As filed with the Securities and Exchange Commission on August 13, 1999
Registration No. 333-52049
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4/A
AMENDMENT NO. 3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ALCHEMY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida 3730 59-1886450
(State or other (Primary Standard IRS Identification
jurisdiction of Industrial Number)
incorporation or Classification
organization) Code Number)
3025 N.E., 188th Street, Aventura, Florida
33180, (305) 932-9230 (Address, including ZIP Code,
and telephone number, including area code, of
registrant's principal executive offices)
Alchemy Holdings, Inc.
3025 N.E., 188th Street
Aventura, Florida 33180
(305) 932-9230
(Name, address and telephone number of agent for service)
Copies to:
Steven A. Sanders, Esq.
Beckman, Millman & Sanders, L.L.P.
116 John Street
New York, New York 10038
(212) 406-4700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement and the
effective time of the Merger described herein.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
Proposed Amount of
maximum maximum
Amount to be offering price aggregate Amount of
Title of each class of securities registered(1) per unit offering price Registration fee
- --------------------------------- ------------------- ----------- -------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value(2) 4,719,450 $ 2.00 $9,438,900 $ 2,624.01
--------- ---------- ----------
Preferred Stock, Series A, $.001 par value(3) 100 $ 10,000 $1,000,000 $ 278.00
--- ---------- ----------
Preferred Stock, Series B, $.001 par value(4) 100 $ 40,000 $4,000,000 $ 1,112.00
--- ---------- ----------
Class A Warrants(5) 1,000,000
---------
Common Stock, $.001 par value
underlying Class A Warrants(5) 1,000,000 $ 3.00 $3,000,000 $ 834.00
--------- ---------- ----------
Class B Warrants(6) 1,000,000
---------
Common Stock, $.001 par value
underlying Class B Warrants(6) 1,000,000 $ 4.00 $4,000,000 $ 1,112.00
--------- ---------- ----------
Class X Warrants(7) 180,000
-------
Common Stock, $.001 par value
underlying the Class X Warrants(7) 180,000 $ 2.00 $ 360,000 $ 100.08
------- ---------- ----------
Class Y Warrants(8) 100,000
-------
Common Stock, $.001 par value
underlying the Class Y Warrants(8) 100,000 $ 2.00 $ 200,000 $ 70.25
------- ---------- ----------
Options(9) 50,000
------
Common Stock, $.001 par value
underlying the Options(9) 50,000 $ 2.00 $ 100,000 $ 27.80
------ ---------- ----------
Total $ 6,158.14
===== ==========
</TABLE>
(1) This Registration Statement relates to (a) shares of common stock, par
value $.001 per share ("Alchemy Common Stock"), (b) certain warrants to
purchase Alchemy Common Stock together with the shares of Alchemy Common
Stock for which such warrants are exercisable and (c) certain shares of
preferred stock, par value $.001 per share ("Alchemy Preferred Stock") of
Alchemy Holdings Inc. ("Alchemy"), all to be issued in connection with the
proposed merger (the "Merger") of Cigarette Boats Inc., a wholly-owned
subsidiary of Alchemy with and into Cigarette Racing Team, Inc.
("Cigarette") whereby Cigarette will become a wholly-owned subsidiary of
Alchemy. This Registration Statement also relates to (a) certain shares of
Alchemy Preferred Stock to be issued upon the repurchase and retirement of
certain shares of Alchemy Common Stock in connection with the Merger and
(b) options to purchase shares of Alchemy Common Stock, together with the
shares of Alchemy Common Stock for which such options are exercisable which
may be issued in connection with Alchemy's proposed Employee Incentive
Stock Option Plan (the "Option Plan").
(2) Based upon the maximum number of shares of Alchemy Common Stock issuable in
the Merger to holders of common stock, par value $.01 per share of
Cigarette "Cigarette Common Stock") and calculated pursuant to Rule
457(f)(2) of the Securities Act based on the book value of the 4,719,450
Cigarette Common Stock to be cancelled in the Merger.
(3) Based upon the maximum number of shares of Alchemy Preferred Stock, Series
A issuable in the Merger to the sole holder of preferred stock, Series A,
par value $.01 per share of Cigarette ("Cigarette Preferred Stock") and
calculated pursuant to Rule 457(f)(2) based on the book value of the
Cigarette Preferred Stock to be cancelled in the Merger.
(4) Based upon the maximum number of shares of Alchemy Preferred Stock, Series
B issuable to Offshore Racing, Inc. ("Offshore") in consideration for the
repurchase and retirement by Alchemy of 2,000,000 shares of Alchemy Common
Stock held by Offshore in connection with the Merger and calculated
pursuant to Rule 457(f)(2) based on the book value of the Alchemy Common
Stock to be received by Alchemy upon such repurchase and retirement.
(5) Based upon the maximum number of Class A Warrants of Alchemy ("Alchemy
Class A Warrants") issuable to the holders of Class A Warrants of Cigarette
in the Merger and the shares of Alchemy Common Stock for which such Alchemy
Class A Warrants will be exercisable and calculated pursuant to Rule 457(g)
based on the exercise price with respect to the Alchemy Class A Warrants.
(6) Based upon the maximum number of Class B Warrants of Alchemy ("Alchemy
Class B Warrants") issuable to the holders of Class B Warrants of Cigarette
in the Merger and the shares of Alchemy Common Stock for which such Alchemy
Class B Warrants will be exercisable and calculated pursuant to Rule 457(g)
based on the exercise price with respect to the Alchemy Class B Warrants.
(7) Based upon the maximum number of Class X Warrants of Alchemy ("Alchemy
Class X Warrants") issuable to the holder of Class X Warrants in the Merger
and the shares of Alchemy Common Stock for which such Alchemy Class X
Warrants will be exercisable and calculated pursuant to Rule 457(g) based
on the exercise price with respect to the Alchemy Class X Warrants.
(8) Based upon the maximum number of Class Y Warrants of Alchemy ("Alchemy
Class Y Warrants") issuable to the holder of Class Y Warrants of Cigarette
in the Merger and the shares of Alchemy Common Stock for which such Alchemy
Class Y Warrants will be exercisable and calculated pursuant to Rule 457(g)
based on the exercise price with respect to the Alchemy Class Y Warrants.
(9) Based upon the maximum number of non-qualified stock options of Alchemy
issuable pursuant to the Option Plan and the shares of Alchemy Common Stock
for which such options may be exercised and calculated pursuant to Rule
457(h)(1) based on the exercise price of such options.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT BECOMES
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8 (a),
MAY DETERMINE.
ii
<PAGE>
ALCHEMY HOLDINGS, INC.
3025 N.E., 188th Street
Aventura, Florida 33180
(305) 932-9230
__________, 1999
To the Shareholders of Alchemy Holdings, Inc.:
A Special Meeting (the "Alchemy Special Meeting") of the shareholders of
Alchemy Common Stock, par value $.001 per share ("Alchemy Common Stock") of
Alchemy Holdings, Inc., formerly known as Hawk Marine Power, Inc., a Florida
corporation ("Alchemy"), will be held at 9:00 a.m., local time, on
_________________, 1999, at the offices of Alchemy located at 3025 N.E., 188th
Street, Aventura, Florida 33180.
At the Alchemy Special Meeting, you will be asked to consider and vote upon
three important proposals. First, you will be asked to consider and vote upon a
proposal (the "Merger Proposal") to authorize and approve the issuance of up to
4,719,450 shares of Alchemy Common Stock to holders of shares of common stock
("Cigarette Common Stock") of Cigarette Racing Team, Inc., a Florida corporation
("Cigarette"), in connection with the proposed merger (the "Merger") of
Cigarette Boats, Inc., a Delaware corporation and a wholly-owned subsidiary of
Alchemy ("Merger Sub") with and into Cigarette pursuant to an Agreement and Plan
of Merger dated _____________, 1999 by and among Alchemy, Cigarette and Merger
Sub (the "Merger Agreement") whereby Cigarette will become a wholly-owned
subsidiary of Alchemy. In connection with the Merger, you will also be asked to
consider and vote upon a proposal (the "Repurchase Proposal") to authorize and
approve the repurchase and retirement by Alchemy of 2,000,000 shares of Alchemy
Common Stock currently held by Offshore Racing, Inc. ("Offshore"), Alchemy's
largest shareholder, in consideration for the issuance to Offshore of shares of
newly created series B preferred stock of Alchemy having an aggregate
liquidation preference equal to $1,000,000. Finally, at the Alchemy Special
Meeting, you will also be asked to consider and vote upon a proposal (the
"Option Plan Proposal") to adopt and approve a new Alchemy Employee Incentive
Stock Option Plan (the "Option Plan").
Upon the consummation of the Merger, (i) each issued and outstanding share
of Cigarette Common Stock (other than shares of Cigarette Common Stock held by
holders who perfect their dissenters' rights with respect to the Merger under
the Florida Business Corporation Act) will be converted into one share of
Alchemy Common Stock, (ii) each outstanding warrant to purchase shares of
Cigarette Common Stock will be converted into a warrant having similar terms, to
purchase shares of Alchemy Common Stock and (iii) each outstanding share of
series A preferred stock of Cigarette will be converted into one share of newly
created series A preferred stock of Alchemy having an aggregate liquidation
preference equal to $1,000,000. The proposed issuance of the shares of Alchemy
Common Stock to the holders of Cigarette Common Stock in the Merger, together
with the proposed repurchase and retirement of the shares of Alchemy Common
Stock currently held by Offshore in connection with the Merger, will result in
the current holders of Cigarette Common Stock owning 87% of the issued and
outstanding Alchemy Common Stock immediately following the consummation of the
Merger. In addition, the warrants and options to purchase Alchemy Common Stock
to be issued in the Merger to current holders of warrants to purchase shares of
Cigarette Common Stock will entitle such holders to purchase up to an additional
2,330,000 shares of Alchemy Common Stock (or an additional 30.5% of the Alchemy
Common Stock on a fully diluted basis) following the consummation of the Merger.
The Merger Proposal, the Repurchase Proposal and the Option Plan Proposal
must each be approved by the holders of a majority of the outstanding shares of
Alchemy Common Stock. Additionally, your Board of Directors has determined that
Alchemy will not consummate the transactions contemplated by the Merger Proposal
or the Repurchase Proposal unless the holders of at least a majority of the
outstanding Alchemy Common Stock other than Offshore, voting as a separate
class, vote to approve the Merger Proposal and the Repurchase Proposal. The
Merger Agreement must also be adopted and approved by the holders of a majority
of the outstanding shares of Cigarette Common Stock.
iii
<PAGE>
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL AND
BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER
IS IN THE BEST INTEREST OF, ALCHEMY AND ITS SHAREHOLDERS. YOUR BOARD OF
DIRECTORS HAS ALSO UNANIMOUSLY APPROVED THE REPURCHASE PROPOSAL AND THE OPTION
PLAN PROPOSAL AND BELIEVES THAT EACH OF THESE PROPOSALS ARE IN THE BEST INTEREST
OF ALCHEMY AND ITS SHAREHOLDERS. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT THE HOLDERS OF ALCHEMY COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER PROPOSAL, THE REPURCHASE PROPOSAL AND THE OPTION PLAN PROPOSAL.
IT IS VERY IMPORTANT THAT YOUR SHARES OF ALCHEMY COMMON STOCK BE
REPRESENTED AT THE ALCHEMY SPECIAL MEETING, WHETHER OR NOT YOU PLAN TO ATTEND
PERSONALLY. THEREFORE, YOU SHOULD COMPLETE AND SIGN THE ENCLOSED PROXY AND
RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL
ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ALCHEMY SPECIAL MEETING.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by the shareholders at the Alchemy Special Meeting and a
proxy card. The Joint Proxy Statement/Prospectus, which you should read
carefully, more fully describes the terms of each of the Proposals, including
the Merger Agreement and the Merger and includes information about Alchemy and
Cigarette. For your information, a copy of the Merger Agreement is attached as
Annex A to the Joint Proxy Statement/Prospectus.
iv
<PAGE>
All shareholders are cordially invited to attend the Alchemy Special
Meeting in person. If you attend the Alchemy Special Meeting, you may vote in
person if you wish, even though you have previously returned your proxy card. If
you require assistance in completing your proxy card or have questions about
voting procedures, please contact Adam Schild, Alchemy's Secretary, at (305)
932- 9230.
Sincerely,
CRAIG BARRIE
President
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ALCHEMY
SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE. YOUR PROXY MAY BE WITHDRAWN
BY YOU AT ANY TIME BEFORE IT IS VOTED. EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER PROPOSAL, THE REPURCHASE PROPOSAL
AND THE OPTION PLAN PROPOSAL.
v
<PAGE>
ALCHEMY HOLDINGS, INC.
3025 N.E., 188th Street
Aventura, Florida 33180
(305) 932-9230
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on _________, 1999
To the Shareholders of Alchemy Holdings, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Alchemy Special
Meeting") of holders of common stock, par value $.001 per share ("Alchemy Common
Stock") of Alchemy Holdings, Inc., a Florida corporation ("Alchemy"), will be
held on _____________, _____________, 1999, at the principal executive offices
of Alchemy located at 3025 N.E., 188th Street, Aventura, Florida 33180
commencing at 9:00 am., local time, for the following purposes:
1. To consider and vote upon a proposal (the "Merger Proposal") to
authorize and approve the issuance of up to 4,719,450 shares of
Alchemy Common Stock to holders of shares of common stock, par value
$.01 per share ("Cigarette Common Stock") of Cigarette Racing Team,
Inc., a Florida corporation ("Cigarette") in connection with the
proposed merger (the "Merger") of Cigarette Boats, Inc., a Delaware
corporation and a wholly-owned subsidiary of Alchemy ("Merger Sub")
with and into Cigarette pursuant to an Agreement and Plan of Merger
dated as of __________, 1999 by and among Alchemy, Cigarette and
Merger Sub (the "Merger Agreement") whereby each share of Cigarette
Common Stock outstanding immediately prior to the effective time of
the Merger (other than shares of Cigarette Common Stock held by
holders who have perfected dissenters' rights under the Florida
Business Corporation Act) will be converted ino one share of Alchemy
Common Stock and Cigarette will become a wholly-owned subsidiary of
Alchemy;
2. To consider and vote upon a proposal (the "Repurchase Proposal") to
authorize and approve the repurchase and retirement of Alchemy of
2,000,000 shares of Alchemy Common Stock held by Offshore Racing,
Inc., a foreign corporation ("Offshore") in consideration for the
issuance to Offshore of 100 shares of newly created series B preferred
stock, par value $.001 per share of Alchemy having an aggregate
liquidation preference equal to $1,000,000;
3. To consider and vote upon a proposal (the "Option Plan Proposal") to
approve and adopt the Alchemy Employee Incentive Stock Option Plan.
