<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM SB-2
------------------------
SILVER STAR FOODS, INC.
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 0638 11-3265942
(State or other Jurisdiction of (Primary Standard Industrial I.R.S. Employer
Incorporation or Organization) Classification Code No. Identification Number)
</TABLE>
1000 South Avenue
Staten Island, New York 10314
Telephone: (718) 763-3000
Facsimile: (718) 763-6004
(Address and Telephone Number of Principal
Executive Offices and Principal Place Of Business)
MICHAEL TROTTA
CHIEF EXECUTIVE OFFICER, PRESIDENT AND SECRETARY
(Name, Address and Telephone Number of Agent for Service)
1000 South Avenue
Staten Island, New York 10314
Telephone: (718) 763-3000
Facsimile: (718) 763-6004
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Richard I. Anslow, Esq. Jay M. Kaplowitz, Esq.
Richard I. Anslow & Associates Gersten, Savage, Kaplowitz &
Freehold Office Plaza Fredericks, LLP
4255 Route 9, Suite D 101 East 52nd Street
Freehold, New Jersey 07728 New York, New York 10022
Telephone: (732) 409-1212 Telephone: (212) 752-9700
Facsimile: (732) 577-1188 Facsimile: (212) 980-5192
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities of Act, check the following box
and list the Securities Act registration statement number 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS MAXIMUM OFFERING
OF SECURITIES TO BE AMOUNT TO BE PRICE PER
REGISTERED REGISTERED SECURITY (1)
<S> <C> <C>
Common Stock, par value $0.0001 per share (2).................................. 1,265,000 $5.25
Redeemable Common Stock Purchase A Warrants (3)................................ 2,530,000 $ .25
Common Stock, par value $0.0001 per share (4) (5).............................. 2,530,000 $6.00
Common Stock, par value $0.0001 per share (6).................................. 20,000 $5.25
Total.......................................................................... 6,345,000
<CAPTION>
PROPOSED
TITLE OF EACH CLASS AGGREGATE
OF SECURITIES TO BE OFFERING
REGISTERED PRICE
<S> <C>
Common Stock, par value $0.0001 per share (2).................................. $ 6,641,250
Redeemable Common Stock Purchase A Warrants (3)................................ $ 632,500
Common Stock, par value $0.0001 per share (4) (5).............................. $15,180,000
Common Stock, par value $0.0001 per share (6).................................. $ 105,000
Total.......................................................................... $22,558,750
</TABLE>
(1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457.
(2) Includes 165,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(3) Includes 330,000 Redeemable Common Stock Purchase A Warrants ("Warrants")
issuable upon exercise of the Underwriters' over-allotment option.
(4) Represents shares of Common Stock issuable upon exercise of the Warrants.
(5) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Warrants.
(6) Represents shares owned by a shareholder of the Company which are being
registered hereby but are not part of the Underwritten offering.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH A DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SILVER STAR FOODS, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM SB-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside B
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds.
5. Determination of Offering Price...................... Outside Front Cover Page; Risk Factors
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page; Underwriter
9. Legal Proceedings.................................... Not Applicable.
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management; Principal Shareholders
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Management; Principal Shareholders
12. Description of Securities............................ Risk Factors; Capitalization; Securities; Shares
Eligible for Future Sale
13. Interest of Names Experts and Counsel................ Legal Matters
14. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities........................................ Management
15. Organization within Last Five Years.................. Management; Principal Shareholders
16. Description of Business.............................. Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion And Analysis
18. Description of Property.............................. Proposed Business
19. Certain Relationships and Related
Transaction........................................ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Outside Front Cover Page; Risk Factors; Description
Of the Securities
21. Executive Compensation............................... Management; Executive Compensation
22. Financial Statements................................. Financial Statements
23. Change in and Disagreements with Accountants On
Accounting and Financial Disclosure................ Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENTS BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SILVER STAR FOODS, INC.
1,100,000 SHARES OF COMMON STOCK,
2,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
OFFERING PRICE: $5.25 PER SHARE AND $.25 PER A WARRANT
Silver Star Foods, Inc. (the "Company"), a New York corporation, is offering
hereby 1,100,000 shares of Common Stock, par value $.0001 (the "Common Stock"),
and 2,200,000 Redeemable Common Stock Purchase Warrants (the "A Warrants"),
through Royal Hutton Securities Corp. (the "Underwriter"). The shares of Common
Stock and Warrants may be purchased separately and will be transferable
separately upon issuance. This Prospectus also relates to the offering of 20,000
shares of Common Stock by a shareholder of the Company (the "Selling Security
Holder") which are being registered for resale pursuant to the registration
statement of which this Prospectus is a part.
Each of the A Warrants entitles the holder thereof to purchase one share of
Common Stock (the "Shares") at a price of $6.00 per share, subject to adjustment
in certain circumstances, at any time commencing on the first anniversary of the
Effective Date of the registration statement and expiring on the four year
anniversary of the effective date of the registration statement of which this
Prospectus is a part (the "Effective Date").
The Warrants are subject to redemption by the Company, commencing on the
first anniversary of the Effective Date at a price of $0.01 per A Warrant, upon
notice of not less than thirty (30) days mailed within ten (10) days after the
average of the closing bid prices of the Common Stock, as listed on a national
securities exchange, for a period of ten (10) consecutive trading days has
equaled or exceeded $8.50. See "Description of Securities."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock or A Warrants and there is no assurance that such a public
market will develop or be sustained after the Completion of the Offering. The
initial public offering prices of the Common Stock and A Warrants and the
exercise price and terms of the A Warrants have been determined by negotiation
between the Company and the Underwriter and bear no relation to the Company's
earnings, assets, book value, net worth, or any other recognized criteria of
value. See "Underwriting." Application has been made for listing of the Common
Stock and A Warrants for quotation on the NASDAQ SmallCap Market ("NASDAQ")
under the symbols "SILV" and "SILVW," respectively.
THESE ARE SPECULATIVE SECURITIES. SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR
A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY PROSPECTIVE 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.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS (1) COMPANY(2)
<S> <C> <C> <C>
Per Share...................................................... $5.25 $0.525 $4.725
Per A Warrant.................................................. $0.25 $0.025 $0.225
Total (3)...................................................... $6,325,000 $632,500 $5,692,500
</TABLE>
(1) See "Underwriting" for additional compensation to the Underwriter consisting
of: (i) three (3%) percent of the gross proceeds of the Offering ($189,750,
or $218,213 if the Over- Allotment Option (as defined below) is exercised in
full) as a non-accountable expense allowance; (ii) a $36,000 annual
financial consulting fee.
(2) The Company has granted to the Underwriter a forty-five (45) day option to
purchase up to an additional 165,000 Shares and 330,000 A Warrants at the
Price to the Public less Underwriting Discount of ten (10%) percent, solely
to cover Over-Allotments, if any (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full the total Price to the Public,
Underwriting Discount and Proceeds to the Company, will be $7,273,750,
$727,375, $6,546,375 respectively (see "Underwriting").
(3) Does not include 20,000 shares of Common Stock to be offered by the Selling
Securityholder (the "Selling Security Holder Shares"), which are not part of
the underwritten offering. The Company will receive no proceeds from the
sale of the Selling Security Holder Shares.
The Common Stock and A Warrants are offered on a "firm commitment" basis by
the Underwriter, subject to prior sale, when, as, and if delivered and accepted
by it and subject to approval of certain legal matters by the Underwriter's
legal counsel and certain other conditions. The Underwriter reserves the right
to reject orders in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that delivery of the Common Stock and Warrants
will be made at the offices of the Underwriter, 1700 South Dixie Highway, Boca
Raton, Florida 33432, on or about November , 1998.
--------------------------
ROYAL HUTTON SECURITIES CORP.
------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION SET FORTH HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE SHARES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE AFFECTED ON THE OVER-THE-COUNTER ELECTRONIC BULLETIN BOARD
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements after the end of each fiscal year, and
make available such other periodic reports as the Company may deem to be
appropriate or as may be required by law. The Company's fiscal year ends on
March 31 of each year.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL
STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH
PROSPECTIVE INVESTOR IS THEREFORE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "THE COMPANY" REFERS TO SILVER
STAR FOODS, INC., A NEW YORK CORPORATION. THIS PROSPECTUS CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS IN "RISK FACTORS."
THE COMPANY
Silver Star Foods, Inc. (the "Company") is a distributor of a wide range of
pre-packaged frozen pasta products in the New York metropolitan area. The
Company sells its products primarily to supermarkets or to distributors who
resell the products to supermarkets. The Company's products are primarily
"stuffed" pasta such as ravioli and tortellini, which must be refrigerated or
frozen when stored. The Company intends to establish a manufacturing facility
with the proceeds of this Offering. The Company believes, although there can be
no assurance, that acquiring manufacturing capacity and entering into agreements
with additional sales representatives will enable it to expand its customer base
to supermarket chains and small distributors in other regional markets and to
large volume customers such as club stores, restaurant chains, and customers
requiring private label manufacturing. See "Business--Expansion Strategy."
The family of the Company's Chairman Chief Executive Officer and Principal
Shareholder, Michael Trotta, owned and operated Silver Star Ravioli & Macaroni,
Inc. ("SSRM") for over fifty years. SSRM was engaged in the business of selling
pasta products under the Silver Star name. In 1992, SSRM declared bankruptcy,
largely due to financial problems caused by SSRM's outdated manufacturing
facilities, and was liquidated. In March 1995, Michael Trotta, who had been an
employee at SSRM, formed the Company to distribute a select number of food
products under that label. The Company purchased the "Silver Star" trade name in
1997 from Vincent Trotta, the father of the Company's President. See "Business--
Background" and "Certain Transactions."
The Company has become a distributor of a variety of pre-packaged Italian
stuffed pasta food products, including ravioli, tortellini, cavatelli, gnocchi
and manicotti. According to a report by A.C. Nielson & Co., in 1997, sales of
the Company's products accounted for approximately 7.5% of the frozen pasta
market among supermarkets in the New York Metropolitan area. The Company
promotes its products to these supermarkets with the assistance of food brokers,
who receive commissions for such sales. The Company regularly offers discounts
or "specials," on its products and arranges for such specials to be listed in
the supermarket circular which is available to each of the supermarket customers
as they enter the store. See "Business."
The Company also sells its products to small distributors who resell the
frozen pasta to grocery stores and restaurants. Although this constitutes a
small portion of the Company's business, the Company has distributors in
locations such as Nevada and California. The Company intends, although there can
be no assurance it will be able to, to establish relationships with additional
distributors in order to expand into other regions and markets. See
"Business--Sales and Distribution."
The Company's marketing efforts emphasize the Silver Star tradition of
quality. The Company also hopes to capitalize on the growing popularity of
pasta, many types of which are lower in fat than most other frozen food
products. See "Business--Marketing."
Currently, the Company has manufacturing agreements with Mount Rose Ravioli
and Macaroni, Inc. ("Mount Rose") and Savignano Foods Corporation ("Savignano").
These companies manufacture and package the products that the Company sells
under the Silver Star name. The Company believes that this arrangement is
satisfactory for sales to its existing customer base. However, this arrangement
limits the
3
<PAGE>
Company's ability to increase profit margins and to pursue certain types of
customers. In order to achieve significant sales growth and to operate
profitably, the Company's management believes it needs to establish its own
manufacturing facility or to seek better manufacturing terms from its suppliers.
See "Business--Principal Suppliers."
The Company believes, although there can be no assurance, that establishing
a manufacturing facility will enable it to produce its products at a lower cost
without sacrificing quality. A manufacturing facility should also allow the
Company to respond to customer orders more quickly and to allow it more
flexibility in changing its product mix. The Company intends to establish a
manufacturing facility. This will be done by either (i) acquiring land and
constructing and equipping a new facility on such land; or (ii) leasing an
existing facility (possibly with an option to buy such facility), which is
likely to require an investment to update or improve the facility. See
"Business--Manufacturing."
The Company was incorporated in New York in March 1995 under the name Silver
Star Ravioli, Inc. The Company changed its name in July 1997. The Company
maintains its principal offices at 1000 South Avenue, Staten Island, New York,
10314 and its telephone number is (718) 763-3000.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered............ 1,100,000 shares of Common Stock, and 2,200,000 A Warrants
offered by the Company and 20,000 Selling Security Holders
Shares. The Common Stock and the A Warrants may be purchased
separately upon issuance. See "Description of Securities"
and'Underwriting."
Common Stock Outstanding After 4,376,000
the Offering................
Exercise Price of Warrants.... Each A Warrant is exercisable at an exercise price of $6.00
per share. The exercise price of the A Warrants is subject
to adjustment in certain circumstances. See "Description of
Securities--Warrants."
Exercise Period............... Each A Warrant is exercisable commencing on the first
anniversary of the Effective Date of the Registration
Statement. The A Warrants expire on the four year
anniversary of the Effective date of the registration
Statement.
Redemption.................... The A Warrants are redeemable by the Company commencing on
the first anniversary of the Effective Date of the
Registration Statement at a price of $0.01 per Warrant, upon
notice of not less than thirty (30) days mailed within ten
(10) days after the average of the last bid prices of the
Common Stock, as listed on a national securities exchange,
for a period of ten (10) consecutive trading days that has
equaled or exceeded $8.50.
Offering Price................ $5.25 per share of Common Stock and $.25 per Warrant.
Use of Proceeds............... Purchase and/or renting of manufacturing facilities; buying
and/or leasing of equipment; repayment of bridge loan
promissory notes; working capital and for general corporate
purposes.
Risk Factors.................. An investment in the Shares offered hereby involves a high
degree of risk and therefore the Shares should not be
purchased by anyone who cannot afford the loss of their
entire investment. Prospective purchasers of the Shares
should carefully review and consider the factors set forth
under "Risk Factors" as well as other information contained
herein, before purchasing any of the Shares. See "Risk
Factors."
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical financial information of
the Company for the years ended March 31, 1997 and March 31, 1998 and the six
months ended September 30, 1997 and September 30, 1998.
The summary historical financial data should be read in conjunction with the
financial statements (and notes thereto) of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
1997 1998 1997 1998
---------- ---------- ----------- -------------
FOR THE YEARS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED SEPTEMBER 30,
---------------------- --------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operating Data:
Revenues................................................................ $1,450,438 $1,343,276 $ 747,294 $ 509,154
Gross Profit............................................................ $ 478,190 $ 144,521 $ 167,858 $ 101,452
Operating Expenses...................................................... $ 407,381 $ 426,884 $ 230,068 $ 300,607
Net Income (Loss)....................................................... $ 19,557 $ (340,354) $ (90,557) $ (332,832)
Per Share Data:
Net Earnings (Loss) Per Share......................................... $ .01 $ (.08) $ (.03) $ (.09)
Weighted Average Number of Shares Outstanding......................... 3,200,000 4,300,274 3,200,000 3,564,940
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
MARCH 31 ---------------------------
------------------------ AS ADJUSTED
1997 1998 ACTUAL (1),(2),(3)
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Total Assets.............................................. $ 258,134 $ 429,418 $ 562,757 $4,826,545
Working Capital (Deficiency).............................. $ (295,311) $ (316,443) $ (1,051,067) $4,251,683
Stockholders' Equity (Deficiency)......................... $ (50,098) $ 9,548 $ (549,684) $4,414,104
</TABLE>
- ------------------------
(1) Assumes gross proceeds from the offering of $6,325,000, less underwriter's
discount and expenses and other costs of the offering of $632,500, 189,750
and $200,000, respectively. Also assumes repayment of the bridge loans of
$700,000 and the amortization of deferred finance costs of $221,011. Does
not include any amount payable to the underwriter under a consulting
agreement.
(2) Reflects the issuance of 20,000 shares of the Company's Common Stock, which
are being valued at $5.25 per share for legal services tendered, which are
being registered and offered for sale in this offering.
(3) Does not assume the sale of any of the shares or warrants available to cover
the underwriter's over-allotment option, the exercise of the warrants or the
exercise of the underwriter's warrants.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES BEING OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PRIOR TO MAKING ANY INVESTMENT DECISION, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS TOGETHER WITH THE OTHER
INFORMATION PRESENTED IN THIS PROSPECTUS INCLUDING THE FINANCIAL STATEMENTS (AND
NOTES THERETO).
RECENT LOSSES, GOING CONCERN LETTER IN AUDITOR'S REPORT, WORKING CAPITAL DEFICIT
For the three months ended June 30, 1998, the year ended March 31, 1998 and
the year ended March 31, 1997, the Company has recorded a net income (loss) of
($91,547), ($340,354) and $19,557, respectively. At June 30, 1998, the Company
had a working capital deficit of $868,801 and an accumulated deficit of
$481,999. The auditor's report to the Company's financial statements for the
year ended March 31, 1998, states that the working capital deficit and
stockholder equity deficit raise doubts about the Company's ability to operate
as a going concern. For at least the current fiscal year, the Company is likely
to incur losses from operations as a result of, among other things, its
expansion strategy. There can be no assurance that the Company will achieve
profitability at any time in the future or, if achieved, sustain such
profitability. See "Financial Statements."
RISKS RELATED TO EXPANSION STRATEGY
The Company's expansion strategy and the opening and success of its proposed
manufacturing facilities will depend on various factors (which factors will vary
depending on how the Company implements its expansion strategy), including, the
availability of a manufacturing plant and equipment, the negotiation of
acceptable lease terms, licensing and regulatory compliance, the ability to meet
production and construction schedules, the general ability to manage
successfully its anticipated growth (including monitoring its production
facilities, controlling costs, and maintaining effective quality control), and
general economic and business conditions. Not all of the foregoing factors are
in control of the Company. The implementation of the Company's expansion
strategy will increase operating costs which, in turn, could adversely affect
its business, financial condition or results of operations. Having recently
embarked on its expansion strategy, there can be no assurance that the Company
will successfully implement its strategy or that its strategy will result in
profitability. Consistent with its expansion strategy, the Company anticipates
entering into new geographic regions in which it has no previous operating
experience. No assurance can be given that the Company will be successful in new
geographic regions. See "Business-- Expansion Strategy" and
"Business--Suppliers."
LIMITED OPERATING HISTORY, NEW BUSINESS ACTIVITIES
The Company has operated only since 1995. The Company has never engaged in
the manufacturing of food products or sold significant quantities of products
outside the New York area or to institutional customers. The Company will be
required to incur additional fixed costs, which could limit the Company's
ability to reduce expenses in an economic downturn or a slow seasonal period.
Additionally, the Company will need to locate suppliers and other service
products for its manufacturing facility, the availability of which there can be
no assurance. Therefore, the Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by a new small
business in a highly competitive industry. See "Business."
BANKRUPTCY OF PREVIOUS BUSINESS
The Company's management participated in the management of SSRM. In 1992,
SSRM declared bankruptcy and was liquidated. SSRM had experienced financial
problems largely brought on by its outdated manufacturing plant. Competitors
with newer facilities were able to offer products at lower prices and on a more
flexible schedule. SSRM's attempts to upgrade the facility were ineffective and
the debts incurred in connection with the attempted upgrade eventually caused
SSRM to go bankrupt. Although the Company will be establishing a new, modern
manufacturing facility, the Company is engaged in the same
6
<PAGE>
business operating under the same trade name as SSRM. Therefore, the Company's
prospects for success must be evaluated in light of the factors which led to the
failure of SSRM. See "Business--Historical Background."
COMPETITION
The food industry is highly competitive. Competition for shelf space in
grocery stores and supermarkets is intense and poses great difficulty for
smaller companies. The Company competes with numerous companies in the New York
area, including the Company's two suppliers. The Company will likely encounter
similar competition as it enters new markets. Many of these competitors are
larger and have greater financial and other resources, including production and
distribution facilities, than the Company. The Company's products compete with
frozen food products, other pasta products and all food products in general.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which could materially adversely affect the Company's
business, prospects, financial condition and results of operations. Further,
there can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business, prospects,
financial condition and results of operations. See "Business--Competition."
DEPENDENCE ON KEY CUSTOMERS, DEPENDENCE ON KEY SALES REPRESENTATIVES
For the year ended March 31, 1998 and the three months ended June 30, 1998,
the Company's five largest customers accounted for an aggregate of approximately
97% and 98% of its total sales. The Company has no long term arrangements with
any of these customers. While the Company generally believes its relationships
with its customers are good, there can be no assurance that these or any other
customers will continue to purchase the Company's products. See "Business--Sales
and Distribution."
The Company sells its products through sales representatives who are known
in the industry as food brokers. For the year ended March 31, 1998 and the three
months ended June 30, 1998, approximately 98% of its sales in the New York
market were undertaken by Douglas Sales Associates, Inc. See "Business--Sales
and Distribution."
The loss of the Company's relationships with these or other key customers or
food brokers could adversely affect the Company's business, prospects, financial
condition and results of operations.
DEPENDENCE ON KEY SUPPLIERS, RISK OF PRICE FLUCTUATIONS, TERMINABLE CONTRACTS
The Company purchases all of its products from two suppliers, Mount Rose and
Savignano. The prices of products purchased from Mount Rose are revised every
six months. The prices of products purchased from Savignano are subject to
increase if the Company fails to order certain minimum amounts of products. The
Company has historically been able to pass significant price increases through
to its customers. However, no assurance can be given that it will be able to do
so in the future. The agreement with Mount Rose is terminable by either party at
any time and the agreement with Savignano is terminable by either party upon 120
days notice. Both Mount Rose and Savignano sell products that compete with the
Company's products directly to supermarkets and distributors. There can be no
assurance that such agreements will not be terminated, particularly since Mount
Rose and Savignano are aware of the Company's plans to establish its own
manufacturing facility. The loss of any of its current suppliers would have a
material adverse effect on it business, financial condition or results of
operations until a relationship could be established with new suppliers or a
manufacturing facility could be established. See "Business-- Suppliers" and
"Business--Competitors."
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DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL EXECUTIVE OFFICERS
The Company is dependent to a great extent upon the experience, abilities
and continued services of Michael Trotta, the Company's President and Chief
Executive Officer and Louis Trotta, the Company's Vice President. The loss of
services of Mr. Michael Trotta or Mr. Louis Trotta could have a material adverse
effect on the Company's business, financial condition or results of operation.
The Company has entered into three year employment agreements with, and is
purchasing Key man life insurance on the life of each of, these individuals. The
Company intends to purchase Key man life insurance on Michael Trotta in the
amount of $750,000, upon receipt of the proceeds of this Offering. In order to
implement the Company's expansion strategy, the Company will need to hire
additional executive officers, including an experienced chief financial officer.
There can be no assurance that the Company will be able to identify the proper
individuals or that such individuals would be willing to be employed by the
Company on terms acceptable to the Company. See "Management."
ABSENCE OF TRADEMARK REGISTRATION, ABSENCE OF PATENT PROTECTION
The Company acquired the Silver Star trademark from Vincent Trotta in 1997.
Mr. Trotta had acquired the trademark from SSRM, who had registered the
trademark with the US Patent and Trademark Office. The Company failed to renew
its registration of the trademark. Although it does maintain certain rights in
the trademark, it currently does not have the protection against infringement
offered by registration. If the Company were required to cease using "Silver
Star", it could have a material adverse effect on the Company. The Company is in
the process of filing its application to register the trademark. There can be no
assurance that the Company's application will be accepted. Although registration
affords the Company the protection of federal trademark laws against the
unauthorized use of the protected mark or a use deemed "confusingly similar"
under federal trademark law, there can be no assurance that third parties will
not infringe on the Company's current or future trademark registrations or that
the Company will have sufficient resources to defend against any such
infringement successfully or at all. See "Business--Proprietary Rights."
The Company does not have any patents on its recipes or production processes
or trademarks on the names of its products. Because it currently uses other
businesses in the industry to manufacture it products, competitors are familiar
with the Company's recipes, production processes and products. There can be no
assurance that these competitors will not be able to utilize this information to
gain a competitive advantage over the Company.
POTENTIAL LIABILITY; AVAILABILITY OF INSURANCE
The Company, from time to time, is subject to lawsuits as a result of its
business and currently maintains insurance relating to personal injury in
amounts that it considers adequate and customary for the food industry. No
assurance can be given that the Company will be able to obtain insurance
policies in the future. In addition, any successful claim against the Company,
in an amount exceeding its insurance coverage, could have a material adverse
effect on its business, financial condition or results of operation.
DEPENDENCE ON EFFECTIVE DELIVERY SYSTEM
The Company's success depends upon an effective system of delivery for its
products. To its products, the Company uses common carriers. The dependence on
other companies for delivery of its products poses a risk to the Company,
particularly as the Company increases its delivery to the eastern United States.
There can be no assurance that the Company will continue to be able to negotiate
acceptable freight rates in the future or that delivery will not be disrupted
for reasons including, but not limited to, adverse weather, natural disasters or
labor disputes in the trucking industry. See "Business".
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CONTINUED CONTROL BY MANAGEMENT
Upon completion of the Offering, management of the Company (specifically,
Michael Trotta, the Company's Chairman, President and CEO) will beneficially own
approximately 73.1% of the Company's outstanding Common Stock. The Company's
stockholders do not have the right to cumulative voting in the election of
directors. Accordingly, Management will be in a position to exert control over
the business and operations of the Company, including the election of all
directors of the Company and approval of significant corporate transactions.
Currently, members of the Trotta family hold three of the five seats on the
Company's Board of Directors. In 1996, due to debts incurred with the failure of
SSRM, Michael Trotta filed for bankruptcy. See "Principal Stockholders" and
"Management."
MANAGEMENT'S BROAD DISCRETION IN APPLICATION OF THE PROCEEDS.
14.0% of the net proceeds of the offering has been allocated to Working
Capital and General Corporate Purposes. An additional 72.9% has been allocated
for the establishment of a manufacturing facility and the acquisition or leasing
of the equipment to be used in the facility. Although the Company has obtained
quotes and investigated establishing such a facility, it has not yet identified
the location of its planned facility. Accordingly, the Company's management and
the board of directors, will have broad discretion as to the allocation and use
of such proceeds.
GOVERNMENT REGULATION
The Company is subject to numerous state regulations relating to the
preparation and sale of food. It is also subject to federal and state laws
governing the Company's relationship with its employees, including minimum wage
requirements, overtime, working and safety conditions, and citizenship
requirements. Commencement of manufacturing of food would subject the Company to
numerous other regulations of the U.S. Food and Drug Administration and the U.S.
Department of Agriculture including unannounced on site inspections. The failure
to obtain or retain required food licenses or to be in compliance with
applicable governmental regulations, or any increase in the minimum wage rate,
employee benefits costs (including costs associated with mandated health
insurance coverage) or other costs associated with employees, could adversely
affect the business, results of operations or financial condition of the
Company. Proposals are under consideration at the federal level to introduce a
system of mandated health insurance. This and other initiatives could adversely
affect the Company's operations as well as the food industry in general. A
failure to comply with one or more regulatory requirements could result in a
variety of sanctions, including fines and the withdrawal of the Company's
products from store shelves. The Company is not aware of any currently existing
facts or circumstances that would cause it to fail to comply with any of the
regulations to which it is currently subject.
RISKS INHERENT IN THE FOOD INDUSTRY
The results of operations in the food industry can be affected by, among
other things, changes in consumer tastes, national, regional and local economic
conditions and demographic trends. The Company believes that the pasta market is
a growing market, but there can be no assurance that changes in the market will
not occur which would adversely affect the Company.
The Company faces all of the risks inherent in the production and
distribution of frozen food products, including contamination, adulteration and
spoilage, and the associated risks of product liability litigation. Such risks
will be increased if the Company establishes a manufacturing facility. There can
be no assurance that the Company's procedures will be adequate to prevent the
occurrence of such events. See "Business."
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SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 3,276,000 shares of common stock all of which
were issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Securities Act. Other than the 20,000
Selling Security Holder Shares such shares may be sold only pursuant to an
effective registration statement filed by the Company or an applicable
exemption, including the exemption contained in Rule 144 promulgated under the
Securities Act. In general, under Rule 144 as currently in effect, a
shareholder, including an affiliate of the Company, may sell shares of common
stock after at least one year has elapsed since such shares were acquired from
the Company or an affiliate of the Company. The number of shares of common stock
which may be sold within any three-month period is limited to the greater of one
percent of the then outstanding common stock or the average weekly trading
volume in the common stock during the four calendar weeks preceding the date on
which notice of such sale was filed under Rule 144. Certain other requirements
of Rule 144 concerning availability of public information, manner of sale and
notice of sale must also be satisfied. In addition, a shareholder who is not an
affiliate of the Company (and who has not been an affiliate of the Company for
90 days prior to the sale) and who has beneficially owned shares acquired from
the Company or an affiliate of the Company for over two years may resell the
shares without compliance with the foregoing requirements under Rule 144.
The Selling Security Holder Shares are being registered for resale pursuant
to the registration statement of which this Prospectus is a part.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the common stock prevailing from time to time. Nevertheless, sales of
substantial amounts of common stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices. See
"Description of Securities--Shares Eligible for Future Sale."
DILUTION OF 82%
The investors in this Offering will suffer immediate dilution of $4.28 per
share or 82%, assuming $.25 is attributed to each Warrant. See "Dilution."
ADDITIONAL FINANCING
The Company anticipates that the proceeds from the Offering, together with
projected cash flow from operations, will be sufficient to fund its operations,
including its proposed expansion, for at least the next 12 months. Thereafter,
the Company may need to raise additional funds to continue to implement its
expansion strategy. There can be no assurance that additional financing will be
available or if available will be on favorable terms.
QUARTERLY FLUCTUATIONS; SEASONALITY; POSSIBLE VOLATILITY OF STOCK PRICE
The Company's business is somewhat seasonal. Although there exists a steady
market for the Company's products from September through June, with sales rising
during the Christmas holidays, sales usually decline in July and August. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. In the event the Company's operating results
fall below the expectations of public market analysts and investors, the market
price of the Common Shares would likely be materially adversely affected. See
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain its earnings, if any, to finance the growth
and development of its business and therefore
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does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Although dividends are not limited currently by any
agreements, it is anticipated that future agreements, if any, with institutional
lenders or others may limit the Company's ability to pay dividends on the Common
Stock. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital and legal requirements and such other
factors as the Board of Directors deems relevant. See "Dividend Policy."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS AND
OPTIONS
At such time as the Shares and Warrants become registered under the
Securities Act, holders of the Warrants will be able to exercise the Warrants
only if (i) a current Prospectus under the Securities Act relating to the Shares
is then in effect and (ii) the Shares are qualified for sale or exempt from
qualification under the applicable securities laws of the state in which the
various holders of Warrants reside. Although the Company has agreed to use its
best efforts to maintain a current registration covering the Shares, there can
be no assurance that the Company will be able to do so. The value of the Shares
may be greatly reduced if a registration statement covering the Shares is not
kept current or if the Shares are not qualified, or exempt from qualification,
in the states in which the holders of warrants reside. Persons holding warrants
who reside in jurisdictions in which the Shares are not qualified and in which
there is no exemption will be unable to exercise their Warrants and would either
have to sell their Warrants or allow them to expire unexercised.
FORWARD LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. The
actual results of the Company may differ significantly from the results
discussed in such forward-looking statements. Certain factors which may cause
such differences include, but are not limited to, the factors discussed in this
"Risk Factors" section. The safe harbors contained in Section 27A of the
Securities Act and Section 21E of the Exchange Act, which apply to certain
forward-looking statements, are not applicable to this Offering.
POTENTIAL LIABILITY FOR POSSIBLE VIOLATION OF SECTION 5 OF THE SECURITIES ACT:
INTEGRATION OF AUGUST BRIDGE FINANCINGS WITH THIS OFFERING
In September 1998, the Company completed a private placement of 28 units
each consisting of a $25,000 Promissory Note, 2,000 shares of Common Stock and
2,000 Redeemable Common Stock Purchase Warrants to accredited investors at a
price of $25,000 per Unit. There was no cost attributed to either the shares of
Common Stock or the Redeemable Common Stock Purchase Warrants contained in the
Units. The Company believes that these financings were exempt from registration
under Regulation D of the Securities Act of 1933 (the "Securities Act"),
however, an investor in such financings could take the position that these
financings should be deemed to be integrated with the Offering with the result
that these financings would not have complied with Regulation D of the
Securities Act. Such position might subject the Company to litigation with its
attendant costs and risks. If it were determined that these financings should
have been integrated with the Offering, it would give rise, among other things,
to the investors having a right of rescission and the Company having liability
in connection with the 1998 Bridge Financings.
OFFERING PRICE ARBITRARILY DETERMINED
The offering price of the Securities has been determined by negotiation
between the Company and the Representative and is not necessarily related to the
Company's assets, earnings, book value or any other objective standard of value.
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LIMITED LIABILITY OF DIRECTORS
As permitted by the New York Business Corporation Law, the Company's
certificate of incorporation eliminates personal liability of a director to the
Company and its stockholders for monetary damages for breach of fiduciary duty
as a director, except in certain circumstances. Accordingly, stockholders may
have limited rights to recover monetary damages against the Company's directors
for breach of fiduciary duty.
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of "blank check" preferred stock, par value $.001, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future. See "Description of Securities--Preferred Stock."
EFFECT OF ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS AND OPTIONS;
POSSIBLE ISSUANCE OF ADDITIONAL COMMON STOCK AND OPTIONS
Immediately after the Offering, assuming the Representative's Over-Allotment
Option is not exercised, the Company will have an aggregate of 7,043,000 shares
of Common Stock authorized but unissued and not reserved for specific purposes
and an additional 3,581,000 shares of Common Stock unissued but reserved for
issuance pursuant to (i) the Company's 1998 Stock Option Plan, (ii) outstanding
options and warrants, (iii) exercise of the Redeemable Warrants, (iv) exercise
of the Over-Allotment Option and the Redeemable Warrants underlying the
Over-Allotment Option, (v) the Company's Bridge Financing, and (vi) exercise of
the Representative's Warrants and the Redeemable Warrants included therein. All
of such shares may be issued without any action or approval of the Company's
stockholders. Although there are no present plans, agreements, commitments or
undertakings with respect to the issuance of additional shares or securities
convertible into any such shares by the Company, any shares issued would further
dilute the percentage ownership of the Company held by the public stockholders.
The Company has agreed with the Representative that, except for the issuances
disclosed in or contemplated by this Prospectus and issuances in connection with
any merger or acquisition of another entity by the Company, it will not issue
any securities without the Representative's consent, including but not limited
to any shares of Common Stock, for a period of 24 months following the Effective
Date, without the prior written consent of the Representative. See
"Underwriting."
The exercise of warrants or options and the sale of the underlying shares of
Common Stock (or even the potential of such exercise or sale) may have a
depressive effect on the market price of the Company's securities. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of outstanding warrants and options
can be expected to exercise them, to the extent they are able, at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the warrants and
options. See "Management--Stock Option Plan," "Description of Securities" and
"Underwriting."
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY;
NASDAQ MAINTENANCE REQUIREMENTS. Prior to this offering, there has been no
public market for the Shares, and there can be no assurance that any active
trading market therefor will develop or, if any such market develops, that it
will be sustained. Accordingly, unless and until a public market develops,
purchasers of the Shares may experience difficulty selling or otherwise
disposing of such securities.
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The initial public offering price of the Shares was arbitrarily determined
by negotiations between the Company and the Representative, and does not
necessarily bear any relationship to the Company's assets, book value, results
of operations, or any other generally accepted indicia of value. See
"Underwriting." From time to time after this offering, there may be significant
volatility in the market price of the Common Shares. Quarterly operating results
of the Company or other developments affecting the Company, such as
announcements by the Company or its competitors regarding acquisitions or
dispositions, new procedures or technology, changes in general conditions in the
economy, and general market conditions could cause the market price of the
Common Stock to fluctuate substantially. The equity markets have, on occasion,
experienced significant price and volume fluctuations that have affected the
market prices for many companies' securities and have often been unrelated to
the operating performance of these companies.
Under the currently effective criteria for listing of securities on the
Nasdaq SmallCap-Registered Trademark- Market, for initial listing, a company
must have at least $4,000,000 in net tangible assets, a minimum bid price of
$4.00 per share, and a public float of at least $5,000,000. For continued
listing, a company must maintain $2,000,000 in net tangible assets, a minimum
bid price of $1.00, and a public float of at least $1,000,000. In the event that
the Company should be unable to maintain the standards for continued listing,
the Common Shares could be subject to de-listing from the Nasdaq
SmallCap-Registered Trademark- Market. Trading, if any, in the Common Shares
would thereafter be conducted in the over-the-counter market on the OTC Bulletin
Board established for securities that do not meet the Nasdaq
SmallCap-Registered Trademark- Market listing requirements or in what are
commonly referred to as the "pink sheets." As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Shares.
Should the Company be unable to satisfy the NASDAQ maintenance criteria for
listing, its Securities may be de-listed from NASDAQ. In such event, trading, if
any, of the Securities would thereafter be conducted in the over-the-counter
market, the so-called "pink sheets," or the National Association of Securities
Dealers, Inc.'s (the "NASD") "Electronic Bulletin Board." As a consequence of
such de-listing, an investor would likely find it more difficult to dispose of,
or to obtain quotations as to, the price of the Securities.
PENNY STOCK REGULATION
In the event that the Company is unable to satisfy NASDAQ's initial listing
of maintenance criteria requirements, trading of the Securities would be
conducted in the "pink sheets" or the NASD's Electronic Bulletin Board. In the
absence of the Common Stock being quoted on NASDAQ, at a market price of at
least $5.00 per share or certain other exemptions, trading of the Common Stock
would be covered by Rule 15g-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), for non-NASDAQ and non-exchange listed
securities. Under such rule, broker-dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Furthermore,
broker-dealer's must disclose the compensation of the Broker dealer and its
sales person in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account.
The Commission has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share subject to certain exceptions.
Such exceptions include equity securities listed on NASDAQ and equity securities
issued by an issuer that has (i) net tangible assets in excess of $2,000,000, if
such issuer has been in continuous operation for at least three years, or (ii)
net tangible assets of at least $5,000,000, if such issuer has been in
continuous operation for less than three years, or (iii) average revenue of at
least $6,000,000 for the preceding three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a risk disclosure schedule explaining the penny
stock market and the risks associated therewith.
