<PAGE> 1
As filed with the Securities and Exchange Commission on September 12, 1997
Registration No. 333-32117
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------------------
SFORZA ENTERPRISES INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Florida 5812 65-0580931
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
330 Clematis Street #211
West Palm Beach, Florida 33401
(561) 802-3535
(Address and telephone number of principal executive offices)
Mark H. Mirkin, Esq.
Mirkin & Woolf, P.A.
1700 Palm Beach Lakes Boulevard #580
West Palm Beach, Florida 33401
(561) 687-4460
(Name, address and telephone number of agent for service)
with a copy to:
Scott W. Alderton, Esq.
Troop Meisinger Steuber & Pasich LLP
10940 Wilshire Boulevard
Los Angeles, California 90024-3902
(310) 824-7000
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
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 same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=======================================================================================================================
TITLE OF EACH PROPOSED PROPOSED AMOUNT OF
CLASS OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock (2)(3) 920,000 $ 5.25 $ 4,830,000.00 $ 1463.63
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Warrants(2)(4) 920,000 $ 0.25 $ 230,000.00 $ 69.70
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Common Stock
Underlying Warrants(5) 920,000 $ 5.25 $ 4,830,000.00 $ 1463.63
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Underwriter's Option 80,000 $ 0.001 $ 80.00 --
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Common Stock
Underlying 80,000 $ 6.60 $ 528,000.00 $ 160.00
Underwriter's Option
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Warrants Underlying
Underwriter's Option 80,000 -- -- --
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Common Stock
Underlying Warrants
Included in Underwriter's Option 80,000 $ 6.60 $ 528,000.00 $ 160.00
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Total Registration Fee -- -- $10,946,080.00 $3316.96
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) The Common Stock and Warrants will be initially registered together.
(3) Includes 120,000 shares of Common Stock issuable upon exercise of the
Underwriter's Over-Allotment Option.
(4) Includes 120,000 Warrants contained in the Underwriter's Over-Allotment
Option.
(5) Includes 120,000 shares of Common Stock issuable upon exercise of the
Warrants contained in the Underwriter's Over-Allotment 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 REGIS TRATION 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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<PAGE> 3
PRELIMINARY PROSPECTUS DATED SEPTEMBER 15, 1997
SUBJECT TO COMPLETION
SFORZA ENTERPRISES INC.
800,000 UNITS
EACH UNIT CONTAINING ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE
WARRANT
Sforza Enterprises Inc., a Florida corporation (the "Company"), is
offering hereby 800,000 units (the "Units") each containing one share of common
stock, par value $0.01 per share (the "Common Stock"), and one redeemable Common
Stock purchase warrant (the "Warrants"). The Units, the Common Stock and the
Warrants are sometimes collectively referred to as the "Securities". The Common
Stock and Warrants will trade separately immediately upon issuance. Until the
completion of this offering, the Common Stock and Warrants may only be purchased
together on the basis of one share of Common Stock and one Warrant. Each Warrant
entitles the registered holder thereof (a "Warrantholder") to purchase one share
of Common Stock at an exercise price of $5.25 at any time during the period
commencing on the effective date of this Prospectus and terminating five years
thereafter (the "Warrant Exercise Period"). All, but not less than all, of the
Warrants are subject to redemption by the Company, at $0.01 per Warrant, at any
time during the Warrant Exercise Period on 30 days prior written notice to the
Warrantholders if the per share closing price of the Common Stock as reported by
the American Stock Exchange equals or exceeds $7.50 (136% of the Unit public
offering price) for any 20 consecutive trading days ending within five days of
the notice of redemption. See "Description of Securities".
Prior to this offering, there has been no public market for the Units,
the Common Stock or the Warrants and there can be no assurance that any such
market will develop or, if developed, that it will be sustained. It is
anticipated that the Units, the Common Stock and the Warrants will be quoted on
the American Stock Exchange under the symbols "SFZU", "SFZ" and "SFZW",
respectively. For a discussion of the factors considered in determining the
initial public offering price of the Units, see "Underwriting".
------------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 9 AND "DILUTION" BEGINNING ON PAGE 17 FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY INVESTORS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 4
<TABLE>
<CAPTION>
Price to Public Underwriting Discounts Proceeds to Company(2)
and Commissions(1)
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<S> <C> <C> <C>
Per Unit $ 5.50 $ 0.55 $ 4.95
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Totals(3) $4,400,000.00 $440,000.00 $3,960,000.00
========================================================================================================================
</TABLE>
(1) The Company has agreed to issue and sell to the Underwriter, for
nominal consideration, warrants to purchase 80,000 Units exercisable
at $6.60 per Unit (120% of the Price to Public) and to pay the
Underwriter a non-accountable expense allowance equal to 3% of the
aggregate gross proceeds from sale of the Units. The Company has also
agreed to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) Before deducting offering expenses payable by the Company estimated at
approximately $275,000, including the non-accountable expense
allowance.
(3) The Company has granted the Underwriter a 60-day option to purchase an
aggregate of up to 120,000 additional Units solely to cover
over-allotments, if any. If this option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $5,060,000.00, $506,000.00 and
$4,554,000.00, respectively. See "Underwriting".
- ------------------
The Units are being offered by the Underwriter subject to prior sale when, as
and if delivered to and accepted by it, and subject to the right of the
Underwriter to withdraw, cancel or modify this offering and reject any order
in whole or in part. It is expected that delivery of the certificates
representing the Units will be made against payment therefor at the office of
Joseph Charles & Associates, Inc., Beverly Hills, California or through the
facilities of The Depositary Trust Company on or about ____________, 1997.
JOSEPH CHARLES & ASSOCIATES, INC.
The date of this Prospectus is ____________, 1997
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[PHOTO OR RENDERING]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES, INCLUDING
PURCHASES OF THE SECURITIES TO STABILIZE THE MARKET PRICE, PURCHASES OF THE
SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE SECURITIES MAINTAINED
BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING".
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<PAGE> 6
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD
BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING FINANCIAL
INFORMATION, INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE "COMPANY" REFERS TO SFORZA ENTERPRISES INC. AND ITS WHOLLY OWNED
SUBSIDIARIES: CASTLE ROOM, INC., CLEMATIS BISTRO CORPORATION AND SUSHI
ENTERPRISES, INC.
THE COMPANY
The Company has three wholly-owned subsidiaries, each of which owns one
restaurant (the West Palm Beach Restaurants), and has entered into an agreement
to acquire 50 percent equi ty interests in four companies, each of which owns
one res taurant (the Max's Grille Restaurants). Currently, two of the West Palm
Beach Restaurants are open and one of the Max's Grille Restaurants is open.
The Company's strategy is to own upscale, moderately priced, casual dining
restaurants that are known for providing quality, affordable, contemporary food,
service and ambiance in South Florida. Ultimately the Company plans to open
restaur ants in selected markets outside of South Florida.
Unique Restaurant Concepts, Inc. ("URCI"), a professional developer and manager
of restaurants and the owner of the Max's Grille Restaurants, operates the
current and will operate the future West Palm Beach Restaurants and Max's
Grille Restaurants owned by the Company. Three principals of URCI serve as
directors of the Company.
THE WEST PALM BEACH RESTAURANTS
Sforza Ristorante. Sforza Ristorante is a full-service, mid-priced, casual
dining northern Italian restaurant which opened in February 1996 on Clematis
Street in downtown West Palm Beach, Florida. Sforza Ristorante offers an
extensive menu featuring a wide variety of seafood, chicken and pasta dishes,
appetizers, salads and desserts and full bar service. The restaurant serves
generous portions at moderate prices while providing friendly and efficient
service in a high-energy casual atmosphere intended to appeal to a broad
customer base, particularly young upscale adults. The restaurant has generated a
high level of repeat business and customer loyalty.
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<PAGE> 7
Sforza Ristorante reflects an elegant yet casual European concept featuring a
plush red and gold decor. The eclectic design blends the ambiance of renaissance
Tuscany with the energy of a rejuvenated urban area. Lush fabrics and red velvet
drapery treatments are enhanced by unique hand faux finished walls. Contemporary
styled sconces and pendants illuminate the dining and bar areas with soft,
inviting light, enhancing the casual upscale dining experience and establish ing
a distinct identity for the restaurant.
My Martini Grille. My Martini Grille is a full-service upscale grill which
opened in February 1997 on Clematis Street in downtown West Palm Beach, Florida,
next to Sforza Ristorante. My Martini Grille was designed to serve a
sophisticat ed clientele, including business diners. The My Martini Grille
concept embraces an elegant and timeless early twentieth century motif. My
Martini Grille is Gotham City revisited. This sleek art nouveau restaurant and
bar recaptures the sophisticated allure of the martini culture. Smooth cocktails
are complemented with deep mahogany walls and rich purples and golds. Stylish
stainless steel accents mix with unique Italian light fixtures to create a
relaxed sexy elegance. All of the elements enhance the dining experience and
establish a distinct identity for My Martini Grille.
Planned sushi restaurant. The Company plans to open a full-service, mid-priced
casual dining sushi restaurant in December 1997 just off Clematis Street in
downtown West Palm Beach, Florida, next to My Martini Grille. The planned
restaurant has been designed to reflect Tokyo in the year 2050. An ocean green
tile floor, blonde maple sushi bar and stainless steel highlights will create a
unique techno atmosphere. Japanese animation and comic books will assume larger
than life scale in artwork incorporated into the design and construction. Large
TV screens over the sushi bar will transform Godzilla, Ultra Man and Speed
Racer into animated art. The funky, innovative design will make dining an
experience, not just fish and rice.
THE MAX'S GRILLE RESTAURANTS
The Company intends to use the bulk of the proceeds of this offering to acquire
50 percent equity interests in the entities that own Max's Grille restaurants
located in the Beach Place and Las Olas Riverfront developments in Fort
Lauderdale, Florida, in Weston, Florida and the entity that will own the next
Max's Grille to be developed, the location of which is to be determined. Max's
Beach Place Grille opened
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<PAGE> 8
in May, 1997. The Las Olas Riverfront and Weston restaurants are expected to
open in Early 1998.
Max's Grille in Boca Raton, Florida, the model for the Max's Grille Restaurants,
incorporates casual dining, moderate prices and a cosmopolitan ambiance in a
comfortable relaxed ambiance. Opened in 1991, the 225-seat restaurant has been
serving a mix of new American and Continental cuisine with a wide variety of
wines and a full-service bar. The decor features a free-standing mahogany bar,
high ceilings with star chandeliers and floating window treatments. Its fresh,
simply-prepared dishes are imaginative but not intimidating, enhanced with the
flavors of Florida, California, New Orleans, Europe and the Pacific.
The Max's Grille concept was first replicated in 1995 in Celebration, Florida,
The Walt Disney Co.'s planned community near Orlando, Florida.
RESTAURANT MANAGEMENT
The Company believes that achieving customer satisfaction by providing
knowledgeable, friendly, efficient service is critical to its restaurants'
long-term success. Consequently, the Company has contracted with URCI to operate
all of its restaurants (including the Max's Grille Restaurants to be developed
with the proceeds of this offering). In order to foster the level of customer
satisfaction desired by the Company, URCI's training program teaches restaurant
managers to promote the Company's team-oriented atmosphere among restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards and providing friendly, courteous and attentive service. The Company
believes that the quality and training of its restaurant managers and staff
results in friendly, courteous, efficient service which con tributes to a casual
and pleasurable dining experience for the customer. See "Business -- Restaurant
Management". Three of URCIs principals serve as directors of the Company.
THE OFFERING
Securities offered hereby........... 800,000 Units, each Unit consisting of
one Share and one Warrant, at an
initial public offering price of $5.50
per Unit. Each Warrant entitles the
registered holder thereof to purchase
at any time during the Warrant Exercise
Period one share of Common Stock at an
exercise price of $5.25 per share. The
Warrants are subject to redemption by
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<PAGE> 9
the Company for $0.01 per Warrant at any
time during the Warrant Exercise Period,
on 30 days written notice, provided that
the closing of the Common Stock equals
or exceeds $7.50 per share for any 20
consecutive trading days ending within
five days of the notice of redemption to
the Warrantholders.
Outstanding Securities before the
Offering:
Common Stock(1)..................... 2,040,000 Shares
Options and Warrants................ 150,000
Preferred Stock..................... 160,000 Shares
Outstanding Securities after the
Offering:
Common Stock........................ 2,920,000 Shares(2)
Options and Warrants................ 960,000(3)
Preferred Stock..................... 0
Proposed Symbols
Units............................... SFZU
Common Stock........................ SFZ
Warrants............................ SFZW
Use of Proceeds..................... The net proceeds (after payment of
underwriting discounts and a
non-accountable expense allowance to the
Underwriter and other expenses of the
Offering) to the Company from the sale
of the Units offered hereby are expected
to be approximately $3,625,000 (assuming
an initial public offering price of
$5.50 per Unit), $4,200,000 if the
Underwriter's Over-Allotment Option is
exercised in full. Such net proceeds
will be used to finance the
construction, development and opening of
four restaurants that replicate Max's
Grille of Boca Raton, Florida, to repay
certain short-term indebtedness and
accrued interest thereon, to redeem
outstanding preferred stock and for
general corporate purposes. See "Use of
Proceeds".
Risk Factors........................ An investment in the Securities offered
hereby is speculative and involves a
high degree of risk. Purchasers of the
Units offered hereby will experience
immediate and substantial dilution with
respect to their investment. See "Risk
Factors".
(1) Does not include shares of Common Stock issuable upon the exercise of (a)
the Warrants; (b) the Underwriter's Over-Allotment Option; or (c) options
granted to the Underwriter to purchase up to 80,000 Units.
(2) Excludes exercise of any options or warrants but includes conversion of
80,000 shares of the Series A Preferred Stock.
(3) Excludes the Underwriter's Option but includes the Warrants comprising the
Units and the warrant to be issued to Company counsel.
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<PAGE> 10
SUMMARY FINANCIAL DATA
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<CAPTION>
Six Months Ended
Year Ended June 30,
December 31, 1996 1996 1997
------------------ ----------- ------------
(unaudited)
<S> <C> <C> <C>
Selected Statement of
Operations Data:
Net sales $ 2,333,530 $ 925,555 $ 2,679,903
-------------- ------------ ------------
Cost and expenses:
Cost of sales 1,299,501 470,920 1,524,705
Operating expenses 881,856 349,920 1,129,779
Interest expense, net - - 24,500
-------------- ------------ ------------
Total cost and expenses 2,181,357 820,840 ,2,678,984
-------------- ------------ ------------
Operating income 152,173 104,715 919
Other income, net 3,051 160 87
-------------- ------------ ------------
Income before income taxes 155,224 104,875 1,006
Income tax expense (9,319) - (300)
-------------- ------------ ------------
Net income $ 145,905 $ 104,875 $ 706
============== ============ ============
Earnings per common share(1):
Primary $ 0.07 $ 0.05 $ -
============== ============ ============
Fully diluted $ 0.07 $ 0.05 $ -
============== ============ ============
Weighted average common
shares outstanding:
Primary 2,026,328 1,986,363 2,085,698
============== ============ ============
Fully diluted 2,146,328 2,106,363 2,199,068
============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
-----------------------------------------
(unaudited)
December 31, 1996 Actual As Adjusted (2)
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<S> <C> <C> <C>
Selected Balance Sheet Data:
Cash and cash equivalents $ 202,639 $ 110,502 $3,210,502
Working capital (deficit) (59,502) 118,671 3,218,671
Total assets 1,086,151 1,602,823 4,702,823
Total liabilities 462,940 422,656 297,656
Series A Preferred Stock - 400,000 -
Common shareholders' 623,211 780,167 4,405,167
equity
</TABLE>
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(1) See "Selected Financial Data" for an explanation of the computations of
primary and fully diluted earnings share.
(2) As adjusted to give effect to (i) the sale of 800,000 Units offered by
the Company hereby at the initial offering price of $5.50 per Unit
after deducting underwriting discounts and commissions and estimated
offering expenses, (ii) the conversion of 80,000 shares of Series A
Preferred Stock into Common Stock of the Company, (iii) the redemption
of 80,000 shares of Series A Preferred Stock and (iv) the repayment of
a $125,000 note payable. See "Use of Proceeds".
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RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. EACH PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN
INVESTMENT DECISION.
LIMITED OPERATING HISTORY. The Company was formed in July 1996 to serve as a
holding company for Castle Room, Inc., which was formed in May 1995, Clematis
Bistro Corporation, which was formed in April 1996, and Sushi Enterprises, Inc.,
which was formed in July 1996. The Company's initial restaurant, Sforza
Ristorante, was opened in February 1996 by Castle Room, Inc., then owned by Dale
J. Brisson and Joseph C. Visconti. The Company's second restaurant, My Martini
Grille, was opened in February 1997 by Clematis Bistro Corporation. Accordingly,
the Company has a limited relevant operating history upon which an evaluation of
its current operations and prospects can be made. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered in the operation of a new business in the highly competitive
restaurant industry, which is characterized by a high failure rate. There can be
no assurance that the Company's rate of revenue growth will continue in the
future or that the Company's operations will be profitable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Selected Financial Data".
SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON PROCEEDS OF THIS OFFERING; NEED
FOR ADDITIONAL FINANCING. The Company's capital requirements for the operations
of its existing restaurants and proposed restaurants are significant. The
Company will be dependent upon the proceeds of this offering to fund its
proposed expansion. Although the pre-opening costs, including capital
improvements, of each Max's Grille Restaurant are estimated to exceed
$1,000,000, landlord contributions for tenant improvements are expected to
decrease those costs. If the proceeds of this offering prove to be insufficient
to fund the Company's proposed expansion, the Company could be required to
modify its proposed expansion plans or to seek additional financing from sources
not currently identified. The Company has no current commitments or arrangements
with respect to, or current sources of, such additional financing. There can be
no assurance that such financing will be available to the Company when needed,
on acceptable terms, or at all. Any inability to obtain such financing or other
additional financing when required could have a material ad verse effect on the
Company. Any additional equity financing may involve substantial dilution to the
interests of the Company's shareholders. See "Use of Proceeds" and "Business".
DEPENDENCE UPON LIMITED RESTAURANT BASE; PROPOSED EXPANSION. In light of the
Company's current portfolio of two wholly-owned restaurants and expected
year-end 1997 portfolio of three wholly-owned restaurants and one partly-owned
restaurant, the lack of success or closing of any of the restaurants could have
an ad verse effect upon the financial condition and results of operations of
the Company.
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<PAGE> 12
The Company intends to open a new sushi restaurant in December 1997. With the
proceeds of this offering, the Company intends to acquire 50 percent equity
interests in four entities, each of which will own a Max's Grille Restaurant,
one of which opened in May 1997 and three of which are anticipated to open in
1998. The Company's profitability will be dependent on, among other things, (i)
achieving positive cash flow from operations, (ii) market acceptance for the
Company's sushi concept, (iii) timely development and construction of the Max's
Grille Restaurants, (iv) securing of required governmental permits and
approvals therefor, (v) hiring, training and retention of skilled management and
other personnel, (vi) the ability to integrate the new restaurants into its
operations, and (vii) the general ability successfully to manage growth, if any,
(including successfully monitoring the restaurants, controlling costs and
maintaining effective quality controls). Three of the four proposed Max's Grille
Restaurants and the Company's planned sushi restaurant are not yet in operation
and there can be no assurance that the Company will be successful in its
proposed expansion. Additionally, there can be no assurance that the Company's
planned expansion will not result in reduced sales at existing restaurants to
the benefit of the newly opened restaurants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business -- The
West Palm Beach Restaurants" and "The Max's Grille Restaurants".
GEOGRAPHIC CONCENTRATION; FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY. The
Company's existing restaurants and its planned sushi restaurant (the "West Palm
Beach Restaurants") are located in adjacent storefronts in downtown West Palm
Beach, Florida. The restaurant interests to be acquired with the proceeds of
the offering will also be developed in South Florida (the "Max's Grille
Restaurants"). The Company thus faces risks tied to a single geographic region,
including seasonality and the health of South Florida's economy and the tourism
industry, as well as the continuing popularity of downtown West Palm Beach as a
social gathering spot. Furthermore, given the Company's geographic
concentration, adverse publicity relating to the Company's restaurants could
have a more pronounced adverse effect on the Company's operating results than
might be the case if the Company's restaurants were geographically dispersed. A
decline in tourism in South Florida, or in general economic conditions, which
would likely affect the South Florida economy or the tourism industry, could
have a material adverse effect on the Company's operations and prospects. In
addition, the geographic concentration has the result of causing the Company's
restaurants to compete with each other for the same customers, which would not
be the case if the restaurants were more geographically dispersed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
DEPENDENCE ON MANAGEMENT COMPANY; FAILURE TO ATTRACT QUALIFIED PERSONNEL. The
success of the Company is largely dependent upon the efforts of the management
company, Unique Restaurant Concepts, Inc. ("URCI"), operating the Company's two
existing res-
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<PAGE> 13
taurants. URCI, which is controlled by Company directors Catalfumo, Max and
Rapoport, also manages Max's Beach Place Grille, one of the Max's Grille
Restaurants, and will manage all of the West Palm Beach Restaurants and the
proposed Max's Grille Restaurants. The Management Agreement in effect between
the Company and URCI runs through May 1998 for Sforza Ristorante and My Martini
Grille. If it is not renewed, the Company would need to hire another management
company to manage its restaurants. Although the Company has demonstrated an
ability to operate a restaurant, having operated Sforza Ristorante during the
first year of its existence, and although Company personnel have been studying
the procedures utilized by URCI, there can be no assurance that the cessation
of management by URCI would not have a material adverse effect on the Company.
The Company believes that it will need, both in the short-term and long-term, to
hire additional qualified administrative and management personnel to manage and
support planned expansion. Competition for qualified employees in the restaurant
industry is intense, and the Company may not be able to find suitable personnel
to meet its immediate needs. The inability to recruit and hire necessary
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS OF GROWTH AND EXPANSION. The Company is in an early stage of development
and has yet to establish substantial internal management, personnel and other
resources. Any measurable growth in the Company's business will result in
additional demands on its infrastructure, and will place a significant strain on
the Company's management, administrative, operational, financial and technical
resources and increased demands on its systems and controls. There can be no
assurance that the Company's resources will be adequate to support future
operations and growth. The inability to continue to upgrade the operating and
financial control systems, the emergence of unexpected expansion difficulties or
failure to manage the Company's proposed expansion properly could have a
material adverse effect on the Company's business, financial condition and
results of operations.
FLUCTUATIONS IN FOOD AND OTHER COSTS. The Company's profitability is dependent
on its ability to anticipate and react to in creases in food, labor, employee
benefits and similar costs over which the Company has limited control. During
its limited operating history, the Company has been able to anticipate and
react to fluctuations in food costs at its two existing restaurants through
selected menu price adjustments. However, there can be no assurance that the
Company will be able to continue to anticipate and respond to supply and price
fluctuations in the future, and significantly increased costs in the future
could have a material adverse effect on the Company's operations. See
"Business".
SEAFOOD SUPPLY AND QUALITY. The Company plans to open a sushi restaurant in
December 1997. Sushi is a Japanese style of sea food. All of the other Company
restaurants offer traditionally-
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<PAGE> 14
prepared seafood. In recent years, the availability of certain types of seafood
has fluctuated, resulting in corresponding fluctuations in prices. Substantial
price increases could have a material adverse effect on the Company. Failure to
obtain adequate supplies of seafood could have a material adverse effect on the
Company's operations and profitability. Seafood contamination, a greater risk
in uncooked seafood such as sushi than in cooked seafood, or consumer perception
of inadequate seafood quality, in the industry in general or as to the Company
specifically, could have a material adverse effect on the Company. See
"Business".
COMPETITION. The restaurant industry, particularly the full-service casual
dining segment, is intensely competitive with respect to price, service, food
quality (including taste, freshness, and nutritional value), ambiance and
location, as well as other factors. There are many well-established competitors
that possess greater financial, marketing, personnel and other resources than
the Company. Many of the Company's competitors have achieved significant
national, regional and local brand name and product recognition and engage in
extensive advertising and promotional programs, both generally and in response
to efforts by additional competitors to enter new markets or introduce new
products. These competitors include national, regional and local full-service
casual dining chains. The Company believes that the full-service casual dining
segment is likely to attract a significant number of new entrants. The Company
can also be expected to face competition from a broad range of other restaurants
and food service establishments, including fast food restaurants which
specialize in a variety of cuisines.
The full-service restaurant industry is also characterized by the frequent
introduction of new food products, accompanied by substantial promotional
campaigns. In recent years, numerous companies in the full-service restaurant
industry have introduced products intended to capitalize on growing consumer
preference for food products which are, or are perceived to be, healthy,
nutritious, low in calories and low in fat content. It can be expected that the
Company will be subject to increasing competition from companies whose products
or marketing strategies ad dress these consumer preferences. While the Company
believes that it offers a broad variety of quality food products, there can be
no assurance that consumers will regard the Company's products as sufficiently
distinguishable from competitive products, that substantially equivalent food
products will not be introduced by the Company's competitors or that the Company
will be able to compete successfully. Additionally, because of their geographic
concentration, the Company's restaurants compete with each other for the same
customers. Consequently, even when a customer patronizes one of the Company's
restaurants, the Company's operations could be impacted by shifting of
customers from a higher priced Company restaurant to a lower priced one, or from
one operated by a wholly-owned subsidiary to one operated by a partly-owned
subsidiary, either of which events could adversely affect the Company's
operating results. See "Business -- Competition".
-12-
<PAGE> 15
CERTAIN FACTORS AFFECTING THE FULL-SERVICE RESTAURANT INDUSTRY. The Company will
be required to respond to various factors affecting the restaurant industry
including changes in consumer preferences, tastes and eating habits; demographic
trends and traffic patterns; increases in food and labor costs; inflation; and
national, regional and local economic conditions. A number of full-service
restaurant companies have experienced declining growth rates resulting from
general market saturation, in response to which certain of these companies have
adopted "value pricing" strategies. These strategies could have the effect of
drawing customers away from restaurants such as those owned by the Company that
do not engage in discount pricing and could also negatively affect the Company's
operating margins. The continued or sustained practice of price discounting in
the restaurant industry could have an adverse effect on the results of
operations of the Company. See "Business -- Competition".
POTENTIAL LIABILITY FOR SALE OF ALCOHOLIC BEVERAGES. The Company's restaurants
serve alcoholic beverages and consequently the Company is subject to "dram-shop"
laws, which generally provide a person injured by an intoxicated person the
right to recover damages from an establishment that wrongfully served alcoholic
beverages to the intoxicated person. Florida law currently provides that a
vendor of alcoholic beverages may be held liable in a civil cause of action for
injury or damage caused by or resulting from the intoxication of a minor (under
21 years of age) if the vendor wilfully, knowingly and unlawfully sells or
furnishes alcoholic beverages to the minor and knows that the minor will soon
thereafter be driving a motor vehicle. A vendor may be similarly held liable if
it knowingly provides alcoholic beverages to a person who is in a noticeable
state of intoxication, knows that the person will soon thereafter be driving a
motor vehicle and injury or damage is caused by that person. In addition,
significant national attention is focused on the problem of drunk driving,
which could result in the adoption of additional legislation and increased
potential liability of the Company for damage or injury caused by its customers.
Such liability is uninsurable. See "Business -- Governmental Regulation".
SERVICEMARK PROTECTION AND PROPRIETARY INFORMATION. The Company has obtained
Florida servicemark registration for Sforza Ristorante and My Martini Grille.
Florida servicemark registration is a ministerial act of the Florida State
Department intended solely to provide public notice of the registrants
ownership rights based on usage of the servicemark in Florida in the ordinary
course of trade. Such owner ship rights can only be rebutted by anothers prior
appropriation and use. Usage of the marks in interstate commerce will provide
the Company with ownership rights similar to those provided by federal
registration, but enforcement is limited to the geographical usage. The Company
believes that its servicemarks have significant value and are essential to its
ability to create demand for and awareness of its restaurants. There can be no
assurance, however, that the Company's servicemarks do not or will not violate
the proprietary rights of others, that they would be upheld if challenged or
that the Company, in such an event, would not be
-13-
<PAGE> 16
prevented from using its servicemarks, any of which events could have a material
adverse effect on the Company. In addition, there can be no assurance that the
Company will have the financial resources necessary to enforce or defend its
servicemarks. The Company also relies on trade secrets and proprietary know-how
to protect its concepts and recipes. However, such methods may not afford
complete protection and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how, concepts and recipes. Further more, although the Company expects to
have confidentiality and non-competition agreements with certain of its
executives and key management, there can be no assurance that such agreements
will adequately protect the Company's trade secrets. See "Business --
Servicemarks and Proprietary Information".
GOVERNMENT REGULATION. The Company is subject to extensive state and local
government regulation by various governmental agencies, including state and
local licensing, zoning, land use, construction and environmental regulations
and various regulations relating to the sale of food and alcoholic beverages,
sanitation, disposal of refuse and waste products, public health, safety and
fire standards. The Company's restaurants are subject to periodic inspections
by governmental agencies to ensure conformity with such regulations.
Although seafood is not currently subject to a nationwide program of inspection
by the U.S. Food and Drug Administration (the "FDA"), the FDA has in the past
proposed such a program for inspection of seafood suppliers and processors, but
not restaurants. If such a program were to be implemented, the Company's
seafood costs could increase as a result of the increased expense to seafood
suppliers and processors in complying with such a program. There can be no
assurance that such costs could be passed on to customers.
Difficulties or failure in obtaining required licensing or other regulatory
approvals could delay or prevent the opening of a new restaurant, and the
suspension of, or inability to renew a license at an existing restaurant, would
adversely affect the operations of the Company. Restaurant operating costs are
also affected by other government actions which are beyond the Company's
control, including increases in the minimum hourly wage requirements, workers
compensation insurance rates, health care insurance costs and unemployment and
other taxes. These and other initiatives could adversely affect the Company, as
well as the restaurant industry in general. See "Business -- Governmental
Regulation".
INSURANCE AND POTENTIAL LIABILITY. The Company maintains insurance, including
insurance relating to personal injury, in amounts which the Company currently
considers adequate. Nevertheless, a partially or completely uninsured claim
against the Company, if successful, could have a material adverse effect on the
Company.
CONTROL BY MANAGEMENT. Upon consummation of this offering, executive officers
and directors of the
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<PAGE> 17
Company beneficially will own, in the aggregate, approximately half of the
Company's outstanding Common Stock. As a result, such persons, acting together,
will be able to control the Company, cause the dissolution, merger or sale of
the assets of the Company, and generally direct the affairs of the Company. See
"Management" and "Principal Shareholders".
BENEFITS TO RELATED PARTIES. Certain of the Company's directors and officers are
directors and/or officers of companies with which the Company does business.
These relationships may give rise to conflicts of interest between the Company,
on the one hand, and one or more of its directors or officers and/or their
affiliates, on the other hand. Company director Joseph C. Visconti founded
Joseph Charles & Assoc., Inc., the underwriter of this offering. Mr. Visconti is
the largest shareholder of the under writer and serves as its chairman and chief
executive officer. The underwriter shall receive a commission of 10 percent of
the offering proceeds, a non-accountable expense allowance of three percent of
the offering proceeds, a consulting agreement pursuant to which it shall earn
$2500 per month for 24 months, a five-year option to purchase 80,000 Units for
$6.60 per Unit and a warrant solicitation fee. See Underwriting. Mr. Visconti is
also a principal in Clematis Development Group L.C., landlord to the West Palm
Beach Restaurants (CDG). CDG has been paid rent and other tenant charges from
the Company in 1997 in the amount of $__________ through August 31, 1997 and
shall receive an additional $__________ this year. See Certain Transactions.
Company directors Catalfumo, Max and Rapoport are principals in URCI, the
restaurant management firm that manages the West Palm Beach Restaurants, the
one Maxs Grille Restaurant that is already open and the three as yet unopened
Maxs Grille Restaurants that the Company shall partly own. Pursuant to the terms
of the Management and Consulting Agreement dated June 1, 1997 each of the
existing West Palm Beach Restaurants generally will pay URCI one percent of net
sales per month plus 20 percent of net operating profits. See Certain
Transactions. Director Catalfumo is a principal in Catalfumo Construction and
Development, Inc., the construction firm building the Maxs Grille Restaurants
in Las Olas Riverfront and Weston. Pursuant to the terms of the Funding
Agreement dated July 1, 1997, $3,000,000 of the proceeds of the offering shall
be deposited in a Construction Fund, the ultimate recipient of which shall
primarily be Mr. Catalfumo, owner of Catalfumo Construction and Development,
Inc. Additionally, the Company intends to use $125,000 of the proceeds of the
offering to repay a debt to Mr. Catalfumo. See Certain Transactions and Use of
Proceeds. All future transactions with affiliated parties will be approved by a
majority of the disinterested directors of the Company and will be on terms no
less favorable to the Company than those that could be obtained from
unaffiliated third parties.
IMMEDIATE AND SUBSTANTIAL DILUTION. This offering involves an immediate and
substantial dilution of $_____ per share between the adjusted net tangible book
value per share of Common Stock after this offering and the proposed maximum
initial public offering price. See Dilution.
SHARES ELIGIBLE FOR FUTURE SALE. Upon the consummation of this offering, the
Company will have 3,040,000 shares of Common Stock outstanding (including the
Underwriter's Over-Allotment Option). The shares of Common Stock being offered
hereby, unless purchased by affiliates of the Company, will be freely tradeable
without
-15-
<PAGE> 18
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining shares of Common Stock are deemed
to be "restricted securities", as that term is defined in Rule 144
promulgated under the Securities Act, and may only be sold pursuant to an
effective registration statement under the Securities Act, in compliance with
the exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. In addition, the holders of such shares of Common Stock have
entered into lock-up agreements restricting the sale or disposition of such
shares of Common Stock for 12 months from the date of this Prospectus without
the prior written consent of the underwriter. Accordingly, subject to Rule 144
volume limitations, 2,120,000 shares of Common Stock may be sold in the public
market beginning in September 1998, which may adversely affect prevailing
prices for the Common Stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities. See "Shares
Eligible for Future Sale" and "Underwriting".
NO ASSURANCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF PUBLIC OFFERING PRICE;
POSSIBLE VOLATILITY OF COMMON STOCK PRICE. Prior to this offering, there has
been no public trading market for the Company's Common Stock. Consequently, the
proposed initial public offering price of the Common Stock has been determined
by negotiation between the Company and the "qualified independent underwriter"
and does not necessarily reflect the Company's book value or other established
criteria of value. Although the Company anticipates listing on the American
Stock Exchange, there can be no assurance that a regular trading market for the
Common Stock will develop after this offering or that, if developed, it will be
sustained. The market price of the Common Stock following the consummation of
this offering may be highly volatile as has been the case with the securities of
many emerging companies. Factors such as the Company's financial results,
quarter-to-quarter variations in operating results, announcements by the Company
or its competitors, general market trends and various factors affecting the
restaurant industry generally, may have a significant impact on the market price
of the Common Stock. In addition, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
the stock of many companies have experienced wide fluctuations which have not
necessarily been related to the operating performances of such companies. See
"Underwriting".
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS. The
Company will be able to issue shares of Common Stock upon exercise of the
Warrants only if there is a current prospectus relating to such Common Stock
under an effective registration statement filed with the Securities and Exchange
Commission and only if such shares of Common Stock are qualified for sale or
exempt from qualification under applicable state securities laws of the
jurisdictions in which the various Warrantholders reside. Although the Company
has agreed to use its best efforts to meet such regulatory requirements, there
can be no as-
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<PAGE> 19
surance that the Company will be able to do so. Although the Warrants will not
knowingly be sold to purchasers in jurisdictions in which the Warrants are not
registered or otherwise qualified for sale, purchasers may buy Warrants in the
aftermarket or may move to jurisdictions in which the Common Stock issuable upon
exercise of the Warrants is not so registered or qualified. In this event, the
Company would be unable to issue shares of Common Stock to those Warrantholders
upon exercise of the Warrants unless and until the Common Stock issuable upon
exercise of the Warrants is qualified for sale or exempt from qualification in
jurisdictions in which such holders reside. Accordingly, the Warrants may be
deprived of any value if a then current prospectus covering the Common Stock
issuable upon exercise of the War rants is not effective pursuant to an
effective registration statement or if such Common Stock is not qualified or
exempt from qualification in the jurisdictions in which the Warrantholders
reside. There can be no assurance that the Company will be able to effect any
required registration or qualification.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS; MARKET OVERHANG. During the
Warrant Exercise Period the Company may redeem all, but not less than all, of
the Warrants for $0.01 per warrant on 30 days prior written notice to the
Warrantholders if the per share closing price of the Common Stock as reported by
the American Stock Exchange equals or exceeds $7.50 for any 20 consecutive
trading days ending within five days of the notice of redemption. Redemption of
the Warrants could force the Warrantholders to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, to
sell the Warrants at the then current market price when they might otherwise
wish to hold the Warrants for possible additional appreciation, or to accept the
redemption price, which is likely to be substantially less than the market value
of the Warrants at the time of redemption. Any Warrantholder who does not
exercise its Warrants prior to their expiration or redemption, as the case may
be, will forfeit such holders right to purchase the shares of Common Stock
underlying the Warrants.
DISCLOSURE RELATING TO LOW-PRICED STOCKS. If the trading price of the Common
Stock falls below $5.00 per share and the Common Stock ceases to be listed on
the American Stock Exchange, trading in the Common Stock would become subject to
certain rules promulgated under the Securities Exchange Act of 1934 which
require additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a penny stock (generally, any equity security that
has a market price of less than $5.00 per share). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchasers written consent
-17-
<PAGE> 20
to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage them from effecting
transactions in the Common Stock, thereby severely limiting the market liquidity
of the Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock and
Warrants offered hereby are estimated to be approximately $3,625,000
($4,200,000 if the Underwriter's Over-Allotment Option is fully exercised).
The Company expects to use $3,000,000 of the net proceeds to cover the
pre-opening costs and expenses (including construction and equipment) of four
Max's Grille Restaurants. On July 1, 1997 the Company entered into an agreement
with URCI pursuant to which the Company committed $3,000,000 in net proceeds of
this offering in exchange for 50 percent equity interests in the entities that
own or will own the four Max's Grille Restaurants. See "Business -- The Max's
Grille Restaurants". Such proceeds will ultimately be paid to Catalfumo
Construction and Development, Inc., the construction firm controlled by Company
director Daniel Catalfumo. URCI, which is owned by Company directors Catalfumo,
Max and Rapoport, will be beneficiaries of the proceeds, insofar as payment to
the construction company will ensure that the Maxs Grille Restaurants shall be
built.
The Company expects to use $400,000 of the net proceeds to redeem 80,000 shares
of its outstanding Series A Preferred Stock. See "Description of Securities".
The Company expects to use $125,000 of the net proceeds to repay its debt to
director Catalfumo. Mr. Catalfumo is a principal of URCI, owns the
above-referenced construction company that has built several restaurants for
URCI and which built Max's Beach Place Grille (one of the Max's Grille
Restaurants) and is building the other Max's Grille Restaurants. See
"Description of Securities".
The balance of the net proceeds will be utilized by the Company to cover its
working capital needs.
Proceeds not immediately required for the purposes described above will be
invested principally in short-term bank certificates of deposit, United States
Government obligations, money market instruments or short-term investment grade
securities.
DIVIDEND POLICY
The Company generally has not paid dividends in the past and anticipates that
earnings will be retained by the Company for the operation of its business.
Accordingly, the Company does not an-
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<PAGE> 21
ticipate paying cash dividends on the Common Stock in the fore seeable future.
Future financing entered into by the Company may contain provisions prohibiting
the Company's ability to pay dividends.
DILUTION
The difference between the initial public offering price per Unit and the
adjusted net tangible book value per share of Common Stock after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share on any given date is determined by dividing the net tangible book
value of the Company on that date by the number of shares of Common Stock
outstanding on that date.
At June 30, 1997 the pro forma net tangible book value of the Company was
$780,167 or $0.37 per share of Common Stock after giving effect to the
conversion of 80,000 shares of Series A Preferred Stock into 80,000 shares of
Common Stock and the redemption of 80,000 shares of Series A Preferred Stock.
After giving effect to the sale of 920,000 shares of Common Stock and 920,000
Warrants being offered hereby (including the Under writer's Over-Allotment
Option) at a combined offering price of $5.50 and the anticipated application of
the net proceeds there from, the adjusted net tangible book value of the Company
at June 30, 1997 would have been $4,980,167 or $1.64 per share, representing an
immediate increase in net tangible book value of $1.27 per share to existing
shareholders and an immediate dilution of $3.86 per share to new investors. The
following table illustrates the foregoing information with respect to dilution
to new investors on a per share basis:
Combined public offering price(1).........................................$5.50
Pro forma net tangible book value per share
at June 30, 1997(2)..........................................$0.37
Increase per share attributable to investors
in this offering............................................. 1.27
-----
Adjusted net tangible book value after offering........................... 1.64
-----
Dilution per share to new investors(3)....................................$3.86
=====
- --------------------
(1) Represents the purchase price of one Unit.