The Merger Proposal, the Repurchase Proposal and the Option Plan Proposal
must each be approved by the holders of a majority of the outstanding shares of
Alchemy Common Stock. Additionally, your Board of Directors has determined that
Alchemy will not consummate the transactions contemplated by the Merger Proposal
or the Repurchase Proposal unless the holders of at least a majority of the
outstanding shares of Alchemy Common Stock other than Offshore, voting as a
separate class, vote to approve the Merger Proposal and the Repurchase Proposal.
Holders of Alchemy Common Stock do not have statutory appraisal or
dissenters' rights with respect to the transactions contemplated by any of the
Proposals.
The Board of Directors has fixed the close of business on __________, 1999
as the record date for holders of Alchemy Common Stock entitled to notice of,
and to vote at, the Alchemy Special Meeting and any adjournments or
postponements thereof. The list of shareholders entitled to vote at the Alchemy
Special Meeting will be available for examination ten (10) days prior to the
Alchemy Special Meeting at the principal executive offices of Alchemy, 3025 N.E.
188th Street, Aventura, Florida 33180.
The attached Joint Proxy Statement/Prospectus contains important
information concerning Alchemy, Cigarette, each of the Proposals, the Merger and
the Merger Agreement. Please read the attached Joint Proxy Statement/Prospectus
carefully.
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. Proxies with respect to Alchemy Common Stock may be
revolved by filing with the Secretary of Alchemy written notice of revocation
bearing a later date than the proxy, by duly executing a later-dated proxy
relating to the same Alchemy Common Stock or by attending the Alchemy Special
Meeting and voting in person (although attendance at the Alchemy Special Meeting
will not in and of itself constitute revocation of a proxy). Any written notice
with respect to Alchemy Common Stock must be sent to Secretary Alchemy Holdings,
Inc., 3025 N.E. 188th Street, Aventura, Florida 33180. Unless so revoked, the
shares of Alchemy Common Stock represented by such proxies will be voted at the
Alchemy Special Meeting in accordance with the directions given therein. All
executed but unmarked proxies received by Alchemy will be voted FOR the approval
of each of the Proposals.
In the event that there are not sufficient votes to approve each of the
Proposals, it is expected that the Alchemy Special Meeting will be postponed or
adjourned in order to permit further solicitation of proxies by Alchemy.
All shareholders are cordially invited to attend the Alchemy Special
Meeting in person. However, to ensure your representation at the Alchemy Special
Meeting, you are urged to complete and sign the enclosed proxy card and return
it as promptly as possible in the enclosed postage-prepaid envelope.
By Order of the Board of Directors
CRAIG BARRIE
President
Aventura, Florida
__________, 1999
vi
<PAGE>
CIGARETTE RACING TEAM, INC.
3131 N.E. 188th Street
Aventura, Florida 33180
(305) 931-4564
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON ____ _, 1999
TO THE SHAREHOLDERS OF CIGARETTE RACING TEAM, INC.:
NOTICE IS HEREBY GIVEN, that a Special Meeting (the "Cigarette Special Meeting")
of holders of common stock, par value $.01 per share ("Cigarette Common Stock")
of Cigarette Racing Team, Inc., a Florida corporation ("Cigarette") will be held
on ______, ________, 1999 at the principal executive offices of Cigarette
located at 3131 N.E. 188th Street, Aventura, Florida 33180 commencing at 9:00
a.m., local time, for the following purpose:
To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger dated as of ______, 1999 by and among Cigarette, Alchemy Holdings
Inc. ("Alchemy) and Cigarette Boats, Inc., a wholly-owned subsidiary of Alchemy
("Merger Sub") (the "Merger Agreement") pursuant to which (i) Merger Sub will be
merged with and into Cigarette with Cigarette continuing as the surviving
corporation and becoming a wholly-owned subsidiary of Alchemy (the "Merger") and
(ii) at the effective time of the Merger, (A) each share of issued and
outstanding Cigarette Common Stock (other than shares held by holders who
perfect dissenters' rights under the Florida Business Corporation Act) will be
converted into one share of common stock, par value $.001 of Alchemy ("Alchemy
Common Stock"), (B) each issued and outstanding share of preferred stock, par
value $.01 per share of Cigarette will be converted into one share of preferred
stock, par value $.001 per share of Alchemy having similar terms and (C) each
issued and outstanding warrant to purchase shares of Cigarette Common Stock will
be converted into one warrant having similar terms, to purchase shares of
Alchemy Common Stock.
The Merger Agreement must be approved by the holders of a majority of the
outstanding shares of Cigarette Common Stock. The issuance of the shares of
Alchemy Common Stock to be issued in the Merger must also be approved by the
holders of a majority of the outstanding shares of Alchemy Common Stock and by a
separate class vote of the holders of a majority of the outstanding shares of
Alchemy Common Stock other than its largest shareholder.
BY VOTING FOR THE MERGER AGREEMENT, A SHAREHOLDER WILL BE DEEMED TO HAVE
ASSENTED TO ALL TERMS SET FORTH THEREIN. ONE SUCH TERM WILL RESTRICT
SHAREHOLDERS WHO RECEIVE SHARES OF ALCHEMY COMMON STOCK IN THE MERGER FROM
TRANSFERING SUCH SHARES FOR A PERIOD OF TWELVE MONTHS FROM THE EFFECTIVE DATE OF
THE MERGER (THE "LOCK UP PERIOD"). DURING THE LOCKUP PERIOD THE BOARD OF
DIRECTORS OF ALCHEMY WILL HAVE THE EXCLUSIVE RIGHT TO RELEASE SHAREHOLDERS WHO
RECEIVE SHARES OF ALCHEMY COMMON STOCK IN THE MERGER FROM THESE TRANSFER
RESTRICTIONS FOR ANY REASON THAT IT DEEMS TO BE NECESSARY IN ITS SOLE
DISCRETION.
The Board of Directors has fixed the close of business on _____, 1999 as
the record date for holders of Cigarette Common Stock entitled to notice of, and
to vote at, the Cigarette Special Meeting and any adjournments or postponements
thereof. The list of shareholders entitled to vote a the Cigarette Special
Meeting will be available for examination ten (10) days prior to the Cigarette
Special Meeting at the principal executive offices of Cigarette, 3131 N.E. 188th
Street, Aventura, Florida 33180.
The attached Joint Proxy Statement/Prospectus contains important
information concerning Alchemy, Cigarette, the Merger and the Merger Agreement.
Proxies with respect to Cigarette Common Stock may be revoked by filing with the
Secretary of Cigarette written notice of revocation bearing a later date than
the proxy, by duly executing a later-dated proxy relating to the same Cigarette
Common Stock or by attending the Cigarette Special Meeting and voting in person
(although attendance at the Cigarette Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice with respect to Cigarette
Common Stock must be sent to Secretary, Cigarette Racing Team, Inc., 3131 N.E.
188th Street, Aventura, Florida 33180. Please read the attached Joint Proxy
Statement/Prospectus carefully.
Shareholders who execute proxies retain the right to revoke them at any
time before they are voted. Unless so revoked, the shares of Cigarette Common
Stock represented by such proxies will be voted at the Cigarette Special Meeting
will be postponed or adjourned in order to permit further solicitation of
proxies by Cigarette.
All shareholders are cordially invited to attend the Cigarette Special
Meeting in person. However, to ensure your representation at the Cigarette
Special Meeting, you are urged to complete and sign the enclosed proxy card and
return it as promptly as possible in the enclosed postage-pre-paid envelope.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATED UNTIL YOU HAVE RECEIVED A LETTER
OF TRANSMITTAL WHICH WILL BE SENT TO YOU IF THE MERGER AGREEMENT IS APPROVED AND
THE MERGER IS CONSUMMATED.
BY ORDER OF THE BOARD OF DIRECTORS
Adam Schild
Secretary
vii
<PAGE>
Subject to Completion, dated August 13, 1999
JOINT PROXY STATEMENT/PROSPECTUS
---------------------------------------
PROSPECTUS RELATING TO
7,049,450 Common Stock
1,000,000 Class A Warrants
1,000,000 Class B Warrants
180,000 Class X Warrants
100,000 Class Y Warrants
50,000 Options
100 Shares of Preferred Stock, Series A
100 Shares of Preferred Stock, Series B
of Alchemy Holdings, Inc.
---------------------------------------
PROXY STATEMENT RELATING TO
ALCHEMY HOLDINGS, INC. CIGARETTE RACING TEAM, INC.
SPECIAL MEETING OF SHAREHOLDERS SPECIAL MEETING OF SHAREHOLDERS
To Be Held on ________________, 1999 To Be Held on ________________, 1999
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement/Prospectus")
is being furnished to holders of common stock, par value $.001 per share
("Alchemy Common Stock") of Alchemy Holdings, Inc. ("Alchemy"), in connection
with the solicitation of proxies by the Board of Directors of Alchemy (the
"Alchemy Board") for use at a Special Meeting of Alchemy shareholders to be held
on __________, __________, 1999, (including any adjournments or postponements
thereof, the "Alchemy Special Meeting"). At the Alchemy Special Meeting, the
Alchemy shareholders will be asked (i) to consider and vote upon a proposal (the
"Merger Proposal") to authorize and approve the issuance of up to 4,719,450
shares of Alchemy Common Stock to holders of shares of common stock, par value
$.01 per share ("Cigarette Common Stock") of Cigarette Racing Team, Inc., a
Florida corporation ("Cigarette"), in connection with the proposed merger (the
"Merger") of Cigarette Boats, Inc., a Delaware corporation and a wholly-owned
subsidiary of Alchemy ("Merger Sub") with and into Cigarette pursuant to an
Agreement and Plan of Merger dated as of __________, 1999 by and among Alchemy,
Cigarette and Merger Sub (the "Merger Agreement") whereby each share of
Cigarette Common Stock outstanding immediately prior to the effective time of
the Merger (other than shares of Cigarette Common Stock held by holders who have
perfected dissenters' rights under the Florida Business Corporation Act) will be
converted into one share of Alchemy Common Stock and Cigarette will become a
wholly-owned subsidiary of Alchemy; (ii) to consider and vote upon a proposal
(the "Repurchase Proposal") to authorize and approve the repurchase and
retirement by Alchemy of 2,000,000 shares of Alchemy Common Stock held by
Offshore Racing, Inc., a __________ corporation ("Offshore") in consideration
for the issuance to Offshore of 100 shares of newly created series B preferred
stock, par value $.001 per share of Alchemy ("Alchemy Series B Preferred Stock")
having an aggregate liquidation preference equal to $1,000,000; and (iii) to
consider and vote upon a proposal (the "Option Plan Proposal") to approve and
adopt the Alchemy Employee Incentive Stock Option Plan (the "Option Plan").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Cigarette Common Stock, in connection with the solicitation of proxies by the
Board of Directors of Cigarette (the "Cigarette Board") for use at a special
meeting of Cigarette shareholders to be held on ____________, 1999, (including
any adjournments or postponements thereof, the Cigarette Special Meeting). At
the Cigarette Special Meeting, the Cigarette shareholders will be asked to vote
to consider and vote upon a proposal to approve and adopt the Merger Agreement.
viii
<PAGE>
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Alchemy for use in connection with (i) the offer and sale of shares of Alchemy
Common Stock, shares of Alchemy Series A Preferred Stock and warrants to
purchase shares of Alchemy Common Stock, together with the shares of Alchemy
Common Stock for which such warrants are exercisable all to be issued, pursuant
to the Merger, (ii) shares of preferred stock, series B of Alchemy ("Alchemy
Series B Preferred Stock") to be issued to Offshore in connection with the
proposed repurchase and retirement by Alchemy of 2,000,000 shares of Alchemy
Common Stock currently held by Offshore and (iii) non-qualified options to
purchase shares of Alchemy Common Stock issuable pursuant to the Option Plan
("Options"), together with the shares of Alchemy Common Stock for which such
Options are exercisable.
Alchemy has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") of
which this Joint Proxy Statement/Prospectus forms a part, registering a total of
7,049,450 shares of Alchemy Common Stock, 4,719,450 of which represent shares to
be issued in the Merger to the holders of shares of Cigarette Common Stock,
2,280,000 of which represent shares which may be issued upon the exercise of the
Alchemy warrants to be issued in the Merger to holders of warrants to purchase
shares of Cigarette Common Stock and 50,000 of which represent shares which may
be issued upon the exercise of the Options. The Registration Statement also
registers (w) the 100 shares of Alchemy Series A Preferred Stock to be issued in
the Merger, (x) the 100 shares of Alchemy Series B Preferred Stock to be issued
to Offshore, (y) a total of 2,280,000 warrants to purchase Alchemy Common Stock,
consisting of 1,000,000 class A warrants of Alchemy ("Alchemy Class A Warrants")
to be issued in the Merger to the holders of 1,000,000 class A warrants of
Cigarette ("Cigarette Class A Warrants"), 1,000,000 class B warrants of Alchemy
("Alchemy Class B Warrants") to be issued in the Merger to the holders of
1,000,000 class B warrants of Cigarette ("Cigarette Class B Warrants"), 180,000
class X warrants of Alchemy ("Alchemy Class X Warrants") to be issued in the
Merger to the holders of 180,000 class X warrants of Cigarette ("Cigarette Class
X Warrants") and 100,000 class Y warrants of Alchemy ("Alchemy Class Y
Warrants") to be issued in the Merger to the holders of 100,000 class Y warrants
of Cigarette ("Cigarette Class Y Warrants") and (z) 50,000 Options to be issued
pursuant to the Option Plan. For a description of the terms of the Alchemy
Series A Preferred Stock and the Alchemy Series B Preferred Stock, see
"Description of Alchemy's Sercurities--Preferred Stock". For a description of
the terms of the Alchemy Class A Warrants, the Alchemy Class B Warrants, the
Alchemy Class X Warrants, the Alchemy Class Y Warrants and the Options, see
"Description of Alchemy's Securities--Warrants and Options."
