shall be determined in accordance with the laws
of the State of Connecticut except to the extent preempted by Federal law.
(f) Severability. If any provision of the Plan or any Option is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Option under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Option, such provision shall be stricken as to such jurisdiction
or Option, and the remainder of the Plan or any Option shall remain in full
force and effect.
(g) Section Headings. The section headings included herein are only for
convenience, and they shall have no effect on the interpretation of the Plan.
SECTION 10
EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective on November 1, 1996 (the "Plan Effective
Date"), subject to approval by the Company's stockholders within one (1) year
thereafter.
SECTION 11
TERM OF THE PLAN.
Unless the Plan shall have been discontinued or terminated as provided in
Section 7(a), the Plan shall terminate on October 31, 2006. No Option shall be
granted after the termination of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Option Agreement, any Option
theretofore granted may extend beyond the termination of the Plan, and the
authority of the Committee provided for hereunder with respect to the Plan and
any Option grants, and the authority of the Board of Directors of the Company to
amend the Plan, shall extend beyond the termination of the Plan.
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<PAGE>
IN WITNESS WHEREOF, this Plan has been executed at Stamford, Connecticut
on this 7th day of November, 1996.
SUN HILL INDUSTRIES, INC.
By /s/ Benson Zinbarg
-----------------------------
Benson Zinbarg, President and
Chief Executive Officer
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 1st
day of November 1996 by and between Mr. Benson Zinbarg (the "Executive") and Sun
Hill Industries, Inc. (the "Company") (collectively, the Executive and the
Company shall be referred to as the "Parties"). In consideration of the mutual
promises and agreements contained herein, the Parties agree as follows:
1. Purpose. The Company desires to avail itself of the services of the Executive
as its President, Chief Executive Officer and Chief Financial Officer and the
Executive desires to provide such services in accordance with the terms of this
Agreement. The Parties agree that the duties and obligations expected of the
Executive and of the Company are as set forth in this Agreement.
2. Effective Date and Term. This Agreement shall be effective, and its term (the
"Term") shall commence on January 1, 1997 and shall continue through and until
December 31, 2001 (the "Initial Term"), unless terminated sooner as provided by
this Agreement or extended by the Parties. The Term shall be automatically
renewed for successive periods of one year each (the "Renewal Term"), unless
either Party gives to the other written notice of intent not to renew at least
90 days prior to the expiration of the Initial Term or any Renewal Term.
3. Compensation.
A. Base Salary. During the Term the Company shall pay or cause to be paid
to the Executive, in semi-monthly installments, a base salary of
$125,000 per annum (the "Base Salary"). The Base Salary shall be
reviewed annually by the Board and, if appropriate, may be increased.
B. Annual Cash Bonus. At the conclusion of each year during the Term, the
Company shall pay the Executive an annual cash bonus equal to five
percent (5%) of the Company's pre-tax income for such year in excess
of five hundred thousand ($500,000.00) dollars (the "Annual Cash
Bonus").
C. Expenses. The Company shall reimburse the Executive, within thirty
days of voucher, the amount of all travel, hotel, entertainment and
other expenses (properly vouchered) reasonably incurred by the
Executive in furtherance of his duties under this Agreement.
D. Benefits.
(1) Vacation. The Executive shall be entitled to 20 business days of
vacation each year. The Executive shall be entitled to carry any
unused vacation days over to the next calendar year. However, in
no event will Executive's accrued but unused vacation exceed 40
days.
<PAGE>
(2) Holidays. The Executive shall be entitled to all holidays
generally provided to other employees of the Company.
(3) Life Insurance / Physical Exams. During the Term, the Company
shall, upon proof of insurability, purchase, or cause to be
purchased, a policy or policies insuring the life of the
Executive payable to the Executive's designated beneficiary(s) at
least equal to that life insurance generally provided other
employees of the Company. In addition, the Company shall, upon
proof of insurability, purchase, or cause to be purchased a key
person life insurance policy insuring the life of the Executive
in the amount of at least $1,000,000 and which policy names the
Company as its beneficiary (hereinafter the "Executive Key Man
Insurance Policy"). In connection with the Company's procurement
of the Executive Key Man Insurance Policy, the Executive agrees
to submit to a physical exam and shall cooperate with the
insurance policy underwriter in connection therewith. Further,
the Company agrees to pay for, and provide, a general physical
examination of the Executive, once annually.
(4) Medical Insurance. During the Term, the Company shall acquire and
pay for, or reimburse, the Executive for, hospitalization,
dental, major medical, or other health insurance for the benefit
of the Executive and his dependents at least equal to that
generally provided other employees under the Company's group
health insurance plan(s).
(5) Sick Leave/Disability. During any period in which the Executive
is absent from work as a result of personal injury, sickness or
other disability, the Board may, by majority vote, appoint an
acting President to serve for the duration of the Executive's
absence. The Company shall, while such period continues or for
180 days, whichever is a shorter period, pay the Executive his
full Base Salary. The Executive will also be entitled to
additional disability benefits at least equal to that which is
generally provided to other employees after the effective date of
this Agreement.
(6) Use of Company Automobile. During the Term, the Executive shall
be entitled to use a Company automobile for both Company business
and personal use. Any and all costs associated with the business
use of such automobile (e.g., insurance, registration, lease
payments, etc.) shall be borne by the Company.
(7) Other Benefits. The Executive shall be entitled to participate in
any pension, retirement or other qualified plans adopted by the
Company for the benefit of its employees, including, but not
limited to the Company's 1996 Employee Consultant Stock Option
Plan and the Company's "Top Heavy" Profit Sharing Plan.
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4. Duties of the Executive.
A. Duties. During the Term, the Executive shall be President, Chief
Executive Officer and Chief Financial Officer of the Company and shall
manage the business of the Company, perform such duties as the Company
may reasonably require and utilize his best efforts to carry into
effect the resolutions and directions of the Company's Board of
Directors.
B. Representation. During the Term, the Executive shall well and
faithfully serve the Company and use his best efforts to promote the
interests of the Company. The Executive shall at all times give the
Company the full benefit of his knowledge, expertise, technical skill
and ingenuity in the performance of his duties and the exercise of his
powers and authority as President and Chief Executive Officer.
C. Time Devoted by Executive. The Executive agrees to devote
substantially all his time and attention during business hours and
such additional time and attention as may reasonably be required to
perform his duties hereunder.
5. Restrictions on the Executive.
A. Non-Disclosure of Confidential Information. Other than in the proper
performance of his duties hereunder, the Executive shall not, both
during and after the Term, voluntarily divulge to any person, firm or
company, and, shall during the Term, endeavor to prevent the
publication or disclosure of any confidential information concerning
the business accounts or finances of the Company, or concerning any of
the secrets, research, product development, dealings, transactions or
affairs of the Company which have come to his knowledge prior to the
Term or which may come to his knowledge during the Term.
B. Inventions. The Executive hereby transfers and assigns, without
compensation, to the Company or to any person, or entity designated by
the Company, all of the entire right, title and interest of the
Executive in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Executive, solely or jointly, or in
whole or in part, both prior to and during the Term hereof which (1)
relate to methods, apparatus, designs, products, processes or devices
sold, leased, or under construction or development by the Company; (2)
otherwise relate to or pertain to the business, functions or
operations of the Company; or (3) arise (wholly or partly) from the
efforts of the Executive in performing the duties required by this
Agreement during the Term hereof. The Executive shall communicate
promptly and disclose to the Company, in such form as the Company
requests, all information, details, and data pertaining to the
aforementioned inventions, ideas, disclosures and improvements; and,
whether during the Term hereof or thereafter, the Executive shall
execute and deliver to the Company such documents as may be required
of the Executive to permit the Company or any person or entity
designated by the Company to file and prosecute applicable patent,
trademark and service mark applications covering any of such
inventions, ideas, disclosures or
3
<PAGE>
improvements and, as to such inventions, ideas, disclosures or
improvements as constitute copyrightable material, to obtain copyright
thereof and, in addition, assign existing patents, copyrights,
trademarks and service marks registered in his own name. Any invention
by the Executive otherwise covered by (1), (2), or (3) of this
subsection 5B within six months following the conclusion of the Term
shall be deemed to fall within the provisions of this subsection.
C. Covenants.
(1) Non-Competition. During the Term, and thereafter as specifically
provided herein, the Executive may not directly or indirectly
engage in, or have any interest in any business (whether as
employee, officer, director, agent, creditor, consultant, or
otherwise) that competes directly with the business of the
Company anywhere in North America, provided, however, that
Executive may own, directly or indirectly for his own benefit,
not more than an aggregate of five percent (5%) of the issued and
outstanding shares of any class of equity securities issued by a
corporation that competes with the Company and which shares are
publicly traded.
(2) Non-Solicitation. During the Term, and thereafter as specifically
provided herein, the Executive shall not, except in the normal
course of business of the Company, either personally, by his
agent or by letters, circulars or advertisements, and whether for
himself or on behalf of any other person, company or firm,
directly or indirectly solicit orders for goods of a type similar
to those being developed or dealt with by the Company during the
Term, or for services similar to those being provided during the
Term by the Company to any person, company or firm, who at any
time within the year prior to the end of the Term was a customer
or affiliate of the Company.
(3) Breach. The Executive agrees that any breach by him of any
covenant set forth in this Section 5, whether during or following
the Term, may cause irreparable harm to the Company and that
monetary damages alone may not provide full and adequate
compensation for a breach or threatened breach; therefore, the
Company shall be entitled to injunctive relief for any breach or
threatened breach thereof, in addition to other damages.
6. Termination.
A. Non-Renewal. The provisions of this subsection 6A apply if the
Term is not renewed pursuant to the provisions of Section 2.
(1) If the Company has given notice of non-renewal, the Company
shall pay the Executive an amount equal to his then existing
Base Salary for two (2) years commencing with the day
following the final day of the Term; provided, however, that
this obligation shall be mitigated by fifty percent
4
<PAGE>
(50%) of the earned income actually received by or for the
account of the Executive during such two (2) year period. At
the conclusion of the Term, all other Company obligations to
the Executive as to salary and benefits shall cease.
(2) If the Executive has given notice of non-renewal, all
Company obligations to the Executive as to salary and
benefits shall cease at the conclusion of the Term.
(3) If the Executive elects not to renew the Term pursuant to
Section 2 of this Agreement for the 2002 or 2003 calendar
years, the provisions of subsection 5C shall apply for one
year following the conclusion of the Term. If the Executive
elects not to renew the Term pursuant to Section 2 of this
Agreement beyond the 2003 calendar year or if the Company
elects not to renew the Term pursuant to Section 2 of this
Agreement beyond the 2003 calendar year, the provisions of
subsection 5C shall not apply after the conclusion of the
Term.
B. Termination for Cause by the Company.
(1) This Agreement and the Term may be terminated prior to its
expiration "for cause" by the Company pursuant to the
provisions of this subsection 6B. If the Board determines
that "cause" exists for termination of the Executive's
employment, written notice thereof must be given to the
Executive describing the state of affairs or facts deemed by
the Board to constitute such cause. The Executive shall have
45 days after receipt of such notice to cure the reason
constituting cause and if he does so, the Term shall not be
terminated for the cause specified in the notice. During
such 45 day period, the Term shall continue and the
Executive shall continue to receive his full Base Salary,
Annual Cash Bonus, expenses and benefits pursuant to this
Agreement. If such cause is not cured to the Board's
reasonable satisfaction within such 45 day period, the
Executive may then be immediately terminated by a majority
vote of the Board excluding the Executive if the Executive
is then a member of the Board. For purposes of this
Agreement, the words "for cause" or "cause" shall be limited
to: (a) actions on the part of the Executive which
constitute gross negligence or willful misconduct in the
performance or non-performance of the Executive's duties
that have the effect of materially injuring the reputation,
business or business relationships of the Company; or (b)
the conviction of the Executive (including a conviction on a
nolo contendere plea) of any felony, or of any crime or
offense which involves property or money of the Company or
moral turpitude; or (c) Executive's incarceration following
any conviction which restricts or limits the ability of the
Executive to provide his duties hereunder; or (d) a material
breach of this Agreement by the Executive so long as such
material breach is not caused by the Company. The duties,
powers and authority of the Executive may also, on a
majority vote of the Board excluding the Executive if the
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Executive is then a member of the Board, be suspended for a
reasonable period of time, but with a continuation of the
Executive's full Base Salary, Annual Cash Bonus, expenses
and benefits pursuant to this Agreement, while a
determination is made as to whether cause for termination
exists.
(2) In the event the Term is terminated by the Company for
cause, the provisions of subsection 5C shall continue to
apply for one full year after the termination of the Term.
(3) In the event the Term is terminated by the Company for
cause, the Executive's entire right to salary and benefits
hereunder shall cease upon such termination.
C. Termination Without Cause by the Company.
(1) The Company shall have the right to terminate the Term
without cause on 180 days' advance written notice to the
Executive.
(2) In the event the Term is terminated pursuant to subsection
6C(1), the Company shall pay the Executive his then existing
Base Salary for three (3) full years commencing with the day
following the termination date of the Term.
(3) In the event the Term is terminated pursuant to subsection
6C(1), each of the provisions of subsection 5C shall not
apply after the conclusion of the Term.
D. Resignation by the Executive.
(1) The Executive shall have the right to terminate the Term, by
way of resignation, upon 90 days' written notice to the
Company.
(2) In the event the Term is terminated pursuant to subsection
6D(1), the provisions of subsection 5C shall continue to
apply for one year after the conclusion of the Term.
(3) In the event the Term is terminated pursuant to subsection
6D(1), the Executive's entire right to salary and benefits
hereunder shall cease at the conclusion of the Term.
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E. Termination Upon Change in Control.
(1) For the purposes of this Agreement, a "Change in Control"
shall mean any of the following events:
(a) At any time following the conclusion of the Company's
initial public offering of shares of its Common Stock
and/or other securities for sale (hereinafter, the "IPO
Transaction"), an acquisition (other than directly from
the Company) of any voting securities of the Company
(the "Voting Securities") by any "Person" (as the term
"person" is used for purposes of Section 13(d) or 14(d)
of the Securities Exchange Act of 1934, as amended,
(the "1934 Act")) immediately after which such Person
has "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of 45% or more of
the combined voting power of the Company's then
outstanding voting securities; provided, however, that
in determining whether a Change in Control has
occurred, voting securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined)
shall not constitute an acquisition which would cause a
Change in Control.
A "Non-Control Acquisition" shall mean an acquisition
by (i) an employee benefit plan (or a trust forming a
part thereof) maintained by (x) the Company or (y) any
corporation or other Person of which a majority of its
voting power or its equity securities or equity
interest is owned directly or indirectly by the Company
(a "Subsidiary"), (ii) the Company or any Subsidiary,
or (iii) any Person in connection with a Non-Control
Transaction;
(b) The individuals who, as of November 1, 1996 were
members of the Board (the "Incumbent Board"), cease for
any reason to constitute at least 66 2/3% of the Board;
provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new
director was approved by a vote of at least 66 2/3% of
the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board; provided
further, however, that no individual shall be
considered a member of the Incumbent Board if such
individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 1934
Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other
than the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
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<PAGE>
(c) Approval of the Company's shareholders of: (1) a
merger, consolidation or reorganization involving the
Company, unless (i) the stockholders of the Company,
immediately before such merger, consolidation or
reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization,
at least 66 2/3% of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the voting securities immediately before such merger,
consolidation or reorganization, (ii) the individuals
who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute
at least 66 2/3% of the members of the board of
directors of the Surviving Corporation, (iii) there was
no Person (other than the Company, any Subsidiary, the
Executive, any officer or director or any employee
benefit plan (or any trust forming a part thereof)
maintained by the Company) who (A) immediately prior to
such merger, consolidation or reorganization had
Beneficial Ownership of 15% or more of the then
outstanding voting securities of the Company and (B)
immediately following such merger, consolidation or
reorganization, no Person (other than the Company, any
Subsidiary, the Executive, any officer or director or
any employee benefit plan (or any trust forming a part
thereof) maintained by the Company) had or will have
Beneficial Ownership of 15% or more of the then
outstanding voting securities of the Surviving
Corporation's then outstanding voting securities (a
transaction described in clauses (i) through (iii)
shall herein be referred to as a "Non-Control
Transaction"); (2) a complete liquidation or
dissolution of the Company; or (3) an agreement for the
sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than
a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control
shall not be deemed to occur solely because any Person
(the "Subject Person") acquired Beneficial ownership of
more than the permitted amount of the outstanding
voting securities as a result of the acquisition of
Voting Securities by the Company which, by reducing the
number of Voting Securities outstanding, increases the
proportional number of shares Benefically Owned by the
Subject Person, provided that if a Change in Control
would occur (but for the operation of this sentence) as
a result of the acquisition of Voting Securities by the
Company, and after such share acquisition, the Subject
Person becomes the Beneficial Owner of any additional
Voting Securities which increases the percentage of the
then
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outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
(2) The Executive shall have the right to terminate this
Agreement, for any reason, on 90 days' written notice to the
Company in the event of a Change in Control; provided,
however, that such termination right must be exercised by
the Executive within one year following such Change in
Control.
(3) In the event the Term is terminated pursuant to subsection
6E(2), the Company shall pay the Executive his then existing
Base Salary for two (2) years in one lump sum payment within
10 days of the termination date of the Term.
(4) In the event the Term is terminated pursuant to subsection
6E(2), the provisions of subsection 5C shall not apply after
the termination date of the Term.
(5) Anything to the contrary in this Agreement notwithstanding,
in the event the Company terminates the Term for cause
within one year of a Change in Control, the Company shall
pay the Executive his then existing Base Salary for two (2)
years in one lump sum payment within 10 days of the final
day of the Term. In such event, the provisions of subsection
5C shall not apply after the termination date of the Term.
In the event the Company terminates the Term for any reason other
than for cause within one year of a Change in Control, the
provisions of subsection 5(C) shall not apply.
F. Termination for Disability.
(1) Should the Executive be absent from work as a result of
personal injury, sickness or other disability as provided
for in subsection 3C(5) for any continuous period of time
exceeding 180 days, the Term may be terminated by the
Company, upon written notice given to the Executive, because
of the Executive's disability.
(2) In the event the Term is terminated pursuant to subsection
6F(1), then, following such Termination, the Executive shall
continue to be entitled to benefits pursuant to Subsections
3E(3),(4) and (6) for one (1) year after the conclusion of
the Term.
(3) In the event the Term is terminated pursuant to subsection
6F(1), the provisions of subsection 5C shall not apply after
the conclusion of the Term.