(2) Represents net tangible book value, adjusted for conversion of 80,000
shares of Series A Preferred Stock into 80,000 shares of Common Stock
and the redemption of 80,000 shares of Series A Preferred Stock.
(3) Assumes no exercise of options or warrants.
- --------------------
The following table sets forth a comparison of the number of shares of Common
Stock acquired from the Company by the Company's
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<PAGE> 22
shareholders as of June 30, 1997 and to be acquired from the Company by
investors in this offering, the percentage ownership of such shares, the total
consideration paid, the percentage of total consideration paid and the average
price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Per Share/Unit(3)
Number Percent Amount Percent Average Price
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) 2,120,000 70% $ 860,000 15% $0.41
New Investors 920,000(2) 30% 5,060,000 85% $5.50
--------- --- ------------ ----
Total 3,040,000 100% $ 5,920,000 100%
========= === ============ ====
- ------------------------
</TABLE>
(1) Includes conversion of Series A Preferred Stock into 80,000 shares of
Common Stock .
(2) Includes Underwriter's Over-Allotment Option.
(3) For existing shareholders price is per share of Common Stock. For new
investors, price is per Unit.
SELECTED FINANCIAL DATA
The following presents selected consolidated financial data of the Company at
the dates and for the periods indicated. The historical statement of operations
and balance sheet data at and for the year ended December 31, 1996 have been
derived from the financial statements of the Company, which have been audited
by Templeton & Company, P.A., independent public accountants, whose report on
the consolidated balance sheet as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1996 and the period May 17, 1995 (inception) to
December 31, 1995, is included elsewhere herein. The historical statement of
operations and balance sheet data at June 30, 1997 and for the half year ended
June 30, 1997 and 1996 have been derived from unaudited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the Company's financial statements for these interim periods. The results for
the half year ended June 30, 1997 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year ending
December 31, 1997. The following selected financial information should be read
in conjunction with the financial statements and the related notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" presented elsewhere herein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE> 23
<TABLE>
<CAPTION>
Year Ended Six Months Ended June 30,
December 31, 1996 1996 1997
----------------- ------------ ----------
(unaudited)
<S> <C> <C> <C>
Selected Statement of
Operations Data:
Net sales $2,333,530 $ 925,555 $ 2,679,903
---------- ---------- -----------
Cost and expenses:
Cost of sales 1,299,501 470,920 1,524,705
Operating expenses 881,856 349,920 1,129,779
Interest expense, net - - 24,500
---------- ---------- -----------
Total cost and expenses 2,181,357 820,840 2,678,984
---------- ---------- -----------
Operating income 152,173 104,715 919
Other income, net 3,051 160 87
---------- ---------- -----------
Income before income taxes 155,224 104,875 1,006
Income tax expense (9,319) - 300
---------- ---------- -----------
Net income $ 145,905 $ 104,875 $ 706
========== ========== ===========
Earnings per common share(1):
Primary $ 0.07 $ 0.05 $ -
========== ========== ===========
Fully diluted $ 0.07 $ 0.05 $ -
========== ========== ===========
Weighted average common shares outstanding:
Primary 2,026,328 1,986,363 2,085,698
========== ========== ===========
Fully diluted 2,146,328 2,106,363 2,199,068
========== ========== ===========
Selected Balance Sheet Data:
Cash and cash equivalents $ 202,639 $ 110,502
Working capital deficit (59,502) 118,671
Total assets 1,086,151 1,602,823
Total liabilities 462,940 422,656
Series A Preferred Stock - 400,000
Common shareholders'
equity 623,211 780,167
</TABLE>
(1) Primary earnings per common share is based on the average number of
common shares outstanding during each period, assuming the effect of
exercising options which have an exercise price less than the average
market price of common stock (assumed to be $5.50 per share) using the
modified treasury stock method. In addition, primary per share amounts
include the dilutive effect of common shares issued for cash
consideration below the assumed average market price during the one
year period prior to July 1997. The fully diluted earnings per common
share calculation assumes the conversion of the promissory note and
Series A Preferred Stock, issued by the Company subsequent to December
31, 1996, into shares of common stock. The net income for the six
months ended June 30, 1997 used in the fully diluted calculation was
adjusted for accrued preferred stock dividends and interest incurred on
the promissory note, net of tax benefits, and dividends accrued on the
Series A Preferred Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The historical financial statements appearing elsewhere in this Prospectus
present the consolidated historical results of operations and financial
condition of Sforza Enterprises Inc. and its
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<PAGE> 24
subsidiaries (Castle Room, Inc., Clematis Bistro Corporation and Sushi
Enterprises, Inc.) The following discussion is based upon the consolidated
results of operations of the Company.
The Company's net sales comprise the food and beverage sales by the restaurants
it operates. The first restaurant, Sforza Ristorante, opened in February 1996
and the second restaurant, My Martini Grille, opened in February 1997. A third
restaurant is expected to open in December 1997. The Company's expenses include
the cost of food and beverages sold, salaries and wages for food and beverage
preparation and service, rent and other occupancy expenses, advertising, repairs
and maintenance, general supplies, depreciation and amortization, interest and
administrative expenses.
The following discussion and analysis should be read in conjunction with the
Company's audited financial statements and related notes thereto, which are
presented elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth selected historical consolidated operating
results for the Company as a percentage of net sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED ----------------------
DECEMBER 31, 1996 1996 1997
----------------- ---- ----
(unaudited)
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
----- ----- -----
Cost and expenses:
Cost of sales 55.7 50.9 56.9
Operating expenses 37.8 37.8 42.1
Interest expense, net -- -- .9
----- ----- -----
Total cost and expenses 93.5 88.7 99.9
----- ----- -----
Operating income 6.5 11.3 .1
Other income, net .1 -- --
----- ----- -----
Income before income taxes 6.6 11.3 .1
Income tax expense (.3) -- (.1)
----- ----- -----
Net income 6.3% 11.3% --%
===== ===== =====
</TABLE>
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<PAGE> 25
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales increased from $925,555 for the six months ended June 30,
1996 to $2,679,903 for the six months ended June 30, 1997, an increase of
189.5%. Sforza Ristorantes net sales were $1,455,564 for the six months ended
June 30, 1997 and $925,555 for the comparable period in 1996. My Martini Grilles
net sales totaled $1,224,339 for the six months ended June 30, 1997. The
increase in Sforza Ristorantes net sales was due to increased customer counts
and the additional days of operation during the full six month period in 1997.
Cost of Sales. Total cost of sales increased from $470,920 for the six months
ended June 30, 1996 to $1,524,705 for the six months ended June 30, 1997, an
increase of 223.8% due principally to the increase in sales volume. The cost of
sales for Sforza Ristorante, as a percentage of net sales, was 50.9% and 53.4%,
respectively, for the six months ended June 30, 1996 and 1997. The cost of sales
percentage for My Martini Grille for the six months ended June 30, 1997 was
61.0%.
Operating Expenses. Operating expenses increased by $779,859 from $349,920 in
1996 to $1,129,779 in 1997, a 222.9% increase. Such expenses totaled 37.8% and
42.1% of net sales, respectively, for the six months ended June 30, 1996 and
1997. This increase was due to the additional expenses attendant with the
increased level of sales, additional administrative personnel and other costs
associated with the development of the Companys corporate infrastructure,
certain non-recurring compensation paid to certain principals during the six
months ended June 30, 1997 aggregating $64,970, pre-opening expense amortization
of $25,470 for the six months ended June 30, 1997 and management fee expense of
$27,599 incurred during the six months ended June 30, 1997.
Income Tax Expense. During the six months ended June 30, 1996, the Company
operated as an S corporation for income tax purposes, whereby taxable income or
loss was apportioned among the share holders rather than taxed to the Company.
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<PAGE> 26
Interest Expense. During the six months ended June 30, 1996, the Company
capitalized all of the interest incurred in connection with the construction of
its restaurants approximating $12,000. During the six months ended June 30,
1997, $24,000 of interest cost was charged to income, net of $2,675 interest
capitalized.
Other Income, Net. Other income, net for the six months ended June 30, 1997,
includes a charge approximating $4,400 for accrued dividends to Series A
Preferred shareholders.
Net Income. As a result of the above, the Company's net income attributable to
common shareholders was $706 for the six months ended June 30, 1997 versus prior
year net income of $104,875.
YEAR ENDED DECEMBER 31, 1996
Results of operations for 1996 solely include the operations of Sforza
Ristorante which opened in February 1996. There were no comparable restaurant
operations for 1995. The Company opened its second restaurant, My Martini
Grille, in February 1997 and expects to open a third restaurant in December
1997. The openings of these restaurants will significantly increase the
Company's reported revenue and related costs. During 1997, the Company entered
into a Management Agreement for the management of its restaurants. The
management fee will result in additional operating expenses over amounts
reported in 1996. There were no significant unusual or non-recurring items
materially impacting reported revenue and expenses for 1996 other than income
tax expense as discussed below.
Prior to July 29, 1996, Castle Room, Inc. operated as an S corporation for
federal corporate income tax purposes and its taxable income was not subject to
corporate income taxes. Pro forma consolidated statements of income for the year
ended December 31, 1996 and the six months ended June 30, 1997, after adjusting
1996 for assumed corporate income taxes prior to July 29, 1996, are presented as
follows:
[TABLE APPEARS ON THE FOLLOWING PAGE]
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<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
------------ --------------
<S> <C> <C>
Net sales $2,333,530 $2,679,903
---------- ----------
Cost and expenses:
Cost of sales 1,299,501 1,524,705
Operating expenses 881,856 1,129,779
Interest expense, net -- 24,500
---------- ----------
Total cost and expenses 2,181,357 2,678,984
---------- ----------
Operating income 152,173 919
Other income, net 3,051 87
---------- ----------
Income before income taxes 155,224 1,006
Pro forma income tax expense 40,674 300
---------- ----------
Pro forma net income $ 114,550 $ 706
========== ==========
Pro forma earnings per common share:
Primary $ .06 $ --
========== ==========
Fully diluted $ .06 $ --
========== ==========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's two operating restaurants are located in West Palm Beach, Florida
and are therefore subject to the seasonality of the tourist industry in South
Florida. Restaurant sales are expected to be very brisk in the tourist season,
which is generally from mid-fall to mid-spring and slow during the off-season.
The Company does not expect to generate any working capital from operations
during the off-season.
The Company's principal financing for the construction and opening of its
restaurants through December 31, 1996 was provided by its shareholders. During
the six months ended June 30, 1997, the Company borrowed $250,000 from URCI
(subsequently assigned to Daniel Catalfumo, a principal thereof and a director
of the Company) pursuant to a promissory note and raised $31,250 through the
issuance of 25,000 shares of its common stock. Mr. Catalfumo subsequently
converted $125,000 in principal into 40,000 shares of Common Stock. During May
1997, the Company raised $400,000 through the issuance of 160,000 shares of
Series A Preferred Stock at $2.50 per share. Such funding was obtained to
complete construction and opening of the sushi restaurant in December 1997
(estimated to require $250,000), and provide working capital to support
operations, as needed, during the off-season. The Company does not have an
existing arrangement for a credit facility with a financial institution for
short-term financing. Management believes that cash flow generated from
operations, together with the above financing transactions and the net proceeds
from this offering, will be sufficient to meet the Company's working capital
requirements and anticipated capital expenditures through fall 1998. In order
to continue to open additional restaurants, the Company is likely to require
additional financing.
The Company expects to redeem 80,000 shares of the Series A Preferred Stock for
$400,000 with the proceeds from this offering and convert the remaining 80,000
shares into 80,000 shares of Common Stock. The redemption will result in a
preferred stock dividend in the
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amount of $200,000 which will be recorded as a deduction from earnings
attributable to common shareholders and the Common Stock conversion will result
in a $200,000 increase to common shareholders' equity. If the initial public
offering does not occur by January 1, 1998, the preferred shares will be
redeemed at cost plus four percent.
On July 1, 1997, the Company entered into a Funding Agreement with URCI which
provides that the Company will receive a 50% per cent equity interest in each of
four limited partnerships, each of which was or will be formed to construct and
operate a Max's Grille Restaurant, in exchange for an aggregate commitment of
$3,000,000 of the proceeds from this offering. In addition, the Company granted
an option to URCI to purchase 150,000 shares of Common Stock at an exercise
price of $2.50 per share, exercisable through December 31, 1999. Unless extended
by the parties, such commitment terminates in the event the offering is not
completed and sufficient funds raised by October 31, 1997.
The Company may seek to obtain a line of credit for working capital from a bank
following this offering. There can be no assurance, however, that the Company
will be successful in obtaining a bank line of credit on acceptable terms or at
all.
IMPACT OF INFLATION
The Company has not operated in a highly inflationary period and its management
does not believe that inflation has had a material effect on sales or expenses.
As operating expenses increase, the Company expects to recover increased costs
by increasing prices, to the extent permitted by competition. Because the
Company's business is somewhat dependent on tourism in Florida, any significant
decrease in tourism caused by inflation would likely have a material adverse
effect on revenues and profitability.
SEASONALITY
The Company's business exhibits some seasonality. Historically, net sales have
been the highest in the winter and spring seasons, when Florida is a popular
warm weather tourist destination.
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS123"). FAS123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. FAS123 is effective for
stock options granted in fiscal years beginning after December 15, 1995. The
Company plans to use the intrinsic value method to account for its stock options
as permitted by FAS 123 .
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BUSINESS
GENERAL
The Company has three wholly-owned subsidiaries, each of which owns one
restaurant (the West Palm Beach Restaurants), and entered into an agreement to
acquire 50 percent equity interests in four companies, each of which owns or is
developing one restaurant (the Max's Grille Restaurants). Currently, two of the
West Palm Beach Restaurants are open and one of the Max's Grille Restaurants is
open.
HISTORY
Castle Room, Inc. was incorporated in May 1995 by Company directors Brisson and
Joseph Visconti to develop Sforza Ristorante. Clematis Bistro Corporation was
incorporated in April 1996 by Mr. Visconti to develop My Martini Grille. Sushi
Enterprises, Inc. was incorporated in early July 1996 by Messrs. Brisson and
Visconti to develop a sushi restaurant. Sforza Enterprises Inc. was
incorporated in late July 1996 as a holding company for the three corporations.
Messrs. Brisson and Visconti exchanged their founders shares in Castle Room,
Inc. for founders shares in the Company and the Company capitalized Clematis
Bistro Corporation and Sushi Enterprises, Inc. as founder of each in late July
1996 with proceeds of private securities offerings.
CONCEPTS AND DESIGN
The Company's strategy is to own upscale, moderately priced, casual dining
restaurants that are known for providing quality, affordable, contemporary
food, service and ambiance. Although the Company's existing and presently
planned restaurants are in South Florida, ultimately the Company plans to open
restaurants in selected markets outside of South Florida. The Company strives to
provide excellent values and an enjoyable and distinctive dining experience by
offering first quality food in high energy yet casual settings with efficient,
attentive and friendly service.
SITE SELECTION
The Company believes that the downtown West Palm Beach sites are critical to the
success of its West Palm Beach Restaurants, with the high levels of pedestrian
traffic and close proximity to heavily populated residential and/or tourist
areas. According to the Palm Beach County, Florida Planning, Zoning and Building
Department, Palm Beach County's population is expected to grow from 981,793 in
1996 to 1,067,900 by the end of the decade and to 1,271,100 by the year 2010,
making Palm Beach County one of the country's fastest growing areas. West Palm
Beach is an exciting example of urban revitalization. Located across the
intracoastal waterway from the storied island of Palm
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Beach and less than 10 minutes from Palm Beach International Airport, downtown
West Palm Beach is benefitting immensely from the growth the county continues to
experience.
In response to the swelling influx of visitors, second home buyers and
relocating and expanding businesses, anticipated county employment growth is
also extremely strong. According to the Florida Department of Labor and
Employment Security, Palm Beach Countys employment is expected to grow from
443,403 in 1994 to 559,844 by the year 2005, a 26.26 percent increase.
URCI selected the two Fort Lauderdale locations and the Weston location for its
newest Max's Grille restaurants because of their proximity to Boca Raton, where
the original Max's Grille has been thoroughly and successfully tested.
Additional high-profile upscale communities and developments are targeted for
future expansion.
THE WEST PALM BEACH RESTAURANTS
Sforza Ristorante. The Company owns a full-service, mid-priced, casual dining
northern Italian restaurant named "Sforza Ristorante". Sforza Ristorante offers
an extensive menu featuring a wide variety of seafood, chicken and pasta dishes,
appetizers, salads and desserts. The restaurant offers full bar service. Since
its February 1996 opening, food and alcoholic beverages have accounted for
approximately 57% and 43% of restaurant sales, respectively. The restaurant
offers generous portions at moderate prices while providing friendly and
efficient service in a high-energy casual atmosphere intended to appeal to a
broad customer base, particularly young upscale adults. As a result, the Company
believes that the restaurant has generated a high level of repeat business and
customer loyalty. Sforza Ristorante offers dinner entrees between $8 and $18,
with an average dinner entree price of $14. The Company believes that by
emphasizing casual dining, high quality, large portions and moderate prices,
Sforza Ristorante will remain popular with consumers.
Sforza Ristorante reflects an elegant yet casual European concept featuring a
plush red and gold decor. The eclectic design blends the ambiance of renaissance
Tuscany with the energy of a rejuvenated urban area. Lush fabrics and red velvet
drapery treatments are enhanced by unique hand faux finished walls. Contemporary
styled sconces and pendants illuminate the dining and bar areas with soft,
inviting light, enhancing the casual upscale dining experience and establishing
a distinct identity for the restaurant.
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My Martini Grille. The Company owns a full-service upscale grill named "My
Martini Grille". My Martini Grille, which opened in February 1997, was designed
to serve a sophisticated clientele, including business diners. The My Martini
Grille concept embraces an elegant and timeless early twentieth century motif.
My Martini Grille is Gotham City revisited. This sleek art nouveau restaurant
and bar recaptures the sophisticated allure of the martini culture. Cocktails
are complemented with deep mahogany walls and rich purple and golds. Stylish
stainless steel accents mix with unique Italian light fixtures to create a
relaxed sexy elegance. All of the elements enhance the dining experience and
establish a distinct identity for My Martini Grille. My Martini Grille offers
dinner entrees between $16 and $30, with an average dinner entree price of $20.
Planned sushi restaurant. The Company plans to open a full-service, mid-priced
casual dining sushi restaurant in December 1997. The planned restaurant has been
designed to reflect Tokyo in the year 2050. An ocean green tile floor, blonde
maple sushi bar and stainless steel highlights will create a unique techno
atmosphere. Japanese animation and comic books will assume larger than life
scale in artwork incorporated into the design and construction. Large TV
screens over the sushi bar will transform Godzilla, Ultra Man and Speed Racer
into animated art. The funky, innovative design will make dining an experience,
not just fish and rice. The Company's sushi restaurant will offer dinner entrees
between $15 and $30, with an average dinner entree price of $24.
THE MAX'S GRILLE RESTAURANTS
The Company intends to acquire 50 percent equity interests in the entities that
own the Max's Grille Restaurant located at 17 South Atlantic Boulevard ("Beach
Place") and the Max's Grille Restaurants under construction at 300 Southwest
First Avenue ("Las Olas Riverfront") in Fort Lauderdale, Florida and at 2210
Weston Road, in Weston, Florida ("Weston") plus the entity that will own the
next Max's Grille to be developed, the location of which is to be determined.
Each of the Max's Grille Restaurants will replicate the Max's Grille restaurant
in Boca Raton, Florida. Beach Place opened in May, 1997. Las Olas Riverfront and
Weston are expected to open in early 1998.
The Las Olas Riverfront, a new 270,000 square foot shopping center on the New
River, the main water thoroughfare dissecting the downtown, will be anchored by
a 24 screen stadium seating movie theater and an 80,000 square foot amusement
center. The Max's Grille Restaurant will be 6,500 square feet, seating 200
inside and 40 on an outside patio when it opens for business in early 1998.
In Weston, the Max's Grille Restaurant will co-anchor the new 200,000 square
foot Waterway Shoppes. It will also be 6,500
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square feet, seating 200 inside and 40 on an outside lakefront patio when it
opens for business in early 1998.
Max's Grille in Boca Raton, Florida, the model for the Max's Grille Restaurants,
incorporates casual dining, moderate prices and a cosmopolitan ambiance in a
comfortable relaxed atmosphere. Opened in 1991, the 225-seat restaurant has been
serving a mix of new American and Continental cuisine with a wide variety of
wines and a full-service bar. The decor features a free-standing mahogany bar,
high ceilings with star chandeliers and floating window treatments. Its fresh,
simply-prepared dishes are imaginative but not intimidating, enhanced with the
flavors of Florida, California, New Orleans, Europe and the Pacific.
Each of the Maxs Grille Restaurants is owned by a distinct Florida limited
partnership formed exclusively to own, develop and operate one restaurant. The
sole general partner of each limited partnership is a Florida corporation owned
by Company directors Catalfumo, Max (and his wife Patti Max) and Rapoport. The
sole limited partner of each limited partnership is Company director Catalfumo.
URCI manages every restaurant in which Messrs. Catalfumo, Max and Rapoport have
an interest.
The typical setting for a Max's Grille restaurant is a high-profile upscale
community, where an average food and beverage check of $25 could foster repeat
visits by patrons. Young professional and prosperous active "golden agers" --
the demographic group that according to the National Restaurant Association
spends more money dining out than any other age group -- comprises Max's
Grille's regular clientele.
The Max's Grille concept was first replicated in 1995 in Celebration, Florida,
The Walt Disney Co.'s planned community near Orlando, Florida. URCI
successfully competed against restaurant companies from across the nation for
the right to open a restaurant in that community. The Maxs Grille restaurant
in Celebration is owned by The Celebration Company, an unaffiliated third
party, and managed by Unique Orlando Inc., a Florida corporation owned by
Company directors Catalfumo, Max (and his wife Patti Max) and Rapoport (UOI).
UOI receives a percentage of the gross for managing the restaurant pursuant to
the terms of a Management Agreement. The Management Agreement further provides
that upon achievement of a certain annualized gross revenue figure UOI becomes
the lessee of the restaurant, and continues to operate it. A lease agreement is
annexed to the Management Agreement to take effect upon such occurrence.
URCI is also known for its successful Maxaluna, Max's Cafe and Coffee Shop (2
locations), Prezzo's (3 locations) and Astor Place restaurants.
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RESTAURANT MANAGEMENT
URCI, the restaurant management company owned by Company directors Catalfumo,
Max (and his wife Patti Max) and Rapoport, operates the current and will
operate the future West Palm Beach Res taurants and Max's Grille Restaurants as
well as nine other existing restaurants. URCI manages the West Palm Beach
Restaurants pursuant to the terms of a Management and Consulting Agreement dated
June 1, 1997. For a one year term, URCI assumed responsibility for operations
in exchange for a fee of one percent of net sales plus 20 percent of the net
operating profit, paid monthly. (Net operating profit equals net sales less
direct operating and other allocable expenses.) URCI is responsible for
determining menu and bar items, designing menus, creating recipes, taste-
testing and costing; interviewing, hiring and training personnel and developing
personnel policies and manuals; developing operating policies and manuals;
developing and implementing a marketing plan; and otherwise operating the
restaurants. The agreement can be terminated by the Company in the event of
misappropriation of Company funds, disreputable conduct on the part of either
Messrs. Rapoport or Max or breach.
The staff of each Company restaurant consists of a general manager, a chef and
between 20 and 70 other employees managed by URCI. Restaurant managers are
entitled to participate in an annual discretionary bonus program based upon the
financial and operational results of their particular restaurant.
The Company believes that achieving customer satisfaction by providing
knowledgeable, friendly, efficient service is critical to the restaurants'
long-term success. During URCI's training program, restaurant managers are
taught to promote the Company's team-oriented atmosphere among restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards and providing friendly, courteous and attentive service. The Company
believes that the quality and training of its restaurant managers and staff
results in friendly, courteous, efficient service which contributes to a casual
and pleasurable dining experience for the customer.
COMMITMENT AND CUSTOMER SATISFACTION
The Company's utilization of URCI evidences the Company's commitment to
providing its customers with efficient and friendly service, keeping
table-to-wait staff ratios low and staffing each restaurant with an experienced
management team to help ensure attentive customer service and a pleasurable
dining experience. The Company's commitment is further underscored by URCI's
employee training program, which is required for all Company personnel. URCI has
refined its training program over 10 years, producing manuals on policies and
procedures and an employee handbook. The Company's restaurant employees spend a
full week training, from
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orientation on cultures and standards to classroom lessons to hands-on
instruction. Tests are given each day to monitor retention. Food tasting is
included. The final step is a three-day mock service for family, friends and
vendors.
Through the use of comment cards and table visits, Company management and URCI
receive valuable customer feedback and, through prompt responses, demonstrate a
continuing devotion to customer satisfaction.
QUALITY CONTROL
The Company maintains a continuous inspection program for all its food
purchases. Each shipment of food is inspected upon receipt for quality and
conformance to the Company's specifications. In addition, fresh fish is
inspected by kitchen staff at the time of delivery. The restaurants' employees
are educated as to the correct handling and proper physical characteristics of
each product.
The Company's general managers are all responsible for properly training hourly
employees and ensuring that the Company's restaurants are operated in accordance
with strict health and quality standards. The Company believes that its
inspection procedures and its employee training practices help the Company to
maintain a high standard of quality for the food and service it provides.
PURCHASING
Obtaining a reliable supply of quality food at competitive prices is critical to
the Company's success. By affiliating with URCI, the Company is part of a group
that purchases over $14 million of food and other products and services for 13
restaurants. Food and supplies are shipped directly to the Company's
restaurants. The Company does not maintain a central product warehouse or
commissary. The Company believes its diverse menu selection reduces the risk and
minimizes the effect of the shortage of any food products. To date, the Company
generally has not experienced any significant delays in receiving its food and
beverage inventories, restaurant supplies or equipment.
ADVERTISING AND MARKETING
Advertising and marketing expenditures in 1996 and the first quarter of 1997
were approximately 2% of sales. The Company sponsored charitable events,
participated in cooking competitions (regional and national), advertised in
local magazines and news papers and gave away drinks and meals at tables and on
the radio.
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MANAGEMENT INFORMATION
The Company maintains financial and accounting controls for each restaurant
through a central management information system. Sales data is collected daily,
and managers are provided with daily sales and cash information for their
respective restaurants. A point-of-sale accounting and cash management system
enables the Company to access each restaurant's sales, inventory, costs and
other financial data on a real-time basis. The point-of-sale accounting and cash
management system enables both restaurant management and Company management to
react quickly to changing sales trends, better manage food, beverage and labor
costs, minimize theft and improve the quality and efficiency of accounting and
audit procedures. State-of-the-art software programs enable the Company to
forecast and schedule labor requirements.
COMPETITION
Competition in the restaurant industry is intense. The industry, particularly
the full-service casual dining segment, is likely to attract a significant
number of new entrants. The Company also expects to face competition from a
broad range of other restaurants and food service establishments, including fast
food restaurants which specialize in a variety of cuisines. In addition, the
full-service restaurant industry is characterized by the frequent introduction
of new food products accompanied by substantial promotional campaigns. In
recent years, numerous companies in the full-service restaurant industry have
introduced products intended to capitalize on growing consumer preference for
food products which are, or are perceived to be, healthy, nutritious, low in
calories and low in fat content. It can be expected that the Company will be
subject to increasing competition from companies whose products or marketing
strategies ad dress these consumer preferences.
The Company competes with other restaurants on the basis of price, atmosphere,
decor and service.
GOVERNMENT REGULATION
The Company is subject to extensive state and local government regulation by
various governmental agencies, including state and local licensing, zoning, land
use, construction and environmental regulations and various regulations relating
to the sale of food and alcoholic beverages, sanitation, disposal of refuse and
waste products, public health, safety and fire standards. The Company's
restaurants are subject to periodic inspections by governmental agencies to
ensure conformity with such regulations. The Company believes it complies with
all applicable government regulations.
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The Company is also subject to laws governing its relations with employees,
including wage and hour laws, and laws and regulations relating to working and
safety conditions and citizenship or immigration status.
SERVICEMARKS AND PROPRIETARY INFORMATION
The Company has registered the servicemark "Sforza" and has applied to register
the servicemark "My Martini" with the Secretary of State of Florida. The Company
believes that its servicemarks have significant value and are essential to its
ability to create demand for and awareness of its restaurants. See "Risk
Factors".
PROPERTIES
The Company leases 450 square feet of space at 330 Clematis Street #211 in West
Palm Beach, Florida for its executive offices from Renaissance Partners LLC. The
lease runs month to month and is terminable by either party upon one month's
prior written notice. The monthly rent payable under the lease is $1166.
All of the Company's West Palm Beach Restaurants are housed in adjacent
storefronts leased from Clematis Development Group, L.C., a real estate holding
company partly owned by Joseph C. Visconti, a principal in the Company and in
the Underwriter. See "Certain Transactions". Each restaurant lease provides that
the tenant pay rent plus the cost of insurance, taxes and a portion of the
landlord's operating costs to maintain common areas. The leases have initial
terms of 10 years with renewal options. The Company leases properties with 2500
to 5500 square feet total space and seating capacity for 90 to 220 persons.
EMPLOYEES
The Company employs 175 persons, of whom eight are management or administrative
personnel and the rest are employed in non-management restaurant positions.
Approximately 165 of these individuals are employed by the Company on a
full-time basis. Seven of such persons are employed on a salaried basis and 158
on an hourly basis. The Company considers its employee relations to be good.
None of the Company employees is covered by a collective bargaining agreement.
LEGAL PROCEEDINGS
From time to time the Company has been involved in minor legal disputes
customary in the dining industry, none of which is believed by management to be
material to its operating results. The Company is not currently a party to any
threatened or pending legal proceedings.
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MANAGEMENT
DIRECTORS AND OFFICERS
The Company's directors and officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Dale J. Brisson 37 President and Director
Gerald J. Visconti Jr. 34 Vice President, Chief Financial
Officer, Secretary and Director
Daniel S. Catalfumo 41 Director
Dennis R. Max 52 Director
Burton M. Rapoport 47 Director
Joseph C. Visconti 33 Director
</TABLE>
Mr. Brisson has served as president and as a director of the Company since its
inception in July 1996. Mr. Brisson has served as president and as a director of
Castle Room, Inc. since May 1995, Clematis Bistro Corporation since April 1996
and Sushi Enterprises, Inc. since July 1996. Mr. Brisson, who was born and
raised in Palm Beach County, Florida, has spent his entire career in the
restaurant business. In 1986 he opened the first Rosie's Key West Grille in Lake
Worth, Florida, which by 1994 had grown into a chain of four restaurants in Palm
Beach County with 110 employees.
Mr. G. Visconti has served as an officer and director of the Company since its
inception in July 1996. He established the Company's accounting and management
information systems departments. Prior to joining the Company he owned and
operated a trucking company in Los Angeles for 11 years. Mr. Visconti graduated
from Morrisville Agricultural and Technical College, Morrisville, New York in
1983 with a degree in automotive technology. Mr. G. Visconti is the older
brother of Mr. J. Visconti. Mr. Visconti has no ownership interest in the
underwriter.
Mr. Catalfumo has spent his entire career in South Florida in the construction
industry. He founded Catalfumo Construction & Development Inc. in West Palm
Beach in 1978 and has built over 12 million square feet of office, medical,
warehouse, country club, industrial, retail and residential space. He is a part
owner of URCI with Messrs. Max (and his wife Patti Max) and Rapoport.
Mr. Max has served as a director of the Company since May 1997. After a short
stint in the banking and brokerage industries, he entered the restaurant
industry in 1972, where he has spent his entire career. He has been successful
in national chains and as an entrepreneur. He has enjoyed tremendous success in
South Florida, where his restaurants are well-known. Mr. Max owns URCI with his
wife, Patti Max, and Messrs. Catalfumo and Rapoport.
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Mr. Rapoport has spent his entire career in the restaurant industry, beginning
as a bartender at the Victoria Station chain in Los Angeles in 1971, where he
met Mr. Max. In 1978 Messrs. Rapoport and Max created Carlos & Pepe's in Ft.
Lauderdale, Florida, a tremendous success, followed by Raffles in Miami, which
grew to 11 locations before being sold. Mr. Rapoport served for 12 years on the
Advisory Board of Johnson & Wales University, the large culinary institute based
in Providence, Rhode Island.
Mr. J. Visconti has served as a director of the Company since its inception in
July 1996. Mr. Visconti has served as vice president, secretary and treasurer
and as a director of Castle Room, Inc. since May 1995, Clematis Bistro
Corporation since April 1996 and Sushi Enterprises, Inc. since July 1996. A
Syracuse, New York native, Mr. Visconti founded Joseph Charles & Assoc., Inc.,
the full-service brokerage firm underwriting the offering, in 1991, which he
serves as chairman, president and chief executive officer. The firm employs over
300 people in its two Florida and its Beverly Hills, Denver and Phoenix offices.
In 1993 Mr. Visconti founded Clematis Development Group, L.C. ("CDG") to
acquire and develop vacant buildings in downtown West Palm Beach. CDG leases
storefronts to the Company for the West Palm Beach Restaurants. In 1995 he
teamed with Mr. Brisson to form Castle Room, Inc. which opened Sforza Ristorante
in February 1996.
Messrs. Catalfumo, Max and Rapoport are defendants along with URCI in a civil
lawsuit pending in the Florida state court in Palm Beach County, Florida brought
in May 1996 by former partners in a defunct URCI restaurant who have alleged,
among other things, that the three men breached their fiduciary duties to the
limited partners. The defendants have filed motions attacking the plaintiffs'
complaint and are awaiting a hearing on their motions. Discovery is underway.
The limited partners invested $400,000 in the subject partnership and one of the
limited partners also made a loan of $60,000 to the partnership. Presumably,
with respect to rescission claims, these plaintiffs would want to recover the
entire $460,000 plus interest and attorneys fees, although no specific request
for damages has been made. The other claims being made are derivative in nature
as they challenge the appropriateness of certain charges made to the partner
ship by URCI in its capacity as manager. These claims would seek to require the
corporate general partner, Unique Restaurant of South Beach, Inc. and URCI to
refund these expenditures. There is no specific, complete listing of these
expenditures but, in the aggregate, they are substantially less than $100,000.
The defendants believe there is no merit whatsoever to the claims seeking
rescission. The plaintiffs assert that they were defrauded because Mr. Max
advised them that he had elected not to proceed with the restaurant he had been
considering at the Astor Hotel (three blocks north of the subject site) and that
$400,000 would be sufficient to open the restaurant for business. In
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fact, Mr. Max did become involved in the establishment of a restaurant in the
Astor Hotel and the cost of readying the subject restaurant for opening turned
out to be $550,000. The defendants do not deny that either of these
representations were made; how ever, they vehemently deny that they were false
when made, known to be false by Mr. Max or any other party related to URCI or
made with an intention of misleading any of the plaintiffs. In fact, the Astor
Hotel deal had terminated when Mr. Max so advised the plaintiffs. At a
subsequent point in time, the principals of the Astor Hotel again approached Mr.
Max with an entirely different economic proposal pursuant to which they would
fully fund construction of the restaurant as opposed to the prior proposal in
which he was being asked to do so. Under that revised economic arrangement, Mr.
Max proceeded to get involved in a restaurant in the Astor Hotel. The defendants
deny that the involvement of URCI in the Astor Hotel had anything to do with the
economic failure of the subject restaurant. The Astor Hotel did not even open by
the time it had been determined that the subject restaurant was not going to
succeed. Moreover, the existence of a nearby restaurant enabled some cost
savings for the subject restaurant by sharing certain personnel expenditures
between the two locations. It is also important to note that the plaintiffs were
well aware that Mr. Max and URCI continue, at all times, to get involved in new
restaurant opportunities and had no reasonable basis for assuming or concluding
that the subject restaurant would be the last restaurant with which they become
involved. No such provision existed in the Partnership Agreement. With respect
to the cost overruns, they were simply initial estimates that turned out to be
wrong. The party that bore the brunt of the underestimate was URCI as it funded
$90,000 of the $150,000 deficit. One of the limited partners funded the other
$60,000 as a loan.
With respect to the alleged improper expenditures of funds, to the extent
specific expenditures have been noted by the plaintiffs, the defendants believe
that, for the most part, there are proper justifications with respect to each
expenditure. For example, the plaintiffs list a trip to New York by Mr. Max and
Carre Simon, the subject restaurants chef, as an example of improper
expenditures. This trip was, in fact, taken to receive an award from Esquire
Magazine as one of the best new restaurants in the United States. A significant
amount of free publicity attended the receipt of that award. In connection with
reviewing the expenditures that have been noted, URCI is undertaking an overall
review of the manner in which it allocates charges to the various restaurants it
manages. To the extent it determines any expenditures were inappropriately
charged, it will make appropriate credits.
Each director of the Company is elected for a term of one year which expires at
the annual meeting of the Company's shareholders or at such other time as his
successor is duly elected and qual-
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<PAGE> 40
ified. Pursuant to the Funding Agreement dated July 1, 1997 among the Company,
URCI, Mr. Max and others, Messrs. Brisson, G. Visconti and J. Visconti agreed to
vote their shares to elect designees of Mr. Max to comprise a majority of the
Company's directors. Each officer is appointed by the Board of Directors and
serves at the pleasure of the Board. See "Certain Transactions".
Directors are not compensated for their services on the Board of Directors. The
Company will reimburse directors for reasonable travel expenses incurred in
connection with their activities on behalf of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Subsequent to the offering, the Company will have an Audit Committee and a
Compensation Committee. The Audit Committee will be responsible for (i)
reviewing the scope of, and the fees for, the annual audit, (ii) reviewing with
the independent auditors the corporate accounting practices and policies and
recommending to whom reports should be submitted within the Company, (iii) re
viewing with the independent auditors their final report, (iv) reviewing with
the independent auditors the overall accounting and financial controls, and (v)
being available to the independent auditors during the year for consultation
purposes. The Compensation Committee will determine the compensation of the
officers of the Company and will perform other similar functions and grant
options under the Company's 1997 Equity Incentive Plan. Messrs. Max, Rapoport
and G. Visconti shall serve on the Audit Committee. Messrs. Max, Rapoport, G.
Visconti and J. Visconti shall serve on the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information for 1996 concerning
all cash and non-cash compensation awarded to, earned by or paid to the
Company's president and vice president. No officer of the Company earned
$100,000 or more during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Compensation All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Dale J. Brisson, President 1996 $69,230 0 N/A N/A
and Director
Gerald J. Visconti, Vice
President, Chief Financial 1996 $ 0 0 N/A $8,000
Officer and Director
</TABLE>
In the first half of 1997 Mr. Brisson and Joseph Visconti each received $32,485
in total compensation and Gerald Visconti $27,000.
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<PAGE> 41
EMPLOYMENT AGREEMENTS
The Company is not a party to any employment agreements.
STOCK OPTION PLANS
On July 1, 1997, the Company's Board of Directors enacted the 1997 Equity
Incentive Plan (the "Plan") which provides for the issuance of options to
purchase a total of 285,000 shares of the Company's Common Stock. The Plan
authorizes the Board of Directors to issue incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and stock options that do not conform to the requirements of that Code
section ("Non-ISOs"). The exercise price of an ISO may not be less than 100% of
the fair market value of the Common Stock at the time of grant, except that in
the case of a grant to an employee who owns (within the meaning of Code Section
422) 10% or more of the outstanding stock of the Company (a "10% Shareholder"),
the exercise price shall not be less than 110% of such fair market value.
Options may not be exercised prior to the first anniversary, or on or after the
tenth anniversary (fifth anniversary in the case of an ISO granted to a 10%
Share holder), of his grant. Options may not be transferred during the lifetime
of an optionee.
The Plan is administered by the Board of Directors. Subject to the provisions of
the Plan, the Board of Directors has the authority to determine the individuals
to whom stock options are to be granted, the number of shares to be covered by
each option, the option price, the type of option, the option period, the
restrictions, if any, on the exercise of the option, the terms for the payment
of the option price and other terms and conditions. Payment by optionees upon
exercise of an option may be made (as determined by the Board of Directors) in
cash, by promissory note or other such form of payment acceptable to the Board
of Directors, including shares of Common Stock.
As of the date of this Prospectus, the Company has not granted any options under
the Plan.