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If the Securities were to become subject to the regulations applicable to
penny stocks, the market liquidity for the Securities would be severely
affected, limiting the ability of broker-dealers to sell the securities and the
ability of purchasers in this Offering to sell their Securities in the secondary
market. There is no assurance that trading in the Securities will not be subject
to these or other regulations that would adversely affect the market for such
securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE A WARRANTS
The Redeemable A Warrants offered hereby are redeemable, in whole or in
part, at a price of $.01 per Redeemable Warrant (the "Redemption Price"),
commencing one year after the date of this Prospectus and prior to their
expiration on the fourth anniversary of the date of this Prospectus provided
that (i) prior notice of not less than 30 days is given to the Warrant holders,
(ii) the closing bid price of the Company's Common Stock shall have exceeded
$8.50 per share for a period not less than 10 consecutive trading days in any 30
day trading period ending not more than 10 days prior to the date on which the
notice of redemption is given. Warrant holders shall have exercise rights until
the close of the business day preceding the date fixed for redemption. Notice of
redemption of the Redeemable A Warrants could force the holders to exercise the
Redeemable A Warrants and pay the Exercise Price at a time when it may be
disadvantageous for them to do so, or to sell the Redeemable A Warrants at the
current market price when they might otherwise wish to hold them, or to accept
the Redemption Price, which may be substantially less than the market value of
the Redeemable A Warrants at the time of redemption. The Redeemable A Warrants
may not be exercised unless the registration statement pursuant to the
Securities Act, covering the underlying shares of Common Stock is current and
such shares have been qualified for sale, or there is an exemption from
applicable qualification requirements, under the securities laws of the state of
residence of the Warrant holder. Although the Company does not presently intend
to do so, the Company reserves the right to call the Redeemable A Warrants for
redemption whether or not a current prospectus is in effect or such underlying
shares are not, or cannot be, registered in the applicable states. Such
restrictions could have the effect of preventing certain Warrant holders from
liquidating their Redeemable A Warrants. See "Description of
Securities--Redeemable A Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
REDEEMABLE WARRANTS
Warrant holders have the right to exercise the Redeemable A Warrants for the
purchase of shares of Common Stock only if a current prospectus which will
permit the purchase and sale of the Common Stock underlying the Redeemable A
Warrants is then effective, but there can be no assurance that the Company will
be able to keep effective such a Prospectus. Although the Company intends to
seek to qualify for sale the shares of Common Stock underlying the Redeemable A
Warrants in those states in which the Securities are to be offered, no assurance
can be given that such qualification will occur. In addition, purchasers may buy
Redeemable A Warrants in the aftermarket or may move to jurisdictions in which
the shares of Common Stock issuable upon exercise of the Redeemable A Warrants
are not so registered or qualified during the period that the Redeemable A
Warrants are exercisable. In such event, the Company would be unable to issue
shares of Common Stock to those persons desiring to exercise their Redeemable A
Warrants unless and until the shares of Common Stock could be registered or
qualified for sale in the jurisdictions in which such purchasers reside, or an
exemption to such qualification exists or is granted in such jurisdiction. The
Redeemable A Warrants may lose or be of no value if a prospectus covering the
shares of Common Stock issuable upon the exercise thereof is not kept current or
if such underlying shares of Common Stock are not, or cannot be, registered in
the applicable states. See "Description of Securities--Redeemable A Warrants."
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RELATIONSHIP OF REPRESENTATIVE TO TRADING, INFLUENCE OF UNDERWRITER ON THE
COMPANY
The Representative may act as a broker or dealer with respect to the
purchase or sale of the Common Stock and the Redeemable Warrants in the
over-the-counter market where each is expected to trade. The Representative also
has the right to act as the Company's exclusive agent in connection with any
future solicitation of Warrant holders to exercise their Redeemable Warrants.
Regulation M, which was recently adopted to replace Rule 10b-6, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), may prohibit
the Representative from engaging in any market-making activities with regard to
the Company's securities for a period of up to five business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by the
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Representative and any
soliciting broker/dealer may be unable to provide a market for the Company's
securities during certain periods while the Redeemable Warrants are exercisable.
Any temporary cessation of such market-making activities could have an adverse
effect on the market price of the Company's securities.
The Representative has the right to designate a director to be one of
management's nominees to the board of directors and also has the right to
designate an observer to attend meetings of the board. The Company also agreed,
subject to certain exceptions, not to issue common stock or Preferred stock for
a period of two years without the consent of the representative. Additionally,
the Representative and the Company have entered into a consulting agreement
whereby the Representative will provide strategic business and merger and
acquisition consulting. Therefore, the Representative may be able to exert
influence over the operation of the Company. See "Underwriting."
REPRESENTATIVE'S WARRANTS AND REGISTRATION RIGHTS
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, the Representative's Warrants which
entitle the Representative to purchase up to 110,000 shares of Common Stock
and/or 110,000 Redeemable Warrants. The securities issuable upon exercise of the
Representative's Warrants are identical to those offered pursuant to this
Prospectus. The Representative's Warrants are exercisable at a price of
$ per share and $ per Redeemable Warrant for a period of four
years commencing one year from the date of this Prospectus. The exercise of the
Representative's Warrants and the Redeemable Warrants contained in the
Representative's Warrants may (i) dilute the value of the shares of Common Stock
to be acquired by holders of the Redeemable Warrants, (ii) adversely affect the
Company's ability to obtain equity capital and (iii) adversely affect the market
price of the Common Stock if the Common Stock issuable upon the exercise of the
Representative's Warrants and the Redeemable Warrants contained in the
Representative's Warrants are sold in the public market. The Representative has
been granted certain "piggyback" and demand registration rights for a period of
five years from the date of this Prospectus with respect to the registration
under the Securities Act of the securities directly or indirectly issuable upon
exercise of the Representative's Warrants. The exercise of such rights could
result in substantial expense to the Company. See "Underwriting."
15
<PAGE>
USE OF PROCEEDS
Assuming the sale of the securities offered hereby (based on an assumed
offering price of $5.25 per share of Common Stock and $.25 per Redeemable A
Warrant), the net proceeds to the Company, after deducting estimated
underwriting discounts and commissions and expenses payable by the Company in
connection with the Offering are estimated to be approximately $5,302,750
($6,128,163 if the Underwriter's Over-Allotment Option is exercised in full).
The Company expects to use the net proceeds as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF NET
PURPOSE AMOUNT PROCEEDS
- --------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Purchase and/or Renting of a Manufacturing Facility(1)......... $ 1,600,000 30.2%
Buying and/or Leasing of Equipment(2).......................... $ 2,300,000 43.3%
Repayment of Bridge Loan Promissory Note(4).................... $ 700,000 13.2%
Working Capital and General Corporate Purposes(3).............. $ 702,750 13.3%
------------ -------
Total.................................................... $ 5,302,750 100%
------------ -------
------------ -------
</TABLE>
- ------------------------
(1) Includes purchase of production equipment for the Facility. The Company
intends to either (i) acquire land in the New York metropolitan area and
construct and equip a new facility; or (ii) lease an existing facility,
which is likely to require an investment to update or improve the facility.
(2) The Company intends to lease its equipment. Such leases generally require a
fifty (50%) percent down payment based on the purchase price and include an
option to purchase at the end of the lease term for a nominal amount. The
Company requires certain equipment which shall include, but not be limited
to, the following: filling and processing machine, dough extruders, assorted
ravioli machines, mechanical spiral freezers, general conveyor work,
vertical form and fill machines, blanchers (pre-cook products), other
miscellaneous machinery, trucks for delivery (which shall include a 24 foot
reefer and a tractor-trailer).
(3) Included as part of this category, the Company shall purchase a new computer
system and a new telephone system and an increase in marketing efforts to
supermarkets through circulars and slotting fees.
(4) The Bridge Financing in the amount of $700,000 consisted in part of twenty
eight $25,000 Promissory Notes. Such Promissory Notes bear no interest. The
principal of such Notes is due the earlier of: (a) the consummation of an
initial public offering by the Company; or (2) June 23, 1999. The net
proceeds of the Bridge Financing are $603,500 after deducting sales
commissions of $84,000 and non-commission offering expenses of approximately
$12,500. The use of proceeds of the $603,500 were as follows: $400,000 to
repay two investors and $203,500 for working capital and general corporate
purposes.
Pending application of the proceeds of this Offering, the Company intends to
invest the net proceeds in certificates of deposit, money market accounts,
United States government obligations or other short-term interest bearing
obligations of investment grade. Any proceeds received upon exercise of the
Over-Allotment Option or exercise of outstanding options and warrants will be
used for working capital.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the sale of the Shares based upon the Company's currently
contemplated operations, the Company's business plan and current economic and
industry conditions and is subject to reapportionment among the categories
listed above in response to, among other things, changes in its plans,
regulations, industry conditions and
16
<PAGE>
future revenues and expenditures. Any such reapportionment will be made based
upon the recommendations of the Company's Board of Directors. The amount and
timing of expenditures will vary depending on a number of factors, including
changes in the Company's contemplated operations or business plan and changes in
economic and industry conditions.
Based on the Company's operating and expansion plans, the Company believes
that the net proceeds of this offering, together with available cash and
anticipated revenues from operations, will be sufficient to satisfy its capital
and legal requirements and finance its plans for expansion for at least the next
12 months. Such beliefs are based upon assumptions and there can be no assurance
that the assumptions underlying the Company's plans will prove to be correct.
After such 12-month period, or sooner if the Company's assumptions prove to be
incorrect, the Company may require additional capital in order to meet its then
current plans for expansion and capital requirements. Such financing may take
the form of ordinary or preferred equity securities or debt securities, or may
involve bank financing. There can be no assurance that the Company will be able
to obtain additional capital on a timely basis, on favorable terms, or at all.
In any of such events, the Company may be unable to implement its current plans
for expansion. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company will receive no proceeds from the sale of the Selling Security
Holder Shares.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The payment of
future cash dividends by the Company on its Common Stock will be at the
discretion of the Board of Directors and will depend on its earnings, financial
condition, cash flows, capital requirements and other considerations as the
Board of Directors may consider relevant. Although dividends are not limited
currently by any agreements, it is anticipated that future agreements, if any,
with institutional lenders or others may limit the Company's ability to pay
dividends on the Common Stock.
17
<PAGE>
DILUTION
As of September 30, 1998, the pro forma net tangible book value of the
Company's Common Stock was ($1,045,812) or ($.32) per share of the Common Stock.
The net tangible book value of the Company's Common Stock is the tangible assets
less total liabilities. The Company has net intangible assets amounting to
$496,128 at September 30, 1998. Dilution per share represents the difference
between the amount paid per share by purchasers in this Offering and the
pro-forma net tangible book value per share after the Offering.
After giving effect to the sale by the Company of 1,100,000 shares of Common
Stock and 2,200,000 Warrants offered hereby and the applications of the net
proceeds thereof, the pro-forma net tangible book value of the Company's Common
Stock as of September 30, 1998 would have been approximately $4,256,938 or $.97
per share. This represents an increase in the net tangible book value per share
of $1.29 to the Company's existing shareholders and an immediate dilution of
$4.28 per share to new stockholders purchasing Common Stock and Warrants in this
Offering.
The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................... $ 5.25
Pro forma net tangible book value per share before
Offering................................................ $ (.32)
Increase per share attributable to payments by new
stockholders............................................ $ 1.29
---------
Pro forma net tangible book value per share after Offering.... $ .97
---------
Dilution per share............................................ $ 4.28
---------
---------
</TABLE>
The following table summarizes the differences between the existing
stockholders and new investors with respect to the number of shares of Common
Stock purchased from the Company, and the total consideration and the average
price per share paid:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
OUTSTANDING PERCENT OF PRICE PER
SHARES OF SHARES OF TOTAL TOTAL SHARE OF
COMMON COMMON CONSIDERATION CONSIDERATION COMMON
STOCK STOCK PAID PAID STOCK
--------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 3,276,000 74.9% $ 320 0.0% $0.01
New Investors..................................... 1,100,000 25.1% $5,775,000 100.0% $5.25
--------- ----- ------------- ----- ---------
4,376,000(1) 100.0% $5,775,320 100.0% $1.32
--------- ----- ------------- ----- ---------
--------- ----- ------------- ----- ---------
</TABLE>
- ------------------------
(1) Does not include: (i) 2,200,000 shares of Common Stock issuable upon
exercise of the A Warrants offered hereby; (ii) up to an additional 495,000
shares of Common Stock issuable upon exercise of the Representative's
Over-Allotment Option and the underlying Redeemable Warrants; (iii) 330,000
shares of Common Stock issuable upon exercise of the Representative's
Warrants and the Redeemable Warrants included therein; (iv) 500,000 shares
of Common Stock issuable upon exercise of options available for grant under
the 1998 Stock Option Plan; (v) 56,000 shares of Common Stock reserved for
issuance pursuant to options and warrants issued in connection with the
Company's Bridge Financing.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 and as adjusted to give effect to the sale by the Company of
1,100,000 Common Shares and 2,200,000 Redeemable Common Stock Purchase Warrants.
The table should be read in conjunction with the financial statements and notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
ACTUAL AS ADJUSTED(1),(2)
------------------ -------------------------
(UNAUDITED)
<S> <C> <C>
Total current liabilities:........ $1,112,441 $ 412,441(3)
------------------ -----------
Long-term debt:................... -- --
------------------ -----------
Stockholder's equity:
Common Stock $.0001 par value,
15,000,000 shares authorized;
4,856,000 shares outstanding;
5,976,000 shares outstanding
as adjusted................... 486 598(5)
Additional paid-in capital...... 573,434 5,758,121
Deficit......................... (723,604) (944,615)(4)
Treasury Stock.................. (400,000) (400,000)
------------------ -----------
Total Stockholders Equity......... (549,684) 4,414,104
------------------ -----------
Total Capitalization.............. $ 562,757 $4,826,545
------------------ -----------
------------------ -----------
</TABLE>
- ------------------------
(1) Assumes sale of 1,100,000 shares of Common Stock at $5.25 per share and
2,200,000 A Warrants at $.25 per Warrant for gross proceeds of $6,325,000,
less the Underwriters Discount of $632,500 and other expenses estimated to
aggregate $389,750.
(2) Does not assume exercise of the Underwriter's Over-Allotment Option, the
Underwriter's Warrant, any of the A Warrants or any of the Bridge Warrants.
(3) Assumes repayment of the bridge notes of $700,000.
(4) Assumes amortization of deferred financing costs of $221,011 resulting from
the bridge financing.
(5) Reflects the issuance of 20,000 shares of Common Stock in November 1998, to
the Selling Security Holder for legal services rendered.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company currently is a manufacturer and wholesaler of stuffed and other
frozen pasta products which it markets under the "Silver Star" trade name. The
Company commenced operations in May 1995.
A substantial portion of the Company's sales to supermarkets are made during
promotions or "specials" that the Company advertises in supermarket circulars.
Normally, these specials are booked by the Company's food brokers eight weeks in
advance of the scheduled sale. In conjunction with the specials, the supermarket
will usually purchase additional quantity of the Company's products. During the
year ended March 31, 1998 ("fiscal 1998"), the Company decided to change food
brokers because the main principal of its food broker left the Company and
decided to pursue other beneficial opportunities in the food industry.
Therefore, the Company decided to utilize a new food broker. During this
transition period (August and September 1997) the Company had a lapse of
promotions which caused sales to decline. The Company is dependent upon its food
brokers to promote sales of its products to supermarkets; however, the Company
is not required to utilize such food brokers and has established relationships
in the industry based on the background of its principals.
The Company does not presently have it's own manufacturing facilities, but
plans to establish one from a portion of the proceeds of the Offering.
Management believes that manufacturing it's own products would enable the
Company to increase its profit margins and participate more fully in "price
competitive" marketing which is common in the retail market place. Concurrent
with the establishment of a manufacturing facility, the Company anticipates that
both its direct expenses and general and administrative expenses will increase
as the Company adds a full-time work force) increases insurance coverage, and
increases marketing efforts. There can be no assurances that the Company will be
able to increase revenue, increase gross profit margins or be profitable as a
result of these expenditures.
At March 31, 1998, the Company's financial statements included an asset for
slotting fees in the amount of $77,051, net of accumulated amortization.
Effective April 1, 1998, the Company adopted Statement of Position 98-5,
reporting on the Costs of Start-up Activities. Accordingly, all slotting fees
paid subsequent to that date have and will be expensed as incurred. Furthermore,
the asset of $77,051 at March 1, 1998 has been expensed in the six month period
ended September 30, 1998, and has been presented as the cumulative effect of a
change in accounting principle.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO SEPTEMBER 30, 1997.
The Company had net sales of $509,000 for the six months ended September 30,
1998 as compared to $747,000 for the six months ended September 30, 1997, a
decrease of $238,000 (32%). The decrease is attributable to the Company's
inability to participate in store promotions due to its working capital
deficiencies.
Costs of sales decreased during the six months ended September 30, 1998 to
$408,000 from $579,000 for the six months ended September 30, 1997, a decrease
of $171,000 (30%). The decrease corresponds to the Company's reduction in volume
for the comparative periods. As a percentage of net sales, cost of sales were
80% and 78% for the six months ended September 30, 1998 and 1997, respectively.
Operating expenses increased to $301,000 for the six months ended September
30, 1998 from $230,000 for the six months ended September 30, 1997, an increase
of $71,000 (31%). Included in the total for the six months ended September 30,
1998 are approximately $75,000 in slotting fees which were expensed in the
period.
20
<PAGE>
Amortization expense for the six months ended September 30, 1998 amounted to
$56,000 as opposed to $28,000 for the comparable period in fiscal 1998, an
increase of $28,000 (100%). The increase is attributable to the amortization of
deferred finance costs incurred in connection with the Company's bridge
financing completed in August, 1998.
The Company had a net loss for the six months ended September 30, 1998 of
$333,000 as compared to a net loss of $91,000 for the comparable period in
fiscal 1997, an increase of $242,000 (266%). Of the $242,000, $77,000 was the
result of the cumulative effect of a change in accounting principle, $47,000 was
an additional current period charges for slotting fees and $56,000 was for the
amortization of financing costs attributable to the Company's bridge financing
in August 1998.
YEAR ENDED MARCH 31, 1998 AS COMPARED TO YEAR ENDED MARCH 31, 1997
The Company had net sales of $1,343,000 for fiscal 1998 as compared to
$1,450,000 for fiscal 1997, a decrease of $107,000 (7%). The decrease is
attributed to the Company's lack of working capital. Also, the Company was
unable to participate in many store promotions due to the loss of its principal
food broker during fiscal 1998.
Cost of sales increased $227,000 or 23% to $1,199,000 for fiscal 1998 from
$972,000 for fiscal 1997. As a percentage of net sales, cost of sales increased
to 89% for fiscal 1998 from 67% in fiscal 1997. These increases are attributed
to price promotions by the Company in order to maintain market share during
fiscal 1998.
Operating expenses were $427,000 for fiscal 1998 as compared to $407,000 in
fiscal 1997, an increase of $20,000 (5%).
Amortization expense was $57,000 for fiscal 1998 as compared to $47,000 in
fiscal 1997, an increase of $10,000 (21%). The increase is attributed to
additional slotting fees capitalized during fiscal 1998.
The Company had a net loss of $340,000 in fiscal 1998, compared to a profit
of $20,000 for fiscal 1997, a decrease of $360,000 (1,800%).
LIQUIDITY AND CAPITAL RESOURCES
SEPTEMBER 30, 1998 TO MARCH 31, 1998
At September 30, 1998, the Company had cash of $16,000, as compared to a
cash overdraft of $21,000 at March 31, 1998. The Company raised gross proceeds
of $700,000 (net proceeds of $613,000) from a bridge financing which was
completed in August 1998. From the proceeds, the Company purchased shares of the
Company's Common Stock for $400,000. The Company used $141,000 in operations and
incurred another $29,000 in deferred registration costs.
MARCH 31, 1998 TO MARCH 31, 1997
At the end of fiscal 1998, the Company had a cash overdraft of $21,000 as
opposed to a cash balance of $2,000 at the end of fiscal 1997. In July 1997, the
Company sold 1,600,000 shares of it's Common Stock for $400,000 in cash. The
Company also received $55,000 in loans from its principal shareholder. The
Company used funds for operations ($263,000), for slotting fees ($58,000), for
note payments relating to the purchase of the Silver Star trade name ($77,000)
and for registration costs ($80,000).
MARCH 31, 1997 TO MARCH 31, 1996
Cash at the end of fiscal 1997 was $2,000, a decrease of $3,000 from the end
of fiscal 1996. Cash flows from operations amounted to $187,000. Proceeds from
marketable securities amounted to $21,000. These increases were offset primarily
by expenditures for slotting fees ($73,000), debt service on the trade name
21
<PAGE>
purchase ($111,000), payments for stock margin purchases ($16,000) and
repayments of loans from a stockholders ($11,000).
In August 1998, the Company completed a bridge financing whereby it netted
proceeds of $603,500. The bridge financing consisted of 28 units, each unit
comprised of a promissory note in the principle amount of $25,000, 2,000 shares
of the Company's common stock and warrants to purchase 2,000 share of the
Company's common stock. The Company used $400,000 of the proceeds to repurchase
1,600,000 shares of the Company's common stock which were sold in a private
placement in July 1997, leaving the Company $203,500 for working capital
purposes.
Management believes the bridge financing in conjunction with the Company's
planned initial public offering would give the Company sufficient working
capital to fund its operations and expansion plans for the next twelve months,
although there can be no assurance of the Company's successful stock offering.
YEAR 2000
Many computer systems and software products worldwide and throughout all
industries will not function properly as the Year 2000 approaches unless
changes, due to a once common programming standard that represents years using
only the last two digits. The Company believes that its current systems are Year
2000 compliant. The Company intends to ensure that all modifications made to its
operating systems as it adds a manufacturing facility will be Year 2000
compliant.
22
<PAGE>
BUSINESS
THE COMPANY
Silver Star Foods, Inc. (the "Company") is a distributor of a wide range of
pre-packaged frozen pasta products in the New York metropolitan area. The
Company sells its products such as ravioli and tortellini, primarily to
supermarkets. The Company intends to raise additional equity in order to
establish a manufacturing facility. The Company believes, although there can be
no assurance, that acquiring manufacturing capacity and entering into agreements
with additional sales representatives will enable it to expand its customer base
to supermarket chains and small distributors in other regional markets and to
large volume customers such as club stores, restaurant chains and customers
requiring private label manufacturer.
HISTORICAL BACKGROUND
In 1930, the grandfather of the Company's President opened a pasta shop in
Brooklyn, New York under the name Silver Star Ravioli & Macaroni Co., Inc.,
("SSRM"). During the next twenty years, SSRM developed an excellent reputation
for its hand-made pasta around New York. In the early 1950's, SSRM expanded by
opening a 25,000 square foot factory with one of the first mechanized ravioli
machines. With increased production capabilities, SSRM was able to supply large
supermarket chains with its food products. During this time, SSRM distributed
its food products to a number of grocery chains and numerous independent stores
in the five boroughs of New York and Long Island. In addition to retail outlet
stores, SSRM opened institutional accounts that included airlines and cruise
ships. SSRM also expanded its geographic area and, with a select network of
brokers, began to distribute its food products to the tri-state area, in
addition to upstate New York, Philadelphia, Baltimore, Florida, Arizona and
California. During this time, SSRM was owned and operated by members of the
Trotta family, including Michael Trotta, the Company's President, Louis Trotta,
the Company's Vice-President, and Vincent Trotta, who serves as an advisor to
the Company.
By the late 1980's, SSRM's manufacturing equipment was outdated. Competitors
with newer factories and equipment were able to produce products at lower cost
and on a more flexible schedule. As a result, sales margins suffered. SSRM's
attempts to upgrade the facility, which was over thirty years old, were
ineffective. Debts incurred in connection with the attempted upgrade eventually
led to the bankruptcy of SSRM.
In 1995, Michael Trotta formed the Company under the name Silver Star
Ravioli. The Company changed its name to Silver Star Foods, Inc. in July 1997.
The Company, which had been using the Silver Star trademark since it was formed,
acquired the trademark from Vincent Trotta in 1997 for $205,000 and acquired the
right to use Vincent Trotta's name in connection with its promotions in April
1998.
INDUSTRY OVERVIEW
Today, retail pasta products sales in the United States total over $500
million, as published in the trade magazine, Modern Grocer. Management believes
that the appeal of frozen pasta products to American consumers has increased
since the 1980's and shows no sign of abating.
The Company believes that the U.S. retail market for frozen pasta is growing
and fragmented. The Company believes that the growth in the frozen pasta
category has been aided by several factors including both the growth in
popularity of frozen foods and the changing consumer taste preferences to favor
distinctive, high quality, healthy foods. The Company further believes that
consumers are demanding more healthful food products as they learn more about
the importance of one's diet in a healthy lifestyle. For example, the U.S.
Surgeon General has recommended that consumers lower the percentage of calories
from fat in their diets at no more than 30% (from the existing 37% average) and
the U.S. Department of Agriculture recommends that 60-70% of Americans' daily
caloric intake come from complex carbohydrates. Consequently, much of consumers'
demand for more healthful food products is focused on lowering the fat content
of their diets and increasing their intake of complex carbohydrates. The Company
23
<PAGE>
believes that the sale of pasta, which is generally low in fat and high in
complex carbohydrates, is benefitting from the trend towards healthier eating.
No assurance can be given that the frozen pasta market will continue to
expand. Nor can there be any assurance that current levels of public attention
to personal health, fitness and diet or current perceptions of healthfulness
associated with pasta and pasta sauces will continue in the future. In
particular, the public perception of the healthfulness associated with
pasta-based meals may decline due to a recent study by the Center for Science in
the Public Interest finding high fat content in cheese and cream-based pastas
and pasta sauces. Similarly, sales of beef ravioli will not be aided by the
increased demand for healthy foods.
Additionally, as the Company expands to different regions of the United
States, the Company may encounter differing public perceptions and concerns
about health and diet. This may adversely impact the Company's marketing and
expansion strategy and cause it to incur greater expenses in promoting its
products.
SALES AND DISTRIBUTION
The Company primarily sells it products through sales representatives, known
in the industry as food brokers. The Company currently has representative
agreements with four food brokers. The Company pays its food brokers a
commission which ranges from 3-5% of the net amount received from customers on
all sales in the respective brokers territory. The Company's brokers service the
New York City metropolitan area, New Jersey/Eastern Pennsylvania/Maryland and
Florida. The broker for the New York area served as broker on 97% of the
Company's sales. The agreement with the New York broker can be terminated by
either party at any time. The other agreements contain termination provisions as
well. Although the Company believes it could replace its food brokers, the loss
of a food broker could have a material adverse effect on the Company,
particularly in the short term.
The primary function of the food broker is to act as a liaison between the
manufacturer and the Company's customers. Working with Company management, the
broker will place advertisements in the supermarket circular and arrange
"specials" or discounts on the Company's products. If the Company determines
that it desires to place its product in a supermarket chain, the broker will
negotiate for the payment by the Company of a "slotting fee," which is a fee
that a potential supplier must pay to obtain shelf space for a product in the
supermarket chain. The Company believes that such "slotting fee" has a
beneficial life of three (3) years. However, payment of a slotting fee does not
ensure continued shelf space availability for the Company's product. The Company
intends, although there can be no assurance it will be able to, to establish
relationships with additional food brokers in order to expand into other
regions. Food brokers are particularly helpful when expanding into new
geographic markets because a single broker may have existing relationships with
numerous supermarkets.
The Company recently entered into an agreement with Kelly Clarke, Inc., a
food broker that works with club stores such as Costco and Price Club. The
Company plans to package its products in a manner that would be suitable to club
stores. However, the Company believes that it will not be able to effectively
service club store customers until it has established a manufacturing facility.
The Company has no plans to make any sales to club store customers at this time,
and there can be no assurance that the Company will be able to sell its products
to club store customers in the future, even if it established a manufacturing
facility.
The food brokers generally arrange sales to supermarket chains. These
supermarkets then either place an order with the broker or with distributors,
who then immediately place orders with the Company. There is not a significant
difference in pricing or delivery procedures based on whether the supermarket
uses a distributor.
According to a report by A.C. Nielson & Co., 1997 sales of the Company's
products accounted for approximately 7.5% of the frozen pasta market among
supermarkets in the New York Metropolitan area. Sales to these supermarket
chains (directly or through distributors) account for virtually all of the
Company's revenue. For the three months ended June 30, 1998, the Company's five
largest customers
24
<PAGE>
accounted for approximately 97% of its sales. These customers consist of two
supermarket chains and three distributors who resell the Company's products
primarily to other supermarket chains. During 1997, one of the two supermarkets,
Pathmark Stores, Inc. changed the way they place orders and are now utilizing
one of the three distributors. The Company's management does not anticipate that
this change will affect the price or quantity of the Company's products
purchased by Pathmark supermarkets. The Company has no long term agreements with
any of its customers, and the loss of any of these large customers could have a
material adverse affect on the Company.
The Company sells to a number of supermarkets chains that have stores
(operating under the same name or through affiliated companies) in other
regions. These supermarkets have buying departments in each region. The Company
would have to establish relationships with different buyers to sell its products
in these regions. However, Company management believes that its relationships in
the New York region with these supermarket chains will aide it in establishing
relationships with supermarket buyers in other regions.
Generally, competition for shelf space in supermarkets is intense. Companies
that supply to supermarkets, are often required to pay large slotting fees in
order to commence business with a supermarket chain. The Company believes that
such slotting fees have a beneficial life of three (3) years. Food suppliers may
attempt to use their relationship with the supermarket or pricing arrangements
to obtain the optimum shelf space. This usually creates an advantage for larger
companies who are able to obtain the most visible shelf space. The Company's
management believes that this advantage is reduced in frozen products, all of
which must be stored in a freezer section. Additionally, the Company believes
that its use of coupons and store circulars, along with customer loyalty, will
enable it to overcome the advantage of the larger companies in obtaining optimum
shelf space.
The Company also sells its products to distributors who resell the frozen
pasta to delicatessens, grocery stores and restaurants. Currently, these
customers make up approximately 2% of the Company's business. In the past year,
the Company has sold frozen pasta to four different small distributors, located
in California, New York, Nevada, Arizona and Florida. The Company intends,
although there can be no assurance that it will be able to do so, to establish
relationships with additional distributors in order to expand into other regions
and markets.
If the Company is able to acquire a manufacturing facility, it intends to
pursue institutional customers, such as hotels, restaurants, schools, nursing
homes, hospitals and prisons. These institutional customers buy products in
large volumes. Without a manufacturing facility, the Company does not have the
flexibility or the cost structure to pursue such customers.
Initially, the company intends to rely primarily on food brokers to
establish relationships with these institutional customers. Upon obtaining
additional financing, the Company intends to employ a marketing and sales
director. This individual will be in charge of establishing relationships with
additional food brokers and distributors, and for pursuing institutional
customers and other retail customers.
The Company's success depends upon an effective system of distribution for
its products. The Company utilizes central warehouse delivery for all its
supermarket customers. In central warehouse delivery, the products are delivered
to a warehouse for a chain of supermarkets for later delivery by the chain to
its stores. To distribute its products to other parts of the country (which is a
small part of the Company's business at the present time), the Company uses
local and regional distributors. In any event, the Company uses common carriers
to deliver its products to these distributors. The dependence on other companies
for delivery of its products poses a risk to the Company. While this method of
delivery has been reliable and available at acceptable rates thus far, there can
be no assurance that the Company will continue to be able to negotiate
acceptable freight rates in the future and that delivery will not be disrupted
for reasons including, but not limited to, adverse weather, natural disasters or
labor disputes in the trucking industry.
25
<PAGE>
MARKETING
An emphasis of the Company's marketing to both its customers and consumers
is on the association of the Silver Star name with a quality pasta product
produced by a family operated business. The Company's promotional materials and
packaging for some of its products contain a short statement from Vincent
Trotta, Sr. which, among other things, offers a personal guarantee of quality,
thanks customers for loyalty, and explains the Silver Star's products are "true
to a family tradition." On all products, the Company has begun to use the name
"Aversa Silver Star" after the founder of SSRM and the grandfather of the
Company's President. The Company expects to continue to use the Aversa Silver
Star name as it enters new markets because management believes that customers
are more likely to associate that name with Italian food products from a family
operated business.
The Company hopes to use advertising, primarily in supermarket circulars, to
familiarize customers with the Silver Star name. The Company hopes positive
experiences with the Company's product will create customer loyalty and promote
repeat business.
The Company also intends to capitalize on the nutritional value of its
products. As is now required by law, the Company discloses the nutritional
information about its products on the packaging. The Company believes that the
nutritional value of some of its frozen pasta compares favorably with many other
alternatives among frozen foods.
The Company's most effective advertising to consumers is by placing
advertisements in supermarket circulars, which are available to customers of a
supermarket upon entering a store. Occasionally, supermarkets distribute the
circular via direct mail or as in enclosure in newspapers. The advertisements in
the circular inform the consumer of any specials or discounts that are available
on the Company's products and may contain coupons. The advertisement in the
circular is arranged by the food broker and generally are placed approximately
eight weeks in advance.
THE COMPANY'S PRODUCTS
The Company specializes in stuffed pasta, a form of pasta that includes
stuffing such as ricotta, eggs and cheese, among others. The products that the
Company currently distributes are: jumbo cheese round 13 oz. ravioli; mini
cheese round 16 oz. ravioli; mini square cheese 16 oz. ravioli; mini square meat
16 oz. ravioli; tortellini, including meat and cheese, 16 oz.; cavatelli, 16
oz.; gnocchi 16 oz.; six count manicotti, 19 oz.; and twelve count stuffed
shells, 21 oz. The Company's most popular product, mini square cheese ravioli
should provide a meal for 5 people and is sold at a suggested retail price of
$3.19.
Like plain pasta, the Company's products must be boiled before they should
be eaten. The Company does not sell its products with ready-made pasta sauce,
although it may do so in the future.
The Company's products are packaged in polyethylene bags. The Company may in
the future market its ravioli in a box, which was the packaging method utilized
by SSRM for its most popular ravioli products. The current packaging includes
the nutritional information, ingredients and cooking directions. Also
prominently featured is the Silver Star trademark. The packaging for some of the
Company's products contains a statement from Vincent Trotta Sr. guaranteeing the
quality of the Company's products. The packaging design is based on SSRM's
packaging. The manufacturer of the polyethylene bags ships them directly to the
Company's suppliers.
The Company has no current plans to introduce new products, and is unlikely
to do so in the near future. If the Company is able establish a manufacturing
facility, it intends to introduce new products and new packaging of existing
products. For example, the Company intends to create packaging aimed at club
stores, including a "bulk pack," which will be a single oversize pack weighing
approximately 3 lbs. Additionally, the Company may sell its products with a
ready made sauce. The sauce could be produced by a private manufacturer to the
Company's specifications, or the Company could enter into a joint venture
arrangement with an existing pasta sauce manufacturer.
26
<PAGE>
PRINCIPAL SUPPLIERS AND INGREDIENTS
Currently, the Company uses two private label manufacturers to prepare and
package all of its products. The Company provides these manufacturers with
recipes for its products. Each of the Company's manufacturers use a quick freeze
process to ensure that the product is frozen while it is still fresh. The
Company believes that it could replace its suppliers on similar terms, however
the loss of any supplier could have a material adverse affect on the Company,
particularly in the short term.
The ingredients used by the Company's suppliers are primarily flour, eggs
and water. Depending on the type of stuffed pasta the Company is producing, the
ingredients may include whole milk ricotta, eggs, Romano cheese, mozzarella,
parsley, salt, pepper, meat filling chopped meat, onions and spices. The
Company's suppliers buys flour from Congra and Ricotta from either Pollyo or
Sorrento. Other ingredients come from local distributors and manufactures. If
the Company establishes a manufacturing facility, it intends to purchase
directly from these suppliers.
The Company's two production agreements are with Mount Rose Ravioli and
Macaroni Co. and Savignano Foods Corporation. Each supplier is able to fill the
Company's product orders in approximately seven days.
MOUNT ROSE RAVIOLI AND MACARONI CO. On June 13, 1995, the Company executed
an agreement which provides that Mount Rose will manufacture and package the
following "Silver Star" products:
<TABLE>
<S> <C>
Square Meat and Cheese Ravioli--bag
Square Meat and Cheese Ravioli--box
Round Cheese Ravioli
Cavatelli
Cheese and Meat Tortellini
Gnocchi
Six Count Manicotti
Twelve Count Stuffed Shells
</TABLE>
The agreement is terminable at any time by either party. The agreement
provides that the product is to be paid for by either cashiers or certified
check at the time the order is placed. The above prices, in accordance with the
agreement, are to be reviewed every six months with respect to raw material and
packaging costs. An increase or decrease in such costs will be passed on to the
Company. The agreement further provides that in the event that the agreement is
terminated the Company gives Mount Rose permission to use any packaging left on
hand at the time of termination in any way it chooses.
SAVIGNANO FOOD CORPORATION. Savignano has agreed to manufacture the
following "Silver Star" products for the Company:
<TABLE>
<S> <C>
Large Round Cheese Ravioli
Cavatelli
Mini Round Cheese Ravioli
</TABLE>
The agreement, executed on June 12, 1995, provides that these prices are
contingent with the Company having monthly sales of 7,000 cases of Ravioli and
3,000 cases of Cavatelli. In accordance with the agreement, if the Company fails
to purchase from Savignano the above-mentioned volume over a 52-week period,
Savignano has the right to raise prices relative to the Company's lack of
demand. As per the agreement, the Company cannot order less than 250 cases of
each of the above products.
The agreement also provides that Savignano is responsible for all bags,
labels and corrugated boxes needed to manufacture and package the product at
Savignano sole expense. However, Savignano is not responsible for art work,
plates, or dyes of any kind needed for product packaging. The agreement further
provides that either party may terminate the agreement upon 120 days notice. The
Company agreed that Savignano was to be the exclusive producer for the above
products. The agreement's prices are to be reviewed every three months.