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G. Termination Upon Death. If not earlier terminated, the Term shall
terminate upon the death of the Executive and the Company shall
have no further obligation to the Executive or his estate except
to pay the Executive's estate any Base Salary, Annual Cash Bonus
accrued but remaining unpaid prior to his death, any expenses
accrued but remaining unpaid prior to his death, and any benefits
accrued but remaining unpaid prior to his death.
H. Termination For Not Being Re-Elected to Board of Directors. In
the event that the Executive shall not be re-elected to the
Company's Board of Directors at any annual or special meeting of
stockholders held for the election of directors occurring during
the Term, then the Executive may terminate this Agreement upon
fifteen (15) prior days' notice thereof. In the event that the
Term is terminated pursuant to this subsection 6H, then the
provisions of subsection 5C shall not apply and the Company shall
be obligated to pay the Executive his Base Salary for the
remainder of the Term as though he had not exercised his right of
termination under this subsection 6H.
7. Miscellaneous.
A. Notices. Any notice to be given hereunder shall either be
delivered personally and/or sent by first class certified mail
and regular mail. The address for service on the Company shall be
its principal executive office address, and the address for
service on the Executive shall be his last known place of
residence. A notice shall be deemed to have been served as
follows:
(1) if personally delivered, at the time of delivery; and/or
(2) if posted, at the expiration of 48 hours (10 days if
international) after the envelope containing the same was
delivered into the custody of the postal authorities.
B. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their respective heirs,
personal representatives, successors and assigns, provided that
neither Party shall assign any of its rights or privileges
hereunder without the prior written consent of the other Party.
C. Severability. Should any part or provision of this Agreement be
held unenforceable by a court of competent jurisdiction, the
validity of the remaining parts or provisions shall not be
affected by such holding, unless such enforceability
substantially impairs the benefit of the remaining portions of
the Agreement.
D. Waiver. No failure or delay on the part of either Party in the
exercise of any right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such right or privilege preclude other or further exercise
thereof or of any other right of privilege.
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E. Captions. The captions used in this Agreement are for convenience
only and are not to be used in interpreting the obligations of
the Parties under this Agreement.
F. Choice of Law. The validity, construction and performance of this
Agreement and the transactions to which it relates shall be
governed by the laws of the State of Connecticut without regard
to choice of laws provisions.
G. Entire Agreement. This Agreement embodies the entire
understanding of the Parties as it relates to the subject matter
contained herein and as such, supersedes any prior agreement or
understanding between the Parties relating the terms of
employment of the Executive. No amendment or modification of this
Agreement shall be valid or binding upon the Parties unless in
writing executed by the Parties.
IN WITNESS WHEREOF, the Parties hereto confirm their agreement to the
foregoing and set forth their hands and seal, respectively, as of the date first
above stated.
SUN HILL INDUSTRIES, INC.
Corporate Seal:
__________________ By /s/ Anita Dembiczak
Attest: ----------------------
Name: Anita Dembiczak
Title: Vice President
/s/ Benson Zinbarg
----------------------
Benson Zinbarg
<PAGE>
LEASE AGREEMENT
This Lease Agreement dated the 19 day of September, 1996, by and between BENSON
ZINBARG of 48 Union Street, Stamford, Connecticut 06906 ("Landlord") and SUN
HILL INDUSTRIES, INC., a Connecticut corporation with offices located at 48
Union Street, Stamford, Connecticut 06906 ("Tenant").
WITNESSETH:
1. PREMISES - Landlord hereby leases to Tenant, for the term and upon the
rentals hereinafter specified, the following premises: that portion of the
building known as Glenbrook Commerce Park, 48 Union Street, Stamford,
Connecticut known as Unit 4 of said Glendale Commerce Park currently used by
Tenant as office space, consisting of approximately 5,139 square feet (referred
to herein as the "Premises"). Said building and the land described in Exhibit A
attached hereto are herein collectively referred to as the "Building".
2. DEFINITIONS - Terms used in this Lease Agreement shall have the
following meanings:
(a) Minimum Annual Rent: $77,085.00
Minimum Annual Rent shall be payable as set forth elsewhere in this
lease agreement, in monthly installments of $6,423.75.
(b) Tax Base Year: List of October 1, 1995
(c) Tenant's Proportionate Share:
66,74% of 48 Union Street, Unit 4, Stamford,
Connecticut.
3. TERM - To have and to hold the Premises for a term (the "Term"),
commencing on a date (the "Commencement Date"), which shall be September 1, 1996
and ending on August 31, 2001 (the "Expiration Date"), unless the Term shall
sooner terminate pursuant to the terms, covenants or conditions of this Lease
Agreement or pursuant to law.
4. USE OF PREMISES - (a) Tenant shall use the Premises only for the
operation of its regular course of business and for no other purpose. Said use
shall be limited to warehousing, office use and business-related activities
only. Tenant shall not accumulate any boxes, barrels, packages, waste paper or
other articles in the common areas of the Building. Tenant shall keep the
Premises clean and orderly in accordance with the Landlord's standards for the
Building. Tenant shall commit no waste on the Premises, nor shall Tenant suffer
the same to be committed thereon.
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(b) Tenant shall have the right to install and maintain at its own expense
a discrete sign identifying the Tenant's occupancy at the entry monument. No
signs of any kind shall be installed or maintained on the exterior of the
Building, or on the interior of the Building which shall be visible from outside
the Building. Tenant shall not otherwise install, place or paint any other sign
on or about the exterior of the Premises or in the interior of the Building
without the written consent of Landlord, which consent shall not be unreasonably
withheld. All such signs, whether installed or maintained on the exterior or
interior of the Building shall conform to any federal or state statutes and to
any local ordinances which might then be in effect.
(c) Tenant will not interfere with the conduct of business by other
tenants or occupants of the Building or permit actions constituting a private
nuisance or safety hazard.
(d) Tenant, at its own expense, shall comply with and hold Landlord
harmless from all laws, orders and regulations of Federal, State and Municipal
authorities and with any direction of any public officer or officers, pursuant
to law, which shall impose any violation, order or duty upon Landlord or Tenant
with respect to the Premises or the use or occupancy thereof. Tenant shall not
do or permit to be done any act or thing upon the premises which will invalidate
or be in conflict with fire, public liability or other insurance policies
covering the Building and shall not do or permit to be done, any act or thing
upon the Premises which shall or might subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being carried on at the Premises or for any reason.
(e) Tenant, at its expense, shall comply with all rules, orders,
regulations and requirements of the Board of Fire Underwriters or other similar
body or authority having jurisdiction and shall not do or permit anything to be
done in or upon the Premises or the Building, or bring or keep anything therein,
which is prohibited by the Fire Department or any of such Boards of Fire
Underwriters or other body or authority or which would increase the rate of fire
insurance applicable to the Building over that in effect on the Commencement
Date of this Lease Agreement. If by reason of failure to comply with the
provisions of this subsection, any insurance rate for the Building shall, on the
Commencement Date or anytime thereafter, be higher than it otherwise would be ,
the Tenant, upon demand, shall reimburse Landlord, as additional rent hereunder,
for that part of all insurance premiums thereafter paid by the Landlord which
shall have been charged because of such failure by Tenant.
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5. RENTAL - Commencing on the Commencement Date, Tenant shall pay to
Landlord the Minimum Annual Rent without demand and without setoff or deductions
of any kind, in equal monthly installments, in advance, on the first day of each
term, corresponding to the first day of each calendar month at the address of
Landlord stated above or such other place as Landlord may designate in writing
from time to time, with payment in advance of appropriate fractions of a monthly
payment for any portion of a month at the expiration or prior termination of the
Term. Any Minimum Annual rent or Additional Rent not paid by Tenant on or before
the due date thereof or within ten (10) days thereafter shall thereafter be
payable with a late charge of five percent (5%) of the amount then due. Such
late charge shall be payable hereunder as Additional Rent.
6. INCREASE IN REAL ESTATE TAXES - If Real Estate Taxes with respect to
the Building are increased, at any time or from time to time during the Term
hereof, over Real Estate Taxes paid by the Landlord during the Tax Base Year,
then Tenant shall pay to Landlord, without setoffs or deductions of any kind, as
Additional Rent, an amount equal to Tenant's Proportionate Share of such
increase pro-rated for the period of Tenant's occupancy of the premises. Payment
of such increase shall be made in the installments provided by the taxing
authority within thirty (30) days after Tenant receives from Landlord's
Statement consisting of notice of such tax increase and a bill for Tenant's
Proportionate Share thereof, together with a copy of the applicable bill
received by Landlord from the taxing authority. Landlord's failure to render
said Statement with respect to any Tax Year, or Landlord's delay in rendering
such Statement beyond a date specified herein, shall not prejudice Landlord's
right to render a Statement with respect to that or any subsequent Tax Year. The
obligations of Landlord and Tenant under the provisions of this Section with
respect to any Additional Rent, which obligations have accrued prior to the
expiration or sooner termination of the Term, shall survive the expiration or
any sooner termination of the Term. "Real Estate Taxes" shall mean all taxes or
assessments and governmental charges, whether Federal, State or Municipal, which
are levied or charged against real estate, personal property or rents, or on the
right or privilege of leasing real estate or collecting rents thereon and any
other taxes and assessments attributable to the Building or its operation,
excluding, however, Federal, State or other general income taxes not limited to
real property. "Tax Year" shall mean each tax fiscal year of the City of
Stamford following the Tax Base Year.
7. ALTERATIONS, IMPROVEMENTS, ETC. - (a) Tenant shall not make any
alterations, installations or improvements in the Premises without Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
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(b) All alterations, improvements or additions made by Landlord or Tenant
upon the Premises or in or on the Building but outside the Premises, except
furniture, light fixtures, equipment, or movable partitions or trade fixtures
installed at the expense of the Tenant, shall be the property of the Landlord
and shall remain and be surrendered with the Premises as a part thereof at the
termination of this Lease Agreement, without compensation to Tenant, unless
Landlord shall require Tenant to remove same. In the event Landlord requires
Tenant to remove same, Landlord agrees to provide Tenant with ten (10) days
written notice.
8. REPAIRS - (a) The exterior and structure of the Building and all parts
of the heating, plumbing, electrical and air conditioning systems, to the extent
that such systems currently exist on the premises, shall be maintained and
repaired by the Landlord, except if such maintenance or repair is necessitated
by the negligence, wrongful act or failure to comply with this Lease Agreement
by Tenant, its employees, agents or invitees, in which event Tenant shall be
responsible for maintenance, repair or replacement as necessary.
(b) Tenant, at its expense, shall repair, maintain in good order and
condition and replace, if necessary, the interior of the Premises, except for
structural repairs and repairs necessitated by the negligence, wrongful act or
failure to comply with this Lease Agreement by Landlord, its employees, agents
or invitees, in which event Landlord shall be responsible for repair or
replacement as necessary. Tenant shall at its own expense, be responsible for
the normal cleaning of the Premises. Tenant shall have the right to arrange for
maintenance or janitorial services to be provided to the Premises, at Tenant's
sole expense, and Tenant shall defend, indemnify, and hold harmless Landlord
from and against all liabilities, including reasonable attorney's fees, which
may be imposed upon or incurred by or asserted against Landlord in connection
with the provision of such janitorial service.
9. PARKING - Tenant shall have the right to use Twenty-four (24) parking
spaces, which shall not be designated by Landlord. Tenant shall limit its
employees, agents or invitees parking to said parking spaces except that other
non-assigned spaces shall also be available for Tenant's use. Landlord shall
have no liability to Tenant if others park in Tenant's parking spaces, except
that Landlord shall cooperate with Tenant in its efforts to prevent others from
parking in its spaces.
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10. UTILITIES AND SERVICES - Landlord shall at its own expense furnish or
cause to be furnished hot and cold water for ordinary cleaning, toilet, lavatory
and drinking purposes and air-conditioning. Tenant at its own expense shall be
responsible for furnishing of electricity to the premises. Tenant shall also pay
Landlord, as Additional Rent without setoffs or deductions of any kind, an
amount equal to 66.74% of the total cost for fuel oil to heat all of Unit 4, as
determined by Landlord. Payment of such additional rent shall be due within
fourteen (14) days after Tenant receives a statement from Landlord showing
Tenants share of the cost of said fuel oil, together with a copy of the
applicable bill or invoice for said fuel oil. Landlord's failure to render said
statement with respect to any such cost, or Landlord's delay in rendering such
statement, beyond a date specified herein, shall not prejudice Landlord's right
to render a statement with respect to that or any subsequent cost. The
obligations of Landlord and Tenant under the provisions of this Section with
respect to any Additional Rent, which obligations have accrued prior to the
expiration or sooner termination of the Term, shall survive the expiration or
any sooner termination of the Term.
Tenant shall be responsible to pay for any other utilities provided to and
used by Tenant. Tenant shall not install or cause to be installed any air
conditioning without the express written consent of Landlord.
11. LIABILITY INSURANCE - (a) Tenant shall, at Tenant's expense, secure
and maintain General Liability Insurance written on a so-called "Comprehensive"
General Liability Form naming Landlord as an additional insured under the policy
with single limit coverage of at least $500,000.00 for injury to one person and
with at least $500,000.00 for injury to more than one person. Tenant shall also
secure and maintain at Tenant's expense General Property Damage Liability
Insurance naming Landlord as an additional insured under the policy with single
limit coverage for at least $50,000.00.
(b) Tenant shall deliver to Landlord a certificate of such insurance prior
to taking occupancy of the Premises and shall deliver a new certificate at least
thirty (30) days prior to the expiration of the existing coverage. Such
certificate shall provide that in the event of termination or material change in
coverage, Landlord shall be given ten (10) days advance notice in writing sent
by certified mail to the address of the Landlord as set forth above. Such
insurance shall contain a waiver of the insurer's right of subrogation against
Landlord. If Tenant fails to secure and maintain such insurance and deliver to
Landlord the required certificate of insurance as set forth above, Landlord
shall have the right to secure and maintain said policy or policies of insurance
and the cost of said policy or policies shall be due and payable from Tenant to
Landlord as Additional Rent and payable to Landlord as set forth elsewhere in
this agreement.
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12. SUBORDINATION - This Lease Agreement is and shall be subject and
subordinate to any and all mortgage or collateral assignment of leases and
rentals now or hereafter affecting the Building or any part thereof and to any
and all extensions, modifications, renewals, replacements and amendments thereof
granted to secure any obligations of the Landlord to any such mortgage holder.
Tenant will execute and deliver promptly to Landlord any certificate or
instrument which Landlord, from time to time, may request for confirmation of
the provisions of this section. Neither the termination of any mortgage or
collateral assignment of leases and rentals, nor the institution of any suit,
action, summary or other proceedings by Landlord or any successor landlord under
such mortgage or collateral assignment of leases and rentals, shall, by
operation of law, result in the cancellation or termination of the obligations
of Tenant hereunder, and Tenant agrees to attorn to and recognize Landlord and
any successor landlord under such mortgage or collateral assignment of leases
and rentals as the case may be, as Tenant's landlord hereunder in the event that
any of them shall succeed to Landlord's interest in the Premises.
13. DESTRUCTION, FIRE OR OTHER CAUSES - If the Premises or Building are
partially damaged by fire or other casualty, the same shall, at the option of
Landlord, be repaired as speedily as possible at the expense of Landlord (to the
extent of insurance proceeds received by Landlord for restoration). If the
damage to the Premises or Building is so extensive so as to render same
untenable by the Tenant, the Tenant's obligation to pay Minimum Annual Rent and
Additional Rent shall cease until such time as the Building or Premises shall be
put in complete repair. If the damage to the Building or Premises is such that
the Building or Premises is totally destroyed and the Landlord elects not to
repair such damage, the Tenant shall be responsible to pay the Minimum Annual
Rent and Additional Rent until the time of such total destruction, and then and
from thenceforth this Agreement shall terminate and the Term shall expire, and
the Tenant shall vacate the Premises and surrender same to the Landlord. If the
damage to the Building or Premises is such that the Landlord is unable to repair
said damage and render the Premises or Building tenable within One Hundred
Eighty (180) days of said damage, the Tenant may elect to terminate this Lease
Agreement and the Tenant shall be responsible to pay the Minimum Annual Rent and
Additional Rent until the time of such total damage, and then and from
thenceforth this Agreement shall terminate and the Term shall expire, and the
Tenant shall vacate the Premises and surrender same to the Landlord.
Landlord shall not be liable for any damage to, or be required (under any
provision of this Lease Agreement or otherwise) to repair, restore or replace,
any property in the Premises or be liable to Tenant for damage arising from rain
or snow or from the bursting, overflowing or leakage of water, steam or gas
pipes or
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defect in the plumbing, HVAC, mechanical or electrical systems of the Building
or from any act or neglect of any other tenant or occupant in the Building,
unless said damage is the result of and caused by negligence of the Landlord.
14. EMINENT DOMAIN - If the whole of the Premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, or if
any substantial part thereof or of the Building is so acquired or condemned as
to render the Premises untenantable, or so that Landlord elects not to restore
same but to demolish or rebuild it, then and in that event, the Term shall cease
and terminate from the date of taking. Tenant shall have no claim against
Landlord or the condemning authority for the value of the unexpired Term, nor a
claim to any part of an award in such proceeding, and rent shall be adjusted and
paid to the date of termination. Notwithstanding the above, Tenant shall be
entitled to assert any claim that it may have against Landlord or the condemning
authority concerning its own property, moving expenses and/or interruption of
its business.
15. ASSIGNMENT, MORTGAGE, ETC. - (a) Tenant shall not assign, mortgage or
encumber this Lease Agreement, nor sublease all or any part of the Premises, or
suffer or permit the Premises or any part thereof to be used by others, without
the prior written consent of Landlord in each instance, which consent shall not
be unreasonably withheld or delayed. If this Lease Agreement be assigned, or if
the Premises or any part thereof be sublet to or occupied by anybody other than
Tenant, Landlord may, at Landlord's option, collect rent form the assignee,
subtenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, subletting or occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee, subtenant
or occupants, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or subletting shall not be construed to relieve Tenant form obtaining
the express consent in writing of Landlord to any further assignment or
subletting.
16. FEES AND EXPENSES - If Tenant shall default in the observance or
performance of any term or covenant of this Lease Agreement, Landlord may, after
ten (10) days notice to Tenant to cure the default and failure of Tenant to cure
same within such period or to commence and diligently pursue such cure in the
event that same can not be fully performed within ten (10) days, or at anytime
thereafter without notice in the event of emergency, perform the same for the
account of Tenant. If Landlord makes any expenditures or incurs any obligations
in connection with a default by Tenant, including but not limited to, reasonable
attorney's fees, in instituting, prosecuting or defending any action or
proceeding against Tenant, such sums paid or obligations incurred, with interest
(as provided below) and costs, shall be deemed to be
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Additional Rent hereunder and shall be paid by Tenant to Landlord within ten
(10) days of rendition of any bill or statement to Tenant hereunder.