PRINCIPAL SHAREHOLDERS
As of the date of this Prospectus, the Company has issued 2,040,000 shares of
Common Stock and 160,000 shares of Series A Preferred Stock. The Preferred
Stock will be converted in part and redeemed in part in connection with the
offering. The following table sets forth, as of the date of this Prospectus,
certain information regarding the beneficial ownership of the Common Stock
giving effect to conversion of the Preferred Stock, by (i) each person known
to the Company as having beneficial ownership of more than 5% of the Common
Stock, (ii) each director of the Company, (iii) each officer of the Company,
and (iv) all directors and officers of the Company as a group.
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<PAGE> 42
<TABLE>
<CAPTION>
Percentage of Common Stock
Beneficially Owned(1)
--------------------------------
Number of Prior
Shares of to After
Name and Address of Beneficial Owner Common Stock Offering Offering(4)
- ------------------------------------ ------------ -------- ----------
<S> <C> <C> <C>
Dale J. Brisson(2)(6) 762,500 37.38% 25.08%
2815 Hampton Ct. E
Delray Beach, FL 33445
Gerald J. Visconti Jr.(2) 103,923 5.09% 3.42%
3500 N. Flagler Dr.
West Palm Beach, FL 33401
Daniel S. Catalfumo(3)(5) 190,000 9.31% 6.25%
4300 Catalfumo Way
Palm Beach Gardens, FL 33410
Dennis R. Max(3)(5) 150,000 7.35% 4.93%
490 E. Palmetto Park Rd. #110
Boca Raton, FL 33432
Burton M. Rapoport(3)(5) 150,000 7.35% 4.93%
490 E. Palmetto Park Rd. #110
Boca Raton, FL 33432
Joseph C. Visconti(3)(6) 755,500 37.03% 24.85%
525 S. Flagler Dr. #400
West Palm Beach, FL 33401
All directors and officers as a 1,811,923 88.82% 59.60%
group (6 persons)
- ------------------------------
</TABLE>
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days from the date of this
Prospectus upon the exercise of options or warrants or conversion of
convertible securities. Each beneficial owner's percentage owner ship
is determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any
other person) and which are exercisable or convertible within 60 days
of the date of this prospectus have been exercised or converted. Unless
otherwise indicated, the beneficial owner has sole voting and
investment power.
(2) An officer and director.
(3) A director.
(4) Assumes that no person listed in the table acquires shares in the
offering.
(5) Includes 150,000 shares of Common Stock underlying an option granted to
URCI. Messrs. Catalfumo, Max and Rapoport are principals of URCI.
See "Certain Transactions".
(6) Includes 300,000 shares of Common Stock owned by Vask Enterprises,
Inc., a Florida corporation owned by Messrs. Brisson and J. Visconti.
- ------------------------------
The Series A Preferred Stock, half of which shall be redeemed for $400,000 and
half of which shall be converted into Common Stock on a one-to-one basis upon
consummation of the offering, is owned as follows:
CBM of America, Inc.: 80,000 shares
Lawrence M. Dezenzo
Revocable Trust f/b/o
Lawrence M. Dezenzo,
Trustee: 40,000 shares
Bruce J. Simonson: 40,000 shares
None of these shareholders is affiliated with the Company. They are retail
brokerage clients of the underwriter.
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<PAGE> 43
CERTAIN TRANSACTIONS
The information set forth below briefly describes certain transactions between
the Company and certain parties who or which may be deemed to be affiliated with
the Company. The Company believes all of the following transactions were or are
on terms no less favorable to the Company than those that could be obtained from
unaffiliated third parties. All future transactions with affiliated parties
(including forgiveness of currently outstanding loans) will be approved by a
majority of the disinterested directors of the Company and will be on terms no
less favorable to the Company than those that could be obtained from
unaffiliated third parties.
Notes Payable; Shareholders. During 1995 and 1996 Dale J. Brisson and Joseph C.
Visconti lent an aggregate of $175,000 to the Company or its subsidiaries
pursuant to notes collateralized by substantially all of the Company's assets.
Such notes bear interest at an annual rate of 10 percent and are payable in
monthly installments. In addition, such shareholders have made uncollateralized
loans to the Company aggregating $63,445 for working capital purposes. These
loans are non-interest bearing and payable on demand. All such loans have been
repaid as of June 30, 1997. See Restaurant Management and Construction below
in this section.
Premises Leases. The Company leases the spaces for its three restaurants from
Clematis Development Group, L.C., a Florida limited liability company partly
owned by Joseph C. Visconti. Castle Room, Inc.'s lease expires in December 2005
and calls for annual rent of $51,500 in the first year, gradually rising to
$94,125 in 2005. Clematis Bistro Corporation's lease expires in January 2006 and
calls for annual rent of $96,250 in the first year, gradually rising to $145,750
in the final year. Sushi Enterprises, Inc.'s lease expires in January 2006 and
calls for annual rent of $20,000 in the first year, gradually rising to $46,875
in the final year. Each lease is "triple net", meaning that the tenant pays for
insurance, taxes and maintenance. The Company believes that each lease is on
terms no less favorable than those obtainable from an unrelated third party.
Underwriting. The offering is being underwritten by Joseph Charles & Assoc.,
Inc., a full-service broker-dealer owned in part by several of the Company's
shareholders, including Joseph Visconti. See "Underwriting".
Restaurant Management. URCI, the restaurant management company controlled by
Messrs. Max, Rapoport and Catalfumo, manages and operates the Company's
restaurants. Its responsibilities include the determination of dining room and
bar menus, design of the menus, creation of recipes, testing of menu items,
pricing, interviewing, training and hiring personnel, developing personnel
systems and manuals, developing operations manuals covering product purchasing,
vendor selection, developing operating forms and checklists covering ordering,
inventory, preparation and sanitation, developing marketing plans covering
advertising and promotional programs, developing signage, conducting market
research and related duties. Compensation for management services through
October 31, 1997 totals $58,000. Subsequently, URCI shall receive a fee of one
percent of net sales plus 20 percent of the net operating profit, monthly.
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<PAGE> 44
(Net operating profit equals net sales less direct operating and other allocable
expenses.) On January 31, 1997 URCI lent the Company $250,000 pursuant to the
terms of a Fixed Rate Promissory Note (the "Note") with interest accruing
thereon at the rate of 15 percent per annum. The Note is secured by a lien on
all the Company's assets and guaranteed by Joseph Visconti and Dale Brisson. On
June 1, 1997 URCI assigned the Note to Daniel Catalfumo.
Construction. Mr. Catalfumo's construction company built Max's Beach Place
Grille, one of the Max's Grille Restaurants, and is building the Max's Grille
Restaurants in the Las Olas Riverfront development, Ft. Lauderdale, Florida and
in Weston, Florida. Mr. Catalfumo acquired the Note from URCI on June 1, 1997
and immediately converted $125,000 of the unpaid principal into 40,000 shares of
the Company's Common Stock. The conversion price of $3.125 was negotiated
between the parties. It is the midway point between the founders price of $1.25
and the proposed initial public offering price of $5.25 per share of Common
Stock.
Funding Agreement. The Company, URCI, Dennis Max and related parties entered
into a Funding Agreement on July 1, 1997 pursuant to which the Company agreed to
devote $3,000,000 of the proceeds of this offering to the construction and
pre-opening expenses of four Max's Grille Restaurants and to grant URCI an
option to acquire 150,000 shares of the Company's Common Stock exercisable at
$2.50 per share through December 31, 1999 (see Description of Securities --
Option) in exchange for 50 percent equity interests in such Max's Grille
Restaurants and URCI's agreement to manage such restaurants at a discounted
rate. The $3,000,000 shall be deposited into a Construction Fund at such time as
the limited partnership interests in each of the Maxs Grille Restaurants are
conveyed to the Company. Mr. Max shall be responsible for Construction Fund
disbursement among the Maxs Grille Restaurants. Messrs. Catalfumo, Max and
Rappaport shall own, in the aggregate, the remaining 50 percent equity interest
in the Maxs Grille Restaurants as limited partners (Mr. Catalfumo) and as owners
of each corporate general partner (Messrs. Catalfumo, Max [with his wife Patti
Max] and Rapoport). URCI shall manage the restaurants for a fee less than its
standard fee of three percent of net sales. The Company has the right to
designate a majority of the directors of the corporations serving as general
partner. Additionally, Mr. Max received the right to designate a majority of the
Company's directors, obtaining the agreement of Joseph Visconti, Gerald Visconti
and Dale Brisson to vote their Company shares in favor of his director nominees.
A Joinder setting forth such agreement is attached to the Funding Agreement,
which is attached as an exhibit to the Registration Statement of which this
Prospectus is a part.
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<PAGE> 45
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of Common
Stock, $0.01 par value per share, and 400,000 shares of Preferred Stock, $0.01
par value per share. As of June 30, 1997 there were 2,040,000 shares of Common
Stock issued and outstanding, held by ___ holders of record, and 160,000 shares
of Series A Preferred Stock issued and outstanding, held by three holders of
record.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company, if
any, remaining after the payment of all debts and liabilities of the Company.
The Common Stock has no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to any dividend restrictions imposed by the Company's creditors. No
dividend or other distribution (including redemptions or repurchases of shares
of capital stock) may be made if, after giving effect to such distribution, the
Company would not be able to pay its debts as they become due in the normal
course of business, or the Company's total assets would be less than the minimum
of its total liabilities.
If the Company realizes net profits in the future, its foreseeable policy will
be to retain such earnings for the operation and expansion of its business.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further action
by the shareholders) to issue Preferred Stock in one or more series and to fix
the voting rights, liquidation preferences, dividend rates, conversion rights,
redemption rights and terms, including sinking fund provisions, and certain
other rights and preferences. Satisfaction of any dividend preferences of
outstanding Preferred Stock would reduce the amount of funds available for the
payment of dividends, if any, on the Common Stock. Also, holders of the
Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding up of the Company before
any
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<PAGE> 46
payment is made to holders of Common Stock. In addition, under certain
circumstances, the issuance of Preferred Stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities, or the removal of
incumbent management. The Board of Directors of the Company, without shareholder
approval, may issue Preferred Stock with dividend, liquidation, redemption,
voting and conversion rights which could adversely affect the holders of Common
Stock.
As of June 30, 1997, 160,000 of the 400,000 authorized shares of Preferred Stock
were outstanding. Series A Preferred Stock was issued to three investors on May
19, 1997 who invested $400,000 in the aggregate as follows: CBM of America Inc.
(80,000 shares), Lawrence M. Dezenzo Revocable Trust f/b/o Lawrence M. Dezenzo,
Trustee (40,000 shares), and Bruce J. Simonson (40,000 shares), all of whom are
retail brokerage clients of Joseph Charles & Assoc., Inc., the underwriter, but
are otherwise unaffiliated with the Company. The Series A Preferred Stock is
entitled to cumulative cash dividends at a rate of 10 percent per annum and a
liquidation preference of $2.50 per share. Upon completion of an initial public
offering raising gross proceeds of at least $4,000,000, 80,000 shares of Series
A Preferred Stock automatic ally convert into 80,000 shares of Common Stock
while the other 80,000 shares of Series A Preferred Stock are to be redeemed for
$400,000 in the aggregate. If such an initial public offering shall not have
occurred by January 1, 1998 all Series A Preferred Stock shall be redeemed at
cost plus four percent. The Company has no present intention to issue any
additional shares of Preferred Stock.
OPTION
Pursuant to the terms of the Funding Agreement, the Company granted URCI an
option, exercisable through December 31, 1999, to acquire 150,000 shares of
Common Stock for an exercise price of $2.50 per share. The shares of Common
Stock underlying the option are restricted but bear piggyback registration
rights. In the event the Company proposes to file a registration statement under
the Securities Act which relates to a current offering of securities of the
Company (except in connection with an offering on Form S-8 or Form S-4 or any
other inappropriate form), URCI may request that the Company include all or a
portion of the option shares therein and the Company must honor such request.
REDEEMABLE WARRANTS
The Units being offered hereby include 800,000 Warrants.
The Warrants will be issued under and governed by the provisions of a Warrant
Agreement (the "Warrant Agreement") between the Company and Florida Atlantic
Stock Transfer, Inc. as warrant agent
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<PAGE> 47
(the "Warrant Agent") and will be evidenced by warrant certificates in
registered form. The following summary of the Warrant Agreement is not complete
and is qualified in its entirety by reference to the Warrant Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
Each Warrant entitles the holder thereof to purchase one share of Common Stock
at a price equal to $5.25 per share during the War rant Exercise Period -- the
period commencing on the date of this Prospectus and terminating five years
thereafter. The shares of Common Stock underlying the Warrants will, upon
exercise of the Warrants, be validly issued, fully paid and non-assessable. The
Warrants are redeemable by the Company at any time during the Warrant Exercise
Period for $0.01 per Warrant if the average closing price of a share of Common
Stock, as reported by the American Stock Exchange, equals or exceeds $7.50 for
any 20 consecutive trading days ending within five days prior to the date of the
notice of redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrantholders will be unable to exercise the
Warrants and the Warrants may become valueless. Moreover, if the shares of
Common Stock underlying the Warrants are not registered or qualified for sale in
the state in which a Warrantholder resides, such holder might not be permitted
to exercise the Warrants. In the event that the Warrants are called for
redemption, the Warrantholders may not be able to exercise their Warrants in the
event that the Company has not updated this Prospectus in accordance with the
requirements of the Securities Act or the Warrants have not been qualified for
sale under the laws of the state where the Warrantholder resides. In addition,
in the event that the Warrants have been called for redemption, such call for
redemption could force the Warrantholder either to (i) assuming the necessary
updating to the Prospectus and state blue sky qualifications have been effected,
exercise the Warrants and pay the exercise price at a time when, in the event of
a decrease in market price from the period preceding the issuance of the call
for redemption, it may be less than advantageous economically to do so, or (ii)
accept the redemption price, which, in the event of an increase in the price of
the Common Stock, could be substantially less than the market value thereof at
the time of redemption. See "Risk Factors".
The Warrantholders are not entitled to vote, receive dividends or exercise any
of the rights of holders of shares of Common Stock for any purpose. The Warrants
are in registered form and may be presented for transfer, exchange or exercise
at the office of the Warrant Agent. Although the Company has applied for listing
of
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<PAGE> 48
the Warrants under the symbol SFZW, there can be no assurance that the Warrants
will be quoted or under such symbol. There is currently no established market
for the Warrants, and there is no assurance that any such market will develop.
Assuming there is a current effective registration statement covering the shares
of Common Stock underlying such Warrants, each Warrant may be exercised by
surrendering the Warrant certificate, with the form of election to purchase on
the reverse side of the Warrant certificate properly completed and executed,
together with payment of the exercise price to the Warrant Agent. The Warrants
may be exercised from time to time in whole or in part. If less than all of the
Warrants evidenced by a Warrant certificate are exercised, a new Warrant
certificate will be issued for the remaining number of Warrants.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrantholders against dilution in the event of stock dividends and
distributions, stock splits, recapitalizations, mergers, consolidations and
similar transactions.
DIRECTORS' LIABILITY
Under the Florida Business Corporation Act (the "FBCA"), a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision or failure to act, regarding
corporate management or policy, by a director unless (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (1) a violation of the
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reason to believe his conduct was unlawful; (2) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (3) a circumstance under which an unlawful distribution
is made; (4) in a proceeding by or in the right of the corporation to procure a
judgment in its favor by or in the right of a shareholder, conscious disregard
for the best interest of the corporation or willful misconduct; or (5) in a
proceeding by or in the right of someone other than the corporation or a
shareholder, recklessness or an act or omission which was committed in bad faith
or with malicious purpose or in a manner exhibiting wanton and willful disregard
of human rights, safety or property. A corporation may purchase and maintain
insurance on behalf of any director or officer against any liability asserted
against him and incurred by him in his capacity or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the FBCA. The Company may elect to purchase such
insurance on behalf of its directors and officers.
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<PAGE> 49
The Articles of Incorporation provide that the Company shall indemnify all
directors and officers of the Company, as well as any employees or agents of the
Company to whom the Company has agreed to grant indemnification. Section
607.0850(1) of the FBCA provides that a Florida corporation, such as the
Company, shall have the power to indemnify any person who is or was a party to
any proceeding (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 liability incurred in connection
with such proceeding, including any appeal thereof, 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, to the
fullest extent permitted by applicable law, as amended from time to time. This
indemnification includes the right to advancement of expenses when allowed
pursuant to applicable law.
In addition, the Bylaws provide that a director of the Company shall not be
personally liable to the Company or its shareholders for monetary damages for
breach of the director's fiduciary duty. However, the Bylaws do not eliminate or
limit the liability of a director for any of the following reasons: (i) a breach
of the director's duty of loyalty to the shareholders; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) a violation under Section 607.0834 of the FBCA (which imposes
liability upon directors for unlawful dividends and other distributions); (iv) a
transaction from which the director derived an improper personal benefit; or (v)
an act or omission occurring before the effective date of the Articles of
Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and control ling 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 Securities Act and
is, therefore, unenforceable.
LIABILITY INSURANCE
The Company intends to procure and maintain a policy of insurance under which
the directors and officers of the Company will be insured, subject to the limits
of the policy, against certain losses arising from claims made against such
directors and officers by reason of any acts or omissions covered under such
policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
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<PAGE> 50
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Following the offering to which this Prospectus relates, the Company may be
subject to the anti-takeover provisions of Section 607.0901 of the FBCA (the
"Affiliated Transaction Statute"). In general, the Affiliated Transaction
Statute requires the approval of the holders of two-thirds of the voting shares
of a corporation, other than shares owned by an "interested shareholder", in
order to effectuate an "affiliated transaction", such as a merger, sale of
assets or sale of shares, between a corporation and an interested shareholder.
An "interested shareholder" is defined as the beneficial owner of more than 10%
of the outstanding voting securities of the corporation. Such approval is not
required where the (i) affiliated transaction is approved by a majority of the
disinterested directors, (ii) an interested share holder owns 90% or more of
the corporation's outstanding voting stock, or has owned 80% or more for five
years, or (iii) consideration paid in connection with the affiliated
transaction satisfies the statutory "fair price" formula and the transaction
meets certain other requirements. A corporation may elect, by the vote of a
majority of the outstanding voting securities of the corporation (not including
shares held by an interested shareholder), or by amendment to the articles or
bylaws of the corporation, not to be subject to the provisions of the
Affiliated Transaction Statute. The election will not be effective until 18
months after it is made, and will not apply to any affiliated transaction
between the corporation and someone who was an interested share holder prior to
the effective date of the election.
The application of the Affiliated Transaction Statute could prohibit or delay a
merger, takeover or other change in control of the Company, and therefore could
discourage attempts to acquire the Company.
TRANSFER AGENT
Florida Atlantic Stock Transfer, Inc., 5701 North Pine Island Rd. #310A,
Tamarac, Florida 33321, is the transfer agent and registrar for the Common
Stock.
REPORTS TO SHAREHOLDERS
Subject to the sale of the shares of Common Stock offered hereby, the Company
will register its Common Stock under the provisions of Section 12(g) of the
Exchange Act. Such registration will require the Company to comply with the
periodic reporting, proxy solicitation and certain other requirements of the
Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 2,920,000 shares
of Common Stock outstanding (3,040,000 if the
-48-
<PAGE> 51
Underwriter's Over-Allotment option is fully exercised). Of those shares, the
800,000 shares and 800,000 Warrants being offered hereby will be freely
tradeable without restriction (except as to affiliates of the Company) or
further registration under the Securities Act. Notwithstanding Rule 144 of the
Securities Act, 2,120,000 of the remaining shares of Common Stock outstanding
after this offering would be immediately eligible for sale in the public market
without registration except that the 15 holders thereof have agreed not to sell
their Shares before the first anniversary of the effective date of the
registration statement of which this Prospectus is a part.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities within
the meaning of Rule 144 for at least one year, including the holding period of
any prior owner except an affiliate, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock in the over-the-counter market during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements. An
"affiliate" is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or under common control with,
such issuer.
Prior to this offering, there has been no public trading market for the Common
Stock. The Company intends to file an application to list its stock on the
American Stock Exchange upon completion of this offering.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement, the
Company has agreed to sell to Joseph Charles & Associates, Inc. (the
"Underwriter") and the Underwriter has agreed to purchase from the Company all
800,000 shares of Common Stock and 800,000 Warrants to be sold in this offering.
The Securities are being sold on a firm commitment basis. The Underwriting
Agreement provides, however, that the obligations of the Underwriter are subject
to certain conditions precedent. The Underwriter is committed to purchase all
the Securities offered hereby if any are purchased.
-49-
<PAGE> 52
The Underwriter has advised the Company that it proposes to offer the Common
Stock and Warrants directly to the public at the initial public offering price
set forth on the cover page of this Prospectus, and to selected dealers at that
price, less a concession of not more than $0.___ per share. The Underwriter may
allow a discount of not more than $_____ per share on sales to certain other
dealers. After the initial public offering, the price to the public of the
Common Stock and Warrants and the other terms may be changed.
Several shareholders of the Company, most notably Joseph Visconti, are
shareholders of the Underwriter, which Joseph Visconti founded in 1991. Joseph
Visconti serves the Underwriter as a director and officer and as its largest
shareholder and serves the Company as a director and as its second largest
shareholder, owning 37.03 percent of the Company's Common Stock prior to
completion of this offering. The offering, therefore, is being conducted in
accordance with the applicable provisions of Rule 2720 (previously Schedule E to
the Bylaws of the NASD) of the Conduct Rules of the NASD, which provides that,
among other things, when an NASD member participates in an underwriting of
equity securities in which it or its affiliates has an economic interest, the
initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Kashner, Davidson Securities, Inc. has served in such
role and will recommend a price in compliance with the requirements of Rule
2720. The initial public offering price of the Common Stock set forth on the
cover page of this Prospectus will be no higher than such recommended price. In
addition, the Underwriter may not confirm sales to any discretionary account
without the prior specific written approval of the customer. The Underwriter has
informed the Company that it does not expect to sell any Securities to any
account over which it has discretionary authority.
The Company has granted the Underwriter an option (the "Underwriter's
Over-Allotment Option"), exercisable during the 60-day period following the date
of this Prospectus, to purchase up to 120,000 additional Units, at the initial
public offering price less the underwriting discount. The Underwriter may
exercise such option only for the purpose of covering any over-allotments in the
sale of the Units offered hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriter may be required to make
in respect thereof.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds from the sale of Securities and to pay a
consulting fee of $60,000 for 24 months of consulting services to be rendered.
-50-
<PAGE> 53
The officers, directors and shareholders of the Company have agreed that they
will not offer, sell or otherwise dispose of any Common Stock of the Company
owned by them to the public for a period of at least 12 months from the closing
of this offering without the prior written consent of the Underwriter. The
Underwriter may in its discretion and without notice to the public waive these
lock up agreements and permit holders otherwise agreeing to lock up their shares
to sell any or all of their shares of Common Stock, although the Underwriter has
no current intention of doing so.
The Company has agreed with the Underwriter not to solicit War rant exercises
other than through the Underwriter. Upon exercise of any Warrants commencing one
year from the date of this Prospectus, the Company will pay the Underwriter a
fee of 4% of the aggregate exercise price, if (i) the market price of the
Company's Common Stock on the date the Warrant is exercised is greater than the
then exercise price of the Warrants; (ii) the exercise of the Warrant was
solicited by a member of the NASD who is so designated in writing by the holder
exercising the Warrant; (iii) the Warrant is not held in a discretionary
account; (iv) disclosure of compensation arrangements was made both at the time
of the offering and at the time of exercise of the Warrant; and (v) the
solicitation of the exercise of the Warrant was not in violation of Regulation M
promulgated under the Exchange Act. No solicitation fee will be paid to the
Underwriter for Warrants exercised within one year of the date of this
Prospectus or for Warrants voluntarily exercised at any time without
solicitation.
At the closing of this offering, the Company will sell and deliver to the
Underwriter for an aggregate purchase price of $80.00, the "Underwriter's
Option" to purchase 80,000 shares of Common Stock and 80,000 Warrants at a price
that is equal to 120% of the initial public offering price for the Common Stock
and Warrants. The Warrants underlying the Underwriter's Option will have an
exercise price and other terms identical to the Warrants being offered to the
public pursuant to this Prospectus except that the Underwriter's Option shall
not be redeemable.
The Underwriter's Option will be non-transferable for a period of one year
following the date of this Prospectus except to officers of the Underwriter. The
Underwriter's Option will also contain anti-dilution provisions for stock
splits, stock dividends, recombinations and reorganizations, a one-time demand
registration provision (at the Company's expense) and piggyback registration
rights (which registration rights will expire five years from the date of this
Prospectus)
The Underwriter may engage in over-allotment, stabilizing transactions,
syndicate-covering transactions and penalty bids in accordance with Rule 104 of
Regulation M under the Exchange Act. Over-allotment involves syndicate sales in
excess of the offering
-51-
<PAGE> 54
size, which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate-covering transactions involve purchases of
Common Stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the underwriter to
reclaim a selling concession from a syndicate member when the Common Stock
originally sold by such syndicate member is purchased in a syndicate-covering
transaction to cover syndicate short positions. Such stabilizing transactions,
syndicate-covering transactions and penalty bids may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on thee or otherwise and, if
commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for the Common Stock or
Warrants and there can be no assurance that a market will develop or be
sustained following this offering. The initial public offering price of the
Common Stock and Warrants and the exercise price of the Warrants were determined
taking into account the prospects for the Company, an assessment of the industry
in which the Company operates, the assessment of management, the number of
shares of Common Stock and Warrants offered, the price that purchasers of such
Securities might be expected to pay given the nature of the Company and the
general condition of the securities markets at the time of the offering.
Accordingly, the offering price set forth on the cover page of this Prospectus
should not necessarily be considered an indication of the actual value of the
Company or the Common Stock or Warrants.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Mirkin & Woolf, P.A., West Palm Beach, Florida. Mirkin & Woolf, P.A.
has represented the Underwriter from time to time on other matters. Mirkin &
Woolf, P.A. shall receive, upon effectiveness of the Registration Statement, a
warrant to acquire 10,000 shares of the Company's common stock at an exercise
price of $6.00 per share. The warrant shall be exercisable at any time, in
whole or in parts, through February 2002. Certain legal matters will be passed
upon for the Under writer by Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1996 and the
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1996 and the period May 17, 1995 (inception) to
December 31, 1995 included in this Prospectus have been included herein in
reliance on the
-52-
<PAGE> 55
report of Templeton & Company, P.A., independent accountants, given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 relating to the Units offered hereby has
been filed by the Company with the Securities and Exchange Commission in
Washington, D.C. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to the Company and the
Units offered hereby, reference is hereby made to the Registration Statement and
to the exhibits and schedules thereto. A copy of the Registration Statement may
be inspected by anyone without charge and may be obtained at prescribed rates at
the Securities and Exchange Commission at the Public Reference Section of the
Commission, maintained by the Commission at its principal office located at 450
Fifth Street N.W., Washington, D.C. 20549 and at the Midwest Regional Office at
the Commission located at 500 West Madison Street #1400, Chicago, IL 60661-2511
and at 7 World Trade Center #1300, New York, NY 10048 and copies of all or any
part thereof may be obtained from such office after payment of the fees
prescribed by the Commission.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The Commission's
address on the Web is http://www.sec.gov.
-53-
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheet as of December 31, 1996 F-3
Consolidated Statements of Operations for the period
May 17, 1995 (inception) to December 31, 1995 and
for the year ended December 31, 1996 F-4
Consolidated Statements of Shareholders' Equity for
the period May 17, 1995 (inception) to December 31,
1995 and for the year ended December 31, 1996 F-5
Consolidated Statements of Cash Flows for the period
May 17, 1995 (inception) to December 31, 1995 and
for the year ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
Consolidated Balance Sheet as of June 30, 1997
(unaudited) F-16
Consolidated Statements of Operations for the six
months ended June 30, 1997 and 1996 (unaudited) F-17
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 (unaudited) F-18
Notes to Interim Consolidated Financial Statements
(unaudited) F-19
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Sforza Enterprises Inc.
We have audited the accompanying consolidated balance sheet of Sforza
Enterprises Inc. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1996 and the period May 17, 1995 (inception) to
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Sforza Enterprises Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year ended December 31, 1996 and the period May 17,
1995 (inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Templeton & Company, P.A.
Royal Palm Beach, Florida
March 28, 1997, except for
Notes 2 and 9, as to which
the date is September 5, 1997
F-2
<PAGE> 58
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 202,639
Accounts receivable 2,238
Inventories 38,661
Deferred income taxes 13,583
Other current assets 54,829
----------
Total current assets 311,950
Property and equipment, net 495,370
Other assets, net 278,831
----------
Total assets $1,086,151
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 917
Accrued expenses 84,981
Unearned revenue 61,759
Income taxes payable 15,387
Due to shareholders 63,445
Current portion of long-term debt 114,874
Current portion of obligations under capital leases 30,089
----------
Total current liabilities 371,452
Long-term debt, net 30,014
Obligations under capital leases, net 53,959
Deferred income taxes 7,515
----------
Total liabilities 462,940
----------
Shareholders' equity:
Common stock, $.01 par value; 20,000,000 shares
authorized; 1,975,000 shares issued and
outstanding 19,750
Additional paid-in capital 490,550
Retained earnings 112,911
----------
Total shareholders' equity 623,211
----------
Total liabilities and
shareholders' equity $1,086,151
==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 59
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996 and
the Period May 17, 1995 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Net sales $2,333,530 $ -
---------- -----------
Cost and expenses:
Cost of sales 1,299,501 -
Operating expenses 881,856 12,244
Interest expense, net - 555
---------- -----------
Total cost and expenses 2,181,357 12,799
---------- -----------
Income (loss) before other income 152,173 (12,799)
Other income, net 3,051 -
---------- -----------
Income (loss) before provision for
income taxes 155,224 (12,799)
Provision for income taxes 9,319 -
---------- -----------
Net income (loss) $ 145,905 $ (12,799)
========== ===========
Earnings (net loss) per common share:
Primary $ .07 $ (.01)
========== ===========
Fully diluted $ .07 $ (.01)
========== ===========
Weighted average common shares
outstanding:
Primary 2,026,328 1,986,363
========== ===========
Fully diluted 2,146,328 2,106,363
========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 60
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1996 and
the Period May 17, 1995 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional Retained
----------------------------- Paid-in Earnings
No. Shares Amount Capital (Deficit)
------------ ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Balance, May 17, 1995
(inception) - $ - $ - $ -
Issuance of 500 shares of
common stock by Castle
Room, Inc. - - 10,000 -
Net loss for the period
May 17, 1995 to December 31, 1995 - - - (12,799)
--------- ---------------- ------------- -----------
Balance, December 31, 1995 - - 10,000 (12,799)
Issuance of 1,655,000
shares of common stock
in exchange for 500
shares of Castle Room,
Inc. 1,655,000 16,550 (10,000) ( 6,550)
Issuance of 320,000
shares of common stock 320,000 3,200 490,550 -
Net income for the year
ended December 31, 1996 - - - 145,905
Distributions to shareholders
of Castle Room, Inc. - - - (13,645)
--------- ---------------- ------------- -----------
Balance, December 31, 1996 1,975,000 $ 19,750 $ 490,550 $ 112,911
========= ================ ============= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 61
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD MAY 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 145,905 $ (12,799)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 33,946 146
Deferred income taxes (6,068) --
Increase in accounts receivable (2,238) --
Increase in inventories (38,661) --
Increase in other current assets (47,435) (7,394)
Increase in accounts payable 917 --
Increase in accrued expenses 84,426 555
Increase in unearned revenue 11,759 50,000
Increase in income taxes payable 15,387 --
--------- ---------
Net cash provided by operating
activities 197,938 30,508
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (335,349) (102,843)
Increase in other assets (274,648) (4,580)
--------- ---------
Net cash used in investing activities (609,997) (107,423)
--------- ---------
Cash flows from financing activities:
Proceeds from shareholder borrowings 168,445 70,000
Repayment of notes payable,
shareholders (75,897) --
Proceeds from issuance of long-term
debt 6,242 60,000
Principal payments on long-term debt (20,457) --
Principal payments on obligations
under capital leases (6,825) --
Proceeds from issuance of common stock 493,750 10,000
Distributions to shareholders of
Castle Room, Inc. (13,645) --
--------- ---------
Net cash provided by financing activities 551,613 140,000
--------- ---------
Net increase in cash and cash equivalents 139,554 63,085
Cash and cash equivalents, beginning of
period 63,085 --
--------- ---------
Cash and cash equivalents, end of period $ 202,639 $ 63,085
========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 62
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Sforza Enterprises Inc. (Sforza) was formed in July 1996 and issued 1,655,000
shares of its common stock in exchange for all of the outstanding shares of
common stock of Castle Room, Inc. (formed May 17, 1995), Clematis Bistro
Corporation (formed April 12, 1996), and Sushi Enterprises, Inc. (formed
July 3, 1996). The exchange was accounted for as a pooling of interests and,
accordingly, the accompanying consolidated financial statements include the
results of operations from the inception date of May 17, 1995.
Sforza Enterprises Inc. and subsidiaries (the Company) operate Sforza
Ristorante, an up-scale Northern Italian restaurant located in downtown West
Palm Beach, Florida, which opened for business on February 2, 1996. The
Company plans to open two new restaurants, My Martini Grille and a sushi
restaurant, in locations adjacent to Sforza Ristorante during 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used in preparing the
accompanying financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Sforza
Enterprises Inc. and subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
temporary cash investments with maturities of three months or less, when
purchased, to be cash equivalents.
Inventories
Inventories consist of various food and beverage items which are
stated at the lower of cost or market using the first-in, first-out
method.
Restaurant Start-up Costs
The Company defers certain restaurant start-up costs associated with
the opening of new restaurants (included in other current assets) and
amortizes such costs ratably over twelve months.
F-7
<PAGE> 63
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
assets, which range from three to ten years. Leasehold improvements
are amortized using the straight-line method over the estimated useful
lives of the improvements or the term of the lease, whichever is
shorter. Equipment leased under capital leases is amortized over the
lives of the respective leases.
Organization Costs
Organization costs (included in other assets) are amortized by the
straight-line method over five years.
Unearned Revenue
The Company is obligated to provide meals to individuals pursuant to an
agreement with an entity which enrolled such individuals in a restaurant
discount program. Amounts received from the entity are recorded as
unearned revenue and amortized ratably to income over the term of the
agreement.
Earnings (Net Loss) per Common Share
Primary earnings (net loss) per common share is based on the average
number of common shares outstanding during each period, assuming the
effect of exercising the options (see Note 9) which have an exercise
price less than the average market price of common stock (assumed to be
$5.50 per share) using the modified treasury stock method. In
addition, primary per share amounts include the dilutive effect of
common shares issued for cash consideration below the assumed average
market price during the one year period prior to July 1997.
The fully diluted earnings (net loss) per common share calculation
assumes the conversion of certain convertible debt instruments issued
by the Company subsequent to December 31, 1996 (see Note 9) into
shares of common stock.
Management Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
F-8
<PAGE> 64
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following as December 31, 1996:
<TABLE>
<S> <C>
Operating properties:
Leasehold improvements $ 134,456
Equipment leased under capital
equipment lease 90,873
Furniture and fixtures 239,063
------------
464,392
Less accumulated depreciation and
amortization (33,695)
------------
430,697
Properties undergoing renovation:
Leasehold improvements in progress 64,673
------------
$ 495,370
============
</TABLE>
The Company capitalizes interest on qualifying expenditures in accordance with
Statement of Financial Accounting Standards Number 34. Total interest incurred
and capitalized for the period May 17, 1995 to December 31, 1995 and for the
year ended December 31, 1996 are presented as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Interest incurred $ 23,005 $ 555
Interest capitalized 23,005 --
----------- ------------
Interest expense, net $ -- $ 555
=========== ============
</TABLE>
Depreciation and amortization of property and equipment for the year ended
December 31, 1996 amounted to $33,695. There was no depreciation or
amortization charged for the period May 17, 1995 to December 31, 1995 as assets
were placed in service in 1996. Included in other assets at December 31, 1996
is $231,801 in deposits on pending restaurant property and equipment purchases.
F-9
<PAGE> 65
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4 - DESCRIPTION OF LEASING ARRANGEMENTS
The Company operates primarily in facilities leased from an entity partially
owned by certain of the Company's shareholders under three separate leases. The
leases have specified monthly payments over their ten-year terms and require
the Company to pay its proportionate share of common area maintenance costs and
real estate taxes. Certain of the Company's shareholders have personally
guaranteed an amount aggregating $125,000 in lieu of cash security deposits.
The Company leases certain equipment from unrelated parties under capital
leases. The consolidated balance sheet at December 31, 1996 includes the
following regarding equipment leased under capital leases:
<TABLE>
<S> <C>
Equipment leased under capital leases $ 90,873
Accumulated amortization (4,991)
----------
$ 85,882
==========
</TABLE>
Minimum annual rentals for leases in effect at December 31, 1996 follow:
<TABLE>
<CAPTION>
Equipment
Year Ending Under Capital Operating
December 31, Leases Leases
----------- ------------- ---------
<S> <C> <C> <C>
1997 $ 32,859 $ 58,125
1998 32,859 62,625
1999 26,694 67,125
2000 22,508 71,625
2001 -- 76,125
Thereafter -- 357,375
------------ ---------
Total minimum rentals 114,920 $ 693,000
=========
Less interest portion (30,872)
------------
Present value of net
minimum rentals $ 84,048
============
</TABLE>
Total rent expense under operating leases for the year ended December 31, 1996
amounted to $80,410. There was no rent expense for the period May 17, 1995 to
December 31, 1995.
F-10
<PAGE> 66
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 5 - LONG-TERM DEBT
Long-term debt includes the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable, requires monthly payments of principal and interest at
prime plus 2%, 10.25% at December 31, 1996, and is due in 1998.
The note is uncollateralized and personally guaranteed by certain
shareholders. $ 41,986
Note payable, requires monthly payments of principal and interest at
12%, and is due in 1997. The note is collateralized by certain
equipment. 3,799
Notes payable, shareholders, represents loans from certain shareholders
for working capital purposes pursuant to uncollateralized notes which
are due in monthly installments of principal and interest at 10%
through Janurary 1998. Interest incurred on such notes amounted to
$13,758 for 1996. 99,103
--------
$144,888
========
</TABLE>
Principal payments due on long-term debt in each of the years subsequent to
December 31, 1996 follow:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
----------- -----------
<S> <C>
1997 $ 114,874
1998 30,014
-----------
$ 144,888
===========
</TABLE>
NOTE 6 - DUE TO SHAREHOLDERS
Due to shareholders represents outstanding borrowings from certain shareholders
for working capital purposes. Such borrowings are uncollateralized,
non-interest bearing, and due on demand.
F-11
<PAGE> 67
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - INCOME TAXES
The shareholders of Castle Room, Inc. elected for it to be treated as an S
Corporation for federal income tax purposes, whereby taxable income or loss is
apportioned among shareholders rather than taxed directly to the corporation.
Accordingly, the financial statements for the period May 17, 1995 to December
31, 1995 do not reflect a provision for income taxes.
Effective July 29, 1996, in connection with the exchange of shares between the
shareholders of Castle Room, Inc. and Sforza Enterprises Inc. (see Note 1),
Castle Room, Inc. became a wholly-owned subsidiary of Sforza Enterprises Inc.
and no longer qualified for treatment as an S Corporation for federal income
tax purposes for periods subsequent to July 29, 1996. The Company filed a
consolidated federal income tax return for the period July 29, 1996 to December
31, 1996.
The income tax provision for the year ended December 31, 1996 consists as
follows:
<TABLE>
<CAPTION>
Current Deferred Total
-------- --------- ----------
<S> <C> <C> <C>
Federal $ 11,791 $ (5,881) $ 5,910
State 3,596 (187) 3,409
-------- --------- ---------
$ 15,387 $ (6,068) $ 9,319
======== ========= =========
</TABLE>
A reconciliation of the effective income tax rate with the U.S. statutory income
tax rate is presented as follows:
<TABLE>
<S> <C>
U.S. statutory rate 34.0%
S Corporation income of subsidiary
taxed directly to shareholders (20.2)
Surtax bracket difference (7.5)
State income tax, net of federal
benefit .8
Other (1.1)
-----
Effective income tax rate 6.0%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and tax carryforwards.