27
<PAGE>
MANUFACTURING
Currently, the Company does not have any manufacturing ability. The Company
intends to establish a manufacturing facility. The Company has no present plans
for the establishment of a facility but is considering either (i) acquiring
through merger or acquisition a company with an existing facility, which may
require an investment to update the facility, (ii) constructing and equipping a
new facility or (iii) leasing an existing facility, which is likely to require
an investment to update or improve the facility.
The Company's intends to establish a facility that would be 20,000-25,000
square feet. The Company requires a facility with capability for drainage and
refrigeration. The facility will be built with the intent on receiving a USDA
plant number with the capability of processing meat and chicken, in addition to
cheese. Only after USDA inspection and approval will it be able to process meat
and chicken. However, it does not require USDA approval to process cheese. The
Company would like to locate the facility in the New York area to be near the
majority of its customers. The Company intends to equip the facility with new
equipment that has the capacity to produce its specialized products quickly and
efficiently.
Management believes that manufacturing capacity will allow the Company to
produce its goods at a lower cost, particularly if it is able to increase
volume. Furthermore, manufacturing capacity is likely to allow the Company
greater flexibility in its product mix and enable it to require less advance
notice of its orders.
COMPETITION
In the pasta market, the Company competes with national, regional, and local
pasta manufacturers and specialty stores. Many of these competitors are larger,
more established and have greater financial and other resources than the
Company. Competition in the pasta industry is based on product quality, brand
name awareness, brand loyalty and price. Non-frozen, non-stuffed pasta, such as
spaghetti is significantly less expensive then the Company's products and is
less expensive to ship and to store. The Company also faces competition from
fresh, refrigerated pasta, which is sold by, among others, Contadina, produced
by Nestle Fresh Foods, Co., and DiGorno, produced by Kraft General Foods, Inc.
Such companies have significantly more resources than the Company. Refrigerated
pasta is significantly more expensive than frozen pasta.
The Company competes directly with a number of regional and national frozen
pasta producers, including Celentano and Italian Village, who are in most
markets nationwide. In the New York market, the Company competes with these
national and several regional pasta makers. The following table, which is based
on reports prepared by A.C. Nielson and Co., sets forth the market share in the
New York retail frozen pasta market based on sales in supermarkets.
<TABLE>
<CAPTION>
MARKET SHARE PERCENTAGE OF
COMPANY(1) (%)(2) CHAINS(3) ITEMS(4)
- -------------------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
Italian Village........................................................... 26.0 100 12
Celantano................................................................. 24.0 100 15
Andrea (Savignano)........................................................ 8.5 100 8
SILVER STAR............................................................... 7.5 80 3
Severoli.................................................................. 5.0 100 6
Mount Rose................................................................ 4.5 50 6
</TABLE>
(1) Among the Company's competitors are Mount Rose and Savignano
(Savignano's products are sold under the trade name "Andrea's"), who are the
Company's two suppliers.
(2) Market share is based on sales of frozen pasta products in the New
York City metropolitan area, which includes Long Island, parts of New
Jersey, and other surrounding counties.
(3) This is the percentage of the supermarket chains in the New York
area that carry each listed company's products. Currently, King Cullen, Shop
Rite, Pathmark, Grand Union and Key Food, all of the five chains with over
fifty stores, carry the Company's products.
28
<PAGE>
(4) Items are the number of items that each company has on sale in the
supermarkets.
Competition for shelf space in grocery stores is intense and poses great
difficulty for smaller food companies. Other Competitors with significant
economic and other resources could, at any time, enter the frozen pasta
industry. Supermarkets could choose to carry such companies products in addition
to or instead of the Company's products due to existing relationships with the
makers of such products.
TRADEMARK
The Company purchased the "Silver Star" trademark from Vincent Trotta in
1997 for $205,000. Mr. Trotta had acquired the trademark from SSRM. SSRM had
registered the trademark with the U.S. Patent and Trademark Office, however, the
Company failed to renew the application and the trademark protection has lapsed.
The Company has filed a new application for registration. Even if the
application is approved, there can be no assurance as to the degree of
protection its registered trademark may afford the Company.
EXPANSION STRATEGY
The Company's expansion strategy is dependant on obtaining additional
financing to establish a manufacturing facility. The Company's management
believes that it will be able to produce its products at a lower cost, which
will allow it more flexibility in pricing. Management believes that discount
pricing is often necessary to gain customers and establish market share.
Management believes that the manufacturing facility will also allow the
Company greater flexibility in adjusting its product mix or packaging because
the Company has direct control of the allocation of labor and machinery at its
facilities. Similarly, the management expects to be able to respond to customer
orders more quickly. There can be no assurance that establishing a facility will
be a more cost effective, efficient or quicker way for the Company to acquire
its products.
Management believes that the advantages of the manufacturing facility will
allow the Company to pursue institutional customers such as hotels, nursing
homes, schools and hospitals, and discount buyers such as club stores. The
Company may also offer to manufacture pasta products for other companies on a
private label basis. There can be no assurance that institutional or private
label markets for the Company's products will develop.
The Company intends to establish relationships with additional food brokers
and small distributors. Food brokers are particularly helpful when expanding
into new geographic markets because a single broker may have existing
relationships with numerous supermarkets. The Company intends to expand into
areas where pasta products are popular. Initially, the Company intends to focus
expansion in the Northeast, in markets such as Philadelphia and Boston, where it
already has some customers, and then expand into cities such as Washington,
Baltimore and Chicago.
Presently, the Company has no plans or intentions to make acquisitions.
However, the Company believes that a number of opportunities exist for the
Company to accelerate growth by acquiring a complementary or competitive
business. The Company could acquire an entity that has (i) a manufacturing
facility suitable for the Company's products, (ii) sells complementary products,
or (iii) has established name recognition or distribution lines in regional
markets where the Company does not currently operate.
The Company believes that the frozen pasta market is a growing market, and
that the market for stuffed pasta is likely to grow as well. The Company
believes, although there can be no assurance, that its marketing will put it in
position to take advantage of this growth.
EMPLOYEES
As of August 30, 1998, the Company had 2 full-time employees.
LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------------------------- --- -------------------------------------
<S> <C> <C>
Michael Trotta....................................................... 33 President/CEO/CFO/Secretary/ Director
Louis Trotta......................................................... 37 Vice President, Director
Vincent Trotta....................................................... 70 Director
Barry Sherman........................................................ 53 Director
Dennis Lore.......................................................... 48 Director
</TABLE>
Each director is elected for a period of one (1) year at the Company's
annual meeting of shareholders and serves until the next such meeting and until
his or her successor is duly elected and qualified. Directors may be re-elected
annually without limitation. Officers are appointed by, and serve at the
discretion of, the Board of Directors. The Company's directors do not presently
receive any compensation for their services as directors' but it is contemplated
that directors will be granted options pursuant to the Plan. In addition, for a
period of three years following the date of this Prospectus, the Representative
shall have the right, at its option, to designate one director or observer to
the Board of Directors, which director shall be reasonably acceptable to the
Board of Directors.
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
MICHAEL TROTTA has served as the Company's Chief Executive Officer,
President, Secretary and Director since its formation in 1995. Prior to founding
the Company, Mr. Trotta served as Vice-President-- Manufacturing of Little Italy
Frozen Foods, Inc. from 1993 to 1994. Mr. Trotta worked for SSRM from 1987 to
1992 in various positions including Plant Manager and Vice President. Initially,
Mr. Trotta was employed in the Shipping and Receiving department. Shortly
thereafter, Mr. Trotta was named Plant Manager where he supervised over 30
employees and was responsible for all the plant's daily operations. Mr. Trotta
was Vice-President of SSRM when it filed bankruptcy and was subsequently
liquidated in 1992. In December 1996, Mr. Trotta filed for personal bankruptcy,
primarily as a result of debts incurred personally in connection with SSRM. Mr.
Trotta emerged from bankruptcy protection in March 1997. Mr. Trotta is Louis
Trotta's brother and Vincent Trotta's son.
LOUIS TROTTA has served as the Company's Vice President since August 1997,
Director since September 1998, and as a salesmen from its formation until
January 1997. From March 1994 to August 1995, Mr. Trotta worked at the Trotta
Brothers Pork Store in Old Bridge, New Jersey.
From March 1993 to February 1994 Mr. Trotta worked for Little Italy Foods as
a shipping receiver. Mr. Trotta worked for SSRM from 1979 to 1985 and 1986 to
1992. Mr. Trotta's positions included Plant Manager and Quality Control Manager.
Mr. Trotta also managed SSRM's Food Service sales unit. Mr. Trotta is Michael
Trotta's brother and Vincent Trotta's son.
VINCENT TROTTA has served as a director of the Company since September 1998.
He has been involved in the food business since 1949 when he became SSRM's
production manager. Mr. Trotta has also served as SSRM's Plant Manager and
President. He retired from SSRM in 1979. Mr. Trotta is the father of Michael
Trotta and Louis Trotta.
30
<PAGE>
BARRY SHERMAN has served as a director of the Company since September 1998.
Mr. Sherman has been involved in the retail sales and brokerage business for
nearly fifty years. For 32 years, Mr. Sherman was employed by Waldbaum's, where
he served as Vice President of Merchandising for 15 years. Mr. Sherman is
currently Vice President of Red Apple Supermarkets. He commenced employment with
Red Apple Supermarkets in July, 1997. From 1993 until his employment with Red
Apple Supermarkets, he was a principal of RDI/Enterprise Marketing, which was
involved in the food brokerage industry.
DENNIS LORE has served as a director of the Company since September 1998.
Presently, Mr. Lore is the owner and operator of Pineview Development Company, a
developer of real estate in Upstate New York. Mr. Lore was the principal owner
of RDO Brokerage from 1987 to 1993. RDO Brokerage specializes in frozen food
sales and marketing in the New York metropolitan area. From 1985 to 1987, he was
a partner in Norlen Futuran Brokerage Co., specializing in dairy and fast food
accounts in the New York metropolitan area. Prior to such time, he worked for
M.W. Houck food brokers in such capacities as Director of Sales and Marketing,
Liaison between manufacturers, brokers and customers and account manager.
COMMITTEES OF THE BOARD
In November 1998, the Board of Directors created the Compensation Committee,
which is comprised of Barry Sherman and Dennis Lore. The Compensation Committee
has (i) full power and authority to interpret the provisions of, and supervise
the administration of, the Plan and (ii) the authority to review all
compensation matters relating to the Company. The Compensation Committee has not
yet formulated compensation policies for senior management and executive
officers. However, it is anticipated that the Compensation Committee will
develop a company-wide program covering all employees and that the goals of such
program will be to attract, maintain, and motivate the Company's employees. It
is further anticipated that one of the aspects of the program will be to link an
employee's compensation to his or her performance, and that the grant of stock
options or other awards related to the price of the Common Shares will be used
in order to make an employee's compensation consistent with shareholders' gains.
It is expected that salaries will be set competitively relative to the frozen
food industry and that individual experience and performance will be considered
in setting salaries.
In November 1998, the Board of Directors created an Audit Committee, which
is comprised of Barry Sherman and Dennis Lore. The Audit Committee is charged
with reviewing the following matters and advising and consulting with the entire
Board of Directors with respect thereto: (i) the preparation of the Company's
annual financial statements in collaboration with the Company's chartered
accountants; (ii) annual review of the financial statements and annual report of
the Company; and (iii) all contracts between the Company and the officers,
directors and other affiliates thereof. The Audit Committee, like most
independent committees of public companies, does not have explicit authority to
veto any actions of the entire Board of Directors relating to the foregoing or
other matters; however, the Company's senior management, recognizing their own
fiduciary duty to the Company and its stockholders, is committed not to take any
action contrary to the recommendation of the Audit Committee in any matter
within the scope of its review.
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capabilities to the Company.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY OTHER COMPENSATION
- -------------------------------------------------------- --------- ---------- --------------------------------
<S> <C> <C> <C>
Michael Trotta, Chief Executive Officer, 44,658(1)
President and Secretary............................... 1998 $
Louis Trotta, Vice President............................ 1998 $ 27,756(1)
</TABLE>
- ------------------------
(1) For the fiscal year ended March 31, 1998
(2) For the fiscal year ended March 31, 1997
The Company has no retirement, pension or profit sharing program for the
benefit of its directors, officers or other employees but the Board of Directors
may recommend one or more such programs for adoption in the future.
DIRECTOR COMPENSATION
Directors of the Company who are not salaried officers will receive no fee
for attending each Board meeting or meeting of a committee of the Board. All
directors will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attending Board and committee meetings. In the
future, the Company reserves the right to issue shares of the Company's common
stock to non-officer Board members for their agreement to become a Board member.
EMPLOYMENT AGREEMENTS
Michael Trotta entered into a three (3) year employment agreement with the
Company on September 15, 1998. Mr. Trotta's compensation under the Agreement is
$104,000 during the initial annual term with increases in the succeeding two (2)
years of the term equal to the greater of 10% from the previous year's salary or
the cost of living adjustment recognized in the area where Mr. Trotta resides.
Mr. Trotta is also entitled to reimbursement of substantiated expenses, a
monthly car expense equal to $750 per month and options to acquire 100,000
shares of Common Stock at $5.25 per share.
Louis Trotta entered into a three (3) year employment agreement with the
Company on September 15, 1998. Mr. Trotta's compensation under the Agreement is
$52,000 during the initial annual term with increases in the succeeding two (2)
years of the term equal to the greater of 10% from the previous year's salary or
the cost of living adjustment recognized in the area where Mr. Trotta resides.
Mr. Trotta is also entitled to reimbursement of substantiated expenses, a
monthly car expense equal to $400 per month and options to acquire 50,000 shares
of Common Stock at $5.25 per share.
OPTION PLAN
The Plan will be administered by the Compensation Committee or the Board of
Directors, which will determine among other things, those individuals who shall
receive options, the time period during which the options may be partially or
fully exercised, the number of Common Shares issuable upon the exercise of the
options and the option exercise price.
The Plan is effective for a period for ten years, expiring in 2008. Options
to acquire 500,000 Common Shares may be granted to officers, directors,
consultants, key employees, advisors and similar parties who provide their
skills and expertise to the Company. The Plan is designed to enable management
to attract and retain qualified and competent directors, employees, consultants
and independent contractors. Options granted under the Plan may be exercisable
for up to ten years, generally require a minimum two year vesting period, and
shall be at an exercise price all as determined by the Board of Directors
provided
32
<PAGE>
that, pursuant to the terms of the Underwriting Agreement between the Company
and the Underwriters, the exercise price of any options may not be less than the
fair market value of the Common Shares on the date of the grant. Options are
non-transferable, and are exercisable only be the participant (or by his or her
guardian or legal representative) during his or her lifetime or by his or her
legal representatives following death. Upon a change in control of the Company,
the acceleration date of any options that were granted but not otherwise
exercisable accelerates to the date of the Change in Control. Change in control
includes (i) the sale of substantially all of the assets of the Company and
merger or consolidation with another Company, or (ii) a majority of the members
of the Board of Directors changes other than be election by the Shareholders
pursuant to Board of Directors solicitation or by vacancies filled by the Board
of Directors caused by death or resignation of such person.
If a participant ceases affiliation with the Company, by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant 90 days to
exercise the option, except for termination for cause which results in immediate
termination of the option.
The Company has agreed with the Representative not to grant any options
under the Plan at less than 100% of the fair market value of the Common Shares
at the date of the grant of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan, subject to applicable securities regulation.
The Plan may be terminated or amended at any time by the Board of Directors,
except that the number of Common Shares reserved for issuance upon the exercise
of options granted under the Plan may not be exercised without the consent of
the shareholders of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, two unaffiliated investors each invested $200,000 in the
Company. In consideration of their investment, each received a sixteen and two
thirds (16 2/3%) percent share of the Company at the time of such investments.
In April 1998 and May, 1998, respectively, the Company repurchased such shares
and agreed to repay such investors a total of $410,000 within six (6) months of
the date of each repurchase. Such $410,000 amount has been paid from the
proceeds of the bridge financing.
In July 1997, the Company purchased the Silver Star trademark from Vincent
Trotta, the father of the Company's President and majority shareholder. The
purchase price was $205,000. Of such amount, it included a payment of $55,000 to
Michael Trotta, an officer, director and majority shareholder of the Company;
and an assignment of accounts receivable of the Company equaling $82,000 to
Louis Trotta, (an officer and director of the Company) and his brother, Vincent
Trotta Jr.
As of September 1998, the Company raised $700,000 pursuant to a Confidential
Private Offering Memorandum. There were twenty (20) investors in such Private
Placement. The Offering consisted of twenty-eight (28) units, with each Unit
consisting of a $25,000 Promissory Note, 2,000 shares of Common Stock (56,000
shares in the aggregate) and 2,000 Redeemable Common Stock Purchase Warrants
(56,000 Warrants in the aggregate). Each Unit sold for $25,000. The terms of the
warrants are identical to the terms of the A Warrants. The Offering was made
solely to persons who qualified as accredited investors as defined under
Regulation D Rule 501 under the Act. The Shares and Warrants offered in the
Confidential Private Placement Memorandum are not to be registered under this
Registration Statement.
In the future, the Company will present all proposed transactions between
the Company and its officers, directors or 5% stockholders, and their affiliates
to the Board of Directors for its consideration and approval. Any such
transaction will require approval by a majority of the disinterested directors
and such transactions will be on terms no less favorable than those available to
disinterested third parties.
33
<PAGE>
LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The New York Business Corporation Law, in general, allows corporations to
indemnify their directors and officers against expenses (including attorney's
fees), judgments, fines and settlement amounts actually and reasonably incurred
by such person in connection with suits or proceedings, if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation. In the case of a criminal
action, the director or officer must have had no reasonable cause to believe
that person's conduct was unlawful. Under current law, no indemnification may be
made if in connection with a proceeding or in the right of the corporation in
which the director or officer was adjudged to be liable to the corporation or
that person derived an improper personal benefit.
The Company's Certificate of Incorporation and By-Laws provided that the
Company shall indemnify its directors and officers to the fullest extent
permitted by New York Law. The Company will enter into an indemnification
agreement with each of its directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
34
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) by each officer and director of the Company,
and (iii) by all officers and directors of the Company as a group. Unless
otherwise indicated, each of the following persons has sole voting and
investment power with respect to the shares of Common Stock set forth opposite
his name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF PERCENT OF
BENEFICIAL CLASS BEFORE CLASS AFTER
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING
- --------------------------------------------------------------- ---------------------- --------------- -------------
<S> <C> <C> <C>
Michael Trotta (2)............................................. 3,200,000 97.7% 73.1%
All Officers and Directors as a Group.......................... 3,200,000 97.7% 73.1%
</TABLE>
- ------------------------
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock.
(2) The address for Michael Trotta is 7520 Avenue V, Brooklyn, New York 11234.
DESCRIPTION OF SECURITIES
The following summary description of the Securities is qualified in its
entirety by reference to the Company's Certificate of Incorporation, as amended,
and its By-laws, copies of which have been filed as Exhibits to the Registration
Statement of which this Prospectus is a part.
The Company is authorized to issue 15,000,000 shares of Common Stock, $.0001
par value per share. As of the date of this Prospectus, prior to giving effect
to the securities to be issued in the Offering, there are 3,276,000 shares of
Common Stock outstanding and held by stockholders of record. An additional
556,000 shares of Common Stock are reserved for issuance upon the exercise of
various options and warrants outstanding as of the date of this Prospectus.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share of
Common Stock on all matters submitted to a vote of stockholders of the Company
and to receive dividends when declared by the Board of Directors from funds
legally available therefor. Upon the liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock are entitled to share ratably in
any assets available for distribution to stockholders after payment of all
obligations of the Company and after provision has been made with respect to
each class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock do not have cumulative voting rights or preemptive,
subscription or conversion rights. See "Risk Factors--Dividend Policy."
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of "blank check" preferred stock, par value $.001, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future.
35
<PAGE>
WARRANTS
The following is a brief summary of certain provisions of the A Warrants,
but such summary does not purport to be complete and is qualified in all
respects by reference to the actual text of the form of Warrant.
WARRANT. The Company is issuing 2,200,000 A Warrants as part of this
initial public offering. The Company intends to apply to NASDAQ for listing of
the A Warrants, although there can be no assurance that NASDAQ will allow the A
Warrant to be listed.
EXERCISE PRICE AND TERMS. Each A Warrant entitles the holder thereof to
purchase, at any time commencing one year after the effective date of this
Registration Statement, through four years from the Effective Date as set forth
above, one share of Common Stock at a price of $6.00 per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below. The A Warrants expire on the fourth anniversary of the Effective Date
unless extended at the sole option of the Board of Directors of the Company. The
holder of any A Warrant may exercise such A Warrant by surrendering the
certificate representing the A Warrant to the A Warrant Agent, with the
subscription form on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The A Warrants may be
exercised at any time in whole or in part at the applicable exercise price until
the date of expiration of the A Warrants. No fractional shares will be issued
upon the exercise of the A Warrants.
Commencing on a date which shall be twelve months from the Effective Date,
the A Warrants are subject to redemption at $0.01 per A Warrant upon written
notice of not less than thirty (30) days; provided, that in order for the
Company to call the A Warrants for early redemption, the average of the closing
bid price of the Company's Common Stock, as then listed on NASDAQ or another
national securities exchange, over the ten (10) consecutive trading days ending
within ten (10) days of the notice of redemption, must equal or exceed $8.50. In
the event the Company exercises the right to redeem the A Warrants, such A
Warrants will be exercisable until the close of business on the date of
redemption fixed in such notice. If any A Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will be
entitled only to the redemption price.
The exercise price of the A Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Common Stock, or sale by the Company of
shares of its Common Stock (or other securities convertible into or exercisable
for Common Stock) at a price per share or share equivalent below the
then-applicable exercise price of the Warrants or the then-current market price
of the Common Stock. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation, or sale of all or substantially all of
the assets of the Company, in order to enable Warrant holders to acquire the
kind and number of shares of stock or other securities or property receivable in
such event by a holder of that number of shares of Common Stock that would have
been issued upon exercise of the Warrant immediately prior to such event. No
adjustments will be made until the cumulative adjustments in the exercise price
per share amount to $1.00 or more. No adjustment to the exercise price of the
shares subject to the Warrants will be made for dividends (other than stock
dividends), if any, paid on the Common Stock or upon exercise of the Warrants,
the Underwriter's Warrants or any other warrants outstanding as of the date of
this Prospectus.
TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and
may be presented to the Transfer and Warrant Agent for transfer, exchange or
exercise at any time after the Effective Date and prior to their expiration date
four years from the date of this Prospectus, at which time the Warrants become
wholly void and of no value. If a market for the Warrants develops, the holder
may sell the
36
<PAGE>
Warrants instead of exercising them. There can be no assurance, however, that a
market for the Warrants will develop or continue. If the Company is unable to
qualify for sale in particular states the Common Stock underlying the Warrants,
holders of the Warrants residing in such states and desiring to exercise the
Warrants will have no choice but to sell such Warrants or allow them to expire.
See "Description of Securities--Transfer and Warrant Agent."
WARRANT HOLDER NOT A SHAREHOLDER. The Warrants do not confer upon holders
any voting or any other rights as stockholders of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
All Shares of common stock being offered hereby will be immediately tradable
without restriction or further registration under the Securities Act. The
outstanding Shares of common stock include 3,256,000 Shares of common stock
outstanding deemed to be "restricted securities," as that term is defined under
Rule 144 promulgated under the Securities Act, in that such Shares were
purchased or acquired by such stockholders of the Company in transactions not
involving a public offering, and, as such, may only be sold pursuant to a
registration statement under the Securities Act, in compliance with the
exemption provisions of Rule 144, or pursuant to another exemption under the
Securities Act. Substantially all of such restricted Shares of common stock are
eligible for sale under Rule 144, subject to the volume limitations prescribed
by the Rule. The outstanding shares also include the 20,000 Selling Security
Holder Shares. Such shares have been registered for resale pursuant to the
registration statement to which this prospectus is a part.
In general, under Rule 144 as currently in effect, a shareholder, including
an affiliate of the Company, may sell shares of Common Stock after at least one
year has elapsed since such shares were acquired from the Company or an
affiliate of the Company. The number of shares of Common Stock which may be sold
within any three-month period is limited to the greater of one percent of the
then outstanding Common Stock or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of such
sale was filed under Rule 144. Certain other requirements of Rule 144 concerning
availability of public information, manner of sale and notice of sale must also
be satisfied. In addition, a shareholder who is not an affiliate of the Company
(and who has not been an affiliate of the Company for 90 days prior to the sale)
and who has beneficially owned shares acquired from the Company or an affiliate
of the Company for over two years may resell the shares of Common Stock without
compliance with the foregoing requirements under Rule 144.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices and
could impair the Company's ability to raise capital through the sale of its
equity securities.
TRANSFER AND WARRANT AGENT
The Company has retained American Stock Transfer & Trust Company as Transfer
Agent for its Common Stock.
SELLING SECURITY HOLDERS
The sole Selling Security Holder is Richard I. Anslow, counsel to the
Company. The Selling Security Holder Shares were issued to Mr. Anslow as
compensation for services rendered in connection with this offering.
37
<PAGE>
UNDERWRITING
The Underwriter has agreed, subject to the terms of the Underwriting
agreement, to purchase from the Company, 1,100,000 shares of Common Stock and
2,200,000 Warrants. The Underwriting Agreement provides that the obligations of
the Underwriter are subject to certain conditions precedent.
The Company has been advised by the Underwriter that the Underwriter
proposes initially to offer the Common Stock and Warrants to the public at the
public offering price per share of Common Stock and per Warrant set forth on the
cover of this Prospectus and to certain dealers, who are members of the National
Association of Securities Dealers, Inc. ("NASD").
The Underwriter Agreement provides further that the Underwriter will receive
a non-accountable expense allowance of 3% of the aggregate public offering price
of the Common Stock and Warrants sold hereunder, including any Common Stock and
Warrants sold pursuant to the Over-allotment Option (which allowance amounts to
$189,750 or $218,213 if the Over-allotment Option is exercised in full). The
Company has also agreed to pay all expenses in connection with qualifying the
Common Stock and Warrants offered hereby for sale under the laws of such states
the Underwriter may designate, including expenses of counsel retained for such
purpose by the Underwriter.
The Company has also granted the Over-allotment Option to the Underwriter,
exercisable during the 45-day period commencing on the Effective Date, to
purchase up to a maximum of 165,000 Shares of Common Stock and 330,000 Warrants
at the public offering price less the underwriting discounts, commissions and
expense allowance. The Underwriter may exercise this option only to cover over-
allotments in the sale of the Common Stock and Warrants, if any. The 165,000
shares of Common Stock included in such Over-allotment Option will be purchased
by the Underwriter for the account of the Company.
The underwriter does not intend to sell any shares to discretionary
accounts.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants to purchase an amount equal to 10% of
the number of Shares of Common Stock and 10% of the Warrants sold to the public.
The Underwriter's Warrants shall be exercisable for a period of five (5) years
commencing at an exercise price equal to 165% of the offering price of the
Shares of Common Stock and warrants sold to the public in the offering. The
Underwriter's Warrants are not transferable prior to , except to officers
of the Underwriter, members of the selling group and their officers, directors
and partners.
The Selling Security Holder Shares are not part of the underwritten
offering.
The Company has also granted certain registration rights to holders of the
Underwriter's Warrants. These registration rights generally provide that in the
event the Company files a post-effective amendment to the Registration Statement
of which this Prospectus forms a part, or any new registration statement
covering any securities of the Company, the Company will include in such
registration statement such information as may be required to permit a public
offering of the Underwriter's Warrant, the Warrant's issuable upon exercise of
the Underwriter's Warrant, and the Common Stock issuable upon the exercise of
the Underwriter's Warrant and upon exercise of the Warrants underlying the
Underwriter's Warrant (the "Registrable Securities"). If the offering of the
Company securities is underwritten, the number of Registrable Securities to be
included in the offering is subject to limitation by the managing underwriter of
the offering; provided, however, in the event of such limitation, the Company
shall file a new registration statement covering the excluded Registrable
Securities, at the Company's expense, within six months after completion of the
underwritten offering. In addition, the Company is required to file a
post-effective amendment to the Registration Statement of which this Prospectus
forms a part or a new registration statement registering the Registrable
Securities upon the request of the holder(s) of at least 50% of the
Underwriter's Warrant and/or the Common Stock underlying the Underwriter's
Warrants and the Warrants issuable upon exercise of the Underwriter's Warrant.
38
<PAGE>
For the life of the Underwriter's Warrants, the holders thereof are given,
at nominal costs, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriter's
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriter's
Warrants.
The Company has agreed to retain the Underwriter as a financial consultant
to the Company for a period of three (3) years after the Offering for an
aggregate fee of $108,000 ($36,000 per year) payable in full upon consummation
of the Offering.
In addition, the Company has agreed to compensate the Underwriter upon
consummation of certain material transactions initiated by the Underwriter
during the three-year period commencing on the Effective Date. These
transactions include (i) any transaction originated by the Underwriter, other
than in the ordinary course of business, whereby, directly or indirectly,
control of, or a material interest in, the Company or any of its businesses or
assets is transferred for consideration (stock, cash of other property), (ii)
any transaction originated by the Underwriter whereby the Company acquires any
other company or the assets of or interest in any other company, or (iii) any
joint venture or line of credit arranged by the Underwriter for the benefit of
the Company. In the event of the foregoing, the Underwriter will be paid 5% of
the first $4,000,000; 4% of the next $1,000,000; 3% of the next $1,000,000; and
2% of the excess over $6,000,000 of the consideration received by the Company in
any of the above-described transactions. In addition, in the event the
Underwriter originates a line of credit with a lender or a corporate partner, or
the Underwriter introduces the Company to a joint venture partner or customer
and sales develop as a result of the introduction, the Company and the
Underwriter will mutually agree on a satisfactory fee and the terms of payment
of such fee.
In addition, subject to the rules of the NASD, the Company has agreed to
engage the Underwriter as warrant solicitation agent, in connection with which
it would be entitled to a 5% fee upon exercise of the Warrants. In accordance
with the NASD Notice to Members 81-38, no fee shall be paid: (i) upon the
exercise where the market price of the underlying Common Stock is lower than the
exercise price; (ii) for the exercise of the Warrants is held in any
discretionary account; (iii) upon the exercise of Warrants where the disclosure
of compensation arrangements has not been made and where documents have not been
provided to customers not as part of the original Offering and at the time of
exercise; or (iv) upon the exercise of Warrants in unsolicited transactions.
Notwithstanding the foregoing, no fees will be paid to the Underwriter or any
other NASD member upon exercise of the Warrants within the first twelve months
after the Effective Date. Unless granted an exemption by the Commission from
Regulation M under the Securities Exchange Act of 1934, the Underwriter will be
prohibited from engaging in any market-making activities with regard to the
Company's securities for the period from five business days (or other such
applicable periods as Regulation M may provide) prior to any solicitation of the
exercise of the Warrants until the later of the termination of such termination
of such solicitation activity or the termination (by waiver or otherwise) of any
right the Underwriter may have to receive a fee. As a result, the Underwriter
may be unable to continue to provide a market for the Company's securities
during certain periods while the Warrants are exercisable. If the Underwriter
has engaged in any of the activities prohibited by Regulation M during the
periods described above, the Underwriter undertakes to waive unconditionally its
right to receive a commission on the exercise of such warrants.
The Company has agreed, for a period of two years from the Effective Date,
not to issue any shares of Common Stock or Preferred Stock or any warrants,
options or other rights to purchase Common Stock or Preferred Stock without the
prior written consent of the Underwriter. Notwithstanding the foregoing, the
Company may, without the consent of the Underwriter, issue shares of Common
Stock upon exercise of any warrants or options outstanding on the date hereof or
to be outstanding upon completion of the Offering pursuant to the terms hereof.
39
<PAGE>
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with the
Offering, including liabilities under the Securities Act. To the extent this
section may purport to provide exculpation from possible liabilities arising
under the federal securities laws, the Company has been advised that it is the
opinion of the Commission that such indemnification is against public policy and
is therefore unenforceable.
The Company has agreed, if requested by the Underwriter at any time within
two years after consummation of the Offering, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company, or,
at the Underwriter's option, as a non-voting advisor to the Company's Board of
Directors. Such designee may be a director, officer, partner, employee or
affiliate of the Underwriter. As of the Effective Date, the Underwriter has not
determined whether to exercise such right to designate a director, nor has it
identified such individual, and the Underwriter has advised the Company that it
does not intend to designate a director immediately following consummation of
the Offering.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and related agreements and does not purport to be a complete statement
of terms and conditions. Copies of the Underwriting Agreement and the other
documents described above are on file with the Commission as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Common Stock
and Warrants. Accordingly, the offering or exercise price of such securities
being offered hereby was determined, in large part, by negotiation between the
Company and the Underwriter. Factors considered in determining such prices, in
addition to prevailing market conditions, included the history of and the
prospects for the industries in which the Company competes, the prospects of the
Company, an assessment of the earnings, net worth and financial conditions of
the Company, and such other factors as were deemed relevant, including an
evaluation of management and the general economic climate. The prices should in
no event, however, be regarded as an indication of any future market price of
the Common Stock or Warrants.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Richard I. Anslow, Esq., Freehold, New Jersey 07728. Certain legal
matters will be passed upon for the Underwriter by Gersten, Savage, Kaplowitz &
Fredericks, LLP, New York, New York 10022. Mr. Anslow has previously acted as
counsel to the Underwriter. Mr. Anslow owns 20,000 shares of the Company's
Common Stock, all of which are being registered hereby.
EXPERTS
The audited balance sheets of the Company as at March 31, 1998 and March 31,
1997, and the related Statements of Operations, Statements of Stockholders'
Equity and Statements of Cash Flows have been included herein and in the
Registration Statement in reliance upon the report, appearing elsewhere herein,
of Weinick Sanders Leventhal & Co., LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Common Shares offered hereby. This Prospectus omits
certain information contained in the Registration Statement and the exhibits
thereto, and references are made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common
Shares offered hereby. Statements contained herein concerning the provisions of
any documents are not necessarily complete, and in each instance reference is
made to the copy of such document filed as an exhibit to the
40
<PAGE>
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and its public reference facilities in New
York, New York and Chicago, Illinois upon payment of the prescribed fees.
Electronic registration statements (as well as proxy reports and other
information when filed) filed through the Electronic Data Gathering, Analysis,
and Retrieval System are publicly available through the Commission's Website
(http://www.sec.gov). At the date hereof, the Company was not a reporting
company under the Exchange Act.
41
<PAGE>
SILVER STAR FOODS, INC.
SEPTEMBER 30, 1998
I N D E X
<TABLE>
<CAPTION>
PAGE NO.
------------
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT..................................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheets as at September 30, 1998 (Unaudited) and March 31, 1998 and 1997................... F-3
Statements of Operations
For the Six Months Ended September 30, 1998 and 1997 (Unaudited) and
For the Years Ended March 31, 1998 and 1997................................................... F-4
Statements of Stockholders' Equity (Deficiency)
For the Six Months Ended September 30, 1998 (Unaudited) and
For the Years Ended March 31, 1998 and 1997................................................... F-5
Statements of Cash Flows
For the Six Months Ended September 30, 1998 and 1997 (Unaudited) and
For the Years Ended March 31, 1998 and 1997................................................... F-6-F-7
NOTES TO FINANCIAL STATEMENTS....................................................................... F-8-F-13
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Silver Star Foods, Inc.
We have audited the accompanying balance sheets of Silver Star Foods, Inc. as at
March 31, 1998 and 1997, and the related statements of operations, stockholders'
equity (deficiency) and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Silver Star Foods, Inc., as at
March 31, 1998 and 1997 and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has a working capital deficiency of $316,443 at March 31, 1998. This
condition raises substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
WEINICK SANDERS LEVENTHAL & CO., LLP
New York, N. Y.