17. NO REPRESENTATIONS BY LANDLORD, ETC. - Landlord has made no
representations or promises with respect to the Building or the Premises,
including the uses permitted under applicable law, except for representations
herein expressly set forth.
(a) Landlord represents to Tenant that he has good right to lease the
Premises as set forth in this Lease agreement and that Landlord will suffer and
permit said Tenant to occupy, possess and enjoy said Premises during the Term as
set forth herein without hinderance or molestation from Landlord or any person
claiming by, from or under Landlord so long as Tenant is not in default of this
Lease Agreement.
(b) Neither Landlord, or any employee or agent of Landlord, shall be
liable to Tenant, its employees, agents or contractors, (i) for any damage or
loss of any property of Tenant or such other person, irrespective of the cause
of such damage or loss unless such damage or loss is a result of Landlord's
negligence or failure to comply with the terms of this Lease Agreement; or (ii)
for any personal injury to Tenant or such other person from any cause, unless
such injury is a result of Landlord's negligence or failure to comply with the
terms of this Lease Agreement.
(c) Tenant shall defend, indemnify and hold harmless Landlord, its
employees and agents against and from all liabilities, including reasonable
attorney's fees, which may be imposed upon or incurred by or asserted against
Landlord or such other persons by reason of any of the following occurring
during the Term or prior thereto when Tenant has been given access to the
Premises: (i) any work or thing done in the Premises by or at the instance of
Tenant, its employees or agents; (ii) any negligence or wrongful act or omission
of Tenant, its employees or agents; (iii) any accident, injury, loss or damage
to any person or property occurring in the Premises unless same arises out of
the negligence of Landlord or its failure to comply with the terms of this Lease
Agreement or the acts, omissions and/or the negligence of the other tenants of
the Building or their visitors; and (iv) any failure on the part of Tenant to
comply with any of the terms of this Lease Agreement.
(d) Any provision of this Lease Agreement which requires Landlord not to
unreasonably withhold its consent shall never be the basis for an award of
damages or give rise to a right of setoff or termination to Tenant, but may be
the basis for a declaratory judgment or specific injunction with respect to the
matter in question.
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(e) The failure of Landlord to insist in any one or more instances upon
the strict performance of any one or more of the agreements, terms, covenants,
conditions or obligations of this Lease Agreement, or to exercise any right,
remedy or election herein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease Agreement or of the right to exercise such election, but the same
shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission, whether of a similar nature or otherwise.
(f) Tenant's obligations under this Lease Agreement shall survive the
Expiration Date or sooner termination of the Term, as same may be extended
hereunder.
(g) The Building may be designated and known by any name Landlord may
choose, and such name or designation may be changed from time to time in
Landlord's sole discretion.
18. HOLD-OVER TENANCY - If Tenant shall, with the written consent of
Landlord endorsed hereon, or on the duplicate hereof, at any time hold over the
Premises beyond the termination date set forth elsewhere in this Agreement, then
the Tenant shall hold said Premises upon the same terms, and under the same
stipulations, covenants and agreements as contained in this Agreement, and no
holding over by Tenant shall operate to renew this Agreement without such
written consent of Landlord.
19. DEFAULT - (a) If (i) Tenant defaults in the payment when due of any
installment of Minimum Annual Rent or in the payment of Additional Rent and said
default is not cured within ten (10) days of the date of default or (ii) the
Premises become vacant or deserted except as provided in this Lease Agreement or
(iii) Tenant defaults in fulfilling any other covenant of this Lease Agreement
and Tenant fails to remedy such default within twenty (20) days after notice by
Landlord to Tenant specifying the nature of such default (or if said default
cannot be completely cured or remedied within said twenty (20) day period and
Tenant shall not have diligently commenced curing such default within such
twenty (20) day period and shall not thereafter in good faith diligently proceed
to remedy or cure such default) or (iv) Tenant shall file a petition in
bankruptcy or be adjudicated a bankrupt or make an assignment for the benefit of
creditors or take advantage of any insolvency act, then Landlord may, by notice
to Tenant, cancel this Lease Agreement and this Lease Agreement and the Term
hereunder shall end and expire as fully and completely as if the date of
cancellation were the date herein definitely fixed for the end and expiration of
this Lease Agreement and the Term hereof. Tenant shall then quit and surrender
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
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(b) If (i) the notice provided for in subsection (a) above shall have been
given and the term shall expire as aforesaid, or (ii) Tenant shall make default
in payment of the Minimum Annual Rent or any item of Additional Rent or any part
of either or in making any other payment herein provided for a period of ten
(10) days after notice by Landlord to Tenant of such default, or (iii), any
execution shall be issued against Tenant or any of Tenant's property, whereupon
the Premises shall be taken or occupied or attempted to be taken or occupied by
someone other than Tenant, then and in any of such events, Landlord may, without
notice, re-enter the Premises, and dispossess Tenant or other occupant of the
Premises, by summary proceedings or otherwise, and remove their effects and hold
the Premises as if this Lease Agreement had not been made. Tenant hereby waives
the service of notice of intention to re-enter or to institute legal proceedings
to that end, but Tenant shall remain liable for damages as hereinafter provided.
(c) It is expressly agreed that no demand for Minimum Annual Rent or
Additional Rent, and no re-entry for condition broken, as at common law, shall
be necessary to enable the Landlord to recover possession of the premises
pursuant to law, and all right to any such demand, or any such re-entry is
hereby expressly waived by the Tenant. It is further agreed that any acceptance
of Minimum Annual Rent or Additional Rent or failure by Landlord to re-enter the
Premises shall not be held to be a waiver of landlord's right to terminate this
Lease Agreement, and Landlord may re-enter and take possession of same as if no
Minimum Annual Rent or Additional Rent has been accepted.
(d) It is expressly agreed that whenever this Lease Agreement shall
terminate by lapse of time or by virtue of any of the express terms and
conditions set forth herein, Tenant hereby waives all right to an Notice to Quit
Possession as prescribed by the statutes relating to Summary Process.
20. REMEDIES OF LANDLORD - In case of any such default, re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (a) the
Minimum Annual rent and Additional rent shall become due thereupon and be paid
up to the time of such re-entry, dispossess and/or expiration, together with
such expenses as Landlord may incur for counsel fees, brokerage commissions
and/or putting the Premises in good order, or for repairs or clean-up of the
Premises; (b) Landlord may re-let the Premises or any part or parts thereof,
either in the name of Landlord or otherwise, for a term or terms, which may at
Landlord's option be less than or exceed the period which would have otherwise
constituted the balance of the Term; and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord any deficiency between (i) the
rent hereby reserved and/or covenanted to be paid, and (ii) the net amount if
any of the rents collected on account of the lease or leases of the Premises for
each month of the period which would otherwise have constituted the balance of
the Term.
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There shall be added to such deficiency such reasonable expenses as Landlord may
incur in connection with re-letting of the Premises, including without
limitation, counsel fees, brokerage commissions and expenses incurred in
maintaining the Premises in good order and in connection with renovating and
preparing the same for re-letting. Any such rent deficiency shall be paid in
monthly installments by Tenant on the rent due date specified in this Lease
Agreement, and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month or months by a similar proceeding. Landlord,
at its option, may make such alterations, repairs, replacements and/or
decorations as Landlord considers advisable for the purpose of re-letting the
Premises; and the making of such alterations and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as aforesaid.
In the event of a breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity, as if re-entry, summary proceedings or other
remedies were not herein provided for. Mention in this Lease Agreement of any
particular remedy shall not preclude Landlord from any other remedy, in law or
in equity.
21. RIGHT TO EXHIBIT PREMISES AND ACCESS TO PREMISES - (a) Landlord
reserves the right to enter the Premises and exhibit same at any reasonable time
to prospective tenants at reasonable times provided said access to and said
exhibition of the Premises is conducted in such a manner as to cause as little
interruption as possible to Tenant's use and enjoyment of the Premises. Landlord
shall also have the right within one hundred and eighty (180) days prior to the
expiration of the Term to place notices on the front of said Premises, or any
part thereof, offering the Premises "To Let" or "For Sale" and Tenant shall
permit the same to remain thereon without hinderance or molestation.
(b) Landlord reserves the right to have its employees and agents enter the
Premises at any reasonable time (and at any time in case of emergency) in order
to gain access to any utility area, which utility area contains equipment and
systems for the Building, and in order to effect necessary repairs and
replacements provided said access to the Premises and said repairs and
replacements are conducted in such a manner as to cause as little interruption
as possible to Tenant's use and enjoyment of the Premises. Such agents may bring
necessary tools and equipment with them and may store same in reasonable places
within the Premises.
23. RULES AND REGULATIONS - Tenant and Tenant's employees, agents,
visitors, invitees and licensees shall observe faithfully and comply strictly
with such Rules and Regulations as Landlord or Landlord's agents may, from time
to time, reasonably adopt.
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24. BROKERAGE - Tenant warrants and represents it has not had or dealt
with any realtor, broker or agent in connection with the negotiation of this
Lease Agreement. Tenant agrees to pay and hold Landlord harmless from any cost,
expense or liability (including costs of suit and attorney's fee's) for any
compensation, commission or charges claimed by any realtor, broker or agent with
respect to this Lease Agreement and the negotiation thereof.
25. FORCE MAJEURE - Landlord and Tenant, respectively, shall not be in
default hereunder if such party is unable to fulfill or is delayed in fulfilling
any of its obligations hereunder, including, without limitation, any obligations
to supply any service hereunder, or any obligations to make repairs or
replacements hereunder, if such party is prevented from fulfilling or is delayed
in fulfilling such obligations by reason of fire or other casualty, strikes or
labor troubles, governmental pre-emption in connection with a national
emergency, shortage of supplies or materials, or by reason of any governmental
authority, or by reason of the condition of supply and demand affected by war or
other emergency, or any other cause beyond its reasonable control. Such
inability or delay by Landlord or Tenant in fulfilling any of their respective
obligations hereunder shall not affect, impair or excuse the other party hereto
from the performance of any of the terms, covenants, conditions, limitations,
provisions or agreements hereunder on its part to rents payable hereunder.
Tenant, shall not, however, be excused hereunder from the payment of Minimum
Annual Rent or Additional Rent for any cause specified in this Section.
26. SECURITY DEPOSIT - (a) Simultaneously with Tenant's execution of this
Lease Agreement, Tenant shall deposit, or cause to be deposited with Landlord
the sum of $12,847.00 (the "Security Deposit") as security for the faithful
performance and observance by Tenant of the terms, conditions and provisions of
this Lease Agreement, including without limitation, the payment of Minimum
Annual Rent. Landlord may seek reimbursement in whole or in part against said
Security Deposit to the extent required for the payment of any Minimum Annual
Rent, or as to any other sum as to which Tenant is in default, or for any sum
which Landlord may expend by reason of Tenant's default in respect to any of the
terms, covenants and conditions of this Lease Agreement, including without
limitation, any damages or deficiency in reletting the Premises accrued before
or after any summary proceedings or other re-entry by Landlord.
(b) In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease Agreement, the
Security Deposit, except as same may have been applied by Landlord in accordance
with this Lease Agreement, shall be returned to Tenant, within thirty (30) days
after the Expiration Date or such earlier termination date of this Lease
Agreement and after Tenant has delivered entire possession of
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the Premises to Landlord in accordance with all of the terms and conditions of
this Lease Agreement.
(c) In the event that Landlord applies any portion of the Security Deposit
in accordance with the provisions of this Lease Agreement, Tenant shall
immediately upon demand of Landlord reimburse or pay Landlord for the amount of
the Security Deposit so applied so that the amount of the Security Deposit
during the Term shall always be $12,847.00 or an amount equal to two (2) months
of Minimum Annual Rent.
(d) In the event of the leasing or Sale of the Building or of the portion
of the Building in which the Premises are located, Landlord shall have the right
to transfer the Security Deposit as set forth above to the lessee and Landlord
shall thereupon be released by Tenant from all liability in connection with the
Security Deposit. Tenant agrees to look solely to the new landlord in connection
with the Security Deposit, and the provisions hereof shall apply to every
transfer or assignment of the Security Deposit to a new landlord.
(e) Tenant shall not assign or encumber or attempt to assign or encumber
the Security Deposit and neither Landlord nor its successors or assigns shall be
bound by such assignment, encumbrance or attempted assignment or encumbrance.
27. QUIET ENJOYMENT - Upon Tenant paying the Minimum Annual Rent and
Additional Rent and observing and performing all the terms, covenants and
conditions on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Premises hereby demised, free from any interference,
molestation or acts of Landlord or of anyone claiming by, through or under
Landlord, subject, nevertheless, to the terms and conditions of this Lease
Agreement and to any ground lease or underlying lease as hereinbefore provided.
28. COMPLIANCE WITH LAWS AND ORDINANCES - Landlord represents to Tenant
that to the best of its knowledge and belief, the Building and the Premises, as
they are presently used, comply with all pertinent laws and ordinances as may
currently exist.
29. LEASE STATUS AND NOTICE - (a) Upon request of Landlord from time to
time Tenant will execute and deliver to Landlord an instrument prepared by
Landlord stating, if the same be true, that this Lease Agreement is a true and
exact copy of this Lease Agreement between the parties hereto, that there are no
amendments hereof (or stating what amendments there may be), that the same is
then in full force and effect, and that to the best of Tenant's knowledge, there
are no offsets, defenses or counterclaims with respect to the payment of rent
reserved hereunder or in the performance of the other terms, covenants and
conditions hereof on the part of the Tenant to be performed, and that as of such
date no
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default has been declared hereunder by either party hereto and Tenant at the
time has no knowledge of any facts or circumstances which it might reasonably
believe would give rise to a default by either party. Such estoppel certificate
required by any party with who Landlord is dealing may be in somewhat altered
form from the above terms.
(b) All notices, demands or communications given under this Lease
Agreement shall be sent to the addresses set forth above, or at such other
addresses as the parties may designate by written notice, and shall be sent
prepaid by certified mail, return receipt requested, and shall be deemed given
on the second day after the date mailed, provided however, that after the
Commencement Date, any notice to Tenant shall be sent to the Building. A copy of
any notice to Landlord alleging a default by Landlord hereunder shall be
simultaneously sent by such mail to Mark R. Feller, Esq., Feller & Marantz, 1234
Summer Street, Suite 420, Stamford, Connecticut 06905.
30. ASSIGNMENTS (a) The covenants, conditions and agreements contained in
this Lease Agreement shall bind and inure to the benefit of Landlord and Tenant
and their respective heirs, distributees, executors, administrators, successors
and except as otherwise provided for in this Lease Agreement, their assigns.
(b) The word Landlord as used in this lease Agreement means only the owner
for the time being of Landlord's interest in this Lease Agreement. In the event
of any assignment of Landlord's interest in this Lease Agreement, the assignor
in each case shall no longer be liable for the performance or observance of any
agreements or conditions on the part of the Landlord to be performed or
observed.
31. SURRENDER OF PREMISES - At the expiration of the Term, Tenant will
peacefully yield up to Landlord the Premises, broom clean, in as good order and
repair as when delivered to Tenant, damage by fire, casualty and ordinary wear
and tear excepted. Any property left by Tenant in the Premises shall be deemed
abandoned by Tenant.
32. DUTY TO MITIGATE - Any remedy of Landlord against Tenant for default
under this Lease Agreement shall be subject to a duty on the part of the
Landlord to mitigate damages. Any remedy of Tenant against Landlord for default
under this Lease Agreement shall be subject to a duty on the part of the Tenant
to mitigate damages.
33. ACCESS TO LOADING DOCK - Tenant, at no additional cost, shall have a
non-exclusive right to the reasonable use and enjoyment of the loading dock now
located in Unit #2, described in Exhibit C and attached hereto and made a part
hereof. At any time after the date of the execution of this Lease Agreement,
Landlord
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may substitute said right for a substantially similar non-exclusive right to the
reasonable use and enjoyment of another loading loading dock located elsewhere
in the Building.
34. RIGHT OF LANDLORD TO RELOCATE TENANT - At any time after the date of
the execution of this Lease Agreement, Landlord may substitute for the demised
premises other premises in the Building ("new demised premises"), in which event
the new demised premises shall be deemed to be the demised premises for all
purposes under this Lease Agreement, provided the new demised premises shall be
substantially similar to the demised premises in area and appropriateness for
use of Tenant's purposes, and provided Landlord shall give Tenant not less than
sixty (60) days' prior written notice of said substitution. If Tenant is then
occupying the demised premises, Landlord shall pay the reasonable expense of
moving Tenant, and its property and equipment to the new demised premises. If
Tenant is then occupying the demised premises, Landlord shall, at its own
expense, improve the new demised premises with improvements substantially
similar to those located in the demised premises.
35. OPTION TO RENEW - Tenant shall have the right to renew this Lease
Agreement for a term of five (5) years provided Tenant is not in default of said
Lease Agreement. Said renewal shall be on the same terms, covenants,
stipulations and conditions as contained in this Lease Agreement except that the
Minimum Annual Rent for each year of the renewal term shall be increased once in
accordance with the cumulative increase in the cost of living index as published
by the U.S. Department of Labor for the New York metropolitan area. It is
expressly agreed that the Minimum Annual Rent for the renewal term shall be
equal to the base Minimum Annual Rent as increased by the percentage increase in
said cost of living index. Tenant shall give written notice to the Landlord of
its intention to exercise said right to renew this Lease Agreement at least One
Hundred Eighty (180) days prior to the termination date of this Lease Agreement.
Tenant further agrees to increase the Security Deposit on deposit with the
Landlord to an amount equal to two (2) months of the increased Minimum Annual
Rent as set forth above.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the year and day first above written.
LANDLORD: TENANT:
SUNHILL INDUSTRIES, INC.
____________________________ ______________________________
BENSON ZINBARG By Anita Dembiczak
Its Secretary, duly authorized
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ADDENDUM TO LEASE BETWEEN BENSON ZINBARG
AND SUNHILL INDUSTRIES, INC.
Tenant shall also pay Landlord, as Additional Rent without setoffs or deductions
of any kind, an amount equal to the cost of trash removal services furnished to
Tenant by Landlord as determined by Landlord. Payment of such additional rent
shall be due within fourteen (14) days after Tenant receives a statement from
Landlord showing the cost of trash removal services together with a copy of the
applicable bill or invoice for said trash removal services. Landlord's failure
to render said statement with respect to any such cost, or Landlord's delay in
rendering such statement, beyond a date specified herein, shall not prejudice
Landlord's right to render a statement with respect to that or any subsequent
cost. The obligations of Landlord and Tenant under the provisions of this
Section with respect to any Additional Rent, which obligations have accrued
prior to the expiration or sooner termination of the Term, shall survive the
expiration or any sooner termination of the Term.