The outstanding shares of Alchemy Common Stock are listed on the OTC-
Bulletin Board under the symbol "ALCH". As a condition to the merger, the shares
of Alchemy Common Stock to be issued pursuant to the Merger must be approved for
listing on the OTC- Bulletin Board, upon official notice of issuance. The last
reported sale price of Alchemy Common Stock on the OTC-Bulletin Board on August
11, 1999 was $7.00 per share.
The information included herein with respect to Alchemy and its affiliates
was supplied by Alchemy and the information included herein with respect to
Cigarette and its affiliates was supplied by Cigarette.
Holders of shares of Cigarette Common Stock who exercise their right to
dissent from the Merger and who otherwise comply with the applicable provisions
of the Florida Business Corporation Act may seek payment of the fair value of
their shares of Cigarette Common Stock. See "The Meetings--Cigarette
Shareholders' Appraisal Rights" in this Joint Proxy Statement/Prospectus and
Exhibit __ hereto, for a description of the procedures to be followed in order
to perfect such dissenters' rights. See "Risk Factors" beginning on page 10, for
certain information that should be considered by Alchemy shareholders and
Cigarette shareholders before voting at the Alchemy Special Meeting or the
Cigarette Special Meeting.
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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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of Alchemy and Cigarette on or
about__________, 1999.
The date of this Joint Proxy Statement/Prospectus is _________________, 1999.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ALCHEMY OR CIGARETTE. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO PURCHASE THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR PROXY SOLICITATION
IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE OF THIS JOINT
PROXY STATEMENT/PROSPECTUS.
BY VOTING FOR THE MERGER AGREEMENT A CIGARETTE SHAREHOLDER WILL BE DEEMED TO
HAVE ASSENTED TO ALL TERMS SET FORTH THEREIN. ONE SUCH TERM WILL RESTRICT
SHAREHOLDERS WHO RECEIVE SHARES OF ALCHEMY COMMON STOCK IN THE MERGER FROM
TRANSFERRING SUCH SHARES FOR A PERIOD OF TWELVE MONTHS FROM THE EFFECTIVE DATE
OF THE MERGER (THE "LOCKUP PERIOD"). DURING THE LOCKUP PERIOD THE BOARD OF
DIRECTORS OF ALCHEMY WILL HAVE THE EXCLUSIVE RIGHT TO RELEASE SHAREHOLDERS WHO
RECEIVE SHARES OF ALCHEMY COMMON STOCK AS A RESULT OF THE MERGER FROM THESE
TRANSFER RESTRICTIONS FOR ANY REASON THAT IT DEEMS NECESSARY IN ITS SOLE
DISCRETION.
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TABLE OF CONTENTS
AVAILABLE INFORMATION..........................................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................2
TRADEMARKS................................................................2
FORWARD LOOKING STATEMENTS................................................2
SUMMARY ......................................................................3
Introduction..............................................................3
The Parties...............................................................3
Alchemy ............................................................3
Cigarette............................................................3
Cigarette Boats, Inc. ("Merger Sub").................................3
The Shareholder Meetings .................................................3
Voting; Voting Agreements ................................................3
Solicitation .............................................................3
Revocation ...............................................................3
Use of Proxies ...........................................................3
Recommendations of Boards of Directors ...................................4
The Proposed Merger ......................................................4
Reasons for the Merger...............................................6
No Solicitation...........................................................6
Representations and Warranties; Covenants.................................7
Conditions to the Merger..................................................7
Amendment of the Merger Agreement.........................................7
Potential for Conflicts of Interest.......................................7
Management of the Combined Entity.........................................8
Termination of the Merger Agreement.......................................8
Certain Federal Income Tax Consequences ..................................8
Accounting Treatment......................................................8
Transfer of Cigarette Stock and Warrant Certificates .....................9
Dissenter's Rights .......................................................9
Restrictions on Resale of Alchemy Common Stock............................9
Risk Factors..............................................................9
RISK FACTORS..................................................................10
Risks Related to Alchemy and Cigarette...................................10
No History of Profitable Operations.................................10
Modification of Accountants' Reports................................10
Intense competition.................................................10
Nature of the Recreational Boat and Marine Engine Industry..........10
Dependence on New Products and Additional Capital...................10
Fluctuation in Results Due to Seasonality and Weather...............10
Impact of Environmental and Other Regulatory Matters................11
Risk of Technological Obsolescence..................................11
Risks Associated with Intellectual Property Rights..................11
Impact of Economic Conditions.......................................11
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Market and Other Risks Relating to the Merger............................11
Fixed Exchange Ratio................................................11
Volatility of Trading Price.........................................11
Penny Stock Regulation..............................................12
Potential Dilution of Interest......................................12
Integration of Other Acquired Businesses............................12
Substantial Expenses Associated with the Merger.....................12
Possible Adverse Affect on Customer Buying Patterns.................12
Integration of Other Acquired Businesses............................12
Transaction Charges.................................................12
Possible Adverse Affect on Customer Buying Patterns.................13
Alchemy-Related Risk Factors.............................................13
No History of Profitable Operations of Alchemy......................13
Competition.........................................................13
Alchemy's reliance on the General Motors Corporation
("General Motors").............................................13
Production Liability................................................13
Potential Securities Act Violations.................................13
Cigarette Related Risk Factors...........................................13
Cigarette's Dependence on New Products and Additional Capital.......13
Risk of Technological Obsolescence..................................13
Risks Associated with Intellectual Property Rights..................13
Interests of Certain Persons.............................................14
Interests in Alchemy Common Stock and Options.......................14
Management..........................................................14
Forbearance From Certain Creditors..................................14
Risks Associated with the OTC-Bulletin Board.............................14
SELECTED HISTORICAL AND UN-AUDITED FINANCIAL DATA.............................15
Recent Share Prices......................................................16
Dividends................................................................16
THE ALCHEMY SPECIAL MEETING...................................................17
MATTERS TO BE CONSIDERED AT THE MEETINGS.................................17
TIME AND PLACE; RECORD DATE..............................................17
REQUIRED VOTE............................................................17
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM..............................17
THE CIGARETTE SPECIAL MEETING............................................18
THE MERGER....................................................................19
Background of the Merger.................................................19
Joint Reasons for the Merger.............................................20
Recommendation of the Alchemy Board......................................20
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Recommendation of Cigarette's Board......................................20
Factors Considered by Alchemy's Board....................................20
Factors Considered by Cigarette's Board..................................21
Additional Factors Considered by the Boards of Alchemy and Cigarette.....21
Interests of Certain Persons in the Merger...............................21
Future Employment Agreements.............................................21
Indemnification and Insurance ...........................................21
Federal Income Tax Consequences .........................................21
Dissentor's Rights ......................................................21
DESCRIPTION OF ALCHEMY'S SECURITIES...........................................21
Capital Stock.......................................................21
Common Stock........................................................21
General ..................................................22
Voting Rights..............................................22
Dividend Policy............................................22
Miscellaneous Rights and Provisions........................22
Shares Eligible for Future Sale............................22
Preferred Stock.....................................................22
Warrants and Options................................................24
Transfer Agent...........................................................25
AGREEMENT AND PLAN OF MERGER..................................................26
The Merger...............................................................26
Shareholders' Rights.....................................................26
Conversion of Securities.................................................26
Restriction on Alchemy Shares Issued Pursuant to this Registration
Statement...........................................................27
Representations and Warranties of Merger Sub, Cigarette and Alchemy......27
Certain Covenants and Agreements.........................................28
No Solicitation..........................................................29
Indemnification and Insurance............................................29
Conditions...............................................................30
Termination..............................................................30
Amendment and Waiver.....................................................31
SECURITIES OF ALCHEMY.........................................................33
Market Price of Dividends on Alchemy's Common Stock......................33
Holders ................................................................34
BUSINESS .....................................................................35
The Companies............................................................35
Alchemy Holdings, Inc. .............................................35
General Development of Business................................35
Products ......................................................35
Manufacturing Operations.......................................36
Marketing, Sales and Distribution..............................36
Employees......................................................37
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Facilities.....................................................37
Competitive Conditions in the High-Performance Marine Engine
Industry..................................................37
Cigarette Racing Team, Inc. ........................................37
Employees......................................................37
Facilities.....................................................38
Competitive Conditions in the Power Boat Manufacturing
Industry..................................................38
OTAM Licensing Agreement.......................................38
Cigarette and Alchemy Year 2000 Compliance ....................38
ALCHEMY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................39
Results of operations ...................................................39
CIGARETTE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................41
LEGAL PROCEEDINGS.............................................................42
Paramount Pictures Corporation...........................................42
HRH Tunku Abraham Ismail.................................................42
Mr. Fredy Link...........................................................42
Magnum Marine............................................................42
Tomas Arencibia..........................................................42
Mark Donato and Steven Donato............................................42
Changes in Accountants ..................................................42
ALCHEMY MANAGEMENT............................................................44
CRAIG BARRIE - PRESIDENT/DIRECTOR........................................44
BERTON LOROW - VICE PRESIDENT/DIRECTOR...................................44
ADAM SCHILD - SECRETARY/DIRECTOR.........................................44
PENNY ADAMS FIELD - CHIEF FINANCIAL OFFICER .............................44
EXECUTIVE COMPENSATION........................................................45
Compensation Pursuant to Plans ..........................................45
CIGARETTE MANAGEMENT..........................................................45
ADAM SCHILD - SECRETARY/DIRECTOR.........................................45
EXECUTIVE COMPENSATION........................................................46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................47
Sales to Cigarette.......................................................47
Alchemy's and its Affiliates' Potential Conflicts with Mr. Craig Barrie..47
Offshore's Holdings of Alchemy's Common Stock and its Licensing
Agreement With Alchemy..............................................47
Management's Salaries--Post Merger.......................................47
Interested Directors.....................................................47
Relationships With Jeffrey Friedman and Central Manufacturing............47
Relationship With Winchester Partners, L.P...............................47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................48
Shares Eligible for Future Sale..........................................49
EXPERTS.......................................................................49
INDEX TO FINANCIAL STATEMENTS.................................................50
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UNDERTAKINGS .................................................................51
EXHIBIT INDEX.................................................................52
SIGNATURES....................................................................53
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AVAILABLE INFORMATION
Alchemy Holdings, Inc. ("Alchemy") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, filed reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement (as defined below), the exhibits and schedules forming a
part thereof, and the additional reports, proxy statements and other information
filed by Alchemy with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices 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 material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Alchemy Common Stock is presently traded on the
OTC-Bulletin Board. Reports and other information concerning Alchemy can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. In addition,
certain of the documents filed by Alchemy with the Commission are available
through the Commission's Electronic Data Gathering and Retrieval System
("EDGAR") on the Commission's World Wide Web site at http://www.sec.gov.
Alchemy has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to (i)
the shares of Alchemy Common Stock, the shares of Alchemy Series A Preferred
Stock, the Alchemy Class A Warrants, the Alchemy Class B Warrants, the Alchemy
Class X Warrants and the Alchemy Class Y Warrants to be issued in the Merger,
together with the shares of Alchemy Common Stock which may be issued upon the
exercise of such warrants, (ii) the shares of Alchemy Series B Preferred Stock
to be issued to Offshore in consideration for Alchemy's repurchase and
retirement of certain shares of Alchemy Common Stock owned by Offshore and (iii)
the Options which are issuable pursuant to the Option Plan, together with the
shares of Alchemy Common Stock which may be issued upon the exercise of the
Options. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement. Certain portions of the
Registration Statement are omitted from this Joint Proxy Statement/Prospectus in
accordance with the rules and regulations of the Commission. Copies of the
Registration Statement, including the exhibits to the Registration Statement and
other material that is not included herein, may be inspected without charge at
the regional offices of the Commission referred to above, or obtained at
prescribed rates from the Public Reference Section of the Commission set forth
above. The omitted portions of the Joint Proxy Statement/Prospectus may also be
obtained through EDGAR at http://www.sec.gov.
This Joint Proxy Statement/Prospectus includes all material information
relating to the offering contemplated in the Registration Statement.
The information concerning Cigarette has been furnished by Cigarette.
Cigarette is a privately held company.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Alchemy (File No.
0-17481) pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. Alchemy's Annual Report on Form 10-KSB for the year ended September
30, 1998;
2. Alchemy's Quarterly Report on Form 10-QSB for the fiscal quarter ended
December 31, 1998;
3. Alchemy's Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1999; and
4. Alchemy's Current Reports on Form 8-K as of March 5 and April 12,
1999, respectively.
Any statement contained in a document deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
TRADEMARKS
Cigarette Racing Team, the Cigarette Racing Team logo, the Cafe Racer
Script logo, Decathlon, Firefox, Hard Candy, Revolution 188, Rough Rider, the
Squadron XII logo and Top Gun are trademarks of Cigarette or its subsidiaries.
This Joint Proxy Statement/Prospectus also includes other trademarks and
trade names which are the property of their respective owners.
FORWARD LOOKING STATEMENTS
OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO
RESULT FROM THE MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE, ARE FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND
SECTION 21E OF THE EXCHANGE ACT. SUCH STATEMENTS MAY BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE," "PROJECT," "CONTINUE," "POTENTIAL" OR "OPPORTUNITY" OR THE NEGATIVE
THEREOF OR OTHER VARIATIONS THEREIN OR COMPARABLE TERMINOLOGY. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 10 HEREIN, WHICH SHAREHOLDERS OF ALCHEMY AND
CIGARETTE RACING TEAM, INC. ("CIGARETTE") SHOULD CAREFULLY REVIEW.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus. Although this summary does not contain a
complete description of the Agreement and Plan of Merger, dated as of _________,
1999 (the "Merger Agreement"), a copy of which is attached hereto as Annex A,
this discussion does summarize all material features of the Merger Agreement and
the offering in general. Reference is made to, and this summary is qualified in
its entirety by, the more detailed information contained in this Joint Proxy
Statement/Prospectus and the Annexes hereto. Shareholders of Alchemy and
shareholders of Cigarette are urged to read carefully this Joint Proxy
Statement/Prospectus and the Annexes in their entirety. Capitalized terms used
herein without definition shall have the meanings ascribed to such terms
elsewhere in this Joint Proxy Statement/Prospectus.
With respect to both Alchemy and Cigarette, references to any fiscal year
refer to Alchemy's fiscal year ended September 30.