July 29, 1998 (Except for Notes 11 and 13
as to which the dates are August 31, 1998
and November 30, 1998, respectively)
F-2
<PAGE>
SILVER STAR FOODS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------- ------------------
1998 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................................................... $ 16,099 $ -- $ 2,312
Accounts receivable....................................................................... 45,275 103,427 10,043
Other current assets...................................................................... -- -- 566
------------- -------- --------
Total current assets.................................................................... 61,374 103,427 12,921
------------- -------- --------
Other assets:
Deferred registration costs............................................................... 117,951 79,686 --
Deferred finance costs, less accumulated amortization
of $49,113.............................................................................. 221,011 -- --
Tradename, less accumulated amortization of $47,834, $41,001 and $27,334, respectively.... 157,166 163,999 177,666
Slotting fees, less accumulated amortization of $63,358 and $19,708 respectively.......... -- 77,051 62,292
Deposits.................................................................................. 5,255 5,255 5,255
------------- -------- --------
Total other assets...................................................................... 501,383 325,991 245,213
------------- -------- --------
$ 562,757 $429,418 $258,134
------------- -------- --------
------------- -------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Cash overdraft............................................................................ $ -- $ 20,937 $ --
Bridge loan payable....................................................................... 700,000 -- --
Notes payable--tradename.................................................................. 17,092 17,092 93,842
Accounts payable.......................................................................... 235,587 247,533 206,978
Payroll taxes payable..................................................................... 52,000 -- --
Loans payable--other...................................................................... 26,000 -- --
Accrued expenses.......................................................................... 58,281 78,771 6,500
Stockholder loan.......................................................................... 23,481 55,537 912
------------- -------- --------
Total current liabilities............................................................... 1,112,441 419,870 308,232
------------- -------- --------
Commitments and contingencies............................................................... -- -- --
Stockholder's equity (deficiency):
Preferred stock--$.001 par value
Authorized and unissued--1,000,000 shares................................................. -- -- --
Common stock--$.0001 par value Authorized--15,000,000 shares Issued--4,856,000, 4,800,000
and 3,200,000 shares, respectively...................................................... 486 480 320
Paid-in capital........................................................................... 573,434 399,840 --
Deficit................................................................................... (723,604) (390,772) (50,418)
------------- -------- --------
(149,684) 9,548 (50,098)
Less: Treasury stock at cost--1,600,000 shares............................................ 400,000 -- --
------------- -------- --------
Total stockholder's equity (deficiency)................................................. (549,684) 9,548 (50,098)
------------- -------- --------
$ 562,757 $429,418 $258,134
------------- -------- --------
------------- -------- --------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, MARCH 31,
------------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................................................... $ 509,154 $ 747,294 $ 1,343,276 $ 1,450,438
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales......................................................... 407,702 579,436 1,198,755 972,248
Operating expenses.................................................... 300,607 230,068 426,884 407,381
Amortization.......................................................... 55,946 27,722 57,317 47,389
----------- ----------- ----------- -----------
Total of costs and expenses........................................... 764,255 837,226 1,682,956 1,427,018
----------- ----------- ----------- -----------
Income (loss) from operations......................................... (255,101) (89,932) (339,680) 23,420
----------- ----------- ----------- -----------
Other income (expense):
Gain on investment in securities...................................... -- -- -- 798
Interest expense...................................................... -- -- -- (51)
----------- ----------- ----------- -----------
Total other income (expense).......................................... -- -- -- 747
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes....................... (255,101) (89,932) (339,680) 24,167
Provision for income taxes............................................ 680 625 674 4,610
----------- ----------- ----------- -----------
Income (loss) before the effect of a change in accounting principle... (255,781) (90,557) (340,354) 19,557
Cumulative effect of a change in accounting principle................. (77,051) -- -- --
----------- ----------- ----------- -----------
Net income (loss)..................................................... ($ 332,832) ($ 90,557) ($ 340,354) $ 19,557
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings (loss) per share....................................... ($ .09) ($ .03) ($ .08) $ .01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares outstanding......................... 3,564,940 3,200,000 4,300,274 3,200,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 AND
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDERS'
--------------------- PAID-IN EARNINGS TREASURY EQUITY
SHARES VALUE CAPITAL (DEFICIT) STOCK (DEFICIENCY)
---------- --------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996........................ 3,200,000 $ 320 $ -- ($ 69,975) $ -- ($ 69,655)
Net income for the year ended March 31, 1997.... -- -- -- 19,557 -- 19,557
---------- --------- ---------- ----------- ----------- -------------
Balance at March 31, 1997....................... 3,200,000 320 -- (50,418) -- (50,098)
Issuance of common stock for cash............... 1,600,000 160 399,840 -- -- 400,000
Net loss for the year ended March 31, 1998...... -- -- -- (340,354) -- (340,354)
---------- --------- ---------- ----------- ----------- -------------
Balance at March 31, 1998....................... 4,800,000 480 399,840 (390,772) -- 9,548
Purchase of treasury stock at cost-- 1,600,000
shares........................................ -- -- -- -- (400,000) (400,000)
Insurance of common stock and warrants in
connection with bridge financing.............. 56,000 6 173,594 -- -- 173,600
Net loss for the six months ended September 30,
1998.......................................... -- -- -- (332,832) -- (332,832)
---------- --------- ---------- ----------- ----------- -------------
4,856,000 $ 486 $ 573,434 ($ 723,604) ($ 400,000) ($ 549,684)
---------- --------- ---------- ----------- ----------- -------------
---------- --------- ---------- ----------- ----------- -------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, MARCH 31,
------------------------ --------------------
1998 1997 1998 1997
----------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. ($332,832) ($ 90,557) ($340,354) $ 19,557
----------- ----------- --------- ---------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Amortization................................. 55,946 27,722 57,317 47,389
Cumulative effect of a change in accounting
principle.................................. 77,051 -- -- --
Gain on sale of securities................... -- -- -- (798)
Increase (decrease) in cash flows as a result
of changes in asset and liability account
balances:
Accounts receivable........................ 58,152 (72,938) (93,384) 30,061
Other current assets....................... -- 566 566 2,150
Accounts payable........................... (11,946) (64,099) 40,555 82,728
Accrued expenses........................... (39,499) 2,560 72,271 5,796
Payroll taxes payable...................... 52,000 -- -- --
----------- ----------- --------- ---------
Total adjustments.............................. 191,704 (106,189) 77,325 167,326
----------- ----------- --------- ---------
Net cash provided by (used in) operating
activities..................................... (141,128) (196,746) (263,029) 186,883
----------- ----------- --------- ---------
Cash flows from investing activities:
Marketable securities.......................... -- -- -- 20,629
Slotting fees.................................. -- (44,000) (58,409) (72,500)
----------- ----------- --------- ---------
Net cash used in investing activities............ -- (44,000) (58,409) (51,871)
----------- ----------- --------- ---------
Cash flows from financing activities:
Cash overdraft................................. (20,937) -- 20,937 --
Payments to brokers for margin purchases....... -- -- -- (15,579)
Payments on notes payable--tradename........... -- (68,750) (76,750) (111,158)
Stockholder loan............................... (32,056) 912) 54,625 (10,714)
Proceeds from sale of common stock............. -- 400,000 400,000 --
Expenditures for registration costs............ (28,765) (10,000) (79,686) --
Proceeds of loans payable--other............... 26,000 -- -- --
Proceeds from bridge loan...................... 700,000 -- -- --
Purchase of treasury stock..................... (400,000) -- -- --
Expenditures for financing costs............... (87,015) -- -- --
----------- ----------- --------- ---------
Net cash provided by (used in) financing
activities..................................... 157,227 320,338 319,126 (137,451)
----------- ----------- --------- ---------
Net increase (decrease) in cash.................. 16,099 79,592 (2,312) (2,439)
Cash at beginning of period...................... -- 2,312 2,312 4,751
----------- ----------- --------- ---------
Cash at end of period............................ $ 16,099 $ 81,904 $ -- $ 2,312
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEARS
MONTHS ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------ --------------------
1998 1997 1998 1997
----------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes........................................ $ -- $ -- $ -- $ 814
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Interest............................................ $ -- $ -- $ -- $ 51
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Supplemental Schedule of Non-Cash Financing
Transactions:
Expenditures for offering costs resulting in the
following:
Deferred registration costs......................... $ 9,500 $ -- $ -- $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Accrued expenses.................................... $ 9,500 $ -- $ -- $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Expenditures for financing costs resulting in the
following:
Deferred financing costs............................ $ 183,109 $ -- $ -- $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Accrued expenses.................................... $ 9,509 $ -- $ -- $ --
Common stock........................................ 6 -- -- --
Paid in capital..................................... 173,594 -- -- --
----------- ----------- --------- ---------
$ 183,109 $ -- $ -- $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE 1--GOING CONCERN.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has a working capital deficiency of
$316,443 at March 31, 1998. At September 30, 1998, the Company has a working
capital deficiency of $1,051,067.
The Company has negotiated a letter of intent with an underwriter for an
initial public offering of its common stock on a "firm commitment" basis and has
filed a preliminary draft of a registration statement for said offering with the
Securities and Exchange Commission. If the Company were to successfully complete
this offering, it would receive in excess of $5,000,000 after all offering
costs.
Based on these events, management believes that the Company has the ability
to continue operations during the subsequent fiscal year. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset values or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
NOTE 2--DESCRIPTION OF BUSINESS.
Silver Star Foods, Inc. ("the Company") was incorporated in the State of New
York on March 28, 1995 under the name of Silver Star Ravioli Co., Inc. On July
21, 1997, the Company filed a Certificate of Amendment of Incorporation
authorizing the Company to issue an aggregate of up to 15,000,000 shares, $.0001
par value.
On July 23, 1997, the Board of Directors resolved to approve a 75,000 to 1
stock split for all outstanding shares of common stock prior to that date. The
common stock presented in the accompanying financial statements have been
retroactively adjusted to reflect this split.
On July 28, 1997, the Board of Directors resolved to change the name of the
Company to Silver Star Foods, Inc. and filed a Certificate of Amendment of the
Certificate of Incorporation to that effect.
The Company is presently a distributor of frozen pasta food products which
it markets under the "Silver Star" name. The Company acquires its prepared
pre-packaged products from two local manufacturers.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(A) USES OF ESTIMATES:
The 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. Accordingly,
actual results could differ from those estimates.
(B) CASH:
The Company places its temporary cash investments with high credit quality
financial institutions, which at times may be in excess of the FDIC insurance
limit.
F-8
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
(C) INTANGIBLE ASSET:
The intangible asset, consisting of a tradename is periodically reviewed by
management to evaluate its future economic benefits or potential impairment
which may affect its recorded value to the Company. The tradename is being
amortized on straight-line basis over 15 years.
(D) DEFERRED FINANCING COSTS:
In August 1998, the Company completed a bridge financing (as more fully
described in Note 11) whereby it raised gross proceeds of $700,000. The Company
incurred related costs totalling $270,100, including; underwriters commissions
of $84,000, legal fees of $12,500, and the issuance of 56,000 shares of common
stock and 56,000 common stock purchase warrants valued at $168,000 and $5,600,
respectively. The effective annual interest rate on the notes is approximately
27%. The notes are non-interest bearing.
The Company is amortizing the deferred financing costs over the life of the
related promissory notes which become payable on June 23, 1999. The notes are to
be prepaid out of the anticipated proceeds of the Company's initial public
offering. In such event, the remaining unamortized financing costs will be
simultaneously expensed.
(E) INCOME TAXES:
The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes" at its inception. Under SFAS 109,
the deferred tax provision is determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on the
differences between the financial statement carrying amount and the tax basis of
assets and liabilities using presently enacted tax rates.
(F) EARNINGS PER SHARE:
The income (loss) per share for the six months ended September 30, 1998 and
1997 and the years ended March 31, 1998 and 1997 has been calculated based on
the weighted average number of common shares outstanding, giving effect
retroactively for the 75,000 to 1 stock split on July 23, 1997 to the beginning
of all periods presented. During the periods presented the Company had no common
stock equivalents issued or outstanding. Therefore, basic and diluted earnings
per share are the same.
(G) UNAUDITED FINANCIAL STATEMENTS:
The financial statements as at and for the six months ended September 30,
1998 and 1997 and the information in notes to the financial statements
pertaining thereto are unaudited, but include all adjustments, consisting only
of normal recurring adjustments, and disclosures which management of the Company
considers necessary for a fair presentation of its financial position as at
September 30, 1998 and 1997 and the results of its operations, statement of
stockholders' equity and cash flows for the six months then ended.
F-9
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
The results of operations for the six month periods ending September 30,
1998 and 1997 are not necessarily indicative of the results that may be expected
for the full year.
NOTE 4--ACCOUNTS RECEIVABLE.
Accounts receivable consist of trade receivables arising in the ordinary
course of business and are presented net of estimated discounts and allowances
of $12,700, $3,500 and $21,651 as at September 30, 1998 and March 31, 1998 and
1997, respectively. Management continually reviews its trade receivable credit
risk and has adequately allowed for potential losses.
NOTE 5--TRADENAME.
The Company acquired the rights to the "Silver Star" tradename from a
related party of the principle stockholder pursuant to an agreement which was
formalized in July 1997 at a cost of $205,000. The Company has been using the
tradename since it's inception.
NOTE 6--INCOME TAXES.
At March 31, 1998, the Company had a net operating loss carryforward
amounting to approximately $457,000 available to reduce future taxable income
which expire in the year 2011 to 2018 respectively, which upon recognition may
result in future tax benefits of approximately $155,000. At March 31, 1998
management is unable to determine if the utilization of the future tax benefit
is more likely than not and accordingly, the asset of approximately $155,000 has
been fully reserved.
A reconciliation of the statutory income tax effective rate is as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEARS ENDED
SEPTEMBER 30, MARCH 31,
---------------- ----------------
1998 1997 1998 1997
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal statutory rate............................ (34.0%) (34.0%) (25.0%) 15.0%
State and local taxes............................. 0.3 0.7 0.2 19.1
Creation (utilization) of net operating loss
carryforward.................................... 34.0 34.0 25.0 (15.0)
----- ----- ----- -----
Effective tax rate................................ 0.3% 0.7% 0.2% 19.1%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
NOTE 7--COMMITMENTS AND CONTINGENCIES.
The Company leases office space from its principal shareholder on a month to
month basis at a cost of $1,000 per month and presently has no leasehold
obligations. The Company also leases office space from an unrelated party, on a
month to month basis, at a cost of $550 per month.
The Company has entered into two manufacturing agreements for the
procurement of product. The first agreement calls for price adjustments
semiannually based on cost increases if any, relating to raw materials The
second agreement requires the Company to meet certain minimum annual purchase
F-10
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE 7--COMMITMENTS AND CONTINGENCIES. (CONTINUED)
quantities. Failure to meet these minimums could result in price increases to
the Company. The Company has never achieved the minimum quantities required.
NOTE 8--TRANSACTIONS WITH MAJOR CUSTOMERS AND SUPPLIERS.
During the six months ended September 30, 1998 and 1997, the Company had
sales to five customers amounting to approximately 98% and 97%, respectively, of
the Company's net sales for the period. For the year ended March 31, 1998 and
1997, these customers amounted to approximately 97% and 95% respectively of the
Company's net sales. The loss of any of these customers could be expected to
have a material impact on the Company's results of operations in future periods.
Since its inception, the Company has purchased all of its products from two
suppliers. The loss of either of these suppliers could have a material impact on
the Company's ability to obtain product for resale to its customers in future
periods.
NOTE 9--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", No.
131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information", No. 132 (SFAS 132), Employer's Disclosures about Pension and other
Postretirement Benefits and No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. Management does not believe that the effect
of implementing these new standards will be material to the Company's financial
position, results of operations and cash flows.
NOTE 10--YEAR 2000.
The Company recognizes the need to ensure its operations will not be
adversely affected by year 2000 software failures. The Company is communicating
with suppliers, customers and others with which it does business to coordinate
year 2000 conversion. The cost of achieving compliance is estimated to be a
minor increase over the cost of normal software upgrades and replacements.
NOTE 11--BRIDGE LOAN PAYABLE.
In August, 1998 the Company obtained bridge financing, whereby it raised an
aggregate of $700,000 and received net proceeds of $616,000 after underwriter's
commissions and before other related expenses. The Company used $400,000 of the
proceeds to satisfy the notes payable incurred in the purchase of 800,000 shares
of the Company's common stock in April and May, 1998.
In addition to the promissory note in the principal sum of $25,000, each of
the 28 units sold includes 2,000 shares of the Company's common stock and 2,000
redeemable common stock purchase warrants. The promissory notes bear no interest
and are payable at the earlier of the completion of the Company's planned
initial public offering of its common stock, or June 23, 1999.
F-11
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED)
NOTE 12--CUMULATIVE EFFECT OF A CHANGE IN AN ACCOUNTING PRINCIPLE.
Previously, the Company had capitalized slotting fees and amortized them
over three years. Effective April 1,1998, the Company adopted Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities and now expenses
slotting fees as they are incurred. While the accounting policy for capitalizing
slotting fees previously followed by the Company was in accordance with
generally accepted accounting principles, the changed policy is preferable and
is in conformity with Statement of Position 98-5.
The effect of this change through March 31, 1998 was a charge of $77,051
($.02 per share). The effect of expensing slotting costs for the six months
ended September 30, 1998 was a charge of $75,000 ($.02 per share).
NOTE 13--SUBSEQUENT EVENT.
In November 1998, the Company issued 20,000 shares of its common stock
valued at $105,000 to its attorney in payment of services rendered in connection
with the Company's initial public offering. The financial statements contained
herein do not give effect for the issuance of these shares.
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN 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 OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY COMMON STOCK SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Offering................................... 4
Summary Financial Information.................. 5
Risk Factors................................... 6
Use of Proceeds................................ 17
Dividend Policy................................ 18
Dilution....................................... 19
Capitalization................................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 24
Management..................................... 31
Principal Shareholders......................... 36
Certain Transactions........................... 35
Selling Security Holders....................... 38
Shares Eligible for Future Sale................ 38
Underwriting................................... 39
Legal Matters.................................. 41
Experts........................................ 41
Additional Information......................... 41
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S 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 WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SILVER STAR
FOODS, INC.
1,100,000 SHARES OF COMMON STOCK
2,200,000 COMMON STOCK PURCHASE A WARRANTS
---------------------
PROSPECTUS
---------------------
ROYAL HUTTON SECURITIES CORP.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The New York Business Corporation Law, in general, allows corporations to
indemnify their directors and officers against expenses (including attorneys'
fees), judgments, fines and settlement amounts actually and reasonably incurred
by such person in connection with suits or proceedings, if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation. In the case of a criminal
action, the director or officer must have had no reasonable cause to believe
that person's conduct was unlawful. Under current law, no indemnification may be
made if in connection with a proceeding or in the right of the corporation in
which the director or officer was adjudged to be liable to the corporation or
that person derived an improper personal benefit.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by New York Law. The Company will enter into an indemnification
agreement with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Company (also referred to herein as the Registrant) in connection with the
issuance and distribution of the Securities pursuant to the Offering (other than
underwriting discounts and commissions).
<TABLE>
<S> <C>
SEC registration fee......................................................... $ 2,000.00
NASD filing fee.............................................................. $ 1,500.00
NASDAQ SmallCap Market fee................................................... $ 30,000.00
Legal fees and expenses...................................................... $100,000.00
Accounting fees.............................................................. $ 60,000.00
Blue Sky fees and expenses................................................... $ 35,000.00
Printing and engraving expenses.............................................. $ 60,000.00
Miscellaneous................................................................ $ 11,500.00
-----------
Total fees and expenses.................................................. $300,000.00
</TABLE>
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following paragraphs set forth certain information with respect to all
securities sold by the Company within the past three years without registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
information includes the names of the purchasers, the date of issuance, the
title and number of securities sold and the consideration received by the
Company for the issuance of these shares.
The following securities were issued by the Company without registration
under the Securities Act by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof, as transactions by an issuer not
involving a public offering:
<TABLE>
<CAPTION>
TITLE AND
NAME OF NUMBER OF
PURCHASER DATE OF ISSUANCE SECURITIES SOLD CONSIDERATION
<S> <C> <C> <C>
K & V Investments July 23, 1997 Common Stock $200,000
800,000 Shares
Daniel Kodsi July 23, 1997 Common Stock $200,000
800,000 Shares
</TABLE>
II-1
<PAGE>
In April 1998 and May, 1998, respectively, the Company repurchased such
shares and agreed to repay such investors a total of $410,000 within six (6)
months of the date of each repurchase. Such $410,000 amount has been paid from
the proceeds of the bridge financing. The Common Shares repurchased were
designated as treasury stock and retired after the repurchase. The transaction
for such repurchases were undertaken directly between the Company and the
investors.
In September 1998, the Company completed a private placement of 28 units,
with each unit consisting of a $25,000 Promissory Note, 2,000 shares of Common
Stock and 2,000 Redeemable Common Stock Purchase Warrants. Therefore, an
additional 56,000 shares of Common Stock and 56,000 Redeemable Common Stock
Purchase Warrants were issued. A list of investors in the private placement is
set forth below.
All investors in the private placement are accredited investors. Daniel
Kodsi is an accredited investor. K&V Investments is a sophisticated purchaser.
<TABLE>
<CAPTION>
DATE
OF COMMON WARRANTS
INVESTOR ISSUANCE STOCK SOLD SOLD CONSIDERATION(1)
- ------------------------------------------------------------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Richard E. Dwelle............................................ 07/10/98 2,000 2,000 $ 25,000
Thomas P. Hanrahan........................................... 07/10/98 1,000 1,000 $ 12,500
William C. Taylor............................................ 07/15/98 2,000 2,000 $ 25,000
John K. & Sue A. Korpalski (JTROS)........................... 07/20/98 2,000 2,000 $ 25,000
Frank J. Buzolits Trust Dated 08/25/92....................... 08/20/98 2,000 2,000 $ 25,000
Ralph L. Cotton (Denver Orthopedic Specialists 401K)......... 07/15/98 8,000 8,000 $ 100,000
Mary Ellen & Gary Rassel (JTROS)............................. 08/24/98 2,000 2,000 $ 25,000
Curtis L. Smith & Janice A. Smith (JTROS).................... 07/15/98 2,000 2,000 $ 25,000
Lynn J. Bourdon.............................................. 08/10/98 2,000 2,000 $ 25,000
James F. Reiderer............................................ 07/29/98 2,000 2,000 $ 25,000
Dean Briggs.................................................. 08/11/98 2,000 2,000 $ 25,000
Dennis G. Shoff Profit Sharing Plan.......................... 07/27/98 2,000 2,000 $ 25,000
Jack R. Eaton................................................ 07/30/98 2,000 2,000 $ 25,000
F. Evernden.................................................. 08/03/98 8,000 8,000 $ 100,000
Larry E. Morris.............................................. 08/17/98 4,000 4,000 $ 50,000
Walnut Veal Ranch............................................ 08/19/98 1,000 1,000 $ 12,500
Bradley A. & Margaret Lewis (JTROS).......................... 08/19/98 2,000 2,000 $ 25,000
Felicity A. Nellen........................................... 08/05/98 6,000 6,000 $ 75,000
Lou Mauro.................................................... 08/20/98 2,000 2,000 $ 25,000
Steven Lydon................................................. 08/20/98 2,000 2,000 $ 25,000
</TABLE>
(1) Represents the amount of the non-interest bearing promissory note issued to
the Investor.
ITEM 28. UNDERTAKINGS
1. The Registrant will, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) (3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events 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 of
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
II-2
<PAGE>
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information on the plan
of distribution.
2. The Registrant will, for determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. The Registrant will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
4. The Registrant will provide to the Underwriter at the closing
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
6. For 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 under 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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 has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York on the 17th day of December, 1998.
SILVER STAR FOODS, INC.
By: /s/ MICHAEL TROTTA
-----------------------------------------
Michael Trotta,
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND SECRETARY
POWER OF ATTORNEY
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of SILVER STAR FOODS, INC. hereby
severally constitute and appoint Michael Trotta, our true and lawful
attorney-in-fact and agent with full power of substitution for us in our stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent in full power and authority to do and perform
each and every act and thing necessary or advisable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, any lawfully do or cause to be done by virtue
hereof.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board of
/s/ MICHAEL TROTTA Directors, Chief
- ------------------------------ Executive Officer, December 17, 1998
Michael Trotta President And Secretary
/s/ LOUIS TROTTA Vice President, Director
- ------------------------------ December 17, 1998
Louis Trotta
/s/ VINCENT TROTTA Director
- ------------------------------ December 17, 1998
Vincent Trotta
/s/ BARRY SHERMAN Director
- ------------------------------ December 17, 1998
Barry Sherman
Director
- ------------------------------ December 17, 1998
Dennis Lore
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Underwriters Agreement
3.1 Certificate of Incorporation and Certificates of Amendments of the Certificate of
Incorporation*
3.2 By-Laws of the Company*
4.1 Form of Common Stock Certificate***
4.2 Warrant for Purchase of Common Stock of Silver Star Foods, Inc.
4.3 Form of Public Agreement between Silver Star Foods, Inc. and American Stock Transfer
5. Opinion of Richard I. Anslow, Esq. of Richard I. Anslow & Associates
10.1 Employment Agreement--Michael Trotta**
10.2 Employment Agreement--Louis Trotta**
10.3 Agreement between Vincent Trotta and Michael Trotta and Mount Rose Ravioli and Mac
Co., Inc.*
10.4 Manufacturers Agreement between the Company and Savignano Foods Corporation*
10.5 Repurchase Agreement between the Company and K&V Investments**
10.6 Financial Advisory and Investment Banking Agreement
10.7 Broker Contract with Douglas Food Brokers, Inc.
10.8 Form of Promissory Note issued in the Company's September 1998 Private Placement
23.1 Independent Auditors Consent
23.2 Consent of Richard I. Anslow & Associates (contained in Exhibit 5)
27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed with initial filing of Form SB-2 on December 16, 1997
** Filed with Amendment Number 1 dated September 25, 1998
*** To be Filed by Amendment
<PAGE>
Ehibit 99.6
SILVER STAR FOODS, INC.
UNDERWRITING AGREEMENT
New York, New York
December __, 1998
Royal Hutton Securities Corp., as Representative of
the Several Underwriters as Listed in Schedule A
Boca Raton,Florida
Dear Sirs:
The undersigned, Silver Star Foods, Inc., a New York corporation (the
"Company"), hereby confirms its agreement with Royal Hutton Securities, Inc., as
representative of the several underwriters listed in Schedule A
("Representative" or "Royal Hutton" or "you" or the "Underwriter(s)") with
respect to the sale by the Company to the Underwriters, acting severally and not
jointly, of the respective number of shares ("Shares") of the common stock of
the Company, par value $.0001 per share ("Common Stock") and redeemable common
stock purchase warrants ("Public Warrants") each to purchase one share of Common
Stock, as set forth in Schedule A hereto. The aggregate 1,100,000 Shares and
2,200,000 Public Warrants will be separately tradable upon issuance and are
sometimes herein referred to as the "Firm Securities".
1. INTRODUCTION. Each Public Warrant is exercisable commencing on
______________, 1999 [1st Anniversary of the closing] until ____________, 2003
[5th Anniversary of the closing]
<PAGE>
unless previously redeemed by the Company, at an initial exercise price of $6.00
per share of Common Stock. The Public Warrants may be redeemed by the Company
at a redemption price of $.01 per Public Warrant at any time after
______________, 1999 [1st Anniversary of the closing] on thirty (30) days prior
written notice, provided that the closing bid price of the Common Stock equals
or exceeds $8.50 for any ten (10) consecutive trading day period ending on the
10th days prior to the date of the notice of redemption, in accordance with the
terms and conditions of the Warrant Agreement between the Company and American
Stock Transfer & Trust Company ("Warrant Agreement"). Upon the giving of notice
of redemption, the Public Warrants will become exercisable if they were not
otherwise exercisable.
Upon your request, as provided in this Agreement, the Company shall also
issue and sell to you up to an additional 165,000 Shares and/or 330,000 Public
Warrants for the purpose of covering over-allotments in the sale of the Firm
Securities (the "Over-allotment Option"). Such additional securities are
hereinafter referred to as the "Option Securities." The Firm Securities and the
Option Securities are hereinafter sometimes referred to as the "Securities."
The Company also proposes to issue and sell to you, pursuant to the terms of the
warrant agreement, dated ______, 1998 between you and the Company (the
"Underwriters' Warrant Agreement"), warrants (the "Underwriters' Warrants") to
purchase up to 110,000 Shares and/or 220,000 Public Warrants. The Underwriters'
Warrants shall be exercisable during the four year period commencing one (1)
year from the date of the Prospectus (as defined in Section 2(a) hereof) at a
price of $8.663 per Share and $.4125 per Public Warrant, subject to adjustment
in certain events to protect against dilution. The Securities issuable upon
exercise of the Underwriters' Warrants are hereinafter sometimes referred to as
the "Underwriters' Securities." The Securities, the Underwriters' Warrants and
the Underwriters' Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriters as of the date hereof that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (the "Registration
Statement"), and an amendment or amendments thereto, on Form SB-2 (No.
333-_______), including any related preliminary prospectus (the "Preliminary
Prospectus"), for the registration of the Securities and the Underwriters'
Securities,
2
<PAGE>
under the Securities Act of 1933, as amended (the "Act"), which registration
statement and amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act, and the rules and regulations (the
"Regulations") of the Commission promulgated under the Act. Before the
registration becomes effective, the Company will not file any amendment to such
registration statement to which you shall have reasonably objected after having
been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement," and the form
of prospectus, in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations (or included in the Registration Statement, if no
filing under Rule 424 is required), is hereinafter called the "Prospectus."
(b) On the date upon which the Registration Statement is
declared effective by the Commission (the "Effective Date") and at all times
subsequent thereto up to Closing Date I and Closing Date II, if any (as such
terms are defined in Section 3(d) hereof), the Registration Statement and the
Prospectus will comply in all material respects with the applicable provisions
of the Act and the Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The representation
and warranty made in this Section 2(b) does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company by the Underwriters expressly for use in the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto.
(c) This Agreement, the Warrant Agreement, the Underwriters'
Warrant Agreement and the Financial Advisory and Investment Banking Agreement
(as defined in Section 5(s) hereof), have been duly and validly authorized by
the Company, and this Agreement constitutes, and the Public Warrant Agreement,
the Underwriters' Warrant Agreement and the Financial Advisory and Investment
Banking Agreement, when executed and delivered pursuant to this Agreement, will
(assuming due execution by the
3
<PAGE>
Underwriters) each constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its respective terms, except
(i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification,
contribution or exculpation provision may be limited under applicable Federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The Securities and the Underwriters' Warrants to be issued and
sold by the Company pursuant to this Agreement, the Underwriters' Securities
issuable upon exercise of the Underwriters' Warrants and payment therefor, have
been duly authorized and, when issued and paid for, will be validly issued,
fully paid and non-assessable; the holders thereof are not and will not be
subject to personal liability by reason of being such holders; the Securities,
the Underwriters' Warrants and the Underwriters' Securities are not and will not
be subject to the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company; and all corporate
action required to be taken for the authorization, issuance and sale of the
Securities, the Underwriters' Warrants and the Underwriters' Securities has been
duly and validly taken. The Underwriters' Warrants constitute a valid and
binding obligation of the Company, enforceable in accordance with its terms, to
issue and sell, upon exercise in accordance with the terms thereof, the number
and type of the Company's securities called for thereby; except (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification, contribution or
exculpation provision may be limited under applicable Federal and state
securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(d) All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the issuances and sales of all such securities complied in all material respects
with applicable Federal and state securities laws; the holders thereof have no
rights of rescission with respect thereto, and are not subject to personal
liability by reason of being such holders; and none of such securities were
issued in violation of the preemptive rights
4
<PAGE>
of any holders of any security of the Company or similar contractual rights
granted by the Company.
(e) Except as set forth in the Registration Statement and the
Prospectus, the Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, respectively, free and clear of
all liens, encumbrances, claims, security interests, defects and restrictions of
any material nature whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable.
(f) There is no action, suit, proceeding, inquiry,
investigation, litigation or governmental proceeding pending or to the knowledge
of the Company threatened, against or involving the properties or business of
the Company or which if adversely determined could reasonably be expected to
materially and adversely affect the financial position, or prospects, or
business of the Company, except as referred to in the Prospectus.
(g) All contracts and other documents required to be described
in the Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement have been described in the Registration Statement or
the Prospectus or filed with the Commission as Exhibits to the Registration
Statement, as required.
(h) The financial statements of the Company, together with the
related notes, included in the Registration Statement and Prospectus fairly
present the financial positions and the results of operations of the Company, at
the dates and for the periods to which they apply; and such financial statements
have been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved. There has been no
material adverse change in financial conditions or results of operations of the
Company, or to the knowledge of the Company, any development involving a
prospective change in the condition or prospects of the Company, financial or
otherwise, since the date of the financial statements included in the
Prospectus, except as disclosed therein.
(i) Weinick Sanders, Leventhal & Co., LLP, whose reports are
filed with the Commission as a part of the Registration Statement, are
independent accountants as required by the Act and the Regulations.
5
<PAGE>
(j) Except as otherwise set forth in the Prospectus, the Company
does not own, directly or indirectly, an interest in any corporation,
partnership, joint venture, trust or other business entity. The Company is duly
qualified and licensed and in good standing as foreign corporation in each
jurisdiction in which its ownership of property or business operations require
such qualification or licensing, except where the failure to be so qualified or
licensed would not have a material adverse affect on the Company. The Company
has all requisite corporate power and authority, and all necessary material
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies, to own or lease its
properties and conduct its business as described in the Prospectus. The Company
is and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates and permits and with all applicable
Federal, state and local laws, rules and regulations, including but not limited
to laws and regulations relating to environmental matters and employee health
and safety matters, and none of the aforementioned authorizations, approvals,
orders, licenses, certificates or permits have been suspended or revoked, nor
are there any proceedings pending or to the knowledge of the Company threatened
which could result in a suspension or revocation thereof. The Company has all
requisite corporate power and authority to enter into this Agreement, the
Warrant Agreement, the Underwriters' Warrant Agreement and the Financial
Advisory and Investment Banking Agreement and to carry out the provisions and
conditions hereof and thereof, and all consents, authorizations, approvals and
orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the issuance of the Securities and the Underwriters'
Securities, pursuant to this Agreement, the Warrant Agreement, and the
Underwriters' Warrant Agreement, and as contemplated by the Prospectus, except
with respect to applicable Federal and state securities laws.
(k) The outstanding debt, the property and the business of the
Company conforms in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus.
(l) The Securities, the Underwriters' Warrants, the
Underwriters' Securities and any other securities issued or to be issued by the
Company on or before the Closing Dates (as defined in Section 3(d) hereof)
described herein conform, or will conform when issued, in all material respects
to all statements
6
<PAGE>
with respect thereto contained in the Registration Statement and the Prospectus.
(m) Except as set forth in the Prospectus, no material default
exists in the due performance and observance of any term, covenant or condition
of any license, contract, indenture, mortgage, deed of trust, note, loan or
credit agreement, or any other agreement or instrument evidencing an obligation
for borrowed money, or any other agreement or instrument to which the Company is
a party or by which the Company may be bound or to which any of the property or
assets of the Company are subject which default would reasonably be expected to
have a materially adverse effect on the financial condition or business of the
Company.
(n) The Company is not in violation of any term or provision of
its Certificate of Incorporation or By-Laws. Neither the execution and delivery
of this Agreement, nor the issuance and sale of the shares of Common Stock, the
Public Warrants, the Underwriters' Warrants and the Underwriters' Securities,
nor the consummation of any of the transactions contemplated herein, nor the
compliance by the Company with the terms and provisions hereof has materially
conflicted with or will materially conflict with, or has resulted in or will
result in a material breach of, any of the terms and provisions of, or has
constituted or will constitute a material default under, or has resulted in or
will result in the creation or imposition of any lien, charge or encumbrance
upon the property or assets of the Company pursuant to the terms of any
indenture, mortgage, deed of trust, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party, or by which the
Company is or may be bound, or to which any of the property or assets of the
Company is subject; nor will such action result in any material violation of the
provisions of the Certificates of Incorporation or the By-Laws of the Company or
any contract or agreement, or any statute or any order, rule or regulation
applicable to the Company or any other regulatory authority or other
governmental body having jurisdiction over the Company.
(o) Except as disclosed in the Prospectus, all taxes which are
due from the Company have been paid in full, unless being contested in good
faith by the Company, and the Company does not have any tax deficiency or claim
outstanding, proposed or assessed against it.
7
<PAGE>
(p) Subsequent to the respective dates as of which information
is given in the most recently circulated Preliminary Prospectus included as a
part of the Registration Statement, and except as may otherwise be indicated or
contemplated herein or therein, (i) the Company has not issued any securities,
(ii) declared or paid any dividend or made any other distribution on or in
respect to its capital stock; (iii) incurred any material liability or
obligation, direct or contingent, for borrowed money; or (iv) entered into any
transaction other than in the ordinary course of business.
(q) To the Company's knowledge, the Commission has not issued
any order preventing or suspending the use of any Preliminary Prospectus or part
thereof.
(r) On the Effective Date, (i) the authorization of capital
stock of the Company is as set forth in the Registration Statement, and (ii) not
more than an aggregate of 3,276,000 shares of Common Stock shall be issued and
outstanding excluding: (A) the 1,100,000 shares of Common Stock and the
2,200,000 shares of Common Stock issuable upon the exercise of the Public
Warrants; (B) up to an additional 165,000 shares of Common Stock issuable upon
the exercise of the Over-allotment Option or the 330,000 shares issuable upon
the exercise of the Public Warrants issuable upon the exercise of the
Over-allotment Option; (C) up to an additional 110,000 shares issuable upon
exercise of the Underwriters' Warrants or the 220,000 shares issuable upon
exercise of the Public Warrants issuable upon the exercise of the Underwriters'
Warrants (which warrants are identical to the Public Warrants); and (D) up to
500,000 shares of Common Stock issuable upon the exercise of options granted, or
to be granted, under the Company's 1998 Employee Stock Option Plan. Other than
the shares of Common Stock referred to in the immediately preceding sentence, no
other shares of capital stock or securities convertible into capital stock shall
be outstanding or reserved for issuance at the completion of the proposed public
offering without the consent of the Underwriters.
(s) Except for the registration rights granted under the
Underwriters' Warrant Agreement, to the Selling Stockholder named in the
Registration Statement, or as disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company.
8
<PAGE>
(t) Assuming that there will be two "market makers" for the
Common Stock, at least 300 beneficial owners of the Common Stock and a
sufficient "public float" of the Shares, and that the Company's registration of
the Common Stock pursuant to the Securities Exchange Act of 1934 (the "Exchange
Act") becomes effective (all as contemplated by the requirements of the National
Association of Securities Dealers, Inc.), the Common Stock is eligible for
quotation on the Nasdaq Stock Market ("Nasdaq"). The Company has filed a
registration statement with the Commission pursuant to Section 12(g) of the
Exchange Act, and has used its best efforts to have same declared effective by
the Commission on an accelerated basis on the Effective Date.
(u) Except as described in the Prospectus, to the Company's
knowledge, there are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or any other arrangements,
agreements, understandings, commitments, payments or issuances of securities
with respect to the Company that may affect the Underwriters' compensation, as
determined by the National Association of Securities Dealers, Inc. ("NASD").
(v) Neither the Company, nor, to the knowledge of the Company,
any of its employees or officers or directors, agents or any other person acting
on behalf of the Company has, directly or indirectly, given or agreed to give
any money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any customer, supplier,
employee or agent of a customer, supplier, or official or governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who was, is, or
may be in a position to help or hinder the business of the Company (or assist it
in connection with any actual or proposed transaction) which (i) could
reasonably be expected to subject the Company to any material damage or penalty
in any civil, criminal or governmental litigation or proceeding, (ii) if not
given in the past, could reasonably be expected to have had a materially adverse
effect on the assets, business or operations of the Company as reflected in any
of the financial statements contained in the Prospectus, or (iii) if not
continued in the future, could reasonably be expected to materially adversely
affect the assets, business, operations or prospects of the Company.