Dated this ____ day of __________________, 1996.
LANDLORD: TENANT:
SUNHILL INDUSTRIES, INC.
____________________________ ______________________________
BENSON ZINBARG By Anita Dembiczak
Its Secretary, duly authorized
<PAGE>
LEASE AGREEMENT
This Lease Agreement dated the 19 day of September, 1996, by and between BENSON
ZINBARG of 48 Union Street, Stamford, Connecticut 06906 ("Landlord") and SUN
HILL INDUSTRIES, INC., a Connecticut corporation with offices located at 48
Union Street, Stamford, Connecticut 06906 ("Tenant").
WITNESSETH:
1. PREMISES - Landlord hereby leases to Tenant, for the term and upon the
rentals hereinafter specified, the following premises: that portion of the
building known as Glenbrook Commerce Park, 48 Union Street, Stamford,
Connecticut known as Unit 1B of said Glendale Commerce Park currently used by
Tenant as warehouse and assembly space, consisting of approximately 3,708 square
feet (referred to herein as the "Premises"). Said building and the land
described in Exhibit A attached hereto are herein collectively referred to as
the "Building".
2. DEFINITIONS - Terms used in this Lease Agreement shall
have the following meanings:
(a) Minimum Annual Rent: $46,350.00
Minimum Annual Rent shall be payable as set forth elsewhere in this
lease agreement, in monthly installments of $3,862.50.
(b) Tax Base Year: List of October 1, 1995
(c) Tenant's Proportionate Share:
30.28% of 48 Union Street, Unit 1B, Stamford,
Connecticut.
3. TERM - To have and to hold the Premises for a term (the "Term"),
commencing on a date (the "Commencement Date"), which shall be September 1, 1996
and ending on August 31, 2001 (the "Expiration Date"), unless the Term shall
sooner terminate pursuant to the terms, covenants or conditions of this Lease
Agreement or pursuant to law.
4. USE OF PREMISES - (a) Tenant shall use the Premises only for the
operation of its regular course of business and for no other purpose. Said use
shall be limited to warehousing, office use and business-related activities
only. Tenant shall not accumulate any boxes, barrels, packages, waste paper or
other articles in the common areas of the Building. Tenant shall keep the
Premises clean and orderly in accordance with the Landlord's standards for the
Building. Tenant shall commit no waste on the Premises, nor shall Tenant suffer
the same to be committed thereon.
<PAGE>
(b) Tenant shall have the right to install and maintain at its own expense
a discrete sign identifying the Tenant's occupancy at the entry monument. No
signs of any kind shall be installed or maintained on the exterior of the
Building, or on the interior of the Building which shall be visible from outside
the Building. Tenant shall not otherwise install, place or paint any other sign
on or about the exterior of the Premises or in the interior of the Building
without the written consent of Landlord, which consent shall not be unreasonably
withheld. All such signs, whether installed or maintained on the exterior or
interior of the Building shall conform to any federal or state statutes and to
any local ordinances which might then be in effect.
(c) Tenant will not interfere with the conduct of business by other
tenants or occupants of the Building or permit actions constituting a private
nuisance or safety hazard.
(d) Tenant, at its own expense, shall comply with and hold Landlord
harmless from all laws, orders and regulations of Federal, State and Municipal
authorities and with any direction of any public officer or officers, pursuant
to law, which shall impose any violation, order or duty upon Landlord or Tenant
with respect to the Premises or the use or occupancy thereof. Tenant shall not
do or permit to be done any act or thing upon the premises which will invalidate
or be in conflict with fire, public liability or other insurance policies
covering the Building and shall not do or permit to be done, any act or thing
upon the Premises which shall or might subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being carried on at the Premises or for any reason.
(e) Tenant, at its expense, shall comply with all rules, orders,
regulations and requirements of the Board of Fire Underwriters or other similar
body or authority having jurisdiction and shall not do or permit anything to be
done in or upon the Premises or the Building, or bring or keep anything therein,
which is prohibited by the Fire Department or any of such Boards of Fire
Underwriters or other body or authority or which would increase the rate of fire
insurance applicable to the Building over that in effect on the Commencement
Date of this Lease Agreement. If by reason of failure to comply with the
provisions of this subsection, any insurance rate for the Building shall, on the
Commencement Date or anytime thereafter, be higher than it otherwise would be ,
the Tenant, upon demand, shall reimburse Landlord, as additional rent hereunder,
for that part of all insurance premiums thereafter paid by the Landlord which
shall have been charged because of such failure by Tenant.
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5. RENTAL - Commencing on the Commencement Date, Tenant shall pay to
Landlord the Minimum Annual Rent without demand and without setoff or deductions
of any kind, in equal monthly installments, in advance, on the first day of each
term, corresponding to the first day of each calendar month at the address of
Landlord stated above or such other place as Landlord may designate in writing
from time to time, with payment in advance of appropriate fractions of a monthly
payment for any portion of a month at the expiration or prior termination of the
Term. Any Minimum Annual rent or Additional Rent not paid by Tenant on or before
the due date thereof or within ten (10) days thereafter shall thereafter be
payable with a late charge of five percent (5%) of the amount then due. Such
late charge shall be payable hereunder as Additional Rent.
6. INCREASE IN REAL ESTATE TAXES - If Real Estate Taxes with respect to
the Building are increased, at any time or from time to time during the Term
hereof, over Real Estate Taxes paid by the Landlord during the Tax Base Year,
then Tenant shall pay to Landlord, without setoffs or deductions of any kind, as
Additional Rent, an amount equal to Tenant's Proportionate Share of such
increase pro-rated for the period of Tenant's occupancy of the premises. Payment
of such increase shall be made in the installments provided by the taxing
authority within thirty (30) days after Tenant receives from Landlord's
Statement consisting of notice of such tax increase and a bill for Tenant's
Proportionate Share thereof, together with a copy of the applicable bill
received by Landlord from the taxing authority. Landlord's failure to render
said Statement with respect to any Tax Year, or Landlord's delay in rendering
such Statement beyond a date specified herein, shall not prejudice Landlord's
right to render a Statement with respect to that or any subsequent Tax Year. The
obligations of Landlord and Tenant under the provisions of this Section with
respect to any Additional Rent, which obligations have accrued prior to the
expiration or sooner termination of the Term, shall survive the expiration or
any sooner termination of the Term. "Real Estate Taxes" shall mean all taxes or
assessments and governmental charges, whether Federal, State or Municipal, which
are levied or charged against real estate, personal property or rents, or on the
right or privilege of leasing real estate or collecting rents thereon and any
other taxes and assessments attributable to the Building or its operation,
excluding, however, Federal, State or other general income taxes not limited to
real property. "Tax Year" shall mean each tax fiscal year of the City of
Stamford following the Tax Base Year.
7. ALTERATIONS, IMPROVEMENTS, ETC. - (a) Tenant shall not make any
alterations, installations or improvements in the Premises without Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
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(b) All alterations, improvements or additions made by Landlord or Tenant
upon the Premises or in or on the Building but outside the Premises, except
furniture, light fixtures, equipment, or movable partitions or trade fixtures
installed at the expense of the Tenant, shall be the property of the Landlord
and shall remain and be surrendered with the Premises as a part thereof at the
termination of this Lease Agreement, without compensation to Tenant, unless
Landlord shall require Tenant to remove same. In the event Landlord requires
Tenant to remove same, Landlord agrees to provide Tenant with ten (10) days
written notice.
8. REPAIRS - (a) The exterior and structure of the Building and all parts
of the heating, plumbing, electrical and air conditioning systems, to the extent
that such systems currently exist on the premises, shall be maintained and
repaired by the Landlord, except if such maintenance or repair is necessitated
by the negligence, wrongful act or failure to comply with this Lease Agreement
by Tenant, its employees, agents or invitees, in which event Tenant shall be
responsible for maintenance, repair or replacement as necessary.
(b) Tenant, at its expense, shall repair, maintain in good order and
condition and replace, if necessary, the interior of the Premises, except for
structural repairs and repairs necessitated by the negligence, wrongful act or
failure to comply with this Lease Agreement by Landlord, its employees, agents
or invitees, in which event Landlord shall be responsible for repair or
replacement as necessary. Tenant shall at its own expense, be responsible for
the normal cleaning of the Premises. Tenant shall have the right to arrange for
maintenance or janitorial services to be provided to the Premises, at Tenant's
sole expense, and Tenant shall defend, indemnify, and hold harmless Landlord
from and against all liabilities, including reasonable attorney's fees, which
may be imposed upon or incurred by or asserted against Landlord in connection
with the provision of such janitorial service.
9. PARKING - Tenant shall have the right to use Five (5) parking spaces,
which shall not be designated by Landlord. Tenant shall limit its employees,
agents or invitees parking to said parking spaces except that other non-assigned
spaces shall also be available for Tenant's use. Landlord shall have no
liability to Tenant if others park in Tenant's parking spaces, except that
Landlord shall cooperate with Tenant in its efforts to prevent others from
parking in its spaces.
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10. UTILITIES AND SERVICES - Landlord shall at its own expense furnish or
cause to be furnished hot and cold water for ordinary cleaning, toilet, lavatory
and drinking purposes. Tenant at its own expense shall be responsible for
furnishing of electricity to the premises. Tenant shall also pay Landlord, as
Additional Rent without setoffs or deductions of any kind, an amount equal to
30.28% of the total cost for fuel oil to heat all of Unit 1B, as determined by
Landlord. Payment of such additional rent shall be due within fourteen (14) days
after Tenant receives a statement from Landlord showing Tenants share of the
cost of said fuel oil, together with a copy of the applicable bill or invoice
for said fuel oil. Landlord's failure to render said statement with respect to
any such cost, or Landlord's delay in rendering such statement, beyond a date
specified herein, shall not prejudice Landlord's right to render a statement
with respect to that or any subsequent cost. The obligations of Landlord and
Tenant under the provisions of this Section with respect to any Additional Rent,
which obligations have accrued prior to the expiration or sooner termination of
the Term, shall survive the expiration or any sooner termination of the Term.
Tenant shall be responsible to pay for any other utilities provided to and
used by Tenant. Tenant shall not install or cause to be installed any air
conditioning without the express written consent of Landlord.
11. LIABILITY INSURANCE - (a) Tenant shall, at Tenant's expense, secure
and maintain General Liability Insurance written on a so-called "Comprehensive"
General Liability Form naming Landlord as an additional insured under the policy
with single limit coverage of at least $500,000.00 for injury to one person and
with at least $500,000.00 for injury to more than one person. Tenant shall also
secure and maintain at Tenant's expense General Property Damage Liability
Insurance naming Landlord as an additional insured under the policy with single
limit coverage for at least $50,000.00.
(b) Tenant shall deliver to Landlord a certificate of such insurance prior
to taking occupancy of the Premises and shall deliver a new certificate at least
thirty (30) days prior to the expiration of the existing coverage. Such
certificate shall provide that in the event of termination or material change in
coverage, Landlord shall be given ten (10) days advance notice in writing sent
by certified mail to the address of the Landlord as set forth above. Such
insurance shall contain a waiver of the insurer's right of subrogation against
Landlord. If Tenant fails to secure and maintain such insurance and deliver to
Landlord the required certificate of insurance as set forth above, Landlord
shall have the right to secure and maintain said policy or policies of insurance
and the cost of said policy or policies shall be due and payable from Tenant to
Landlord as Additional Rent and payable to Landlord as set forth elsewhere in
this agreement.
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12. SUBORDINATION - This Lease Agreement is and shall be subject and
subordinate to any and all mortgage or collateral assignment of leases and
rentals now or hereafter affecting the Building or any part thereof and to any
and all extensions, modifications, renewals, replacements and amendments thereof
granted to secure any obligations of the Landlord to any such mortgage holder.
Tenant will execute and deliver promptly to Landlord any certificate or
instrument which Landlord, from time to time, may request for confirmation of
the provisions of this section. Neither the termination of any mortgage or
collateral assignment of leases and rentals, nor the institution of any suit,
action, summary or other proceedings by Landlord or any successor landlord under
such mortgage or collateral assignment of leases and rentals, shall, by
operation of law, result in the cancellation or termination of the obligations
of Tenant hereunder, and Tenant agrees to attorn to and recognize Landlord and
any successor landlord under such mortgage or collateral assignment of leases
and rentals as the case may be, as Tenant's landlord hereunder in the event that
any of them shall succeed to Landlord's interest in the Premises.
13. DESTRUCTION, FIRE OR OTHER CAUSES - If the Premises or Building are
partially damaged by fire or other casualty, the same shall, at the option of
Landlord, be repaired as speedily as possible at the expense of Landlord (to the
extent of insurance proceeds received by Landlord for restoration). If the
damage to the Premises or Building is so extensive so as to render same
untenable by the Tenant, the Tenant's obligation to pay Minimum Annual Rent and
Additional Rent shall cease until such time as the Building or Premises shall be
put in complete repair. If the damage to the Building or Premises is such that
the Building or Premises is totally destroyed and the Landlord elects not to
repair such damage, the Tenant shall be responsible to pay the Minimum Annual
Rent and Additional Rent until the time of such total destruction, and then and
from thenceforth this Agreement shall terminate and the Term shall expire, and
the Tenant shall vacate the Premises and surrender same to the Landlord. If the
damage to the Building or Premises is such that the Landlord is unable to repair
said damage and render the Premises or Building tenable within One Hundred
Eighty (180) days of said damage, the Tenant may elect to terminate this Lease
Agreement and the Tenant shall be responsible to pay the Minimum Annual Rent and
Additional Rent until the time of such total damage, and then and from
thenceforth this Agreement shall terminate and the Term shall expire, and the
Tenant shall vacate the Premises and surrender same to the Landlord.
Landlord shall not be liable for any damage to, or be required (under any
provision of this Lease Agreement or otherwise) to repair, restore or replace,
any property in the Premises or be liable to Tenant for damage arising from rain
or snow or from the bursting, overflowing or leakage of water, steam or gas
pipes or
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defect in the plumbing, HVAC, mechanical or electrical systems of the Building
or from any act or neglect of any other tenant or occupant in the Building,
unless said damage is the result of and caused by negligence of the Landlord.
14. EMINENT DOMAIN - If the whole of the Premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, or if
any substantial part thereof or of the Building is so acquired or condemned as
to render the Premises untenantable, or so that Landlord elects not to restore
same but to demolish or rebuild it, then and in that event, the Term shall cease
and terminate from the date of taking. Tenant shall have no claim against
Landlord or the condemning authority for the value of the unexpired Term, nor a
claim to any part of an award in such proceeding, and rent shall be adjusted and
paid to the date of termination. Notwithstanding the above, Tenant shall be
entitled to assert any claim that it may have against Landlord or the condemning
authority concerning its own property, moving expenses and/or interruption of
its business.
15. ASSIGNMENT, MORTGAGE, ETC. - (a) Tenant shall not assign, mortgage or
encumber this Lease Agreement, nor sublease all or any part of the Premises, or
suffer or permit the Premises or any part thereof to be used by others, without
the prior written consent of Landlord in each instance, which consent shall not
be unreasonably withheld or delayed. If this Lease Agreement be assigned, or if
the Premises or any part thereof be sublet to or occupied by anybody other than
Tenant, Landlord may, at Landlord's option, collect rent form the assignee,
subtenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, subletting or occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee, subtenant
or occupants, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or subletting shall not be construed to relieve Tenant form obtaining
the express consent in writing of Landlord to any further assignment or
subletting.
16. FEES AND EXPENSES - If Tenant shall default in the observance or
performance of any term or covenant of this Lease Agreement, Landlord may, after
ten (10) days notice to Tenant to cure the default and failure of Tenant to cure
same within such period or to commence and diligently pursue such cure in the
event that same can not be fully performed within ten (10) days, or at anytime
thereafter without notice in the event of emergency, perform the same for the
account of Tenant. If Landlord makes any expenditures or incurs any obligations
in connection with a default by Tenant, including but not limited to, reasonable
attorney's fees, in instituting, prosecuting or defending any action or
proceeding against Tenant, such sums paid or obligations incurred, with interest
(as provided below) and costs, shall be deemed to be
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Additional Rent hereunder and shall be paid by Tenant to Landlord within ten
(10) days of rendition of any bill or statement to Tenant hereunder.
17. NO REPRESENTATIONS BY LANDLORD, ETC. - Landlord has made
no representations or promises with respect to the Building or the
Premises, including the uses permitted under applicable law, except
for representations herein expressly set forth.
(a) Landlord represents to Tenant that he has good right to lease the
Premises as set forth in this Lease agreement and that Landlord will suffer and
permit said Tenant to occupy, possess and enjoy said Premises during the Term as
set forth herein without hinderance or molestation from Landlord or any person
claiming by, from or under Landlord so long as Tenant is not in default of this
Lease Agreement.
(b) Neither Landlord, or any employee or agent of Landlord, shall be
liable to Tenant, its employees, agents or contractors, (i) for any damage or
loss of any property of Tenant or such other person, irrespective of the cause
of such damage or loss unless such damage or loss is a result of Landlord's
negligence or failure to comply with the terms of this Lease Agreement; or (ii)
for any personal injury to Tenant or such other person from any cause, unless
such injury is a result of Landlord's negligence or failure to comply with the
terms of this Lease Agreement.
(c) Tenant shall defend, indemnify and hold harmless Landlord, its
employees and agents against and from all liabilities, including reasonable
attorney's fees, which may be imposed upon or incurred by or asserted against
Landlord or such other persons by reason of any of the following occurring
during the Term or prior thereto when Tenant has been given access to the
Premises: (i) any work or thing done in the Premises by or at the instance of
Tenant, its employees or agents; (ii) any negligence or wrongful act or omission
of Tenant, its employees or agents; (iii) any accident, injury, loss or damage
to any person or property occurring in the Premises unless same arises out of
the negligence of Landlord or its failure to comply with the terms of this Lease
Agreement or the acts, omissions and/or the negligence of the other tenants of
the Building or their visitors; and (iv) any failure on the part of Tenant to
comply with any of the terms of this Lease Agreement.
(d) Any provision of this Lease Agreement which requires Landlord not to
unreasonably withhold its consent shall never be the basis for an award of
damages or give rise to a right of setoff or termination to Tenant, but may be
the basis for a declaratory judgment or specific injunction with respect to the
matter in question.