The following is a summary of the significant components of the Company's net
deferred tax assets and liabilities as of December 31, 1996:
F-12
<PAGE> 68
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 7 - INCOME TAXES, CONTINUED
<TABLE>
<CAPTION>
Net Deferred Tax
--------------------------------
Assets Liabilities
Temporary Difference/Tax Carryforward (Current) (Non-Current)
- ------------------------------------- --------- ------------
<S> <C> <C>
Capitalized interest per financial
statements $ - $ 8,650
Depreciation difference - (1,135)
Accrued expenses not deducted 8,004 -
Tax inventories over financial
statement amount 790 -
Tax credit carryforward 4,789 -
--------- ----------
$ 13,583 $ 7,515
========= ==========
</TABLE>
NOTE 8 - SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information for the year ended December
31, 1996 and the period May 17, 1995 to December 31, 1995 follows:
<TABLE>
<CAPTION> 1996 1995
--------- ---------
<S> <C> <C>
Non-cash investing and financing
activities:
Equipment recorded under capital
leases $ 90,873 $ -
========= =========
Cash payments for:
Interest $ 22,697 $ -
========= =========
Income taxes $ - $ -
========= =========
</TABLE>
NOTE 9 - SUBSEQUENT EVENTS
Preferred Stock
During May 1997, the Company amended its articles of incorporation to authorize
the issuance of up to 400,000 shares of preferred stock and issued 160,000
shares of Series A convertible preferred stock (the Series A shares) for
$400,000. The Series A shares have a liquidation preference of $2.50 per share
and carry a cumulative dividend of ten percent (10%) per annum. Upon the
completion of a public offering of the Company's common stock (see below),
80,000 of the Series A shares will convert into 80,000 common shares while the
other 80,000 Series A shares will be redeemed for $400,000 with proceeds from
the public offering.
F-13
<PAGE> 69
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 9 - SUBSEQUENT EVENTS, CONTINUED
Management Agreement
On June 1, 1997, the Company consummated a one-year agreement with Unique
Restaurant Concepts, Inc. (URCI) for the management of its restaurants (see Note
1). URCI provided management services pursuant to an informal agreement from
February through May 1997. Under these arrangements, URCI's management fees
will total $58,000 through October 1, 1997. Thereafter, URCI will receive a
fee equal to one percent of net sales plus twenty percent of the net operating
profit of the restaurants as defined in the agreement.
Fixed Rate Promissory Note
During 1997, the Company borrowed $250,000 pursuant to a fixed rate promissory
note. The note is payable to a principal of the company which manages its
restaurants (see above), is collateralized by substantially all of the
Company's assets, bears interest at 15% and is due on demand. In addition,
repayment of the note is guaranteed by certain shareholders. On June 1, 1997,
the terms of the loan were modified to convert $125,000 of the principal
balance into 40,000 shares of common stock and establish a September 30, 1997
due date for payment of the remaining $125,000.
Stock Option Plan
On June 1, 1997, the Company adopted the equity incentive plan (the Plan) which
provides for the granting of options to key employees and consultants to
purchase up to 285,000 shares of the Company's common stock. No options were
granted pursuant to the Plan.
Common Stock Issuance
Subsequent to December 31, 1996, the Company issued 25,000 shares of its common
stock for total proceeds of $31,250 ($1.25 per share).
Registration Statement
During September 1997, the Company expects to file a registration statement
with the Securities and Exchange Commission to offer 800,000 units (consisting
of 800,000 shares of its common stock and 800,000 warrants to purchase shares
of common stock) at a price of $5.50 per unit.
F-14
<PAGE> 70
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 9 - SUBSEQUENT EVENTS, CONTINUED
Funding Agreement
On July 1, 1997, the Company consummated a funding agreement with an affiliate
of URCI and four limited partnerships which have been formed or are expected
to be formed each for the purpose of owning and operating a restaurant. One of
the restaurants opened in May 1997 and the others are expected to be
constructed and opened as soon as possible thereafter.
Under the funding agreement, the Company will provide $3,000,000 of the proceeds
from its proposed initial public offering (see above) to the limited
partnerships to fund the construction and opening of the restaurants in exchange
for a 50% equity interest in each of the limited partnerships. Management of
the restaurants will be provided by URCI pursuant to separate management
agreements. The funding agreement provides for URCI to manage such restaurants
as long as the Company maintains an equity ownership interest therein. The
Company expects to account for the acquisition as a purchase and include the
accounts of the limited partnerships in its consolidated financial statements.
In addition, the Company will grant to URCI options to purchase 150,000 shares
of its common stock at an exercise price of $2.50 per share which will be
exercisable through December 31, 1999. Under the terms of the option
agreement, no options or shares issued pursuant to the option agreement may be
sold or transferred until March 31, 1999.
In the event the Company's initial public offering is not completed by October
31, 1997, the funding agreement will terminate.
F-15
<PAGE> 71
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 110,502
Accounts receivable 6,459
Inventories 94,385
Deferred income taxes 13,583
Other current assets 239,702
----------
Total current assets 464,631
Property and equipment, net 913,007
Other assets, net 225,185
----------
Total assets $1,602,823
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 125,000
Accounts payable 76,372
Accrued expenses 97,604
Income taxes payable 300
Current portion of long-term debt 25,528
Current portion of obligations under capital leases 21,156
----------
Total current liabilities 345,960
Long-term debt, net 15,584
Obligations under capital leases, net 53,597
Deferred income taxes 7,515
----------
Total liabilities 422,656
----------
Series A convertible preferred stock 400,000
----------
Common shareholders' equity:
Common stock, $.01 par value; 20,000,000 shares
authorized; 2,040,000 shares issued and
outstanding 20,400
Additional paid-in capital 646,150
Retained earnings 113,617
----------
Total common shareholders' equity 780,167
----------
Total liabilities and shareholders' equity $1,602,823
==========
</TABLE>
See notes to interim consolidated financial statements.
F-16
<PAGE> 72
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales $2,679,903 $ 925,555
---------- ----------
Cost and expenses:
Cost of sales 1,524,705 470,920
Operating expenses 1,129,779 349,920
Interest expense, net 24,500 --
---------- ----------
Total cost and expenses 2,678,984 820,840
---------- ----------
Income before other income 919 104,715
Other income, net 87 160
---------- ----------
Income before provision for
income taxes 1,006 104,875
Income tax expense 300 --
---------- ----------
Net income $ 706 $ 104,875
========== ==========
Earnings per common share:
Primary $ -- $ .01
========== ==========
Fully diluted $ -- $ .01
========== ==========
Weighted average common shares
outstanding:
Primary 2,085,698 1,986,363
========== ==========
Fully diluted 2,199,068 2,106,363
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
F-17
<PAGE> 73
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 706 $ 104,875
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 65,123 16,303
Increase in accounts receivable (4,221) (924)
Increase in inventories (55,724) (33,451)
(Increase) decrease in other current
assets (184,873) 4,615
Increase in accounts payable 75,455 2,668
Increase in accrued expenses 12,623 38,619
Decrease in unearned revenue (61,759) (9,797)
Decrease in income taxes payable (15,087) --
--------- ---------
Net cash provided by (used in) operating
activities (167,757) 122,908
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (482,633) (178,793)
(Increase) decrease in other assets 53,520 (1,399)
--------- ---------
Net cash used in investing activities (429,113) (180,192)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 156,250 --
Proceeds from issuance of preferred stock 400,000 --
Proceeds from notes payable, shareholders -- 105,000
Other debt issuance proceeds 133,250 6,242
Repayment of due to shareholders (63,445) --
Repayment of notes payable, shareholders (99,103) --
Principal payments on long-term debt (12,924) (9,434)
Principal payments on obligations
under capital leases (9,295) --
Distributions to shareholders of Castle
Rock, Inc. -- (13,645)
--------- ---------
Net cash provided by financing activities 504,733 88,163
--------- ---------
Net increase (decrease) in cash and cash
equivalents (92,137) 30,879
Cash and cash equivalents, beginning of
period 202,639 63,085
--------- ---------
Cash and cash equivalents, end of period $ 110,502 $ 93,964
========= =========
Total interest paid during the period $ 13,611 $ 12,620
========= =========
Total income taxes paid during the period $ 15,387 $ --
========= =========
</TABLE>
See notes to interim consolidated financial statements.
F-18
<PAGE> 74
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated statements as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996 are unaudited; however, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the consolidated financial statements for these interim
periods have been included. The results of the interim period ended June 30,
1997 are not necessarily indicative of the results to be obtained for the full
fiscal year ending December 31, 1997.
SIGNIFICANT TRANSACTIONS
Fixed Rate Promissory Note
During 1997, the Company borrowed $250,000 pursuant to a fixed rate promissory
note. The note is payable to a principal of the Company which manages its
restaurants (see below), is collateralized by substantially all of the
Company's assets, bears interest at 15% and is due on demand. In addition,
repayment of the note is guaranteed by certain shareholders. On June 1, 1997,
the terms of the loan were modified to convert $125,000 of the principal
balance into 40,000 shares of common stock and establish a September 30, 1997
due date for payment of the remaining $125,000.
Common Stock Issuance
During January 1997, the Company issued 25,000 shares of its common stock for
total proceeds of $31,250 ($1.25 per share).
Preferred Stock
During May 1997, the Company amended its articles of incorporation to
authorize the issuance of up to 400,000 shares of preferred stock and issued
160,000 shares of Series A convertible preferred stock (the Series A shares) for
$400,000. The Series A shares have a liquidation preference of $2.50 per share
and carry a cumulative dividend of ten percent (10%) per annum.
Upon the completion of a public offering of the Company's common stock (see
below), 80,000 of the Series A shares will convert into 80,000 common shares
while the other 80,000 Series A shares will be redeemed for $400,000 with
proceeds from the public offering. The Series A shares are classified as
temporary equity in the consolidated balance sheet at June 30, 1997. The
redemption of the 80,000 Series A shares will result in a $200,000 preferred
stock dividend which will be recorded as a deduction from earnings attributable
to common shareholders. The conversion of the remaining 80,000 Series A shares
will result in a $200,000
F-19
<PAGE> 75
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED),
CONTINUED
SIGNIFICANT TRANSACTIONS, CONTINUED
Preferred Stock, continued
increase in common shareholders' equity. If the initial public offering does
not occur by January 1, 1998, the Series A shares will be redeemed at cost plus
four percent.
Accrued dividends to preferred shareholders approximating $4,400 were charged
to other income, net in the accompanying statement of income for the six months
ended June 30, 1997.
Management Agreement
On June 1, 1997, the Company consummated a one-year agreement with Unique
Restaurant Concepts, Inc. (URCI) for the management of its Company-owned
restaurants. URCI provided management services pursuant to an informal
agreement from February through May 1997. Under these arrangements, URCI's
management fees will total $58,000 through October 31, 1997. Thereafter, URCI
will receive a fee equal to one percent of net sales plus twenty percent of the
net operating profit of the restaurants as defined in the agreement.
Stock Option Plan
On June 1, 1997, the Company adopted the equity incentive plan (the Plan)
which provides for the granting of options to key employees and consultants to
purchase up to 285,000 shares of the Company's common stock. No options were
granted pursuant to the Plan.
SUBSEQUENT EVENTS
Registration Statement
During September 1997, the Company expects to file a registration statement with
the Securities and Exchange Commission to offer 800,000 units (consisting of
800,000 shares of its common stock and 800,000 warrants to purchase shares of
common stock) at a price of $5.50 per unit.
Funding Agreement
On July 1, 1997, the Company consummated a funding agreement with an
affiliate of URCI and four limited partnerships which have been formed or are
expected to be formed each for the purpose of owning and operating a restaurant.
One of the restaurants opened in May 1997 and the others are expected to be
constructed and opened as soon as possible thereafter.
F-20
<PAGE> 76
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED),
CONTINUED
SUBSEQUENT EVENTS, CONTINUED
Funding Agreement, continued
Under the funding agreement, the Company will provide $3,000,000 of the
proceeds from its proposed initial public offering (see above) to the limited
partnerships to fund the construction and opening of the restaurants in exchange
for a 50% equity interest in each of the limited partnerships. Management of the
restaurants will be provided by URCI pursuant to separate management agreements.
The funding agreement provides for URCI to manage such restaurants as long as
the Company maintains an equity ownership interest therein. The Company expects
to account for the acquisition as a purchase and include the accounts of the
limited partnerships in its consolidated financial statements.
In addition, the Company will grant to URCI options to purchase 150,000 shares
of its common stock at an exercise price of $2.50 per share which will be
exercisable through December 31, 1999. Under the terms of the option agreement,
no options or shares issued pursuant to the option agreement may be sold or
transferred until March 31, 1999.
In the event the Company's initial public offering is not completed by October
31, 1997, the funding agreement will terminate.
EARNINGS PER COMMON SHARE
Primary earnings per common share is based on the average number of common
shares outstanding during each period, assuming the effect of exercising
warrants which have an exercise price less than the average market price of
common stock (assumed to be $5.50 per share) using the modified treasury stock
method. In addition, primary per share amounts include the dilutive effect of
common shares issued for cash consideration below the assumed average market
price during the one year period prior to July 1997.
The fully diluted earnings per common share calculation assumes the conversion
of the convertible promissory note and convertible Series A shares, issued by
the Company subsequent to December 31, 1996, into shares of common stock. The
net income for the six months ended June 30, 1997 used in the fully diluted
calculation was adjusted for accrued preferred stock dividends and interest
incurred on the convertible promissory note, net of tax benefits.
F-21
<PAGE> 77
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE UNITS
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE
PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
OF THE PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.............................. 4
Risk Factors......................... 9
Use of Proceeds...................... 19
Dividend Policy...................... 20
Dilution............................. 20
Selected Financial Date.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 28
Management........................... 36
Principal Shareholders............... 40
Certain Transactions................. 42
Description of Securities............ 44
Shares Eligible for Future Sale...... 50
Underwriting......................... 50
Legal Matters........................ 53
Experts.............................. 54
Available Information................ 54
Index to Financial Statements........ F-1
</TABLE>
Until ________, 1997 (25 days after the commencement of this offering), 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 their unsold allotments or
subscriptions.
===============================================================================
===============================================================================
SFORZA ENTERPRISE INC.
800,000 Shares
of Common Stock and 800,000
Redeemable Warrants
PROSPECTUS
___________, 1997
JOSEPH CHARLES & ASSOCIATES, INC.
===============================================================================
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850(1) of the Florida Business Corporation Act, as amended (the
"Florida Act"), provides that, in general, a Florida corporation may indemnify
any person who was or is a party to any proceeding (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 liability incurred in connection with such proceeding, including any
appeal thereof, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interest of the corporation and,
with respect to any criminal action or proceeding, he had no reasonable cause
to believe his conduct was unlawful.
In the case of proceedings by or in the right of the corporation, Section
607.0850(2) of the Florida Act provides that, in general, a corporation may
indemnify any person who was or is a party to any such proceeding by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation against expenses and amounts paid in settlement actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof, provided that such per-son acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification shall be
made in respect of any claims as to which such person is adjudged liable unless
a court of competent jurisdiction determines upon application that such person
is fairly and reasonably entitled to indemnity.
Section 607.0850 further provides that to the extent a director, officer,
employee or agent of a corporation is successful on the merits or in the
defense of any proceeding referred to in subsections (1) or (2) or Section
607.0850 or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses actually and reasonably incurred by him in
connection therewith; that the corporation may advance such expenses; that
indemnification provided for by Section 607.0850 shall not be deemed exclusive
of any other rights to which the indemnification party may be entitled; and
that the corporation may purchase and maintain insurance on behalf of such
person against any liability asserted against him or incurred by him in any
such capacity or arising out
II-1
<PAGE> 79
of his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under such Section 607.0850.
Section 607.0850 of the Florida Act further provides that, in general,
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that such person's actions, or omissions to act, were
material to the cause of action so adjudicated and constitute: (i) a violation
of the criminal law, unless such person had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
lawful; (ii) a transaction from which such person derived an improper personal
benefit; (iii) in the case of a director, a circumstance under which the
director has voted for or assented to a distribution made in violation of the
Florida Act or the corporation's articles of incorporation; or (iv) willful
misconduct or a conscious disregard for the best interest of the corporation
in a proceeding by or in the right of the corporation to procure a judgment in
favor or in a proceeding by or in the right of a shareholder.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Florida law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates (other than the
Commission registration fee) of the expenses in connection with the issuance
and distribution of the shares of Common Stock being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...... $ 3,316
NASD filing fee.......................................... 1,006
American Stock Exchange listing fee...................... --
Printing expenses........................................ 75,000
Legal fees and expenses.................................. 75,000
Accounting fees and expenses............................. 45,000
Blue sky fees and expenses............................... 50,000
Transfer agent and registrar fees and expenses........... 5,000
Miscellaneous expenses................................... --
--------
Total $275,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's inception, the Company has sold unregistered
II-2
<PAGE> 80
securities in the amounts, at the times and for the aggregate amounts of
consideration listed as follows:
In July 1996 the Company sold (i) 802,500 shares of Common Stock to Joseph
C. Visconti in consideration for the transfer by Mr. Visconti to the Company
of 250 shares of the common stock of Castle Room, Inc., and (ii) 802,500 shares
of Common Stock to Dale J. Brisson in consideration for the transfer by
Mr. Brisson to the Company of 250 shares of the common stock of Castle Room,
Inc.
Between August and January 1997 the Company sold 420,000 common shares in the
aggregate to the following persons at a price of $1.25 per share, paid in
cash.
<TABLE>
<CAPTION>
Name Shares
---- ------
<S> <C>
1. Gerald J. Visconti, Jr. 107,000
2. Patrick L. Amarante 100,000
3. James M. Hall 100,000
4. Milton H. Barbarosh 20,000
5. Eric and Ann Fishman 20,000
6. Allan R. Lyons 20,000
7. Robert M. Samuels 20,000
8. Suzanne M. Trapani 19,000
9. Richard A. Rappaport 10,000
10. Robert and Abi Schmeltzer 4,000
</TABLE>
In June 1997 the Company sold 40,000 shares to Daniel S. Catalfumo at a price
of $3.125 per share.
Several of the investors listed above have acquired or sold shares of the
Company's Common Stock in private transactions in 1997.
The Securities issued by the Company in the foregoing transactions were not
registered under the Securities Act of 1933 in reliance upon exemptions
contained in Section 4(2) thereof.
ITEM 27. EXHIBITS
<TABLE>
<S> <C>
1. Form of Underwriting Agreement (with form of Underwriter's Warrant)*
3.1 Articles of Incorporation, as amended
3.2 Bylaws
4.1 Specimen Common Stock Certificate
4.2 Specimen Redeemable Warrant*
4.3 Form of Warrant Agreement*
4.4 Fixed Rate Promissory Note in principal amount of
$250,000 dated January 31, 1997 payable to Unique Restaurant
Concepts Ltd.*
4.5 Fixed Rate Promissory Note in principal amount of $125,000 dated
June 1, 1997 payable to Daniel S. Catalfumo*
</TABLE>
II-3
<PAGE> 81
4.6 Promissory Note in the principal amount of $60,000 dated
December 1, 1995 by the Company payable to First Union
National Bank of Florida*
4.7 Form of Stock Option Agreement dated July 1, 1997 between
the Company and Unique Restaurant Concepts Ltd.*
5 Form of Opinion of Mirkin & Woolf, P.A.*
10.1 1997 Equity Incentive Plan
10.2 Certificate of registration of My Martini Grille as a
servicemark*
10.3 Certificate of registration of Sforza Ristorante as a
servicemark
10.4 Office lease
10.5 Sforza Ristorante lease
10.6 My Martini Grille lease
10.7 Planned sushi restaurant lease
10.8 Management and Consulting Agreement*
10.9 Funding Agreement*
10.10 Form of Lock-up Agreement*
21 Subsidiaries of the Registrant
24.1 Consent of Templeton & Company, P.A.
24.2 Consent of Mirkin & Woolf, P.A. (contained in Exhibit 5)
25 Power of Attorney of Directors (included on signature page)
27.1 Financial Data Schedule - 1997*
27.2 Financial Data Schedule - 1996*
- -----------------------------
* Filed Herewith.
ITEM 28. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
or securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.
C. For the purposes of determining any liability under the Act, 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 registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Act shall be deemed to be part of this registration statement
as of the time the Commission declared it effective.
D. For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering of those securities
II-4
<PAGE> 82
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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of West
Palm Beach, State of Florida, on the 12th day of September, 1997.
SFORZA ENTERPRISES INC.
By: /s/ Dale J. Brisson
--------------------------
Dale J. Brisson, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Dale J. Brisson and Gerald J. Visconti Jr. his true
and lawful attorney-in-face, each acting alone, with full power of substitution
and resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments including post-effective amendments
to this registration statement and file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes, each acting alone may lawfully do or cause to be done by
virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
/s/ Dale J. Brisson President, Chief Executive
- --------------------------- Officer and Director September 12, 1997
Dale J. Brisson
/s/ Gerald J. Visconti, Jr. Vice President, Chief September 12, 1997
- --------------------------- Financial Officer,
Gerald J. Visconti, Jr. (Principal Accounting
Officer), Secretary
and Director
/s/ Daniel S. Catalfumo Director September 12, 1997
- --------------------------
Daniel S. Catalfumo
/s/ Dennis R. Max Director September 12, 1997
- --------------------------
Dennis R. Max
/s/ Burton M. Rapoport Director September 12, 1997
- --------------------------
Burton M. Rapoport
/s/ Joseph C. Visconti Director September 12, 1997
- --------------------------
Joseph C. Visconti
II-5
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<S> <C>
1 Form of Underwriting Agreement (with form of Underwriter's
Warrant)*
3.1 Articles of Incorporation, as amended
3.2 Bylaws
4.1 Specimen Common Stock Certificate
4.2 Specimen Redeemable Warrant*
4.3 Form of Warrant Agreement*
4.4 Fixed Rate Promissory Note in principal amount of $250,000
dated January 31, 1997 payable to Unique Restaurant Concepts
Ltd.*
4.5 Fixed Rate Promissory Note in principal amount of $125,000
dated June 1, 1997 payable to Daniel S. Catalfumo*
4.6 Promissory Note in the principal amount of $60,000 dated
December 1, 1995 by the Company payable to First Union National
Bank of Florida*
4.7 Form of Stock Option Agreement dated July 1, 1997 between the
Company and Unique Restaurant Concepts Ltd.*
5 Form of Opinion of Mirkin & Woolf, P.A.*
10.1 1997 Equity Incentive Plan
10.2 Certificate of registration of My Martini Grille as a
servicemark*
10.3 Certificate of registration of Sforza Ristorante as a
servicemark
10.4 Office lease
10.5 Sforza Ristorante lease
10.6 My Martini Grille lease
10.7 Planned sushi restaurant lease
10.8 Management and Consulting Agreement*
10.9 Funding Agreement*
10.10 Form of Lock-up Agreement*
21 Subsidiaries of the Registrant
24.1 Consent of Templeton & Company, P.A.
24.2 Consent of Mirkin & Woolf, P.A. (contained in Exhibit 5)
25 Power of Attorney (included on signature page)
27.1 Financial Data Schedule - 1997*
27.2 Financial Data Schedule - 1996*
</TABLE>
- -----------------------------
* Filed Herewith.
II-6
<PAGE> 1
EXHIBIT 1
SFORZA ENTERPRISES, INC.
UNDERWRITING AGREEMENT
____________, 1997
JOSEPH CHARLES & ASSOCIATES, INC.
As Representative of the
Several Underwriters
9701 Wilshire Blvd.
Beverly Hills, CA 90212
Ladies and Gentlemen:
Sforza Enterprises, Inc., a Florida corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters"), an aggregate of 800,000 units (the "Units"), each
Unit containing one share of the Company's authorized but unissued Common Stock,
par value $0.01 per share (the "Common Stock") and one redeemable warrant to
purchase one share of Common Stock at a price per share of Common Stock equal to
$_____ (the "Warrants") (such Units herein referred to as the "Firm
Securities"). The Warrants will be issued and governed in accordance with the
terms and conditions of that certain Warrant Agreement dated __________, 1997
(the "Public Warrant Agreement") by and between the Company and Florida Atlantic
Stock Transfer, Inc., as Warrant Agent. The Company also proposes to grant to
the Underwriters an option to purchase up to 120,000 additional Units (such
Units herein referred to as the "Option Securities") for the sole purpose of
covering over-allotments, if any, in connection with the sale of the Firm
Securities. The Firm Securities and any Option Securities purchased pursuant to
this Agreement (including the shares of Common Stock underlying the Warrants
included in the Firm Securities and the Option Securities) are referred to in
this Agreement as the "Securities." The Company also proposes to sell to you
individually, and not in your capacity as Representative, five-year warrants to
purchase up to 80,000 Units (the "Representative's Warrants"). The sale of the
Representative's Warrants will be consummated in accordance with the terms and
conditions of that certain Representative's Warrant Agreement dated as of
___________, 1997 between the Company and the Representative (the
"Representative's Warrant Agreement"). The Representative's Warrants and the
shares of Common Stock and Warrants issuable upon the exercise of the
Representative's Warrants (including the Common Stock issuable upon exercise of
the Warrants issuable upon the exercise of the Representative's Warrants) are
hereinafter sometimes referred to collectively as the "Representative's Warrant
Securities." Joseph Charles & Associates, Inc. is acting as representative of
the several Underwriters, and in that capacity is referred to in this Agreement
as the "Representative."
The Company hereby confirms its agreement with the several Underwriters
as follows:
<PAGE> 2
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several Underwriters as
follows:
(a) The Company meets the requirements for use of Form SB-2 under
the Securities Act of 1933, as amended (the "Securities Act"), and a
registration statement (Registration No. 333-32117) on Form SB-2 relating to
the Securities, including such amendments to such registration statement as may
have been required to the date of this Agreement, has been prepared by the
Company under and in conformity with the provisions of the Securities 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. If such registration statement has not become effective upon
execution of this Agreement, a further amendment to such registration
statement, including a form of final prospectus, necessary to permit such
registration statement to become effective will promptly be filed by the
Company with the Commission. If such registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will
promptly be filed by the Company with the Commission in accordance with Rule
424 of the Rules and Regulations (and in form and substance reasonably
satisfactory to the counsel for the Representative). The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the Registration Statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of the Registration Statement, shall also mean (from and
after the effectiveness of such amendment) the Registration Statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Securities included in the Registration Statement at
the time it became effective, except that if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Securities that differs from the Prospectus on file with the
Commission at the time the Registration Statement became or becomes, as the
case may be, effective, whether or not the revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b)(3) of the Rules and
Regulations, the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus, or any amendment or supplement to any
of the foregoing, shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering and Retrieval System ("EDGAR").
(b) No stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has been issued
and no proceedings for that purpose are pending or threatened or, to the best
knowledge of the Company, contemplated by the Commission; no stop order
suspending the sale of the Securities in any jurisdiction has been issued and
no proceedings for that purpose are pending or, to the best knowledge of the
Company, threatened or are contemplated; and any request of the Commission for
additional
2
<PAGE> 3
information (to be included in the Registration Statement or the Prospectus or
otherwise) has been complied with.
(c) The Company and each of its subsidiaries have been duly
organized and are validly existing in good standing under the laws of their
respective jurisdiction of organization, have full power and authority to own or
lease their respective properties and conduct their respective business as
described in the Registration Statement and the Prospectus and as they are
currently conducted, and are duly qualified as a foreign organization and in
good standing in all jurisdictions in which the character of the property owned
or leased or the nature of the business transacted by it makes qualification
necessary (except where the failure to be so qualified would not have a material
adverse effect on the business, properties, condition (financial or otherwise),
prospects or results of operations of the Company or any of its subsidiaries.
Except as disclosed in the Registration Statement, the Company and each of its
subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities (including foreign governments) that
are material to the conduct of their respective business, all of which are valid
and in full force and effect. Except as disclosed in the Registration Statement,
the Company owns all of the outstanding capital stock of each of its
subsidiaries, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest of any type, kind or nature.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
material loss or interference with the business of the Company or any of its
Subsidiaries from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any court or governmental action, order or decree,
or any changes in the capital stock or long-term debt of the Company or any of
its subsidiaries, or any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company, or any material adverse change, or a
development known to the Company that might cause or result in a material
adverse change, in or affecting the general affairs, management, business,
properties, condition (financial or otherwise), prospects or results of
operations of the Company or any of its subsidiaries, whether or not arising
from transactions in the ordinary course of business, other than as set forth in
the Registration Statement and the Prospectus, and since such dates, except in
the ordinary course of business, neither the Company nor any of its subsidiaries
has entered into any material transaction not described in the Registration
Statement and the Prospectus.
(e) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirement of the Securities Act and the Rules and Regulations; when the
Registration Statement became or becomes, as the case may be, effective (the
"Effective Date") and when the Prospectus is first filed (if required) in
accordance with Rule 424(b), and at all times subsequent thereto up to and at
the "Closing Date" (as hereinafter defined) and through any later date on which
Option Securities are to be purchased, as the case may be, the Registration
Statement and the Prospectus, and any amendments or supplements thereto, will in
all material respects conform to the requirements of the Securities Act and the
Rules and Regulations, and the Securities Exchange Act of 1934, as amended, (the
3
<PAGE> 4
"Exchange Act"), and the rules and regulations of the Commission thereunder; on
the Effective Date, the Registration Statement did not or will not contain any
untrue statement of a material fact and did not or will not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this Section 1(e) shall apply to statements
in, or omissions from, the Registration Statement or the Prospectus made in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of the Underwriters through the Representative
specifically for use in the Registration Statement or the Prospectus. There is
no agreement, contract, license, lease or other document required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. The contracts so described in the Prospectus are in full force and
effect on the date hereof, and neither the Company nor any of its subsidiaries,
nor to the best knowledge of the Company, any other party, is in material breach
of or default under any such contracts.
(f) All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities, and
the authorized and outstanding capital stock of the Company conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company).
The description of the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted or exercised
thereunder, set forth in the Prospectus accurately and fairly present the
information required to be shown with respect to such plans, arrangements,
options and rights. The Units, Common Stock (including the Common Stock
underlying the Warrants) and the Warrants to be sold by the Company hereunder
have been duly authorized for issuance and sale to the Underwriters pursuant to
this Agreement and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable. Other than this Agreement, the
Public Warrant Agreement, the Representative's Warrant Agreement and the options
and warrants to purchase the Common Stock described in the Prospectus, there are
no options, warrants or other rights outstanding to subscribe for or purchase
any shares of the Company's capital stock. There are no preemptive rights or any
restrictions upon the voting or transfer of any of the Securities pursuant to
the Company's articles of incorporation, bylaws or any other governing document
or agreement to which the Company or any of its subsidiaries is a party or by
which any of them may be bound. Neither the filing of the Registration Statement
nor the offering or sale of the Securities as contemplated by this Agreement
gives rise to any rights, other than those which have been waived or satisfied,
for or relating to the registration of any of the Securities or any other
capital stock of the Company.
4
<PAGE> 5
(g) The Company has full right, power and authority to enter
into and perform its obligations under this Agreement, the Public Warrant
Agreement and the Representative's Warrant Agreement, and to issue, sell and
deliver the Securities and the Representative's Warrant Securities. This
Agreement, the Public Warrant Agreement and the Representative's Warrant
Agreement have each been duly authorized, executed and delivered by the Company
and constitute the valid and binding agreements of the Company and each is
enforceable against the Company in accordance with its terms.
(h) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be, in violation of or
in default under, nor will the execution or delivery of this Agreement, the
Public Warrant Agreement or the Representative's Warrant Agreement, or the
consummation of the transactions contemplated by such agreements result in a
violation of or constitute a default (with the giving of notice, passage of time
or otherwise) under the articles of incorporation or other charter or governing
documents of the Company or any of its subsidiaries, or any obligation,
agreement, covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, deed of trust,
loan agreement, lease, license, joint venture or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which it or any
of their properties may be bound or affected, nor will the performance by the
Company of its obligations under this Agreement, the Public Warrant Agreement or
the Representative's Warrant Agreement violate any law, rule, administrative
regulation or decree of any court or any governmental agency or body having
jurisdiction over the Company, its subsidiaries or any of their respective
properties, or result in the creation or imposition of any lien, charge, claim
or encumbrance upon any property or asset of the Company or any of its
subsidiaries. Except for permits and similar authorizations required under the
Securities Act, the Exchange Act or under other securities or Blue Sky laws of
certain jurisdictions, and for such permits and authorizations that have been
obtained, no consent, approval, authorization or order of any court,
governmental agency or body or financial institution is required in connection
with the consummation of the transactions contemplated by this Agreement, the
Public Warrant Agreement or the Representative's Warrant Agreement.
(i) The Company and each of its subsidiaries owns, or has
valid rights to use, all items of real and personal property which are material
to the business of the Company or any of its subsidiaries, free and clear of all
liens, encumbrances and claims that might materially interfere with the
business, properties, condition (financial or otherwise) or prospects of the
Company or any of its subsidiaries.
(j) Except as described in the Prospectus, there is no
litigation or governmental proceeding to which the Company or any of its
subsidiaries is a party, or to which any property of the Company or any of its
subsidiaries is subject, which is pending, or to the best knowledge of the
Company, contemplated against the Company or any of its subsidiaries, that might
have any material adverse effect on, or might result in any material adverse
change in the business, properties, condition (financial or otherwise),
prospects or results of operations of the Company or any of its subsidiaries, or
that might prevent consummation of the transactions contemplated by this
Agreement, the Public Warrant Agreement or the
5
<PAGE> 6
Representative's Warrant Agreement or that are required to be disclosed in the
Registration Statement.
(k) Neither the Company nor any of its subsidiaries is in
violation of any law, order, ordinance, rule, regulation, writ, injunction,
judgment or decree of any court or governmental agency or body to which it or
its properties (whether owned or leased) may be subject, which violation might
have a material adverse effect on the business, properties, condition (financial
or otherwise), prospects or results of operations of the Company or any of its
subsidiaries.
(l) Each of the Company and each of its subsidiaries owns or
possesses adequate rights to use all material patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, tradenames and
copyrights described or referred to in the Prospectus as owned by or used by any
of them, or which are necessary for the conduct of their business as described
in the Prospectus; and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, tradenames or copyrights which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the business, properties, condition
(financial or otherwise), prospects or results of operations of the Company and
its subsidiaries, taken as a whole.
(m) Templeton & Company, P.A., whose reports appear in the
Prospectus, are, and during the periods covered by their reports in the
Registration Statement were, independent accountants as required by the
Securities Act and the Rules and Regulations. The financial statements included
in the Registration Statement, any Preliminary Prospectus or the Prospectus
present fairly the consolidated financial condition, results of operations, cash
flow and changes in shareholders' equity of the Company and its subsidiaries at
the dates and for the periods indicated, and the financial statements included
in the Registration Statement present fairly the information required to be
stated therein. Such financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America,
applied on a consistent basis throughout the periods presented, except as stated
therein. The selected and summary financial and statistical data included in the
Registration Statement and the Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements and no schedules are
required to be included in the Registration Statement.
(n) The books, records and accounts of the Company and each of
its subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and each of its
subsidiaries. The systems of internal accounting controls maintained by the
Company and each of its subsidiaries are sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
(A) to permit preparation of financial statements in conformity with generally
accepted accounting principles and (B) to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
6
<PAGE> 7
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) The Company has delivered to the Representative the
written agreement of each of its officers and directors and certain beneficial
owners of Common Stock and/or securities exercisable or exchangeable for, or
convertible into, Common Stock (collectively, "Material Holders") to the effect
that each of the Material Holders will not, for a period of one year following
the Closing Date, other than intra-family transfers or transfers to trusts for
estate planning purposes, without the prior written consent of the
Representative, offer, sell or contract to sell, or otherwise dispose of, or
announce the offer of, any Common Stock and/or securities exercisable or
exchangeable for, or convertible into, Common Stock.
(p) No labor disturbance by the employees of the Company or
any of its subsidiaries exists or is imminent, nor is the Company aware of any
existing or imminent labor disturbance by the employees of any principal
suppliers, contract manufacturing organizations, manufacturers, authorized
dealers or distributors, in either case, where such labor disturbance might be
expected to result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or prospects of the Company or any of
its subsidiaries. No collective-bargaining agreement exists with any of the
Company's or any of the Company's subsidiaries' employees and, to the best
knowledge of the Company, no such agreement is imminent.
(q) Each of the Company and each of its subsidiaries has filed
all United States, state, local and foreign tax returns which are required to be
filed or has requested extensions thereof and has paid all taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
to the extent that the same have become due and payable. No tax assessment or
deficiency has been made or proposed against the Company or any of its
subsidiaries nor has the Company or any of its subsidiaries received any notice
of any proposed assessment or deficiency.
(r) Except as set forth in the Prospectus, there are no
outstanding loans, advances or guaranties of indebtedness by the Company to or
for the benefit of any of its "affiliates," as such term is defined in the Rules
and Regulations, or any of the officers or directors of any of its subsidiaries,
or any of the members of the families of any of them.
(s) Neither the Company nor any of its subsidiaries has,
directly or indirectly, at any time (i) made any contributions to any candidate
for political office, or failed to disclose fully any such contribution, in
violation of law; (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 required or allowed by all applicable
laws; or (iii) violated nor is it in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(t) Neither the Company nor any of its subsidiaries has any
liability, known or unknown, matured or not matured, absolute or contingent,
assessed or unassessed, imposed or based upon any provision of, or has received
notice of any potential liability under, any United States, state, local or
foreign law, rule or regulation, or the common law, or any tort,
7
<PAGE> 8
nuisance or absolute liability theory applicable to the Company or any of its
subsidiaries, or under any code, order, decree, judgment or injunction
applicable to the Company or any of its subsidiaries relating to public health
or safety, worker health or safety or pollution, damage to or protection of the
environment, including, without limitation, laws relating to damage to natural
resources, emissions, discharges, releases or threatened releases of hazardous
materials into the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), or otherwise
relating to the manufacture, processing, use, treatment, storage, generation,
disposal, transport or handling of hazardous materials. As used herein,
"hazardous material" includes chemical substances, wastes, pollutants,
contaminants, hazardous or toxic substances, constituents, materials or wastes,
whether solid, gaseous or liquid in nature.
(u) The Company has not distributed and will not distribute
prior to the Closing Date or on or prior to any date on which the Option
Securities are to be purchased, as the case may be, any prospectus or other
offering material in connection with the offering and sale of the Securities
other than the Prospectus, the Registration Statement, and any other material
which may be permitted by the Securities Act and the Rules and Regulations.
(v) The Common Stock has been approved for inclusion for
quotation on the Nasdaq Small Cap Market (the "Small Cap Market"), subject to
official notice of issuance.
(w) The Company confirms its engagement of the services of
Kashner Davidson Securities Inc. as a "qualified independent underwriter" within
the meaning of Rule 2720 of the NASD Conduct Rules with respect to the offering
and sale of the Securities.
(x) The Company is familiar with and has discussed with its
legal counsel the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations thereunder, and has in the past conducted, and
intends in the future to conduct, its affairs in such a manner as to ensure that
it will not become an "investment company" within the meaning of the 1940 Act
and such rules and regulations.
(y) The Representative's Warrants (including the Common Stock
(including the Common Stock underlying the Warrants) and the Warrants that will
be issued upon exercise of the Representative's Warrants) have been duly and
validly authorized, and when issued and delivered will be valid and binding
obligations of the Company in accordance with their terms and no stockholder of
the Company has any preemptive rights with respect to the Representative's
Warrants Securities.
(z) The Company does not know of any facts which may adversely
affect its earnings, prospects or business which have not been fully disclosed
in writing to the Representative.
2. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and
covenants contained in this Agreement, and subject to the terms and conditions
set forth in this Agreement, the
8
<PAGE> 9
Company agrees to sell to the several Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $______ per Unit, the respective number of Firm Securities set forth
opposite the name of such Underwriter in Schedule I to this Agreement (subject
to adjustment as provided in Section 8 of this Agreement).
(b) On the basis of the representations, warranties and
covenants contained in this Agreement, and subject to the terms and conditions
set forth in this Agreement, including the terms set forth below, the Company
grants an option to the several Underwriters to purchase from the Company all or
any portion of 120,000 Units at the same price per Unit as the Underwriters
shall pay for the Units included in the Firm Securities. Said option may be
exercised only to cover over-allotments in the sale of the Firm Securities by
the Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the 60th day after the date of the Prospectus upon
written, telecopied or telegraphic notice by the Representative to the Company
setting forth the aggregate number and class of Option Securities as to which
the several Underwriters are exercising the option and the settlement date. The
Option Securities shall be purchased severally, and not jointly, by each
Underwriter, if purchased at all, in the same proportion that the number of Firm
Securities set forth opposite the name of the Underwriter in Schedule I to this
Agreement bears to the total number of Firm Securities to be purchased by the
Underwriters under Section 2(a), above, subject to such adjustments as the
Representative in its absolute discretion shall make to eliminate any fractional
shares. Delivery of certificates for the Option Securities, and payment
therefor, shall be made as provided in Section 2(c) and Section 2(d) below.