The Parties
Alchemy. Alchemy, formerly known as Hawk Marine Power, Inc., a Florida
corporation, is engaged in the design, production and sale of high performance
marine engines for installation in high speed recreational powerboats and
offshore racing boats. Alchemy manufactures its own line of seven high output,
all gasoline 8 cylinder engines, as well as customized engines which are
produced solely for racing. Alchemy's engines are hand built from component
parts and are sold primarily to premium boat manufacturers. Alchemy's high
performance engines have established a distinctive reputation among powerboat
enthusiasts, for performance, speed and endurance.
On October 25, 1983, Swift Development, Inc. ("Swift") was incorporated
under the laws of the State of Utah. On August 6, 1986, Swift acquired all of
the outstanding common stock of Hawk Marine Power, Inc., a Florida corporation.
The transaction was a reverse acquisition of Swift and the company's name was
subsequently changed to that of the substantive acquirer Hawk Marine Power, Inc.
In connection with the acquisition, Swift was reincorporated in Florida. On May
12, 1997, Hawk Marine Power, Inc. changed its name to Alchemy Holdings, Inc.
Alchemy's principal executive offices are located at 3025 N.E., 188th Street,
Aventura, Florida 33180. Its telephone number at that address is (305) 932-9230.
Cigarette. Cigarette designs, manufactures and sells offshore recreational
boats and related accessories under the Cigarette brand name. The well-known
Cigarette name has become synonymous with offshore racing boats. Cigarette's
principal product line consists of eight models in six sizes, from 20 to 46 feet
in length, at current prices ranging from $80,000 to $800,000. Cigarette is
currently in the process of designing and manufacturing 50 and 60 foot models
which will exceed the $800,000 price level and which are projected to be in
production by December of 1999 and 2000, respectively.
Cigarette was reincorporated as New CRT, Inc., on May 26, 1994, under the
laws of the State of Florida. Such reincorporation was in connection with a
change of ownership of Cigarette from Central Manufacturing, Inc. to the entity
which subsequently sold it to current ownership. On June 1, 1994, New CRT, Inc.
changed its name to Cigarette Racing Team, Inc. Cigarette's principal executive
offices are located at 3131 N.E. 188th Street, Aventura, Florida 33180. Its
telephone number is (305) 931-4564. Adam Schild, the sole director of Cigarette,
is also a director of Alchemy. Mr. Schild the sole officer of Cigarette, is also
an officer of Alchemy. Cigarette is a privately held company with approximately
30 shareholders. SEE "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
Cigarette Boats, Inc. ("Merger Sub"). Merger Sub, a Delaware corporation,
is a newly-formed, wholly-owned subsidiary of Alchemy formed solely for the
purpose of the Merger. Merger Sub has no material assets or liabilities and has
not engaged in any material
3
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operations since its incorporation. Merger Sub's principal executive offices are
located at 3025 N.E., 188th Street, Aventura, Florida 33180. Its telephone
number at that address is (305) 931-4564.
The Shareholder Meetings
Alchemy. The Alchemy Special Meeting will be held at the principal
executive offices of Alchemy located at 3025 N.E. 188th Street, Aventura,
Florida 33180 on __________, 1999 at 9:00 a.m. At the Alchemy Special Meeting,
action wil lbe taken on the following matters:
1. To consider and vote upon a proposal (the "Merger Proposal") to
authorize and approve the issuance of up to 4,719,450 shares of Alchemy
Common Stock to holders of shares of Cigarette Common Stock, in connection
with the proposed merger (the "Merger") of Merger Sub with and into
Cigarette pursuant to an Agreement and Plan of Merger dated as of
__________, 1999 by and among Alchemy, Cigarette and Merger Sub (the
"Merger Agreement") whereby each share of Cigarette Common Stock
outstanding immediately prior to the effective time of the Merger (other
than shares of Cigarette Common Stock held by holders who have perfected
dissenters' rights under the Florida Business Corporation Act) will be
converted into one share of Alchemy Common Stock and Cigarette will become
a wholly-owned subsidiary of Alchemy;
2. To consider and vote upon a proposal (the "Repurchase Proposal") to
authorize and approve the repurchase and retirement by Alchemy of 2,000,000
shares of Alchemy Common Stock held by Offshore Racing, Inc., a
_____________ corporation ("Offshore") in consideration for the issuance to
Offshore of 100 shares of newly created series B preferred stock, par value
$.001 per share of Alchemy ("Alchemy Series B Preferred Stock") having an
aggregate liquidation preference equal to $1,000,000; and
3. To consider and vote upon a proposal (the "Option Plan Proposal")
to approve and adopt the Alchemy Employee Incentive Stock Option Plan (the
"Option Plan").
Cigarette. The Cigarette Special Meeting will be held at the principal
executive offices of Cigarette located at 3131 188th Street, Aventura, Florida
33180 on _________, 1999 at 9:00 a.m. At the Cigarette Special Meeting, action
will be taken on the following matter:
1. To consider and vote upon a proposal to approve and adopt the
Merger Agreement pursuant to which (i) Merger Sub will be merged with and
into Cigarette with Cigarette continuing as the surviving corporation and
becoming a wholly-owned subsidiary of Alchemy and (ii) at the effective
time of the Merger, (A) each share of issued and outstanding Cigarette
Common Stock (other than shares held by holders who perfect dissenters'
rights under the Florida Business Corporation Act) will be converted into
one share of Alchemy Common Stock, (B) each issued and outstanding share of
preferred stock, par value $.01 per share of Cigarette will be converted
into one share of preferred stock, par value $.001 per share of Alchemy
having similar terms and (C) each issued and outstanding warrant to
purchase shares of Cigarette Common Stock will be converted into one
warrant having similar terms, to purchase shares of Alchemy Common Stock.
Voting; Voting Agreements
Alchemy. Only holders of record of Alchemy Common Stock at the close of
business on __________, 1999 (the "Alchemy Record Date") are entitled to notice
of and to vote at the Alchemy Special Meeting. As of the Alchemy Record Date,
____ shares of Alchemy Common Stock were issued and outstanding including the
2,000,000 shares of Alchemy Common Stock owned by Offshore. The presence in
person or by proxy, of a majority of the outstanding shares of Alchemy Common
Stock is necessary to constitute a quorum at the Alchemy Special Meeting. If
there are insufficient votes to constitute a quorum or to approve the Merger
Proposal or the Repurchase Proposal, the Alchemy Special Meeting may be
adjourned in order to permit further solicitation of proxies. Broker non-votes,
abstentions and withhold authority votes all count for the purpose of
determining a quorum. At the Alchemy Special Meeting, each holder of Alchemy
Common Stock is entitled to one vote per share of Alchemy Common Stock held. The
affirmative vote of a majority of the outstanding shares of Alchemy Common Stock
is required to approve the Merger Proposal, the Repurchase Proposal and the
Option Plan Proposal. Additionally, the Board of Directors of alchemy has
determined that Alchemy will not consummate the transactions contemplated by the
Merger Proposal or the Repurchase Proposal unless the holders of at least a
majority of the outstanding shares of Alchemy Common Stock other than Offshore,
voting as a separate class, vote to approve the Merger Proposal and the
Repurchase Proposal.
Cigarette. Only holders of record of Cigarette Common Stock at the close of
business on ____, 1999 (the "Cigarette Record Date") are entitled to notice of
and to vote at the Cigarette Special Meeting. As of the Cigarette Record Date
____ shares of Cigarette Common Stock were issued and outstanding. It is
expected, however, that 1,000,000 additional shares of Cigarette Common Stock
will be issued after the Cigarette Record Date but before the Effective Time of
the Merger. The presence in person or by proxy of a majority of the outstanding
shares of Cigarette Common Stock is necessary to constitute a quorum at the
Cigarette Special Meeting. If there are insufficient votes to constitute a
quorum or to approve the Merger Agreement, the Cigarette Special Meeting may be
adjourned or postponed in order to permit further solicitation of proxies.
Broker non-votes, abstentions and withhold authority votes all count for the
purpose of determining a quorum. At the Cigarette Special Meeting, each holder
of Cigarette Common Stock is entitled to one vote per share of Cigarette Common
Stock held. The affirmative vote of a majority of the outstanding shares of
Cigarette Common Stock is required to approve the Merger Agreement. Each of the
directors, officers and control shareholders of Cigarette who as of August __,
1999 cumulatively own 82.4% of the outstanding shares of Cigarette Common Stock
has advised Cigarette that such shareholder intends to vote all shares of
Cigarette Common Stock held by such shareholder for approval of the Merger
Agreement. The affirmative votes of such shareholders would assure approval of
the Merger Agreement. Cigarette is unaware of any voting trust agreement(s)
between or among any of its shareholders.
Solicitation, Revocation and Use of Proxies
Alchemy Shareholders. All holders of Alchemy Common Stock represented at
the Alchemy Special Meeting by properly executed proxies received prior to the
Alchemy Special Meeting, unless such proxies previously have been revoked, will
be voted at the Alchemy Special Meeting in accordance with the instructions on
the proxies. If no contrary instructions are indicated, such proxies will be
voted FOR the approval and adoption of the Merger proposal, the Repurchase
Proposal and the Option Plan Proposal.
Proxies with respect to Alchemy Common Stock may be revoked by filing with
the Secretary of Alchemy written notice of revocation bearing a later date than
the proxy, by duly executing a later-dated proxy relating to the same Alchemy
Common Stock or by attending the Alchemy Special Meeting and voting in person
(although attendance at the Alchemy Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice with respect to Alchemy
Common Stock must be sent to Adam Schild, Secretary Alchemy Holdings, Inc., 3025
N.E. 188th Street, Aventura, Florida 33180.
Cigarette Shareholders. All holders of Cigarette Common Stock represented
at the Cigarette Special Meeting by properly executed proxies received prior to
the Cigarette Special Meeting, unless such proxies previously have been revoked,
will be voted at the Cigarette Special Meeting in accordance with the
instructions on the proxies. If no contrary instructions are indicated such
proxies will be voted FOR the approval and adoption of the Merger Agreement.
Proxies with respect to Cigarette Common Stock may be revoked by filing
with the Secretary of Cigarette written notice of revocation bearing a later
date than the proxy, by duly executing a later-dated proxy relating to the same
Cigarette Common Stock or by attending the Cigarette Special Meeting and voting
in person (although attendance at the Cigarette Special Meeting will not in and
of itself constitute revocation of a proxy). Any written notice with respect to
Cigarette Common Stock must be sent to Secretary, Cigarette Racing Team, Inc.,
3131 N.E. 188th Street, Aventura, Florida 33180.
Recommendations of the Boards of Directors
The Board of Directors of Alchemy believes that the Merger Proposal, the
Repurchase Proposal and the Option Plan Proposal are fair to and in the best
interests of Alchemy and the Alchemy shareholders. The Board of Directors of
Alchemy has unanimously approved the Merger Proposal, the Repurchase Proposal
and the Option Plan Proposal and unanimously recommends that the Alchemy
Shareholders vote FOR approval and adoption of the Merger Proposal, the
Repurchase Proposal and the Option Plan Proposal.
The Board of Directors of Cigarette believes that the Merger is fair to and
in the best interests of Cigarette and the Cigarette shareholders. The Board of
Directors of Cigarette has unanimously approved the Merger Agreement and
unanimously recommends that the Cigarette shareholders vote FOR approval and
adoption of the Merger Agreement.
Although the Merger Agreement has not yet been executed by either Alchemy,
Cigarette or Merger Sub, the Alchemy Board of Directors and the Cigarette Board
of Directors have each acted to approve, in principle, the Merger and a merger
agreement, substantially in the form of the Merger Agreement attached hereto as
Annex __. Alchemy and Cigarette each expect to finalize and execute the Merger
Agreement in the near future and in advance of the effectiveness of the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part.
The Proposed Merger
The Merger Agreement provides for the merger of Merger Sub with and into
Cigarette (the "Merger"), whereupon Cigarette will be the surviving corporation
and will become a wholly-owned subsidiary of Alchemy. The Merger Agreement
further provides that upon the Effective Time of the Merger (i) each issued and
outstanding share of Cigarette Common Stock (other than those shares held by
holders who perfect their dissenters' rights with respect to the Merger pursuant
to the Florida Business Corporation Act) will be converted into one share of
Alchemy Common Stock, (ii) each issued and outstanding share of Cigarette Series
A Preferred Stock will be converted into one share of Alchemy Series A Preferred
Stock, possessing similar rights, terms and conditions as the Cigarette
Preferred Stock and (iii) each issued and outstanding Cigarette Class A Warrant,
Cigarette Class B Warrant, Cigarette Class X Warrant and Cigarette Class Y
Warrant will be converted, respectively, into one Alchemy Class A Warrant, one
Alchemy Class B Warrant, one Alchemy Class X Warrant or one Alchemy Class Y
Warrant. The Alchemy Class A Warrants, the Alchemy Class B Warrants, the Alchemy
Class X Warrants and the Alchemy Class Y Warrants to be issued in the Merger
will entitle the holders thereof to purchase, on the same terms and conditions
as were applicable under the Cigarette Class A Warrants, the Cigarette Class B
Warrants, the Cigarette Class X Warrants and the Cigarette Class Y Warrants, the
number of shares of Alchemy Common Stock that the holders of such Cigarette
Warrants would have been entitled to receive in the Merger had such holders
exercised their Cigarette Warrants immediately prior to the Effective Time.
In connection with the Merger, immediately prior to the Effective Time,
Alchemy will repurchase and retire 2,000,000 shares of Alchemy Common Stock held
by Offshore in consideration for 100 shares of Alchemy Series B Preferred Stock,
having an aggegate liquidation preference equal to $1,000,000.
Based on the 3,719,450 shares of Cigarette Common Stock issued and
outstanding as of August 13, 1999 and the 1,000,000 additional shares of
Cigarette Common Stock which Cigarette has agreed to issue to Central
Manufacturing Inc. ("Central"), a creditor of Cigarette, prior to the Effective
Time in partial exchange for the forgiveness and cancellation of Cigarette's
indebtedness to Central, Alchemy estimates that a total of 4,719,450 shares of
Alchemy Common Stock will be issued to holders of Cigarette Common Stock in the
Merger. After giving effect to the proposed repurchase and retirement by Alchemy
of the 2,000,000 shares of Alchemy Common Stock currently held by Offshore, it
is expected that the current holders of Cigarette Common Stock will own
approximately 87% of the issued and outstanding Alchemy Common Stock immediately
following the consummation of the Merger. In addition, the Alchemy Warrants to
be issued in the Merger to current holders of Cigarette Warrants will entitle
such holders to purchase up to an additional 2,280,000 shares of Alchemy Common
Stock (or an additional approximately 30% of the Alchemy Common Stock on a fully
diluted basis) following the consummation of the Merger.