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(e) The failure of Landlord to insist in any one or more instances upon
the strict performance of any one or more of the agreements, terms, covenants,
conditions or obligations of this Lease Agreement, or to exercise any right,
remedy or election herein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease Agreement or of the right to exercise such election, but the same
shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission, whether of a similar nature or otherwise.
(f) Tenant's obligations under this Lease Agreement shall survive the
Expiration Date or sooner termination of the Term, as same may be extended
hereunder.
(g) The Building may be designated and known by any name Landlord may
choose, and such name or designation may be changed from time to time in
Landlord's sole discretion.
18. HOLD-OVER TENANCY - If Tenant shall, with the written consent of
Landlord endorsed hereon, or on the duplicate hereof, at any time hold over the
Premises beyond the termination date set forth elsewhere in this Agreement, then
the Tenant shall hold said Premises upon the same terms, and under the same
stipulations, covenants and agreements as contained in this Agreement, and no
holding over by Tenant shall operate to renew this Agreement without such
written consent of Landlord.
19. DEFAULT - (a) If (i) Tenant defaults in the payment when due of any
installment of Minimum Annual Rent or in the payment of Additional Rent and said
default is not cured within ten (10) days of the date of default or (ii) the
Premises become vacant or deserted except as provided in this Lease Agreement or
(iii) Tenant defaults in fulfilling any other covenant of this Lease Agreement
and Tenant fails to remedy such default within twenty (20) days after notice by
Landlord to Tenant specifying the nature of such default (or if said default
cannot be completely cured or remedied within said twenty (20) day period and
Tenant shall not have diligently commenced curing such default within such
twenty (20) day period and shall not thereafter in good faith diligently proceed
to remedy or cure such default) or (iv) Tenant shall file a petition in
bankruptcy or be adjudicated a bankrupt or make an assignment for the benefit of
creditors or take advantage of any insolvency act, then Landlord may, by notice
to Tenant, cancel this Lease Agreement and this Lease Agreement and the Term
hereunder shall end and expire as fully and completely as if the date of
cancellation were the date herein definitely fixed for the end and expiration of
this Lease Agreement and the Term hereof. Tenant shall then quit and surrender
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
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(b) If (i) the notice provided for in subsection (a) above shall have been
given and the term shall expire as aforesaid, or (ii) Tenant shall make default
in payment of the Minimum Annual Rent or any item of Additional Rent or any part
of either or in making any other payment herein provided for a period of ten
(10) days after notice by Landlord to Tenant of such default, or (iii), any
execution shall be issued against Tenant or any of Tenant's property, whereupon
the Premises shall be taken or occupied or attempted to be taken or occupied by
someone other than Tenant, then and in any of such events, Landlord may, without
notice, re-enter the Premises, and dispossess Tenant or other occupant of the
Premises, by summary proceedings or otherwise, and remove their effects and hold
the Premises as if this Lease Agreement had not been made. Tenant hereby waives
the service of notice of intention to re-enter or to institute legal proceedings
to that end, but Tenant shall remain liable for damages as hereinafter provided.
(c) It is expressly agreed that no demand for Minimum Annual Rent or
Additional Rent, and no re-entry for condition broken, as at common law, shall
be necessary to enable the Landlord to recover possession of the premises
pursuant to law, and all right to any such demand, or any such re-entry is
hereby expressly waived by the Tenant. It is further agreed that any acceptance
of Minimum Annual Rent or Additional Rent or failure by Landlord to re-enter the
Premises shall not be held to be a waiver of landlord's right to terminate this
Lease Agreement, and Landlord may re-enter and take possession of same as if no
Minimum Annual Rent or Additional Rent has been accepted.
(d) It is expressly agreed that whenever this Lease Agreement shall
terminate by lapse of time or by virtue of any of the express terms and
conditions set forth herein, Tenant hereby waives all right to an Notice to Quit
Possession as prescribed by the statutes relating to Summary Process.
20. REMEDIES OF LANDLORD - In case of any such default, re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (a) the
Minimum Annual rent and Additional rent shall become due thereupon and be paid
up to the time of such re-entry, dispossess and/or expiration, together with
such expenses as Landlord may incur for counsel fees, brokerage commissions
and/or putting the Premises in good order, or for repairs or clean-up of the
Premises; (b) Landlord may re-let the Premises or any part or parts thereof,
either in the name of Landlord or otherwise, for a term or terms, which may at
Landlord's option be less than or exceed the period which would have otherwise
constituted the balance of the Term; and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord any deficiency between (i) the
rent hereby reserved and/or covenanted to be paid, and (ii) the net amount if
any of the rents collected on account of the lease or leases of the Premises for
each month of the period which would otherwise have constituted the balance of
the Term.
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There shall be added to such deficiency such reasonable expenses as Landlord may
incur in connection with re-letting of the Premises, including without
limitation, counsel fees, brokerage commissions and expenses incurred in
maintaining the Premises in good order and in connection with renovating and
preparing the same for re-letting. Any such rent deficiency shall be paid in
monthly installments by Tenant on the rent due date specified in this Lease
Agreement, and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month or months by a similar proceeding. Landlord,
at its option, may make such alterations, repairs, replacements and/or
decorations as Landlord considers advisable for the purpose of re-letting the
Premises; and the making of such alterations and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as aforesaid.
In the event of a breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity, as if re-entry, summary proceedings or other
remedies were not herein provided for. Mention in this Lease Agreement of any
particular remedy shall not preclude Landlord from any other remedy, in law or
in equity.
21. RIGHT TO EXHIBIT PREMISES AND ACCESS TO PREMISES - (a) Landlord
reserves the right to enter the Premises and exhibit same at any reasonable time
to prospective tenants at reasonable times provided said access to and said
exhibition of the Premises is conducted in such a manner as to cause as little
interruption as possible to Tenant's use and enjoyment of the Premises. Landlord
shall also have the right within one hundred and eighty (180) days prior to the
expiration of the Term to place notices on the front of said Premises, or any
part thereof, offering the Premises "To Let" or "For Sale" and Tenant shall
permit the same to remain thereon without hinderance or molestation.
(b) Landlord reserves the right to have its employees and agents enter the
Premises at any reasonable time (and at any time in case of emergency) in order
to gain access to any utility area, which utility area contains equipment and
systems for the Building, and in order to effect necessary repairs and
replacements provided said access to the Premises and said repairs and
replacements are conducted in such a manner as to cause as little interruption
as possible to Tenant's use and enjoyment of the Premises. Such agents may bring
necessary tools and equipment with them and may store same in reasonable places
within the Premises.
23. RULES AND REGULATIONS - Tenant and Tenant's employees, agents,
visitors, invitees and licensees shall observe faithfully and comply strictly
with such Rules and Regulations as Landlord or Landlord's agents may, from time
to time, reasonably adopt.
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24. BROKERAGE - Tenant warrants and represents it has not had or dealt
with any realtor, broker or agent in connection with the negotiation of this
Lease Agreement. Tenant agrees to pay and hold Landlord harmless from any cost,
expense or liability (including costs of suit and attorney's fee's) for any
compensation, commission or charges claimed by any realtor, broker or agent with
respect to this Lease Agreement and the negotiation thereof.
25. FORCE MAJEURE - Landlord and Tenant, respectively, shall not be in
default hereunder if such party is unable to fulfill or is delayed in fulfilling
any of its obligations hereunder, including, without limitation, any obligations
to supply any service hereunder, or any obligations to make repairs or
replacements hereunder, if such party is prevented from fulfilling or is delayed
in fulfilling such obligations by reason of fire or other casualty, strikes or
labor troubles, governmental pre-emption in connection with a national
emergency, shortage of supplies or materials, or by reason of any governmental
authority, or by reason of the condition of supply and demand affected by war or
other emergency, or any other cause beyond its reasonable control. Such
inability or delay by Landlord or Tenant in fulfilling any of their respective
obligations hereunder shall not affect, impair or excuse the other party hereto
from the performance of any of the terms, covenants, conditions, limitations,
provisions or agreements hereunder on its part to rents payable hereunder.
Tenant, shall not, however, be excused hereunder from the payment of Minimum
Annual Rent or Additional Rent for any cause specified in this Section.
26. SECURITY DEPOSIT - (a) Simultaneously with Tenant's execution of this
Lease Agreement, Tenant shall deposit, or cause to be deposited with Landlord
the sum of $7,725.00 (the "Security Deposit") as security for the faithful
performance and observance by Tenant of the terms, conditions and provisions of
this Lease Agreement, including without limitation, the payment of Minimum
Annual Rent. Landlord may seek reimbursement in whole or in part against said
Security Deposit to the extent required for the payment of any Minimum Annual
Rent, or as to any other sum as to which Tenant is in default, or for any sum
which Landlord may expend by reason of Tenant's default in respect to any of the
terms, covenants and conditions of this Lease Agreement, including without
limitation, any damages or deficiency in reletting the Premises accrued before
or after any summary proceedings or other re-entry by Landlord.
(b) In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease Agreement, the
Security Deposit, except as same may have been applied by Landlord in accordance
with this Lease Agreement, shall be returned to Tenant, within thirty (30) days
after the Expiration Date or such earlier termination date of this Lease
Agreement and after Tenant has delivered entire possession of
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the Premises to Landlord in accordance with all of the terms and conditions of
this Lease Agreement.
(c) In the event that Landlord applies any portion of the Security Deposit
in accordance with the provisions of this Lease Agreement, Tenant shall
immediately upon demand of Landlord reimburse or pay Landlord for the amount of
the Security Deposit so applied so that the amount of the Security Deposit
during the Term shall always be $12,847.00 or an amount equal to two (2) months
of Minimum Annual Rent.
(d) In the event of the leasing or Sale of the Building or of the portion
of the Building in which the Premises are located, Landlord shall have the right
to transfer the Security Deposit as set forth above to the lessee and Landlord
shall thereupon be released by Tenant from all liability in connection with the
Security Deposit. Tenant agrees to look solely to the new landlord in connection
with the Security Deposit, and the provisions hereof shall apply to every
transfer or assignment of the Security Deposit to a new landlord.
(e) Tenant shall not assign or encumber or attempt to assign or encumber
the Security Deposit and neither Landlord nor its successors or assigns shall be
bound by such assignment, encumbrance or attempted assignment or encumbrance.
27. QUIET ENJOYMENT - Upon Tenant paying the Minimum Annual Rent and
Additional Rent and observing and performing all the terms, covenants and
conditions on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Premises hereby demised, free from any interference,
molestation or acts of Landlord or of anyone claiming by, through or under
Landlord, subject, nevertheless, to the terms and conditions of this Lease
Agreement and to any ground lease or underlying lease as hereinbefore provided.
28. COMPLIANCE WITH LAWS AND ORDINANCES - Landlord represents to Tenant
that to the best of its knowledge and belief, the Building and the Premises, as
they are presently used, comply with all pertinent laws and ordinances as may
currently exist.
29. LEASE STATUS AND NOTICE - (a) Upon request of Landlord from time to
time Tenant will execute and deliver to Landlord an instrument prepared by
Landlord stating, if the same be true, that this Lease Agreement is a true and
exact copy of this Lease Agreement between the parties hereto, that there are no
amendments hereof (or stating what amendments there may be), that the same is
then in full force and effect, and that to the best of Tenant's knowledge, there
are no offsets, defenses or counterclaims with respect to the payment of rent
reserved hereunder or in the performance of the other terms, covenants and
conditions hereof on the part of the Tenant to be performed, and that as of such
date no
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default has been declared hereunder by either party hereto and Tenant at the
time has no knowledge of any facts or circumstances which it might reasonably
believe would give rise to a default by either party. Such estoppel certificate
required by any party with who Landlord is dealing may be in somewhat altered
form from the above terms.
(b) All notices, demands or communications given under this Lease
Agreement shall be sent to the addresses set forth above, or at such other
addresses as the parties may designate by written notice, and shall be sent
prepaid by certified mail, return receipt requested, and shall be deemed given
on the second day after the date mailed, provided however, that after the
Commencement Date, any notice to Tenant shall be sent to the Building. A copy of
any notice to Landlord alleging a default by Landlord hereunder shall be
simultaneously sent by such mail to Mark R. Feller, Esq., Feller & Marantz, 1234
Summer Street, Suite 420, Stamford, Connecticut 06905.
30. ASSIGNMENTS (a) The covenants, conditions and agreements contained in
this Lease Agreement shall bind and inure to the benefit of Landlord and Tenant
and their respective heirs, distributees, executors, administrators, successors
and except as otherwise provided for in this Lease Agreement, their assigns.
(b) The word Landlord as used in this lease Agreement means only the owner
for the time being of Landlord's interest in this Lease Agreement. In the event
of any assignment of Landlord's interest in this Lease Agreement, the assignor
in each case shall no longer be liable for the performance or observance of any
agreements or conditions on the part of the Landlord to be performed or
observed.
31. SURRENDER OF PREMISES - At the expiration of the Term, Tenant will
peacefully yield up to Landlord the Premises, broom clean, in as good order and
repair as when delivered to Tenant, damage by fire, casualty and ordinary wear
and tear excepted. Any property left by Tenant in the Premises shall be deemed
abandoned by Tenant.
32. DUTY TO MITIGATE - Any remedy of Landlord against Tenant for default
under this Lease Agreement shall be subject to a duty on the part of the
Landlord to mitigate damages. Any remedy of Tenant against Landlord for default
under this Lease Agreement shall be subject to a duty on the part of the Tenant
to mitigate damages.
33. ACCESS TO LOADING DOCK - Tenant, at no additional cost, shall have a
non-exclusive right to the reasonable use and enjoyment of the loading dock now
located in Unit #2, described in Exhibit C and attached hereto and made a part
hereof. At any time after the date of the execution of this Lease Agreement,
Landlord
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may substitute said right for a substantially similar non-exclusive right to the
reasonable use and enjoyment of another loading loading dock located elsewhere
in the Building.
34. RIGHT OF LANDLORD TO RELOCATE TENANT - At any time after the date of
the execution of this Lease Agreement, Landlord may substitute for the demised
premises other premises in the Building ("new demised premises"), in which event
the new demised premises shall be deemed to be the demised premises for all
purposes under this Lease Agreement, provided the new demised premises shall be
substantially similar to the demised premises in area and appropriateness for
use of Tenant's purposes, and provided Landlord shall give Tenant not less than
sixty (60) days' prior written notice of said substitution. If Tenant is then
occupying the demised premises, Landlord shall pay the reasonable expense of
moving Tenant, and its property and equipment to the new demised premises. If
Tenant is then occupying the demised premises, Landlord shall, at its own
expense, improve the new demised premises with improvements substantially
similar to those located in the demised premises.
35. OPTION TO RENEW - Tenant shall have the right to renew this Lease
Agreement for a term of five (5) years provided Tenant is not in default of said
Lease Agreement. Said renewal shall be on the same terms, covenants,
stipulations and conditions as contained in this Lease Agreement except that the
Minimum Annual Rent for each year of the renewal term shall be increased once in
accordance with the cumulative increase in the cost of living index as published
by the U.S. Department of Labor for the New York metropolitan area. It is
expressly agreed that the Minimum Annual Rent for the renewal term shall be
equal to the base Minimum Annual Rent as increased by the percentage increase in
said cost of living index. Tenant shall give written notice to the Landlord of
its intention to exercise said right to renew this Lease Agreement at least One
Hundred Eighty (180) days prior to the termination date of this Lease Agreement.
Tenant further agrees to increase the Security Deposit on deposit with the
Landlord to an amount equal to two (2) months of the increased Minimum Annual
Rent as set forth above.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the year and day first above written.
LANDLORD: TENANT:
SUNHILL INDUSTRIES, INC.
___________________________ _______________________________
BENSON ZINBARG By Anita Dembiczak
Its Secretary, duly authorized
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LEASE AGREEMENT
This Lease Agreement dated the ___ day of September, 1996, by and between BENSON
ZINBARG of 48 Union Street, Stamford, Connecticut 06906 ("Landlord") and SUN
HILL INDUSTRIES, INC., a Connecticut corporation with offices located at 48
Union Street, Stamford, Connecticut 06906 ("Tenant").
WITNESSETH:
1. PREMISES - Landlord hereby leases to Tenant, for the term and upon the
rentals hereinafter specified, the following premises: that portion of the
building known as Glenbrook Commerce Park, 48 Union Street, Stamford,
Connecticut known as Unit 3 of said Glendale Commerce Park currently used by
Tenant as research and development and assembly space, consisting of
approximately 1,017 square feet (referred to herein as the "Premises"). Said
building and the land described in Exhibit A attached hereto are herein
collectively referred to as the "Building".
2. DEFINITIONS - Terms used in this Lease Agreement shall
have the following meanings:
(a) Minimum Annual Rent: $12,712.50
Minimum Annual Rent shall be payable as set forth elsewhere in this
lease agreement, in monthly installments of $1,059.38.
(b) Tax Base Year: List of October 1, 1995
(c) Tenant's Proportionate Share:
9.00% of 48 Union Street, Unit 3, Stamford,
Connecticut.
3. TERM - To have and to hold the Premises for a term (the "Term"),
commencing on a date (the "Commencement Date"), which shall be September 1, 1996
and ending on August 31, 2001 (the "Expiration Date"), unless the Term shall
sooner terminate pursuant to the terms, covenants or conditions of this Lease
Agreement or pursuant to law.
4. USE OF PREMISES - (a) Tenant shall use the Premises only for the
operation of its regular course of business and for no other purpose. Said use
shall be limited to warehousing, office use and business-related activities
only. Tenant shall not accumulate any boxes, barrels, packages, waste paper or
other articles in the common areas of the Building. Tenant shall keep the
Premises clean and orderly in accordance with the Landlord's standards for the
Building. Tenant shall commit no waste on the Premises, nor shall Tenant suffer
the same to be committed thereon.
<PAGE>
(b) Tenant shall have the right to install and maintain at its own expense
a discrete sign identifying the Tenant's occupancy at the entry monument. No
signs of any kind shall be installed or maintained on the exterior of the
Building, or on the interior of the Building which shall be visible from outside
the Building. Tenant shall not otherwise install, place or paint any other sign
on or about the exterior of the Premises or in the interior of the Building
without the written consent of Landlord, which consent shall not be unreasonably
withheld. All such signs, whether installed or maintained on the exterior or
interior of the Building shall conform to any federal or state statutes and to
any local ordinances which might then be in effect.
(c) Tenant will not interfere with the conduct of business by other
tenants or occupants of the Building or permit actions constituting a private
nuisance or safety hazard.