(c) Delivery of certificates for the Firm Securities and the
Option Securities (if the option granted by the Company in Section 2(b) above
shall have been exercised not later than 10:00 a.m., California time, on the
date two business days preceding the Closing Date), and payment therefor, less
any reimbursable expenses provided for in Section 4(a) of this Agreement and the
nonaccountable expense allowance provided for in Section 4(b) of this Agreement,
shall be made at the office of Joseph Charles & Associates, Inc., Beverly Hills,
California, at 7:00 a.m., California time, on the later to occur of (i) the
fourth business day after the date of this Agreement, (ii) the third business
day after the date the Firm Securities are first offered to the public, or (iii)
as provided in Section 8 of this Agreement. The date and hour of delivery and
payment for the Firm Securities are referred to in this Agreement as the
"Closing Date." As used in this Agreement, "business day" means a day on which
the New York Stock Exchange is open for trading and on which banks in California
are open for business and not permitted by law or executive order to be closed.
(d) If any of the options granted by the Company in
Section 2(b) above shall be exercised after 10:00 a.m., California time, on the
date two business days preceding the Closing Date, delivery of certificates for
the Option Securities, and payment therefor, shall be made at the office of
Joseph Charles & Associates, Inc., Beverly Hills, California, at 7:00 a.m.,
California time, on the date specified by the Representative (which shall be
within four business days after the exercise of the option).
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(e) Payment of the purchase price for the Securities by the
several Underwriters shall be made by certified or official bank check or checks
drawn in next-day funds, payable to the order of the Company (and the Company
agrees not to deposit or permit deposit of any such check in the bank on which
drawn until the day following the date of its delivery to the Company). Such
payment shall be made upon delivery of certificates for the Securities to you
for the respective accounts of the several Underwriters. Certificates for the
Securities to be delivered to you shall be registered in such name or names and
shall be in such denominations as the Representative may request at least two
business days before the Closing Date, in the case of Firm Securities, and at
least one business day prior to the purchase of the Option Securities, in the
case of the Option Securities. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Joseph
Charles & Associates, Inc., Boca Raton, Florida, not less than one full business
day prior to the Closing Date or, in the case of the Option Securities, by
3:00 p.m., Florida time, on the first business day preceding the date of
purchase.
It is understood that the Representative, individually and not
on behalf of the Underwriters, may (but shall not be obligated to) make payment
to the Company for Securities to be purchased by any Underwriter whose check
shall not have been received by the Representative on the Closing Date or any
later date on which Option Securities are purchased for the account of such
Underwriter. Any such payment shall not relieve such Underwriter from any of its
obligations hereunder.
(f) It is understood that the several Underwriters propose to
offer the Securities for sale to the public as soon as the Representative deems
it advisable to do so (the "Public Offering"). The Firm Securities are to be
initially offered to the public at the public offering price set forth in the
Prospectus (the "Public Offering Price"). The Representative may from time to
time thereafter change the public offering price and other selling terms.
(g) The information set forth in the last paragraph on the
front cover page (insofar as such information relates to the Underwriters), the
legend respecting stabilization set forth on the inside front cover page, and
the statements set forth under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitute the only information furnished by the Underwriters to the Company for
inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement.
3. Further Agreements of the Company. The Company covenants and
agrees with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the
Registration Statement, and any amendment thereof, if not effective at the time
of execution of this Agreement, to become effective as promptly as possible. If
the Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b), the
Company will file the Prospectus, properly completed (and in form and substance
reasonably satisfactory to counsel for the Underwriters) pursuant to Rule 424(b)
within the time period prescribed and will provide evidence satisfactory to the
Representative of such timely filing. The Company will not file the Prospectus,
any amended Prospectus, any amendment of
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<PAGE> 11
the Registration Statement or supplement to the Prospectus without advising the
Representative of, and furnishing the Representative with copies thereof a
reasonable time prior to the proposed filing of, such amendment or supplement
and without obtaining the prior consent of the Representative to such filing.
The Company will prepare and file with the Commission, promptly upon the request
of the Representative, any amendment to the Registration Statement or supplement
to the Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by you, and use its best efforts to cause the
same to become effective as promptly as possible.
(b) The Company will promptly advise the Representative (i)
when the Registration Statement shall have become effective, (ii) when any
amendment thereof shall have become effective, (iii) of any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for any additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
and (v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The Company
will use its best efforts to prevent the issuance of any such stop order or
suspension and, if issued, to obtain as soon as possible the withdrawal thereof.
(c) The Company will (i) on or before the Closing Date,
deliver to each of Representative and its counsel a conformed copy of the
Registration Statement as filed and of each amendment thereto filed prior to the
time the Registration Statement becomes effective and, promptly upon the filing
thereof, a conformed copy of each post-effective amendment, if any, to the
Registration Statement (together with, in each case, all exhibits thereto unless
previously furnished to you) and all documents filed by the Company with the
Commission under the Exchange Act and deemed to be incorporated by reference
into any Preliminary Prospectus or the Prospectus, and will also deliver to you,
for distribution to the several Underwriters, a sufficient number of additional
conformed copies of each of the foregoing (excluding exhibits) so that one copy
of each may be distributed to each Underwriter, (ii) as promptly as possible
deliver to the Representative and send to the several Underwriters, at such
office or offices as you may designate, as many copies of the Prospectus as you
may reasonably request and (iii) thereafter from time to time during the period
in which a prospectus is required by law to be delivered by an Underwriter or a
dealer, likewise send to the Underwriters as many additional copies of the
Prospectus and as many copies of any supplement to the Prospectus and of any
amended Prospectus, filed by the Company with the Commission, as you may
reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or a dealer any event shall
occur as a result of which it is necessary to supplement or amend the Prospectus
in order to make the Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser of the Securities, or if it
shall be necessary to amend or to supplement the Prospectus to comply with the
Securities Act or the Rules and Regulations, the Company will forthwith prepare
and file with the Commission a supplement to the Prospectus or an amended
Prospectus so that the Prospectus as so supplemented or amended will not contain
any untrue statement of a material
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<PAGE> 12
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading, and so that it then
will otherwise comply with the Securities Act and the Rules and Regulations. If,
after the public offering of the Securities by the Underwriters and during such
period, the Underwriters shall propose to vary the terms of offering thereof by
reason of changes in general market conditions or otherwise, you will advise the
Company in writing of the proposed variation, and, if in the opinion either of
counsel for the Company or of counsel for the Underwriters such proposed
variation requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Securities may be
sold by the several Underwriters to use the Prospectus, as from time to time
amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Securities Act and the Rules
and Regulations for such period.
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended Prospectus proposed to be filed.
(f) The Company will cooperate with you and your counsel in
the qualification of the Securities for offer and sale under the securities or
Blue Sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter or a
dealer, in keeping such qualifications in good standing under said securities or
Blue Sky laws. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to continue
such qualifications in effect for so long a period as you may reasonably request
for distribution of the Securities.
(g) During a period of five years commencing with the date of
this Agreement, the Company will promptly furnish to you, and to each
Underwriter who may so request in writing, copies of all periodic and special
reports furnished to shareholders of the Company, of all information, documents
and reports filed with Commission, any securities exchange or the National
Association of Securities Dealers, Inc. and of all press releases and material
news items or articles in respect of the Company, its products or affairs
released or prepared by the Company (other than promotional and marketing
materials disseminated solely to customers and potential customers of the
Company in the ordinary course of business); and any additional information
concerning the Company or its business which you may reasonably request.
(h) As soon as practicable, but not later than the 45th day
following the end of the fiscal quarter first ending after the first anniversary
of the Effective Date, the Company will make generally available to its
securities holders and furnish to the Representative an earnings statement or
statements in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees that it will cause each of its
executive officers and directors and those other Material Holders designated by
the Representative prior to the date of
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<PAGE> 13
this Agreement to enter into agreements with the Representative to the effect
that it will not, directly or indirectly, without your prior written consent,
sell, offer, contract to sell, grant any option to purchase, or otherwise
dispose of any shares of Common Stock, or any securities convertible into,
exchangeable for or exercisable for Common Stock, or any rights to purchase or
acquire Common Stock (other than intra-family transfers or transfers to trusts
for estate planning purposes) for a period of one year after the Closing Date,
other than the sale of the Securities to be sold to the Underwriters pursuant to
this Agreement.
(j) The Company will apply the net proceeds from the offering
received by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(k) The Company will, prior to the date of this Agreement, and
at all times thereafter, unless such securities are then listed on a national
securities exchange or quoted on the Nasdaq National Market, cause each of the
Securities to be included for quotation on the Small Cap Market, and the Company
will comply with all registration, filing, reporting and other requirements of
the Exchange Act and Small Cap Market which may from time to time be applicable
to the Company.
(l) The Company will use its best efforts to maintain
insurance of the types and in the amounts which it deems adequate for its
business and consistent with insurance coverage maintained by companies of
similar size and engaged in similar businesses, including, but not limited to,
general liability insurance covering all real and personal property owned or
leased by the Company against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against. The Company will use its best
efforts to obtain and maintain a reasonable amount of Directors and Officers
liability insurance from a responsible insurer who shall be satisfactory to the
Representative.
(m) In accordance with the Representative's Warrant Agreement,
the Company agrees, upon its receipt from Joseph Charles & Associates, Inc. of
the exercise price set forth in the Representative's Warrant Agreement in
payment therefor, to deliver to Joseph Charles & Associates, Inc. (individually,
and not as the Representative of the Underwriters) on the Closing Date upon
completion of the purchase and sale of the Securities pursuant to Section 2 of
this Agreement, warrants (in the form attached as Exhibit A to the
Representative's Warrant Agreement) representing the right to purchase up to
80,000 Units at a price equal to 120% of the offering price per Unit to the
public as set forth on the cover page of the Prospectus.
(n) The Company shall use its best efforts to retain in their
current positions the individuals named as executive officers under the caption
"Management" in the Registration Statement for a reasonable period after the
consummation of the Public Offering (but in no circumstance in the absence of
good cause shall such period be less than one year).
(o) The Company shall use its best efforts to at all times
maintain at least two (2) independent directors (that is directors that are not
officers of the Company, who are neither related to its officers nor represent
concentrated or family holdings of the Company's shares, and who, in the view of
the Company's board of directors, are free of any relationship that would
interfere with the exercise of independent judgement (the "Independent
Directors")). The
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<PAGE> 14
Independent Directors shall be members of the Company's audit and compensation
committees. Further, the favorable vote of a majority of the Company's
directors, including at least one of the Independent Directors, shall be
required as to any related party transaction between the Company and any 5% or
more shareholder of the Company and/or officer or director of the Company (or
any affiliates of such individuals). Any proposed changes in the Company's
Articles of Incorporation that are not otherwise approved by the majority vote
of the shares held by the Company's non-management shareholders (shareholders
exclusive of officers and directors of the Company) shall be approved by a
majority of the Company's directors and not disapproved by a majority of the
Company's Independent Directors.
(p) The Company will include in the Registration Statement
audited financial statements of the Company for the two fiscal years preceding
the effective date of the Registration Statement (reported on by Templeton &
Company, P.A.) and, if required under SEC rules and regulations, pro forma
financial data and current unaudited comparative interim financial statements.
The financial statements will present fairly the financial condition of the
Company and the results of its operations at the time and for the periods
covered by such financial statements, and such statements will be substantially
as heretofore represented to the Representative.
(q) Except in connection with acquisitions or pursuant to the
exercise of warrants and options outstanding prior to the Closing, and the
Company's right to adopt a stock option plan for the issuance of up to
__________ shares of Common Stock and the grant of options to its directors,
officers and employees under such Plan at an exercise price not less than the
Public Offering Price prior to the offering and the Bid price after the
offering, the Company will not, without the Representative's prior written
consent (1) sell any shares of capital stock or issue any warrants, options or
any other security exercisable or convertible into any shares of capital stock,
except pursuant to the Company's employee benefit plans described in the
Registration Statement, or (2) purchase any shares of capital stock of the
Company during the 12-month period following the closing of the Public Offering
(the "Closing").
(r) The Representative shall have the right for a period of
two years from the Closing to designate an observer to the Board of Directors of
the Company, such observer to be reasonably acceptable to the Company. The
Company shall use its reasonable efforts to provide the Representative's
observer with an agenda and all accompanying back-up data for each Board meeting
at least one week prior to such meeting. The Board will convene to consider the
affairs of the Company at least once per calendar quarter. The Company shall pay
all reasonable expenses of the Representative's observer in attending Board
meetings.
(s) The Company will file and maintain an "evergreen"
Registration Statement covering the shares of Common Stock underlying the
Warrants and the Company shall not call the Warrants for redemption if such
"evergreen" registration statement is not declared effective by the SEC at the
time of the proposed redemption, and in accordance with the Public Warrant
Agreement, the Company agrees to cause the Warrant Agent to comply with the
provisions of Sections _________________, as they relate to the Representative,
and further agrees that it will not redeem the Warrants as contemplated by the
Public Warrant Agreement without doing so through the Representative as the
Company's exclusive solicitation agent.
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(t) The Company shall enter into a Consulting Agreement for
financial and investment banking services with Joseph Charles & Associates, Inc.
for a period of 24 months, with consulting fees of $2,500 per month, payable in
advance at the Closing.
(u) The Company shall engage the services of an investor
relations advisory firm reasonably acceptable to the Representative, commencing
prior to the effective date of the Registration Statement and continuing for a
period of at least two years.
4. Fees and Expenses. The Company agrees with each Underwriter
that:
(a) The Company shall pay all costs and expenses incident to
the purchase, sale and delivery of the Securities, including without limitation,
all fees and expenses of filing the Registration Statement with the SEC and the
NASD; all Blue Sky fees and expenses, including fees of the Representative's
counsel (which shall undertake all such Blue Sky matters); fees and
disbursements of counsel and accountants for the Company; printing and mailing
costs, including costs of printing the Registration Statement, any amendments
thereto, all underwriting documents, Blue Sky memoranda and a reasonable
quantity of prospectuses as determined by the Representative; the Company's and
Representative's road show cost and expenses; and the cost of preparing a total
of five (5) sets of bound volumes of the Public Offering documents for the
Representative and their counsel. The Company shall also pay for the cost of
advertising the Public Offering in the national edition of the Wall Street
Journal and all other expenses for advertising undertaken at the Company's
request, including graphic slide costs. The Representative shall pay the fees
and disbursements of its counsel, with the exception of the Blue Sky fees
described above.
(b) In addition to its obligations under Section 4(a) above,
the Company agrees to pay the Representative a non-accountable expense allowance
equal to three percent (3%) of the aggregate Public Offering Price of the
Securities sold in the Public Offering, including any over-allotment Securities
sold in such offering. Such allowance shall be paid to the Representative as
provided in Section 2(c) of this Agreement.
5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Securities shall be
subject, in the sole discretion of the Representative, to the accuracy as of
the date of execution of this Agreement, the Closing Date and the date on which
the Option Securities are to be purchased, as the case may be, of the
representations and warranties of the Company set forth in this Agreement, to
the accuracy of the statements of the Company and its officers made in any
certificate delivered pursuant to the terms of this Agreement, to the
performance by the Company of all of its obligations to be performed under this
Agreement at or prior to the Closing Date or any later date on which Option
Securities are to be purchased, as the case may be, and to the following
additional conditions:
(a) The Registration Statement shall have become effective,
(or, if a post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective amendment shall become effective and the
Company shall have provided evidence satisfactory to the Representative of such
filing and effectiveness) not later than 5:00 p.m.,
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<PAGE> 16
California time, on the date of this Agreement or at such later date and time as
you may approve in writing and, at the Closing Date, or, with respect to the
Option Securities, the date on which such Option Securities are to be purchased,
no stop order suspending the effectiveness of the Registration Statement or any
qualification or exemption from qualification for the sale of the Securities in
any jurisdiction shall have been issued and no proceedings for that purpose
shall have been instituted or threatened; and any request for additional
information on the part of the Commission shall have been complied with to the
reasonable satisfaction of the Representative and their counsel.
(b) The Representative shall have received from Troop
Meisinger Steuber & Pasich, LLP, counsel for the Underwriters, an opinion dated
the Closing Date, with respect to the issuance and sale of the Securities, and
such other related matters as the Representative may reasonably require, and the
Company shall have furnished such counsel with all documents which they may
request for the purpose of enabling them to pass upon such matters.
(c) You shall have received on the Closing Date and on any
later date on which Option Securities are purchased, as the case may be, the
opinion of Mirkin & Woolf, P.A., counsel for the Company, addressed to the
Underwriters and dated the Closing Date or such later date, and with reproduced
copies or signed counterparts thereof for each of the Underwriters, covering the
matters set forth in Annex A to this Agreement.
(d) You shall be satisfied that there has not been any
material change in the market for securities in general or in political,
financial or economic conditions from those reasonably foreseeable as to render
it impracticable in your sole judgment to make a public offering of the
Securities, or a material adverse change in market levels for securities in
general (or those of companies in particular) or financial or economic
conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any
later date on which Option Securities are purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by the President
and the Chief Financial Officer of the Company, stating that:
(i) The representations and warranties of the
Company set forth in Section 1 of this Agreement are true and correct with the
same force and effect as if expressly made at and as of such date, and the
Company has complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied at or prior to such date;
(ii) no stop order suspending the effectiveness
of the Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or are threatened under the
Securities Act;
(iii) the Securities have been duly authorized for
quotation on the Small Cap Market; and
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<PAGE> 17
(iv) (A) the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus and any supplements or
amendments thereto, and that, as of the Effective Date, the statements made in
the Registration Statement and the Prospectus were true and correct in all
material respects, and the Registration Statement did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and the Prospectus did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstance under which they were made, not
misleading, (B) since the Effective Date, no event has occurred that should have
been set forth in a supplement or amendment to the Prospectus that has not been
set forth in such a supplement or amendment, (C) since the respective dates as
of which information is given in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein, there has
not been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, condition
(financial or otherwise), capitalization, prospects or results of operations of
the Company or any of its subsidiaries, whether or not arising from transactions
in the ordinary course of business, and, since such dates, except in the
ordinary course of business, neither the Company nor any of its subsidiaries has
entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein, (D) there are not any pending or known threatened legal
proceedings to which the Company or any of its subsidiaries is a party or of
which property of the Company or any of its subsidiaries is the subject which
are material and which are not disclosed in the Registration Statement and the
Prospectus, and (E) there are not any license agreements, contracts, leases or
other documents that are required to be filed as exhibits to the Registration
Statement that have not been filed as required.
(f) On the date of this Agreement and on each
Closing Date you shall have received a letter from Templeton & Company, P.A.,
independent accountants, dated such date and Closing Date, respectively,
addressed to you as Representative, to the effect that:
(i) it is an independent certified public
accountant with respect to the Company within the meaning of the Securities Act
and the applicable Rules and Regulations;
(ii) in its opinion, the financial statements and
notes thereto of the Company examined by it and contained in the Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the Rules and Regulations;
(iii) On the basis of its procedures and inquiries
as specified in its letters, nothing has come to its attention to cause it to
believe that (A) the data included in the Prospectus under the caption "Selected
Financial Data" do not agree with the corresponding amounts in the audited
financial statements for and as at the end of each of the periods then ended;
and (B) at a specified date not more than five business days prior to the date
of such letter, (x) there was any change in the capital stock or long-term debt
of the Company or any decrease in net current assets or net assets or
shareholders' equity, in each case as compared with the corresponding amounts
shown in the June 30, 1997 balance sheet contained in the
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<PAGE> 18
Prospectus, or (y) for the period from July 1, 1996 to the specified date
referred to above, as compared with the corresponding period in the prior year,
there was any decrease in sales, net income or income per share, except in all
instances for changes or decreases which the Prospectus discloses have occurred
or may occur, or if there was any change or decrease, setting forth the amount
of such change or decrease.
(iv) It has compared the information expressed in
amounts, dollar amounts and percentages derived therefrom, and other financial
information pertaining to the Company set forth in the Prospectus specified by
you, in each case to the extent such information was obtained or derived from
the general accounting records of the Company, with the results obtained from
the application of specified readings, inquiries and other appropriate
procedures set forth in such letters, and found by it to be in agreement.
In addition, you shall have received from Templeton & Company,
P.A., on or prior to the Closing Date, a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
financial statements as of June 30, 1997, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) Prior to the Closing Date, the Securities shall have been
duly authorized for quotation on the Small Cap Market upon official notice of
issuance.
(h) On or prior to the Closing Date, you shall have received
from the Company's officers and directors and all Material Holders executed
lock-up agreements covering the matters described in Section 1(p) of this
Agreement.
(i) On or prior to the Closing Date, the Company shall have
entered into the Representative's Warrant Agreement, substantially in the form
filed as Exhibit ____ to the Registration Statement; and on the Closing Date,
concurrently with the purchase and sale of the Securities, the Company shall
have issued, sold and delivered the Representative's Warrants to the
Representative.
(j) On or prior to the Closing Date, the Company shall have
entered into the Public Warrant Agreement, substantially in the form filed as
Exhibit ____ to the Registration Statement.
(k) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company), as to the accuracy of the
representations and warranties of the Company set forth in this Agreement, as to
the performance by the Company of its obligations under this Agreement and as to
the other conditions concurrent and precedent to the obligations of the
Underwriters under this Agreement.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement will be in compliance with the provisions of this
Agreement only if they are
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reasonably satisfactory to Troop Meisinger Steuber & Pasich, LLP, counsel for
the Underwriters. The Company will furnish you with such number of conformed
copies of such opinions, certificates, letters and documents as you shall
reasonably request.
If any of the conditions specified in this Section 5 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representative and its counsel, this Agreement and all
obligations of the Underwriters hereunder may be canceled by the Representative
at, or at any time prior to, the Closing Date or (with respect to the Option
Securities) prior to the date upon which the Option Securities are to be
purchased, as the case may be. Notice of such cancellation shall be given to the
Company in writing or by telephone, telecopy or telegraph confirmed in writing.
Any such termination shall be without liability of the Company to the
Underwriters (except as provided in Section 4 or Section 7 of this Agreement)
and without liability of the Underwriters to the Company (except to the extent
provided in Section 7 of this Agreement).
6. Conditions of the Obligation of the Company. The obligations of the
Company to sell and deliver the Securities required to be delivered as and when
specified in this Agreement shall be subject to the condition that at the
Closing Date or (with respect to the Option Securities) the date upon which the
Option Securities are to be purchased, no stop order suspending the
effectiveness thereof shall be in effect and no proceedings therefor shall be
pending or threatened by the Commission.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act or other federal or state statute,
law or regulation, at common law or otherwise, specifically including but not
limited to losses, claims, damages or liabilities (or actions in respect
thereof) related to negligence on the part of any Underwriter, and the Company
agrees to reimburse each such Underwriter and controlling person for any legal
or other expenses (including, except as otherwise hereinafter provided,
settlement expenses and reasonable fees and disbursements of counsel) incurred
by the respective indemnified parties in connection with defending against any
such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding that may be brought against,
the respective indemnified parties, in each case insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon, in whole or in part, (i) any breach of any representation, warranty, or
covenant of the Company in this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement in
the form originally filed or in any amendment thereto (including the Prospectus
as part thereof) or any post-effective amendment thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not
19
<PAGE> 20
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; or (iv) any untrue statement or alleged untrue statement of a
material fact contained in any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Securities under the securities or Blue Sky laws thereof or filed
with the Commission or any securities association or securities exchange, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this Section 7(a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Underwriter through the Representative specifically for use in any Preliminary
Prospectus or the Registration Statement or the Prospectus or any such amendment
thereof or supplement thereto and (2) the indemnity agreement contained in this
Section 7(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Securities that are the
subject thereof (or to the benefit of any person controlling such Underwriter)
if a copy of the Prospectus (or the Prospectus as amended or supplemented) was
not sent or delivered to such person within the time required by the Securities
Act and the Rules and Regulations and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented), unless the failure is
the result of noncompliance by the Company with Section 3 of this Agreement. The
indemnity agreements of the Company contained in this Section 7(a) and the
representations and warranties of the Company contained in Section 1(a) of this
Agreement shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Securities. This Indemnity Agreement shall
be in addition to any liabilities which the Company may otherwise have.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement,
each of its directors, each other Underwriter, and each person (including each
partner or officer thereof) who controls the Company or any such other
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Exchange Act, or other federal or state statute, law or
regulation or at common law or otherwise and to reimburse each of them for any
legal or other expenses (including, except as otherwise hereinafter provided,
settlement expenses and reasonable fees and disbursements of counsel) incurred
by the respective indemnified parties in connection with defending against any
such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding that may be brought against,
the respective indemnified parties, in each case arising out of or based upon
(i) any breach of any representation, warranty or covenant of the
20
<PAGE> 21
indemnifying Underwriter in this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof) or any post-effective amendment
thereto, or the omission or alleged omission to state therein, in the light of
the circumstances under which they were made, a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading; but
only if such statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of such
indemnifying Underwriter through the Representative specifically for use in any
Preliminary Prospectus or the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto. The Company acknowledges and
agrees that the disclosure described in Section 2(g) of this Agreement
constitutes the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in the Registration Statement or the
Prospectus or in any Preliminary Prospectus. The indemnity agreement of each
Underwriter contained in this Section 7(b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Securities. This Indemnity Agreement shall be in addition to any liabilities
which each Underwriter may otherwise have.
(c) Each party indemnified under the provisions of Sections
7(a) and 7(b) above, agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against, it in respect of which indemnity may be
sought on account of any indemnity agreement contained in such Sections, it
will, if a claim in respect thereunder is to be made against the indemnifying
party or parties under this Section 7, promptly give written notice (the
"Notice") of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in
Sections 7(a) and 7(b) above, shall be available to any party who shall fail so
to give the Notice if the party to whom such Notice was not given was unaware of
the action, suit, investigation, inquiry or proceeding to which the Notice would
have related and was materially prejudiced by the failure to receive the Notice,
but the omission so to notify such indemnifying party or parties of any such
service or notification shall not relieve such indemnifying party or parties
from any liability which it or they may have to the indemnified party for
contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified
21
<PAGE> 22
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense, however, in no event shall the indemnifying
parties be obligated to pay for more than one firm of attorneys and one local
counsel in each appropriate jurisdiction for all of the indemnified parties. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under Sections 7(a) through
7(c) for any legal or other expenses subsequently incurred by the indemnified
party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding, except that (A) the indemnifying party or
parties shall bear and pay the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear and
pay such other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of the
Notice, no Notice of Defense has been given, the indemnifying party or parties
shall be responsible for any legal or other expenses incurred by the indemnified
party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding.
(d) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this Section
7 but 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 to appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 provides for
indemnification in such case, each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 7(a) and 7(b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by each indemnifying party from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each indemnifying
party in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, or actions in respect thereof, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
received by the Company, and the total underwriting discount retained by the
Underwriters, bear to the aggregate public offering price of the Securities.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
each indemnifying party, and the parties'
22
<PAGE> 23
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this Section
7(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this Section 7(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending against any action or claim
which is the subject of this Section 7(d). Notwithstanding the provisions of
this Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Securities purchased by
that Underwriter. For purposes of this Section 7(d), each person who controls an
Underwriter within the meaning of the Securities Act shall have the same rights
to contribution as such Underwriter, and each person who controls the Company
within the meaning of the Securities Act, each officer of the Company who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company, subject in each case to the
following sentence. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute in this Section
7(d) are several in proportion to their respective underwriting obligations and
not joint.
Each party entitled to contribution agrees that upon the
service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in Section 7(b) above). This Section 7(d) shall not be
operative as to any Underwriter to the extent that the Company is entitled to
receive or has received indemnity under this Section 7.
(e) Neither the Company nor any indemnified party shall,
without the prior written consent of each Underwriter and the indemnifying
party, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act is a party to such claim, action, suit or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each such
Underwriter, each such controlling person and the Company from all liability
arising out of such claim, action, suit or proceeding.
(f) The parties to this Agreement hereby acknowledge that they
are sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including, without
limitation, the provisions of this Section 7, and are fully informed regarding
said provisions. They further acknowledge that the
23
<PAGE> 24
provisions of this Section 7 fairly allocate the risks in light of the ability
of the parties to investigate the Company and its business in order to assure
that adequate disclosure is made in the Registration Statement and Prospectus as
required by the Securities Act and the Exchange Act. The parties are advised
that federal or state policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain provisions of this Agreement and this
Section 7, and the parties hereto hereby expressly waive and relinquish any
right or ability to assert such public policy as a defense to a claim under this
Section 7 and further agree not to attempt to assert any such defense.
(g) In addition to its obligations under Section 7(a) of this
Agreement, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any loss, claim, damage or liability described in Section 7(a) of
this Agreement, they will reimburse the Underwriters, and each of them, on a
quarterly basis (for which the Company has received invoices and other
documentation reasonably requested) for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the joint and
several obligation of the Company to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any portion,
or all, of any such interim reimbursement payments are so held to have been
improper, the Underwriters receiving the same shall promptly return such amounts
to the Company together with interest, compounded daily, determined on the basis
of the prime rate (or other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Bank of America, NT&SA, San
Francisco, California (the "Prime Rate"). Any such interim reimbursement
payments that are not made to the Underwriters within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request until the date paid.
(h) In addition to their obligations under Section 7(b) of
this Agreement, the Underwriters agree that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any loss, claim, damage or liability described in
Section 7(b) of this Agreement, they will reimburse the Company on a quarterly
basis (for which the Underwriters have received invoices and other documentation
reasonably requested) for all reasonable legal or other expenses incurred by the
Company in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any portion, or all, of any
such interim reimbursement payments are so held to have been improper, the
Company shall promptly return such amounts to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments that are not made to the Company within 30 days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request until the date paid.
24
<PAGE> 25
(i) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections 7(g)
and 7(h) above, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the indemnifying parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the National Association of Securities Dealers, Inc.
Any such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. If the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such arbitration
will be limited to the interpretation and obligations of the parties under the
interim reimbursement provisions contained in Sections 7(g) and 7(h) above and
will not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses that is created by the other provisions of this Section
7.
8. Substitution of Underwriters. If for any reason one or more
of the Underwriters shall fail or refuse (otherwise than for a reason
sufficient to justify the termination of this Agreement under the provisions of
Section 5 or Section 9 of this Agreement) to purchase and pay for the number of
Firm Securities agreed to be purchased by such Underwriter or Underwriters, the
Company shall immediately give notice thereof to the Representative, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by the Representative of such notice to purchase, or procure one or
more other Underwriters to purchase, in such proportions as may be agreed upon
among the Representative and such purchasing Underwriter or Underwriters and
upon the terms herein set forth, all or any part of the Firm Securities that
such defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such Securities, the number of Firm Securities that each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining Securities
that the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to
purchase the Securities that the defaulting Underwriter or Underwriters agreed
to purchase if the aggregate number of such Securities exceeds 10% of the total
number of Firm Securities that all Underwriters agreed to purchase under this
Agreement. If the total number of Firm Securities that the defaulting
Underwriter or Underwriters agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company shall have
the right, within 24 hours next succeeding the first 24-hour period above
referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such Securities on the terms set forth in
this Agreement. In any such case, either you or the Company shall have the
right to postpone the Closing Date determined as provided in Section 2(c) of
this Agreement for not more than seven business days after the date originally
fixed as the Closing Date pursuant to said Section 2(c) in order that any
necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made.
25
<PAGE> 26
If neither the non-defaulting Underwriters nor the Company
shall make arrangements within the time periods provided in the first three
sentences of the first paragraph this Section 8 for the purchase of all the Firm
Securities that the defaulting Underwriter or Underwriters agreed to purchase
hereunder, this Agreement shall be terminated without further act or deed and
without any liability on the part of the Company to any non-defaulting
Underwriter (except as provided in Section 4 or Section 7 of this Agreement) and
without any liability on the part of any nondefaulting Underwriter to the
Company (except to the extent provided in Section 7 of this Agreement). Nothing
in this Section 8, and no action taken hereunder, shall relieve any defaulting
Underwriter from liability, if any, to the Company or any nondefaulting
Underwriter for damages occasioned by its default under this Agreement. The term
"Underwriter" in this Agreement shall include any persons substituted for an
Underwriter under this Section 8.
9. Effective Date of Agreement and Termination.
(a) If the Registration Statement has not been declared
effective prior to the date of this Agreement, this Agreement shall become
effective at such time, after notification of the effectiveness of the
Registration Statement has been released by the Commission, as you shall release
the Securities to the public. If you shall not have released the Securities
prior to 5:00 p.m., California time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability on the part of the Underwriters to the
Company, except as set forth in Section 7 of this Agreement. By giving notice as
set forth in Section 10 of this Agreement before the time this Agreement becomes
effective, you, as Representative of the several Underwriters, may prevent this
Agreement from becoming effective without liability of any party to the other
party, except that the Company shall remain obligated to pay costs and expenses
to the extent provided in Section 4 and Section 7 of this Agreement. If the
Registration Statement has been declared effective prior to the date of this
Agreement, this Agreement shall become effective upon execution and delivery by
you and the Company.
(b) This Agreement may be terminated by you in your absolute
discretion by giving written notice to the Company at any time on or prior to
the Closing Date or, with respect to the purchase of the Option Securities, on
or prior to any later date on which the Option Securities are to be purchased,
as the case may be, if prior to such time any of the following has occurred or,
in your opinion, is likely to occur: (i) after the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change or development involving a prospective adverse change in
or affecting particularly the condition (financial or otherwise) of the Company
or any of its subsidiaries or the earnings, prospects or business affairs of the
Company or any of its subsidiaries, whether or not arising in the ordinary
course of business, which would, in your sole judgment, make the offering or the
delivery of the Securities impracticable or inadvisable; or (ii) if there shall
have been the engagement in hostilities or an escalation of major hostilities by
the United States or the declaration of war or a national emergency by the
United States on or after the date hereof, or any outbreak of hostilities or
other national or international calamity or crisis or change in economic or
political conditions, if the effect of such outbreak, calamity, crisis or change
in economic or political conditions on the financial markets of the United
States would, in your sole
26
<PAGE> 27
judgment, make the offering or delivery of the Securities impracticable, or
(iii) if there shall have been suspension of trading in securities generally or
a material adverse decline in value of securities generally on the New York
Stock Exchange, the American Stock Exchange, or Nasdaq, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, or (iv) if there shall have been the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of, or commencement of any proceeding or
investigation by, or change in material substantive policy by, any court,
legislative body, agency or other foreign or domestic governmental authority
which in your sole judgment materially and adversely affects or will materially
or adversely affect the business, operations or prospects of the Company or any
of its subsidiaries, or (v) if there shall have been the declaration of a
banking moratorium by United States, New York, California or Florida state
authorities, or (vi) if there shall have been the taking of any action by any
United States, state or local government or agency in respect of its monetary or
fiscal affairs which in your sole judgment has a material adverse effect on the
securities markets in the United States or (vii) existing international monetary
conditions shall have undergone a material change which, in your sole judgment,
makes the offering or delivery of the Securities impracticable. If this
Agreement shall be terminated pursuant to this Section 9, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company (except to the extent provided in Section 4 or
Section 7 of this Agreement); provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses of the Company incident to the performance of the
obligations of the Company under this Agreement, including all costs, expenses
and advances referred to in Section 4 of this Agreement; provided, further, that
the maximum amount of expenses that the Company shall be obligated to reimburse
the Representative under Section 4 of this Agreement shall be the Representative
actual accountable out-of-pocket expenses.
10. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing, if to the Underwriters, shall be mailed,
telecopied or otherwise actually delivered to Joseph Charles & Associates, Inc.
at the address set forth above (telecopier: (310) 859-2877) Attention:
___________________; and if to the Company, shall be mailed, telecopied or
otherwise actually delivered to it at its office, (telecopier: (561)
_____________) Attention: ____________________. All notices given by telecopy
shall be promptly confirmed by letter.
11. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 4, Section 7 and Section 14 of this
Agreement, the several parties (in addition to the Company and the several
Underwriters) indemnified under the provisions of said Section 4, Section 7 and
Section 14, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Securities from the several Underwriters.
12. Miscellaneous. Notwithstanding any provision of this Agreement to
the contrary,
27
<PAGE> 28
the reimbursement, indemnification and contribution agreements contained in this
Agreement and the representations, warranties and covenants in this Agreement
shall remain in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any Underwriter or
controlling person thereof, or by or on behalf of the Company or their
respective directors or officers, and (c) delivery and payment for the
Securities under this Agreement; provided, however, that if this Agreement is
terminated prior to the Closing Date, the provisions of Sections 3(g), 3(h),
3(j), 3(k) and 3(l) of this Agreement shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which shall
constitute an original, but all of which together shall constitute one and the
same instrument.
13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE, AND TO BE PERFORMED, SOLELY WITHIN THAT STATE.
14. Submission to Jurisdiction and Waiver of Immunity and Inconvenient
Forum. The Company agrees that any and all disputes arising in connection with
this Underwriting Agreement and the transactions contemplated by this
Underwriting Agreement, including the offer and sale of the Firm Securities and
the Option Securities, may be brought in any state or federal court of record in
located in the County of Los Angeles, State of California. The Company
irrevocably submits to the jurisdiction of the state and federal courts located
in the County of Los Angeles, State of California in any legal action or
proceeding relating to this Underwriting Agreement and the transactions
contemplated by this Underwriting Agreement, including the offer and sale of the
Firm Securities and the Option Securities. The Company irrevocably waives all
immunity from jurisdiction, attachment and execution, whether on the basis of
sovereignty or otherwise, to which it might otherwise be entitled in any legal
action or proceeding in any state or federal court located in the County of Los
Angeles, State of California. The Company irrevocably waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to any
suit, action or proceeding relating to this Underwriting Agreement and the
transactions contemplated by this Underwriting Agreement, including the offer
and the sale of the Firm Securities and the Option Securities, being brought in
the federal or state courts located in the County of Los Angeles, State of
California, and hereby further irrevocably waive any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.
15. Authority of the Representative. In connection with this Agreement,
the Representative will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by the Representative, jointly as
representatives of the several Underwriters, will be binding on all the
Underwriters.
28
<PAGE> 29
If the foregoing correctly sets forth the understanding among the
Company the several Underwriters, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the Company and the several Underwriters.
Very truly yours,
SFORZA ENTERPRISES, INC.
By:
-----------------------------------
Its:
-----------------------------------
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
JOSEPH CHARLES & ASSOCIATES, INC.
On its behalf and on
behalf of each of the
several Underwriters
named in Schedule I hereto.
By:
-----------------------------------
Its:
-----------------------------------
29
<PAGE> 30
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SECURITIES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
<S> <C>
Joseph Charles & Associates, Inc...........................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
-------
Total.............................................. 800,000
=======
</TABLE>
<PAGE> 31
SFORZA ENTERPRISES, INC.
REPRESENTATIVE'S WARRANT
No. 1 80,000 Units, each consisting of
One share of Common Stock and
One Common Stock Purchase Warrant
THIS CERTIFIES that, for receipt in hand of $80.00 and other value
received, Joseph Charles & Associates, Inc., 356 North Camden Drive, Beverly
Hills, California 90210 (the "Holder"), is entitled to subscribe for and
purchase from Sforza Enterprises, Inc., a Florida corporation (the "Company"),
upon the terms and conditions set forth herein, at any time or from time to time
from and after ____________, 1998, and before 5:00 P.M. Los Angeles time on
____________, 2002 (the "Exercise Period"), 80,000 Units (the "Units"), each
Unit consisting of one share (the "Underlying Shares") of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") and one warrant (the
"Underlying Warrants") to purchase one share of Common Stock at a price of $5.25
per share (a "Common Stock Purchase Warrant") at an aggregate exercise price of
$6.60 per Unit, subject to adjustment as provided herein (the "Exercise Price").
The Underlying Warrants are to be issued pursuant to that certain Warrant
Agreement, dated _______, 1997 (the "Public Warrant Agreement"), between the
Company and Florida Atlantic Stock Transfer, Incorporated as warrant agent (the
"Warrant Agent") for the issuance of Common Stock Purchase Warrants including
920,000 Common Stock Purchase Warrants (including Common Stock Purchase Warrants
subject to an underwriters' over-allotment option) to be issued in a public
offering (the "Public Warrants"). The Underlying Warrants shall be identical to
the Public Warrants except that the Underlying Warrants shall not be subject to
mandatory redemption pursuant to Section 6 of the Public Warrant Agreement. The
shares of Common Stock that may be purchased upon exercise of the Underlying
Warrants are referred to herein as the Underlying Warrant Shares. The Underlying
Shares, the Underlying Warrants and the Underlying Warrant Shares are sometimes
collectively referred to herein as the "Underlying Securities."