Although a letter of intent was signed by both Alchemy and Cigarette (the
"Companies") on October 25, 1997, the Merger has
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not yet been consummated due to delays encountered by Alchemy and Cigarette in
preparing and clearing with the Commission proxy materials to be used to solicit
the approval of their respective shareholders to the Merger Agreement and the
transactions contemplated thereby.
The details surrounding these delays are as follows: (i) Alchemy and
Cigarette were not prepared to file a registration statement with the Commission
until May 6, 1998, at which time a registration statement was initially filed;
(ii) on June 11th and 12th, 1998, the Commission issued extensive comments
regarding the May 6, 1998, filing, including several focusing on the
independence of Alchemy's auditors; (iii) substantial time was required to
answer all of the comments and, as a result, responses were not filed with the
Commission until November 12, 1998; (iv) pursuant to subsequent discussions
between Alchemy and the Commission it was agreed that the Commission would not
review the November 12th filing until 1998 year-end audited financials of
Alchemy and Cigarette were filed with the Commission; (v) in December 1998,
Cigarette management discovered that a defalcation had occurred and as a result
of such defalcation, Cigarette was not prepared to re-file the Registration
Statement with the Commision until May 6, 1999.
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite shareholder approvals have been obtained and all
other conditions to the Merger have been satisfied or waived (if allowed by
applicable law).
See "The Merger - Regulatory Approvals" and "The Merger Agreement -
Termination."
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Reasons for the Merger
The Alchemy Board and the Cigarette Board each considered the following in
making their respective determinations to approve the Merger Agreement and the
transactions contemplated thereby: (i) the goals and philosophies of Alchemy and
Cigarette are compatible and consistent, (ii) the products of Alchemy and
Cigarette are complementary, (iii) the post-Merger entity (the "Combined
Entity") would be the potential to offer customers a wider variety of services
and products than either Alchemy or Cigarette it could offer independently, (iv)
the Merger would be positively received by the customers of each of both Alchemy
and Cigarette, (v) the companies' respective shareholders would benefit by the
enhanced ability of the Combined Entity to compete in the marketplace, and (vi)
the economic advantages as a result of increased operating efficiencies of the
Combined Entity would be substantial. See "The Merger -- Factors Considered by
the Board of Alchemy" and "Factors Considered by the Board of Cigarette".
No Solicitation
Under the terms of the Merger Agreement, Cigarette has agreed that it will
not engage in certain activities relating to, or which could result in, a
proposal to be acquired by a third party, except under certain limited
circumstances related to the performance by the Cigarette Board of its fiduciary
obligations under Florida law. See "The Merger Agreement -- No Solicitation".
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Conditions to the Merger
The respective obligations of Alchemy, Merger Sub and Cigarette to effect
the Merger are subject to the following conditions, among others: (a) the Merger
Agreement shall have been approved and adopted by the shareholders of Cigarette,
and the issuance of Alchemy Common Stock in connection with the Merger shall
have been approved by the shareholders of Alchemy; (b) the Alchemy Common Stock
to be issued in the Merger, or reserved for future issuance upon the exercise of
the Alchemy Warrants to be issued in the Merger shall have been approved for
quotation on the OTC-Bulletin Board; (c) Alchemy and Cigarette shall each have
received a written opinion from their respective counsel to the effect that the
Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368 (a) of the Internal Revenue
Code of 1986, as amended (the "Code") (see "The Merger Certain Federal Income
Tax Consequences"); (d) Alchemy shall have consummated the repurchase and
retirement of the 2,000,000 shares of Alchemy Common Stock held by Offshore in
consideration for the issuance to Offshore of 100 shares of Alchemy Series B
Preferred Stock having an aggregate liquidation preference equal to $1,000,000;
(e) Cigarette shall have issued 1,000,000 shares of Cigarette Common Stock and
100 shares of Cigarette Series A Preferred to Central in consideration for the
forgiveness and extinguishment of all indebtedness owed by Cigarette to Central
and (f) no Material Adverse Effect with respect to Alchemy or Cigarette shall
have occurred since the date of the Merger Agreement. See "The Merger
Agreement".
Amendment of the Merger Agreement
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto. The Merger Agreement may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of Cigarette
and Alchemy, but, after any such approval, no amendment shall be made which by
law requires further approval by such shareholders without obtaining such
further approval. Specifically, but not exclusively, any amendments to the
Merger Agreement which adversely affect the rights of the shareholders of
Alchemy or Cigarette must be approved by such shareholders.
Potential for Conflicts of Interest
Adam Schild, a member of the Board of Directors of Alchemy and the
Secretary of Alchemy is the sole director and officer of Cigarette. As there is
a substantial overlap of management between Cigarette and Alchemy, a potential
conflict of interest may arise which could negatively affect negotiations with
respect to the terms of the Merger Agreement. This could result in an increased
risk that either companies' management may determine, prior to the execution of
the Merger Agreement, that the Merger is not in the best interests of that
particular party.
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Management of the Combined Entity
The individuals who constitute the Board of Directors and Officers of
Alchemy at the Effective Time of the Merger will continue to serve as the Board
of Directors and Officers of Alchemy following the Merger.
Termination of the Merger Agreement
Pursuant to the letter of intent of Alchemy and Cigarette dated October 25,
1997 with respect to the Merger, either party shall have the right to terminate
the Merger Agreement in the event that the Merger is not consummated on or prior
to December 31, 1999. The Merger Agreement is also subject to termination by
Alchemy or Cigarette upon the occurrence of any of the following: a court order
permanently restraining, enjoining or otherwise prohibiting the Merger, failure
of the other party to obtain shareholder approval or, under certain
circumstances, a breach by the other party of a representation, warranty,
covenant or agreement contained in the Merger Agreement. Alchemy may terminate
the Merger Agreement if the Cigarette Board withdraws or adversely modifies its
recommendation of the Merger Agreement or if the Cigarette Board approves: (i) a
transaction pursuant to which any person (or group of persons) other than
Alchemy or its affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of Cigarette Common Stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Cigarette pursuant to which any Third Party acquires more than 20% of
the outstanding equity securities of Cigarette or the entity surviving such
merger or business combination, (iii) any other transaction pursuant to which
any Third Party acquires control of assets of Cigarette have a fair market value
equal to more than 20% of the fair market value of all the assets of Cigarette
immediately prior to such transaction, or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing. Cigarette may terminate the Merger Agreement in
the event of (i) a merger or consolidation involving Alchemy if such a
transaction would result in the holders of Alchemy Common Stock immediately
prior to the effective date of such transaction to have beneficial ownership of
less than 50% of the total combined voting power of the surviving entity
following the consummation of such transaction; or (ii) the sale of all or
substantially all of the assets of Alchemy to any person or entity that is not a
subsidiary of Alchemy. See "The Merger Agreement -- Termination".
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss would generally be recognized by Alchemy
or Cigarette and no gain or loss would generally be recognized by Cigarette
shareholders. Cigarette shareholders are urged to consult their own tax advisors
as to the specific tax consequences of the Merger to the individual shareholder.
It is a condition to the Merger that Alchemy and Cigarette shall have each
received an opinion of their respective counsel to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. For a further discussion of federal income tax consequences of the Merger,
see "The Merger - Certain Federal Income Tax Consequences". See also "The Merger
Agreement - Conditions".
Accounting Treatment
The Merger will be accounted for as a purchase transaction/reverse
acquisition of Alchemy by Cigarette. The legal and
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capital structure of Alchemy will survive, but Cigarette will be treated as the
accounting acquirer. See "Pro Forma Financial Information."
Transfer of Cigarette Stock and Warrant Certificates
As promptly as practicable after the effective time of the Merger,
Cigarette will deliver a letter of transmittal with instructions to all holders
of record of Cigarette Common Stock, Cigarette Series A Preferred Stock and
Cigarette Warrants immediately prior to the Merger for use in surrendering their
certificates in exchange for certificates representing shares of Alchemy Common
Stock, shares of Alchemy Series A Preferred Stock and Alchemy Warrants.
CERTIFICATES SHOULD NOT BE SURRENDERED BY HOLDERS OF CIGARETTE COMMON STOCK
UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM CIGARETTE. See "The
Merger Agreement - Conversion of Securities".
Dissenters' Rights
Each holder of Cigarette Common Stock has a right to dissent from the
Merger, and, if the Merger is consummated, to receive "fair value" for his or
her shares in cash by complying with the provisions of Florida law, including
Section 607.1302 of the Florida Business Corporation Act. A shareholder who
wishes to exercise such rights must deliver to Cigarette, within the requisite
time period prior to the vote being taken on the Merger at the Cigarette Special
Meeting, written notice of his or her intent to demand payment for his or her
shares if the Merger is effected and must not vote in favor of the Merger. The
full text of Sections 607.1302 and .1320 are attached as Annex __ to this Joint
Proxy Statement/Prospectus. See "The Meetings--Cigarette Shareholders'
Dissenters' Rights" for a further discussion of such rights.
Holders of Alchemy Common Stock do not have dissenters' rights with respect
to the Merger.
Restrictions on Resale of Alchemy Common Stock
PURSUANT TO THE TERMS OF THE MERGER AGREEMENT EACH SHAREHOLDER WHO RECEIVES
ALCHEMY COMMON STOCK IN THE MERGER WILL BE RESTRICTED FROM TRANSFERRING THAT
STOCK DURING THE LOCKUP PERIOD THE BOARD OF DIRECTORS OF ALCHEMY WILL, HOWEVER
HAVE THE EXCLUSIVE RIGHT DURING THE LOCKUP PERIOD TO RELEASE ANY SHAREHOLDERS
FROM SUCH TRANSFER RESTRICTIONS FOR ANY REASON THAT IT DEEMS TO BE NECESSARY IN
ITS SOLE DISCRETION. THUS, THERE IS THE POSSIBILITY THAT THE BOARD OF DIRECTORS
MAY DETERMINE THAT SOME SHAREHOLDERS' RESTRICTION'S MAY BE RELEASED WHILE OTHER
SHAREHOLDERS MUST REMAIN RESTRICTED.
Holders of Cigarette Common Stock, Cigarette Preferred Stock or Cigarette
Warrants who are deemed to be affiliates of Cigarette or Alchemy are subject to
additional restrictions on the transfer of the shares of Alchemy Common Stock,
the shares of Alchemy Preferred Stock and the Alchemy Warrants received in the
Merger. See "Agreement and Plan of Merger--Restrictions on Alchemy Securities
Issued Pursuant to this Registration Statement."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by the holders of Alchemy Common Stock in connection with the
consideration of the Merger Proposal, the Repurchase Proposal and the Option
Plan Proposal and by the holders of Cigarette Common Stock in connection with
their consideration of the Merger Agreement and the Merger.
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RISK FACTORS
The following factors should be considered carefully by each holder of
Alchemy Common Stock and Cigarette Common Stock in connection with matters to be
voted upon by such Shareholders at the Alchemy Special Meeting and the Cigarette
Special Meeting and in connection with a decision to acquire the securities
offered hereby.
Risks Related to Alchemy and Cigarette:
No History of Profitable Operations. Prior to the Merger, both Alchemy and
Cigarette have incurred recurring losses from operations. At September 30, 1998
and March 31, 1999 the cumulative losses from inception were $2,012,288 and
2,279,604 for Alchemy and $7,432,723 and 8,337,210 for Cigarette. There can be
no assurance that future operations will be profitable.
Modification of Accountants Reports. The financial statements of both
Alchemy and Cigarette included in this Joint Proxy Statement/Prospectus have
each been prepared on a going concern basis. Each Company's ability to continue
as a going concern is dependent upon restructuring its debt, obtaining adequate
financing for its operations on acceptable terms and attaining profitable
operations. The independent auditor's reports on each Company's financial
statements has been modified to include an explanatory paragraph relating to the
issues that raise substantial doubt about their abilities' to continue as going
concerns.
Intense competition. Success in the recreational boat and marine engine
industry is largely dependent on a company's ability to sell high quality boats
and engines at attractive prices with ample customer service and support.
Cigarette's competitors in the boat industry for product sales are companies
such as Magnum Marine, Mako Marine and Sea Ray. After the Merger, Cigarette's
competitors in the marine engine industry will include companies such as
Caterpillar, Mercury Marine and Volvo-Penta. Certain of the Combined Company's
competitors have significantly greater financial resources than the Combined
Company. Competition for product sales is also based upon the Combined Company's
ability to attract independent dealers who are willing to distribute and market
its products.
Nature of the Recreational Boat and Marine Engine Industry. The
recreational boat and marine engine industries are highly speculative and
historically have involved a substantial degree of risk. The sales success of a
boat and engine depends on unpredictable and changing factors such as general
economic climate, competition and market acceptance, which may bear little or no
correlation to the Combined Company's production and other costs. Acceptance of
the Combined Company's products represents a response not only to the boat and
engine design and performance, but also to the level of advertising and
promotion by the distributor, the availability of competition products, general
economic conditions and public taste, and other intangible factors, all of which
change rapidly and cannot be predicted with certainty. Historically,
recreational boat companies have suffered substantially in poor general economic
conditions. Therefore, there is a substantial risk that some or all of the
Combined Company's products may not be commercially successful, resulting in
costs not being recouped or anticipated profits not being realized.
Dependence on New Products and Additional Capital. The recreational boat
industry is capital intensive. Average boat manufacturing costs rise each year
as the cost of parts and labor continue to increase. Thus, in the event that
Cigarette is unable to raise additional capital through any means, there can be
no assurance that the Combined Company will be able to continue as a going
concern. Further, competitiveness in the recreational boat industry requires
that new products be introduced to the market place in a constant and consistent
manner. There is no assurance that Cigarette will be able to produce new
products which generate the same levels of revenue that the present products
produce.
Fluctuation in Results Due to Seasonality and Weather. The marine industry
is highly seasonal with retail sales strongest in the months of February through
July. Between July and the following January, manufacturers' shipments depend on
dealers' restocking activity and request for new season models presented at
trade shows and through promotional programs. Both companies' fiscal years end
on September 30, and, as a result, management estimates that more than one-half
of sales could occur in its second and third quarters. Accordingly, annual
results would be materially and adversely affected if sales were to fall below
expected seasonal levels during that period. The business of Alchemy and
Cigarette is also significantly affected by weather patterns. Unseasonably cool
weather and prolonged winter conditions may lead to a shorter selling season
particularly in the Northeastern United States.