(d) Tenant, at its own expense, shall comply with and hold Landlord
harmless from all laws, orders and regulations of Federal, State and Municipal
authorities and with any direction of any public officer or officers, pursuant
to law, which shall impose any violation, order or duty upon Landlord or Tenant
with respect to the Premises or the use or occupancy thereof. Tenant shall not
do or permit to be done any act or thing upon the premises which will invalidate
or be in conflict with fire, public liability or other insurance policies
covering the Building and shall not do or permit to be done, any act or thing
upon the Premises which shall or might subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being carried on at the Premises or for any reason.
(e) Tenant, at its expense, shall comply with all rules, orders,
regulations and requirements of the Board of Fire Underwriters or other similar
body or authority having jurisdiction and shall not do or permit anything to be
done in or upon the Premises or the Building, or bring or keep anything therein,
which is prohibited by the Fire Department or any of such Boards of Fire
Underwriters or other body or authority or which would increase the rate of fire
insurance applicable to the Building over that in effect on the Commencement
Date of this Lease Agreement. If by reason of failure to comply with the
provisions of this subsection, any insurance rate for the Building shall, on the
Commencement Date or anytime thereafter, be higher than it otherwise would be ,
the Tenant, upon demand, shall reimburse Landlord, as additional rent hereunder,
for that part of all insurance premiums thereafter paid by the Landlord which
shall have been charged because of such failure by Tenant.
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5. RENTAL - Commencing on the Commencement Date, Tenant shall pay to
Landlord the Minimum Annual Rent without demand and without setoff or deductions
of any kind, in equal monthly installments, in advance, on the first day of each
term, corresponding to the first day of each calendar month at the address of
Landlord stated above or such other place as Landlord may designate in writing
from time to time, with payment in advance of appropriate fractions of a monthly
payment for any portion of a month at the expiration or prior termination of the
Term. Any Minimum Annual rent or Additional Rent not paid by Tenant on or before
the due date thereof or within ten (10) days thereafter shall thereafter be
payable with a late charge of five percent (5%) of the amount then due. Such
late charge shall be payable hereunder as Additional Rent.
6. INCREASE IN REAL ESTATE TAXES - If Real Estate Taxes with respect to
the Building are increased, at any time or from time to time during the Term
hereof, over Real Estate Taxes paid by the Landlord during the Tax Base Year,
then Tenant shall pay to Landlord, without setoffs or deductions of any kind, as
Additional Rent, an amount equal to Tenant's Proportionate Share of such
increase pro-rated for the period of Tenant's occupancy of the premises. Payment
of such increase shall be made in the installments provided by the taxing
authority within thirty (30) days after Tenant receives from Landlord's
Statement consisting of notice of such tax increase and a bill for Tenant's
Proportionate Share thereof, together with a copy of the applicable bill
received by Landlord from the taxing authority. Landlord's failure to render
said Statement with respect to any Tax Year, or Landlord's delay in rendering
such Statement beyond a date specified herein, shall not prejudice Landlord's
right to render a Statement with respect to that or any subsequent Tax Year. The
obligations of Landlord and Tenant under the provisions of this Section with
respect to any Additional Rent, which obligations have accrued prior to the
expiration or sooner termination of the Term, shall survive the expiration or
any sooner termination of the Term. "Real Estate Taxes" shall mean all taxes or
assessments and governmental charges, whether Federal, State or Municipal, which
are levied or charged against real estate, personal property or rents, or on the
right or privilege of leasing real estate or collecting rents thereon and any
other taxes and assessments attributable to the Building or its operation,
excluding, however, Federal, State or other general income taxes not limited to
real property. "Tax Year" shall mean each tax fiscal year of the City of
Stamford following the Tax Base Year.
7. ALTERATIONS, IMPROVEMENTS, ETC. - (a) Tenant shall not
make any alterations, installations or improvements in the Premises
without Landlord's prior written consent, which consent shall not
be unreasonably withheld or delayed.
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(b) All alterations, improvements or additions made by Landlord or Tenant
upon the Premises or in or on the Building but outside the Premises, except
furniture, light fixtures, equipment, or movable partitions or trade fixtures
installed at the expense of the Tenant, shall be the property of the Landlord
and shall remain and be surrendered with the Premises as a part thereof at the
termination of this Lease Agreement, without compensation to Tenant, unless
Landlord shall require Tenant to remove same. In the event Landlord requires
Tenant to remove same, Landlord agrees to provide Tenant with ten (10) days
written notice.
8. REPAIRS - (a) The exterior and structure of the Building and all parts
of the heating, plumbing, electrical and air conditioning systems, to the extent
that such systems currently exist on the premises, shall be maintained and
repaired by the Landlord, except if such maintenance or repair is necessitated
by the negligence, wrongful act or failure to comply with this Lease Agreement
by Tenant, its employees, agents or invitees, in which event Tenant shall be
responsible for maintenance, repair or replacement as necessary.
(b) Tenant, at its expense, shall repair, maintain in good order and
condition and replace, if necessary, the interior of the Premises, except for
structural repairs and repairs necessitated by the negligence, wrongful act or
failure to comply with this Lease Agreement by Landlord, its employees, agents
or invitees, in which event Landlord shall be responsible for repair or
replacement as necessary. Tenant shall at its own expense, be responsible for
the normal cleaning of the Premises. Tenant shall have the right to arrange for
maintenance or janitorial services to be provided to the Premises, at Tenant's
sole expense, and Tenant shall defend, indemnify, and hold harmless Landlord
from and against all liabilities, including reasonable attorney's fees, which
may be imposed upon or incurred by or asserted against Landlord in connection
with the provision of such janitorial service.
9. PARKING - Tenant shall have the right to use Twenty-four (24) parking
spaces, which shall not be designated by Landlord. Tenant shall limit its
employees, agents or invitees parking to said parking spaces except that other
non-assigned spaces shall also be available for Tenant's use. Landlord shall
have no liability to Tenant if others park in Tenant's parking spaces, except
that Landlord shall cooperate with Tenant in its efforts to prevent others from
parking in its spaces.
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10. UTILITIES AND SERVICES - Landlord shall at its own expense furnish or
cause to be furnished hot and cold water for ordinary cleaning, toilet, lavatory
and drinking purposes. Tenant at its own expense shall be responsible for
furnishing of electricity to the premises. Tenant shall also pay Landlord, as
Additional Rent without setoffs or deductions of any kind, an amount equal to
9.00% of the total cost for fuel oil to heat all of Unit 3, as determined by
Landlord. Payment of such additional rent shall be due within fourteen (14) days
after Tenant receives a statement from Landlord showing Tenants share of the
cost of said fuel oil, together with a copy of the applicable bill or invoice
for said fuel oil. Landlord's failure to render said statement with respect to
any such cost, or Landlord's delay in rendering such statement, beyond a date
specified herein, shall not prejudice Landlord's right to render a statement
with respect to that or any subsequent cost. The obligations of Landlord and
Tenant under the provisions of this Section with respect to any Additional Rent,
which obligations have accrued prior to the expiration or sooner termination of
the Term, shall survive the expiration or any sooner termination of the Term.
Tenant shall be responsible to pay for any other utilities provided to and
used by Tenant. Tenant shall not install or cause to be installed any air
conditioning without the express written consent of Landlord.
11. LIABILITY INSURANCE - (a) Tenant shall, at Tenant's expense, secure
and maintain General Liability Insurance written on a so-called "Comprehensive"
General Liability Form naming Landlord as an additional insured under the policy
with single limit coverage of at least $500,000.00 for injury to one person and
with at least $500,000.00 for injury to more than one person. Tenant shall also
secure and maintain at Tenant's expense General Property Damage Liability
Insurance naming Landlord as an additional insured under the policy with single
limit coverage for at least $50,000.00.
(b) Tenant shall deliver to Landlord a certificate of such insurance prior
to taking occupancy of the Premises and shall deliver a new certificate at least
thirty (30) days prior to the expiration of the existing coverage. Such
certificate shall provide that in the event of termination or material change in
coverage, Landlord shall be given ten (10) days advance notice in writing sent
by certified mail to the address of the Landlord as set forth above. Such
insurance shall contain a waiver of the insurer's right of subrogation against
Landlord. If Tenant fails to secure and maintain such insurance and deliver to
Landlord the required certificate of insurance as set forth above, Landlord
shall have the right to secure and maintain said policy or policies of insurance
and the cost of said policy or policies shall be due and payable from Tenant to
Landlord as Additional Rent and payable to Landlord as set forth elsewhere in
this agreement.
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12. SUBORDINATION - This Lease Agreement is and shall be subject and
subordinate to any and all mortgage or collateral assignment of leases and
rentals now or hereafter affecting the Building or any part thereof and to any
and all extensions, modifications, renewals, replacements and amendments thereof
granted to secure any obligations of the Landlord to any such mortgage holder.
Tenant will execute and deliver promptly to Landlord any certificate or
instrument which Landlord, from time to time, may request for confirmation of
the provisions of this section. Neither the termination of any mortgage or
collateral assignment of leases and rentals, nor the institution of any suit,
action, summary or other proceedings by Landlord or any successor landlord under
such mortgage or collateral assignment of leases and rentals, shall, by
operation of law, result in the cancellation or termination of the obligations
of Tenant hereunder, and Tenant agrees to attorn to and recognize Landlord and
any successor landlord under such mortgage or collateral assignment of leases
and rentals as the case may be, as Tenant's landlord hereunder in the event that
any of them shall succeed to Landlord's interest in the Premises.
13. DESTRUCTION, FIRE OR OTHER CAUSES - If the Premises or Building are
partially damaged by fire or other casualty, the same shall, at the option of
Landlord, be repaired as speedily as possible at the expense of Landlord (to the
extent of insurance proceeds received by Landlord for restoration). If the
damage to the Premises or Building is so extensive so as to render same
untenable by the Tenant, the Tenant's obligation to pay Minimum Annual Rent and
Additional Rent shall cease until such time as the Building or Premises shall be
put in complete repair. If the damage to the Building or Premises is such that
the Building or Premises is totally destroyed and the Landlord elects not to
repair such damage, the Tenant shall be responsible to pay the Minimum Annual
Rent and Additional Rent until the time of such total destruction, and then and
from thenceforth this Agreement shall terminate and the Term shall expire, and
the Tenant shall vacate the Premises and surrender same to the Landlord. If the
damage to the Building or Premises is such that the Landlord is unable to repair
said damage and render the Premises or Building tenable within One Hundred
Eighty (180) days of said damage, the Tenant may elect to terminate this Lease
Agreement and the Tenant shall be responsible to pay the Minimum Annual Rent and
Additional Rent until the time of such total damage, and then and from
thenceforth this Agreement shall terminate and the Term shall expire, and the
Tenant shall vacate the Premises and surrender same to the Landlord.
Landlord shall not be liable for any damage to, or be required (under any
provision of this Lease Agreement or otherwise) to repair, restore or replace,
any property in the Premises or be liable to Tenant for damage arising from rain
or snow or from the bursting, overflowing or leakage of water, steam or gas
pipes or
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defect in the plumbing, HVAC, mechanical or electrical systems of the Building
or from any act or neglect of any other tenant or occupant in the Building,
unless said damage is the result of and caused by negligence of the Landlord.
14. EMINENT DOMAIN - If the whole of the Premises shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, or if
any substantial part thereof or of the Building is so acquired or condemned as
to render the Premises untenantable, or so that Landlord elects not to restore
same but to demolish or rebuild it, then and in that event, the Term shall cease
and terminate from the date of taking. Tenant shall have no claim against
Landlord or the condemning authority for the value of the unexpired Term, nor a
claim to any part of an award in such proceeding, and rent shall be adjusted and
paid to the date of termination. Notwithstanding the above, Tenant shall be
entitled to assert any claim that it may have against Landlord or the condemning
authority concerning its own property, moving expenses and/or interruption of
its business.
15. ASSIGNMENT, MORTGAGE, ETC. - (a) Tenant shall not assign, mortgage or
encumber this Lease Agreement, nor sublease all or any part of the Premises, or
suffer or permit the Premises or any part thereof to be used by others, without
the prior written consent of Landlord in each instance, which consent shall not
be unreasonably withheld or delayed. If this Lease Agreement be assigned, or if
the Premises or any part thereof be sublet to or occupied by anybody other than
Tenant, Landlord may, at Landlord's option, collect rent form the assignee,
subtenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, subletting or occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee, subtenant
or occupants, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or subletting shall not be construed to relieve Tenant form obtaining
the express consent in writing of Landlord to any further assignment or
subletting.
16. FEES AND EXPENSES - If Tenant shall default in the observance or
performance of any term or covenant of this Lease Agreement, Landlord may, after
ten (10) days notice to Tenant to cure the default and failure of Tenant to cure
same within such period or to commence and diligently pursue such cure in the
event that same can not be fully performed within ten (10) days, or at anytime
thereafter without notice in the event of emergency, perform the same for the
account of Tenant. If Landlord makes any expenditures or incurs any obligations
in connection with a default by Tenant, including but not limited to, reasonable
attorney's fees, in instituting, prosecuting or defending any action or
proceeding against Tenant, such sums paid or obligations incurred, with interest
(as provided below) and costs, shall be deemed to be
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Additional Rent hereunder and shall be paid by Tenant to Landlord within ten
(10) days of rendition of any bill or statement to Tenant hereunder.
17. NO REPRESENTATIONS BY LANDLORD, ETC. - Landlord has made no
representations or promises with respect to the Building or the Premises,
including the uses permitted under applicable law, except for representations
herein expressly set forth.
(a) Landlord represents to Tenant that he has good right to lease the
Premises as set forth in this Lease agreement and that Landlord will suffer and
permit said Tenant to occupy, possess and enjoy said Premises during the Term as
set forth herein without hinderance or molestation from Landlord or any person
claiming by, from or under Landlord so long as Tenant is not in default of this
Lease Agreement.
(b) Neither Landlord, or any employee or agent of Landlord, shall be
liable to Tenant, its employees, agents or contractors, (i) for any damage or
loss of any property of Tenant or such other person, irrespective of the cause
of such damage or loss unless such damage or loss is a result of Landlord's
negligence or failure to comply with the terms of this Lease Agreement; or (ii)
for any personal injury to Tenant or such other person from any cause, unless
such injury is a result of Landlord's negligence or failure to comply with the
terms of this Lease Agreement.
(c) Tenant shall defend, indemnify and hold harmless Landlord, its
employees and agents against and from all liabilities, including reasonable
attorney's fees, which may be imposed upon or incurred by or asserted against
Landlord or such other persons by reason of any of the following occurring
during the Term or prior thereto when Tenant has been given access to the
Premises: (i) any work or thing done in the Premises by or at the instance of
Tenant, its employees or agents; (ii) any negligence or wrongful act or omission
of Tenant, its employees or agents; (iii) any accident, injury, loss or damage
to any person or property occurring in the Premises unless same arises out of
the negligence of Landlord or its failure to comply with the terms of this Lease
Agreement or the acts, omissions and/or the negligence of the other tenants of
the Building or their visitors; and (iv) any failure on the part of Tenant to
comply with any of the terms of this Lease Agreement.
(d) Any provision of this Lease Agreement which requires Landlord not to
unreasonably withhold its consent shall never be the basis for an award of
damages or give rise to a right of setoff or termination to Tenant, but may be
the basis for a declaratory judgment or specific injunction with respect to the
matter in question.
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(e) The failure of Landlord to insist in any one or more instances upon
the strict performance of any one or more of the agreements, terms, covenants,
conditions or obligations of this Lease Agreement, or to exercise any right,
remedy or election herein contained, shall not be construed as a waiver or
relinquishment for the future of the performance of such one or more obligations
of this Lease Agreement or of the right to exercise such election, but the same
shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission, whether of a similar nature or otherwise.
(f) Tenant's obligations under this Lease Agreement shall survive the
Expiration Date or sooner termination of the Term, as same may be extended
hereunder.
(g) The Building may be designated and known by any name Landlord may
choose, and such name or designation may be changed from time to time in
Landlord's sole discretion.
18. HOLD-OVER TENANCY - If Tenant shall, with the written consent of
Landlord endorsed hereon, or on the duplicate hereof, at any time hold over the
Premises beyond the termination date set forth elsewhere in this Agreement, then
the Tenant shall hold said Premises upon the same terms, and under the same
stipulations, covenants and agreements as contained in this Agreement, and no
holding over by Tenant shall operate to renew this Agreement without such
written consent of Landlord.
19. DEFAULT - (a) If (i) Tenant defaults in the payment when due of any
installment of Minimum Annual Rent or in the payment of Additional Rent and said
default is not cured within ten (10) days of the date of default or (ii) the
Premises become vacant or deserted except as provided in this Lease Agreement or
(iii) Tenant defaults in fulfilling any other covenant of this Lease Agreement
and Tenant fails to remedy such default within twenty (20) days after notice by
Landlord to Tenant specifying the nature of such default (or if said default
cannot be completely cured or remedied within said twenty (20) day period and
Tenant shall not have diligently commenced curing such default within such
twenty (20) day period and shall not thereafter in good faith diligently proceed
to remedy or cure such default) or (iv) Tenant shall file a petition in
bankruptcy or be adjudicated a bankrupt or make an assignment for the benefit of
creditors or take advantage of any insolvency act, then Landlord may, by notice
to Tenant, cancel this Lease Agreement and this Lease Agreement and the Term
hereunder shall end and expire as fully and completely as if the date of
cancellation were the date herein definitely fixed for the end and expiration of
this Lease Agreement and the Term hereof. Tenant shall then quit and surrender
the Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
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(b) If (i) the notice provided for in subsection (a) above shall have been
given and the term shall expire as aforesaid, or (ii) Tenant shall make default
in payment of the Minimum Annual Rent or any item of Additional Rent or any part
of either or in making any other payment herein provided for a period of ten
(10) days after notice by Landlord to Tenant of such default, or (iii), any
execution shall be issued against Tenant or any of Tenant's property, whereupon
the Premises shall be taken or occupied or attempted to be taken or occupied by
someone other than Tenant, then and in any of such events, Landlord may, without
notice, re-enter the Premises, and dispossess Tenant or other occupant of the
Premises, by summary proceedings or otherwise, and remove their effects and hold
the Premises as if this Lease Agreement had not been made. Tenant hereby waives
the service of notice of intention to re-enter or to institute legal proceedings
to that end, but Tenant shall remain liable for damages as hereinafter provided.
(c) It is expressly agreed that no demand for Minimum Annual Rent or
Additional Rent, and no re-entry for condition broken, as at common law, shall
be necessary to enable the Landlord to recover possession of the premises
pursuant to law, and all right to any such demand, or any such re-entry is
hereby expressly waived by the Tenant. It is further agreed that any acceptance
of Minimum Annual Rent or Additional Rent or failure by Landlord to re-enter the
Premises shall not be held to be a waiver of landlord's right to terminate this
Lease Agreement, and Landlord may re-enter and take possession of same as if no
Minimum Annual Rent or Additional Rent has been accepted.