This Representative's Warrant is the warrant or one of the warrants
(collectively, including any warrants issued upon the exercise or transfer of
any such warrants in whole or in part, the "Representative's Warrants") issued
pursuant to the Underwriting Agreement, dated _______, 1997 (the "Underwriting
Agreement"), between the Company and Joseph Charles & Associates, Inc., as
Representative of the several Underwriters. As used herein the term this or the
"Representative's Warrant" shall mean and include this Representative's Warrant
and any Representative's Warrant or Representative's Warrants hereafter issued
as a consequence of the exercise or transfer of this Representative's Warrant in
whole or in part. This Representative's Warrant may not be sold, transferred,
assigned or hypothecated until _________, 1998 except that it may be
transferred, in whole or in part, to (i) one or more officers or partners of the
<PAGE> 32
Holder (or the officers or partners of any such partner); (ii) any other
underwriting firm or member of the selling group (or the officers or partners of
any such firm) which participated in the public offering of 800,000 Units
pursuant to a Registration Statement (Registration Number 33-_______) on Form
SB-2 under the Securities Act of 1933, as amended (the "Act"); (iii) a successor
to the Holder, or the officers or partners of such successor; (iv) a purchaser
of substantially all of the assets of the Holder; or (v) by operation of law;
and the term the "Holder" as used herein shall include any transferee to whom
this Representative's Warrant has been transferred in accordance with the above.
1. This Representative's Warrant may be exercised during the Exercise
Period, as to the whole or any lesser number of Units, by the surrender of this
Representative's Warrant (with the election at the end hereof duly executed) to
the Company at its office at Sforza Enterprises, Inc., 330 Clematis Street #211,
West Palm Beach, Florida 33401, or at such other place as is designated in
writing by the Company, together with a certified or bank cashier's check
payable to the order of the Company in an amount equal to the Exercise Price
multiplied by the number of Units for which this Representative's Warrant is
being exercised.
2. Upon each exercise of the Holder's rights to purchase Units, the
Holder shall be deemed to be the holder of record of the Underlying Shares and
Underlying Warrants issuable upon such exercise, notwithstanding that the
transfer books of the Company shall then be closed or certificates representing
such Underlying Shares and Underlying Warrants shall not then have been actually
delivered to the Holder. Promptly after each such exercise of this
Representative's Warrant, the Company shall, or shall cause the transfer agent
for the Common Stock and the Warrant Agent to, issue and deliver to the Holder a
certificate or certificates for the Underlying Shares and Underlying Warrants
issuable upon such exercise, registered in the name of the Holder or its
designee. The Company has deposited and will at all times maintain with the
transfer agent for the Common Stock a number of shares of Common Stock and with
the Warrant Agent a number of Common Stock Purchase Warrants in each case
sufficient for issuance and delivery upon exercise of the Representative's
Warrants. In the event that the Company fails promptly to issue and deliver or
cause the issuance and delivery of certificates for Underlying Shares and
Underlying Warrants in accordance with the second sentence of this Section, the
Representatives are each hereby irrevocably designated the Company's agent to so
instruct the transfer agent for the Common Stock and the Warrant Agent to issue
and deliver such certificates and to take any other actions either of them deem
necessary or appropriate in connection with such issuance and delivery. If this
Representative's Warrant should be exercised in part only, the Company shall,
upon surrender of this Representative's Warrant for cancellation, execute and
deliver a new Representative's Warrant evidencing the right of the Holder to
purchase the balance of the Units subject to purchase hereunder.
3. Any Representative's Warrants issued upon the transfer or exercise
in part of this Representative's Warrant shall be numbered and shall be
registered in a Representative's Warrant Register as they are issued. The
Company shall be entitled to treat the registered holder of any Representative's
Warrant on the Representative's Warrant Register as the owner
2
<PAGE> 33
in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Representative's Warrant on the
part of any other person, and shall not be liable for any registration or
transfer of Representative's Warrants which are registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Representative's
Warrant shall be transferable only on the books of the Company upon delivery
thereof duly endorsed by the Holder or by his duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Representative's Warrant or
Representative's Warrants to the person(s) entitled thereto. This
Representative's Warrant may be exchanged, at the option of the Holder thereof,
for another Representative's Warrant, or other Representative's Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Units, upon surrender to the Company or its
duly authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Representative's Warrants to be transferred on its books to
any person if, in the opinion of counsel to the Company, such transfer does not
comply with the provisions of the Act, and the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available for
issuance upon the exercise of the Representative's Warrants and the Underlying
Warrants and on deposit with the transfer agent for the Common Stock a number of
its authorized and unissued shares of Common Stock that will be sufficient to
permit the exercise in full of the Representative's Warrants and the Underlying
Warrants. The Company covenants that all shares of Common Stock issuable upon
exercise of this Representative's Warrant and the Underlying Warrants, upon
receipt by the Company of the full payment therefor, shall be validly issued,
fully paid, nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date hereof
(i) declare a dividend on the outstanding Common Stock payable in shares of its
capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price, and the number of shares of Common Stock issuable upon exercise of the
Representative's Warrants in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the holders of the
Representative's Warrants after such time shall be entitled to receive the
aggregate number and kind of shares which, if such Representative's Warrants
had been exercised immediately prior to such time, such holders would have
owned upon such exercise and been entitled to
3
<PAGE> 34
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Upon the occurrence of any event (an "Event") as a result
of which an adjustment is required to be made to the exercise price (the "Public
Exercise Price") of any of the Public Warrants whether or not such Public
Warrants are then outstanding, (i) the number of Underlying Shares issuable
thereafter upon exercise of this Representative's Warrant shall be adjusted to
equal the number of Underlying Shares issuable prior to such Event multiplied by
a fraction, the numerator of which shall be the Public Exercise Price in effect
prior to such Event and the denominator of which shall be the Public Exercise
Price subsequent to such Event and (ii) the Exercise Price of this
Representative's Warrant (assuming for this purpose that the entire Exercise
Price is allocated to the Underlying Shares) shall be adjusted to equal the
Exercise Price prior to such Event multiplied by a fraction, the numerator of
which shall be the Public Exercise Price in effect subsequent to such Event and
the denominator of which shall be the Public Exercise Price in effect prior to
such Event.
(c) Any adjustment of the exercise price and/or the number
and/or kind of the Underlying Warrant Shares purchasable upon the exercise of
the Underlying Warrants shall be determined solely by the antidilution and other
adjustment provisions contained in the Public Warrant Agreement (which
provisions are incorporated herein by reference) as if such Underlying Warrants
were and had been outstanding on and from the date of original issuance of the
Public Warrants.
(d) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-thousandth of a share, as the case may be.
(e) In any case in which this Section 5 shall require that an
adjustment in the number of Underlying Shares be made effective as of a record
date for a specified event, the Company may elect to defer, until the occurrence
of such event, issuing to the Holder, if the Holder exercised this
Representative's Warrant after such record date, the shares of Common Stock
issuable upon such exercise over and above the number of shares of Common Stock
that were issuable upon such exercise immediately prior to such adjustment;
provided, however, that the Company shall deliver to the Holder a due bill or
other appropriate instrument evidencing the Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(f) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Representative's Warrant Register, which notice shall be
accompanied by an officer's certificate setting forth the number of Underlying
Shares issuable pursuant to such Representative's Warrant, the Exercise Price,
the number of Underlying Warrant Shares purchasable upon exercise of the
Underlying Warrants and the exercise price of such Underlying Warrants after
such adjustment and setting forth a
4
<PAGE> 35
brief statement of the facts requiring such adjustment and the computation
thereof, which officer's certificate shall be conclusive evidence of the
correctness of any such adjustment absent manifest error.
(g) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
of this Representative's Warrant. If any fraction of a share would be issuable
on the exercise of this Representative's Warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the Current Market Price (as hereinafter defined) of
such share on the date of exercise of this Representative's Warrant.
(h) The Current Market Price per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days immediately preceding the date in question. The closing
price for each day shall be the last reported sales price or, in case no such
reported sale takes place on such day, the closing bid price, in either case on
the principal national securities exchange (including, for purposes hereof, the
Nasdaq National Market) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through Nasdaq or a similar organization if Nasdaq is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and are not quoted by Nasdaq or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
6. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease or conveyance to another corporation of all or substantially all of the
property and assets of the Company, such successor, leasing, or purchasing
corporation, as the case may be, shall (i) execute with the Holder an agreement
providing that the Holder shall have the right thereafter to receive upon
exercise of this Representative's Warrant solely the kind and amount of
securities, property, cash, or any combination thereof receivable upon such
consolidation, merger, sale, lease, or conveyance by a holder of the number of
Underlying Shares and Underlying Warrants for which this Representative's
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance and (ii) make effective provision in its
Memorandum and Articles of Incorporation or otherwise, if necessary, to effect
such agreement. Such agreement shall provide for adjustments which shall be as
nearly equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the
securities issuable upon exercise of this Representative's Warrant, or in case
of any consolidation or merger of another
5
<PAGE> 36
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the securities issuable upon
exercise of this Representative's Warrant (other than a change in par value, or
from no par value to a specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes or
series of shares), the Holder shall have the right thereafter to receive upon
exercise of this Representative's Warrant solely the kind and amount of shares
of stock and other securities, property, cash, or any combination thereof
receivable upon such reclassification, change, consolidation, or merger by a
holder of the number of Underlying Shares and Underlying Warrants for which this
Representative's Warrant might have been exercised immediately prior to such
reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on Common
Stock in Common Stock or make any other distribution (other than regularly
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares of
Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment
to the Public Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Representative's Warrant Register,
mailed at least 15 days prior to (i) the date as of which the holders of record
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii) the date on
which any such reclassification, change of outstanding Common Stock,
consolidation, merger, sale, lease,
6
<PAGE> 37
conveyance of property, liquidation, dissolution, or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Common Stock shall be entitled to exchange their shares for securities or
other property, if any, deliverable upon such reclassification, change of
outstanding shares, consolidation, merger, sale, lease, conveyance of property,
liquidation, dissolution, or winding-up, or (iii) the date of such action which
would require an adjustment to the Public Exercise Price.
8. The issuance of any shares or other securities upon the
exercise of this Representative's Warrant, and the delivery of certificates or
other instruments representing such shares or other securities, shall be made
without charge to the Holder for any tax or other charge in respect of such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not
be required to issue or deliver any such certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
9. (a) If, at any time during the four-year period commencing one
year after the Effective Date, the Company shall file a registration statement
(other than on Form F-4, Form S-8, or any successor form) with the Securities
and Exchange Commission (the "Commission") while this Representative's Warrant
or any of the Representative's Securities (as hereinafter defined) are
outstanding, the Company shall give all the then holders of the Representative's
Warrants or any Representative's Securities (collectively, the "Eligible
Holders") at least 45 days' prior written notice of the filing of such
registration statement. If requested by any Eligible Holder in writing within 30
days after receipt of any such notice, the Company shall, at the Company's sole
expense (other than the fees and disbursements of counsel for the Eligible
Holders and the underwriting discounts, if any, payable in respect of the
Representative's Securities sold by any Eligible Holder), register or qualify
all or, at each Eligible Holder's option, any portion of the Representative's
Securities of any Eligible Holders who shall have made such request,
concurrently with the registration of such other securities, all to the extent
requisite to permit the public offering and sale of the Representative's
Securities through the facilities of all appropriate securities exchanges and
the over-the-counter market, and will use its best efforts through its officers,
directors, auditors, and counsel to cause such registration statement to become
effective as promptly as practicable. Notwithstanding the foregoing, if the
managing underwriter of any such offering shall advise the Company in writing
that, in its opinion, the distribution of all or a portion of the
Representative's Securities requested to be included in the registration
concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then any Eligible Holder who shall have requested
registration of his or its Representative's Securities shall delay the offering
and sale of such Representative's Securities (or the portions thereof so
designated by such managing underwriter) for such period, not to exceed 90 days
(the "Delay Period"), as the managing underwriter shall request, provided that
no such delay shall be required as to any Representative's Securities if any
securities of the
7
<PAGE> 38
Company are included in such registration statement and eligible for sale during
the Delay Period for the account of any person other than the Company and any
Eligible Holder unless the securities included in such registration statement
and eligible for sale during the Delay Period for such other person shall have
been reduced pro rata to the reduction of the Representative's Securities which
were requested to be included and eligible for sale during the Delay Period in
such registration. As used herein, "Representative's Securities" shall mean the
Underlying Securities which have not been previously sold pursuant to a
registration statement or Rule 144 promulgated under the Act.
(b) If, at any time during the four year period commencing one
year after the Effective Date, the Company shall receive a written request (a
"Request"), from Eligible Holders who in the aggregate own (or upon exercise of
all Representative's Securities then outstanding or issuable would own) a
majority of the total number of shares of Common Stock then included (or which
upon such exercises would be included) in the Representative's Securities (the
"Majority Holders"), to register the sale of all or part of such
Representative's Securities, the Company shall, as promptly as practicable,
prepare and file with the Commission a registration statement sufficient to
permit the public offering and sale of the Representative's Securities through
the facilities of all appropriate securities exchanges and the over-the-counter
market, and will use its best efforts through its officers, directors, auditors,
and counsel to cause such registration statement to become effective as promptly
as practicable; provided, however, that the Company shall only be obligated to
register Representative's Securities on one occasion pursuant to this Section
9(b). All expenses incurred in connection with such registration (other than the
fees and disbursements of counsel for the Eligible Holders and underwriting
discounts, if any, payable in respect of the Representative's Securities sold by
the Eligible Holders) shall be borne by the Company. Within three business days
after receiving any request contemplated by this Section 9(b), the Company shall
give written notice to all the other Eligible Holders, advising each of them
that the Company is proceeding with such registration and offering to include
therein all or any portion of any such other Eligible Holder's Representative's
Securities, provided that the Company receives a written request to do so from
such Eligible Holder within 30 days after receipt by him or it of the Company's
notice. Notwithstanding anything contained in this Section 9(b) to the contrary:
(i) no person may make a Request that the Company file, nor shall the Company be
obligated to file, a Registration Statement on any date that is within 90 days
of the effective date of any registration statement filed by the Company and
pursuant to which such person was given full "piggyback" registration rights in
accordance with Section 9(a) hereof including without limitation the ability to
include all Representative's Securities requested to be included therein; and
(ii) the Company may delay the registration of the securities to which a Request
relates if upon receipt of such Request (A) the Company notifies the person
making the Request that it is contemplating filing a Registration Statement
within 90 days of such Request, or (B) the Company notifies the person making
the Request that the Board of Directors of the Company has determined that a
material event has occurred that has not been publicly disclosed and which if
disclosed would have a material adverse effect on the Company; provided that (x)
in the case of clause (ii)(A) of this paragraph, the Company shall, as soon as
practical, upon the first to occur of the abandonment of such contemplated
Registration
8
<PAGE> 39
Statement or the expiration of such 90-day period, register the securities to
which the Request relates unless such Request is withdrawn; and (y) in the case
of clause (ii)(B) of this paragraph, the Company may not delay the filing of the
Registration Statement for more than 30 days from the date of the Request unless
such Request is withdrawn.
(c) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall use its best efforts to cause the
Representative's Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Eligible
Holders may reasonably request; provided, however, that the Company shall not be
required to qualify to do business in any state by reason of this Section 9(c)
in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication until the earlier of
the conclusion of the period required to permit the Eligible Holders to complete
the offer and sale of the Representative's Securities covered thereby and 120
days from the effective date of the Registration Statement; provided, however,
that, if the Company is required to keep any such registration or qualification
in effect with respect to securities other than the Representative's Securities
beyond such period, the Company shall keep such registration or qualification in
effect as it relates to the Representative's Securities for so long as such
registration or qualification remains or is required to remain in effect in
respect of such other securities.
(e) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish to each Eligible Holder such number
of copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Representative's Securities included in such
registration.
(f) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish each Eligible Holder of any
Representative's Securities so registered with an opinion of its counsel
(reasonably acceptable to the Eligible Holders) to the effect that (i) the
registration statement has become effective under the Act and no order
suspending the effectiveness of the registration statement, preventing or
suspending the use of the registration statement, any preliminary prospectus,
any final prospectus, or any amendment or supplement thereto has been issued,
nor has the Commission or any securities or blue sky authority of any
jurisdiction instituted or threatened to institute any proceedings with respect
to such an order, (ii) the registration statement and each prospectus forming a
part thereof (including each preliminary prospectus), and any amendment or
supplement thereto, complies as to form with
9
<PAGE> 40
the Act and the rules and regulations thereunder, and (iii) such counsel has no
knowledge of any material misstatement or omission in such registration
statement or any prospectus, as amended or supplemented. Such opinion shall also
state the jurisdictions in which the Representative's Securities have been
registered or qualified for sale pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision
of this Section 9, the Company shall enter into a cross-indemnity agreement and
a contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Representative's
Securities.
(h) The Company agrees that until all the Representative's
Securities have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Representative's Securities to sell such securities under Rule 144.
(i) So long as any Representative's Securities are
outstanding, the Company will not enter into any agreement requiring the
registration of any securities of the Company which is in conflict with the
terms of this Section 9.
10. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless each Eligible Holder, its officers,
directors, partners, employees, agents, and counsel, and each person, if any,
who controls any such person within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all loss, liability, charge, claim, damage, and
expense whatsoever (which shall include, for all purposes of this Section 10,
but not be limited to, attorneys' fees and any and all reasonable expenses
whatsoever incurred in investigating, preparing, or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any registration
statement, preliminary prospectus, or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Representative's Securities, or (B) in any application or
other document or communication (in this Section 10 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Representative's Securities under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such Eligible Holder expressly for
inclusion in any registration
10
<PAGE> 41
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant, or agreement of the Company
contained in this Representative's Warrant. The foregoing agreement to indemnify
shall be in addition to any liability the Company may otherwise have, including
liabilities arising under this Representative's Warrant.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10) and the
Company shall promptly assume the defense of such action, including the
employment of counsel and payment of expenses. Such indemnified party or parties
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel reasonably
satisfactory to such indemnified party or parties to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be one or more legal defenses available to it or them
or to other indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees and expenses shall be
borne by the Company and the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties. Anything
in this Section 10 to the contrary notwithstanding, the Company shall not be
liable for any settlement of any such claim or action effected without its
written consent, which shall not be unreasonably withheld. The Company shall
not, without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought hereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent, or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. The Company agrees promptly to notify the Eligible Holders of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of any Representative's
Securities or any preliminary prospectus, prospectus, registration statement, or
amendment or supplement thereto, or any application relating to any sale of any
Representative's Securities.
(b) The Holder agrees to indemnify and hold harmless the
Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Representative's Securities held
by the Holder, each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, and its
or their respective counsel, to the same extent as the foregoing indemnity from
the Company to the Holder in Section 10(a), but only with respect to statements
or
11
<PAGE> 42
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against the Holder pursuant to
this Section 10(b), the Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the
Representative's Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of any officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such Eligible Holders), as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which any of them may
be subject, on the basis of relevant equitable considerations such as the
relative fault of the Company and such Eligible Holders in connection with the
facts which resulted in such losses, liabilities, claims, damages, and expenses.
The relative fault, in the case of an untrue statement, alleged untrue
statement, omission, or alleged omission, shall be determined by, among other
things, whether such statement, alleged statement, omission, or alleged omission
relates to information supplied by the Company or by such Eligible Holders, and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement, alleged statement, omission, or alleged
omission. The Company and the Holder agree that it would be unjust and
inequitable if the respective obligations of the Company and the Eligible
Holders for contribution were determined by pro rata or per capita allocation of
the aggregate losses, liabilities, claims, damages, and expenses (even if the
Eligible Holders and the other indemnified parties were treated as one entity
for such purpose) or by any other method of allocation that does not reflect the
equitable considerations referred to in this Section 10(c). In no case shall any
Eligible Holder be responsible for a portion of the contribution obligation
imposed on all Eligible Holders in excess of its pro rata share based on the
number of shares of Common Stock (or which would be owned upon exercise of all
Representative's Securities) by it and included in such registration as compared
to the number of shares of Common Stock
12
<PAGE> 43
owned (or which would be owned upon exercise of all Representative's Securities)
by all Eligible Holders and included in such registration. 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. For purposes of this Section 10(c), each person,
if any, who controls any Eligible Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and each officer, director, partner,
employee, agent, and counsel of each such Eligible Holder or control person
shall have the same rights to contribution as such Eligible Holder or control
person and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed any such registration statement, each director of
the Company, and its or their respective counsel shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
Section 10(c). This Section 10(c) is intended to supersede any right to
contribution under the Act, the Exchange Act or otherwise.
11. Unless registered pursuant to the provisions of Section 9 hereof,
the certificate or certificates evidencing the Underlying Securities shall bear
the following legend:
"THE [SHARES] [WARRANTS] REPRESENTED BY THIS
CERTIFICATE [AND THE SHARES ISSUABLE UPON EXERCISE
THEREOF] HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. HOWEVER, SUCH [SHARES] [WARRANTS AND
SHARES] MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT
UNDER SUCH ACT, OR (iii) AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Representative's Warrant (and upon
surrender of any Representative's Warrant if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Warrant of like date,
tenor, and denomination.
13. The Holder of any Representative's Warrant shall not have, solely
on account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Representative's Warrant.
14. This Representative's Warrant shall be construed in accordance with
the internal laws of the State of California.
13
<PAGE> 44
15. The Company irrevocably consents to the jurisdiction of the courts
of the State of California and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Representative's Warrant, any document or instrument delivered pursuant to, in
connection with or simultaneously with this Representative's Warrant, or a
breach of this Representative's Warrant or any such document or instrument. In
any such action or proceeding, the Company waives personal service of any
summons, complaint or other process and agrees that service thereof may be made
in accordance with Section 10 of the Underwriting Agreement. Within 30 days
after such service, or such other time as may be mutually agreed upon in writing
by the attorneys for the parties to such action or proceeding, the Company shall
appear to answer such summons, complaint or other process.
Dated: __________, 1997 SFORZA ENTERPRISES, INC.
By:
------------------------------
Name:
Title:
- ---------------------------
Secretary
14
<PAGE> 45
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Warrant.)
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and
transfers unto _________________ a Representative's Warrant to purchase
__________ Units, together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint ___________ attorney to transfer such
Representative's Warrant on the books of the Company, with full power of
substitution.
Dated:
--------------------
-----------------------
Signature
The signature must correspond to the name as written upon the face of
this Representative's Warrant in every particular, without alteration or
enlargement or any change whatsoever.
15
<PAGE> 46
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
_______ Units and tenders payment herewith in the amount of $_________ in
accordance with the terms thereof, and requests that certificates for such
securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Units shall not be all the Units covered by the within
Representative's Warrant, that a new Representative's Warrant for the balance of
the Units covered by the within Representative's Warrant be registered in the
name of, and delivered to, the undersigned at the address stated below.
Dated: Name
-------------------------- -------------------------------
(Print)
Address:
-----------------------------------
(Signature)
16
<PAGE> 1
EXHIBIT 4.3
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") dated as of _________, 1997,
between Sforza Enterprises, Inc., a Florida corporation (the "Company"), and
Florida Atlantic Stock Transfer, Incorporated, a ________ corporation (the
"Warrant Agent").
The Company proposes to make a public offering (the "Offering") of up
to 920,000 Units (the "Units") (including 120,000 Units issuable upon exercise
of the Underwriters' over-allotment option), each Unit consisting of one share
of the Company's Common Stock, par value $0.01 per share (the "Common Stock"),
and one warrant to purchase one share of Common Stock (the "Common Shares") at
an exercise price of $5.25 per share (the "Common Stock Purchase Warrants"),
pursuant to the Underwriting Agreement dated _________, 1997 among the Company
and Joseph Charles & Associates, Inc. as representative of the several
underwriters (the "Underwriting Agreement");
The Company proposes to issue to Joseph Charles & Associates, Inc. (the
"Representative") warrants (the "Representative's Warrants") to purchase up to
an aggregate of 80,000 Units. The 80,000 Common Stock Purchase Warrants issuable
upon exercise of the Representative's Warrants are referred to herein as the
"Representative Underlying Warrants";
The Company proposes to issue certificates (the "Warrant Certificates")
evidencing the Common Stock Purchase Warrants issuable in the Offering and upon
exercise of the Representative's Warrants (collectively, the "Warrants");
The Company desires the Warrant Agent, and the Warrant Agent agrees, to
act on behalf of the Company in connection with the issuance, transfer,
exchange, replacement and surrender of the Warrant Certificates; and
The Company and the Warrant Agent desire to set forth in this Warrant
Agreement, among other things, the form and provisions of the Warrant
Certificates and the terms and conditions under which they may be issued,
transferred, exchanged, replaced and surrendered in connection with the exercise
of the Warrants.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I
DISTRIBUTION OF WARRANT CERTIFICATES
Section 1.1 Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act on behalf of the Company in accordance with the
instructions hereinafter in this Agreement set forth, and the Warrant Agent
hereby accepts such appointment.
Section 1.2 Form of Warrant Certificates. The Warrant Certificates for
the Warrants issuable in the offering shall be issued in registered form only
and, together with the purchase and assignment forms to be printed on the
reverse thereof, shall be substantially in the form of Exhibit A attached hereto
and, in addition, may have such letters, numbers or other marks of
identification or designation and such legends, summaries, or endorsements
stamped, printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement or
as, in any particular case, may be required, in the opinion of counsel for the
Company, to comply with any law or with any rule or regulation of any regulatory
authority or agency, or to conform to customary usage. The Representative
Underlying Warrants shall be identical to the Warrants issuable in the Offering,
except that the Representative Underlying Warrants shall not be subject to
redemption pursuant to Section 6.
Section 1.3 Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by its Chief Executive Officer or
Chairman of the Board, or President or any Vice President, and by its Chief
Financial Officer or any Assistant Treasurer or Secretary or any Assistant
Secretary, either manually or by facsimile signature printed thereon. The
Warrant Certificates shall be manually countersigned and dated the date of
countersignature by the Warrant Agent and shall not be valid for any purpose
unless so countersigned and dated. In case any authorized officer of the Company
who shall have signed any of the Warrant Certificates shall cease to be such
officer of the Company either before or after delivery thereof by the Company to
the Warrant Agent, the signature of such person on such Warrant Certificates,
nevertheless, shall be valid and such Warrant Certificates may be countersigned
by the Warrant Agent and issued and delivered to those persons entitled to
receive the Warrants represented thereby with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be such
officer of the Company.
Section 1.4 Issuance and Distribution of Warrant Certificates. Upon
completion of the Offering, the Company shall deliver to the Warrant Agent an
adequate supply of Warrant Certificates for the Warrants executed on behalf of
the Company as described in Section 1.3 hereof. Upon receipt of an order from
the Company, the Warrant Agent shall within three (3) business days complete and
countersign Warrant Certificates representing the total number of Warrants to be
issued hereunder and shall deliver such Warrant Certificates pursuant to written
instructions of the Company. Upon receipt of an order from the Company
acknowledging the exercise of the Representative's Warrants, the Warrant Agent
shall within three (3) business days complete and countersign Warrant
Certificates representing the total number of Warrants to be
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<PAGE> 3
issued upon such exercise, and shall deliver such Warrant Certificates pursuant
to written instructions of the Company.
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 Exercise Price. Each Warrant Certificate for the Warrants
shall, when signed by the Chief Executive Officer or Chairman of the Board, or
President or any Vice President, and by the Chief Financial Officer or any
Assistant Treasurer or Secretary or any Assistant Secretary of the Company and
countersigned by the Warrant Agent, entitle the registered holder thereof, to
purchase from the Company one Common Share for each Warrant evidenced thereby,
at the purchase price of $5.25 per share (the "Initial Exercise Price"), or such
adjusted number of shares at such adjusted purchase price as may be established
from time to time pursuant to the provisions of Article III hereof, payable in
full at the time of exercise of the Warrant. Except as the context otherwise
requires, the term "Exercise Price" as used in this Agreement shall mean the
purchase price of one Common Share upon the exercise of the Warrant reflecting
all appropriate adjustments made in accordance with the provisions of Article
III hereof. At any time and from time to time prior to the Exercise Deadline (as
defined in Section 2.2 below), the Company in its discretion may permanently or
temporarily (for such period as the Company may determine) reduce the Exercise
Price. In case the Company shall determine to reduce the Exercise Price, it
shall so notify the Warrant Agent and the registered holders of the outstanding
Warrants, by mailing, first class, postage prepaid, notice of the reduced
Exercise Price (and if temporarily reduced, of the period during which the
Warrants may be exercised at such reduced price) to such registered holders at
their addresses as they shall appear on the records of the Warrant Agent. Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the registered holder actually receives such
notice.
Section 2.2 Registration of Common Shares and Exercisability of
Warrants. Each Warrant may be exercised at any time provided that the Common
Shares issuable upon exercise of such Warrants have been effectively registered
under the Securities Act of 1933, as amended (the "Securities Act"), and such
other action as may be required by federal or state law relating to the issuance
or distribution of securities shall have been taken, but not after 5:00 P.M.,
Florida time, on ________, 2002. The term "Exercise Deadline" as used in this
Agreement shall mean the latest time and date at which the Warrants may be
exercised. The Company shall use its best efforts to secure the effective
registration of the aforementioned Common Shares under the Securities Act and to
register or qualify such shares under applicable state laws; the Company further
agrees, from and after the time such registration has become effective, to use
its best efforts to maintain such registration or qualification in effect and to
keep available for delivery upon the exercise of Warrants a prospectus that
meets the requirements of Section 10 of the Securities Act, until the earlier of
the date by which all Warrants are exercised or the Exercise Deadline; provided
however, that the Company shall have no obligation to register such Common
Shares or maintain the effectiveness of such registration or qualification or to
keep available a prospectus, as aforesaid, in the event that, by amendment to
the Securities Act or
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<PAGE> 4
otherwise, such registration or qualification or the delivery of such prospectus
is not required at the time said Common Shares are to be issued; and provided
further, that in the event, by amendment to the Securities Act or otherwise,
some other or different requirement shall be imposed by act of the Congress of
the United States which shall relate to the issuance of Common Shares upon
exercise of the Warrants, the Company shall use its best efforts to comply with
such requirements so long as the same shall not be more burdensome to the
Company than the registration statement under the Securities Act. The Exercise
Deadline may be extended by the Company by notice to the registered holders of
the Warrants and shall be extended if such holders are unable to exercise the
Warrants at what would otherwise be the Exercise Deadline because the Common
Shares issuable upon exercise of such Warrants have not been effectively
registered under the Securities Act. Such extension shall continue until such
registration has been effective for 30 days after notice to such holders.
Section 2.3 Procedure for Exercise of Warrants. During the period
specified in and subject to the provisions of Section 2.2 hereof, Warrants may
be exercised by surrendering the Warrant Certificates representing such Warrants
to the Warrant Agent at its principal office (the "Principal Office"), which is
presently at _____________________________________________ with the election to
purchase form set forth on the Warrant Certificate duly completed and executed,
with signatures guaranteed by an eligible guarantor institution which is a
participant in a signature guarantee program (as such terms are defined in Reg.
240.17Ad-15 under the Securities Exchange Act of 1934, as amended) acceptable to
the Warrant Agent ("Signatures Guaranteed"), accompanied by payment in full of
the Exercise Price as provided in Section 2.1 in effect at the time of such
exercise, together with such taxes as are specified in Section 7.1 hereof, for
each Common Share with respect to which such Warrants are being exercised. Such
Exercise Price and taxes shall be paid in full by certified check or money order
payable in United States currency to the order of the Company. The date on which
Warrants are exercised in accordance with this Section 2.3 is sometimes referred
to herein as the Date of Exercise of such Warrants.
Section 2.4 Issuance of Common Shares. Promptly after the Date of
Exercise of any Warrants, the Company shall issue, or cause the transfer agent
for the Common Stock to issue, a certificate or certificates for the number of
full Common Shares to which such holder is entitled, registered in accordance
with the instructions set forth in the election to purchase. The Company has
deposited and will at all times maintain with the transfer agent for the Common
Stock a number of Common Shares sufficient for issuance and delivery upon
exercise of the Warrants. In the event that the Company fails promptly to
deliver or cause the delivery of certificates for Common Shares in accordance
with the first sentence of this Section, the Warrant Agent is hereby irrevocably
designated the Company's agent to instruct the transfer agent for the Common
Stock to issue and deliver such certificates and to take any other actions it
deems necessary or appropriate in connection with the issuance and delivery of
such certificates. All Common Shares issued upon the exercise of any Warrants
shall be validly authorized and issued, fully paid and nonassessable, and free
from all taxes, liens and charges created by the Company in respect of the issue
thereof, and shall be previously unissued shares. Each person in whose name any
such certificate for Common Shares is issued shall for all purposes be deemed to
have become the holder of record of the Common Shares represented thereby on the
Date of Exercise
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<PAGE> 5
of the Warrants resulting in the issuance of such shares, irrespective of the
date of issuance or delivery of such certificate for Common Shares.
Section 2.5 Certificate for Unexercised Warrants. In the event that
less than all of the Warrants represented by a Warrant Certificate are
exercised, the Warrant Agent shall execute and mail, by first-class mail, within
30 days of the Date of Exercise, to the registered holder of such Warrant
Certificate, or such other person as shall be designated in the election to
purchase, a new Warrant Certificate representing the number of full Warrants not
exercised. In no event shall a fraction of a Warrant be exercised, and the
Warrant Agent shall distribute no Warrant Certificates representing fractions of
Warrants under this or any other section of this Agreement. Final fractions of
shares shall be treated as provided in Section 2.8.
Section 2.6 Reservation of Shares. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants and on
deposit with the transfer agent for the Common Stock a number of its authorized
but unissued Common Shares that will be sufficient to permit the exercise in
full of all Warrants.
Section 2.7 Disposition of Proceeds. The Warrant Agent shall account at
least monthly (or more frequently upon the request of the Company, provided that
in no event shall the Warrant Agent be required to account more frequently than
weekly) to the Company with respect to Warrants exercised and concurrently
deliver to the Company all funds received in connection therewith.
Notwithstanding the foregoing sentence, at any time upon the exercise of any
Warrant after the mailing of the notice specified in Section 6.2, the Warrant
Agent shall, on a weekly basis, notify the Representative, its successors or
assigns, of the exercise of any such Warrants and shall, on a weekly basis
(subject to collection of funds constituting the tendered Exercise Price, but in
no event later than five business days after the last day of the calendar week
in which such funds were tendered), remit to the Representative an amount equal
to four percent of the Exercise Price of such Warrants being then exercised
unless the Representative shall have notified the Warrant Agent that the payment
of such amount with respect to such Warrant is violative of the General Rules
and Regulations promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") or applicable state securities
or "blue sky" laws, or the Warrants are those underlying the Representative's
Warrants in which event, the Warrant Agent shall have to pay such amount to the
Company.
Section 2.8 Fractional Shares. The Company shall not be required upon
the exercise of any Warrant to issue fractional Common Shares; provided that if
more than one Warrant is exercised at one time by the same registered holder,
the number of full Common Shares which shall be deliverable shall be computed
based on the number of shares deliverable in exchange for the aggregate number
of Warrants exercised. With respect to any final fraction of a share called for
upon the exercise of any Warrant or Warrants, the Company shall pay a cash
adjustment in respect of such final fraction in an amount equal to the same
fraction of the Current Market Price of a share of Common Stock calculated in
accordance with Section 3.2.
-5-
<PAGE> 6
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS
Section 3.1 Adjustment of Exercise Price. Subject to the provisions of
this Article III, the Exercise Price in effect from time to time shall be
subject to adjustment, as follows:
(a) In case the Company shall at any time after the date hereof (i)
declare a dividend on the outstanding Common Stock payable in shares of its
capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Exercise
Price, and the number of Common Shares issuable upon exercise of the Warrants in
effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination, or reclassification, shall be proportionately
adjusted so that the holders of the Warrants after such time shall be entitled
to receive the aggregate number and kind of shares which, if such Warrants had
been exercised immediately prior to such time, such holders would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for the
issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange price per share, if a security convertible into or exchangeable for
Common Stock) less than the Current Market Price per share of Common Stock (as
determined pursuant to Section 3.2 hereof) on such record date, then, in each
case, the Exercise Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so to be offered (or the
aggregate initial conversion or exchange price of the convertible or
exchangeable securities so to be offered) would purchase at such Current Market
Price and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
or exchangeable securities so to be offered are initially convertible or
exchangeable). Such adjustment shall become effective at the close of business
on such record date; provided, however, that, to the extent the shares of Common
Stock (or securities convertible into or exchangeable for Common Stock) are not
delivered, the Exercise Price shall be readjusted after the expiration of such
rights, options, or warrants (but only with respect to Warrants exercised after
such expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants been
made upon the basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for Common Stock) actually issued.
In case any subscription price may be paid
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<PAGE> 7
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive absent
manifest error. Shares of Common Stock owned by or held for the account of the
Company or any majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation.
(c) In case the Company shall distribute to all holders of Common Stock
(including any such distribution made to the shareholders of the Company in
connection with a consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness, cash (other than any cash dividend
which, together with any cash dividends paid within the 12 months prior to the
record date for such distribution, does not exceed 5% of the Current Market
Price at the record date for such distribution) or assets (other than
distributions and dividends payable in Common Stock), or rights, options, or
warrants to subscribe for or purchase Common Stock, or securities convertible
into or exchangeable for Common Stock (excluding those with respect to the
issuance of which an adjustment of the Exercise Price is provided pursuant to
Section 3.1(b) hereof), then, in each case, the Exercise Price shall be adjusted
by multiplying the Exercise Price in effect immediately prior to the record date
for the determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Current Market Price per share of
Common Stock on such record date, less the fair market value (as determined in
good faith by the Board of Directors of the Company, whose determination shall
be conclusive absent manifest error) of the portion of the evidences of
indebtedness or assets so to be distributed, or of such rights, options, or
warrants or convertible or exchangeable securities, or the amount of such cash,
applicable to one share, and the denominator of which shall be such Current
Market Price per share of Common Stock. Such adjustment shall become effective
at the close of business on such record date.
(d) In case the Company shall issue shares of Common Stock or rights,
options, or warrants to subscribe for or purchase Common Stock, or securities
convertible into or exchangeable for Common Stock (excluding (i) shares, rights,
options, warrants, or convertible or exchangeable securities issued or issuable
in any of the transactions with respect to which an adjustment of the Exercise
Price is provided pursuant to Section 3.1(a), 3.1(b) or 3.1(c) above, (ii)
securities issued or issuable pursuant to the Offering, (iii) Common Shares
issued or issuable upon exercise of the Warrants, (iv) Representative Underlying
Warrants issued or issuable upon exercise of the Representative's Warrants and
(v) options to purchase up to 285,000 shares of Common Stock issued or issuable
under the Company's employee stock option plan and shares of Common Stock issued
or issuable pursuant thereto), at a price per share (determined, in the case of
such rights, options, warrants, or convertible or exchangeable securities, by
dividing (x) the total amount received or receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants, or
convertible or exchangeable securities, plus the minimum aggregate consideration
payable to the Company upon exercise, conversion, or exchange thereof, by (y)
the maximum number of shares covered by such rights, options, warrants, or
convertible or exchangeable securities) lower than the Current Market Price per
share of Common Stock in effect immediately prior to such issuance, then the
Exercise Price shall be reduced on the date of such issuance to a price
(calculated to the nearest cent) determined by multiplying the Exercise Price in
effect immediately prior to such issuance by a fraction, (a) the numerator of
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which shall be an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issuance plus (B) the quotient
obtained by dividing the aggregate consideration received by the Company upon
such issuance by such Current Market Price, and (b) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such issuance. For the purposes of such adjustments, the maximum number of
shares which the holders of any such rights, options, warrants, or convertible
or exchangeable securities shall be entitled to initially subscribe for or
purchase or convert or exchange such securities into shall be deemed to be
issued and outstanding as of the date of such issuance, and the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum aggregate consideration or premiums
stated in such rights, options, warrants or convertible or exchangeable
securities to be paid for the shares covered thereby. No further adjustment of
the Exercise Price shall be made as a result of the actual issuance of Common
Stock on exercise of such rights, options, or warrants or on conversion or
exchange of such convertible or exchangeable securities. On the expiration or
the termination of such rights, options, or warrants, or the termination of such
rights to convert or exchange, the Exercise Price shall be readjusted (but only
with respect to Warrants exercised after such expiration or termination) to such
Exercise Price as would have been obtained had the adjustments made upon the
issuance of such rights, options, warrants, or convertible or exchangeable
securities been made upon the basis of the delivery of only the number of shares
of Common Stock actually delivered upon the exercise of such rights, options, or
warrants or upon the conversion or exchange of any such securities; and on any
change of the number of shares of Common Stock deliverable upon the exercise of
any such rights, options, or warrants or conversion or exchange of such
convertible or exchangeable securities or any change in the consideration to be
received by the Company upon such exercise, conversion, or exchange, including,
but not limited to, a change resulting from the antidilution provisions thereof,
the Exercise Price, as then in effect, shall forthwith be readjusted (but only
with respect to Warrants exercised after such change) to such Exercise Price as
would have been obtained had an adjustment been made upon the issuance of such
rights, options, or warrants not exercised prior to such change, on the basis of
such change. In case the Company shall issue Common Stock or any such rights,
options, warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 3.1(d) shall be as determined in
good faith by the Board of Directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation.