9
<PAGE>
(w) Except as described in the Prospectus, to the Company's
knowledge, the Company owns or possesses the requisite licenses or rights to use
all trademarks, service marks, service names, trade names, patents and patent
applications, copyrights, methods, protocols, techniques, technologies,
procedures and other rights (collectively the "Intangibles") described as owned
or used by the Company in the Registration Statement. There is no claim, action
or proceeding by any person pending or, to the Company's knowledge, threatened,
which pertains to or challenges the rights of the Company with respect to any
Intangibles used in the conduct of the business of the Company, except as
described in the Prospectus. To the Company's knowledge, current products,
services and processes of the Company do not infringe on any Intangibles held by
any third party; provided, however, that the possibility exists that other
persons or entities, completely independently of the Company, or employees or
agents, could have developed trade secrets or items of technical information
similar or identical to those of the Company.
(x) Except as set forth in the Registration Statement, the
Company is not under any obligation to pay royalties or fees of any kind
whatsoever to any third party with respect to Intangibles it has developed,
uses, employs or intends to use or employ.
(y) The Company has generally enjoyed satisfactory
employer/employee relationships with its employees and is in material compliance
in all material respects with all Federal, state and local laws and regulations
respecting the employment of their respective employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the Company's knowledge, there are no pending or threatened
investigations involving the Company by the U.S. Department of Labor or
corresponding foreign agency, or any other governmental agency responsible for
the enforcement of such Federal, state or local laws and regulations. To the
Company's knowledge, there is no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations Board or
corresponding foreign agency or any strike, picketing, boycott, dispute,
slowdown or stoppage pending or threatened against or involving the Company, or
any predecessor entity, and none has occurred. No representation question
exists respecting the employees of the Company. No collective bargaining
agreement or modification thereof is currently in effect or being negotiated by
the Company and its employees. No grievance or arbitration proceeding is
pending under any expired or existing collective bargaining agreements of the
Company.
10
<PAGE>
(z) Neither the Company, nor, to the Company's knowledge, any of
its officers or directors or any of its employees or stockholders, have taken,
directly or indirectly, any action designed to or which has constituted or which
could reasonably be expected to cause or result in, under the Exchange Act or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(aa) The Company does not maintain nor has it maintained,
sponsored or contributed to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"), except for the Stock Option Plan described in the Prospectus.
The Company neither presently maintains or contributes or at any time in the
past, maintained or contributed to a defined benefit plan, as defined in
Section 3(35) of ERISA. The Company has never completely or partially withdrawn
from a "multiemployer plan."
(ab) Except as set forth in the Prospectus under "MANAGEMENT" or
"CERTAIN TRANSACTIONS," the Company is not a party to any agreement with any
officer, director or stockholder of the Company or any affiliate or associate of
any such person or entity which is required to be disclosed in the Prospectus
pursuant to Regulation SB. Except as set forth in the Prospectus, to the
Company's knowledge, no officer, director or stockholder of the Company or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Regulations) of any such person or entity or the Company, has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected.
(ac) The minute books of the Company have been made available to
counsel to the Underwriters and contain a complete summary of all director and
shareholder meetings and actions by unanimous written consent of directors and
actions by written consent of stockholders holding a majority of the then issued
and outstanding shares since the time of incorporation and
11
<PAGE>
reflect all transactions referred to in such minutes accurately in all material
respects.
(ad) The Company has all requisite corporate power and authority
to enter into and to carry out the provisions and conditions hereof, and all
consents, authorizations, approvals and orders required in connection herewith
have been obtained. Neither the execution and delivery of this Agreement, nor
the consummation of any of the transactions contemplated herein, nor the
compliance by the Company with the terms and provisions hereof has materially
conflicted with or will materially conflict with, or has resulted in or will
result in a material breach of, any of the terms and conditions or provisions
of, or has constituted or will constitute a material default under, or has
resulted in or will result in the creation or imposition of any lien, charge or
encumbrance upon the property or assets of the Company pursuant to the terms of
any indenture, mortgage, deed of trust, note, loan or credit agreement or any
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party, or by which
the Company is or may be bound, or to which any of the property or assets of the
Company is subject; nor will such action result in any material violation of the
provisions of the Certificates of Incorporation or the By-Laws of the Company or
any contract or agreement, or any statute or any order, rule or regulation
applicable to the Company or any other regulatory authority or other
governmental body having jurisdiction over the Company.
3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND UNDERWRITERS'
WARRANTS.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters 1,100,000 Shares of Common Stock and
2,200,000 Public Warrants, and the Underwriters agree to purchase such
Securities from the Company on a firm commitment basis at a purchase price of
$4.725 per Share and $.225 per Public Warrant, to be sold by the Underwriters at
an initial public offering price of $5.25 per share and $.25 per Public Warrant.
(b) In addition, upon not less than two (2) days' notice from
the Underwriters to the Company, for a period of forty-five (45) days from the
date of the Prospectus, the Company agrees to sell to the Underwriters at a
purchase price of $4.725 per Share and/or $.225 per Public Warrant, all or any
part of the Option Securities, to be sold by the Underwriters hereunder at an
12
<PAGE>
initial public offering price of $5.25 per Share or $.25 per Public Warrant.
Delivery of the Option Securities shall be made concurrently with tender of
payment therefore. Option Securities may be purchased by the Underwriters only
for the purpose of covering over-allotments in the sale of the Firm Securities,
and the Underwriters shall have no obligation to make any over-allotments. No
Option Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(c) On Closing Date I (defined below in Section 3(d)), the
Company shall issue and sell to the Underwriters the Underwriters' Warrants,
which warrants shall entitle the holders thereof to purchase up to 110,000
Shares and/or 220,000 Public Warrants. The total purchase price of the
Underwriters' Warrants shall be $10. The Underwriters' Warrants shall be
exercisable in whole or in part for up to an additional 110,000 shares and/or
220,000 Public Warrants for a period of four (4) years commencing one (1) year
from the date of the Prospectus at a price of $8.25 per Share and $.4125 per
Public Warrant. The Underwriters' Warrant Agreement and form of Underwriters'
Warrant Certificate shall be substantially in the form filed as Exhibits to the
Registration Statement.
(d) Payment for the Underwriters' Warrants shall be made on
Closing Date I. Payment for the Firm Securities and the Option Securities shall
be made on each of Closing Date I and Closing Date II, respectively, at the
Underwriters' election by certified or bank cashier's check in New York Clearing
House funds, payable to the order of the Company, or by wire transfer, at the
offices of one of the Underwriters, or at such other place as agreed upon by the
Underwriters and the Company, upon delivery of certificates (in form and
substance reasonably satisfactory to the Underwriters) representing the
Securities or by confirmation of electronic transfer of the Securities to the
Underwriters for the accounts of the Underwriters. Delivery and payment for the
Firm Securities shall be made at 10:00 A.M. New York time, on or before the
third business day following the public offering or at such earlier time as the
Underwriters shall determine, or at such other time as shall be agreed upon by
the Underwriters and the Company. The hour and date of delivery and payment for
the Firm Securities are called "Closing Date I." The Firm Securities shall be
registered in such name or names and in such authorized denominations as the
Underwriters may request in writing at least two (2) full business days prior to
Closing Date I. The Company will permit the Underwriters to examine and package
any certificates representing the Firm Securities for delivery, at least one
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(1) full business day prior to Closing Date I. Delivery for each of the Option
Securities as provided above shall be made within the two (2) business day
period after notice of exercise to the Company, and against payment therefor, as
provided above. The hour and date of such delivery and payment made subsequent
to Closing Date I for Option Securities is referred to as "Closing Date II" and
Closing Date I and Closing Date II are collectively referred to as Closing Date
I. The Option Securities shall be registered in such name or names and in such
denominations as the Underwriters may request in writing at the time of exercise
of the Overallotment Option.
(e). The Company shall not be obligated to sell or deliver any
Firm Securities except upon tender of payment by the Underwriters for all the
Firm Securities.
4. PUBLIC OFFERING. The Underwriters are to make a public
offering of the Firm Securities and such of the Option Securities as they may
determine. The Securities are to be initially offered to the public at the
offering price set forth on the cover page of the Prospectus (such price being
hereinafter called the "Public Offering Price"). The Underwriters may, at their
own expense, enter into one or more agreements as the Underwriters, in their
sole discretion, deem advisable with one or more broker-dealers who shall act as
dealers or co-underwriters in connection with such public offering.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees
that it will:
(a) Use its best efforts to cause the Registration Statement to
become effective and will notify the Underwriters immediately, and confirm the
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto becomes effective, (ii) of the issuance by the Commission of
any stop order or of the initiation, or the threatening, of any proceeding for
that purpose, (iii) of the issuance by any state securities commission of any
proceedings for the suspension of the qualification of the Securities and the
Underwriters' Securities for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose, and (iv) of
the receipt of any comments from the Commission. If the Commission or any state
securities commission shall enter a stop order or suspend such qualification at
any time, the Company will make every reasonable effort to obtain promptly the
lifting of such order.
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(b) File the Prospectus (in form and substance reasonably
satisfactory to the Underwriters) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission in accordance with
Rule 424, if the Prospectus is required to be so filed.
(c) During the time when a prospectus is required to be
delivered under the Act, use its reasonable best efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Regulations, as from time to time in force, so far
as necessary to permit the continuance of sales of or dealings in the Securities
and the Underwriters' Securities in accordance with the provisions hereof and
the Prospectus. If at any time when a prospectus relating to the Securities or
the Underwriters' Securities is required to be delivered under the Act, any
event shall have occurred as a result of which, in the opinion of counsel for
the Company or counsel for any Underwriter, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the Prospectus to
comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act.
(d) Deliver to the Underwriters, without charge, such number of
copies of each Preliminary Prospectus and the Prospectus as the Underwriters may
reasonably request and, as soon as the Registration Statement or any amendment
or supplement thereto becomes effective, deliver to the Underwriters two (2)
signed copies of the Registration Statement, including exhibits, and all
post-effective amendments thereto and copies of all exhibits filed therewith or
incorporated therein by reference and signed copies of all consents of certified
experts.
(e) Endeavor in good faith, in cooperation with the
Underwriters, and Gersten, Savage, Kaplowitz, Fredericks , LLP at or prior to
the time the Registration Statement becomes effective, to qualify the Securities
for offering and sale under the securities laws of such jurisdictions as the
Underwriters may reasonably designate, provided that no such qualification shall
be required in any jurisdiction where, as a result thereof, the Company (i)
would be subject to service of general process or to taxation as a foreign
corporation doing business in such
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jurisdiction; or (ii) would be subject to qualification or "blue sky" in any
state which requires a lock-up of inside securities for a period greater than
two (2) years. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Underwriters agree that such action is not at the
time necessary or advisable, use its reasonable best efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction.
(f) Make generally available to its security holders as soon as
practicable, but not later than the first day of the fifteenth full calendar
month following the Effective Date, an earnings statement (which need not be
certified by independent public or independent certified public accountants
unless required by the Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Act) covering a period of at least twelve
(12) consecutive months beginning after the Effective Date.
(g) For a period of five (5) years from the Effective Date,
furnish to the Underwriter copies of such financial statements and other
periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to
each Underwriter (i) a copy of each periodic report the Company shall file with
the Commission, (ii) a copy of every press release and every news item and
article with respect to the Company or its affairs, which was released by the
Company, (iii) a copy of each Form 8-K or Schedule 13D, 13G, 14D-1 or 13E-4
received or prepared by the Company, and (iv) such additional documents and
information with respect to the Company or any future subsidiaries or affiliates
of the Company as the Underwriters may from time to time reasonably request.
(h) Apply the net proceeds from the offering received by it in a
manner consistent in all material respects with the caption "USE OF PROCEEDS" in
the Prospectus.
(i) Deliver to the Underwriters, prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and not file any such amendment or supplement to which
the Underwriters shall reasonably object, after being furnished such copy, in
writing with reasonable specificity as to the nature and extent of any
objection.
(j) Furnish to the Underwriters as early as practicable prior to
Closing Date I, but not later than two (2)
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full business days prior thereto, a copy of the latest available unaudited
interim financial statements of the Company (which in no event shall be as of a
date more than thirty (30) days prior to the Effective Date) which have been
read by the Company's independent accountants as stated in their letter to be
furnished to the Underwriter(s) pursuant to Section 7(g) hereof.
(k) For a period of three (3) years from Closing Date I, provide
the Underwriter(s), upon their reasonable request, at the Company's sole
expense, (i) with access to daily consolidated financial transfer sheets
relating to the Common Stock and designate American Stock Transfer & Trust Co.
as transfer agent for the Company's securities or such other transfer agent
mutually agreeable to the Company and the Underwriter(s) and (ii) to cause the
Company's depository to fax a "special security position report" to each
Underwriter on a weekly basis.
(l) For a period of three (3) years after Closing Date I,
nominate and use its best efforts to engage a designee of the Representative as
a nonvoting advisor to the Company's Board of Directors (the "Advisor") or in
lieu thereof to designate an individual for election as a director, in which
case the Company shall use its best efforts to have such individual elected as a
director. The designee may be a director, officer, partner, employee or
affiliate of the Representative and the Representative shall designate such
person in writing to the Board. In the event the Representative shall not have
designated such individual at the time of any meeting of the Board or such
person is unavailable to serve, the Company shall notify the Representative of
each meeting of the Board. An individual, if any, designated by the
Representative shall receive all notices and other correspondence and
communications sent by the Company to members of the Board. Such Advisor or
director, as the case may be shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to, food, lodging, and transportation. In addition, such Advisor or Director
shall be entitled to the same compensation as the Company gives to other
non-employee directors for acting in such capacity. The Company further agrees
that, during said three (3) year period, it shall schedule no less than four (4)
formal and "in person" meetings of its Board of Directors in each such year at
which meetings such Advisor shall be permitted to attend as set forth herein;
said meetings shall be held quarterly each year and thirty (30) days advance
notice of such meetings shall be given to the Advisor. Further, during such
three (3) year period, the Company shall give notice to the Representative with
respect to
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any proposed acquisitions, mergers, reorganizations or other similar
transactions.
The Company agrees to indemnify and hold harmless the
Underwriter(s) and such Advisor against any and all claims, actions, damages,
costs and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible, to include the
Advisor as an insured under such policy.
(m) Until the sooner of (i) seven (7) years from the date
hereof, or (ii) the sale to the public of the Underwriters' Securities, not take
any action or actions which may prevent or disqualify the Company's use of Form
SB-2 (or another appropriate form) for the registration under the Act of the
Underwriters' Securities and the shares of Common Stock underlying the Public
Warrants.
(n) For a period of five (5) years from the Effective Date, use
its best efforts to maintain the quotation of the Securities by Nasdaq [as well
as the listing thereof on the Boston Stock Exchange ("BSE")].
(o) Supply each Underwriter with one (1), and Gersten, Savage,
Kaplowitz, Fredericks LLP, counsel to the Underwriters, with two (2) bound
volumes of the underwriting materials within a reasonable time after the latest
Closing Date.
(p) For a period of two (2) years from the Effective Date, not
issue any other shares of Common Stock or Preferred Stock or securities
convertible into or exercisable for Common Stock or Preferred Stock without the
prior written consent of the Representative. Notwithstanding the foregoing, the
Company may issue securities (A) upon the exercise of any warrants or options
outstanding on the date hereof pursuant to the terms thereof; (B) pursuant to
contracts in force and effect on the date hereof in accordance with the terms
thereof; (C) the grant of stock options (and the issuance of securities
thereunder) pursuant to stock option plans in force on the date hereof; and (D)
the exercise of the Underwriters' Warrant.
(q) So long as the Securities or the Underwriters' Securities
are registered under the Exchange Act, hold an annual meeting of stockholders
for the election of directors within 180 days after the end of each of the
Company's
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fiscal years and, within 150 days after the end of each of the Company's fiscal
years, provide the Company's stockholders with the audited financial statements
of the Company as of the end of the fiscal year just completed prior thereto.
Such financial statements shall be those required by Rule 14a-3 under the
Exchange Act and shall be included in an annual report pursuant to the
requirements of such Rule.
(r) Engage a financial public relations firm reasonably
satisfactory to the Underwriter(s) as soon as possible after Closing Date I, and
continuously engage such firm, or an acceptable substitute firm for at least the
period ending twenty four (24) months after Closing Date I.
(s) Enter into the Underwriters Warrant Agreement and the
Financial Advisory and Investment Banking Agreement (the "Consulting Agreement")
in substantially the form filed as Exhibits to the Registration Statement.
(t) As soon as possible after Closing Date I, take all necessary
and appropriate actions to be included in Standard and Poor's Corporation
Descriptions or other equivalent manual and to maintain its listing therein for
a period of five (5) years from the Effective Date.
(u) Cause all of the Company's officers and directors and
stockholders to enter into written agreements (the "Lock-up Agreements") that,
for a period of 24 months from the Effective Date, they will not, without the
consent of the Representative, (i) publicly sell any securities of the Company
owned directly or indirectly by them or owned beneficially by them (as defined
in the Exchange Act), or (ii) otherwise sell, or transfer such securities unless
the transferee agrees in writing to be bound by an identical lock-up.
(v) Use its best efforts to obtain key-man life insurance in the
amount of $1,000,000 per policy on the lives of such executive officers of the
Company as the Representative shall request, with the Company named as
beneficiary of such policies.
(w) Use its best efforts to qualify its Common Stock and Public
Warrants for quotation on the NASDAQ system [and listing on the BSE].
(x) For a period of two years from the Effective Date, the
Company shall not issue any of its securities in any
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<PAGE>
offering pursuant to Regulation S under the 1933 Act, without the prior written
consent of the Representative.
Grant to the Representative a preferential right on the terms and
subject to the conditions set forth in this Section, for a period of three (3)
years from the Effective Date, to purchase for its account, or to sell for the
account of the any stockholders listed in the Prospectus under the caption
"PRINCIPAL STOCKHOLDERS" (the "Principal Stockholders"), any securities of the
Company, on terms not more favorable to the Principal Stockholders than they can
secure elsewhere, to purchase or sell any such securities. If the
Representative fails to notify the Principal Stockholder in writing of its
intention to act as underwriter or placement agents or otherwise participate or
introduce a third party to participate in such offering within fifteen (15) days
after receipt of a notice containing such proposal, then the Representative
shall have no further claim or right with respect to the proposal contained in
such notice. If, thereafter, such proposal is materially modified, the
Principal Stockholders shall in all respects have the same obligations and adopt
the same procedures with respect to such proposal as are provided hereinabove
with respect to the original proposal;
(z) Designate Royal Hutton as the Company's exclusive Warrant
Solicitation Agents in the event of any solicitation of the exercise of the
Public Warrants, in connection with a redemption of the Public Warrants or
otherwise, and shall pay to the Underwriters a Warrant Solicitation fee of five
(5%) percent of the exercise price of all solicited and exercised Public
Warrants, subject to the rules and regulations of the NASD with regard to such
fees.
(aa) Neither the Company nor any representative of the Company
has made or shall make any written or oral representation in connection with the
Offering and sale of the Securities or the Underwriter's Warrant which is not
contained in the Prospectus, which is otherwise inconsistent with or in
contravention of anything contained in the Prospectus, or which shall constitute
a violation of the Act, the Rules and Regulations, the Exchange Act or the rules
and regulations promulgated under the Exchange Act.
(ab) For so long as any Public Warrant is outstanding, the
Company shall, at its own expense: (i) use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or new registration
statements relating to the Public Warrants and the Common Stock underlying the
Public
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<PAGE>
Warrants to become effective in compliance with the Act and without any lapse of
time between the effectiveness of the Registration Statement and of any such
post-effective amendment or new registration statement; provided, however, that
the Company shall have no obligation to maintain the effectiveness of such
Registration Statement or file a new Registration Statement, or to keep
available a prospectus at any time at which such registration or prospectus is
not then required; (ii) cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Public Warrant; (iii) furnish to the
Underwriters and dealers as many copies of each such Prospectus as the
Underwriters or dealers may reasonably request; and (iv) maintain the "blue sky"
qualification or registration of the Public Warrants and the Common Stock
underlying the Public Warrants, or have a currently available exemption
therefrom, in each jurisdiction in which the Securities were so qualified or
registered for purposes of the Offering.
6. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay all expenses (other than
fees of counsel to the Underwriters) in connection with the offering, including
but not limited to, (i) the preparation, printing, filing and mailing (including
the payment of postage and overnight delivery with respect to such mailing) of
the Registration Statement and the Prospectus and the printing and mailing of
this Agreement and related documents, including the cost of all copies thereof
and of the Preliminary Prospectus and of the Prospectus and any amendments or
supplements thereto supplied to the Underwriter(s) in quantities as hereinabove
stated, (ii) the printing, engraving, issuance and delivery of the shares of
Common Stock, the Public Warrants, and the Underwriters Warrants, including any
transfer or other taxes payable thereon, (iii) the qualification of the
Securities, the Underwriters Warrants and the Underwriters Securities under
state or foreign securities or "Blue Sky" laws and determination of the status
of such securities under legal investment laws, including the costs of printing
and mailing the "Preliminary Blue Sky Memorandum," and "Supplemental Blue Sky
Memorandum" and "Legal Investments Survey," if any, and the fees and
disbursements of counsel for the Underwriters relating to Blue Sky matters
(which fees shall be payable by the Company in the sum of $35,000, $5,000 of
which has previously been paid), (iv) advertising costs and expenses including
but not limited to the reasonable costs and expenses in connection with the
"road show," information meetings and presentations, bound volumes and
"tombstones" in publications selected by the Underwriters and prospectus
memorabilia, (v) costs
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and expenses in connection with due diligence investigations, including but not
limited to the reasonable fees of any independent counsel or consultant
retained, phone calls relating to due diligence investigations, and all
reasonable travel and lodging expenses incurred by you and/or counsel to the
Underwriters in connection with visits to, and examination of, the Company's
premises, (vi) fees and expenses of the transfer agent and warrant agent,
(vii) application and listing fees for inclusion in Moody's OTC Manual or
Standard and Poor's Corporation Descriptions or other equivalent manuals, and
(viii) the fees payable to the NASD and Nasdaq. The $35,000 payment to counsel
for the Underwriters shall not include fees of special counsel if same is
required to be incurred in a merit review state which may require local counsel.
In this connection, Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Underwriters. Payments with regard
to items (i), (iii), (iv) and (v) shall be made on each of Closing Date I and
Closing Date II.
(b) The Company shall pay to the Representative an aggregate
non-accountable expense allowance, in addition to the expenses payable pursuant
to Section 6(a), equal to three (3%) percent of the gross proceeds received by
the Company from the sale of the Securities. In the event that the
Representative terminates the offering or are unable to consummate the offering
within nine (9) months of the date hereof, the advances toward the
non-accountable expense allowance shall become accountable and shall be
returnable to the Company to the extent its out-of-pocket expenses are less than
the amount advanced to the Underwriters, so that the Representative is
reimbursed only for its actual accountable out-of-pocket expenses.
7. CONDITIONS OF UNDERWRITERS OBLIGATIONS. The obligations of
the Underwriter(s) to purchase and pay for the Securities, as provided herein,
shall be subject to the continuing accuracy in all material aspects of the
representations and warranties of the Company as of the date hereof and as of
each of the Closing Dates, to the accuracy in all material respects of the
statements of officers of the Company made pursuant to the provisions hereof and
to the performance by the Company of its obligations hereunder in all material
respects and to the following conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by you, and, at each of the
Closing Dates, no stop
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order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Gersten, Savage, Kaplowitz, Fredericks , LLP, counsel
to the Underwriter(s).
(b) At Closing Date I, the Underwriter(s) shall have received
the favorable opinion of Richard I Anslow Associates, counsel to the Company,
dated Closing Date I, addressed to the Underwriter(s) and in form and substance
satisfactory to Gersten, Savage, Kaplowitz, Fredericks , LLP, counsel to the
Underwriter(s), in substantially the form attached as Exhibit A hereto.
(c) On or prior to each of Closing Date I and Closing Date II,
counsel for the Underwriters shall have been furnished such documents,
certificates and opinions as it may reasonably require for the purpose of
enabling it to review or pass upon the matters referred to in Section 7(b), or
in order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(d) Prior to each of Closing Date I and Closing Date II,
(i) there shall have been no material adverse change, or development involving a
material adverse prospective change, in the conditions or prospects of the
business activities, financial or otherwise, of the Company from the latest
dates as of which such conditions are set forth in the Registration Statement
and Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company from the latest date as of which
their respective financial conditions are set forth in the Registration
Statement and Prospectus which is materially adverse to the Company; (iii) the
Company shall not be in material default under any provision of any instrument
relating to any outstanding indebtedness; (iv) no material amount of the assets
of the Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and Prospectus; (v) no action, suit or proceeding, at law
or in equity, shall be pending or threatened against the Company before or by
any court or Federal or state commission, board or other administrative agency
wherein an unfavorable result, decision, ruling or finding would materially
adversely affect the business, prospects, operations, or financial condition or
income of the Company, except as set forth in the Registration Statement and
Prospectus and except where such a result is deemed remote by counsel to the
Company
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with respect to such action or proceeding; (vi) no stop order shall have been
issued under the Act and no proceedings with respect thereto shall have been
initiated or threatened by the Commission; (vii) the market for securities in
general or political, financial or economic conditions shall not have materially
adversely changed from those reasonably foreseeable as of the date hereof as to
render it impracticable in the Underwriters reasonable judgment to make a public
offering of the Securities, and there has not been a material adverse change in
market levels for securities in general or financial or economic conditions
which render it inadvisable in the Underwriters judgment to proceed; and
(viii) there shall not have commenced or occurred a war or Act of God or other
calamity which would have a material adverse effect on, or result in a material
loss to, the Company.
The Company agrees and acknowledges that the Underwriter(s)
shall be the sole determining parties as to the presence of any such conditions,
events, occurrences and provisions set forth in this Section 7(d).
(e) At each of Closing Date I and Closing Date II, the
Underwriter(s) shall have received a certificate of the Company signed by the
President and the Secretary of the Company, dated Closing Date I and Closing
Date II, respectively, to the effect that the conditions set forth in section
7(d)(i) through (vi) above have been satisfied and that, as of Closing Date I
and Closing Date II, respectively, the representations and warranties of the
Company set forth in Section 2 hereof are true and correct.
(f) By the Effective Date, the Underwriter(s) shall have
received clearance from the NASD as to the amount of compensation allowable or
payable to the Underwriter(s), as described in the Registration Statement.
(g) At the time this Agreement is executed, and at each of
Closing Date I and Closing Date II, the Underwriter(s) shall have received a
letter, addressed to the Underwriter(s) and in form and substance reasonably
satisfactory in all respects (including the nonmaterial nature of the changes or
decreases, if any, referred to in clause (3) below) to the Underwriter(s) and to
Gersten, Savage, Kaplowitz, Fredericks LLP, counsel for the Underwriter(s), from
Weinick Sanders Leventhal & Co., LLP, dated as of the date of this Agreement and
as of each of Closing Date I and Closing Date II:
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(i) confirming that they are independent accountants with respect to the
Company within the meaning of the Act and the applicable Regulations;
(ii) stating that in its opinion the financial statements of the Company
included in the Registration Statement and Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
published Regulations thereunder;
(iii) stating that, they have read all of the minutes of meetings of the
shareholders and the Board of Directors of the Company as set forth in the
minute books from incorporation through [not more than 5 days before date of
letter], officials of the Company having advised us that the minutes of all such
meetings through that date were set forth therein and have carried out other
procedures through _________:
(A) With respect to the three-month periods ended ________, they have:
(1) performed the procedures specified by the American Institute
of Certified Public Accountants for a review of interim financial information on
the unaudited condensed consolidated balance sheet at __________, and the
unaudited statements of operations, stockholders' equity (deficit) and cash
flows for the three-month periods ended ________ and _________, included in the
Registration Statement ("Interim Financials"), and
(2) inquired of certain officials of the Company who have
responsibility for financial and accounting matters as to whether the Interim
Financials, comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules regulations.
(B) With respect to latest interim period ending as of a date not
later than 30 days prior to the Effective Date, they have:
(1) read the unaudited consolidated financial statements for
such periods of both 1997 and 1998 furnished to them by the Company, officials
of the Company having advised us that no such financial statements as of any
date or for any period subsequent to ______ were available; and
(2) Inquired of certain officials of the Company ho have
responsibility for financial and accounting matters as to
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whether the Interim Financials are stated on a basis substantially consistent
with that of the audited consolidated financial statements in the Registration
Statement.
(C) Nothing came to their attention as a result of the foregoing
procedures that caused them to believe that:
(1) any material modifications should be made to the Financials
, for them to be in conformity with generally accepted accounting principles;
(2) the Interim Financials do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
related published rules and regulations; or
(3) (I) at ________, there was any change in the capital stock,
increase in long-term debt, increase in net current liabilities or increase in
stockholders' deficit of the consolidated companies as compared with the amounts
in the March 31, 1998, balance sheet forming a part of the Interim Financials;
or (II) for the period from _____ to _____, there was any decrease, as compared
with the corresponding period in the preceding year, in consolidated net sales
or any increase in consolidated net loss, except in all instances for changes,
increases, or decreases which the Registration Statement discloses have occurred
or may occur, except as stated therein:
(D) Stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including
worksheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement;
and
(iv) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriters may reasonably request.
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(h) All proceedings taken in connection with the authorization,
issuance or sale of the Securities, the Underwriters' Warrants and the
Underwriters' Securities as herein contemplated shall be reasonably satisfactory
in form and substance to the Underwriters and to Gersten, Savage, Kaplowitz,
Fredericks LLP counsel to the Underwriters.
(i) On each of Closing Date I and Closing Date II, there shall
have been duly tendered to you for your account the appropriate number of
Securities and individually for each Underwriter's own account the Underwriters'
Warrants.
(j) No order suspending the sale of the Securities in any
jurisdiction designated by you pursuant to Section 5(e) hereof shall have been
issued on either Closing Date I or Closing Date II, and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Underwriters or
the Company, shall be contemplated.
(k) Prior to each of Closing Date I and Closing Date II there
shall not have been received or provided by the Company's independent public
accountants or attorneys, qualifications to the effect of either difficulties in
furnishing certifications as to material items including, without limitation,
information contained within the footnotes to the financial statements, or as
affecting matters incident to the issuance and sale of the Securities or as to
corporate proceedings or other matters.
(l) On or prior to Closing Date I, the Underwriter's Warrant
Agreement and the Financial Advisory and Investment Banking Agreement shall have
been executed and delivered by the Company, and the Lock-Up Agreements shall
have been executed and delivered by all of the Company's officers, directors and
stockholders.
Any certificate signed by any officer of the Company and
delivered to the Underwriters or to counsel to the Underwriter shall be deemed a
representation and warranty by the Company to the Underwriters as to the
statements made therein. If any condition to the Underwriter's obligations
hereunder to be fulfilled prior to or at any Closing Date is not so fulfilled,
the Underwriters may terminate this Agreement or, if the Underwriter so elects,
may waive any such conditions which have not been fulfilled or extend the time
for their fulfillment.
8. INDEMNIFICATION.
27
<PAGE>
(a) The Company shall indemnify and hold harmless each of the
Underwriter(s), and each controlling person, if any, who controls each of the
Underwriters (within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act), against any and all liabilities, claims, lawsuits, including
any and all awards and/or judgments to which it may become subject under the
Act, the Exchange Act or any other Federal or state statute, at common law or
otherwise, insofar as said liabilities, claims and lawsuits (including awards
and/or judgments) arise out of or are in connection with the Registration
Statement, Prospectus and related Exhibits filed under the Act, except for any
liabilities, claims and lawsuits (including awards and/or judgments), arising
out of acts or omissions of the Underwriter(s). In addition, the Company shall
also indemnify and hold harmless the Underwriter(s) against any and all costs
and expenses, including reasonable counsel fees, incurred or relating to the
foregoing liabilities, claims and lawsuits to which the indemnity applies.
The Underwriter(s) shall give the Company prompt notice of
any such liability, claim or lawsuit which the Underwriter(s) contend is the
subject matter of the Company's indemnification, and the Company thereupon shall
be granted the right to take any and all necessary and proper action, at its
sole cost and expense, with respect to such liability, claim and lawsuit,
including the right to settle, compromise and dispose of such liability, claim
or lawsuit, excepting therefrom any and all proceedings or hearings before any
regulatory bodies and/or authorities.
The Underwriter(s) shall indemnify and hold harmless the
Company, and each controlling person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against any and all liabilities, claims, lawsuits, including any and all awards
and/or judgments to which it may become subject under the Act, the Exchange Act
or any other Federal or state statute, at common law or otherwise, insofar as
said liabilities, claims and lawsuits (including awards and/or judgments) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact required to be stated or necessary to make the statement therein,
not misleading, which statement or omission was made in reliance upon
information furnished in writing to the Company by or on behalf of the
Underwriter(s) for inclusion in the Registration Statement or Prospectus or any
amendment or supplement thereto. In addition, the Underwriter(s) shall also
28
<PAGE>
indemnify and hold harmless the Company against any and all costs and expenses,
including reasonable counsel fees, incurred or relating to the foregoing.
The Company shall give to the Underwriter(s) prompt notice
of any such liability, claim or lawsuit which the Company contends is the
subject matter of the Underwriter's indemnification and the Underwriter(s)
thereupon shall be granted the right to take any and all necessary and proper
action, at their sole cost and expense, with respect to such liability, claim
and lawsuit, including the right to settle, compromise or dispose of such
liability, claim or lawsuit, excepting therefrom any and all proceedings or
hearings before any regulatory bodies and/or authorities.
(b) In order to provide for just and equitable contribution
under the Act in any case in which (i) any person entitled to indemnification
under this Section 8 makes claim for indemnification pursuant hereto but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 8, then, and in each such case, the Company and each of the
Underwriter(s) shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after any contribution from others) in
such proportion taking into consideration the relative benefits received by each
party from the offering covered by the Prospectus (taking into account the
portion of the proceeds of the offering realized by each), the parties' relative
knowledge and access to information concerning the matter with respect to which
the claim was assessed, the opportunity to correct and prevent any statement or
omission and other equitable considerations appropriate under the circumstances;
provided, however, that notwithstanding the above in no event shall the
Underwriter(s), in the aggregate, be required to contribute any amount in excess
of 10% of the initial public offering price of the Securities; and provided,
that, in any such case, 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 was not guilty of such fraudulent
misrepresentation.
29
<PAGE>
Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is to be made against another party (the "contributing party"), notify
the contributing party of the commencement thereof, but the omission so to
notify the contributing party will not relieve it from any liability which it
may have to any other party other than for contribution hereunder. In case any
such action, suit or proceeding is brought against any party, and such party
notifies a contributing party or his or its representative of the commencement
thereof within the aforesaid fifteen (15) days, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified. Any such contributing party shall not be
liable to any party seeking contribution on account of any settlement of any
claim, action or proceeding effected by such party seeking contribution without
the written consent of such contributing party. The indemnification provisions
contained in this Section 8 are in addition to any other rights or remedies
which either party hereto may have with respect to the other or hereunder.
9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY.
Except as the context otherwise requires, all representations, warranties
and agreements contained in this Agreement shall be deemed to be
representations, warranties and agreements at the Closing Dates, and such
representations, warranties and agreements of the Underwriter(s) and the
Company, including the indemnity agreements contained in Section 8 hereof, shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any of the Underwriters, the Company or any controlling
person, and shall survive termination of this Agreement or the issuance and
delivery of the Securities to the Underwriters until the earlier of the
expiration of any applicable statute of limitations and the seventh anniversary
of Closing Date II, at which time the representations, warranties and agreements
shall terminate and be of no further force and effect.
10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF.
(a) This Agreement shall become effective at 9:30 a.m., New York
time, on the first full business day following the day on which the Registration
Statement becomes effective or at the time of the initial public offering by the
Underwriters of the Securities, whichever is earlier. The time of the initial
public
30
<PAGE>
offering, for the purpose of this Section 10, shall mean the time, after the
Registration Statement becomes effective, of the release by the Underwriters for
publication of the first newspaper advertisement which is subsequently published
relating to the Securities or the time, after the Registration Statement becomes
effective, when the Securities are first released by the Underwriter(s) for
offering by the Underwriter(s) or dealers by letter or telegram, whichever shall
first occur. The Underwriter(s) may prevent this Agreement from becoming
effective without liability to any other party, except as noted below, by giving
the notice indicated below in this Section 10 before the time this Agreement
becomes effective. The Underwriters agree to give the undersigned notice of the
commencement of the offering described herein.
(b) The Underwriter(s) shall have the right, in their sole
discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over-Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, if any of the conditions
enumerated in Section 7 are not either fulfilled or waived by the Underwriter(s)
on or before any Closing Date.
(c) If the Underwriter(s) elect to prevent this Agreement
from becoming effective or to terminate this Agreement as provided in this
Section 10, the Company shall be notified on the same day as such election is
made by the Underwriter(s) by telephone or telegram, confirmed by letter.
(d) Anything herein to the contrary notwithstanding, if this
Agreement shall not be carried out within the time specified herein, or any
extensions thereof granted by the Underwriters, by reason of any failure on the
part of the Company to perform any undertaking or satisfy any condition of this
Agreement by it to be performed or satisfied then, in addition to the
obligations assumed by the Company pursuant to Section 6(a) hereof, the
Underwriters shall provide the Company with a statement of the Underwriters'
accountable expenses.
(e) In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
(f) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or termination of this Agreement, and whether
or not this Agreement is otherwise
31
<PAGE>
carried out, the provisions of Section 8 shall not be in any way affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Underwriters,
shall be mailed, delivered or telegraphed and confirmed to Royal Hutton
Securities Corp., 1700 South Dixie Highway, Boca Raton, Florida 33432,
Attention: President, with a copy to Gersten, Savage, Kaplowitz, Fredericks LLP
101 E. 52nd Street, New York, New York 10022, Attention: Darren Ross, Esq., and
if to the Company, shall be mailed, delivered or telegraphed and confirmed to it
at 1000 South Avenue, Staten Island, New York 10314 with a copy to Richard I.
Anslow and Associates, Freehold Office Plaza, 4255 Route 9, Suite D, Freehold,
NJ 07728.
12. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 8 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.
13. CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to conflict of laws. The parties agree to submit themselves to the
jurisdiction of the courts of the State of New York or of the United States of
America for the Southern District of New York, which shall be the sole tribunals
in which any parties may institute and maintain a legal proceeding against the
other party arising from any dispute in this Agreement. In the event either
party initiates a legal proceeding in a jurisdiction other than in the courts of
the State of New York or of the United States of America for the Southern
District of New York, the other party may assert as a complete defense and as a
basis for dismissal of such legal proceeding that the legal proceeding was not
initiated and maintained in the courts of the State of New York or of the United
States of America for the Southern District of New York, in accordance with the
provisions of this Section 13.
14. ENTIRE AGREEMENT. This Agreement, the Warrant Agreement, the
Underwriter's Warrant Agreement and the Financial Advisory and Investment
Banking Agreement contain the entire
32
<PAGE>
agreement between the parties hereto in connection with the subject matter
hereof and thereof.
If the foregoing correctly sets forth the understanding between
the Underwriter(s) and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
Silver Star Foods, Inc.
By:
-----------------------------
Name: Michael Trotta
Title: President
Accepted as of the date
first above written.
New York, New York
Royal Hutton Securities Corp.
By:
---------------------------
Name:
Title:
33
<PAGE>
Exhibit 4.2
________Shares Exercisable
subject to the provisions set forth below.
Warrant for Purchase of
Common Stock of Silver
Star Foods, Inc. (a New
York Corporation)
THIS WARRANT WILL BE VOID AFTER_______________, 199_.
This certifies that_____________ is entitled to purchase at any time on
or before_______________, 199_ , but not thereafter, shares, $.0001 par
value, which have been duly authorized and set aside for issuance, of
the common stock of Silver Star Foods, Inc., (the "Company"), a
corporation duly organized and existing under the laws of the State of
New York as such stock shall be constituted at the time of purchase, at
the price of $ per share and the surrender of this warrant with the
subscription form on the reverse side hereof, duly executed, at the
office of American Stock Transfer & Trust Company (the "Warrant Agent")
in the City of New York, State of New York, with payment in full for
the stock purchased in cash or by certified or bank cashiers check
payable to the order of the Company at the time of the surrender of
this warrant, as aforesaid.
This warrant is issued and subject to the terms and provisions of a Warrant
Agreement dated as of__________________,199 , between the Company and the
Warrant Agent, to all of which terms and provisions the holder hereof assents by
accepting this warrant. Anything herein or in the said stock purchase Warrant
Agreement contained to the contrary notwithstanding, in case of consolidation or
merger of the company with or into any other corporation, or in case of sale by
the Company of all or substantially all its assets, as more particularly set
forth in the said stock purchase warrant agreement, or in case of issue by the
Company of additional shares of common stock at a lower price than the price at
which shares of common stock might have been purchased hereunder immediately
prior to the issue of such additional shares, the number and character of the
shares of stock or other securities or assets which the holder hereof shall
thereafter have the right to purchase, and the price to be paid therefor, shall
be adjusted and determined as provided in the said warrant agreement. The holder
of this warrant, as such, shall have none of the preemptive or other rights of a
holder of common stock. This warrant is issued subject, also, to the following
terms and conditions, to all of which each and every holder hereof assents by
accepting this warrant; all rights under and by virtue of this warrant shall
pass and be transferred by the delivery hereof by any person in possession of
the same, however, such possession may have been acquired, if properly assigned
in blank or if properly assigned to a
<PAGE>
specified person by delivery hereof to such person; shall vest title thereto in
the transferee to the same extent, for all intents and purposes, as in the case
of the delivery under similar circumstances of a negotiable instrument payable
to bearer. Subject to the foregoing, the Company and the Warrant Agent shall be
entitled to treat the bearer of this warrant as the absolute owner hereof for
all purposes and shall not be affected by any notice to the contrary.
This warrant does not entitle any holder hereof to any of the rights of a
shareholder of the Company.
This warrant shall be wholly void and of no effect after______________,199_.
Silver Star Foods, Inc.
/s/ Michael Trotta
-------------------------
Michael Trotta, President
Countersigned
Warrant Agent
Transfer Clerk
<PAGE>
(Reverse Side)
In case, prior to the expiration of this warrant by exercise hereof or
by its term:
1. (a) The Company shall be recapitalized through the subdivision of
its outstanding shares of common stock into a greater number of shares, or shall
by exchange or substitution of or for its outstanding common stock or otherwise,
reduce the number of such shares, then in each such case the number of shares
deliverable upon the exercise of this warrant shall be changed in proportion to
such increase or decrease of the outstanding shares of such common stock of the
Company, without any change in the payment by the warrant holder from the
payment specified on the faces of the warrant.
(b) A dividend shall be declared or paid at any time on the common
stock of the Company in its common stock or in securities convertible into
common stock of the corporation, then in each such case the number of shares
deliverable upon the exercise thereafter of this warrant, shall, without
requiring any payment by the warrant holder in addition to the one specified on
the face hereof, be increased in proportion to the increase, through such
dividend, in the number of outstanding shares of common stock of the
corporation. In the computation of the increased number of shares deliverable
upon the exercise of this warrant, any dividend paid or distributed upon the
common stock in securities convertible into shares of common stock, shall be
treated as a dividend paid in common stock to the extent that shares of stock
are issuable upon the conversion thereof. The obligations of the Company and the
rights of the holder hereof shall not be affected by the exercise of any
conversion privileges heretofore granted to the holders of any of the stock or
securities of the Company or of any other company.
(c) On or before__________, pm.,_______________, 199_ the Company
shall offer any shares of common stock of any class, or securities convertible
into or evidencing the right to purchase common stock of any class, of record on
a date subsequent to the issue of this warrant, the holder hereof will become
entitled, provided this warrant is not exercised on or before the record date of
the common stockholders entitled to such subscription rights, to subscribe for
and purchase, at the same price at which such stock or securities is offered to
the holders of the common stock, the amount of such stock or securities for
which he would have been entitled to subscribe if he had been the holder of
record on such record date of the number of shares of common stock then
purchasable under this warrant. The record date for determining the warrant
holders entitled to such subscription rights shall be the same as the record
date for determining the holders of the common stock entitled thereto, and when
notice of such subscription rights is given to the common stockholders of
record, notice thereof shall likewise be given to the registered holders of
warrants outstanding at the time, and the warrant holders shall be given the
same opportunity to exercise such subscription rights as the holders of the
common stock.
(d) The Company shall, at any time while any of the warrants be
outstanding, declare a dividend on its common stock (other than a dividend not
in excess of the regular dividend per share for any fiscal year) and shall give
notice thereof to the registered holder of this warrant and such dividends so
declared shall be made payable only to the stockholders of
<PAGE>
record on a date at least ten days subsequent to the exercise of such warrants
prior to such record date.
(e) The Company shall be recapitalized by reclassifying its
outstanding common stock without par value into stock with par value, or
changing common stock of par value to stock without par value, or the Company or
a successor corporation shall consolidate or merge with, or convey all, or
substantially all, of its or any successor corporation's property or assets to,
any other corporation or corporations (any such corporation being included
within the meaning "successor corporation" hereinbefore used in the event of any
consolidation or merger of such corporation with, or the sale of, all or
substantially all of the property of such corporation to another corporation or
corporations) then, as a condition to such recapitalization consolidation,
merger, or conveyance, lawful and adequate provision shall be made whereby the
holder of each warrant shall thereafter have the right to purchase, upon the
basis and upon the terms and conditions specified in this warrant, in lieu of
the shares of common stock of the corporation theretofore purchasable upon the
exercise of this warrant, such shares of stock, security, or assets as may be
issued or payment with respect to, or in exchange for, the number of shares of
common stock of the Company theretofore purchasable upon the exercise of this
warrant had such recapitalization, consolidation, merger, or conveyance not
taken place; and in any such event the rights of the warrant holder to an
adjustment of the number of shares of common stock purchasable upon the exercise
of this warrant as hereinbefore provided, shall continue and be preserved in
respect of any stock which the warrant holder becomes entitled to purchase. It
shall be a condition of such consolidation, merger, or conveyance that each
successor corporation shall assume in manner and form satisfactory to the
transfer agent, the obligation to deliver to the warrant holder, upon the
exercise of this warrant, such shares of stock, securities, or assets as, in
accordance with the provisions of this warrant, shall have been provided for the
purpose. The said transfer agent shall assume no liability for its exercise of
discretion hereunder other than willful wrongdoing.
2. This warrant shall be deemed to have been exercised, and the person
exercising the same to have become a common stockholder of record of the
corporation, for the purposes of receiving dividends and for all other purposes
whatsoever as of the date when he surrendered this warrant accompanied by
payment in cash, as herein provided. The corporation agrees that, while this
warrant shall remain valid and outstanding, its stock transfer books shall not
be closed for any purpose whatsoever except under arrangements which shall
insure to persons exercising warrants or applying for transfer of stock within
three days after the books shall have been reopened all rights and privileges
which they might have had or received if the stock transfer books had not been
closed and they had exercised their warrants at any time during which such
transfer books shall have been closed.
3. Upon each increase of the number of shares of common stock
of the Company deliverable upon the exercise of this warrant, or in the event of
changes in the rights of the warrant holders by reason of other events
hereinbefore set forth, then in each such case the Company shall forthwith file
with the transfer agent a certificate executed by its president or one of its
vice-presidents, and attested by its secretary or one of its assistant
secretaries, stating the increased number of shares so deliverable or specifying
the other shares of stock, securities or
<PAGE>
assets, and the amount thereof so deliverable and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
Upon each increase of the number of shares of common stock of the
Company, deliverable upon the exercise of this warrant, the increased number of
shares so deliverable shall be calculated only to the nearest hundredth of one
share. No fractions of shares shall be issued upon the exercise of this warrant,
but in lieu thereof the Company shall issue fractional scrip certificates in
bearer form and in denominations of one-one-hundredth of one share, and
multiples thereof, not entitling the bearer to vote or receive dividends but
which may be surrendered with other similar scrip certificates so as to
aggregate one or more whole shares for a stock certificate or certificate
representing the number of whole shares so aggregated at any time on or before
ten days after the expiration date of this warrant.
4. The Company covenants, at all times when the warrants are outstanding
and in effect, to reserve unissued, sufficient common stock, and to deliver
stock pursuant to the exercise of this warrant, subject to consolidation,
merger, or sale, as above set forth. The Company covenants that in the event
that stock or other securities of the Company or subsidiaries are hereafter
issued, carrying conversion privileges or bearing stock purchase warrants for
common stock of the Company, then the rates of conversion, or the purchase
prices provided by such warrants, shall not be more favorable for any period
than the prices provided (for such period) by this warrant, unless the holder
hereof shall be entitled to exercise this warrant at prices at least as
favorable as the price so specified in such purchase warrants, or to an increase
in the number of shares purchasable so as to give to the holder hereof equal
rights with the holders of such conversion privileges. In such case, the Company
covenants to file with the transfer agent a statement of the rights of the
warrant holders as so modified.
5. Wherever the term "holder", "warrant holder", or "holder of this
warrant", is used herein, it shall be construed to mean the registered holder
and wherever notice is required by this warrant to be given to the warrant
holder it shall be sufficient if mailed to the last known address of said holder
as same appears on the books of the Company.
<PAGE>
Exhibit 4.3
AGREEMENT, dated this __th day of _____, 1998 by and between SILVER
STAR FOODS, INC., a New York corporation (the "Company"), and AMERICAN STOCK
TRANSFER & TRUST COMPANY, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of up to
1,100,000 shares of the Company's common stock, $.01 par value ("Common Stock"),
and 2,200,000 redeemable warrants, entitling the holder to purchase one share of
Common Stock ("Redeemable Warrants") (collectively referred to as the
"Securities"), (ii) the over-allotment option to purchase up to 165,000 shares
of Common Stock and/or 330,000 Redeemable Warrants (the "Over-allotment
Option"), and (iii) the sale to Royal Hutton Securities Corp. its successors and
assigns ("Royal Hutton") of warrants (the "Underwriter's Warrants") to purchase
up to 110,000 shares of Common Stock and/or 220,000 Redeemable Warrants, such
Redeemable Warrants, except as otherwise set forth herein, being identical to
the Redeemable Warrants being sold to the public (the Redeemable Warrants
issuable upon the exercise of the Underwriter's Warrants are referred to as the
"Common Stock Warrants"), the Company will issue up to 2530,000 Redeemable
Warrants and may issue up to 220,000 Common Stock Warrants (subject to increase
as provided in the Underwriter's Warrant Agreement); and
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Redeemable Warrants and the Common Stock Warrants
(collectively, the "Warrants"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer and exchange of certificates representing the
Warrants and the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Underwriter, the
<PAGE>
holders of certificates representing the Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. DEFINITIONS. AS USED HEREIN, THE FOLLOWING TERMS SHALL HAVE THE
FOLLOWING MEANINGS, UNLESS THE CONTEXT SHALL OTHERWISE REQUIRE:
(a) "Common Stock" shall mean the common stock of the Company, par
value $.0001 per share.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall be
administered, which office is located on the date hereof at _________________.
(c) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the Warrant Certificate representing such Warrant,
with the exercise form thereon duly executed by the Registered Holder hereof
with such Registered Holder's signature guaranteed, and (ii) payment in cash or
by bank or cashier's check made payable to the Warrant Agent for the account of
the Company, of the amount in lawful money of the United States of America equal
to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean the earlier of the date
upon which the Company gives a notice of redemption of the Redeemable Warrants
or, ___________, 1999 for the Redeemable Warrants and for the Common Stock
Warrants.
(e) "Initial Warrant Redemption Date" shall mean ________, 1999,
unless Royal Hutton shall have consented in writing to the redemption at an
earlier date, in which event Initial Warrant Redemption Date shall mean such
earlier date.
(f) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8, $6.00 per share of Common Stock.
(g) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6.
(h) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation (regardless of whether
or not at the time stock of any other class or classes of such corporation shall
2
<PAGE>
have or may have voting power by reason of the happening of any contingency) is
at the time directly or indirectly owned by the Company or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.
(i) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, or its authorized successor.
(j) "Underwriting Agreement" shall mean the underwriting agreement
dated _______, 1998 between the Company and Royal Hutton, relating to the
purchase for resale to the public of the Securities.
(k) "Underwriter's Warrant Agreement" shall mean the agreement dated
as of _________, 1998 between the Company and Royal Hutton relating to and
governing the terms and provisions of the Underwriter's Warrants.
(l) "Warrant Certificate" shall mean a certificate representing each
of the Warrants substantially in the form annexed hereto as Exhibit A.
(m) "Warrant Expiration Date" shall mean, unless the Warrants are
redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (Eastern
time) on _____, 2003 for the Redeemable Warrants and for the Common Stock
Warrants or, if such date shall in the State of New York be a holiday or a day
on which banks are authorized to close, than 5:00 p.m. (Eastern time) on the
next following day which in the State of New York is not a holiday or a day on
which banks are authorized to close.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) One Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase at the Purchase Price
therefor from the Initial Warrant Exercise Date until the Warrant Expiration
Date one share of Common Stock upon the exercise thereof, subject to
modification and adjustment as provided in Section 8
(b) Upon execution of this Agreement, Warrant Certificates
representing 2,200,000 Redeemable Warrants to purchase up to an aggregate of
2,200,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8) shall be executed by the Company and delivered to the
Warrant Agent.
(c) Upon exercise of the Over-allotment Option, in whole or in part,
and payment of the applicable sums, Warrant Certificates representing up to
330,000 Redeemable Warrants to purchase up to
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an aggregate of 330,000 shares of Common Stock (subject to modification and
adjustment as provided in Section 8) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants as provided therein,
and payment of the applicable exercise price, Warrant Certificates representing
220,000 Common Stock Warrants to purchase up to an aggregate of 220,000 shares
of Common Stock (subject to modification and adjustment as provided in Section 8
hereof and in the Underwriter's Warrant Agreement), shall be executed by the
Company and delivered to the Warrant Agent.
(e) From time to time, up to the Warrant Expiration Date, as the case
may be, the Warrant Agent shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiplies thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. Except as provided in Section 7 hereof, no Warrant Certificates
shall be issued except (i) Warrant Certificates initially issued hereunder,
(ii) Warrant Certificates issued upon any transfer or exchange of Warrants,
(iii) Warrant Certificates issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant Certificates
issued upon exercise of the Underwriter's Warrant Agreement (including Common
Stock Warrants in excess of 110,000 Underwriter's Warrants issued as a result of
the antidilution provisions contained in the Underwriter's Warrant Agreement),
and (v) at the option of the Company, Warrant Certificates in such form as may
be approved by its Board of Directors, to reflect any adjustment or change in
the Purchase Price, the number of shares of Common Stock purchasable upon
exercise of the Warrants or the Redemption Price therefor made pursuant to
Section 8 hereof.
SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage. The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed
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Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company.
SECTION 4. EXERCISE.
(a) Warrants may be exercised commencing at any time on or after the
Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon
the terms and subject to the conditions set forth herein (including the
provisions set forth in Sections 5 and 9 hereof) and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date, provided that the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof with such Registered Holder's
signature guaranteed, together with payment in cash or by bank or cashier's
check made payable to the order of the Company, of an amount in lawful money of
the United States of America equal to the applicable Purchase Price has been
received in good funds by the Warrant Agent. The person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of such securities as of the close of business on the Exercise Date.
As soon as practicable on or after the Exercise Date and in any event within
five business days after such date, upon due exercise of Warrants, the Warrant
Agent on behalf of the Company shall cause to be issued to the person or persons
entitled to receive the same a Common Stock certificate or certificates for the
shares of Common Stock deliverable upon such exercise, and the Warrant Agent
shall deliver the same to the person or persons entitled thereto. Upon the
exercise of any two or more even whole number multiples of Warrants, the Warrant
Agent shall promptly notify the Company in writing of such fact and of the
number of securities delivered
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upon such exercise and, subject to subsection (b) below, shall cause all
payments of an amount in cash or by check made payable to the order of the
Company, equal to the Purchase Price, to be deposited promptly in the Company's
bank account.
(b) At any time upon the exercise of Warrants after one year and one day
from the date hereof, (i) the market price of the Company's Common Stock is
equal to or greater than the Purchase Price, (ii) the exercise of the Warrant is
solicited by Royal Hutton at such time while Royal Hutton is a member of the
National Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant is
not held in a discretionary account, (iv) disclosure of the compensation
arrangement is made in documents provided to the holders of the Warrants, and
(v) the solicitation of the Warrant is not in violation of Regulation M
promulgated under the Securities Exchange Act of 1934, then Royal Hutton shall
be entitled to receive from the Company upon exercise of each of the Warrants so
exercised, a fee of five percent (5%) of the aggregate price of the Warrants so
exercised (the "Exercise Fee"). Within five (5) days after the end of each
month, commencing in July 1998, the Warrant Agent will notify Royal Hutton of
each Warrant Certificate which has been properly completed for exercise by
holders of Warrants during the last month. The Warrant Agent will provide Royal
Hutton with such information, in connection with the exercise of each Warrant,
as Royal Hutton shall reasonably request. The Company hereby authorizes and
instructs the Warrant Agent to deliver to Royal Hutton the Exercise Fee promptly
after receipt by the Warrant Agent from the Company of a check payable to the
order of Royal Hutton in the amount of the Exercise Fee. In the event that an
Exercise Fee is paid to Royal Hutton with respect to a Warrant which was not
properly completed for exercise or in respect of which Royal Hutton is not
entitled to an Exercise Fee, Royal Hutton will return such Exercise Fee to the
Warrant Agent which shall forthwith return such fee to the Company. Royal
Hutton and the Company may at any time after July 16, 1997, and during business
hours, examine the records of the Warrant Agent, including its ledger of
original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants. Notwithstanding any provision to the contrary, the provisions of this
Section 4(b) may not be modified, amended or deleted without the prior consent
of Royal Hutton.
(c) The Company shall not be obligated to issue any fractional share
interests or fractional warrant interests upon the exercise of any Warrant or
Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fractional interest shall be eliminated.
(d) Anything in this Section 4 notwithstanding, no Warrant will be
exercisable unless at the time of exercise the Company
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has filed with the Securities and Exchange Commission a registration statement
under the Securities Act of 1933 covering the shares of Common Stock issuable
upon exercise of such Warrant and such shares have been so registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Warrant.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issuance
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery thereof, be duly and validly
issued and fully paid and nonassessable and free from all preemptive or similar
rights, taxes, liens and charges with respect to the issuance thereof, and that
upon issuance such shares shall be listed on each securities exchange, if any,
on which the other shares of outstanding Common Stock of the Company are then
listed.
(f) The Company covenants that, so long as any unexpired Warrants
remain outstanding, the Company will file such post-effective amendments to the
registration statement (Form SB-2, Registration No. 333-18071) (the
"Registration Statement") filed pursuant to the Securities Act of 1933 (the
"Act") with respect to the Warrants (or other appropriate registration
statements or post-effective amendment or supplements) as may be necessary to
permit it to deliver to each person exercising a Warrant, a prospectus meeting
the requirements of Section 10(a)(3) of the Act and otherwise complying
therewith, and will deliver such a prospectus to each such person. To the
extent that during any period it is not reasonably likely that the Warrants will
be exercised, due to market price or otherwise, the Company need not file such a
post-effective amendment or other registration statement or post-effective
amendments or supplements during such period. The Company will use its
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(g) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with
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respect to the issuance of Warrants, or the issuance or delivery of any shares
of Common Stock upon exercise of the Warrants; provided, however, that if shares
of Common Stock are to be delivered in a name other than the name of the
Registered Holder of the Warrant Certificate representing any Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Warrant Agent the amount of transfer taxes or charges
incident thereto, if any.
(h) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(i) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant's Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the Registered
Holder making the exchange shall be entitled to receive.
(j) The Warrant Agent shall keep, at such office, books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(k) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
exercise form, as the case may be, on the reverse thereof shall be duly endorsed
or be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company and the Warrant Agent, duly
executed by the Registered Holder thereof with such Registered Holder's
signature guaranteed.
(l) A $10 service charge may be imposed for any exchange,
registration or transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection
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therewith.
(m) All Warrant Certificates surrendered for exercise or for exchange
shall be promptly canceled by the Warrant Agent.
(n) Prior to due presentment for registration or transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent) for all
purposes and shall not be affected by any notice to the contrary.
SECTION 7. LOSS OR MUTILATION.
(o) Upon receipt by the Company and the Warrant Agent of evidence
satisfactory to them of the ownership of and the loss, theft, destruction or
mutilation of any Warrant Certificate and (in the case of loss, theft or
destruction) of indemnity satisfactory to them, and (in case of mutilation) upon
surrender and cancellation thereof, the Company shall execute and the Warrant
Agent shall countersign and deliver in lieu thereof a new Warrant Certificate
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall also comply with such other reasonable regulations and
pay such other reasonable fees as the Warrant Agent shall establish.
SECTION 8. ADJUSTMENT OF EXERCISE PRICE.
(p) Except as hereinafter provided, in the event the Company shall,
at any time or from time to time after the date hereof, sell any shares of
Common Stock for a consideration per share less than the lower of (i) the
closing bid price of the Common Stock as reported on NASDAQ on the trading date
next preceding such sale (the "Market Price"), or (ii) the Share Exercise Price
then in effect, or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter immediately before the date of such sale or the record date for each
Change of Shares, the Share Exercise Price for the Common Stock included in this
Warrant (whether or not the same shall be issued and outstanding) in effect
immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (1) the product of
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(a) the Share Exercise Price in effect immediately before such Change of Shares
and (b) the sum (i) the total number of shares of Common Stock outstanding
immediately prior to such Change of Shares, and (ii) the number of shares
determined by dividing (A) the aggregate consideration, if any, received by the
Company upon such sale, issuance, subdivision or combination, by (3) the lesser
of (x) the Market Price, and (y) the Share Exercise Price, in effect immediately
prior to such Change of Shares; by (2) the total number of shares of Common
Stock outstanding immediately after such Change of Shares.
(q) For the purposes of any adjustment to be made in accordance with
Section 8(a) the following provisions shall be applicable:
(i)
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price (before
deducting any commissions or any expenses incurred in connection therewith), if
shares of Common Stock are offered by the Company for subscription, or (ii) the
public offering price (before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by underwriters
or dealers or others performing similar services, or any expenses incurred in
connection therewith), if such securities are sold to underwriters or dealers
for public offering without a subscription offering, or (iii) the gross amount
of cash actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the
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determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(D) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(i) Upon each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
(r) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share (determined as provided in Section 8(a) and as
provided below) less than the lower of (i) the Market Price, or (ii) Share
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of dividend
or other distribution), the Exercise Price for the Common Stock included in this
Underwriter's Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable or that may become issuable under such options,
rights or warrants (assuming
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exercise in full even if not then currently exercisable or currently exercisable
in full) shall be deemed to be issued and outstanding at the time such options,
rights or warrants were issued, for a consideration equal to the minimum
Exercise Price per share provided for in such options, rights or warrants at the
time of issuance, plus the consideration, if any, received by the Company for
such options, rights or warrants; provided, however, that upon the expiration or
other termination of such options, rights or warrants, if any thereof shall not
have been exercised, the number of shares of Common Stock deemed to be issued
and outstanding pursuant to this subsection (A) (and for the purposes of
subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares
as to which options, warrants and/or rights shall have expired, and such number
of shares shall no longer be deemed to be issued and outstanding, and the
Exercise Price then in effect shall forthwith be readjusted and thereafter be
the price that it would have been had adjustment been made on the basis of the
issuance only of the shares actually issued plus the shares remaining issuable
upon the exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (B) (and for the purposes of subsection
(E) of Section 8(a) hereof) shall be reduced by the number of shares as to which
the conversion or exchange rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
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(C) If any change shall occur in the exercise price per
share provided for in any of the options, rights or warrants referred to in
subsection (A) of this section 8(b), or in the price per share or ratio at which
the securities referred to in subsection (3) of this Section 8(b) are
convertible or exchangeable, such options, rights or warrants or conversion or
exchange rights, as the case may be, to the extent not theretofore exercised,
shall be deemed to have expired or terminated on the date when such price change
became effective in respect of shares not theretofore issued pursuant to the
exercise or conversion or exchange thereof, and the Company shall be deemed to
have issued upon such date new options, rights or warrants or convertible or
exchangeable securities.
(s) In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par value
or as a result of subdivision or combination), or in case of any consolidation
or merger of the Company with or into another corporation (other than a merger
with a subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Public Warrant then outstanding shall have the right thereafter
to receive on exercise of such Public Warrant the kind and amount of securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of the number of securities issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and shall forthwith file at the
Corporate Office of the Warrant Agent a statement signed by its President or a
Vice President and by its Treasurer or an Assistant Treasurer or its Secretary
or an Assistant Secretary evidencing such provision. Such provisions shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in Section 8(a) and (b). The above
provisions of this Section 8(c) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(t) Irrespective of any adjustments or changes in
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the Share Exercise Price or the number of shares of Common Stock purchasable
upon exercise of the Public Warrants, the Warrant Certificates theretofore and
thereafter issued shall, unless the Company shall exercise its option to issue
new Warrant Certificates pursuant to the terms hereof, continue to express the
Share Exercise Price per share and the number of shares purchasable thereunder
as the Share Exercise Price per share and the number of shares purchasable
thereunder were expressed in the Warrant Certificates when the same were
originally issued.
(u) After each adjustment of the Share Exercise Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Registered Holder at his
last address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(v) No adjustment of the Share Exercise Price or the number of shares
issuable shall be made as a result of or in connection with (A) the issuance or
sale of the Underwriter's Warrants or the Securities underlying the
Underwriter's Warrants, (B) the issuance or sale of the securities pursuant to
the Initial Public Offering, including the securities underlying the Securities,
(C) the issuance or sale of shares of Common Stock pursuant to options,
warrants, stock purchase agreements and convertible or exchangeable securities
outstanding or in effect on the date hereof, including options to be granted
under the Company's 1996 Stock Option Plan or Common Stock issuable on the
exercise of such options, or (D) the issuance or sale of shares of Common Stock
if the amount of said adjustment shall be less than $.02 for one share of Common
Stock, provided, however, that in such case, any adjustment that would otherwise
be required then to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment that shall amount,
together with any adjustment so carried forward, to at least $.02 for one share
of Common Stock. In addition,
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Registered Holders shall not be entitled to cash dividends paid by the Company
prior to the exercise of any Public Warrant or Public Warrants held by them.
SECTION 9. REDEMPTION.
(w) Commencing on the Initial Warrant Redemption Date, the Company
may, on not less than 30 days prior written notice redeem all the Redeemable
Warrants at $.01 per Redeemable Warrant, provided, however, that before any such
call for redemption of Warrants can take place, the (A) average closing bid
price for the Common Stock in the over-the-counter market as reported by the
NASD Automated Quotation System or (B) the average closing sale price on the
primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, shall have for twenty (10) consecutive
trading days ending not more than 10 days prior to the notice of redemption
exceeded ____% of the Purchase Price (initially $8.50 per share of Common Stock)
(subject to adjustment in the event of any stock splits or other similar events
as provided in Section 8 hereof). All Redeemable Warrants must be redeemed if
any are redeemed.
(x) In the event the Company exercises its right to redeem all of the
Redeemable Warrants, it shall give or cause to be given notice to the Registered
Holders of the Redeemable Warrants, by mailing to such Registered Holders a
notice of redemption, first class, postage prepaid, within 10 calendar days of
the aforementioned twenty (10) consecutive trading days and not later than the
twenty-fifth (25th) day before the date fixed for redemption, at their last
address as 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 receives such notice. At the time of
the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to Royal Hutton a
similar notice telephonically and confirmed in writing together with a list of
the Registered Holders (including their respective addresses and number of
Warrants beneficially owned) to whom such notice of redemption has been or will
be given.
(y) The notice of redemption shall specify (i) the redemption price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificate shall be delivered and the redemption price shall be paid, and
(iv) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New
York time) on the business day immediately preceding the date fixed for
redemption. The date fixed for the redemption of the Warrants shall be the
Redemption Date. No failure to mail such notice nor
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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 the Secretary or Assistant Secretary of the Company that notice
of redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(z) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New
York time) on the business day immediately preceding the Redemption Date. The
redemption price payable to the Registered Holders shall be mailed to such
persons at their addresses of record.
SECTION 10. CONCERNING THE WARRANT AGENT.
(a) The Warrant Agent acts hereunder as agent and in a ministerial
capacity for the Company and Royal Hutton, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not, by issuing and
delivering Warrant Certificates or by any other act hereunder, be deemed to make
any representations as to the validity or value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or other
property delivered upon exercise of any Warrant or whether any stock issued upon
exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price provided in this Agreement, or to determine
whether any fact exists which may require any such adjustment, or with respect
to the nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. It shall not (i) be liable for any
recital or statement of fact contained herein or for any action taken, suffered
or omitted by it in reliance on any Warrant Certificate or other document or
instrument believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure on
the part of the Company to comply with any of its covenants and obligations
contained in this Agreement or in any Warrant Certificate, or (iii) be liable
for any act or omission in connection with this Agreement except for its own
gross negligence or willful misconduct.
(c) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken,
16
<PAGE>
suffered or omitted by it in good faith in accordance with the opinion or advice
of such counsel.
(d) Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed by
the Chairman of the Board of Directors, Vice-Chairman or Secretary (unless other
evidence in respect thereof is herein specifically prescribed). The Warrant
Agent shall not be liable for any action taken, suffered or omitted by it in
accordance with such notice, statement, instruction, request, direction, order
or demand.
(e) The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder; the Company further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation 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 by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company doing business in New
York, New York. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the warrant agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or deed,
the same shall be done at the expense of the Company and shall be legally and
validly executed and delivered by the resigning
17
<PAGE>
Warrant Agent. Not later than the effective date of any such appointment the
Company shall file notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the Registered Holder of
each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new warrant agent
may be converted or merged, any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent or
any new warrant agent shall be a successor warrant agent under this Agreement
without any further act, provided that such corporation is eligible for
appointment as successor to the Warrant Agent under the provisions of the
preceding paragraph. Any such successor warrant agent shall promptly cause
notice of its succession as warrant agent to be mailed to the Company and to the
Registered Holders of each Warrant Certificate.
(h) The Warrant Agent, its Subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effect as though it were not Warrant Agent.
Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two years from the date
of exercise any Warrant Certificate received by it upon such exercise, marked to
indicate its cancellation thereof in accordance with Section 6(e) hereof.
SECTION 11. MODIFICATION OF AGREEMENT.
The Warrant Agent and the Company may by supplemental agreement make
any changes or corrections in this Agreement without the approval of any holders
of Warrants (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates; or
(iii) which may be required by law; provided, however, that this Agreement shall
not otherwise be modified, supplemented or altered in any respect except with
the consent in writing of the Registered Holders representing not less than 50%
of the Warrants then outstanding; provided, further, that no change in the
number of the securities purchasable upon the exercise of any Warrant, or the
Purchase Price therefor, shall be made without the consent in writing of the
Registered Holder of
18
<PAGE>
the Warrant Certificate, other than such changes as are specifically permitted
or prescribed by this Agreement as originally executed. In addition, this
Agreement may not be modified, amended or supplemented without the prior written
consent of Royal Hutton, other than (i) to cure any ambiguity or to correct any
provision which is inconsistent or which is a manifest mistake or error; (ii) to
make any such change that is necessary or desirable and which shall not
adversely affect the interests of Royal Hutton; or (iii) except as may be
required by law.
SECTION 12. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or five
days after mailed first-class postage prepaid, or upon receipt when sent by
facsimile, with confirmation received, if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company at 1,000 South Avenue, Staten
Island, New York 10314 Attention: Chairman, or at such other address as may
have been furnished to the Warrant Agent in writing by the Company; and if to
the Warrant Agent, at its Corporate Office. Copies of any notice delivered
pursuant to this Agreement shall be delivered to Royal Hutton at 1700 South
Dixie Highway, Boca Raton, Florida, 33432 President, or at such other addresses
as may have been furnished to the Company and the Warrant Agent in writing.
SECTION 13. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without giving effect to conflicts of laws.
SECTION 14. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Warrant Agent and their respective successors and assigns and the
holders from time to time of Warrant Certificates or any of them. Except as
hereinafter stated, nothing in this Agreement is intended or shall be construed
to confer upon any other person any right, remedy or claim or to impose upon any
other person any duty, liability or obligation. Royal Hutton is, and shall at
all times irrevocably be deemed to be, a third-party beneficiary of this
Agreement, with full power, authority and standing to enforce the rights granted
19
<PAGE>
to it hereunder. In the event of any conflict relating to the Underwriter's
Warrant between the terms hereof and the terms of the Underwriter's Warrant
Agreement, the terms of the Underwriter's Warrant Agreement shall prevail.
SECTION 15. COUNTERPARTS.
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
[SEAL]
SILVER STAR FOODS, INC., INC. AMERICAN STOCK TRANSFER & TRUST COMPANY
By: By:
------------------------------ ------------------------------
Michael Trotta, Name:
President Title:
20
<PAGE>
EXHIBIT A
NO. W__________ VOID AFTER ________, 2004
WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK
SILVER STAR FOODS, INC.
CUSIP
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, $.0001 per
value, of Silver Star Foods, Inc., Inc., a Delaware corporation (the "Company"),
at any time from the earlier of the date the Company gives a notice of
redemption of this Warrant, 1999 and prior to the Expiration Date (as
hereinafter defined) upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.00
per share, subject to adjustment (the "Purchase Price"), in lawful money of the
United States of America in cash or by check made payable to the Warrant Agent
for the account of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated ________,
1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each
<PAGE>
Warrant represented hereby are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
______, 2004. If each such date shall in the State of New York be a holiday or
a day on which the banks are authorized to close, then the Expiration Date shall
mean 5:00 P.M. (New York time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has
covenanted and agreed that, if required by the Act, and unless during any period
it is not reasonably likely that the Warrants will be exercised, it will file a
registration statement under the Act, use its best efforts to cause the same to
become effective, keep such registration statement current, if required under
the Act, while any of the Warrants are outstanding, and deliver a prospectus
which complies with Section 10(a)(3) of the Act to the Registered Holder
exercising this Warrant. This Warrant shall not be exercisable by a Registered
Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration or
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants
2
<PAGE>
will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a shareholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may
be redeemed at the option of the Company, at a redemption price of $.01 per
Warrant, at any time commencing after July 10, 1999, provided that (i) the
average closing bid price for the Common Stock in the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotation
System, or (ii) the average closing sale price on the primary exchange on which
the Common Stock is traded, if the Common Stock is traded on a national
securities exchange, or (iii) the average closing sale price on NASDAQ, if the
Common Stock is quoted on NASDAQ, shall have for ten (10) consecutive trading
days ending no more than ten (10) days prior to the Notice of Redemption, as
defined below, exceeded 162% of the exercise price (initially $8.50 per share)
of the Redeemable Warrants (subject to adjustment in the event of any stock
splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the twenty-fifth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after
the date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.25 per Warrant upon surrender of
this Certificate.
Under certain circumstances, Royal Hutton, their successors and
assigns shall be entitled to receive an aggregate of five percent (5%) of the
Purchase Price of the Warrants represented hereby.
Prior to due presentment for registration or transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
3
<PAGE>
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the date first above, manually or in facsimile by two of
its officers thereunto duly authorized and a facsimile of its corporate seal to
be imprinted hereon.
SEAL SILVER STAR FOODS, INC.
By:___________________________
Name:
By:___________________________
Name:
Title: Secretary
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:_________________________
Authorized Officer
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
exercise ___________________ Warrants represented by this Warrant Certificate,
and to purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
----------------------------------------------
----------------------------------------------
----------------------------------------------
(please print or type name and address)
and be delivered to
----------------------------------------------
----------------------------------------------
----------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
<PAGE>
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was solicited by Royal Hutton Securities,
Inc. / /
2. The exercise of this Warrant was solicited
by __________________________________. / /
3. If the exercise of this Warrant was not
solicited, please check the following box. / /
Dated:_________________199____ X_____________________________
______________________________
______________________________
Address
______________________________
Social Security or Taxpayer
Identification Number
______________________________
Signature Guaranteed
______________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _____________________________, hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
----------------------------------------------
----------------------------------------------
----------------------------------------------
(please print or type name and address)
______________________________________________ of the Warrants represented by
this Warrant Certificate, and hereby irrevocably constitutes and appoints
_____________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated:_________________199____ X_____________________________
Signature Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE MEDALLION
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE, WHO IS A MEMBER OF THE
MEDALLION PROGRAM.