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Impact of Environmental and Other Regulatory Matters. The Combined
Company's operations are subject to numerous federal, state and local laws and
regulations relating to the environment and health, safety and other regulatory
matters. Certain materials used in boat and engine manufacturing are classified
by federal and state governments as "hazardous materials." Control of these
substances is regulated by the Environmental Protection Agency ("EPA") and state
environmental protection agencies which require reports and inspect facilities
to monitor compliance. In addition, under the Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA"), any generator of hazardous
waste sent to a hazardous waste disposal site is potentially responsible for the
clean up and remediation cost required for such site in the event that the site
is not properly closed by the owner or operator, irrespective of the amount of
waste sent to the site. The Combined Company believes that it will obtain all
material permits and that its facilities and operations will be in substantial
compliance with all material applicable laws and regulations. Nevertheless,
future events, such as changes in or modified interpretations of existing laws
or regulations or enforcement policies, may give rise to additional compliance
costs that could have a material adverse effect on the Combined Company.
Pursuant to the 1990 amendments to the Clean Air Act, the EPA has been studying
the impact of marine engines on the environment. The EPA is currently
establishing air emissions standards for new marine engines, which regulations
are expected to become effective in 1999. Such regulations could have a material
adverse effect on the Combined Company's business.
Risk of Technological Obsolescence. Cigarette's products are designed for
high tolerance applications. In order to ensure the customer's safety and
enjoyment when using its products, Cigarette relies on cutting edge
technologies. In the event that the appropriate technologies advance to the
point where Cigarette is unable to take advantage of such changes, its products
may become obsolete in the market place.
Risks Associated with Intellectual Property Rights. A substantial portion
of Cigarette's revenue is derived from Cigarette's intellectual property rights
associated with its name and the names of its products. A specific example of
such intellectual property rights is evidenced by the licensing agreement to
which both Alchemy and Offshore Racing Team, Inc. are parties. See "Offshore
Racing Team, Inc. - Licensing Agreement".
Impact of Economic Conditions. The marine industry is subject to economic
cycles. Purchase of marine products historically have been dependent on
discretionary spending by consumers, which may be adversely affected by
recessionary economic conditions. The marine industry experienced a severe
decline between 1989 and 1992. Any significant decline in general economic
conditions or uncertainties regarding future economic prospects that affect
consumer spending could have a material adverse effect on the Combined Company's
business. Similarly, rising interest rates could adversely impact consumers'
ability or willingness to obtain financing from third-party lenders, which could
adversely affect the Combined Company's ability to sell its products.
Risks as a Result of the "de-facto" merger between Alchemy and Cigarette.
Although the Merger has not yet been completed Cigarette and Alchemy have been
acting in certain respects as a combined company on a "de-facto" basis, which
due to common management was accomplished without formal documentation. However,
in the event that either company suffers an unanticipated substantial loss in
revenue due to any reason, both companies may be adversely affected. Further,
any determination by either judicial process or a consent to an administrative
order, that Alchemy violated federal securities laws could have a detrimental
effect on both companies.
Market and Other Risks Relating to the Merger:
Fixed Exchange Ratio. As a result of the Merger, each outstanding share of
Cigarette Common Stock will be converted into one (1) share of Alchemy Common
Stock. Accordingly, the market value of the consideration to be received by the
shareholders of Cigarette upon the Merger will depend entirely on the market
price of Alchemy Common Stock at the Effective Time. The closing price for
Alchemy Common Stock on the OTC-Bulletin Board on the latest practicable trading
day before the printing of this Joint Proxy Statement/ Prospectus, was $___.
There can be no assurance that the market price of Alchemy Common Stock on and
after the Effective Time will not be lower than any previous price for such
stock.
Volatility of Trading Price. The trading price of Alchemy's stock after the
Merger has been effected may be affected by the risk factors set forth herein,
as well as prevailing economic and financial trends and conditions in the public
securities markets. During recent periods, share prices of smaller and
medium-sized publicly traded companies have exhibited a high degree of
volatility. Shortfalls in revenues or earnings from the levels anticipated by
the public markets could have an immediate and significant adverse effect on the
trading price of the Combined Company's shares in any given period. Such
shortfalls may result from events that are beyond the Combined Company's
immediate control. The trading price of the Combined Company's shares may also
be affected
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by developments, including reported financial results and fluctuations in
trading prices of the shares of other publicly held companies in the boating
industry and related businesses in general, which may not have any direct
relationship with the Combined Company's business or prospects.
Penny Stock Regulation. The Securities and Exchange Commission (the
"Commission") has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with other information. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Company's Common Stock becomes subject to the penny
stock rules, shareholders in this offering may find it more difficult to sell
such securities.
Potential Dilution of Interest. A number of shares equal to approximately
87.0% of Alchemy's outstanding Common Stock after giving effect to the Merger
will be issued to the shareholders of Cigarette upon consummation of the Merger.
The issuance of Alchemy Common Stock in the Merger and the exercise of the
Alchemy Class A, Class B, Class X and Class Y Warrants and the exercise of the
Options, respectively, which may cause an additional dilution of interest, may
negatively impact the price of Alchemy Common Stock. There can be no assurance
that Alchemy's Common Stock price will not be negatively effected.
Integration of Other Acquired Businesses. Although Alchemy's Board of
Directors believes that the Merger would successfully yield a powerhouse in the
offshore powerboat and recreational powerboat world, there can be no assurance
that products, technologies, distribution channels, key personnel and businesses
of other acquired companies will be effectively integrated into the Combined
Company's business or product offerings, or that such integration will not
adversely affect the Combined Company's business, financial condition or results
of operations. There can also be no assurance that any acquired products,
technologies or businesses will contribute at anticipated levels to the Combined
Company's sales or earnings, or that the sales and earnings from combined
businesses will not have a material adverse effect on the business, financial
condition and results of operations of the Combined Company.
Substantial Expenses Associated with the Merger. Alchemy estimates that it
will incur direct transaction costs of approximately $200,000 associated with
the Merger. In addition, it is expected that after the Merger, the Combined
Company will incur additional significant costs, which are not currently
reasonably estimable, associated with integrating Cigarette. Although management
expects that the elimination of duplicate expenses as well as other efficiencies
related to the integration of the businesses may offset the direct transaction
costs and other integration-related charges over time, there can be no assurance
that such net benefit will be achieved in the near term, if at all.
Possible Adverse Affect on Customer Buying Patterns. As a result of the
Merger, the Companies' customers may decide to purchase boats and motors
elsewhere based upon unanticipated problems with product availability, design
limitations or otherwise. Such a response by the Companies' customers would
adversely affect profitability.
Integration of Other Acquired Businesses. Although Alchemy's Board of
Directors believe that the Merger would successfully yield a powerhouse in the
offshore powerboat and recreational powerboat world, there can be no assurance
that products, technologies, distribution channels, key personnel and businesses
of previously acquired companies will be effectively integrated into the
Combined Company's business or product offerings, or that such integration will
not adversely affect the Combined Company's business, financial condition or
results of operations. There can also be no assurance that any acquired
products, technologies or businesses will contribute at anticipated levels to
the Combined Company's sales or earnings, or that the sales and earnings from
combined businesses will not be a material adverse effect on the business,
financial condition and results of operations of the Combined Company.
Transaction Charges. Alchemy estimates that it will incur direct
transaction costs of approximately $150,000 associated with the Merger, which
will be charged to operations upon consummation of the Merger. In addition, it
is expected that after the Merger, the Combined Company will incur an additional
significant charge to operations, which is not currently reasonably estimable,
to reflect costs associated with integrating Cigarette.
12
<PAGE>
Possible Adverse Affect on Customer Buying Patterns. As a result of the
Merger, Alchemy's customers may decide to purchase boats and motors elsewhere
based upon unanticipated problems with product availability, design limitations
or otherwise. Such a response by Alchemy's customers would adversely affect
Alchemy's profitability.
Alchemy-Related Risk Factors
No History of Profitable Operations of Alchemy. Prior to the Merger Alchemy
had sustained losses. No certain prospects of future profitable operations are
presently expected.
Competition. Success in the recreational boat and marine engine industry is
largely dependent on a company's ability to sell high quality boats and engines
at attractive prices with ample customer service and support. Cigarette's
competitors in the boat industry for product sales are companies such as Magnum,
Mako and Sea Ray. After the Merger, Cigarette's competitors in the marine engine
industry will include companies such as Caterpillar, Mercury Marine and
Volvo-Penta. Certain of the Combined Company's competitors, have significantly
greater financial resources than the Combined Company. Competition for product
sales is also based upon the Combined Company's ability to attract independent
dealers who are willing to distribute and market its products.
Alchemy's reliance on the General Motors Corporation ("General Motors").
Alchemy relies on General Motors to manufacture and supply the engine blocks
used in most of Alchemy's engines. In the event that a strike or other work
stoppage occurs which is either anticipated or otherwise at General Motors, the
manufacture or distribution of such engine blocks may be adversely affected
thereby resulting in a significant decline in Alchemy's ability to sell engines.
However, Alchemy believes that the lack of any formal agreement with General
Motors allows management the flexibility to choose other suppliers in the event
that the above occurs. For example Alchemy believes that engine blocks from
companies such as Chrysler, Cummins, Yanmar or Volvo would be available to the
Company without undue hardship or delay.
Product Liability. While management of Alchemy believes that its engines
are safe in normal operation, any motorized product can give rise to product
liability claims. Alchemy maintains product liability insurance in the amount of
$1,000,000 per incident. Additionally, Alchemy maintains a $2,000,000 umbrella
policy. Alchemy has never been the subject of any claim or law suit regarding
product liability associated with its engines, although there can be no
assurance that product liability claims associated with injury to property or
persons directly or indirectly attributable to Alchemy's engines may not be
asserted at a future date.
Potential Securities Act Violations. On June 25, 1998, October 13, 1998,
Alchemy filed registration statements each on Form S-8, registering 200,000 and
265,000 shares of common stock, respectively, at $2 per share (collectively, the
AS-8 Registration Statements@). Due to the circumstances surrounding the
distribution of the shares registered pursuant to the S-8 Registration
Statements, it is unclear whether the sale of such shares constituted a
violation of the Securities Act and furthermore, whether the use of such
proceeds may represent an improper use of employee benefit funds.
In the event that it is determined by either judicial process or (ii) a
consent to an administrative order that a violation of federal securities laws
did occur, it is possible that an enforcement or similar type action could be
brought against Alchemy which could result in a recision and/or monetary
penalties being levied against Alchemy, which penalties could be significant.
Further, if such a determination is made, it is possible that Alchemy could
become a defendant in civil suits brought by third parties. Such suits could
result in additional monetary judgments being levied against Alchemy.
Cigarette Related Risk Factors.
Cigarette's Dependence on New Products and Additional Capital. The
recreational boat industry is capital intensive. Average boat manufacturing
costs rise each year as the cost of parts and labor continue to increase.
Further, competitiveness in the recreational boat industry requires that new
products be introduced to the market place in a constant and consistent manner.
There is no assurance that Cigarette will be able to produce new products which
generate the same levels of revenue that the present products produce.
Risk of Technological Obsolescence. Cigarette's products are designed for
high tolerance applications. In order to ensure the customer's safety and
enjoyment when using its products, Cigarette relies on cutting edge
technologies. In the event that the appropriate technologies advance to the
point where Cigarette is unable to take advantage of such changes, its products
may become obsolete in the market place.
Risks Associated with Intellectual Property Rights. A substantial portion
of Cigarette's revenue is derived from Cigarette's
13
<PAGE>
intellectual property rights associated with its name and the names of its
products. A specific example of such intellectual property rights is evidenced
by the licensing agreement to which both Alchemy and Offshore Racing Team, Inc.
are parties. See "Offshore Racing Team, Inc. - Licensing Agreement".
Interests of Certain Persons.
Interests in Alchemy Common Stock and Options. As of June 30, 1998,
Offshore Racing, Inc. owns 2,000,000 shares of Alchemy Common Stock or
approximately 74% of Alchemy's outstanding Common Stock. However, Alchemy's
management anticipates that pursuant to the special directors' meeting of June
4, 1998, and the resolutions promulgated therein, such Alchemy Common Stock
holdings shall be repurchased and retired by Alchemy in consideration for the
issuance to Offshore of 100 shares of Alchemy Series B Preferred Stock having an
aggregate liquidation preference equal to $1,000,000 immediately prior to the
Effective Time of the Merger.
Management. Cigarette's sole Director and Officer Adam Schild, is also a
Director and Officer of Alchemy. Further, Mr. Schild is the general partner of
Winchester Partners, L.P. the largest single shareholder of Cigarette.
Forbearance From Certain Creditors. Cigarette has a number of creditors to
which the Company is in default. Each of those creditors have orally agreed to
forbear from taking further actions until such time that the Merger and
Alchemy's Form S-4 Registration Statement are each deemed effective. However,
there can be no assurance that: (i) any or all of Cigarette's creditors referred
to herein will continue to forbear from taking further actions against Cigarette
to collect upon their debts; and (ii) Cigarette will be able to satisfy any such
creditor in the event that such creditor fails to continue its forbearance.
Risks Associated with the OTC-Bulletin Board.
Alchemy's common stock is presently listed on the OTC-Bulletin Board. Thus,
the Alchemy Common Stock issued in connection with the Merger will also be
listed on the OTC-Bulletin Board. Due to the nature of the limited number of
market makers for the Alchemy stock on the OTC-Bulletin Board, a shareholder may
find it difficult to: (i) dispose of Alchemy Common Stock; or (ii) obtain
accurate quotations as to the market value of such stock. See "Penny Stock
Regulation" in this section.
14
<PAGE>
SELECTED HISTORICAL AND UNAUDITED FINANCIAL DATA
The following selected historical financial information of Alchemy and
Cigarette, respectively has been derived from their respective historical
financial statements, and should be read in conjunction with such financial
statements and the notes thereto, included elsewhere in this Joint Proxy
Statement/Prospectus. No cash dividends have been declared or paid on Alchemy
Common Stock or Cigarette Common Stock. The information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that might occur if the Merger had been
consummated at the beginning of the respective financial periods indicated, nor
is it necessarily indicative of future operating results or financial positions.
No cash dividends have been declared or paid on Alchemy Common Stock or
Cigarette Common Stock.