(d) It is expressly agreed that whenever this Lease Agreement shall
terminate by lapse of time or by virtue of any of the express terms and
conditions set forth herein, Tenant hereby waives all right to an Notice to Quit
Possession as prescribed by the statutes relating to Summary Process.
20. REMEDIES OF LANDLORD - In case of any such default, re-entry,
expiration and/or dispossess by summary proceedings or otherwise, (a) the
Minimum Annual rent and Additional rent shall become due thereupon and be paid
up to the time of such re-entry, dispossess and/or expiration, together with
such expenses as Landlord may incur for counsel fees, brokerage commissions
and/or putting the Premises in good order, or for repairs or clean-up of the
Premises; (b) Landlord may re-let the Premises or any part or parts thereof,
either in the name of Landlord or otherwise, for a term or terms, which may at
Landlord's option be less than or exceed the period which would have otherwise
constituted the balance of the Term; and/or (c) Tenant or the legal
representatives of Tenant shall also pay Landlord any deficiency between (i) the
rent hereby reserved and/or covenanted to be paid, and (ii) the net amount if
any of the rents collected on account of the lease or leases of the Premises for
each month of the period which would otherwise have constituted the balance of
the Term.
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There shall be added to such deficiency such reasonable expenses as Landlord may
incur in connection with re-letting of the Premises, including without
limitation, counsel fees, brokerage commissions and expenses incurred in
maintaining the Premises in good order and in connection with renovating and
preparing the same for re-letting. Any such rent deficiency shall be paid in
monthly installments by Tenant on the rent due date specified in this Lease
Agreement, and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month or months by a similar proceeding. Landlord,
at its option, may make such alterations, repairs, replacements and/or
decorations as Landlord considers advisable for the purpose of re-letting the
Premises; and the making of such alterations and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as aforesaid.
In the event of a breach by Tenant of any of the covenants or provisions hereof,
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity, as if re-entry, summary proceedings or other
remedies were not herein provided for. Mention in this Lease Agreement of any
particular remedy shall not preclude Landlord from any other remedy, in law or
in equity.
21. RIGHT TO EXHIBIT PREMISES AND ACCESS TO PREMISES - (a) Landlord
reserves the right to enter the Premises and exhibit same at any reasonable time
to prospective tenants at reasonable times provided said access to and said
exhibition of the Premises is conducted in such a manner as to cause as little
interruption as possible to Tenant's use and enjoyment of the Premises. Landlord
shall also have the right within one hundred and eighty (180) days prior to the
expiration of the Term to place notices on the front of said Premises, or any
part thereof, offering the Premises "To Let" or "For Sale" and Tenant shall
permit the same to remain thereon without hinderance or molestation.
(b) Landlord reserves the right to have its employees and agents enter the
Premises at any reasonable time (and at any time in case of emergency) in order
to gain access to any utility area, which utility area contains equipment and
systems for the Building, and in order to effect necessary repairs and
replacements provided said access to the Premises and said repairs and
replacements are conducted in such a manner as to cause as little interruption
as possible to Tenant's use and enjoyment of the Premises. Such agents may bring
necessary tools and equipment with them and may store same in reasonable places
within the Premises.
23. RULES AND REGULATIONS - Tenant and Tenant's employees, agents,
visitors, invitees and licensees shall observe faithfully and comply strictly
with such Rules and Regulations as Landlord or Landlord's agents may, from time
to time, reasonably adopt.
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24. BROKERAGE - Tenant warrants and represents it has not had or dealt
with any realtor, broker or agent in connection with the negotiation of this
Lease Agreement. Tenant agrees to pay and hold Landlord harmless from any cost,
expense or liability (including costs of suit and attorney's fee's) for any
compensation, commission or charges claimed by any realtor, broker or agent with
respect to this Lease Agreement and the negotiation thereof.
25. FORCE MAJEURE - Landlord and Tenant, respectively, shall not be in
default hereunder if such party is unable to fulfill or is delayed in fulfilling
any of its obligations hereunder, including, without limitation, any obligations
to supply any service hereunder, or any obligations to make repairs or
replacements hereunder, if such party is prevented from fulfilling or is delayed
in fulfilling such obligations by reason of fire or other casualty, strikes or
labor troubles, governmental pre-emption in connection with a national
emergency, shortage of supplies or materials, or by reason of any governmental
authority, or by reason of the condition of supply and demand affected by war or
other emergency, or any other cause beyond its reasonable control. Such
inability or delay by Landlord or Tenant in fulfilling any of their respective
obligations hereunder shall not affect, impair or excuse the other party hereto
from the performance of any of the terms, covenants, conditions, limitations,
provisions or agreements hereunder on its part to rents payable hereunder.
Tenant, shall not, however, be excused hereunder from the payment of Minimum
Annual Rent or Additional Rent for any cause specified in this Section.
26. SECURITY DEPOSIT - (a) Simultaneously with Tenant's execution of this
Lease Agreement, Tenant shall deposit, or cause to be deposited with Landlord
the sum of $2,118.75 (the "Security Deposit") as security for the faithful
performance and observance by Tenant of the terms, conditions and provisions of
this Lease Agreement, including without limitation, the payment of Minimum
Annual Rent. Landlord may seek reimbursement in whole or in part against said
Security Deposit to the extent required for the payment of any Minimum Annual
Rent, or as to any other sum as to which Tenant is in default, or for any sum
which Landlord may expend by reason of Tenant's default in respect to any of the
terms, covenants and conditions of this Lease Agreement, including without
limitation, any damages or deficiency in reletting the Premises accrued before
or after any summary proceedings or other re-entry by Landlord.
(b) In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this Lease Agreement, the
Security Deposit, except as same may have been applied by Landlord in accordance
with this Lease Agreement, shall be returned to Tenant, within thirty (30) days
after the Expiration Date or such earlier termination date of this Lease
Agreement and after Tenant has delivered entire possession of
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the Premises to Landlord in accordance with all of the terms and conditions of
this Lease Agreement.
(c) In the event that Landlord applies any portion of the Security Deposit
in accordance with the provisions of this Lease Agreement, Tenant shall
immediately upon demand of Landlord reimburse or pay Landlord for the amount of
the Security Deposit so applied so that the amount of the Security Deposit
during the Term shall always be $12,847.00 or an amount equal to two (2) months
of Minimum Annual Rent.
(d) In the event of the leasing or Sale of the Building or of the portion
of the Building in which the Premises are located, Landlord shall have the right
to transfer the Security Deposit as set forth above to the lessee and Landlord
shall thereupon be released by Tenant from all liability in connection with the
Security Deposit. Tenant agrees to look solely to the new landlord in connection
with the Security Deposit, and the provisions hereof shall apply to every
transfer or assignment of the Security Deposit to a new landlord.
(e) Tenant shall not assign or encumber or attempt to assign or encumber
the Security Deposit and neither Landlord nor its successors or assigns shall be
bound by such assignment, encumbrance or attempted assignment or encumbrance.
27. QUIET ENJOYMENT - Upon Tenant paying the Minimum Annual Rent and
Additional Rent and observing and performing all the terms, covenants and
conditions on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the Premises hereby demised, free from any interference,
molestation or acts of Landlord or of anyone claiming by, through or under
Landlord, subject, nevertheless, to the terms and conditions of this Lease
Agreement and to any ground lease or underlying lease as hereinbefore provided.
28. COMPLIANCE WITH LAWS AND ORDINANCES - Landlord represents to Tenant
that to the best of its knowledge and belief, the Building and the Premises, as
they are presently used, comply with all pertinent laws and ordinances as may
currently exist.
29. LEASE STATUS AND NOTICE - (a) Upon request of Landlord from time to
time Tenant will execute and deliver to Landlord an instrument prepared by
Landlord stating, if the same be true, that this Lease Agreement is a true and
exact copy of this Lease Agreement between the parties hereto, that there are no
amendments hereof (or stating what amendments there may be), that the same is
then in full force and effect, and that to the best of Tenant's knowledge, there
are no offsets, defenses or counterclaims with respect to the payment of rent
reserved hereunder or in the performance of the other terms, covenants and
conditions hereof on the part of the Tenant to be performed, and that as of such
date no
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default has been declared hereunder by either party hereto and Tenant at the
time has no knowledge of any facts or circumstances which it might reasonably
believe would give rise to a default by either party. Such estoppel certificate
required by any party with who Landlord is dealing may be in somewhat altered
form from the above terms.
(b) All notices, demands or communications given under this Lease
Agreement shall be sent to the addresses set forth above, or at such other
addresses as the parties may designate by written notice, and shall be sent
prepaid by certified mail, return receipt requested, and shall be deemed given
on the second day after the date mailed, provided however, that after the
Commencement Date, any notice to Tenant shall be sent to the Building. A copy of
any notice to Landlord alleging a default by Landlord hereunder shall be
simultaneously sent by such mail to Mark R. Feller, Esq., Feller & Marantz, 1234
Summer Street, Suite 420, Stamford, Connecticut 06905.
30. ASSIGNMENTS (a) The covenants, conditions and agreements contained in
this Lease Agreement shall bind and inure to the benefit of Landlord and Tenant
and their respective heirs, distributees, executors, administrators, successors
and except as otherwise provided for in this Lease Agreement, their assigns.
(b) The word Landlord as used in this lease Agreement means only the owner
for the time being of Landlord's interest in this Lease Agreement. In the event
of any assignment of Landlord's interest in this Lease Agreement, the assignor
in each case shall no longer be liable for the performance or observance of any
agreements or conditions on the part of the Landlord to be performed or
observed.
31. SURRENDER OF PREMISES - At the expiration of the Term, Tenant will
peacefully yield up to Landlord the Premises, broom clean, in as good order and
repair as when delivered to Tenant, damage by fire, casualty and ordinary wear
and tear excepted. Any property left by Tenant in the Premises shall be deemed
abandoned by Tenant.
32. DUTY TO MITIGATE - Any remedy of Landlord against Tenant for default
under this Lease Agreement shall be subject to a duty on the part of the
Landlord to mitigate damages. Any remedy of Tenant against Landlord for default
under this Lease Agreement shall be subject to a duty on the part of the Tenant
to mitigate damages.
33. ACCESS TO LOADING DOCK - Tenant, at no additional cost, shall have a
non-exclusive right to the reasonable use and enjoyment of the loading dock now
located in Unit #2, described in Exhibit C and attached hereto and made a part
hereof. At any time after the date of the execution of this Lease Agreement,
Landlord
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may substitute said right for a substantially similar non-exclusive right to the
reasonable use and enjoyment of another loading loading dock located elsewhere
in the Building.
34. RIGHT OF LANDLORD TO RELOCATE TENANT - At any time after the date of
the execution of this Lease Agreement, Landlord may substitute for the demised
premises other premises in the Building ("new demised premises"), in which event
the new demised premises shall be deemed to be the demised premises for all
purposes under this Lease Agreement, provided the new demised premises shall be
substantially similar to the demised premises in area and appropriateness for
use of Tenant's purposes, and provided Landlord shall give Tenant not less than
sixty (60) days' prior written notice of said substitution. If Tenant is then
occupying the demised premises, Landlord shall pay the reasonable expense of
moving Tenant, and its property and equipment to the new demised premises. If
Tenant is then occupying the demised premises, Landlord shall, at its own
expense, improve the new demised premises with improvements substantially
similar to those located in the demised premises.
35. OPTION TO RENEW - Tenant shall have the right to renew this Lease
Agreement for a term of five (5) years provided Tenant is not in default of said
Lease Agreement. Said renewal shall be on the same terms, covenants,
stipulations and conditions as contained in this Lease Agreement except that the
Minimum Annual Rent for each year of the renewal term shall be increased once in
accordance with the cumulative increase in the cost of living index as published
by the U.S. Department of Labor for the New York metropolitan area. It is
expressly agreed that the Minimum Annual Rent for the renewal term shall be
equal to the base Minimum Annual Rent as increased by the percentage increase in
said cost of living index. Tenant shall give written notice to the Landlord of
its intention to exercise said right to renew this Lease Agreement at least One
Hundred Eighty (180) days prior to the termination date of this Lease Agreement.
Tenant further agrees to increase the Security Deposit on deposit with the
Landlord to an amount equal to two (2) months of the increased Minimum Annual
Rent as set forth above.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals the year and day first above written.
LANDLORD: TENANT:
SUNHILL INDUSTRIES, INC.
__________________________ ______________________________
BENSON ZINBARG By Anita Dembiczak
Its Secretary, duly authorized
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AGENCY AND SALES AGREEMENT
AGENCY AND SALES AGREEMENT dated as of October 1, 1996 by and between Sun
Hill Industries, Inc., a Connecticut corporation having its principal place of
business located at 48 Union Street, Stamford, Connecticut (hereinafter referred
to as "Sun Hill") and , a Corporation, having its
principal place of business located at (hereinafter referred to
as " ").
W I T N E S S E T H:
WHEREAS, Sun Hill sells proprietary and other seasonal products for
Easter, Halloween, Christmas and summer (collectively, "Seasonal Products") to
the major chain stores in the United States and Canada, and
WHEREAS, maintains a well-established trading company office and
showroom in and can serve as a source of supply in Asia for additional
Seasonal Products for Sun Hill's product lines.
WHEREAS, and Sun Hill desire to enter into a mutually beneficial
arrangement whereby they each can promote and sell the other's Seasonal Products
on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, the parties hereby agree as follows:
1. Sale of Seasonal Products; Term; Exclusivity and Exceptions. (a)
shall sell to Sun Hill and Sun Hill shall purchase from such Seasonal
Products as Sun Hill shall request from time to time of the type, kind and
variety as listed on Exhibit A hereto (collectively hereinafter referred to as
the "Agreement Products") for Sun Hill's sale in
(hereinafter, the
"Territory") for the period commencing on the date hereof and ending on
(hereinafter, the "Term"); provided, however, that the Term shall
automatically be renewed for successive month periods (each, a
"Renewal Period") unless Sun Hill, within thirty (30) days of the expiration of
the Term or any Renewal Period, as the case may be, provides with a
written notice of its election not to renew this Agreement.
(b) agrees that it will not, directly or indirectly through
third parties, make any other sale of the Agreement Products (or any other
products which can be logically categorized as Seasonal Products) to or for the
Territory during the Term or any Renewal Period. shall sell the Agreement
Products to the Territory exclusively through Sun Hill. Notwithstanding the
foregoing, shall be permitted to service customers in the Territory both
directly and indirectly through third parties with respect to its distribution
and sale of products that do not qualify as Seasonal Products.
(c) shall, both directly and indirectly through third
parties, also be permitted to sell Seasonal Products and other products outside
of the Territory, provided,
<PAGE>
however, that if any of such sales comprise Seasonal Products that are a part of
Sun Hill's Seasonal Product lines, or are otherwise proprietary to Sun Hill,
shall pay a sales royalty to Sun Hill equal to % of the Net Sales of any
such Seasonal Product. For purposes of this Section, "Net Sales" shall mean
gross sales of such Seasonal Product, less returns. Notwithstanding the
foregoing, Sun Hill shall not be obligated to promote sales of its Seasonal
Products in Asia or otherwise outside the Territory exclusively through .
2. Price, Delivery, Title and Risk. (a) Regarding Sun Hill's purchase of
Seasonal Products from , Sun Hill shall pay the prices for the
Agreement Products as shall be determined from time to time by the parties
utilizing a letter of credit, or other acceptable means of payment. Each
shipment by shall include an invoice properly detailed, itemized and
prepared based on the prices for the Agreement Products then in effect. Risk of
loss and title to the Agreement Products shall pass to Sun Hill upon delivery
F.O.B. . The delivery of the Agreement Products herein specified may be
delayed or canceled by without liability to Sun Hill, by reason of Acts
of God, strikes or other labor disturbances, fires, accidents, delays of
carriers, shortage of supplies or labor, trade embargo, or from other cause
beyond control.
(b) Regarding purchase of Seasonal Products directly from
Sun Hill, shall pay Sun Hill the prices for any of the Sun Hill Seasonal
Products as may be agreed to by the parties. Further, delivery, title and risk
of loss shall also be upon such terms and conditions as may be agreed to by the
parties.
3. Packaging. All products purchased by one party from the other shall be
specifically packaged in accordance with such purchasing party's specifications,
or as otherwise may be agreed to by the parties.
4. Mutual Showroom Facility Use. At all times that this Agreement is in
force and effect, shall, and without receiving compensation therefor,
permit Sun Hill to utilize up to 1,000 square feet of its showroom facility
located at ________________ for the purposes of promoting Sun Hill's
own Seasonal Products and the Agreement Products. Conversely, at all times that
this Agreement is in force and effect, Sun Hill shall, and without receiving
compensation therefor, permit to utilize up to ________ square feet of
its showroom facility located in The Toy Building at 200 Fifth Avenue, New York,
New York for the purposes of promoting Sun Hill's Seasonal Products and the
Agreement Products. Upon the expiration or termination of this Agreement, the
parties shall each promptly vacate the other's showroom facilities.
5. Right of First Refusal Regarding Source of Supply. In the
event that Sun Hill would like to source the manufacture and supply of any of
its proprietary or other Seasonal Products from Asia, then shall be
provided the right of first refusal to make an arrangement for the manufacture
and supply to Sun Hill of such Seasonal Products. Any such arrangement which is
proposed by to Sun Hill shall be competitive in price, quality and other
characteristics as are then available in other countries in Asia.
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7. Mutual Indemnity. Each party hereby agrees to indemnify and hold the
other party together with such other party's agents, affiliates and employees
and their respective successors and assigns harmless from and against any and
all expenses (including, without, limitation, reasonable attorneys' fees and
disbursements), losses, claims, damages or liabilities which are incurred by a
party and caused by, or in any way resulting from or relating to, (i) the other
party's failure to carry out any or all of its obligations under this Agreement;
(ii) the other party's breach of any of the representations, warranties,
covenants or agreements set forth in this Agreement or (iii) the other party's
negligent manufacture, packaging or shipment of any Agreement Product or
Seasonal Product sold hereunder.