Section 3.2 Current Market Price. For the purpose of any computation
under this Article III, the Current Market Price per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices for the
30 consecutive trading days immediately preceding the date in question. The
closing price for each day shall be the last reported sales price or, in case no
such reported sale takes place on such day, the closing bid price, in either
case on the principal national securities exchange (including, for purposes
hereof, the Nasdaq National Market) on which the Common Stock is listed or
admitted to trading or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, the highest
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reported bid price for the Common Stock as furnished by the National Association
of Securities Dealers, Inc. through Nasdaq or a similar organization if Nasdaq
is no longer reporting such information. If on any such date the Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted by Nasdaq or any similar organization, the fair value of a shares of
Common Stock on such date as determined in good faith by the Board of Directors
of the Company, whose determination shall be conclusive absent manifest error
shall be used.
Section 3.3 No Adjustments to Exercise Price. No adjustment of the
exercise price shall be required in connection with (a) the private placement or
underwritten public offering of Common Stock for cash, provided the gross
proceeds per share received by the Company upon issuance are at least 90% of the
Current Market Price in effect immediately prior to such sale or issuance; (b)
the operation of anti-dilution provisions applicable to any other security
provided such provisions are no more favorable than those contained in this
Warrant Agreement; or (c) if such adjustment is less than $.05; provided,
however, that any adjustments which by reason of this Section 3.3(c) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article III shall be made to
the nearest cent or to the nearest one thousandth of a share, as the case may
be.
Section 3.4 Deferral of Adjustments to Exercise Price. In any case in
which this Article III shall require that an adjustment in the Exercise Price be
made effective as of a record date for a specified event, the Company may elect
to defer, until the occurrence of such event, issuing to the holders of the
Warrants, if any holder has exercised a Warrant after such record date, the
Common Shares issuable upon such exercise over and above the Common Shares
issuable upon such exercise on the basis of the Exercise Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
exercising holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares upon the occurrence of the
event requiring such adjustment.
Section 3.5 Adjustment to Number of Shares. Upon each adjustment of the
Exercise Price as a result of the calculations made in Sections 3.1(b), 3.1(c),
or 3.1(d) hereof the Warrants shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, that number of shares (calculated to the nearest
thousandth) obtained by dividing (A) the product obtained by multiplying the
number of shares purchasable upon exercise of the Warrants prior to adjustment
of the number of shares by the Exercise Price in effect prior to adjustment of
the Exercise Price by (B) the Exercise Price in effect after such adjustment of
the Exercise Price.
Section 3.6 Reorganization. In case of any capital reorganization,
other than in the cases referred to in Section 3.1 hereof, or the consolidation
or merger of the Company with or into another corporation (other than a merger
or consolidation in which the Company is the surviving or continuing corporation
and which does not result in any reclassification of the outstanding Common
Stock or the conversion of such outstanding Common Stock into shares of other
stock or other securities or property), or the sale of the property of the
Company as an entirety or substantially as an entirety (collectively such
actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Warrant (in lieu
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of the number of Common Shares theretofore deliverable) the number of shares of
stock or other securities or property to which a holder of the number of Common
Shares which would otherwise have been deliverable upon the exercise of such
Warrant would have been entitled upon such Reorganization if such warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of Warrant holders so
that the provisions set forth herein shall thereafter be applicable, as nearly
as possible, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. Any such adjustment shall be made by and set forth in
a supplemental agreement between the Company, or any successor thereto, and the
Warrant Agent and shall for all purposes hereof conclusively be deemed to be an
appropriate adjustment. The Company shall not effect any such Reorganization,
unless upon or prior to the consummation thereof the successor corporation, or
if the Company shall be the surviving corporation in any such Reorganization and
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of the Common Stock outstanding at the effective time
thereof, then such issuer, shall assume by written instrument the obligation to
deliver to the registered holder of any Warrant Certificate such shares of
stock, securities, cash or other property as such holder shall be entitled to
purchase in accordance with the foregoing provisions. In the event of sale or
conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise any Warrant shall terminate 30 days after the Company gives written
notice to each registered holder of a Warrant Certificate that such sale or
conveyance of other transfer has been consummated.
Section 3.7 Reclassifications. In case of any reclassification or
change of the Common Shares issuable upon exercise of the Warrants (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the holders of the Warrants shall
have the right thereafter to receive upon exercise of the Warrants solely the
kind and amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification or change by a holder
of the number of Common Shares for which the Warrants might have been exercised
immediately prior to such reclassification or change. Thereafter, appropriate
provision shall be as nearly equivalent as practicable to the adjustments in
Article III. The above provisions of this Section 3.7 shall similarly apply to
successive reclassifications and changes of the Common Stock.
Section 3.8 Verification of Computations. Whenever the Exercise Price
is adjusted as provided in this Article III, the Company will promptly obtain a
certificate of a firm of independent public accountants of recognized standing
selected by the Board of Directors of the Company (who may be the regular
auditors of the Company) setting forth the exercise price as so adjusted and a
brief statement of the facts accounting for such adjustment, and will make
available a brief summary thereof to the Warrant Agent and to the holders of the
Warrant Certificates, at their addresses listed on the register maintained for
the purpose by the Warrant Agent.
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Section 3.9 Notice of Certain Actions. In case at any time the Company
shall propose:
(a) to pay any dividend or make any distribution on the Common
Stock in shares of Common Stock or make any other distribution (other
than regularly scheduled cash dividends which are not in a greater
amount per share than the most recent such cash dividend) to all
holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional
shares of Common Stock or any other rights, warrants, or other
securities; or
(c) to effect any reclassification or change of outstanding
Common Stock, or any consolidation, merger, sale, lease, or conveyance
of property, described in Section 3.7; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment
to the Exercise Price;
then, in each such case, the Company shall cause notice of such proposed action
to be mailed to the Warrant Agent. Such notice shall specify the date on which
the books of the Company shall close, or a record be taken, for determining
holders of Common Stock entitled to receive such stock dividend or other
distribution of such rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, lease, other disposition,
liquidation, dissolution, winding-up or exchange or other action shall take
place or commence, as the case may be, and the date as of which it is expected
that holders of record of Common Stock shall be entitled to receive securities
or other property deliverable upon such action, if any such date has been fixed.
The Company shall cause copies of such notice to be mailed to each registered
holder of a Warrant Certificate. Such notice shall be mailed, in the case of any
action covered by Subsection 3.9(a) or 3.9(b) above, at least 10 days prior to
the record date for determining holders of the Common Stock for purposes of
receiving such payment or offer; in the case of any action covered by Subsection
3.9(c) or 3.9(d) above, at least 10 days prior to the earlier of the date upon
which such action is to take place or any record date to determine holders of
Common Stock entitled to receive such securities or other property; and in the
case of any action covered by Section 3.9(e) above, no more than 30 days after
such action.
Section 3.10 Notice of Adjustments. Whenever any adjustment is made
pursuant to this Article III, the Company shall cause notice of such adjustment
to be mailed to the Warrant Agent within 15 days thereafter, such notice to
include in reasonable detail (i) the events precipitating the adjustment, (ii)
the computation of any adjustments, and (iii) the Exercise Price, the number of
shares or the securities or other property purchasable upon exercise of each
Warrant after giving effect to such adjustment. The Warrant Agent shall within
15 days after receipt of such notice from the Company cause a similar notice to
be mailed to each registered holder of a Warrant Certificate.
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Section 3.11 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Article III, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments.
ARTICLE IV
OTHER PROVISIONS RELATING TO
RIGHTS OF REGISTERED HOLDERS
OF WARRANT CERTIFICATES
Section 4.1 Rights of Warrant Holders. No Warrant Certificate shall
entitle the registered holder thereof to any of the rights of a shareholder of
the Company, including without limitation the right to vote, to receive
dividends and other distributions, to receive any notice of, or to attend,
meetings of shareholders or any other proceedings of the Company.
Section 4.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.
If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company in its discretion may direct the Warrant Agent to execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Warrant
Certificate, or in lieu of or in substitution for a lost, stolen or destroyed
Warrant Certificate, a new Warrant Certificate for the number of Warrants
represented by the Warrant Certificate so mutilated, lost, stolen or destroyed
but only upon receipt of evidence of such loss, theft or destruction of such
Warrant Certificate, and of the ownership thereof, and indemnity, if requested,
all satisfactory to the Company and the Warrant Agent. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges incidental thereto as the
Company or Warrant Agent may prescribe. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall be at
any time enforceable by anyone.
ARTICLE V
SPLIT UP, COMBINATION, EXCHANGE, TRANSFER,
AND CANCELLATION OF WARRANT CERTIFICATES
Section 5.1 Split Up, Combination, Exchange and Transfer of Warrant
Certificates. Prior to the Exercise Deadline, Warrant Certificates, subject to
the provisions of Section 5.2, may be split up, combined or exchanged for other
Warrant Certificates representing a like aggregate number of Warrants or may be
transferred in whole or in part. Any holder desiring to split up, combine or
exchange a Warrant Certificate or Warrant Certificates shall make such request
in writing delivered to the Warrant Agent at its Principal Office and shall
surrender the Warrant Certificate or Warrant Certificates so to be split up,
combined or exchanged at said office. Subject to any applicable laws, rules or
regulations restricting transferability, any restriction on transferability that
may appear on a Warrant Certificate in accordance with the terms hereof, or any
"stop-transfer" instructions the Company may give to the Warrant Agent
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to implement any such restrictions (which instructions the Company is expressly
authorized to give), transfer of outstanding Warrant Certificates may be
effected by the Warrant Agent from time to time upon the books of the Company to
be maintained by the Warrant Agent for that purpose, upon a surrender of the
Warrant Certificate to the Warrant Agent at its Principal Office, with the
assignment form set forth in the Warrant Certificate duly executed and with
Signatures Guaranteed. Upon any such surrender for split up, combination,
exchange or transfer, the Warrant Agent shall execute and deliver to the person
entitled thereto a Warrant Certificate or Warrant Certificates, as the case may
be, as so requested. The Warrant Agent may require the holder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination, exchange or transfer of Warrant
Certificates prior to the issuance of any new Warrant Certificate.
Section 5.2 Cancellation of Warrant Certificates. Any Warrant
Certificate surrendered upon the exercise of Warrants or for split up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be cancelled and shall not be reissued by the Company; and,
except as provided in Section 2.5 in case of the exercise of less than all of
the Warrants evidenced by a Warrant Certificate or in Section 5.1 in case of a
split up, combination, exchange or transfer, no Warrant Certificate shall be
issued hereunder in lieu of such cancelled Warrant Certificate. Any Warrant
Certificate so cancelled shall be destroyed by the Warrant Agent unless
otherwise directed by the Company.
Section 5.3 Agreement of Warrant Certificate Holders. Every holder of
a Warrant Certificate by accepting the same consents and agrees with the
Company and the Warrant Agent and with every other holder of a Warrant
Certificate that:
(a) transfer of the Warrant Certificates shall be registered
on the books of the Company maintained for that purpose by the Warrant
Agent only if surrendered at the Principal Office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer, with
Signatures Guaranteed; and
(b) prior to due presentment for registration of transfer, the
Company and the Warrant Agent may deem and treat the person in whose
name the Warrant Certificate is registered as the absolute owner
thereof and of the Warrants evidenced thereby (notwithstanding any
notations of ownership or writing on the Warrant Certificates made by
anyone other than the Company or the Warrant Agent) for all purposes
whatsoever, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
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ARTICLE VI
REDEMPTION
Section 6.1 Redemption. All, but not less than all, of the Warrants
(excluding the Representative Underlying Warrants) are subject to redemption by
the Company, at $0.01 per Warrant, at any time before the Exercise Deadline on
30 days written notice to the Warrant holders if the per share closing bid price
of the Common Stock as reported by the Nasdaq SmallCap Market (or, if
applicable, the Nasdaq National Market or the principal national securities
exchange on which the Common Stock is then traded) equals or exceeds $7.50 for
20 consecutive trading days ending within five days of the notice of redemption.
The date fixed for redemption of the Warrants is referred to herein as the
"Redemption Date".
Section 6.2 Mailing of Notice. If the conditions set forth in Section
6.1 are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request the Representative to 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 7.7. 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.
Section 6.3 Contents of Notice. The notice of redemption shall specify
(i) the redemption price, (ii) the Redemption Date, (iii) the place where the
Warrant Certificates shall be delivered and the redemption price paid, (iv) that
the Representative will assist each registered holder of a Warrant in connection
with the exercise thereof and (v) that the right to exercise the Warrant shall
terminate at 5:00 P.M. (Florida time) on the business day immediately preceding
the 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 (a) to whom notice was not mailed or
(b) whose notice was defective. An affidavit of the Warrant Agent or of the
Secretary or an Assistant Secretary of the Representative or the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
Section 6.4 Termination of Exercise Right. Any right to exercise a
Warrant other than an Representative Underlying Warrant shall terminate at 5:00
P.M. (Florida time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Warrants other than
Representative Underlying Warrants shall have no further rights except to
receive, upon surrender of the Warrant, the Redemption Price.
Section 6.5 Payment of Redemption Price. From and after the Redemption
Date, 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
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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
such Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
Section 6.6 Certain Adjustments. If the Common Stock is 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.
Section 6.7 Indemnification. The Company shall indemnify the
Representative and each person, if any, who controls the Representative within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from the registration statement or prospectus referred
to in Section 2.2 hereof to the same extent and with the same effect (including
the provisions regarding contribution) as the provisions pursuant to which the
Company has agreed to indemnify the Representative contained in Section 7 of the
Underwriting Agreement.
Section 6.8 Redemption Closing Conditions.
(a) Five business days prior to the Redemption Date, the Company shall
furnish to the Representative (i) opinions of counsel to the Company, dated such
date and addressed to the Representative, and (ii) a "cold comfort" letter dated
such date addressed to the Representative, signed by the independent public
accountants who have issued a report on the Company's financial statements
included in the registration statement relating to exercise of the Warrants, in
each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities, including, without limitation, those matters covered in
Sections 5(c), 5(e), 5(f), 5(h) and 5(k) of the Underwriting Agreement.
(b) The Company shall as soon as practicable after the Redemption Date,
and in any event within 15 months thereafter, make "generally available to its
security holders" (within the meaning of Rule 158 under the Act) an earnings
statement (which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning after the
Redemption Date.
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ARTICLE VII
PROVISIONS CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
Section 7.1 Payment of Taxes and Charges. The Company will from time to
time promptly pay to the Warrant Agent, or make provisions satisfactory to the
Warrant Agent for the payment of, all transfer taxes and charges that may be
imposed by the United States or any state upon the Company or the Warrant Agent
in connection with the issuance or delivery of Common Shares upon the exercise
of any Warrants, but any such taxes in connection with the issuance of Warrant
Certificates or certificates for Common Shares in any name other than that of
the registered holder of the Warrant Certificate surrendered shall be paid by
such registered holder; and, in such case, the Company shall not be required to
issue or deliver any Warrant Certificate or certificates for Common Shares until
such taxes shall have been paid or it has been established to the Company's
satisfaction that no tax is due.
Section 7.2 Resignation or Removal of Warrant Agent. The Warrant Agent
may resign its duties and be discharged from all further duties and liabilities
hereunder after giving 30 days' notice in writing to the Company, except that
such shorter notice may be given as the Company shall, in writing, accept as
sufficient. Upon comparable notice to the Warrant Agent, the Company may remove
the Warrant Agent; provided, however, that in such event the Company shall
appoint a new Warrant Agent, as hereinafter provided, and the removal of the
Warrant Agent shall not be effective until a new Warrant Agent has been
appointed and has accepted such appointment. If the office of Warrant Agent
becomes vacant by resignation or incapacity to act or otherwise, the Company
shall appoint in writing a new Warrant Agent. If the Company shall fail to make
such appointment within a period of 30 days after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the registered holder of any Warrant Certificate, then the
registered holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. The Warrant Agent
hereby agrees to take any such action as may be necessary to provide for the
orderly transfer of its responsibilities hereunder to the new Warrant Agent. Any
new Warrant Agent appointed hereunder shall execute, acknowledge and deliver to
the former Warrant Agent last in office, and to the Company, an instrument
accepting such appointment under substantially the same terms and conditions as
are contained herein, and thereupon such new Warrant Agent without any further
act or deed shall become vested with the rights, powers, duties and
responsibilities of the Warrant Agent and the former Warrant Agent shall cease
to be the Warrant Agent; but if for any reason it becomes necessary or expedient
to have the former Warrant Agent execute and delivery 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 former Warrant
Agent.
Section 7.3 Notice of Appointment. Not later than the effective date of
the appointment of a new Warrant Agent, the Company shall cause notice thereof
to be mailed to the former Warrant Agent and the transfer agent for the Common
Stock, and shall forthwith cause a copy of such notice to be mailed to each
registered holder of a Warrant Certificate. Failure to mail
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such notice, or any defect contained therein, shall not effect the legality or
validity of the appointment of the successor Warrant Agent.
Section 7.4 Merger of Warrant Agent. Any company into which the Warrant
Agent may be merged or with which it may be consolidated, or any company
resulting from any merger or consolidation to which the Warrant Agent shall be a
party, shall be the successor Warrant Agent under this Agreement without further
act, provided that such company would be eligible for appointment as a successor
Warrant Agent under the provisions of Section 7.2 hereof. Any such successor
Warrant Agent may adopt the prior countersignature of any predecessor Warrant
Agent and distribute Warrant Certificates countersigned but not distributed by
such predecessor Warrant Agent, or may countersign the Warrant Certificates in
its own name.
Section 7.5 Company Responsibilities. The Company agrees that it shall
(i) pay the Warrant Agent reasonable remuneration for its services as Warrant
Agent hereunder and will reimburse the Warrant Agent upon demand for all
expenses, advances, and expenditures that the Warrant Agent may reasonably incur
in the execution of its duties hereunder (including fees and expenses of its
counsel); (ii) provide the Warrant Agent, upon request, with sufficient funds to
pay any cash due pursuant to Section 2.8 upon exercise of Warrants; and (iii)
perform, execute, acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all further and other acts, instruments and
assurances as may reasonably be required by the Warrant Agent for the carrying
out or performing by the Warrant Agent of the provisions of this Agreement.
Section 7.6 Certification for the Benefit of Warrant Agent. Whenever in
the performance of its duties under this Agreement the Warrant Agent shall deem
it necessary or desirable that any matter be proved or established or that any
instructions with respect to the performance of its duties hereunder be given by
the Company prior to taking or suffering any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established, or such instructions may be
given, by a certificate or instrument signed by the Chairman, Chief Executive
Officer, the President, a Vice President, the Secretary or the Treasurer of the
Company and delivered to the Warrant Agent. Such certificate or instrument may
be relied upon by the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement; but in its discretion the
Warrant Agent may in lieu thereof accept other evidence of such matter or may
require such further or additional evidence as it may deem reasonable.
Section 7.7 Books and Records. The Warrant Agent shall maintain the
Company's books and records for registration and registration of transfer of the
Warrant Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Warrant Certificates, the number of
Warrants evidenced on its face by each Warrant Certificate and the date of each
Warrant Certificate.
Section 7.8 Liability of Warrant Agent. The Warrant Agent shall be
liable hereunder for its own gross negligence or willful misconduct. The Warrant
Agent shall act hereunder solely as an agent for the Company and its duties
shall be determined solely by the provisions
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<PAGE> 18
hereof. The Warrant Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Warrant
Certificates (except its counter-signature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only. The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken, or any failure to take action, in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by the Warrant Agent to be genuine and to have
been signed, sent or presented by the proper party or parties. The Warrant Agent
shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof by the Company or in respect of
the validity or execution of any Warrant Certificate (except its
counter-signature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Warrant Certificate; nor shall it be responsible for the making of any
adjustment required under the provisions of Article III hereof or responsible
for the manner, method or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
Common Shares or other securities to be issued pursuant to this Agreement or any
Warrant Certificate or as to whether any Common Shares or other securities will
when issued be validly authorized and issued and fully paid and nonassessable.
Section 7.9 Use of Attorneys, Agents and Employees. The Warrant Agent
may execute and exercise any of the rights or powers hereby vested in it or
perform any duty hereunder either itself or by or through its attorneys, agents
or employees.
Section 7.10 Indemnification. The Company agrees to indemnify the
Warrant Agent and save it harmless against any and all losses, expenses or
liabilities, including judgments, costs and counsel fees arising out of or in
connection with its agency under this Agreement, except as a result of the gross
negligence or willful misconduct of the Warrant Agent.
Section 7.11 Acceptance of Agency. The Warrant Agent hereby accepts the
agency established by this Agreement and agrees to perform the same upon the
terms and conditions herein set forth.
Section 7.12 Changes to Agreement. Neither the Company nor the Warrant
Agent may, by supplemental agreement or otherwise, alter or change the rights,
privileges or immunities of the registered holders of the Warrant Certificates
without the prior written consent of the Representative.
Section 7.13 Assignment. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns.
Section 7.14 Successor to Company. The Company will not merge or
consolidate with or into any other corporation or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor
corporation, unless the corporation resulting from such
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<PAGE> 19
merger, consolidation, sale or transfer (if not the Company) shall expressly
assume, by supplemental agreement reasonably satisfactory in form and substance
to the Warrant Agent and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
Section 7.15 Notices. Any notice or demand required by this Agreement
to be given or made to or on the Company shall be sufficiently given or made if
sent by certified mail, postage prepaid, addressed (until another address in the
United States is filed in writing by the Company with the Warrant Agent), as
follows:
Sforza Enterprises, Inc.
330 Clematis Street #211
West Palm Beach, Florida 33401
Any notice or demand required by this Agreement to be given or made to or on the
Warrant Agent shall be sufficiently given or made if sent by certified mail,
postage prepaid, addressed (until another address is filed in writing with the
Company by the Warrant Agent), to its Principal Office.
Any notice or demand required by this Agreement to be given or made to or on the
registered holder of any Warrant Certificate shall be sufficiently given or
made, whether or not such holder receives the notice, if sent by first-class
mail, postage prepaid, addressed to such registered holder at his last address
as shown on the books of the Company maintained by the Warrant Agent with a copy
to the Representative at the address set forth in the Underwriting Agreement
(until another address is filed with the Company and the Warrant Agent by the
Representative). Otherwise such notice or demand shall be deemed given when
received by the party entitled thereto.
Section 7.16 Defects in Notice. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement, shall not affect in any way the rights of any
registered holder of a Warrant Certificate or the legality or validity of any
adjustment made pursuant to Section 3.1 hereof, or any transaction giving rise
to any such adjustment, or the legality or validity of any action taken or to be
taken by the Company.
Section 7.17 Governing Law; Jurisdiction, etc. The internal laws of the
State of Florida shall govern this Warrant Agreement and the Warrant
Certificates. The Company irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Warrant Agreement, any Warrant or Warrant Certificate, or any document or
instrument delivered pursuant to, in connection with or simultaneously with this
Warrant Agreement. In any such action or proceeding, the Company waives personal
service of any summons, complaint or other process and agrees that service
thereof may be made by registered or certified air mail to the Company at its
address as provided in Section 7.15. Within 30 days after such service, or such
other time as may be mutually agreed upon in writing by the attorneys for the
parties
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<PAGE> 20
to such action or proceeding, the Company shall appear to answer such summons,
complaint or other process.
Section 7.18 Standing. Subject to the provisions of Section 7.23,
nothing in this Agreement expressed and nothing that may be implied from any of
the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any person or corporation other than the Company, the Warrant Agent,
the registered holders of the Warrant Certificates and the Representative's
Warrants and the Representative any right, remedy or claim under or by reason of
this Agreement or of any covenant, condition, stipulation, promise or agreement
contained herein; and all covenants, conditions, stipulations, promises and
agreements contained in this Agreement shall be for the sole and exclusive
benefit of the Company, and the Warrant Agent, the Representative and its
respective successors, and the registered holders of the Warrant Certificates
and the Representative's Warrants.
Section 7.19 Headings. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section 7.20 Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original;
but such counterparts shall together constitute but one and the same instrument.
Section 7.21 Conflict of Interest. The Warrant Agent and any
shareholder, director, officer or employee of the Warrant Agent may buy, sell or
deal in any of the Warrant Certificates or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though the Warrant Agent were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company, including without limitation as trustee under
any indenture or as transfer agent for the Common Stock or any other securities
of the Company, or for any other legal entity.
Section 7.22 Availability of the Agreement. The Warrant Agent shall
keep copies of this Agreement available for inspection by holders of Warrants
during normal business hours at its Corporate Trust Department. Copies of this
Agreement may be obtained upon written request addressed to the Company at its
address as set forth in Section 7.15.
Section 7.23 Third Party Beneficiary. The parties agree that the
provisions of Sections 2.7, 6.2, 6.7, 6.8 and this Section 7.23 are expressly
made for the benefit of the Representative and the persons named in Section 6.7
as third party beneficiaries of this Agreement.
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<PAGE> 21
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
SFORZA ENTERPRISES, INC.
By:
-----------------------------------------
Name:
Title:
FLORIDA ATLANTIC STOCK TRANSFER,
INCORPORATED
By:
-----------------------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 4.4
FIXED RATE
PROMISSORY NOTE
January 31, 1997 $250,000.00
SFORZA ENTERPRISES INC., a Florida corporation (the "Company"), and its
subsidiaries, Castle Room, Inc., Clematis Bistro Corporation and Sushi
Enterprises, Inc., all Florida corporations (collectively, the "Makers"), hereby
jointly and severally promise to pay to the order of UNIQUE RESTAURANT CONCEPTS
LTD., a Florida limited partnership (the "Holder"), the principal sum of two
hundred fifty thousand dollars ($250,000.00) together with interest thereon
calculated from the date hereof in accordance with the provisions of this Fixed
Rate Convertible Promissory Note (the "Note").
1. Payment of Principal. Subject to the provisions of paragraph 4, the
Makers shall pay the principal amount to the Holder on February 28, 1997.
2. Payment of Interest. Interest shall accrue at the rate of fifteen percent
(15%) compounded annually on the unpaid principal amount outstanding from time
to time. The Makers shall pay to the Holder all accrued interest in full on the
date on which the principal payment is paid.
3. Default. From and after the date upon which the pay- ment of principal
becomes due hereunder, interest shall be payab- le on such sum from time to time
remaining unpaid at the maximum legal rate permitted by law in lieu of the rate
hereinbefore specified, on demand.
4. Non-Assertion of Defenses. The Company and the Holder have entered into a
letter of intent of even date herewith pursuant to which they agreed in
principle to a series of transactions including the Holder's purchase of shares
of preferred stock of the Company. The Makers hereby acknowledge that no legally
binding documents have been executed and delivered by the parties hereto with
respect to such transactions and the Makers hereby agree that they will not
raise as a defense to the payment of amounts owed on this Note on its maturity
date or thereafter that the Holder and the Company failed to agree upon
definitive legal documentation with respect to such transactions for any reason
whatsoever.
5. Security. This Note is secured by the collateral pledged by the Makers
pursuant to the Security Agreement of even date between the Makers and the
Holder.
6. Waivers. The Makers and all others who are, or may be- come, liable for
the payment of any sum due under the terms of this Note waive presentment,
protest and demand, and notice of
<PAGE> 2
protest, demand and dishonor, and nonpayment of this Note, and agree that the
Holder shall have the right, without notice, to deal in any way at any time with
any party hereto, or to grant an extension or extensions of time for payment of
any of said indebtedness or any other indulgences or forbearances whatsoever
without in any way affecting the liability of any other party liable for the
payment of this Note.
7. Costs of Collection. The Makers agree to pay all costs of collection,
including reasonable attorneys' and paralegals' fees (inclusive of any appellate
and administrative proceedings), regardless of whether or not suit is brought,
in the event that any sum to be paid hereunder us not paid when due.
8. Amendment. Except as otherwise expressly provided herein, the provisions
of the Note may be amended and the Makers may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Makers have obtained the written consent of the Holder; provided that no such
action shall change (a) the rate at which or the manner in which interest
accrues on the Note or the times at which such interest becomes payable, or (b)
any provision relating to the scheduled payment of principal on the Note.
9. Cancellation. After all principal and accrued interest at any time owed
on this Note has been paid in full or upon full conversion of this Note, this
Note shall be surrendered to the Makers for cancellation and shall not be
reissued.
10. Place of Payment. Payments of principal and interest are to be delivered
to the Holder at the address set forth below for the Holder or to such other
address or to the attention of such other person as specified by prior written
notice to the Makers.
11. Governing Law; Venue. This Note has been made, executed and delivered by
the Makers in the State of Florida. This Note shall be governed as to validity,
interpretation, construction, effect and all other respects by the laws and
decisions of the State of Florida. In the event the Holder determines it
necessary to institute suit to collect on this Note, the action shall be
maintained by the Holder in Palm Beach County, Florida.
IN WITNESS WHEREOF, the Makers have executed and delivered this Note as of
the date first above written.
SFORZA ENTERPRISES INC.
By:
Dale J. Brisson, President
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<PAGE> 3
CASTLE ROOM, INC.
By:
Dale J. Brisson, President
CLEMATIS BISTRO CORPORATION
By:
Dale J. Brisson, President
SUSHI ENTERPRISES, INC.
By:
Dale J. Brisson, President
Holder: Unique Restaurant Concepts, Ltd.
Address: 490 E. Palmetto Park Rd. #110
Boca Raton, FL 33432
GUARANTEE
FOR VALUE RECEIVED and intending to be legally bound, the under-
signed jointly and severally guarantee payment of the within Note
and all extensions or renewals thereof.
------------------------------
JOSEPH C. VISCONTI
------------------------------
DALE J. BRISSON
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<PAGE> 1
EXHIBIT 4.5
FIXED RATE
PROMISSORY NOTE
June 1, 1997 $125,000.00
SFORZA ENTERPRISES INC., a Florida corporation (the "Company"), and its
subsidiaries, Castle Room, Inc., Clematis Bistro Corporation and Sushi
Enterprises, Inc., all Florida corporations (collectively, the "Makers"), hereby
jointly and severally promise to pay to the order of DANIEL S. CATALFUMO (the
"Holder"), the principal sum of one hundred twenty five thousand dollars
($125,000.00) together with interest thereon calculated from the date hereof in
accordance with the provisions of this Fixed Rate Promissory Note (the "Note").
1. Payment of Principal. Subject to the provisions of paragraph 4, the
Makers shall pay the principal amount to the Holder on September 30, 1997.
2. Payment of Interest. Interest shall accrue at the rate of fifteen
percent (15%) compounded annually on the unpaid principal amount outstanding
from time to time. The Makers shall pay to the Holder all accrued interest in
full on the date on which the principal payment is paid.
3. Default. From and after the date upon which the payment of principal
becomes due hereunder, interest shall be payable on such sum from time to time
remaining unpaid at the maximum legal rate permitted by law in lieu of the rate
hereinbefore specified, on demand.
4. Security. This Note is secured by the collateral pledged by the Makers
pursuant to the Security Agreement dated January 31, 1997 between the Makers and
Unique Restaurant Concepts Ltd.
5. Waivers. The Makers and all others who are, or may become, liable for
the payment of any sum due under the terms of this Note waive presentment,
protest and demand, and notice of protest, demand and dishonor, and nonpayment
of this Note, and agree that the Holder shall have the right, without notice, to
deal in any way at any time with any party hereto, or to grant an extension or
extensions of time for payment of any of said indebtedness or any other
indulgences or forbearances whatsoever without in any way affecting the
liability of any other party liable for the payment of this Note.
6. Costs of Collection. The Makers agree to pay all costs of collection,
including reasonable attorneys' and paralegals' fees (inclusive of any appellate
and administrative proceedings), regardless of whether or not suit is brought,
in the event that any sum to be paid hereunder us not paid when due.
<PAGE> 2
7. AMENDMENT. Except as otherwise expressly provided herein, the
provisions of the Note may be amended and the Makers may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Makers have obtained the written consent of the Holder; provided
that no such action shall change (a) the rate at which or the manner in which
interest accrues on the Note or the times at which such interest becomes
payable, or (b) any provision relating to the scheduled payment of principal on
the Note.
8. CANCELLATION. After all principal and accrued interest at any time
owed on this Note has been paid in full or upon full conversion of this Note,
this Note shall be surrendered to the Makers for cancellation and shall not be
reissued.
9. PLACE OF PAYMENT. Payments of principal and interest are to be
delivered to the Holder at the address set forth below for the Holder or to
such other address or to the attention of such other person as specified by
prior written notice to the Makers.
10. GOVERNING LAW; VENUE. This Note has been made, executed and
delivered by the Makers in the State of Florida. This Note shall be governed
as to validity, interpretation, construction, effect and all other respects by
the laws and decisions of the State of Florida. In the event the Holder
determines it necessary to institute suit to collect on this Note, the action
shall be maintained by the Holder in Palm Beach County, Florida.
IN WITNESS WHEREOF, the Makers have executed and delivered this Note as
of the date first above written.
SFORZA ENTERPRISES INC.
By:
------------------------------
Dale J. Brisson, President
CASTLE ROOM, INC.
By:
------------------------------
Dale J. Brisson, President
CLEMATIS BISTRO CORPORATION
By:
------------------------------
Dale J. Brisson, President
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<PAGE> 3
SUSHI ENTERPRISES, INC.
By:
---------------------------
Dale J. Brisson, President
Holder: Daniel S. Catalfumo
Address: 4300 Catalfumo Way
Palm Beach Gardens, FL 33410
GUARANTEE
FOR VALUE RECEIVED and intending to be legally bound, the undersigned jointly
and severally guarantee payment of the within Note and all extensions or
renewals thereof.
--------------------------------
JOSEPH C. VISCONTI
--------------------------------
DALE J. BRISSON
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<PAGE> 1
EXHIBIT 4.6
PROMISSORY NOTE
$60,000.00 December 1, 1995
Castle Room, Inc.
2815 Hampton Circle, East
Delray Beach, Florida 33445
(Individually and collectively "Borrower")
First Union National Bank of Florida
214 N. Hogan Street - FL0070
Jacksonville, Florida 32202
(Hereinafter referred to as the "Bank")
Borrower promises to pay to the order of Bank, in lawful money of the United
States of America, at its office indicated above or wherever else Bank may
specify, the sum Sixty Thousand and 00/10 Dollars ($60,000.00) or such sum as
may be advanced from time to time with interest on the unpaid principal balance
at the rate and on the terms provided in this Promissory Note (including all
renewals, extensions and/or modifications hereof, this "Note").
INTEREST RATE. Prime Rate. Interest shall accrue on the unpaid principal
balance of this Note from the date hereof at the rate of Bank's Prime Rate plus
2.00% (200 basis points) fixed. Bank's Prime Rate shall be that rate announced
by Bank from time to time as its prime rate and is one of several interest rate
bases used by Bank. Bank lends at rates both above and below Bank's Prime Rate,
and Borrower acknowledges that Bank's Prime Rate is not represented or intended
to be the lowest or most favorable rate of interest offered by Bank.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
Default (defined herein) occurs and as long as a Default continues, all
outstanding Obligations shall bear interest at the Interest Rate plus three
percent (3%) ("Default Rate") unless the loan is governed by the laws of the
State of North Carolina and the original principal amount is less than or equal
to Three Hundred Thousand and No/100 Dollars ($300,000.00). The Default Rate
shall apply from the occurrence of a Default (defined herein) until the
Obligations or any judgment thereon is paid in full.
INTEREST COMPUTATION. Actual/360 Computation. Interest shall be computed on
the basis of a 360-day year for the actual number of days in the interest
period ("Actual/360 Computation"). The Actual/360 Computation determines the
annual effective interest yield by taking the stated (nominal) interest rate
for a year's period and then dividing said rate by 360 to determine the daily
periodic rate to be applied for each day in the interest period. Application of
the Actual/360 Computation produces an annualized effective interest rate
exceeding that of the nominal rate.
PREPAYMENT. Any prepayment in whole or in part shall include accrued interest
and all other sums then due under any of the Loan Documents (defined herein).
No partial prepayment shall affect the obligation of Borrower to make any
payment of principal or interest due under this Note on the due dates specified.
No prepayment compensation shall be due Bank under this Note for loans secured
by one to four family residential dwelling units if prepayment results from
acceleration by Bank upon the sale of said residential dwelling units.
ACCURATE FINANCIAL INFORMATION. Borrower represents and covenants to Bank that
on and after the date of this Note: (a) all financial statements of Borrower
furnished to Bank are correct and accurately reflect the financial conditions
of Borrower as of the respective dates thereof; and (b) at such
<PAGE> 2
reasonable times as Bank requests, Borrower will furnish Bank with such other
financial information as Bank may reasonably request.
PAYMENT. This Note shall be due and payable in consecutive periodic payments
of principal and interest in the amount of $1,957.23, commencing January 1,
1996, and on the twenty-first day of each month thereafter until fully paid. In
any event, all principal and accrued interest shall be due and payable December
1, 1998.
Scheduled Payment Adjustment. The scheduled payment amount will increase as is
necessary (a) to pay all accruals of interest for the period and previous
periods and (b) to maintain principal repayment according to the amortization
that would have occurred if the Interest Rate in effect on the date of this
Note had remained constant. The increased payment amount shall remain in effect
for as long as the original scheduled payment amount is insufficient to pay
accrued interest and principal and shall be further adjusted upward or downward
to reflect changes in the variable interest rate. The scheduled payment amount
will not be reduced below the original scheduled payment amount.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations (defined herein) shall be applied
to accrued interest and then to principal. If a Default (defined herein)
occurs, monies may be applied to the Obligations in any manner or order deemed
appropriate by Bank.
If any payment received by Bank under this Note or other Loan Documents
(defined herein) is rescinded, avoided or for any reason returned by Bank
because of any adverse claim or threatened action, the returned payment shall
remain payable as an obligation of all persons liable under this Note or other
Loan Documents as though such payment had not been made.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note and
other Loan Documents refers to all documents executed in connection with the
loan evidenced by this Note and may include, without limitation, a commitment
letter that survives closing, a loan agreement, this Note, guaranty agreements,
security agreements, security instruments, financing statements, mortgage
instruments, letters of credit and any modifications, but however, does not
include swap agreements as defined in 11 U.S.C. sec. 101 whenever
executed.
The term "Obligations" used in this Note refers to any and all indebtedness and
other obligations under this Note, all other obligations as defined in the
respective Loan Documents, and all obligations under any swap agreements as
defined in 11 U.S.C. sec. 101 between Borrower and Bank whenever
executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to five percent (5%) of each payment past due for ten
(10) or more days.
Acceptance by Bank of any late payment without an accompanying late charge
shall not be deemed a waiver of Bank's right to receive such late charge or to
receive a late charge for any subsequent late payment received.
If this Note is secured by owner-occupied residential real property located
outside the state in which the office of Bank first shown above is located, the
late charge laws of the state where the real property is located shall apply to
this Note.
ATTORNEY'S FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank's
reasonable expenses incurred to enforce or collect any of the Obligations,
including, without limitation, reasonable arbitration, paralegals', attorneys'
and experts' fees and expenses, whether incurred
Page 2
<PAGE> 3
without the commencement of a suit, in any trial, arbitration, or
administrative proceeding, or in any appellate or bankruptcy proceeding.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed reduced to and shall be such
maximum lawful interest, and (a) the amount which would be excessive interest
shall be deemed applied to the reduction of the principal balance of this Note
and not to the payment of interest, and (b) if the loan evidenced by this Note
has been or is thereby paid in full, the excess shall be returned to the party
paying same, such application to the principal balance of this Note or the
refunding excess to be a complete settlement and acquittance thereof.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist: (a) Nonpayment; Nonperformance. The failure of timely payment or
performance of the Obligations under this Note or any other Loan Documents; (b)
False Warranty. A warranty or representation made in the Loan Documents or
furnished Bank in connection with the loan evidenced by this Note provides
materially false, or if of a continuing nature, becomes materially false; (c)
Cross Default. At Bank's option, any default in payment or performance of any
obligation under any other loans, contracts or agreements of Borrower, any
Subsidiary or Affiliate of Borrower ("Affiliate" shall have the meaning as
defined in 11 U.S.C. Section 101, except that the term "debtor" therein shall
be substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock
is owned directly or indirectly by Borrower) any general partner of or the
holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates; (d) Cessation; Bankruptcy. The death of, appointment of guardian
for, dissolution of, termination of existence of, loss of good standing status
by, appointment of a receiver for, assignment for the benefit of creditors of,
or commencement of any bankruptcy or insolvency proceeding by or against the
Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or
the holder(s) of the majority ownership interests of Borrower, or any party to
the Loan Documents; or (e) Material Capital Structure or Business Alteration.