<PAGE>
Dated ___________ WARRANTS
UNDERWRITER'S WARRANT
THIS CERTIFIES THAT Royal Hutton Securities Corp. (the "Holder") is
entitled to purchase from SILVER STAR FOODS, INC. a New York corporation (the
"Company"), up to 110,000 shares of the Company's common stock, $.0001 par value
(the "Shares"), and/or 220,000 redeemable common stock purchase warrants (the
"Public Warrants"; together with the Shares, the "Securities") to purchase one
share of Common Stock at a purchase price of $6.00 per share, at a purchase
price of $8.6625 per Share (the "Share Exercise Price") and $.4125 per Warrant
(the "Warrant Exercise Price," collectively, with the Share Exercise Price, the
"Exercise Prices"), subject to adjustment as provided in paragraph 8 hereof, at
any time during the 48 month period commencing 12 months from the effective date
of the Registration Statement, defined below, (the "Effective Date"). This
Underwriter's Warrant (the "Underwriter's Warrant") is exercisable to purchase
an aggregate of 110,000 Shares and/or 220,000 Public Warrants, issued pursuant
to an Underwriting Agreement dated _______, between the Company and Royal Hutton
Securities, Inc. (the "Underwriter" or "Underwriters") (as defined in the
Underwriting Agreement), in connection with a public offering, through the
Underwriter, of 1,100,000 shares of Common Stock and 2,200,000 Warrants as
therein described (and up to an additional 165,000 shares of Common Stock and
330,000 Warrants (the "Option Securities" covered by an over-allotment option
granted by the Company to the Underwriter) hereinafter referred to together with
the Option Securities, as the "Public Securities") and in consideration of
$10.00 received by the Company for the Underwriter's Warrant. The Shares and
Public Warrants issuable pursuant to the Underwriter's Warrant shall have same
terms and conditions as the shares of Common Stock and Public Warrants making up
the Public Securities, as described under the caption "Description of
Securities" in the Company's Registration Statement on Form SB-2, File No.
333-______ (the "Registration Statement"), except that the Holder shall have
registration rights under the Securities Act of 1933 (the "Act"), for the
Underwriter's Warrant, the Shares, Warrants, and the Shares issuable on the
exercise of the Public Warrants.
1. The rights represented by this Underwriter's Warrant shall be
exercised at the price, subject to adjustment in accordance with paragraph 8
hereof, and during the periods as follows:
<PAGE>
(a) During the period from the date hereof to _____ 1999 (the
"Initial Period") inclusive, the Holder shall have no right to purchase any
Securities hereunder.
(b) Between _____, 1999 and _______, 2004 (the "Expiration Date")
inclusive, the Holder shall have the option to purchase Shares hereunder at a
price of $____ per Share and to purchase Warrants at a price of $._____ per
Warrant subject to adjustment as provided in paragraph 8 hereof.
(c) After the Expiration Date, the Holder shall have no right to
purchase any Securities hereunder.
2. (a) The rights represented by this Underwriter's Warrant may be
exercised at any time within the periods above specified, in whole or in part,
by (i) the surrender of the Underwriter's Warrant (with the purchase form at the
end hereof properly executed) at the principal executive office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company); (ii) payment to the Company of the Exercise Price then in effect for
the number of Securities specified in the above-mentioned purchase form together
with applicable stock transfer taxes, if any; and (iii) delivery to the Company
of a duly executed agreement signed by the person(s) designated in the purchase
form to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. The
Underwriter's Warrant shall be deemed to have been exercised, in whole or in
part to the extent specified, immediately prior to the close of business on the
date the Underwriter's Warrant is surrendered and payment is made in accordance
with the foregoing provisions of this paragraph 2, and the person or persons in
whose name or names the certificates for Shares and/or Public Warrants shall be
issuable upon such exercise shall become the holder or holders of record of such
Shares and Public Warrants at that time and Public Warrants so purchased shall
be delivered to the Holder within a reasonable time, not exceeding ten (10)
days, after the rights represented by this Underwriter's Warrant shall have been
so exercised.
3. The Underwriter's Warrant shall not be transferred, sold, assigned, or
hypothecated (other than by will or pursuant to the laws of descent and
distribution) for a period of one year commencing ________, 1998, except that it
may be transferred to successors of the Holder, and may be assigned in whole or
in part to any person who is an officer or director of the Holder or to any
member of the selling group and/or the officers/directors or shareholders or
partners thereof during such period. Any such assignment shall be effected by
the Holder by (i) executing the
<PAGE>
form of assignment at the end hereof and (ii) surrendering the Underwriter's
Warrant for cancellation at the office or agency of the Company referred to in
paragraph 2 hereof, accompanied by a certificate (signed by an officer of the
Holder if the Holder is a corporation), stating that each transferee is a
permitted transferee under this paragraph 3; whereupon the Company shall issue,
in the name or names specified by the Holder (including the Holder) a new
Underwriter's Warrant or Warrants of like tenor and representing in the
aggregate rights to purchase the same number of Securities as are purchasable
hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be purchased hereunder or upon exercise of the Underwriter's Warrants and/or
Public Warrants will, upon issuance against payment of the purchase price
therefor, be duly and validly issued, fully paid and nonassessable, and no
personal liability will attach to the holder thereof. The Company further
covenants and agrees that, during the periods within which the Underwriter's
Warrant may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock to provide for the
exercise of the Underwriter's Warrant and the Public Warrants.
5. The Underwriter's Warrant shall not entitle the Holder to any voting
rights or other rights as stockholders of the Company.
6. (a)(i) The Company shall advise the Holder or its transferees, whether
the Holder holds the Underwriter's Warrant or has exercised the Underwriter's
Warrant and holds shares of Common Stock and/or Public Warrants, by written
notice at least four weeks prior to the filing of any post-effective amendment
to the Registration Statement or of any new registration statement or
post-effective amendment thereto under the Act covering any securities of the
Company, for its own account or for the account of others, except for any
registration statement filed on Form S-4 or S-8 (including a Form S-3 related to
a Form S-8) and will, for a period of five years beginning one year after the
Effective Date, upon the request of the Holder, and subject to subparagraph
6(a)(ii), include in any such post-effective amendment to the Registration
Statement or in any new registration statement such information as may be
required to permit a public offering of the Underwriter's Warrant, the Common
Stock issuable upon the exercise thereof or upon exercise of the Public Warrants
and the Public Warrants (collectively, the "Registrable Securities"). The
Company shall supply prospectuses and such other document as the Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities, use its best efforts to register and qualify any
of the Registrable Securities for sale in such states as the Holder designates
and
<PAGE>
do any and all other reasonable acts and things which may be necessary or
desirable to enable the Holder to consummate the public sale or other
disposition of the Registrable Securities, all at no expense to the Holder or
the Underwriter, (other than the fees and disbursements of counsel for the
Holder and the underwriting discounts and commission, if any, payable in respect
of the Securities) of the Holder or any such holders, and furnish
indemnification in the manner provided in paragraph 7 hereof; provided, however,
the Company shall not be required to (A) qualify to do business in any state by
reason of this Section 6 in which it is not otherwise required to qualify to do
business, (B) or register or qualify in any state which will impose material
burdens on the Company or its principals, including without limitation, the
obligation to pay any corporate taxes. The Holder shall furnish information and
indemnification as set forth in paragraph 7 hereof. (ii) If the registration of
which the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holder as a part of the written
notice given pursuant to subparagraph 6(a)(i). If the managing underwriter
determines that a limitation of the number of shares to be underwritten is
required, the underwriter may exclude some or all Registrable Securities from
such registration (the "Excluded Registrable Securities"); provided, however,
that if any securities of the Company are included in such registration
statement for the account of any person other than the Company and the Holder or
any such holder, the securities included in such registration statement for such
other person shall have been reduced pro rata to the reduction of the
Underwriter's Securities which were requested to be included in such
registration.
(b) On any one occasion only, any 50.1% Holder (as defined below) may
give notice to the Company at any time to the effect that such Holder desires to
register under the Act any or all of the Registrable Securities under such
circumstances that a public distribution (within the meaning of the Act) of any
such securities will be involved, then the Company will promptly, but no later
than eight weeks after receipt of such notice, file a post-effective amendment
to the current Registration Statement or a new registration statement pursuant
to the Act, so that such designated Registrable Securities may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become and remain effective
(including the taking of such steps as are necessary to obtain the removal of
any stop order) within 90 days after the receipt of such notice of
effectiveness, provided, that such Holder shall furnish the Company with
appropriate information in connection therewith as the Company may reasonably
request in writing. Inclusive of this demand right shall be that the 50.1%
Holder may, at its option, request the filing of a
<PAGE>
post-effective amendment to the current Registration Statement or a new
registration statement under the Act, inclusive of the right granted by
subparagraph 6(a) on one occasion only during the five-year period beginning one
year from the Effective Date. The 50.1% Holder may, at its option, request the
registration of the Underwriter's Warrant and/or any of the securities
underlying the Underwriter's Warrant in a registration statement made by the
Company as contemplated by subparagraph 6(a) or in connection with a request
made pursuant to this subparagraph 6(b) prior to acquisition of the shares of
Common Stock and/or Public Warrants issuable upon exercise of the Underwriter's
Warrant. The 50.1% Holder may, at its option, request such post-effective
amendment or new registration statement during the described period with respect
to the Underwriter's Warrant, or separately as to the Common Stock and/or Public
Warrant issuable upon the exercise of the Underwriter's Warrant, and such
registration rights may be exercised by the 50.1% Holder prior to or subsequent
to the exercise of this Underwriter's Warrant. Within ten days after receiving
any such notice pursuant to this subparagraph 6(b), the Company shall give
notice to any other Holder of the Underwriter's Warrant, advising that the
Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the
Underwriter's Warrants held by the other Holder, provided that they shall
furnish the Company with such appropriate information (relating to the
intentions of such Holder) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of the post-effective
amendment or new registration statement shall be borne by the Company, except
that the Holder(s) shall bear the fees of their own counsel and any underwriting
discounts or commissions applicable to any of the securities sold by them. The
Company will maintain such registration statement or post-effective amendment
current under the Act for a period of at least nine months (and for up to an
additional three months if requested by the Holder(s)) from the effective date
thereof. The Company shall provide prospectuses, and such other documents as the
Holder(s) may request in order to facilitate the public sale or other
disposition of the Registrable Securities, use its best efforts to register and
qualify any of the Registrable Securities for sale in such states as such
Holder(s) designate and furnish indemnification in the manner provided in
paragraph 7 hereof; provided, however, the Company shall not be required to (A)
qualify to do business in any state by reason of this Section 6 in which it is
not otherwise required to qualify to do business, (B) or register or qualify in
any state which will impose material burdens on the Company or its principals,
including without limitation, the obligation to pay any corporate taxes
<PAGE>
(c) The term "50.1 % Holder" as used in this paragraph 6 shall mean
the Holder(s) of at least 50.1% of the Underwriter's Warrant and/or the Common
Stock underlying the Underwriter's Warrant and the Public Warrants and shall
include any owner or combination of owners of such securities, which ownership
shall be calculated by determining the number of shares of Common Stock held by
such owner or owners as well as the number of shares then issuable upon exercise
of the Underwriter's Warrant and the Public Warrants.
(d) If at any time prior to the effectiveness of the registration
statement filed in connection with an offering pursuant to this paragraph 6 the
50.1% Holder shall determine not to proceed with the registration, upon notice
to the Company and the payment to the Company by the 50.1% Holder of the
Company's expenses, if any, theretofore incurred in connection with the
registration statement, the 50.1% Holder may terminate its participation in the
offering, and the registration statement previously filed shall not be counted
against the number of demand registrations permitted under this paragraph 6.
(e) Notwithstanding the foregoing, if the Company shall furnish to
such 50.1% Holder a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed in the near future containing the disclosure of material information
required to be included therein by reason of the federal securities laws, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period during which such disclosure would be
seriously detrimental, provided that this period will not exceed 60 days and
provided further, that the Company shall not defer its obligation in this matter
more than once in any 12 month period.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Underwriter's Warrant or any Common Stock issued or issuable
upon the exercise of the Underwriter's Warrant or the Public Warrants, or any
Public Warrants is filed under the Act, amended or supplemented, the Company
will indemnify and hold harmless each Holder of the securities covered by such
registration statement, amendment or supplement (such Holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls (within
the meaning of the Act) the Distributing Holder, and each underwriter (within
the meaning of the Act) of such securities and each person, if any, who controls
(within the meaning of the Act) any such underwriter, against any losses,
claims, damages or liabilities, joint or several, to which the Distributing
Holder, any such controlling person or any such underwriter may become subject,
under the Act
<PAGE>
or otherwise, insofar as such losses, claims, damages or liabilities, or actions
in respect thereof, arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such registration
statement or any preliminary prospectus or final prospectus constituting a part
thereof or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or therein not misleading and will reimburse the
Distributing Holder or such controlling person or underwriter for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said final prospectus
or said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities, joint, or several, to which the
Company or any such director, officer or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or are based upon any
untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arises out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder for use in the preparation thereof; and will
reimburse the Company or any such director, officer or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.
<PAGE>
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
paragraph 7.
(d) In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation.
(e)In order to provide for just equitable contribution under the Act
in any case in which (i) any person entitled to indemnification under this
Section 7 makes claim for indemnification pursuant hereto but it is judicially
determined (by entry of a final judgment or decree by a court of competent
jurisdiction an the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 8 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 7, then, and in each such case, the Company and each Holder shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after any contribution from others) in such proportion taking
into consideration the relative benefits received by each party from the
offering covered by the Prospectus (taking into account the portion of the
proceeds of the offering realized by each), the parties' relative knowledge and
access to information concerning the matter with respect to which the claim was
assessed, the opportunity to correct and prevent any statement or omission and
other equitable considerations appropriate under the circumstances; and
provided, that, in any such case, no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from
<PAGE>
any person who was not guilty of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this Agreement
(or its representative) of notice of the commencement of any action, suit or
proceeding, such party will, if a claim for contribution in respect thereof is
to be made against another party (the "contribution party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a contributing party or his or its representative of the commencement thereof
within the aforesaid fifteen (15) days, the contributing party will be entitled
to participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any
party seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of such contributing party. The provisions contained in this Section 7
are in addition to any other rights or remedies which either party hereto may
have with respect to the other or hereunder.
8. ADJUSTMENT OF EXERCISE PRICE
(a) Except as hereinafter provided, in the event the Company shall,
at any time or from time to time after the date hereof, sell any shares of
Common Stock for a consideration per share less than the lower of (i) the
closing bid price of the Common Stock as reported on NASDAQ on the trading date
next preceding such sale (the "Market Price"), or (ii) the Share Exercise Price
then in effect, or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale, issuance,
subdivision or combination being herein called a "Change of Shares"), then, and
thereafter immediately before the date of such sale or the record date for each
Change of Shares, the Share Exercise Price for the Common Stock included in this
Underwriter's Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent to the nearest cent) determined by
dividing (1) the product of (a) the Share Exercise Price in effect immediately
before such Change of Shares and (b) the sum (i) the total number of shares of
Common Stock outstanding immediately prior to such Change of Shares, and (ii)
the number of shares determined by dividing (A) the aggregate consideration, if
any,
<PAGE>
received by the Company upon such sale, issuance, subdivision or combination, by
(3) the lesser of (x) the Market Price, and (y) the Share Exercise Price, in
effect immediately prior to such Change of Shares; by (2) the total number of
shares of Common Stock outstanding immediately after such Change of Shares.
(b) For the purposes of any adjustment to be made! in accordance with
this Section 8(a) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale of
shares of Common Stock) for a consideration part or all of which shall be cash,
the amount of the cash portion of the consideration therefor deemed to have been
received by the Company shall be (i) the subscription price (before deducting
any commissions or any expenses incurred in connection therewith), if shares of
Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company.
(C) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(D) The reclassification of securities of the Company other than
shares of Common Stock into securities
<PAGE>
including shares of Common Stock shall be deemed to involve the issuance of such
shares of Common Stock for a consideration other than cash immediately prior to
the close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the consideration
allocable to such shares of Common Stock shall be determined as provided in
subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment by the Exercise
Price in effect prior to such adjustment and dividing the product so obtained by
the applicable adjusted Exercise Price.
(c) In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share (determined as provided in Section 8(a) and as
provided below) less than the lower of (i) the Market Price, or (ii) Share
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way of dividend
or other distribution), the Exercise Price for the Common Stock included in this
Underwriter's Warrants (whether or not the same shall be issued and outstanding)
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable or that may become issuable under such options, rights
or warrants (assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding at
the time such options, rights or warrants were issued, for a consideration equal
to the minimum Exercise Price per share provided for in such options, rights or
warrants at the time of issuance, plus the consideration, if any, received by
the
<PAGE>
Company for such options, rights or warrants; provided, however, that upon the
expiration or other termination of such options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (A) (and for the
purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the
number of shares as to which options, warrants and/or rights shall have expired,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
expiration or other termination of the right to convert or exchange such
convertible or exchangeable securities (whether by reason of redemption or
otherwise), the number of shares of Common Stock deemed to be issued and
outstanding pursuant to this subsection (B) (and for the purposes of subsection
(E) of Section 8(a) hereof) shall be reduced by the number of shares as to which
the conversion or exchange rights shall have expired or terminated unexercised,
and such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(C) If any change shall occur in the exercise price per share
provided for in any of the options, rights or warrants referred to in subsection
(A) of this section 8(b), or in the price per share or ratio at which the
securities referred to in subsection (3) of this Section 8(b) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent
<PAGE>
not theretofore exercised, shall be deemed to have expired or terminated on the
date when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange thereof,
and the Company shall be deemed to have issued upon such date new options,
rights or warrants or convertible or exchangeable securities.
(d) In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par value
or as a result of subdivision or combination), or in case of any consolidation
or merger of the Company with or into another corporation (other than a merger
with a subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants) or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Underwriter's Warrant then outstanding shall have the right
thereafter to receive on exercise of such Underwriter's Warrant the kind and
amount of securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such provision.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in Section 8(a)
and (b). The above provisions of this Section 8(c) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Share Exercise
Price or the number of shares of Common Stock purchasable upon exercise of the
Underwriter's Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant hereto, continue to express the Share Exercise Price per
share and the number of shares purchasable
<PAGE>
thereunder as the Share Exercise Price per share and the number of shares
purchasable thereunder were expressed in the Warrant Certificates when the same
were originally issued.
(f) After each adjustment of the Share Exercise Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (I) the
Exercise Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Registered Holder at his
last address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(g) No adjustment of the Share Exercise Price or the number of shares
issuable upon exercise of this Underwriter's Warrant shall be made as a result
of or in connection with (A) the issuance or sale of the Underwriter's Warrants
or the Securities underlying the Underwriter's Warrants, (B) the issuance or
sale of the securities pursuant to the Initial Public Offering, including the
securities underlying the Securities, (C) the issuance or sale of shares of
Common Stock pursuant to options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof, including options that may be granted under the Company's 1996 Stock
Option Plan or Common Stock issuable on the exercise of such options; or (D) the
issuance or sale of shares of Common Stock if the amount of said adjustment
shall be less than $.02 for one share of Common Stock, provided, however, that
in such case, any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment that shall amount, together with any adjustment so
carried forward, to at least $.02 for one share of Common Stock. In addition,
any Holder shall not be entitled to cash dividends paid by the Company prior to
the exercise of any Underwriter's Warrant held by them.
<PAGE>
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, SILVER STAR FOODS, INC., has caused this Underwriter's
Warrant to be signed by its duly authorized officers, and this Underwriter's
Warrant to be dated as of the date first above written.
SILVER STAR FOODS, INC.
By:
---------------------------------
Name: Michael Trotta
Title: President
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Underwriter Warrant)
The undersigned, the holder of the foregoing Underwriter's Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ______ Shares of SILVER STAR FOODS, INC.
$0.0001 per share, and/or Redeemable Common Stock Purchase Warrants to purchase
one (1) share of Common Stock, and herewith makes payment of $____ therefor (or
hereby surrenders and delivers that portion of the Underwriter's Warrant having
equivalent value (as determined in accordance with the provisions of
subparagraph (d) of paragraph 2 of the Underwriter's Warrant)), and requests
that the certificates for shares of Common Stock and/or Warrants be issued in
the name(s) of, and delivered to whose addressees) is
(are):_________________________________________________
Dated: ____________, 19___
Signature : _____________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Underwriter's Warrant).
__________________________
(Insert Social Security or Other Identifying Number of Holder)
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Warrant)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print
name and address of transferee) this Warrant, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint Attorney,
to transfer the within Warrant on the books SILVER STAR FOODS, Inc. with full
power of substitution.
Dated:______________________, 19____
Signature: ________________________________
(Print name under signature)
(Signature must conform in all respects to the
name of holder as specified on the face of the
Underwriter's Warrant.
__________________________
(Insert Social Security or Other Identifying Number of Holder)
<PAGE>
EXHIBIT 5
RICHARD I. ANSLOW & ASSOCIATES
4255 ROUTE 9 SUITE D
FREEHOLD, NEW JERSEY 07728
December 15, 1998
Silver Star Foods, Inc.
1000 South Avenue
Staten Island, New York 10314
Gentlemen:
You have requested our opinion, as counsel for Silver Star Foods, Inc., a
New York corporation (the "Company"), in connection with the registration
statement on Form SB-2 (the "Registration Statement"), under the Securities Act
of 1933 (the "Act"), being filed by the Company with the Securities and Exchange
Commission.
The Registration Statement relates to an offering of 1,100,000 shares (the
"Shares") of common stock (the "Offering"), par value $.0001 (the "Common
Stock") and 2,200,000 Redeemable Common Stock Purchase Warrants (the
"Warrants").
We have examined such records and documents and made such examination of law
as we have deemed relevant in connection with this opinion. It is our opinion
that when there has been compliance with the Act, the Shares and Warrants, when
issued, delivered, and paid for, will be fully paid validly issued and
non-assessable.
No opinion is expressed herein as to any laws other than the State of New
York of the United States.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
RICHARD I. ANSLOW & ASSOCIATES
By: s/s/ Richard I. Anslow
Richard I. Anslow
<PAGE>
EXHIBIT 10.1
SILVER STAR FOODS, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 15TH day of September,
1998 by and between SILVER STAR FOODS, INC., a New York corporation, having an
office at 1000 South Avenue, Staten Island, New York 10314 (hereinafter referred
to as "Employer") and MICHAEL TROTTA, an individual residing at 7520 Avenue V,
Brooklyn, New York 11234 (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as President; and
WHEREAS, Employee is willing to be employed as the President
in the manner provided for herein, and to perform the duties of the President
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. Employment of the President. Employer hereby employs
Employee as President.
2. Term.
a. Subject to Section 10 below and further to Section
2(b) below, the term of this Agreement shall commence upon the execution
hereof(the "Commencement Date") and expire three years from such date. Each 12
month period from the Commencement Date forward during the term hereof shall be
referred to as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
b. Subject to Section 10 below, unless the Board of
Directors of the Company (the "Board") of Employer shall determine to the
contrary and shall so notify Employee in writing on or before the end of any
Annual Period or unless the Employee notifies Employer in writing on or before
the end of any Annual Period of his desire not to renew this Agreement, then at
the end of each Annual Period, the term of this Agreement shall be automatically
extended for one (1) additional Annual Period to be added at the end of the then
current term of this Agreement.
3. Duties. The Employee shall perform those functions
generally performed by persons of such title and position, shall attend all
meetings of the stockholders
<PAGE>
and the Board, shall perform any and all related duties and shall have any and
all powers as may be prescribed by resolution of the Board, and shall be
available to confer and consult with and advise the officers and directors of
Employer at such times that may be required by Employer. Employee shall report
directly and solely to the Board.
4. Compensation.
a. (i) Employee shall be paid a minimum of $104,000
during the initial Annual Period. Thereafter, Employee shall receive annual
increases equal to the greater of (i) Ten (10%) percent or (ii) the cost of
living adjustment recognized in the area where the Employee resides. Employee
shall be paid periodically in accordance with the policies of the Employer
during the term of this Agreement, but not less than monthly.
(ii) Employee is eligible for an annual bonus, if
any, which will be determined and paid in accordance with policies set from time
to time by the Board.
b. Employer shall include Employee in its health
insurance program available to Employer's executive officers and shall pay 100%
of the premiums for such program.
c. Employee shall have the right to participate in
any other employee benefit plans established by Employer.
d. Employee shall receive from Employer Options to
purchase up to _______ shares of Employer's common stock, exercisable at the
fair market price of Employer's common stock as listed on Nasdaq SmallCap at the
close of business on the day immediately preceding the date of the option
agreement. The terms of the option agreement will include, in part, that (i) if
Employee's employment is terminated for any reason other than cause (as
discussed in Section 9(a)(i)), the options will vest immediately and will be
exercisable for one year from the date of termination, (ii) if, within one year
of the date of the option agreement, the market price of Employer's common stock
falls below the exercise price in the option agreement, Employer will amend the
terms of the option agreement to lower the exercise price to the lower market
price, and (iii) upon written request of Employee, Employer agrees to use its
best efforts to file with the Securities and Exchange Commission, on or before
the first date on which any of said options become exercisable, a registration
statement on Form S-8 (or any replacement therefor) to register under the
Securities Act of 1933, as amended, all shares of Employer's common stock
underlying said options, including those not yet exercisable.
5. Expenses. Employee shall submit to Employer reasonably
detailed receipts with respect thereto which substantiate the expenses. Employer
shall also provide Employee with a company car for Employee's use in furthering
the business of Employer of
<PAGE>
the kind and type similar to that previously provided to Employee. Employee
shall be allowed an allowance of $750.00 per month for such car.
6. Vacation. Employee shall be entitled to receive four (4)
weeks paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
8. Covenant Not to Compete. Employee will not, at any time,
anywhere in the areas where Employer does business during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business (as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by Employee, his spouse or his children is
permitted if such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or business and
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the Nasdaq Stock Market.
9. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement upon
written notice for Cause. For purposes hereof, "Cause" shall mean (A) engaging
by the Employee in conduct that constitutes activity in competition with
Employer; (B) the conviction of Employee for the commission of a felony against
the Employer; and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 9(a)(i), Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date Employee receives the notice from the Board) to
correct the acts or omissions so complained of. In no event shall alleged
incompetence of Employee in the performance of Employee's duties be deemed
grounds for termination for Cause.
<PAGE>
(ii) This agreement automatically shall terminate
upon the death of Employee, except that Employee's estate shall be entitled to
receive any amount accrued under Section 4(a) and the pro-rata amount payable
under Section 4(e) for the period prior to Employee's death and any other amount
to which Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to terminate his employment
under this Agreement upon sixty (60) days' notice to Employer
10. Consequences of Breach by Employer;
Employment Termination
a. If this Agreement is terminated pursuant to
Section 9(b)(i) hereof, or if Employer shall terminate Employee's employment
under this Agreement in any way that is a breach of this Agreement by Employer,
the following shall apply:
(i) Employee shall be entitled to payment of any
previously declared bonus and additional compensation as provided in Section
4(a) and (b) above.
b. In the event that Employee's employment is
terminated for any of the following (i) for cause as set forth in Section
9(b)(i) of this Agreement, (ii) the expiration of the term of this Agreement, or
(iii) resignation by the Employee, then the provisions of Section 8 shall apply
to Employee.
11. Remedies
Employer recognizes that because of Employee's
special talents, stature and opportunities in the frozen food industry, in the
event of termination by Employer hereunder (except under Section 9(a)(i) or
(ii), or in the event of termination by Employee under Section 9(b)(i) before
the end of the agreed term, the Employer acknowledges and agrees that the
provisions of this Agreement regarding further payments of base salary, bonuses
and the exercisability of Rights constitute fair and reasonable provisions for
the consequences of such termination, do not constitute a penalty, and such
payments and benefits shall not be limited or reduced by amounts' Employee might
earn or be able to earn from any other employment or ventures during the
remainder of the agreed term of this Agreement.
<PAGE>
12. Excise Tax. In the event that any payment or benefit
received or to be received by Employee in connection with a termination of his
employment with Employer would constitute a "parachute payment" within the
meaning of Code Section 280G or any similar or successor provision to 280G
and/or would be subject to any excise tax imposed by Code Section 4999 or any
similar or successor provision then Employer shall assume all liability for the
payment of any such tax and Employer shall immediately reimburse Employee on a
"grossed-up" basis for any income taxes attributable to Employee by reason of
such Employer payment and reimbursements.
13. Arbitration. Any controversies between Employer and
Employee involving the construction or application of any of the terms,
provisions or conditions of this Agreement, save and except for any breaches
arising out of Sections 7 and 8 hereof, shall on the written request of either
party served on the other be submitted to arbitration. Such arbitration shall
comply with and be governed by the rules of the American Arbitration
Association. An arbitration demand must be made within one (1) year of the date
on which the party demanding arbitration first had notice of the existence of
the claim to be arbitrated, or the right to arbitration along with such claim
shall be considered to have been waived. An arbitrator shall be selected
according to the procedures of the American Arbitration Association. The cost of
arbitration shall be borne by the losing party or in such proportions as the
arbitrator shall decide. The arbitrator shall have no authority to add to,
subtract from or otherwise modify the provisions of this Agreement, or to award
punitive damages to either party.
14. Attorneys' Fees and Costs. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
15. Entire Agreement; Survival. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated herein and supersedes, effective as of the date hereof any prior
agreement or understanding between Employer and Employee with respect to
Employee's employment by Employer. The unenforceability of any provision of this
Agreement shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed by the
Employee and the Employer, or any waiver, change, discharge or modification as
sought. Waiver of or failure to exercise any rights provided by this Agreement
and in any respect shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9(a)(ii), 10,
11, 12, 13, 14, 17, 18, 19 and 20 shall survive the termination of this
Agreement.
16. Assignment. This Agreement shall not be assigned to other
parties.
<PAGE>
17. Governing Law. This Agreement and all the amendments
hereof, and waivers and consents with respect thereto shall be governed by the
internal laws of the State of New York, without regard to the conflicts of laws
principles thereof.
18. Notices. All notices, responses, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
return receipt requested; or
c. received by the addressee as sent by express
delivery service (receipt requested) in each case to the appropriate addresses,
telex numbers and telefax numbers as the party may designate to itself by notice
to the other parties:
(i) if to the Employer:
SILVER STAR FOODS, INC.
1000 South Avenue
Staten Island, New York 10314
Attention: Michael Trotta
Telefax: (718) 763-6004
Telephone: (718) 763-3000
Richard I. Anslow & Associates
4255 Route 9, Suite D
Freehold, New Jersey 07728
Attention: Richard I. Anslow, Esq.
Telefax: (732) 577-1188
Telephone: (732) 409-1212
(ii) if to the Employee:
Michael Trotta
7520 Avenue V
Brooklyn, New York 11234
<PAGE>
19. Severability of Agreement. Should any part of this
Agreement for any reason be declared invalid by a court of competent
jurisdiction, such decision shall not affect the validity of any remaining
portion, which remaining provisions shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portions of this Agreement without including any such
part, parts or portions which may, for any reason, be hereafter declared
invalid.
IN WITNESS WHEREOF, the undersigned have executed this
agreement as of the day and year first above written.
SILVER STAR FOODS, INC.
By: /s/ Michael Trotta
--------------------------------
Michael Trotta
President
By: /s/ Louis Trotta
--------------------------------
Louis Trotta
<PAGE>
EXHIBIT 10.2
SILVER STAR FOODS, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 15th day of September,
1998 by and between SILVER STAR FOODS, INC., a New York corporation, having an
office at 1000 South Avenue, Staten Island, New York 10314 (hereinafter referred
to as "Employer") and LOUIS TROTTA, an individual residing at 55 Dortmunder
Drive, Manalapan, New Jersey 07726 (hereinafter referred to as "Employee");
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee as Vice
President; and
WHEREAS, Employee is willing to be employed as the Vice
President in the manner provided for herein, and to perform the duties of the
President upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein set forth it is agreed as follows:
1. Employment of the Vice President. Employer hereby employs
Employee as Vice President.
2. Term.
a. Subject to Section 10 below and further to Section
2(b) below, the term of this Agreement shall commence upon the execution
hereof(the "Commencement Date") and expire three years from such date. Each 12
month period from the Commencement Date forward during the term hereof shall be
referred to as an "Annual Period." During the term hereof, Employee shall devote
substantially all of his business time and efforts to Employer and its
subsidiaries and affiliates.
b. Subject to Section 10 below, unless the Board of
Directors of the Company (the "Board") of Employer shall determine to the
contrary and shall so notify Employee in writing on or before the end of any
Annual Period or unless the Employee notifies Employer in writing on or before
the end of any Annual Period of his desire not to renew this Agreement, then at
the end of each Annual Period, the term of this Agreement shall be automatically
extended for one (1) additional Annual Period to be added at the end of the then
current term of this Agreement.
<PAGE>
3. Duties. The Employee shall perform those functions
generally performed by persons of such title and position, shall attend all
meetings of the stockholders and the Board, shall perform any and all related
duties and shall have any and all powers as may be prescribed by resolution of
the Board, and shall be available to confer and consult with and advise the
officers and directors of Employer at such times that may be required by
Employer. Employee shall report directly and solely to the Board.
4. Compensation.
a. (i) Employee shall be paid a minimum of $52,000
during the initial Annual Period. Thereafter, Employee shall receive annual
increases equal to the greater of (i) Ten (10%) percent or (ii) the cost of
living adjustment recognized in the area where the Employee resides. Employee
shall be paid periodically in accordance with the policies of the Employer
during the term of this Agreement, but not less than monthly.
(ii) Employee is eligible for an annual bonus, if
any, which will be determined and paid in accordance with policies set from time
to time by the Board.
b. Employer shall include Employee in its health
insurance program available to Employer's executive officers and shall pay 100%
of the premiums for such program.
c. Employee shall have the right to participate in
any other employee benefit plans established by Employer.
d. Employee shall receive from Employer Options to
purchase up to _______ shares of Employer's common stock, exercisable at the
fair market price of Employer's common stock as listed on Nasdaq SmallCap at the
close of business on the day immediately preceding the date of the option
agreement. The terms of the option agreement will include, in part, that (i) if
Employee's employment is terminated for any reason other than cause (as
discussed in Section 9(a)(i)), the options will vest immediately and will be
exercisable for one year from the date of termination, (ii) if, within one year
of the date of the option agreement, the market price of Employer's common stock
falls below the exercise price in the option agreement, Employer will amend the
terms of the option agreement to lower the exercise price to the lower market
price, and (iii) upon written request of Employee, Employer agrees to use its
best efforts to file with the Securities and Exchange Commission, on or before
the first date on which any of said options become exercisable, a registration
statement on Form S-8 (or any replacement therefor) to register under the
Securities Act of 1933, as amended, all shares of Employer's common stock
underlying said options, including those not yet exercisable.
<PAGE>
5. Expenses. Employee shall submit to Employer reasonably
detailed receipts with respect thereto which substantiate the expenses. Employer
shall also provide Employee with a company car for Employee's use in furthering
the business of Employer of the kind and type similar to that previously
provided to Employee. Employee shall be allowed an allowance of $400.00 per
month for such car.
6. Vacation. Employee shall be entitled to receive four (4)
weeks paid vacation time after each year of employment upon dates agreed upon by
Employer. Upon separation of employment, for any reason, vacation time accrued
and not used shall be paid at the salary rate of Employee in effect at the time
of employment separation.
7. Secrecy. At no time shall Employee disclose to anyone any
confidential or secret information (not already constituting information
available to the public) concerning (a) internal affairs or proprietary business
operations of Employer or (b) any trade secrets, new product developments,
patents, programs or programming, especially unique processes or methods.
8. Covenant Not to Compete. Employee will not, at any time,
anywhere in the areas where Employer does business during the term of this
Agreement, and for one (1) year thereafter, either directly or indirectly,
engage in, with or for any enterprise, institution, whether or not for profit,
business, or company, competitive with the business (as identified herein) of
Employer as such business may be conducted on the date thereof, as a creditor,
guarantor, or financial backer, stockholder, director, officer, consultant,
advisor, employee, member, inventor, producer, director, or otherwise of or
through any corporation, partnership, association, sole proprietorship or other
entity; provided, that an investment by Employee, his spouse or his children is
permitted if such investment is not more than four percent (4%) of the total
debt or equity capital of any such competitive enterprise or business and
further provided that said competitive enterprise or business is a publicly held
entity whose stock is listed and traded on a national stock exchange or through
the Nasdaq Stock Market.
9. Termination.
a. Termination by Employer
(i) Employer may terminate this Agreement upon
written notice for Cause. For purposes hereof, "Cause" shall mean (A) engaging
by the Employee in conduct that constitutes activity in competition with
Employer; (B) the conviction of Employee for the commission of a felony against
the Employer; and/or (C) the habitual abuse of alcohol or controlled substances.
Notwithstanding anything to the contrary in this Section 9(a)(i), Employer may
not terminate Employee's employment under this Agreement for Cause unless
Employee shall have first received notice from the Board advising Employee of
the specific acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable opportunity (at
least 10 days from the date
<PAGE>
Employee receives the notice from the Board) to correct the acts or omissions so
complained of. In no event shall alleged incompetence of Employee in the
performance of Employee's duties be deemed grounds for termination for Cause.