8. Representations and Warranties of the Parties. (a) hereby
represents and warrants to Sun Hill as follows:
(i) that the sale and/or use of the Agreement Products, to the best
of knowledge, does not infringe any patent, trademark, copyright, trade
secret or other intellectual property right of any third party;
(ii) that it will comply with all applicable laws relating to the
manufacture, sale and distribution of the Agreement Products;
(iii) that the Agreement Products shall be of good and merchantable
quality;
(iv) that it will refer all sales inquiries regarding the sale of
Seasonal Products in the Territory to Sun Hill for processing and fulfillment;
(v) that it will deliver all of the Agreement Products in a timely
fashion and in the event delivery is not made by the date required by Sun Hill
as a final date, then Sun Hill shall have the right to find a replacement source
of supply (within or without Asia) for the Agreement Products that were the
subject of the late delivery;
(vi) that it has full power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
constitutes the valid, legal and binding obligations of in accordance
with their respective terms. The execution of this Agreement and the
consummation of the transactions contemplated herein will not result in any
breach of any terms, conditions or provisions of or constitute a default under
or conflict with any agreement or other instrument to which is a party or
by which may be bound.
(b) Sun Hill hereby represents and warrants to as follows:
3
<PAGE>
(i) that the sale and/or use of any of the Seasonal Products in Sun
Hill's product lines, to the best of Sun Hill's knowledge, do not infringe any
patent, trademark, copyright, trade secret or other intellectual property right
of any third party;
(ii) that it will comply with all applicable laws relating to the
manufacture, sale and distribution of Seasonal Products in the Sun Hill product
lines;
(iii) that Sun Hill's Seasonal Products shall be of good and
merchantable quality;
(iv) that it has full power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. This Agreement
constitutes the valid, legal and binding obligations of Sun Hill in accordance
with their respective terms. The execution of this Agreement and the
consummation of the transactions contemplated herein will not result in any
breach of any terms, conditions or provisions of or constitute a default under
or conflict with any agreement or other instrument to which Sun Hill is a party
or by which Sun Hill may be bound.
9. Termination. (a) This Agreement may, at a party's option and upon
written notice to the other, be immediately terminated at any time prior to the
expiration of the Term or any Renewal Period, as the case may be, as follows:
(i) If a party shall be in breach of any of its obligations under
this Agreement and, after thirty (30) days from receiving notice thereof from
the other, such party fails to cure such breach;
(ii) If a party shall dissolve, wind-up its affairs or seek
bankruptcy protection under applicable laws;
(iii) If, in the case of
or a majority of them, at any time fail to control the management, business and
operations of , then this Agreement may be terminated by Sun Hill;
(iv) If, in the case of Sun Hill, Mr. Benson Zinbarg ceases to be
the President and Chief Executive Officer at any time, then this Agreement may
be terminated by ;
(v) If a party's business or assets are seized, sequestered,
confiscated or expropriated by judicial process or otherwise; and
(vi) If a court, governmental or other administrative order is
issued to suspend or terminate a party's business with respect to any of the
Agreement Products.
(b) Termination by either party shall in no way be deemed to be or
construed as a restriction, limitation or waiver of such party's rights to
pursue any additional remedy at law or in equity.
4
<PAGE>
(c) The rights and obligations of the parties set forth in Sections 7,
9(b), 9(c) 9(d) 11, 12, 17 and 18 shall survive the termination or expiration of
this Agreement.
(d) Upon termination of this Agreement whether by expiration or pursuant
to subsection (a) of this Section, then , with respect to the Agreement
Products or other Seasonal Products (X) shall cease the sale of any and all Sun
Hill Seasonal Products or any other products which are proprietary to Sun Hill
throughout the world and (Y) not, for a period of five (5) years, sell any
products (including, but not limited to, Seasonal Products) in the Territory to
any customer that purchased Agreement Products or Seasonal Products from Sun
Hill during the Term or any Renewal Period. If wishes to make any such
sales, then it hereby agrees to compensate Sun Hill by way of a percent
( %) commission on "Net Sales" to any such customers in the Territory. For
purposes of this Section, "Net Sales" shall mean gross sales of such product,
less returns.
10. Transfer, Assignment and Delegation. This Agreement including, without
limitation, the representations, warranties, covenants and agreements contained
herein, shall inure to the benefit of and be enforceable by the respective
parties hereto and their respective successors, assigns and transferees,
provided, however, that no party's rights or obligations may be assigned or
delegated, respectively, without the prior written consent of the other party,
which consent may be withheld in such party's sole discretion except that in the
case of either a sale of all or substantially all of the assets of Sun Hill or
the merger of Sun Hill with and into a successor corporation, then no such prior
written consent from shall be required and such successor in interest by
virtue of such sale or merger, as the case may be, shall automatically be
delegated Sun Hill's responsibilities hereunder and have all of the rights and
benefits afforded to Sun Hill hereunder.
11. Confidentiality. Sun Hill and agree not to use and to maintain
in strict confidence any proprietary or financial information, including, but
not limited to, customer lists, product costing and methods of manufacture,
provided by either party to this Agreement to the other, or other information
subsequently developed jointly by Sun Hill and , for any other purpose
except as intended by this Agreement. Sun Hill and agree that they will
not disclose any such confidential or proprietary information or use any such
information during the Term, any Renewal Period and thereafter.
12. Equitable Relief. Each of Sun Hill and hereby acknowledge that
each may have no adequate remedy at law in the event of any actual or threatened
violation(s) of certain of the provisions of this Agreement including, but not
limited to, Section 11. Therefore, each party shall be entitled to a decree or
order by any court of competent jurisdiction enjoining such threatened or actual
violation(s) of this Agreement by the other party, such relief to be available
without the necessity of posting bond, cash or other value. Such decree or
order, to the extent appropriate, shall specifically enforce full performance of
this Agreement by the party against whom enforcement is being sought.
Enforcement of any remedy hereunder shall not reduce or adversely affect any
other remedy which may be available to a party in law or equity and nothing
herein shall prevent a party from otherwise seeking injunctive or other relief
hereunder.
5
<PAGE>
13. Notices. All notices between parties shall be in writing and be
delivered by telecopier, receipt acknowledged, or by overnight courier service.
All notices delivered by telecopier or overnight courier service shall be deemed
to be delivered upon receipt.
All notices to shall be given to:
All notices to Sun Hill shall be given to:
Mr. Benson Zinbarg
President
Sun Hill Industries, Inc.
48 Union Street
Stamford, Connecticut U.S.A. 06906
Tel. (203) 324-7550
Fax (203) 356-9233
With a copy to:
Paul V. Greco, Esq.
Aieta & Greco
73 Spring Street, Suite 601
New York, New York U.S.A. 10012-5802
Tel. (212) 334-1222
Fax (212) 334-1278
14. Headings and Captions. The headings and captions contained herein are
for the sole purpose of convenience of reference, and shall not in any way limit
or affect the meaning or interpretation of any of the terms or provisions of
this Agreement.
15. Entire Agreement. This Agreement and the documents executed in
connection herewith shall serve as a final integration and expression of all
agreements between and Sun Hill with respect to the subject matter
hereof, and any previous agreement, representation or warranty, whether oral,
written, shall have no force and effect.
16. Choice of Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the United States of America as well as the internal
laws of the State of Connecticut without reference to conflict of laws
principles.
17. Consent to Jurisdiction. hereby expressly consents to the
jurisdiction of the District Court of the District of Connecticut, the District
Court of the Southern District of New York as well as any State Court in the
State of Connecticut to resolve any dispute arising hereunder. Further, and in
connection with such jurisdictional consent, hereby expressly waives the
defense of forum non-conveniens.
6
<PAGE>
18. Survival of Representations. All representations, warranties,
covenants, disclaimers, acknowledgments and agreements made by the parties
hereto shall be considered to have been relied upon by the parties hereto and
shall survive the execution, performance and delivery of this Agreement and all
other documents contemplated herein.
19. Further Assurances. Each of the parties hereto agrees to execute and
deliver or cause to be executed and delivered all such instruments and to take
all such action as the other party may reasonably request in order to effectuate
the intent and purposes of and to carry out the terms of this Agreement.
20. Amendments. No amendments of any provision of this Agreement shall be
effective unless it is in writing and signed by both parties, and no wavier of
any provision of this Agreement nor consent to any departure by a party
therefrom, shall be effective unless it is in writing and signed by the other
party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purposes for which given.
21. Invalidity. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law, and if the rights or
obligations of Sun Hill or under this Agreement will not be materially
and adversely affected thereby, (a) such provision will be fully severable, (b)
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom and, (d) in lieu of such illegal, invalid, or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid, and enforceable provision as similar in terms to such illegal,
invalid, or unenforceable provision as may be possible.
22. Headings. The headings of the sections of this Agreement are for
informational purposes only, do not constitute a part of this Agreement and
shall not effect the interpretation hereof.
23. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall be
deemed to be one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
SUN HILL INDUSTRIES, INC.
By: /s/ Benson Zinbarg
-----------------------------
Benson Zinbarg, President
By: /s/
----------------------------
, A
Duly Authorized Signatory
8
<PAGE>
EXHIBIT A
AGREEMENT PRODUCTS
Product Description Sales Price
------- ----------- -----------
<PAGE>
REQUIREMENTS AGREEMENT
THIS REQUIREMENTS AGREEMENT ("Agreement"), made this 12th day of January,
1994, by and between SUN HILL INDUSTRIES, INC., a Connecticut corporation, with
offices at 48 Union Street, Stamford, Connecticut 06906 ("Sun Hill"), and
, a corporation, with offices at .
WITNESSETH:
WHEREAS, manufactures and se1ls the products described
in Exhibit A attached hereto and made a part hereof ("Products"); and
WHEREAS, Sun Hill has special expertise in marketing and selling said
Products to the retail sales trade and mail order industries ("Market"); and
WHEREAS, and Sun Hill desire to enter into an agreement for
Sun Hill to sell and market Products.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Sale of Products; Term; Exclusive Dealing. shall sell
to Sun Hill and Sun Hill shall purchase from the Products for
sale by Sun Hill in the Market for the period from
through ("Term"); provided, however, the Term shall be
<PAGE>
automatically renewed for successive twelve (12) month period if, during the
prior period, Sun Hill shall have purchased Products from as
follows: totalling Dollars for the initial Term ("Base Amount"), and
totalling the Base Amount plus an additional ( %) of the
Base Amount for each successive renewal year of the Term, calculated on a
basis ("Adjusted Base Amount"). For example, if the Base
Amount of is met in the initial Term, the Adjusted Base
Amount for the first renewal year will be
( , plus % of or and if
the Adjusted Base Amount of is met in the first renewal year, the
Adjusted Base Amount for the second renewal year will be
( , plus % of or . This
Agreement shall automatically terminate as of the end of the initial Term or the
end of any renewal year of the Term if the Base Amount or Adjusted Base Amount
of purchased Products has not been met. agrees that it will
not make any other sale of the Products to or for the Market during the Term, if
and as renewed. shall sell the Products to the Market only
through Sun Hill, and Sun Hill shall buy its requirements of the Products for
the Market only from during the Term, if and as renewed.
2. Price, Delivery, Title and Risk. Sun Hill shall pay
the prices for the Products as set forth on Exhibit A. Such prices may be
revised at any time and from time to time
2
<PAGE>
by written notice from to Sun Hill setting forth a date not
less than thirty (30) days from the date of such notice when such revisions
shall take effect. Sun Hill shall pay the prices for all
Products purchased within sixty (60) days of the shipment of each order. Each
shipment by shall include an invoice properly detailed,
itemized and prepared at the prices then in effect. Risk of loss and title to
the Products shall pass to Sun Hill upon delivery F.O.B.
plant. The delivery of the Products herein specified may be delayed or cancelled
by , without liability to Sun Hill, by reason of Acts of God,
strikes or other labor disturbances, fires, accidents, delays of carriers,
shortage of supplies or labor or from other cause beyond
control.
3. Representations and Warranties.
represents and warrants:
a. that the sale or use of its Products does not infringe any patent;
b. that it will comply with all laws and regulations governing the
manufacture and sale of the Products;
c. MAKES NO WARRANTY EXTENDING BEYOND THE DESCRIPTION OF
THE PRODUCTS SOLD AND OFFERED FOR SALE PURSUANT TO PARAGRAPH 1. THERE ARE NO
OTHER WARRANTIES OF ANY KIND, EXPRESSED OR IMPLIED, AS TO MERCHANTABILITY,
FITNESS FOR ANY PARTICULAR
3
<PAGE>
PURPOSE OR ANY OTHER MATTER WITH RESPECT TO THE PRODUCTS.
SHALL NOT BE LIABLE UNDER ANY CIRCUMSTANCES FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES. SOLE LIABILITY SHALL BE THE REPLACEMENT OF
NON-CONFORMING PRODUCTS; AND, IF THIS REMEDY SHALL BE ADJUDGED TO HAVE FAILED OF
ITS ESSENTIAL PURPOSE, TOTAL LIABILITY FOR DAMAGES SHALL IN
NO EVENT EXCEED THE PURCHASE PRICE OF THE PARTICULAR SHIPMENT WITH RESPECT TO
WHICH SUCH DAMAGES ARE CLAIMED; provided, however, it shall be the
responsibility of to defend any products liability action
which may be commenced against or name Sun Hill as a party for defects in the
Products and does hereby agree to hold said Sun Hill free and
harmless from any liability resulting from such claims, including but not
limited to legal fees and costs, to the extent of and limited to the extent of
products liability insurance as described in subparagraph d. hereafter;
d. that it has obtained "all risk" liability insurance for the Products in
the base amount of Dollars ($ ), plus excess
or umbrella coverage of Dollars ( );
e. that it will refer all sales to and inquiries from the Market to Sun
Hill;
f. that it will deliver the Products in a timely fashion and in the event
delivery is not made by the date required by Sun Hill as a final date,
shall take back all such delinquent goods, reimburse Sun Hill
all delivery charges incurred
4
<PAGE>
by Sun Hill and pay Sun Hill an amount equal to Sun Hill's lost profits for said
delinquent delivery, "lost profits" to be limited to the difference between Sun
Hill's verified net invoice price to its customer and net
invoice price To Sun Hill for the delinquent goods;
g. that it has full power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby and thereby. This Agreement
constitutes valid, legal and binding obligations of in
accordance with their respective terms. The execution of this Agreement and the
consummation of such transactions will not result in any breach of any terms,
conditions or provisions of or constitute a default under or conflict with any
agreement or other instrument to which is a party or by which
may be bound.
4. Sun Hill's Representations and Warranties:
Sun Hill represents and warrants:
a. that it will use its best efforts in marketing and selling the Products
in the Market;
b. that it will market and sell the Products only for the purpose for which
they were intended to be used at the time of manufacture;
c. that it will comply with all laws and regulations governing the sale of
the Products;
d. that it has full power and authority to enter into this Agreement and to
consummate the transactions contemplated
5
<PAGE>
hereby and thereby. This Agreement constitutes valid, legal and binding
obligations of Sun Hill in accordance with their respective terms. The execution
of this Agreement and the consummation of such transactions will not result in
any breach of any terms, conditions or provisions of or constitute a default
under or conflict with any agreement or other instrument to which Sun Hill is a
party or by which Sun Hill may be bound.
5. Packaging. Products will be packaged at expense
substantially as they are in Exhibit A. If Sun Hill wishes to change the artwork
or printing on the packaging furnished by , Sun Hill shall pay
only for such artwork or printing and agrees that it will use
such packaging at no other cost to Sun Hill. If Sun Hill furnishes packaging, at
its expense, different than that set forth in Exhibit A, the price for each of
the Products shall be reduced by such sum as the parties shall mutually agree,
and agrees to package the Products in such packaging at no
further cost to Sun Hill.
6. Confidentiality. Sun Hill and agree not to use and to
maintain in strict confidence any proprietary or financial information,
including, but not limited to, customer lists, product costing and method of
manufacture, provided by either party to this Agreement to the other, or other
information subsequently developed jointly by Sun Hill and
for any other purpose except as intended by this Agreement. Sun Hill and
agree that they will not disclose any such
6
<PAGE>
confidential or proprietary information or use any such information for a period
of from the date of expiration or termination of this
Agreement.
7. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or a breach thereof, shall be settled by arbitration in
, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be enforced in any court having jurisdiction thereof.
8. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns;
provided, however, neither party shall assign this Agreement or any rights or
obligations hereunder without the express prior written consent of the other.
9. Amendments. This Agreement may not be modified, supplemented or amended
in any respect except by a subsequent written agreement executed by both parties
hereto.
10. Notices. Any notice required hereunder shall be effective when hand
delivered or sent prepaid by certified mail, return receipt requested, to the
parties at the addresses set forth above or to such other address as may be
designated from time to time by written notice by either party to the other as
provided herein.
11.Governing Law. This Agreement has been delivered in
and shall be governed by, and
7
<PAGE>
construed in accordance with, the laws of the Commonwealth of Pennsylvania.
12. Headings. The headings preceding the text or the paragraphs and
subparagraphs hereof are inserted solely for convenience of reference and shall
not constitute a part of this Agreement nor shall they affect its meaning or
effect.
13. Severability. If any provision of this Agreement is declared
unenforceable by any judicial or administrative authority, the remaining
provisions of this Agreement will not be nullified but will remain in full force
and effect.
14. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties hereto and supersedes all prior agreements and
understandings of the parties pertaining to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers,
have caused this Agreement to be executed as of the day and year first above
written.
ATTEST: SUN HILL INDUSTRIES, INC.
[ILLEGIBLE] By: /s/ Benson Zinbarg, President
- ---------------------------- -----------------------------
Benson Zinbarg, President
ATTEST:
8
<PAGE>
APPENDIX - A SUNHILL AGREEMENT
*Pricing excludes electrical plug
ITEM
1. $
2. $
3. $
4. $
5. $
6. $
7. $
8. $
9. $
10. $
11. $
12. $
13. $
14. $
15. $
16. $
17. $
18. $
19. $
20. $
ATTEST: SUN HILL INDUSTRIES, INC.
[ILLEGIBLE] By: /s/ Benson Zinbarg, President
- ---------------------------- -----------------------------
Benson Zinbarg, President
ATTEST:
- ----------------------------
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form
SB-2 of our report dated October 3, 1996 [Except for Note 5 as to which
the date is November 1, 1996], accompanying the financial statements of
Sun Hill Industries, Inc. and to the use of our name and the statements
with respect to us as appearing under the heading "Experts" in the
Prospectus.
/s/ Moore Stephens, P.C.
-------------------------------
MOORE STEPHENS, P.C.
Certified Public Accountants
New York, New York
November 11, 1996
<PAGE>
CONSENT OF PATENT, TRADEMARK AND COPYRIGHT COUNSEL
We hereby consent to the reference of our firm name under the heading
"Legal Matters" in the Form SB-2 Registration Statement of Sun Hill Industries,
Inc. and the Prospectus contained therein.
/s/ David P. Gordon
-------------------------------
Law Offices of David Gordon
Stamford, Connecticut
November 8, 1996