A material alteration in the type of kind of Borrower's business or that of its
Subsidiaries or Affiliates, if any; or the acquisition of substantially all of
Borrower's, any Subsidiary's, an Affiliate's, or guarantor's business or
assets, or a material portion (10% or more) of such business or assets if such
a sale is outside Borrower's, any Subsidiary's, any Affiliate's or any
guarantor's, ordinary course of business, or more than 50% of its outstanding
stock or voting power in a single transaction or a series of transactions, or
the acquisition of substantially all of the business or assets or more than 50%
of the outstanding stock or voting power of any other entity, or should any
Borrower, Subsidiary, Affiliate, or guarantor enter into any merger or
consolidation without prior written consent of Bank.
REMEDIES UPON DEFAULT. (a) Bank Lien and Set-off. Except as prohibited by
law, Borrower grants Bank a security interest in all of Borrower's accounts
with Bank and any of its affiliates. If a Default (defined herein) occurs, Bank
is authorized to exercise its right of set-off or to foreclose its lien against
any agreement or account of any nature or maturity of Borrower without notice.
(b) Acceleration Upon Default. If a Default occurs, Bank may, at Bank's
discretion, accelerate the maturity of this Note and all other Obligations, and
all of the Obligations shall be immediately due and payable. (c) Cumulative.
All remedies available to Bank with respect to this Note and other Loan
Documents and remedies available at law or in equity shall be cumulative and
may be pursued concurrently or successively.
FINANCIAL AND OTHER INFORMATION. Borrower will provide Bank with such
information as Bank may reasonably request from time to time, including without
limitation, financial statements and information pertaining to Borrower's
financial condition. Such information shall be true, complete, and accurate.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower authorizes Bank
to debit its demand deposit account number ________ or any other account with
Access #11658
Page 3
<PAGE> 1
EXHIBIT 4.7
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT made this 15th day of July, 1997 by SFORZA ENTERPRISES
INC., a Florida corporation (the "Company"), in favor of UNIQUE RESTAURANT
CONCEPTS, LTD., a Florida limited partner ship (the "Holder").
RECITAL:
The Company and the Holder (among others) entered into a Funding Agreement on
July 1, 1997, a copy of which is attached hereto (the "Funding Agreement"). As
partial compensation thereunder the Company agreed to grant the Holder an
option to purchase restricted shares of the Company's common stock.
NOW THEREFORE for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company has agreed, among other things,
to grant to the Holder the Option (as herein defined).
1. Grant. The Company hereby grants to the Holder the right to purchase one
hundred fifty thousand (150,000) newly-issued shares (the "Shares") of the
Company's common stock, $0.01 par value (the "Common Stock"), exercisable at
any time and from time to time through December 31, 1999 (the "Option"). Such
number of shares is subject to adjustment pursuant to Section 7 hereinbel ow.
2. Exercise Price. The exercise price per Share for which all or any of the
Shares may be purchased pursuant to the terms of the Option is two dollars and
fifty cents ($2.50) (the "Exercise Price"). The Exercise Price is subject to
adjustment pursuant to Section 7 hereinbelow.
3. Exercise. Commencing on the date that any shares of the Company's Common
Stock shall have been registered under the Securities Act of 1933, the Option
may be exercised by the Holder as to all or in increments of ten thousand
(10,000) Shares upon delivery of written notice of intent to exercise in the
form at tached hereto as Exhibit "A" to the Company at the following address:
330 Clematis Street #211, West Palm Beach, Florida 33401, or such other address
as the Company shall designate in a written notice to the Holder, together with
a check payable to the Company for the aggregate Exercise Price of the Shares
so purchased. Alternatively, the Exercise Price may be paid (a) by the surren
der by the Holder to the Company of any promissory notes or other obligations
issued or owed by the Company, with all such notes and obligations so
surrendered being credited against the Exercise Price in an amount equal to
the principal amount thereof plus accrued interest to the date of surrender,
(b) through delivery by the Holder to the Company of other securities issued by
the Company with such securities being credited against the Exer-
<PAGE> 2
cise Price in an amount equal to the fair market value thereof, as determined
in good faith by the Board of Directors of the Company, (c) by any combination
of the foregoing, or (d) by a reduction in the number of Shares issuable
hereunder in an amount equal to the quotient obtained by dividing (i) the
Exercise Price by (ii) the amount obtained by subtracting the Exercise Price
from the fair market value of the Common Stock, as determined in accordance
with Section 6(d) hereof, on the last trading day prior to the date of such
exercise of the Option. If this Option is exercised in part, the Company shall,
upon such exercise, execute and deliver to the Holder a new certificate for
this Option (dated the date hereof) evidencing the balance of the Shares for
which this Option remains exercisable. The Company shall promptly respond to an
inquiry by the Holder as to the fair market value of any securities the Holder
may wish to deliver to the Company pursuant to clause (b) or (c) above. Upon
exercise of the Option as aforesaid, the Company shall, as promptly as
practicable, and in any event within twenty (20) days thereafter, execute and
deliver to the Holder a certificate or certificates for the total number of
whole Shares for which the Option is being exercised. The Company covenants and
agrees that it shall pay when due any and all state and federal issue taxes
which may be payable in respect of the issuance of any Shares upon exercise of
the Option.
4. Covenants and Conditions. The above provisions are subject to the
following:
(a) Neither the Option nor the Shares have been registered under the
Securities Act of 1933, as amended (the "Securities Act") or any state
securities laws (the "Blue Sky Laws"). The Option has been acquired for
investment purposes and not with a view to distribution or resale and may not
be pledged, hypothecated, sold, made subject to a security interest, or
otherwise transferred without (i) an effective registration statement under the
Securities Act and applicable Blue Sky Laws, or (ii) an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the Company and
its counsel, that registration is not required under the Securities Act or
under any applicable Blue Sky Laws. Transfer of the Shares issued upon the
exercise of the Option shall be restricted in any event until March 31, 1999
and (ii) otherwise in the same manner and to the same extent as the Option, and
the certificates representing such Shares shall bear substantially the
following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFI CATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (I)
MARCH 31, 1999 AND (II) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAW SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR
-2-
<PAGE> 3
(III) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED IN
CONNECTION WITH THE PROPOSED TRANSFER.
The Holder agrees to execute such other documents and instruments as counsel
for the Company reasonably deems necessary to effect the compliance of the
issuance of the Option and any Shares issued upon exercise of the Option with
applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be issued
upon exercise of the Option shall, upon issuance and payment therefor, be
legally and validly issued and outstanding, fully paid and nonassessable, free
from all taxes, liens, charges and preemptive rights, if any, with respect
thereto or to the issuance thereof. The Company shall at all times reserve and
keep available for issuance upon the exercise of the Option such number of
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of the Option.
5. Transfer of Option. The Option may not be transferred, in whole or in
part, except to an entity controlled by the owners of the Holder.
6. Adjustment Upon Changes In Capitalization.
(a) If all or any portion of the Option shall be exercised subsequent to
any stock split, stock dividend, recapitalization, combination of shares of the
Company, or other similar event occurring after the date hereof, then the
Holder exercising the Option shall receive, for the aggregate price paid upon
the exercise, the aggregate number and class of shares which the Holder would
have received if the Option had been exercised immediately prior to such stock
split, stock dividend, recapitalization, combination of shares, or other
similar event. If any adjustment under this Section 7(a) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares subject to the Option shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be an adjustment pursuant
to this Section 7(a), the Company shall forthwith notify the Holder of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated.
(b) If all or any portion of the Option shall be exercised subsequent to
any merger, consolidation, exchange of shares, separation, reorganization or
liquidation of the Company or other similar event occurring after the date
hereof, as a result of which shares of Common Stock shall be changed into the
same or a different number of shares of the same or another class or clas-
-3-
<PAGE> 4
ses of securities of the Company or another entity, then the Holder exercising
the Option shall receive, for the aggregate price paid upon such exercise, the
aggregate number and class of shares which the Holder would have received if
the Option had been exercised immediately prior to such merger, consolidation,
exchange of shares, separation, reorganization or liquidation, or other similar
event. If any adjustment under this Section 7(b) would create a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares subject to
this Option shall be the next higher number of shares, rounding all fractions
upward. Whenever there shall be an adjustment pursuant to this Section 7(b),
the Company shall forthwith notify the Holder of such adjustment, setting forth
in reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated.
7. Registration Rights.
(a) In the event the Company proposes to file a registration statement
under the Securities Act which relates to a current offering of securities of
the Company (except in connection with an offering on Form S-8 or S-4 or any
other inappropriate form), such registration statement (and the prospectus
included therein) shall also, at the written request to the Company by Holder,
relate to and meet the requirements of the Securities Act with respect to any
public offering of the Shares so as to permit the public sale by the Holder of
all or some portion of the Shares as designated by the Holder. The Company
shall give written notice to the Holder of its intention to file a
registration statement under the Securities Act relating to a current offering
of securities of the Company not less than fifteen (15) days prior to the
filing of such registration statement. Any written request of the Holder to
include the Shares held by the Holder shall be given to the Company not less
than five (5) days prior to the date specified in the notice as the date on
which such registration statement is intended to be filed with the Securities
and Exchange Commission. Neither the delivery of such notice by the Company
nor of such request by the Holder shall obligate the Company to file such
registration statement and notwithstanding the filing of such registration
statement, the Company may, at any time prior to the effective date thereof,
determine to withdraw such registration statement and not offer the securities
intended to be offered by the Company to which the registration statement
relate, without liability to the Holder on account thereof.
(b) In the event the Holder elects to include the Shares in a registration
statement in accordance with subsection (a) of this Section 8, the Company
shall:
-4-
<PAGE> 5
(i) Supply to the Holder a reasonable number of copies of the
preliminary, final and other prospectus in conformity with the requirements of
the Securities Act and the rules and regulations promulgated thereunder and
such other documents as the Holder shall reasonably request;
(ii) Use its best efforts to cause the Shares to be registered,
qualified or exempted under the securities laws of such reasonable number and
selection of states selected by the Holder and do any and all other acts and
things which may be necessary or advisable to enable the Holder to consummate
the proposed sale or other disposition of the Shares in such states; provided,
however, that in no event shall the Company be obligated, in connection
therewith, to qualify to do business or to file a general consent to service of
process in any jurisdiction where it shall not then be qualified;
(iii) Keep effective for a period of ninety (90) days after the
initial effectiveness thereof all such registration statements, and cooperate
in taking such action as may be neces sary to keep effective such other
registrations, qualifications or exemptions, and do any and all other acts and
things for such period, not to exceed such ninety (90) days, as may be
necessary to permit the public sale or other disposition of such Shares by the
Holder; and
(iv) Pay all costs of the registration statement and the public
offering and such other registrations, qualifications or exemptions, exclusive
of (A) brokers or sales commissions on the sale of the Shares; and (B) any
legal fees incurred by the Holder in connection with the registration statement
or public offering.
8. Notices. The Company shall provide the Holder with a copy of any notice
that the Company is required to provide those persons holding shares of the
Common Stock on the same date such persons receive such notice.
9. Loss, Destruction, Etc. of Agreement. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Agreement, and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of the Agreement, the Company shall make and deliver a new
Agreement of like tenor in lieu of such lost, stolen, destroyed or mutilated
Agreement. Any Agreement executed and delivered under the provisions of this
Section 10 in lieu of any Agreement alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Agreement, shall constitute an original contractual
obligation on the part of the Company.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Company and the Holder have executed this Stock Option
Agreement as of the date first above written.
SFORZA ENTERPRISES INC.
By: ------------------------
Gerald J. Visconti Jr.,
Vice President
UNIQUE RESTAURANT CONCEPTS,
LTD., by Unique Restaurant
Concepts, Inc., its general
partner
By: ------------------------
Dennis R. Max, President
-6-
<PAGE> 7
EXHIBIT "A" TO
STOCK OPTION AGREEMENT DATED JULY 15, 1997
NOTICE OF EXERCISE OF OPTION TO PURCHASE
SHARES OF COMMON STOCK
OF SFORZA ENTERPRISES INC.
The undersigned does by this notice request that Sforza Enterprises Inc., a
Florida corporation (the "Company"), issue to the undersigned that number of
shares of Common Stock specified below (the "Shares") at the price per Share
specified below pursuant to the exercise of the undersigned's option under the
Stock Option Agreement (the "Agreement") dated July 15, 1997 between the
undersigned and the Company.
Simultaneously herewith, the undersigned delivers to the Company the purchase
price for the Shares (i.e., that amount which is obtained by multiplying the
number of Shares for which the Option is being exercised by the price
specified), by good check or, alternatively, elects to follow the procedures
set forth in the Agreement for a cashless exercise.
The undersigned hereby represents and warrants that the undersigned is
acquiring the Shares for the undersigned's own account and not on behalf of any
other person and without any present view to making a public offering or
distribution of same and without any present intention of selling same at any
particular time or at any particular price or upon the occurrence of any
particular event or circumstance.
The undersigned acknowledges and understands that in connection with the
acquisition of the Shares by the undersigned:
1. The Company has informed the undersigned that the Shares are not registered
under the Securities Act of 1933, as amended (the "Act"), or applicable state
securities or Blue Sky law or laws, and thus the Shares may not be transferred
or otherwise disposed of until the Shares are subsequently registered under the
Act and the applicable state securities or Blue Sky law or laws or an exemption
from such registration requirements is available.
2. The undersigned has been informed that a legend referring to the
restrictions indicated herein on transferability and sale will be placed upon
the certificate(s) evidencing the Shares.
3. If the undersigned is required to file a Form 144 with the Securities and
Exchange Commission in connection with sales of the Shares pursuant to Rule 144
under the Act, the undersigned shall mail a copy of such Form to the Company at
the same time
A-1
<PAGE> 8
and each time the undersigned mails a copy to the Securities and Exchange
Commission.
A. Date of Stock Option Agreement: July 15, 1997
B. Number of Shares covered by Agreement: 150,000*
C. Number of Shares of Common Stock actually to be purchased at this time
(must be 10,000 Shares or whole multiples thereof and cannot be greater
than 150,000):________*
D. Exercise price per Share: $2.50
E. Aggregate price to be paid for Shares actually purchased (D multiplied by
C): $________
- --------------------
*Subject to adjustment as described in the Agreement
- --------------------
Dated:________________________
Very truly yours,
UNIQUE RESTAURANT CONCEPTS,
LTD., by Unique Restaurant
Concepts, Inc., its general
partner
By: ------------------------
Dennis R. Max, President
Address:
-----------------------------
-----------------------------
-----------------------------
ACCEPTED:
SFORZA ENTERPRISES INC.
By: --------------------
Title:--------------
Dated:-------------------
A-2
<PAGE> 1
EXHIBIT 5
September ___, 1997
Sforza Enterprises Inc.
330 Clematis Street #211
West Palm Beach, FL 33401
RE: INITIAL PUBLIC OFFERING
Ladies and Gentlemen:
We have acted as counsel to Sforza Enterprises Inc. (the "Company") in
connection with its filing of a Registration Statement on Form SB-2 (file no.
333-32117) (such Registration Statement, as amended at the time of its
effectiveness, is hereinafter called the "Registration Statement"), covering
units (the "Units") each comprising one share of the Company's authorized and
unissued common stock, $0.01 par value (the "Common Stock"), and one warrant
(the "Warrants") to purchase one share of Common Stock (the "Warrant Shares")
issuable upon exercise of the Warrants.
We have examined original copies or copies certified to our satisfaction of the
corporate records of the Company, agreements and other instruments,
certificates of public officials and such other documents as we deem necessary
as the basis for the opinion hereinafter set forth.
On the basis of the foregoing, we are of the opinion that the Units, the Common
Stock, the Warrants and the Warrant Shares, when issued and sold as
contemplated by the Registration Statement, will be validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this Opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the Prospectus constituting part of the Registration Statement.
Very truly yours,
MIRKIN & WOOLF, P.A.
<PAGE> 1
EXHIBIT 10.2
[STATE OF FLORIDA LOGO]
Department of State
I certify from the records of this office that CLEMATIS BISTRO CORPORATION,
A FLA. CORP., 330 CLEMATIS STREET #221, WEST PALM BEACH, FL 33401 has
registered MY MARTINI GRILLE to be used as a mark under class(es) 0042. Said
mark was first used anywhere February 1, 1997 and was first used in Florida
February 1, 1997.
I further certify that said mark was registered in this office on August 25,
1997 and its date of expiration is August 25, 2007.
The number of this mark is T97000001029.
Disclaimer for: GRILLE
Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capital, this the
Twenty-sixth day of August, 1997
(SEAL)
/s/ Sandra B. Mortham
----------------------
Sandra B. Mortham
Secretary of State
<PAGE> 1
EXHIBIT 10.8
MANAGEMENT AND CONSULTING AGREEMENT
This AGREEMENT is entered into this 1st day of June, 1997, by and
between S.E.I., a Florida corporation, whose address 330 Clematis Street #211,
West Palm Beach, Florida 33401 and U.R.C., a Florida corporation whose address
is 490 E. Palmetto Park Road, Suite 110, Boca Raton, Florida 33432.
BACKGROUND FACTS
1. U.R.C. is in the business of owing, operating, designing and
consulting with others for the creation and operation of restaurants and
restaurant concepts.
2. S.E.I. has itself developed a concept for a restaurant, Sforza
which sells Italian style lunches and dinners, as well as appetizers and
desserts. In combination with a bar and disco, together S.E.I. and U.R.C.
developed My Martini an upscale American grille and bar.
3. S.E.I. desires to retain U.R.C. to manage and operate both
restaurants for one year from the date of this agreement.
TERMS AND CONDITIONS
IN CONSIDERTION of the above facts and thefollowing mutual covenants
and conditions, the sufficiency of which is hereby acknowledged, the parties
agree as follows:
1. Duties. S.E.I. hereby retains U.R.C. and U.R.C. hereby agrees to
provide the following services:
A. Determine menu and bar items, design menu, create recipes for
all menu items, test all menu items, cost out all menu items, and develop
product specifications;
B. Interview, hire and train all management for the operations and
develop employee hiring and training programs and manuals for S.E.I.'s ongoing
use;
C. Develop, implement and maintian an operations manual to cover
product purchasing, receiving, storage, menu preparation, service standards and
policies, develop operating forms as needed, oversee vendor selection, insure
cleaning schedules are in place, develop kitchen and bar forms (order forms,
inventory, daily preparation), and all other matters relating to operation of
the Restaurants;
D. Develop and implement a marketing plan with advertising and
promotional programs, ideas and formats, take a part in signage decisions, and
conduct market research as needed;
E. Supervise the ongoing operation of the Restaurants in a manner
simmilar to all U.R.C. restaurants in order to maximize sales and
profitability;
F. S.E.I. has the right to approve all management salaries,
operating budgets, and non food and beverae expenditures exceeding $1,000:
<PAGE> 2
G. U.R.C. will conduct, or cause to conduct a Repairs and Maintenance
Audit no less than quarterly, and insure all discrepancies are corrected.
2. Extent of Servicing. U.R.C. agrees that the services to be provided by
it will be under the direction of Dennis Max and Burt Rapoport with primary
assistance being from Fred Gushue or any Unique Restaurant Concepts multi unit
supervisor. Max and Rapoport will devote such time, attention, and energies
as are reasonably necessary to accomplish the purposes described in paragraph
1 above. The parties acknowledge and understand that although U.R.C. will be
involved in the operation and consulting with and for other restaurant concepts
as well as that of S.E.I., U.R.C. will use its best efforts consistent with its
obligations to its other restaurant projects to maximize the likelihood of
success fo the Restaurants.
3. Compensation. In exchange for the services rendered by U.R.C. pursuant
to this Agreement S.E.I. agrees to pay U.R.C. a management and consulting fee
relating to Sforza and My Martini.
A. One percent (1%) of the next taxable sales payable monthly by 20th
day of each month end:
B. 20% of the net operating profit (defined below), be paid monthly
by the 20th day of each month. "Net operating profit" shall equal the gross
revenues of such Restaurant less all direct operating expenses of the
Restaurant but specifically not including in such direct operating expenses:
1. Any royalties, management fees or administrative charges
paid by the Restaurant to S.E.I. or its affiliates,
except for the fair market value of services actually
rendered, or goods actually received;
2. Any guaranteed return on investment or similar payments
to investors not payable out of the cash flow of the
business;
3. Any payments to the investors other than rent;
4. Any similar types of changes
5. Any principal's salaries other than Jay Visconti's
present salary or any mutually agreed upon salary;
6. Any accounting or legal expenses relating to the
pending initial public offering;
7. Any owners food, beverage and gratuity expense
C. Any documents which purport to modify, affect or further grant the
above-referenced rights will be subject to the review of counsel for U.R.C.
Any changes in current "fixed" expenses must be brought to the attention of
U.R.C.
4. Expenses. All expenses incurred by U.R.C. in providing its services
required under this Agreement will be paid by U.R.C. except the following:
A. Travel expenses incurred at the request of S.E.I.
B. Out-of-pocket expenses paid to unaffiliated third parties
including but not limited to accountants, attorneys, shopping services,
auditors, consultants, as long as any fees over $1,000 are pre-approved.
<PAGE> 3
C. Long distance telephone calls not incurred in the ordinary course of
business made on behalf of S.E.I.
5. Ownership of confidential information. U.R.C. acknowledges that
although it will be materially participating in the creation of all of the
Confidential Information described above, in consideration of the fees and
perpetual management and consulting fee provided by this Agreement, that all
Confidential Information will be owned by S.E.I..
6. Termination. S.E.I. will hae the right to terminate this Agreement,
effective upon delivery of written notice of termination to U.R.C. setting
forht the basis of such termination, under the following circumstances:
A. For cause, which shall be defined as any of the following: (a) any
material misappropriation of funds or property of S.E.I. by U.R.C., Max or
Rapoport; (b) Max's or Rapoport's engagement in conduct generally offensive to
the community in which services are being performed hereunder tending to place
Max and/or Rapoport and S.E.I. by association with Max or Rapoport, in
disrepute; U.R.C.'s failure or refusal to carry out its duties in accordance
with the instructions and directions of S.E.I. to the extent required by this
Agreement.
B. S.E.I.'s obligation and U.R.C.'s obligation to perform the duties
shall terminate immediately, without further notice or action, on the
expiration or termination of the term of this Agreement.
7. Indemnification. Each of the parties to this Agreement hereby agrees
to indemnify, defend and hold the other party harmless from and against any and
all loss; cost, damage, liability and expense (including without limitation
reasonable attorneys' fees, court costs and reasonable litigation expenses)
which the other shall suffer, sustain or incur as a result, arising from or in
connection with any failure of performance or breach of the Agreement by the
other party. S.E.I. specifically agrees to hold URC, Max and Rapoport with
regard to liability or to claims by third parties relating to the operation of
the restaurant by third parties relating to the operation of the restaurant by
third parties relating to the operation of the restaurants(s), except if
resulting from the gross negligence or willful malfeasanceof URC, Max or
Rapoport.
8. Miscellaneous.
A. Written Agreement to Govern. This Agreement sets forth the entire
understanding and supersedes all prior oral or written agreements among the
parties relating to the subjet matter contained in the Agreement.
B. Severability. If any provision of this Agreement is interpreted or
construed as being in violation of any law, rules, regulations or public
policy, the remainder of the Agreement and all other agreements between the
parties shall remain binding upon the parties and shall be modified to the
extent required in order to reflect as nearly as possible the original
intentions of the parties.
<PAGE> 4
C. Notices. All notices provided for or permitted herein shall be in
writing and shall be delivered personally, by courier, or sent by United States
certified or registered mail, postage prepaid, return receipt requested,
addressed as follows:
(i) If to SEI
Sforza Enterprises, Inc.
330 Clematis Street
Suite 211
West Palm Beach, Fl. 33401
(ii) If to URC, Max or Rapoport:
Unique Restaurant Concepts, Inc.
490 E. Palmetto Park Road
Suite 110
Boca Raton, Fl. 33432
or at such other address as either party shall from time to time designate by
writen notice to the other party. Notice by courier or certified or registered
mail, shall be effective on the date it is officially recorded as delivered to
the intended recipient by return receipt or the date of attempted delivery where
delivery is refused by the intended recipient. All notices and communications
required, contemplated or permitted by this Agreement to be delivered in person
shall be deemed to have been delivered to and received by the addressee, and
shall be effective, on the date of personal delivery.
D. Law to Govern. The validity, construction and enforceability of this
Agreement shall be governed in all respects by the laws of the State of
Florida, without regard to its conflict of laws rules.
E. Waiver of Provisions. The terms, covenants, representations,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. No Waiver by and any
party of any condition, or breach of any provision, term, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as
a further or continuing waiver of any such condition or of the breach of any
other provision, term, covenant, representation or warranty of this Agreement.
F. Publication. The parties agree that the economic terms of this
Agreement will not be disclosed to other parties, except those having a need to
know (such as accountants, attorneys, financial advisors, investors,
franchisees and other parties similarly situated), without the written consent
of the other party. However the parties each may disclose and/or publicize the
fact that they have entered into this consulting arrangement with the other
party. In that connection SEI may, at is option, indicate on its menu or other
promotional materials that the menu and/or restaurant concepts were created by
URC.
<PAGE> 5
G. Arbitration. Any dispute arising out of this Agreement shall be
sumbitted to arbitration in Palm Beach County, Florida, in accordance with the
rules of the America Arbitration Association, and any decision arising from
that arbitration shall enforceable in any court of competent jurisdiction:
provided, however, the injunction provisions of this Agreement may be sought in
any court of competent jurisdiction. In the event of litigation between the
parties, the prevailing party shall be entitled to payment of its reasonable
attorney's fees, court costs and expenses by the non-prevailing party.
THE PARTIES NOW execute this Agreement, effective as of the date
indicate on the first page of this Agreement.
Sforza Enterprises, Inc.
A Florida corporation
By: /s/
----------------------------
Name:
-------------------------
Title: CFO
------------------------
Unique Restaurant Concepts, Inc.
A Florida Corporation
By: /s/
----------------------------
Name:
-------------------------
Title: Executive Vice President
------------------------
<PAGE> 1
EXHIBIT 10.9
FUNDING AGREEMENT
FUNDING AGREEMENT made this ___ day of July, 1997 by and among SFORZA
ENTERPRISES INC., a Florida corporation ("SEI"), MAX'S BEACH GRILL, LTD., a
Florida limited partnership ("Beach Place"), UNIQUE BRICKELL LTD., a Florida
limited partnership ("Las Olas"), UNIQUE WESTON LTD., a Florida limited
partnership ("Weston"), DENNIS MAX, UNIQUE RESTAURANT CONCEPTS, INC., a Florida
corporation ("URCI"), and UNIQUE RESTAURANT CONCEPTS, LTD., a Florida limited
partnership ("URCL").
RECITALS:
A. SEI is in the process of registering shares of its common stock with the
Securities and Exchange Commission (the "S.E.C.") for purposes of effecting an
initial public offering (the "I.P.O.") to raise at least four million dollars
($4,000,000).
B. Each of Beach Place, Las Olas and Weston owns a restaurant that replicates
the Max's Grille concept originated by the Max's Grille in Mizner Park, Boca
Raton, Florida and which is named Max's Grille (or a derivative thereof). Beach
Place's restaurant has recently opened and the other two are being developed.
The principals of such companies are actively searching for another site for a
fourth new restaurant, also to replicate the Max's Grille concept, ownership of
which shall reside in a distinct entity. (Beach Place, Las Olas, Weston and such
distinct entity are sometimes collectively referred to herein as the "Grille
Companies".)
C. SEI has agreed to devote three million dollars ($3,000,000) of the I.P.O.
proceeds to fund the construction expenses incurred by the Grille Companies in
exchange for a fifty percent (50%) equity interest in each of the Grille
Companies, in accordance with the following.
NOW, THEREFORE, based on the foregoing and for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. As soon as possible following the execution hereof, the Grille Companies
shall deliver to SEI subscription agreements in form reasonably satisfactory to
SEI's counsel describing the subscription by SEI for a fifty percent (50%)
equity interest in each of the Grille Companies with protection against
dilution. To enable SEI to conduct due diligence with respect to such
subscriptions, the Grille Companies shall simultaneously furnish SEI's counsel
with copies of their Articles of Limited Partnership and Agreements of Limited
Partnership, and the Articles of Incorporation, Bylaws, Subscription Agreements,
issued stock certificates, and minutes of meetings of directors and shareholders
and written consents in lieu thereof of their respective corporate general
partners, and other items requested by such counsel.
<PAGE> 2
SEI's counsel shall expeditiously review the documentation and work diligently
to reach agreement on all issues arising thereunder so that a closing may occur.
Once two million dollars ($2,000,000) in net proceeds of the I.P.O. have been
delivered to SEI, SEI shall establish an escrow account and deposit such sum
therein earmarked as the Grille Companies Construction Fund. A closing then
shall be set for a mutually convenient time to take place at the office of SEI's
counsel in West Palm Beach, Florida at which the Grille Companies Construction
Fund shall be exchanged for certificates evidencing the above-described equity
interests. At such closing and for so long thereafter as Max and his designees
comprise a majority of the Board of Directors of SEI as contemplated by Section
2 below, designees of SEI who are acceptable to the Grille Companies shall be
appointed to serve on each of the Grille Companies' corporate general partners'
Boards of Directors such that such designees represent the majority of directors
in each case. SEI shall relinquish control of the Grille Companies' Board of
Directors immediately following any event which results in Max and his designees
no longer comprising a majority of SEI's Board of Directors.
2. At the closing referenced above, the directors of SEI shall appoint such
designees of Max who are reasonably acceptable to them to the SEI Board of
Directors such that such designees represent the majority of directors of SEI.
Joseph C. Visconti, Dale J. Brisson and Gerald J. Visconti, by execution of the
attached Joinder, shall agree to vote their shares of the capital stock of SEI
and to take such other action as required to accomplish the foregoing.
3. The Grille Companies agree to use the subscription funds to cover the
expenses of construction and opening of their Max's Grille restaurants. The
parties recognize that construction and opening expenses will vary for each
restaurant as will the timing of incurrence and therefore the Grille Companies
agree that they shall appoint and entrust Max to disburse the subscription funds
in the manner he deems most equitable and in the collective best interests of
the Grille Companies.
4. URCI shall manage each of the Grille Companies for so long as SEI owns an
equity interest therein for a fee less than that historically charged by URCI
for management, calculated to cover the additional administrative expenses
incurred by URCI.
5. In the event the I.P.O. has not resulted in net proceeds to SEI of at least
two million dollars ($2,000,000) by September 30, 1997 thereby enabling funding
of the Grille Companies Construction Fund, this Agreement shall terminate
without further action.
6. SEI shall grant URCL an option exercisable through December 31, 1999 to
purchase one hundred fifty thousand (150,000) shares of SEI common stock for an
exercise price of two dollars and fif-
-2-
<PAGE> 3
ty cents ($2.50) per share. Said option shall be evidenced by a Stock Option
Agreement containing incidental registration rights in the form attached hereto.
7. In the event that the Grille Companies, Max, URCL or URCI willfully fails or
refuses to comply with its respective obligations hereunder and as a result
thereof SEI must amend its registration statement as filed to delete this
transaction therefrom, then such parties, jointly and severally, shall reimburse
SEI, as liquidated damages, for SEI's extraordinary legal, accounting, printing,
underwriting and filing fees incurred in the I.P.O. as a result of such action
or inaction. All such parties agree that such liquidated damages would be just
compensation for such action and/or inaction.
8. Neither Max, URCI or URCL (the "URC Parties") shall be obligated actively to
participate in SEI's I.P.O. activities, except that (a) the URC Parties shall
promptly provide information reasonably requested by SEI for inclusion in the
registration statement, which information need not include financial data except
as required by the S.E.C. with respect to the Grille Companies and, to the
extent accounting or other expenses are incurred in connection therewith, same
shall be paid for by SEI, and (b) Max shall make a presentation regarding the
Max's Grille concept and expansion plans for same at a dinner meeting at Max's
Grille in Boca Raton to be sponsored by SEI after the registration statement is
filed and to which only securities brokers and dealers, not investors, shall be
invited.
9. This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof and supersedes any conflicting prior or
contemporaneous agreements. This Agreement may not be orally modified and no
modification of any provision hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be enforced.
10. The parties hereto acknowledge that following the closing described in
Section 1 above, it would be impossible to determine the amount of damage that
would result from the breach by any of them of the provisions of this Agreement
and that the remedy at law for breach of any of such provisions would likely be
inadequate and accordingly agree that the non-breaching parties shall, in
addition to any other rights or remedies they may have, be entitled to seek such
equitable and injunctive relief as may be available from any court of competent
jurisdiction to compel specific performance of or restrain any of the other
parties from violating any of such provisions. In connection with any action or
proceeding for injunctive relief, each of the parties hereto hereby waives the
claim or defense that a remedy at law alone is adequate and agrees to the
maximum extent permitted by law to have each provision of this Agreement
specifically enforced against it, without the necessity of posting bond or other
security
-3-
<PAGE> 4
against it, and consents to the entry of injunctive relief against it enjoining
or restraining any breach or threatened breach of this Agreement.
11. All expenses incurred by any party in enforcing its rights hereunder in
litigation or preparatory thereto shall be paid by the breaching parties, which
shall be jointly and severally responsible therefor.
12. Each of the parties hereto is sophisticated and has had the opportunity to
be represented by counsel in the negotiation and preparation hereof.
Accordingly, each party hereto acknowledges that presumptions relating to the
interpretation of contractual provisions against the drafter thereof are not
applicable to this Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date
first above written.
SFORZA ENTERPRISES INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
MAX'S BEACH GRILL, LTD. by
Max's Beach Grill, Inc., its
general partner
By:
----------------------------
Name:
-----------------------
Title:
----------------------
UNIQUE BRICKELL LTD., by Uni-
que Brickell, Inc., its gener-
al partner
By:
----------------------------
Name:
-----------------------
Title:
----------------------
UNIQUE WESTON LTD., by Unique
Weston, Inc., its general
partner
By:
----------------------------
Name:
-----------------------
Title:
----------------------
-4-
<PAGE> 5
-------------------------------
DENNIS MAX
UNIQUE RESTAURANT CONCEPTS,
LTD., by Unique Restaurants,
Inc., its general partner
By:
----------------------------
Name:
-----------------------
Title:
----------------------
UNIQUE RESTAURANT CONCEPTS,
INC.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
-5-
<PAGE> 6
AMENDMENT
FOR VALUE RECEIVED, SFORZA ENTERPRISES INC., a Florida corporation ("SEI"),
MAX'S BEACH GRILL, LTD., a Florida limited partnership ("Beach Place"), UNIQUE
BRICKELL LTD., a Florida limited partnership ("Las Olas"), UNIQUE WESTON LTD.,
a Florida limited partnership ("Weston"), DENNIS R. MAX, UNIQUE RESTAURANT
CONCEPTS, INC., a Florida corporation ("URCI"), and UNIQUE RESTAURANT CONCEPTS,
LTD., a Florida limited partnership ("URCL"), hereby agree and consent to
change the date set forth in Section 5 of that certain Funding Agreement dated
July 1, 1997 entered into by and among the parties from September 30, 1997 to
October 31, 1997. All other provisions of said Funding Agreement remain in
effect unchanged.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the ___
day of September, 1997.
SFORZA ENTERPRISES INC.
By: /s/ Gerald J. Visconti, Jr.
------------------------------ ---------------------------
Name: GERALD J. VISCONTI, JR. DENNIS R. MAX
Title: VICE PRESIDENT
MAX'S BEACH GRILL, LTD. by UNIQUE RESTAURANT CONCEPTS,
Max's Beach Grill, Inc., LTD., by Unique Restaurants,
its general partner Inc., its general partner
By: By:
------------------------------ -----------------------------
Name: ________________________ Name: _______________________
Title: _______________________ Title: ______________________
UNIQUE BRICKELL LTD., by Unique UNIQUE RESTAURANT CONCEPTS,
Brickell, Inc., its general INC.
partner
By: By:
------------------------------ ------------------------------
Name: ________________________ Name: ________________________
Title: _______________________ Title: _______________________
UNIQUE WESTON LTD., by Unique
Weston, Inc., its general
partner
By:
------------------------------
Name: ________________________
Title: _______________________
<PAGE> 1
Exhibit 10.10
LOCK-UP AGREEMENT
JOSEPH CHARLES & ASSOCIATES, INC.
As Representative of the several Underwriters
9701 Wilshire Boulevard
Beverly Hills, California 90212
Ladies and Gentlemen:
The undersigned understands that you, as representative of the several
underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement with Sforza Enterprises, Inc. (the "Company") providing for the public
offering (the "Public Offering") by the several Underwriters, including
yourselves, of the Company's Common Stock, par value $.001 per share (the
"Common Stock"), and Common Stock purchase warrants.
In consideration of the Underwriters' agreement to conduct the Public
Offering, and for other good and valuable consideration the receipt of which is
hereby acknowledged, the undersigned hereby agrees, during the period ending at
5:00 pm Florida time on the date which is one year after the date of the final
prospectus for the Public Offering (the "Lock-up Period"), not to offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to (collectively, a "Disposition") any shares of Common
Stock of the Company, any options or warrants to purchase any shares of Common
Stock of the Company or any securities convertible into or exchangeable for
shares of Common Stock of the Company (collectively, the "Securities") now owned
or hereafter acquired directly by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, otherwise than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, or (ii) with the prior written consent
of Joseph Charles & Associates, Inc., which may be withheld in its sole
discretion. The foregoing restriction is expressly agreed to preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the undersigned. Such prohibited hedging or other
transactions includes, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Securities.
The undersigned agrees that for a period of two years from the date of the
final prospectus, it will not make a Disposition of Securities through any
broker/dealer, other than
<PAGE> 2
Joseph Charles & Associates, Inc., unless it shall first have offered to Joseph
Charles & Associates, Inc. the exclusive right to act as broker/dealer in
connection with such sale, and Joseph Charles & Associates, Inc. shall have
declined in writing to act in such capacity.
The undersigned hereby acknowledges that this agreement is valid and
binding notwithstanding any prior agreements relating to this matter and further
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by the
undersigned except in compliance with this agreement. The undersigned also
understands that the Underwriters will proceed with the Public Offering in
reliance upon this agreement.
Date:___________________
____________________________
(Stockholder name)
____________________________
(Signature)
____________________________
(Name & Title, if applicable)
____________________________
____________________________
____________________________
(Address)
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED NOTES THERETO AS SET FORTH IN THE COMPANY'S FILING ON
FORM SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 110,502
<SECURITIES> 0
<RECEIVABLES> 6,459
<ALLOWANCES> 0
<INVENTORY> 94,385
<CURRENT-ASSETS> 464,631
<PP&E> 1,011,698
<DEPRECIATION> 98,691
<TOTAL-ASSETS> 1,602,823
<CURRENT-LIABILITIES> 345,960
<BONDS> 69,181
400,000
0
<COMMON> 20,400
<OTHER-SE> 759,767
<TOTAL-LIABILITY-AND-EQUITY> 1,602,823
<SALES> 2,679,903
<TOTAL-REVENUES> 2,679,903
<CGS> 1,524,705
<TOTAL-COSTS> 1,524,705
<OTHER-EXPENSES> 1,129,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,500
<INCOME-PRETAX> 1,006
<INCOME-TAX> 300
<INCOME-CONTINUING> 706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND REALTED NOTES THERETO AS SET FORTH IN THE COMPANY'S FILING ON
FORM SB-2.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 202,639
<SECURITIES> 0
<RECEIVABLES> 2,238
<ALLOWANCES> 0
<INVENTORY> 38,661
<CURRENT-ASSETS> 311,950
<PP&E> 529,065
<DEPRECIATION> 33,695
<TOTAL-ASSETS> 1,086,151
<CURRENT-LIABILITIES> 371,452
<BONDS> 83,973
0
0
<COMMON> 19,750
<OTHER-SE> 603,461
<TOTAL-LIABILITY-AND-EQUITY> 1,086,151
<SALES> 2,333,530
<TOTAL-REVENUES> 2,333,530
<CGS> 1,299,501
<TOTAL-COSTS> 1,299,501
<OTHER-EXPENSES> 881,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 155,224
<INCOME-TAX> 9,319
<INCOME-CONTINUING> 145,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,905
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