(ii) This agreement automatically shall terminate
upon the death of Employee, except that Employee's estate shall be entitled to
receive any amount accrued under Section 4(a) and the pro-rata amount payable
under Section 4(e) for the period prior to Employee's death and any other amount
to which Employee was entitled of the time of his death.
b. Termination by Employee
(i) Employee shall have the right to terminate his employment
under this Agreement upon sixty (60) days' notice to Employer
10. Consequences of Breach by Employer;
Employment Termination
a. If this Agreement is terminated pursuant to
Section 9(b)(i) hereof, or if Employer shall terminate Employee's employment
under this Agreement in any way that is a breach of this Agreement by Employer,
the following shall apply:
(i) Employee shall be entitled to payment of
any previously declared bonus and additional compensation as provided in Section
4(a) and (b) above.
b. In the event that Employee's employment is
terminated for any of the following (i) for cause as set forth in Section
9(b)(i) of this Agreement, (ii) the expiration of the term of this Agreement, or
(iii) resignation by the Employee, then the provisions of Section 8 shall apply
to Employee.
11. Remedies
Employer recognizes that because of Employee's
special talents, stature and opportunities in the frozen food industry, in the
event of termination by Employer hereunder (except under Section 9(a)(i) or
(ii), or in the event of termination by Employee under Section 9(b)(i) before
the end of the agreed term, the Employer acknowledges and agrees that the
provisions of this Agreement regarding further payments of base salary, bonuses
and the exercisability of Rights constitute fair and reasonable provisions for
the consequences of such termination, do not constitute a penalty, and such
payments and benefits shall not be limited or reduced by amounts' Employee might
earn or be able to earn
<PAGE>
from any other employment or ventures during the remainder of the agreed term of
this Agreement.
12. Excise Tax. In the event that any payment or benefit
received or to be received by Employee in connection with a termination of his
employment with Employer would constitute a "parachute payment" within the
meaning of Code Section 280G or any similar or successor provision to 280G
and/or would be subject to any excise tax imposed by Code Section 4999 or any
similar or successor provision then Employer shall assume all liability for the
payment of any such tax and Employer shall immediately reimburse Employee on a
"grossed-up" basis for any income taxes attributable to Employee by reason of
such Employer payment and reimbursements.
13. Arbitration. Any controversies between Employer and
Employee involving the construction or application of any of the terms,
provisions or conditions of this Agreement, save and except for any breaches
arising out of Sections 7 and 8 hereof, shall on the written request of either
party served on the other be submitted to arbitration. Such arbitration shall
comply with and be governed by the rules of the American Arbitration
Association. An arbitration demand must be made within one (1) year of the date
on which the party demanding arbitration first had notice of the existence of
the claim to be arbitrated, or the right to arbitration along with such claim
shall be considered to have been waived. An arbitrator shall be selected
according to the procedures of the American Arbitration Association. The cost of
arbitration shall be borne by the losing party or in such proportions as the
arbitrator shall decide. The arbitrator shall have no authority to add to,
subtract from or otherwise modify the provisions of this Agreement, or to award
punitive damages to either party.
14. Attorneys' Fees and Costs. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which he may be
entitled.
15. Entire Agreement; Survival. This Agreement contains the
entire agreement between the parties with respect to the transactions
contemplated herein and supersedes, effective as of the date hereof any prior
agreement or understanding between Employer and Employee with respect to
Employee's employment by Employer. The unenforceability of any provision of this
Agreement shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed by the
Employee and the Employer, or any waiver, change, discharge or modification as
sought. Waiver of or failure to exercise any rights provided by this Agreement
and in any respect shall not be deemed a waiver of any further or future rights.
b. The provisions of Sections 4, 7, 8, 9(a)(ii), 10,
11, 12, 13, 14, 17, 18, 19 and 20 shall survive the termination of this
Agreement.
<PAGE>
16. Assignment. This Agreement shall not be assigned to other
parties.
17. Governing Law. This Agreement and all the amendments
hereof, and waivers and consents with respect thereto shall be governed by the
internal laws of the State of New York, without regard to the conflicts of laws
principles thereof.
18. Notices. All notices, responses, demands or other
communications under this Agreement shall be in writing and shall be deemed to
have been given when
a. delivered by hand;
b. sent be telex or telefax, (with receipt
confirmed), provided that a copy is mailed by registered or certified mail,
return receipt requested; or
c. received by the addressee as sent by express
delivery service (receipt requested) in each case to the appropriate addresses,
telex numbers and telefax numbers as the party may designate to itself by notice
to the other parties:
(i) if to the Employer:
SILVER STAR FOODS, INC.
1000 South Avenue
Staten Island, New York 10314
Attention: Michael Trotta
Telefax: (718) 763-6004
Telephone: (718) 763-3000
Richard I. Anslow & Associates
4255 Route 9, Suite D
Freehold, New Jersey 07728
Attention: Richard I. Anslow, Esq.
Telefax: (732) 577-1188
Telephone: (732) 409-1212
(ii) if to the Employee:
Louis Trotta
55 Dortmunder Drive
Manalapan, New Jersey 07726
<PAGE>
19. Severability of Agreement. Should any part of this
Agreement for any reason be declared invalid by a court of competent
jurisdiction, such decision shall not affect the validity of any remaining
portion, which remaining provisions shall remain in full force and effect as if
this Agreement had been executed with the invalid portion thereof eliminated,
and it is hereby declared the intention of the parties that they would have
executed the remaining portions of this Agreement without including any such
part, parts or portions which may, for any reason, be hereafter declared
invalid.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the day
and year first above written.
SILVER STAR FOODS, INC.
By: /s/ Michael Trotta
-----------------------------
Michael Trotta
President
By: /s/ Louis Trotta
-----------------------------
Louis Trotta
<PAGE>
Exhibit 10.3
AGREEMENT BETWEEN VINCENT & MICHAEL TROTTA
AND MOUNT ROSE RAVIOLI AND MAC. CO., INC.
JUNE 13, 1995
Mount Rose Ravioli will package private label Silver Star products to be sold to
Vincent & Michael Trotta, prices to be as listed below:
<TABLE>
<S> <C> <C>
Square Meat & Cheese Ravioli- Bag 24/16 oz $ 16.50
Square Meat & Cheese Ravioli- Box 18/50 ct $ 18.85
Round Cheese Ravioli 24/13 oz $ 14.20
Cavatelli 24/16 oz $ 9.72
Cheese & Meat Tortellini 24/16 oz $ 19.55
Gnocchi 24/16 oz $ 12.82
</TABLE>
Product to be paid for with cashier's or certified check at time order is
placed. A 2% cash discount may be taken at this time.
The above prices will remain in place for six (6) months. At the end of six (6)
months, prices will be reviewed with respect to raw material and packaging
costs. If these costs have increased or decreased, the changes will be passed on
accordingly. Prices will be reviewed every six (6) months thereafter, for as
long as our relationship remains intact.
In the event that this agreement should be terminated, and Mount Rose be left
with unused Silver Star packaging, Vincent and Michael Trotta (Silver Star) do
hereby give Mount Rose Ravioli permission to use the packaging however they
choose.
/s/ Sam Minuto
-----------------------------
Sam Minuto, President
/s/ Michael Trotta
-----------------------------
Michael Trotta, President
Silver Star Ravioli Co.,Inc.
<PAGE>
Exhibit 10.4
MANUFACTURERS AGREEMENT FOR
PRIVATE LABEL COMPANIES
THIS CONTRACT made this Twelfth day of June, 1995 between SAVIGNANO
FOODS CORPORATION, a New Jersey Corporation, trading as Andrea's, hereinafter
referred to as the "Manufacturer", doing business at 107 South Jefferson Street,
in the City of Orange, County of Essex and State of New Jersey, on the one part,
and; SILVER STAR RAVIOLI COMPANY, INC., P.O. Box 340487, Brooklyn, New York
11234, hereinafter called the "Private Label Company", of the other part.
WITNESSETH, that the said party of the first part, for and in
consideration of the sum of FIVE THOUSAND ($5,000.00) DOLLARS to be paid and
satisfied as hereinafter mentioned, and also in consideration of the covenants
and agreements hereinafter mentioned, made and entered into by the said party of
the second part, agrees as follows:
The manufacturer shall make the following product lines to be purchased
by the Private Label Company for sale in the retail and/or wholesale
marketplace, by said Private Label Company:
1. Product (A) - 13 oz. Large Round Cheese Ravioli
Packed 12 Ravioli Per Bag -
24 Units Per Case, $13.85 Per Case.
2. Product (B) - 16 oz. Cavatelli
Packed One Pound Per Bag -
24 Units Per Case, $9.95 Per Case.
The prices listed in this Agreement are contingent upon the Private
Label Company's monthly sales of 7,000 cases of Product (A) and 3,000 cases of
Product (B). If Private Label Company fails to purchase from Manufacturer the
above mentioned volume over a fifty-two (52) week period, the Manufacturer
reserves the right to raise prices according to usage or lack there of.
No order by Private Label Company shall be less than 250 cases of
Product (A) or Product (B).
2. The Manufacturer shall pay for all bags, labels and corrugated boxes
as needed in its sole discretion, to manufacture and package the product line
set forth in Paragraph 1 above for the Private Label Company, at the
Manufacturer's sole cost and expense.
<PAGE>
However, the Manufacturer shall not pay for or be responsible
for artworks, plates, dyes of any kind needed for the packaging of said product
lines. Manufacturer will not purchase more than sixteen (16) weeks supply of
packaging. The amount will initially be based on projections made by Private
Label Company. After a history of sales has been established, the 16-week supply
will be determined by the sales of the Private Label Company.
3. If the Private Label Company "ceases to do business" for any reason
whatsoever with the Manufacturer, the Private Label Company shall reimburse the
Manufacturer for all costs and expenses incurred or contracted for by the
Manufacturer for purposes of fulfilling this agreement such as, finished
product, inventory of finished product, raw material and supplies, paper
products, manufacturing expenses, legal fees, storage expenses, etc. "Ceases to
do business" with Manufacturer is hereby defined to be the failure by Private
Label Company to purchase 7,000 cases of Product (A) and 3,000 cases of Product
(B) within any one (1) month period. If the Private Label Company "ceases to do
business" as defined herein, it shall constitute a default under this Agreement.
4. The Private Label Company shall pay the Manufacturer a minimum
retainer of Five Thousand ($5,000.00) Dollars to offset the Manufacturer's start
up costs to be put in an interest bearing account. The interest will accumulate
and paid in full yearly to Private Label Company. If, prior to one (1) year from
the date hereof, Private Label Company elects to terminate this Agreement of
Manufacture, the $5,000.00 will be returned to Private Label Company upon
payment in full of all end product, packaging, corrugated, etc. If Private Label
Company does not pay for the above mentioned costs, Manufacturer shall retain
the retainer fee in full. If the Manufacturer extends credit terms to the
Private Label Company, the $5,000.00 retainer shall be released to Private Label
Company.
5. In the event of a Default by the Private Label Company of this
Agreement, the Manufacturer shall be entitled to keep all deposit monies paid as
liquidated damages plus all other advances paid by the Private Label Company on
order given to date, plus the Private Label Company agrees to be liable for all
consequential damages resulting from the default and/or breach of this Agreement
including attorneys fees, costs of suit and interest on amounts due and owing
the Manufacturer from the date of all open purchase orders. Damages shall also
include discharging, reloading, handling, storing or any other reasonable
services or expenses incurred in the manufacture, storage, preservation, resale
and distribution (where applicable) of the product line of the Private Label
Company. A Default by Private Label Company shall occur upon the failure to (1)
pay the orders as provided for hereunder; (2) to make the minimum purchases; or
(3) to comply with all other terms of this Agreement.
6. The Manufacturer agrees to produce in accordance with Good
Manufacturing Practices and Federal and State Food Regulation, and will deliver
same to Private Label Company. However, the Manufacturer shall not be liable for
damages after the product has
<PAGE>
left its control or for damages arising out of label misstatements or false
advertising statements. The Manufacturer will be liable for any short weight
product or improperly packaged product.
7. The Manufacturer disclaims any and all warranties either express or
implied warranties for a Particular Purpose or Merchantability. The Manufacturer
will provide the Private Label Company with a certificate of insurance naming
the Private Label Company as an additional insured.
8. Payment shall be made by Private Label Company in cash, certified
check, bank check or wired to Manufacturer's bank account by 11:00 a.m. to the
Manufacturer for the entire amount due and payable to the Manufacturer one (1)
day prior to shipment/pickup of end product. This payment procedure will apply
for twelve months from the first invoice date. After six (6) months from the
first invoice date, the Manufacturer will review the payment procedure set forth
in this Agreement and will decide to alter or not alter the payment procedure.
9. The Manufacturer shall not be responsible for its failure to meet
any manufacturing product, packaging or distribution deadline established by the
Private Label Company if the Private Label Company does not give the
Manufacturer proper lead time on confirmed ads and proper and reasonable sales
projections of at least four (4) weeks in advance.
10. All formulas and manufacturing procedures used by the Manufacturer
are proprietary to the Manufacturer and will be kept confidential and not
revealed to any party.
11. Either party may terminate this Agreement at any time by giving the
other party notice in writing of such desire of termination at least one hundred
twenty (120) days upon which date such termination is to occur. A notice shall
be supplied by certified mail return receipt requested effective upon delivery
or by hand delivery of said notice. Effective upon termination of the Private
Label Company shall immediately pay the Manufacturer for any open outstanding
invoices, if any, and agrees to pay in full on all pending orders for said
product line.
12. During the term of this Agreement, the Private Label Company agrees
to make the Manufacturer its exclusive manufacturer and packager of said product
lines. The Private Label Company shall be allowed, in emergent circumstances, to
obtain product from any other supplier or producer at any price, to satisfy its
order requirements in the event the Manufacturer cannot satisfy such
requirements, upon providing telephone notice to Manufacturer.
13. The decision of manufacturing and packaging of the Private Label
Company's private line of said product line shall be exclusively that of the
Manufacturer. The parties
<PAGE>
mutually agree and understand that the price of manufacturing and packaging may
escalate without notice due to factors beyond the control of the Manufacturer.
The Private Label Company agrees to pay for any and all increases in
manufacturing and packaging costs incurred directly by the Manufacturer upon
Manufacturer giving ten (10) days written notice. Concurrently, the Manufacturer
will also pass along decreases in manufacturing and packaging costs as they
occur. The Manufacturer will review these prices with the Private Label Company
every three (3) months.
14. The Private Label Company agrees to place all outside orders with
Manufacturer . The Private Label Company agrees that the Manufacturer shall not
be responsible for the nonperformance of any order that is not confirmed with a
written acceptance of the purchase order or be responsible for any penalties the
Private Label Company may incur as a result of nonperformance.
15. The Private Label Company represents that it is a New York
Corporation and that this contract was approved by duly authorized corporate
resolution.
16. The Private Label Company will arrange for all orders to be picked
up at the Manufacturer's plant address or its nearest storage facility by
Private Label customers. In the event that pick-up is not made by Private Label
customer, the Manufacturer will not be responsible or liable for delivery and
will not deliver product for Private Label Company. Consequently, the Private
Label Company will be solely responsible to arrange for pick-up of product by
any means necessary.
17. This Agreement shall be governed by the laws of New Jersey. Private
Label Company does hereby submit to the jurisdiction of the New Jersey courts
and agrees it may be served with a Complaint by certified mail.
18. All Notices shall be in writing and shall be by certified mail,
return receipt requested, to the party at the addresses stated in this
Agreement, attention to the party signing the Agreement.
19. This Agreement sets forth the understanding of the parties and
there are no oral agreements. This Agreement may only be modified by a written
agreement signed by the parties.
20. This Agreement shall be binding on the parties and their successors
and assigns.
<PAGE>
WITNESSETH: SAVIGNANO FOODS CORPORATION
A New Jersey Corporation,
Manufacturer
/s/ Rose Marie Savignano BY: /s/ Michael Savignano
- ------------------------- ----------------------------------
ROSE MARIE SAVIGNANO MICHAEL SAVIGNANO,President
Assistant Secretary
WITNESSETH: SILVER STAR RAVIOLI COMPANY,
INC.
/s/ Michael Trotta BY: /s/ Vincent Trotta Sr.
- ------------------------- ----------------------------------
MICHAEL TROTTA, President VINCENT TROTTA SR., C.E.O.
<PAGE>
Exhibit 10.5
SILVER STAR FOODS, INC.
P.O. BOX 3400487
BROOKLYN, NEW YORK 11234
MAY 16, 1998
K&V INVESTMENTS CO. INC.
RE: 800,000 SHARES OF SILVER STAR FOODS, INC.
DEAR SIR/MADAM:
THIS LETTER IS TO CONFIRM THAT YOU HAVE TENDERED YOUR 800,000
SHARES OF SILVER STAR FOODS, INC. FOR SALE TO SILVER STAR FOODS, INC.
SILVER STAR FOODS, INC. AGREES TO PAY K&V INVESTMENTS $210,000 FOR
THE ENTIRE 800,000 SHARES WITHIN 6 MONTHS FROM THE DATE NOTED ABOVE,
MAY 16, 1998.
VERY TRULY YOURS,
BY: /S/ MICHAEL TROTTA, President
-----------------------------
SILVER STAR FOODS, INC.
ACCEPTED & AGREED TO BY:
K&V INVESTMENTS CO., INC.
BY: /S/ CHARLES KOEGAN
-----------------------------
<PAGE>
Exhibit 10.6
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
---------------------------------------------------
This Agreement is made and entered into as of the ___th day of
December 1998 by and between Royal Hutton Securities Corp. ("Consultant"), and
Silver Star Foods, Inc., a New York corporation (the "Company").
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURPOSE: The Company hereby engages Consultant for the term specified
in Paragraph 2 hereof to render consulting advice to the Company as an
investment banker relating to financial and similar matters upon the terms and
conditions set forth herein.
2. TERM: Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective for a three (3) year period commencing December,
1998 and ending on December, 2001.
3. DUTIES OF CONSULTANT: During the term of this Agreement, Consultant
shall seek out Transactions (as hereinafter defined) on behalf of the Company
and shall furnish advice to the Company in connection with any such
Transactions.
4. COMPENSATION: In consideration for the services rendered by Consultant
to the Company pursuant to this Agreement (and in addition to the expenses
provided for in Paragraph 5 hereof), the Company shall compensate Consultant as
follows:
(a) The Company shall pay Consultant a fee of $3,000 per month
for the term of this Agreement. The aggregate sum of $108,000 shall be due and
payable upon the execution of this Agreement.
(b) In the event that any Transaction occurs during the term of
this Agreement or, to the extent provided in paragraph 4(d) hereof, one year
thereafter, the Company shall pay fees to Consultant as follows:
-1-
<PAGE>
CONSIDERATION FEE
$0 to $ 500,000 Minimum Fee of $25,000
$500,000 to $4,000,000 5% of Consideration
$4,000,000 to $5,000,000 $250,000 plus 4% of the
Consideration in excess of
$4,000,000
$5,000,000 to $6,000,000 $290,000 plus 3% of the
Consideration in excess of
$5,000,000
$6,000,000 or more 320,000 plus 2% of the
Consideration in excess of
$6,000,000
For the purposes of this Agreement, "Consideration" shall mean the
total market value on the day of the closing of stock, cash, assets and all
other property (real or personal) exchanged or received, directly or indirectly
by the Company or any of its security holders in connection with any
Transaction. Any co-broker retained by Consultant shall be paid by Consultant.
(c) For the purposes of the Agreement, a "Transaction" shall mean (i)
any transaction originated by Consultant, other than in the ordinary course of
trade or business of the Company, whereby, directly or indirectly, control of
the Company or any of its businesses , is transferred for Consideration, or (ii)
any transaction originated by Consultant whereby the Company acquires any other
company or the assets of any other company or a controlling interest in any
other company (an "Acquisition").
In the event Consultant originates a line of credit with a lender or a
corporate partner, the Company and Consultant will mutually agree on a
satisfactory fee and the terms of payment of such fee. In the event Consultant,
at the Company's request, introduces the Company to a joint venture partner or
customer and sales develop
-2-
<PAGE>
as a result of the introduction, the Company agrees to pay a fee of five percent
(5%) of total sales generated directly from this introduction during the first
two years following the date of the first sale. Total sales shall mean gross
receipts less any applicable refunds, returns, allowances, credits, taxes and
shipping charges and monies paid by the Company by way of settlement or judgment
arising out of claims made by or threatened against the Company. Commission
payments shall be paid on the 15th day of each third month following the receipt
of customers' payments. In the event any adjustments are made to the total
sales after the commission has been paid, the Company shall be entitled to an
appropriate refund or credit against future payments under this Agreement.
(d) All fees to be paid pursuant to this Agreement, except as
otherwise specified, are due and payable to Consultant in cash or company check
at the closing or closings of any Transaction specified in Paragraph 4. In the
event that this Agreement shall not be renewed or if terminated for any reason,
notwithstanding any such non-renewal or termination, Consultant shall be
entitled to a full fee as provided under Paragraphs 4 and 5 hereof, for any
Transaction for which the discussions were initiated during the term of this
Agreement and which is consummated within a period of twelve months after
non-renewal or termination of this Agreement. Nothing herein shall impose any
obligation on the part of the Company to enter into any Transaction.
5. EXPENSES OF CONSULTANT: In addition to the fees payable hereunder and
regardless of whether any Transaction set forth in Paragraph 4 hereof is
proposed or consummated, the Company shall reimburse Consultant for the
reasonable fees and disbursements of Consultant's counsel and Consultant's
reasonable travel and out-of-pocket expenses incurred in connection with the
services performed by Consultant pursuant to this Agreement and at the request
of the Company, including without limitation, hotels, food and associated
expenses and long-distance telephone calls, except that all expenses exceeding
$500 must be pre-approved in writing by the Company.
6. LIABILITY OF CONSULTANT: The Company acknowledges that all opinions
and advice (written or oral) given by Consultant to the Company in connection
with Consultant's engagement hereunder are
-3-
<PAGE>
intended solely for the benefit and use of the Company in considering the
Transaction to which they relate, and the Company agrees that no person or
entity other than the Company shall be entitled to make use of or rely upon the
advice of Consultant to be given hereunder, and no such opinion or advice shall
be used for any other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose, nor may the Company make any
public references to Consultant, or use Consultant's name in any annual reports
or any other reports or releases of the Company without Consultant's prior
written consent which consent shall not be unreasonably withheld.
The Company acknowledges that Consultant makes no commitment whatsoever as
to making a market in the Company's securities or to recommending or advising
its clients to purchase the Company's securities. Research reports or corporate
finance reports that may be prepared by Consultant will, when and if prepared,
be done solely on the merits or judgment of analysis of Consultant or any senior
corporate finance personnel of Consultant.
7.
CONSULTANT'S SERVICES TO OTHERS: The Company acknowledges that Consultant and
its affiliates are in the business of providing financial services and
consulting advice to others. Nothing herein contained shall be construed to
limit or restrict Consultant in conducting such business with respect to others,
or in rendering such advice to others, except that Consultant will not provide
services to others when such services, in the Company's reasonable discretion
may materially and adversely affect the Company.
8. COMPANY INFORMATION:
(a) The Company recognizes and confirms that, in advising the Company
and in fulfilling its engagement hereunder, Consultant will use and rely on
data, material and other information furnished to Consultant by the Company.
The Company acknowledges and agrees that in performing its services under this
Agreement, Consultant may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same.
-4-
<PAGE>
(b) Except as contemplated by the terms hereof or as required by
applicable law, Consultant shall keep confidential all non-public information
provided to it by the Company, and shall not disclose such information to any
third party without the Company's prior written consent, other than such of its
employees and advisors as Consultant reasonably determines to have a need to
know.
-5-
<PAGE>
9. INDEMNIFICATION:
(a) The Company shall indemnify and hold Consultant harmless against
any and all liabilities, claims, lawsuits, including any and all awards and/or
judgments to which it may become subject under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the
"Act") or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including costs, expenses,
awards and/or judgments) arise out of or are in connection with the services
rendered by Consultant or any transactions in connection with this Agreement,
except for any liabilities, claims and lawsuits (including awards and/or
judgments), arising out of acts or omissions of Consultant. In addition, the
Company shall also indemnify and hold Consultant harmless against any and all
costs and expenses, including reasonable counsel fees, incurred relating to the
foregoing.
Consultant shall give the Company prompt notice of any such liability,
claim or lawsuit which Consultant contends is the subject matter of the
Company's indemnification and the Company thereupon shall be granted the right
to take any and all necessary and proper action, at its sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise and dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
Consultant shall indemnify and hold the Company harmless against any
and all liabilities, claims and lawsuits, including any and all awards and/or
judgments to which it may become subject under the 1933 Act, the Act or any
other federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including costs, expenses, awards and/or
judgments) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact required to be stated or necessary to make the
statement therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
Consultant for inclusion in any registration statement or prospectus or any
amendment or supplement thereto or in connection with any Transaction to which
this Agreement applies or which otherwise arises. In addition, Consultant shall
-6-
<PAGE>
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Company shall give Consultant prompt notice of any such liability,
claim or lawsuit which the Company contends is the subject matter of
Consultant's indemnification and Consultant thereupon shall be granted the right
to take any and all necessary and proper action, at its sole cost and expense,
with respect to such liability, claim and lawsuit, including the right to
settle, compromise or dispose of such liability, claim or lawsuit, excepting
therefrom any and all proceedings or hearings before any regulatory bodies
and/or authorities.
(b) In order to provide for just and equitable contribution under the
Act in any case in which (i) any person entitled to indemnification under this
Paragraph 9 makes claim for indemnification pursuant hereto but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Paragraph 9 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is provided under this
Paragraph 9, then, and in each such case, the Company and Consultant shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after any contribution from others) in such proportion
taking into consideration the relative benefits received by each party from the
transactions undertaken in connection with this Agreement (taking into account
the portion of the proceeds realized by each), the parties' relative knowledge
and access to information concerning the matter with respect to which the claim
was assessed, the opportunity to correct and prevent any statement or omission
and other equitable considerations appropriate under the circumstances; and
provided, that, in any such case, 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 was not guilty of such fraudulent
misrepresentation.
-7-
<PAGE>
Within fifteen (15) days after receipt by any party to this Agreement
(or its representative) of notice of the commencement of any action, suit or
proceeding, such party will, if a claim for contribution in respect thereof is
to be made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission so to notify
the Contributing Party will not relieve it from any liability which it may have
to any other party other than for contribution hereunder. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a Contributing Party or his or its representative of the commencement thereof
within the aforesaid fifteen (15) days, the Contributing Party will be entitled
to participate therein with the notifying party and any other Contributing Party
similarly notified. Any such Contributing Party shall not be liable to any
party seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without the written
consent of the Contributing Party, which consent shall not be unreasonably
withheld. The indemnification provisions contained in this Paragraph 9 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
10. CONSULTANT AN INDEPENDENT CONTRACTOR: Consultant shall perform its
services hereunder as an independent contractor and not as an employee of the
Company or an affiliate thereof. The parties hereto expressly understand and
agree that Consultant shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
11. MISCELLANEOUS:
(a) This Agreement between the Company and Consultant constitutes the
entire agreement and understanding of the parties hereto, and supersedes any and
all previous agreements and understandings, whether oral or written, between the
parties with respect to the matters set forth herein.
(b) Any notice or communication permitted or required hereunder shall
be in writing and shall be deemed sufficiently given if hand-delivered (i) five
calendar days after being sent postage
-8-
<PAGE>
prepaid by registered mail, return receipt requested, or (ii) one business day
after being sent by facsimile with confirmatory notice by U.S. mail, to the
respective parties as set forth below, or to such other address as either party
may notify the other in writing:
If to the Company, to: Silver Star Foods, Inc.
1000 South Avenue,
Staten Island, New York 10314
Telecopy No.:
With a courtesy copy to: Richard I. Anslow and Associates
4255 Route 9, Suite D,
Freehold, New Jersey 07728
Telecopy No.: (732) 577-1188
If to Consultant, to: Royal Hutton Securities Corp.
1700 South Dixie Highway
Boca Rato, Florida 33432
Att: Managing Director
Telecopy No.: ()
with a courtesy copy to: Darren Ross, Esq.
Gersten, Savage, Kaplowitz
& Fredericks, LLP
101 East 52nd Street
New York, New York 10022
Telecopy No.: (212) 980-5192
(c) This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors, legal
representatives and assigns.
(d) This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same original
document.
-9-
<PAGE>
(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without giving effect to its
conflict of law principles.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
ROYAL HUTTON SECURITIES CORP.
By:________________________________
Name:
Title: Managing Director
Silver Star Foods, Inc.
By:________________________________
Michael Trotta
President
-10-
<PAGE>
Exhibit 10.7
SILVER STAR FOODS, INC. BROKER CONTRACT
AGREEMENT between SILVER STAR FOODS, INC. located at P.O. 340487, Brooklyn, New
York 11234 hereinafter referred to as SILVER STAR and DOUGLAS FOOD BROKERS INC.
located at 140 WEST ETHEL ROAD, PISCATAWAY, NEW JERSEY 08854 hereinafter
referred to as DOUGLAS.
WHEREAS SILVER STAR is a manufacturer of various RAVIOLI PRODUCTS and DOUGLAS is
independently engaged in the business of food brokerage and manufacturers sales
representatives.
THEREFORE, IT IS AGREED, SILVER STAR appoints DOUGLAS its representative to all
retail customers and distributors, in the New York metropolitan retail market.
For the period of one (1) month beginning November 1, 1997 and DOUGLAS accepts
such appointment upon the following terms:
1. DOUGLAS shall give its efforts to sell the above mentioned merchandise
of SILVER STAR and the latter shall make timely and satisfactory
deliveries in all areas in proportion to the quantity and amount of
orders submitted.
2. All inquiries from the territory and outlets described above regarding
the goods mentioned shall be turned over by SILVER STAR without delay
to DOUGLAS.
3. The appointment of DOUGLAS is strictly as an independent contractor,
and no partnership, joint venture, master and servant, or other
relationship is intended or shall be created, and SILVER STAR shall not
control or interfere in any respect with the employment or conduct of
any and all persons hired or employed by DOUGLAS or in any way
associated with it.
4. SILVER STAR shall pay DOUGLAS on all orders beginning November 1, 1997.
A commission of 3% of the net amount received from the customer will be
paid to DOUGLAS on all SILVER STAR branded products. Commission shall
be paid by the fifteenth (15) days of the following month on paid
invoices.
5. This agreement shall be automatically renewed and continued for a
further term of one (1) month from the date herein fixed as the
expiration of this agreement, unless notice contrary is given by either
party to the other at least 30 days prior to the expiration of any
renewal period.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals
this 29th day of October, 1997.
SILVER STAR DOUGLAS SALES
BY: /s/ Michael Trotta BY: /s/ Kenneth Atkinson
TITLE: President TITLE: Vice President
DATE: 10/29/97 DATE: 12/01/97
* The extra one (1%) percent is a consultant fee and can be adjusted at any
time. /s/ MT
<PAGE>
Exhibit 10.8
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE
UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY THAT
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
SILVER STAR FOODS, INC.
Promissory Note
Due June 23, 1999
(or upon successful completion of an initial public offering of
Silver Star Foods, Inc.)
$25,000
SILVER STAR FOODS, INC., a New York corporation (the "Company"), for
value received, hereby promises to pay to the order of _____________________
(the "Payee"), on the earlier of June 23, 1999, or upon the successful
completion of the Company's initial public offering (the "Offering"), the
principal sum of Twenty Five Thousand ($25,000) Dollars. The principal amount
of the Note may be prepaid by the Company, in whole or in part, without premium
or penalty, at any time.
If the Company shall fail to make a payment of principal when due; or
shall make an assignment for the benefit of creditors, file a petition in
bankruptcy, be adjudicated insolvent or bankrupt, suffer an order for relief
under any federal bankruptcy law, petition or apply to any tribunal for the
appointment of a custodian, receiver or any trustee for the Company or any
substantial part of his assets, or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
affect; or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against the Company, which remains
undismissed for a period of thirty (30) days or more; or if the Company, by any
act or omission shall indicate consent to, approve of or acquiescence in any
such petition, application or proceeding or the appointment of, a custodian,
receiver or any trustee for all or any substantial part of its properties, or if
the Company shall suffer such custodianship, receivership, or trusteeship to
continue undischarged for a period of thirty (30) days or more, or if the
Company ceases operations in the food or food services industry, or the Company
violates any term or provision of this Note and same remains uncured for a
period of 15 days after notice thereof by any Note holder, then and in any such
event (each such event, an "Event of Default"), the outstanding principal amount
of this Note shall be and become immediately due
<PAGE>
and payable.
This Note is issued pursuant to a Subscription Agreement, dated as of
the date hereof, between the Company and the Payee (the "Subscription
Agreement").
Payments of principal, premium, if any, and interest are to be made
in lawful money of the United States of America at the principal office of the
Company.
1. RESTRICTIONS ON TRANSFER.
The holder acknowledges that he has been advised by the Company that
this Note has not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), that the Note is being issued, on the basis of the
statutory exemption provided by Section 4(2) of the Securities Act relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance upon this statutory exemption is based in part upon the
representations made by the holder in the holder's Subscription Agreement. The
holder acknowledges that he has been informed by the Company of, or is otherwise
familiar with, the nature of the limitations imposed by the Securities Act and
the rules and regulations thereunder on the transfer of securities. In
particular, the holder agrees that no sale, assignment, hypothecation or
transfer of this Note shall be valid or effective, and the Company shall not be
required to give any effect to any such sale, assignment, hypothecation or
transfer, unless (i) the sale, assignment, hypothecation or transfer of the Note
is registered under the Securities Act, and the Company has no obligation or
intention to so register the Note except as provided in the Subscription
Agreement executed in connection herewith, or (ii) the Note is sold, assigned,
hypothecated or transferred in accordance with all the requirements and
limitations of Rule l44 under the Securities Act, or such sale, assignment, or
transfer is otherwise exempt from registration under the Securities Act.
2. COVENANTS OF COMPANY.
a. The Company covenants and agrees that, so long as this Note
shall be outstanding, it will:
(i) Promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon the Company or upon
its income and profits, or upon any of its property, before the same shall
become in default, as well as all lawful claims for labor, materials and
supplies which, if unpaid, might become a lien or charge upon such properties or
any part
2
<PAGE>
thereof; provided, however, that the Company shall not be required to pay and
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings,
and the Company shall set aside on its books adequate reserves with respect to
any such tax, assessment, charge, levy or claim so contested.
(ii) Do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and comply with all laws applicable to the Company as its counsel may advise;
(iii) At all times maintain, preserve, protect and keep its
property used and useful in the conduct of its business in good repair, working
order and conditions, and from time to time make all needful and proper repairs,
renewals, replacements, betterments and improvements thereto, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times;
(iv) Keep adequately insured by financially sound insurers,
all property of a character usually insured by similar corporations and carry
such other insurance as is usually carried by similar corporations; and
(v) At all times keep true and correct books, records and
accounts.
3. MISCELLANEOUS.
3.l All the covenants and agreements made by the Company in this
Note shall bind its successors and assigns.
3.2 No recourse shall be had for the payment of the principal on
this Note or for any claim based hereon or otherwise in any manner in respect
hereof, against any incorporator, stockholder, officer or director, past,
present or future, of the Company or of any predecessor corporation, whether by
virtue of any constitutional provision or statute or rule of law, or by the
enforcement of any assessment or penalty or in any other manner, all such
liability being expressly waived and released by the acceptance hereof and as
part of the consideration for the issue hereof.
3.3 No course of dealing between the Company and the holder hereof
shall operate as a waiver of any right of any holder hereof, and no delay on
the part of the holder in exercising any right hereunder shall so operate. Any
such waiver must be in writing and signed by the Holder and the Company.
3.4 This Note may be amended only by a written
3
<PAGE>
instrument executed by the Company and the holder hereof. Any amendment shall
be endorsed upon this Note, and all future holders shall be bound thereby.
3.5 All communications provided for herein shall be sent, except as
may be otherwise specifically provided, by registered or certified mail: if to
the holder of this Note, to the address shown on the books of the Company; and
if to the Company, to: Silver Star Foods, Inc., 1000 South Avenue, Staten
Island, New York 10314, Attention: President, or to such other address as the
Company may advise the holder of this Note in writing. Notices shall be deemed
given when mailed.
3.6 The provisions of this Note shall in all respects be construed
according to, and the rights and liabilities of the parties hereto shall in all
respects be governed by, the laws of the State of New York. This Note shall be
deemed a contract made under the laws of the State of New York and the validity
of this Note and all rights and liabilities hereunder shall be determined under
the laws of said State.
3.7 In the event that this Note is placed in the hands of an attorney
for collection, or in the event that any action be instituted on this Note, or
any action is taken with respect to a default hereunder, the holder hereof shall
be entitled to the payment by the Company and any other party liable for the
obligations of the Company hereunder of all expenses in connection therewith,
including, without limitation, reasonable attorney fees.
3.8 The headings of the Sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part of this Note.
4
<PAGE>
IN WITNESS WHEREOF, SILVER STAR FOODS, INC. has caused this Note to be
executed in its corporate name by its President, and its seal to be affixed
hereto.
Dated: , 1998
SILVER STAR FOODS, INC.
By:
-----------------------------
Michael Trotta
President
- ------------------------------
Secretary
5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 2 of the Registration Statement
of Silver Star Foods, Inc. on Form SB-2 of our report dated July 29, 1998,
except for Notes 11 and 13 as to which the dates are August 31, 1998 and
November 30, 1998, respectively, on our audits of Silver Star Foods, Inc. as at
March 31, 1998 and 1997 and for the years then ended. We also consent to the
reference to our firm under the caption "Experts".
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
- ---------------------------------------------
Weinick Sanders Leventhal & Co., LLP
New York, N.Y.
December 14, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1998 AND THE THREE MONTHS STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 32,993
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,993
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 420,795
<CURRENT-LIABILITIES> 912,794
<BONDS> 0
0
0
<COMMON> 400,320
<OTHER-SE> (892,319)
<TOTAL-LIABILITY-AND-EQUITY> 420,795
<SALES> 254,421
<TOTAL-REVENUES> 254,421
<CGS> 203,458
<TOTAL-COSTS> 203,458
<OTHER-EXPENSES> 142,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (91,347)
<INCOME-TAX> 200
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<NET-INCOME> (91,547)
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