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1999
---------------------------- --------------------------------------------
Alchemy Cigarette Alchemy Cigarette Pro-Forma
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Current Assets $ 244,841 $ 1,450,983 $ 332,867 $ 1,549,896 $ 1,882,873
Property and equipment 20,060 285,785 19,606 443,761 463,367
Intangible assets and other 189,750 4,545,227 178,750 4,348,430 6,674,427
Total assets 454,651 6,282,995 531,223 6,342,087 9,020,667
Total current liabilities 239,904 9,766,921 273,792 10,549,708 5,112,460
Redeemable preferred stock -- 1,216,667 -- 1,241,667 --
Total stockholders' equity (deficit) 214,747 (4,700,593) 257,431 (4,207,621) 3,908,207
Statement of Operations:
<CAPTION>
Fiscal Year Ended Fiscal Year Ended
September 30, 1997 September 30, 1998
---------------------------- --------------------------------------------
Alchemy Cigarette Alchemy Cigarette Pro-Forma
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,059,498 $ 2,158,406 $ 742,289 $ 7,026,625 $ 7,581,656
Net loss (92,762) (2,560,606) (319,288) (791,065) (538,577)
Net loss per share (0.11) (0.91) (0.14) (0.22) (0.10)
Weighted Average Shares Outstanding 851,093 2,819,562 2,291,093 3,577,027 5,421,844
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1998 March 31, 1999
---------------------------- --------------------------------------------
Alchemy Cigarette Alchemy Cigarette Pro-Forma
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 329,560 $ 2,583,458 $ 319,080 $ 5,194,008 $ 5,361,856
Net loss (11,871) (393,034) (267,316) (904,487) (885,915)
Net loss per share (0.01) (0.11) (0.10) (0.24) (0.16)
Weighted Average Shares Outstanding 2,237,394 3,552,923 2,550,608 3,699,708 5,421,844
</TABLE>
15
<PAGE>
Recent Share Prices
The following table sets forth the closing prices per share of Alchemy
Common Stock on the OTC - Bulletin Board on _____________, the last full trading
date prior to the execution and delivery of the Merger Agreement and the public
announcement thereof.
Alchemy
Common Stock
_________, 1999 .................................. $______
No assurance can be given as to the market prices of Alchemy's Common Stock
at any time prior to the Effective Time or as to the market price of Alchemy
Common Stock at any time thereafter. The conversion ratio between Alchemy and
Cigarette is fixed and is not anticipated to be changed. However, in the event
that a reclassification, recapitalization, split-up, stock dividend, stock
combination, exchange of shares, readjustment or otherwise, occurs, then the
conversion ratio shall be correspondingly adjusted, provided however, that any
such changes shall be subject to the terms of the Merger Agreement annexed
hereto as Exhibit 2.1. Cigarette shareholders are urged to obtain a current
market quotation of the Alchemy Common Stock.
Dividends
Neither Alchemy nor Cigarette has ever paid cash dividends related to their
respective Common Stocks. Additionally, following the Merger, Alchemy does not
anticipate paying cash dividends in the foreseeable future. Additionally,
pursuant to the Merger Agreement, Alchemy and Cigarette have agreed not to pay
cash dividends pending the consummation of the Merger. If the Merger is not
completed, the Alchemy Board intends to continue a policy of retaining all
earnings, if any, to finance the expansion of its business.
16
<PAGE>
THE ALCHEMY SPECIAL MEETING
Purpose of the Meeting
This Joint Proxy Statement/Prospectus is being furnished by Alchemy to
holders of Alchemy Common Stock in connection with the solicitation of proxies
by the Board of Directors of Alchemy for use at the Alchemy Special Meeting. At
the Alchemy Special Meeting, Alchemy shareholders will take action on the
following matters:
1. To consider and vote upon the Merger Proposal to authorize and
approve the issuance of up to 4,719,450 shares of Alchemy Common Stock to
holders of shares of Cigarette Common Stock, in connection with the
proposed Merger of Merger Sub with and into Cigarette pursuant to the
"Merger Agreement" whereby each share of Cigarette Common Stock outstanding
immediately prior to the Effective Time of the Merger (other than shares of
Cigarette Common Stock held by holders who have perfected dissenters'
rights under the Florida Business Corporation Act) will be converted into
one share of Alchemy Common Stock and Cigarette will become a wholly-owned
subsidiary of Alchemy;
2. To consider and vote upon the Repurchase Proposal to authorize and
approve the repurchase and retirement by Alchemy of 2,000,000 shares of
Alchemy Common Stock held by Offshore in consideration for the issuance to
Offshore of 100 shares of Alchemy Series B Preferred Stock having an
aggregate liquidation preference equal to $1,000,000; and
3. To consider and vote upon the Option Plan Proposal to approve and
adopt the Alchemy Employee Incentive Stock Option Plan.
The Board of Directors of Alchemy believes that the Merger Proposal, the
Repurchase Proposal and the Option Plan Proposal are fair to and in the best
interests of Alchemy and the Alchemy shareholders. The Board of Directors of
Alchemy has unanimously approved the Merger Proposal, the Repurchase Proposal
and the Option Plan Proposal and unanimously recommends that the Alchemy
Shareholders vote FOR approval and adoption of the Merger Proposal, the
Repurchase Proposal and the Option Plan Proposal.
Date, Time and Place of the Meeting
The Alchemy Special Meeting will be held at the principal executive offices
of Alchemy located at 3025 N.E. 188th Street, Aventura, Florida 33180 on
__________, 1999 at 9:00 a.m.
Record Date; Shareholders Entitled to Vote and Required Vote
Only holders of record of Alchemy Common Stock at the close of business on
__________, 1999 (the "Alchemy Record Date") are entitled to notice of and to
vote at the Alchemy Special Meeting. As of the Alchemy Record Date, ____ shares
of Alchemy Common Stock were issued and outstanding including the 2,000,000
shares of Alchemy Common Stock owned by Offshore. These shares were held by
_____ holders of record on such date. As of the Alchemy Record Date no shares of
Alchemy Preferred Stock were outstanding.
The presence in person or by proxy, of a majority of the outstanding shares
of Alchemy Common Stock is necessary to constitute a quorum at the Alchemy
Special Meeting. If there are insufficient votes to constitute a quorum or to
approve the Merger Proposal or the Repurchase Proposal, the Alchemy Special
Meeting may be adjourned in order to permit further solicitation of proxies.
Broker non-votes, abstentions and withhold authority votes all count for the
purpose of determining a quorum. At the Alchemy Special Meeting, each holder of
Alchemy Common Stock is entitled to one vote per share of Alchemy Common Stock
held. The affirmative vote of a majority of the outstanding shares of Alchemy
Common Stock is required to approve the Merger Proposal, the Repurchase Proposal
and the Option Plan Proposal. Additionally, the Board of Directors of Alchemy
has determined that Alchemy will not consummate the transactions contemplated by
the Merger Proposal or the Repurchase Proposal unless the holders of at least a
majority of the outstanding shares of Alchemy Common Stock other than Offshore,
voting as a separate class, vote to approve the Merger Proposal and the
Repurchase Proposal. The holders of a majority of the outstanding shares of
Cigarette Common Stock must also approve the transactions contemplated by the
Merger Agreement.
Solicitation, Revocation and Use of Proxies
All holders of Alchemy Common Stock represented at the Alchemy Special
Meeting by properly executed proxies received prior to the Alchemy Special
Meeting, unless such proxies previously have been revoked, will be voted at the
Alchemy Special Meeting in accordance with the instructions on the proxies. If
no contrary instructions are indicated, such proxies will be voted FOR the
approval and adoption of the Merger Proposal, the Repurchase Proposal and the
Option Plan Proposal.
Proxies with respect to Alchemy Common Stock may be revoked by filing with
the Secretary of Alchemy written notice of revocation bearing a later date than
the proxy, by duly executing a later-dated proxy relating to the same Alchemy
Common Stock or by attending the Alchemy Special Meeting and voting in person
(although attendance at the Alchemy Special Meeting will not in and of itself
constitute revocation of a proxy). Any written notice with respect to Alchemy
Common Stock must be sent to Secretary Alchemy Holdings, Inc., 3025 N.E. 188th
Street, Aventura, Florida 33180.
Proxies will be solicited by use of the mails. Directors, officers and
employees of Alchemy may also solicit proxies by telephone, telecopy, telegram
or personal contact and such persons will receive no additional compensation for
such services; however, such persons may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation activities. Copies
of solicitation materials will be furnished to fiduciaries, custodians and
brokerage houses for forwarding to beneficial owners of Alchemy Common Stock
held in their names. Such person will also be reimbursed for reasonable
out-of-pocket expenses in connection with solicitation activities. Alchemy and
Cigarette will jointly bear the cost of preparing and mailing the proxy
materials in connection with the Alchemy Special Meeting, Securities and
Exchange Commission filing fees, printing costs in connection with this Joint
Proxy Statement/Prospectus and any amounts paid in connection with proxy
solicitation activities.
No Dissenters' Rights
Holders of Alchemy Common Stock do not have statutory appraisal or
dissenters rights with respect to the Merger, or any of the transactions
contemplated by the Merger Agreement.
Shareholder Proposals
Holders of Alchemy Common Stock are entitled to submit proposals on matters
appropriate for shareholder action consistent with the regulations of the
Commission. Should an Alchemy Shareholder intend to present a proposal at the
next Annual Meeting of Alchemy Shareholders, it must be received by the
Secretary of Alchemy at Alchemy's Executive Offices, 3025 N.E. 188th Street,
Aventura, Florida 33180 no later than _______________, 1999, in order to be
included in Alchemy's proxy statement and form of proxy relating to that
meeting. Under the rules of the Commission, Alchemy shareholders submitting such
proposals are required to have held shares of Alchemy Common Stock amounting to
$1,000 in market value for at least one year prior to the date of submission.
17
<PAGE>
THE CIGARETTE SPECIAL MEETING
Purpose of the Meeting
This Joint Proxy Statement/Prospectus is being furnished by Cigarette to
holders of Cigarette Common Stock in connection with the solicitation of Proxies
by the Board of Directors of Cigarette for use at the Cigarette Special Meeting.
At the Cigarette Special Meeting action will be taken on the following matter:
1. To consider and vote upon a proposal to approve and adopt the
Merger Agreement pursuant to which (i) Merger Sub will be merged with and
into Cigarette with Cigarette continuing as the surviving corporation and
becoming a wholly-owned subsidiary of Alchemy and (ii) at the effective
time of the Merger, (A) each share of issued and outstanding Cigarette
Common Stock (other than shares held by holders who perfect dissenters'
rights under the Florida Business Corporation Act) will be converted into
one share of Alchemy Common Stock, (B) each issued and outstanding share of
Cigarette Series A Preferred Stock will be converted into one share of
Alchemy Preferred Stock having similar terms and (C) each issued and
outstanding Cigarette Warrant will be converted into one Alchemy Warrant
having similar terms.
The Board of Directors of Cigarette believes that the Merger is fair to and in
the best interests of Cigarette and the Cigarette shareholders. The Board of
Directors of Cigarette has unanimously approved the Merger Agreement and
unanimously recommends that the Cigarette shareholders vote FOR approval and
adoption of the Merger Agreement.
Date, Time and Place of Meeting
The Cigarette Special Meeting will be held at the principal executive
offices of Cigarette located at 3131 188th Street, Aventura, Florida 33180 on
_________, 1999 at 9:00 a.m.
Record Date; Shareholders Entitled to Vote and Required Vote
Only holders of record of Cigarette Common Stock at the close of business
on ____, 1999 (the "Cigarette Record Date") are entitled to notice of and to
vote at the Cigarette Special Meeting. As of the Cigarette Record Date ____
shares of Cigarette Common Stock and no shares of Cigarette Series A Preferred
Stock were issued and outstanding. These shares were held by 30 holders as of
such date. It is expected, however, that 1,000,000 additional shares of
Cigarette Common Stock and 100 shares of Cigarette Series A Preferred Stock will
be issued after the Cigarette Record Date but before the Effective Time of the
Merger.
The presence in person or by proxy of a majority of the outstanding shares
of Cigarette Common Stock is necessary to constitute a quorum at the Cigarette
Special Meeting. If there are insufficient votes to constitute a quorum or to
approve the Merger Agreement, the Cigarette Special Meeting may be adjourned or
postponed in order to permit further solicitation of proxies. Broker non-votes,
abstentions and withhold authority votes all count for the purpose of
determining a quorum. At the Cigarette Special Meeting, each holder of Cigarette
Common Stock is entitled to one vote per share of Cigarette Common Stock held.
The affirmative vote of a majority of the outstanding shares of Cigarette Common
Stock is required to approve the Merger Agreement. The issuance of the shares of
Alchemy Common Stock to be issued in the Merger must be approved by the holders
of a majority of the outstanding shares of Alchemy Common Stock and by the
holders of a majority of the outstanding shares of Alchemy Common Stock other
than Offshore, voting as a separate class.
Each of the directors, officers and control shareholders of Cigarette who
as of August __, 1999 cumulatively own 82.4% of the outstanding shares of
Cigarette Common Stock has advised Cigarette that such shareholder intends to
vote all shares of Cigarette Common Stock held by such shareholder for approval
of the Merger Agreement. The affirmative votes of such shareholders would assure
approval of the Merger Agreement. Cigarette is unaware of any voting trust
agreement(s) between or among any of its shareholders.
Solicitation, Revocation and Use of Proxies
All holders of Cigarette Common Stock represented at the Cigarette Special
Meeting by properly executed proxies received prior to the Cigarette Special
Meeting, unless such proxies previously have been revoked, will be voted at the
Cigarette Special Meeting in accordance with the instructions on the proxies. If
no contrary instructions are indicated such proxies will be voted FOR the
approval and adoption of the Merger Agreement.
Proxies with respect to Cigarette Common Stock may be revoked by filing
with the Secretary of Cigarette written notice of revocation bearing a later
date than the proxy, by duly executing a later-dated proxy relating to the same
Cigarette Common Stock or by attending the Cigarette Special Meeting and voting
in person (although attendance at the Cigarette Special Meeting will not in and
of itself constitute revocation of a proxy). Any written notice with respect to
Cigarette Common Stock must be sent to Secretary, Cigarette Racing Team, Inc.,
3131 N.E. 188th Street, Aventura, Florida 33180.
Proxies will be solicited by use of the mails. Directors, officers and
employees of Cigarette may also solicit proxies by telephone, telecopy, telegram
or personal contact and such persons will receive no additional compensation for
such services; however, such persons may be reimbursed for reasonable
out-of-pocket expenses in connection with solicitation activities. Copies of
solicitation materials will be furnished to fiduciaries and custodians for
forwarding to beneficial owners of Cigarette Common Stock held in their names.
Such persons will also be reimbursed for reasonable out-of-pocket expenses in
connection with solicitation activities. Cigarette and Alchemy will jointly bear
the cost of preparing and mailing the proxy materials in connection with the
Cigarette Special Meeting, Commission filing fees, printing costs in connection
with the Joint Proxy Statement/Prospectus and any amounts paid in connection
with proxy solicitation activities.
Dissenters Rights
Each shareholder of Cigarette Common Stock has a right to dissent from the
Merger, and, if the Merger is consummated, to receive "fair value" for his or
her shares in cash by complying with the provisions of the Florida Business
Corporation Act (the "FBCA"), including the requirements of section 607.1302 and
607.1320 of the FBCA. A shareholder who wishes to exercise such rights must
deliver to Cigarette, prior to the vote being taken on the Merger at the
Cigarette Special Meeting, written notice of his or her intent to demand payment
for his or her shares if the Merger is effected and must not vote in favor of
the Merger. See, "The Merger - Dissenters Rights."
18
<PAGE>
THE MERGER
Background of the Merger
On May 12, 1997 Alchemy held a special meeting of its Board of Directors
and decided that in the best interests of its shareholders that Alchemy attempt
to engage in the business of licensing, designing and marketing of Cigarette
merchandise and apparel in addition to its current activities of high
performance engine manufacturing. The Alchemy Board determined that such action
would provide Alchemy's shareholders with the potential of future liquidity in
their stock ownership and the possibility of future gain. The Board of Directors
of Alchemy resolved to seek and locate management to assist in such a goal.
In connection with this meeting the Board of Directors and a majority of
the outstanding Alchemy shareholders approved a recapitalization of Alchemy
pursuant to which then-issued and outstanding shares of Alchemy's common stock
would reverse split on a one for eighty basis so that the shareholders received
one share of Alchemy's Common Stock for every eighty shares of prior common
stock held.
Furthermore, the following individuals were elected as officers and
directors of Alchemy to serve until their successors are elected or appointed:
Craig N. Barrie, President/Director; Berton J. Lorow, Vice-President/Director
and Adam C. Schild, Secretary/Director.
Additionally, the Company adopted a proposal to amend the Articles of
Incorporation of Alchemy and change the name of Alchemy from Hawk Marine Power,
Inc. to Alchemy Holdings, Inc. On May 12, 1997, and subsequent to the change of
Alchemy's name from Hawk Marine Power, Inc. to Alchemy Holdings, Inc., Alchemy
formed a new corporation under the laws of the State of Delaware, a wholly owned
subsidiary of Alchemy to be known as "Hawk Marine Power, Inc." to operate its
high performance engine manufacturing business.
Effective May 19, 1997, Alchemy issued 2,000,000 post-split restricted
shares of Alchemy Common Stock to Offshore, in exchange for Offshore's exclusive
world-wide right and license to use the trademarks, and service marks of
"Cigarette Racing Team, Inc.", for all goods and services other than the use of
the trademarks and service marks on any form of watercraft. In conjunction with
the purchasing of the licensing agreement, Alchemy formed a corporation under
the laws of the State of Delaware, organized as a wholly owned subsidiary of
Alchemy and known as "Cigarette Licensing, Inc." to operate Alchemy's licensing
business.
Effective May 19, 1997, Alchemy also issued 200,000 post-split shares of
Alchemy Common Stock to Alcott, Simpson & Co., Inc., the professionals
responsible for the professional services related to and for negotiating,
arranging and brokering the licensing and other related transactions described
herein on behalf of the Company.
As a result, on May 20, 1997, the split became effective and Alchemy began
trading under its new symbol "ALCH" on the OTC Bulletin Board.
Subsequent to the change of Alchemy's name from Hawk Marine Power, Inc. to
Alchemy Holdings, Inc., and subsequent to the formation of the wholly owned
subsidiary to be known as "Hawk Marine Power, Inc.", Alchemy sold all of its
assets and liabilities of its high performance engine building operation to
Alchemy's wholly owned subsidiary Hawk Marine Power, Inc. in exchange for 100
shares of Hawk Marine Power, Inc. The 100 shares exchanged represents 100% of
the issued and outstanding shares of Hawk Marine Power, Inc.
On October 25, 1997, Alchemy's Board of Directors unanimously adopted a
resolution allowing Alchemy to enter into a Letter of Intent the result of which
would effectively allow Alchemy to acquire all of the issued and outstanding
shares of Cigarette Common Stock in a reverse acquisition.
On May 12, 1998, Alchemy held a Special Meeting of the Board of Directors
wherein the Board approved the amendment of Alchemy's Articles of Incorporation
to authorize the creation of a class of preferred stock consisting of 10,000,000
shares, $.001 par value per share. This amendment to the Articles of
Incorporation was approved by the Alchemy shareholders on the same date.
19
<PAGE>
Joint Reasons for the Merger
In reaching their decisions to approve the Merger Agreement and the
transactions contemplated by the Merger Agreement, the Alchemy Board and the
Cigarette Board consulted with their respective management teams and advisors
and independently considered the proposed Merger Agreement and the transactions
contemplated thereunder. Based on their respective independent reviews of the
proposed transactions and the business and operations of the other party, the
respective Boards each unanimously approved the Merger Agreement and the
transactions contemplated thereby. The Board of Directors of Alchemy and
Cigarette both concluded that (i) the goals and philosophies of Alchemy and
Cigarette each compatible and consistent, (ii) the products and services of
Alchemy and Cigarette each complementary, (iii) the post-Merger entity would
have the potential to offer customers a wider variety of services and products
than either Alchemy or Cigarette could offer independently, (iv) the Merger
would be positively received by customers of both Alchemy and Cigarette, (v) the
shareholders of both Alchemy and Cigarette would benefit by the enhanced ability
of the combined entity to compete in the marketplace, (vi) Cigarette's
shareholders would have the liquidity of public stock ownership; (vii) the
surviving company would be able to realize the potential proceeds from the
exercise of the outstanding warrants; and (viii) that the economic advantages as
a result of increased operating efficiencies would be substantial.
Recommendation of the Alchemy Board
The Alchemy Board has unanimously approved the Merger Agreement and the
issuance of Alchemy Common Stock in connection with the Merger and believes that
the Merger is fair to, and in the best interests of, Alchemy and its
shareholders, and therefore, unanimously recommends that the shareholders of
Alchemy vote FOR the Merger Proposal.
Recommendation of Cigarette's Board
The sole director of Cigarette has approved the Merger Agreement and the
Merger and believes that Merger is fair to and in the best interests of,
Cigarette and its shareholders, and therefore, recommends that the shareholders
of Cigarette vote FOR the approval of the Merger Agreement.
Factors Considered by Alchemy's Board
In recommending the Merger Proposal to its shareholders, Alchemy's Board
considered the following factors: A) Increased Cash Flow; B) Stable Revenue
Stream - With Alchemy's control of Cigarette, its largest customer, Alchemy
anticipates having a more predictable
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and consistent revenue stream; C) Increased Visibility - Cigarette's name is
accompanied by worldwide recognition; therefore, Alchemy may realize an
immediate intangible benefit from the Merger; and D) Decreased Costs - - The
combined entity will benefit from increased purchasing power and decreased
administrative expenses; and E) Warrants Proceeds - The proceeds received from
the exercise of the outstanding warrants will be received by the combined
entity.
Factors Considered by Cigarette's Board
In recommending the Merger to its shareholders, Cigarette's Board
considered the following factors. Increased Efficiencies through: 1) Decreased
Costs - After the Merger Cigarette will purchase some engines from Alchemy at
Alchemy's costs thereby decreasing the cost of both components. 2) Increased
Profit Margin - As a result of the decreased costs, Cigarette's profit margin is
expected to increase. 3) Sharing of Technologies - Cigarette's research and
design department plans to utilize Alchemy's technology thereby allowing
Cigarette to more closely match hull designs and engine performance.
Additional Factors Considered by the Boards of Alchemy and Cigarette
Since the execution of the Letter of Intent, Alchemy and Cigarette have
begun to integrate their operations in anticipation of the Merger's
effectiveness and in consideration of the fact that: (i) Cigarette, through
direct and indirect means, was responsible for more than 90% of Alchemy revenue;
(ii) Alchemy's employees were in essence becoming Cigarette's employees as
Cigarette had informally leased them from Alchemy to perform boat manufacturing
services as a result of increased sales and a limited available work-force;
(iii) Alchemy was unable to maintain its own market share due to decreasing
sales; (iv) scales of economy would substantially reduce Alchemy's expenses in
the short-term and stabilize Alchemy's revenues in the long-term; and (v) the
majority shareholders and directors of both Cigarette and Alchemy, respectively,
had approved the Merger in principle. See both Alchemy's and Cigarette's
Management's Discussion and Analysis.
Interests of Certain Persons in the Merger
In considering the recommendations of the Board of Directors of Alchemy and
the Board of Directors of Cigarette with respect to the approval, respectively
of the Merger Proposal and the Merger Agreement, Alchemy and Cigarette
shareholders should be aware that certain members of Alchemy's and Cigarette's
managements and Boards of Directors have certain interests that may present them
with actual or potential conflicts of interest in connection with the Merger.
Overlapping Management. Adam Schild, the sole director and officer of
Cigarette is also a member of the Alchemy Board and an executive officer of
Alchemy.
Share Ownership. Adam Schild is the general partner of Winchester Partners
L.P. which is the owner of 1,601,000 shares of Cigarette Common Stock. Craig
Barrie, the President and a member of the Board of Directors of Alchemy together
with his wife, Patricia Barrie are the owners of 25,000 shares of Cigarette
Common Stock Share Conversion. Offshore, the holder of 2,000,000 shares of
Alchemy Common Stock or 74% of all currently outstanding shares will not retain
shares of Alchemy Common Stock following the consummation of the Merger.
Instead, as a condition to the consummation of the Merger, immediately prior to
the Effective Time of the Merger, Alchemy will repurchase and retire the
2,000,000 shares of Alchemy Common Stock currently held by Offshore in
consideration for the issuance to Offshore of 100 shares of Alchemy Series B
Preferred Stock having an aggregate liquidation preference equal to $1,000,000.
In connection with the repurchase and retirement of the Alchemy Common Stock
held by Offshore, Offshore has agreement to relinquish all right, title and
interest remaining under the current licensing arrangement between Alchemy and
Offshore. For a description of this licensing arrangement, see "Certain
Relationship and Related Transactions."
Future Employment Agreements
The key employees of the Company are not bound by employment contracts.
However, Alchemy anticipates binding its key employees with formal employment
agreements. Management has recently hired Ms. Penny Adams Field as the Company's
Chief Financial Officer on a permanent basis at a annual salary of $78,000. Ms.
Adams Field is also an "at will" employee with no formal employment contract.
Alchemy expects that in formalizing the employment agreements with its key
employees, some aspects of their employment including their respective
compensation may involve changes.
Indemnification and Insurance
Pursuant to the Merger Agreement, Alchemy has agreed to indemnify each
person who was an officer, director or employee of Cigarette against certain
liabilities. See "Merger Agreement - Indemnification and Insurance."
Federal Income Tax Consequences
THE FOLLOWING IS A SUMMARY OF THE OPINION PROVIDED BY COUNSEL TO ALCHEMY OF
THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THIS SUMMARY IS A
COMPLETE DESCRIPTION OF ALL THE CONSEQUENCES OF THE MERGER.
THIS SUMMARY IS BASED UPON RELEVANT PROVISIONS OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, THE APPLICABLE TREASURY REGULATIONS PROMULGATED THEREUNDER,
JUDICIAL AUTHORITY AND CURRENT ADMINISTRATIVE RULINGS AND PRACTICE, ALL OF WHICH
ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. THIS SUMMARY DOES NOT
ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO
PARTICULAR SHAREHOLDERS IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES, OR TO
SHAREHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE (FOR EXAMPLE, S
CORPORATIONS, CERTAIN ESTATES AND TRUSTS, INSURANCE COMPANIES, FOREIGN PERSONS,
TAX EXEMPT ORGANIZATIONS, TAXPAYERS SUBJECT TO THE ALTERNATIVE MINIMUM TAX,
FINANCIAL INSTITUTIONS, BROKERS, DEALERS OR HOLDERS THAT OWN 10% OR MORE OF THE
VOTING POWER OF ALCHEMY) THE COMPANY HAS NOT REQUESTED A RULING FROM THE
INTERNAL REVENUE SERVICE WITH RESPECT TO THESE MATTERS.
EACH SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES
OF THE MERGER TO SUCH SHAREHOLDER. IN ADDITION, NO INFORMATION IS PROVIDED
HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER UNDER APPLICABLE
FOREIGN, STATE OR LOCAL LAWS. CONSEQUENTLY, EACH CIGARETTE SHAREHOLDER IS
ADVISED TO CONSULT ITS OWN TAX ADVISOR AS TO THE SPECIFIC IMPACT ON EACH SUCH
SHAREHOLDER BY FEDERAL, FOREIGN, STATE OR LOCAL LAWS.
Beckman, Millman & Sanders, L.L.P., counsel to Alchemy has provided its
opinion that the Merger will be treated as a tax-free reorganization as defined
in Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that, accordingly, (i) no gain or loss will be recognized by the
shareholders of Cigarette upon the exchange of their shares of Cigarette Common
Stock solely for shares of Alchemy Common Stock pursuant to the Merger, (ii) the
basis of the Alchemy Common Stock received by each shareholder of Cigarette in
exchange for shares of Cigarette Common Stock will be the same, immediately
after the exchange, as the basis of such shareholder's Cigarette Common Stock
exchanged therefor, and (iii) the holding period for any Alchemy Common Stock
received in exchange for Cigarette Common Stock will include the period during
which the Cigarette Common Stock surrendered for exchange was held, provided
such stock was held as a capital asset on the date of the exchange.
A dissenting Cigarette shareholder who receives only cash (if appropriate
pursuant to the appraisal rights procedure under the FBCA) for his shares of
Cigarette Common Stock will recognize gain or loss for federal income tax
purposes measured by the difference, if any, between such holder's basis in the
stock and the amount received by him for his stock. The gain or loss will be
characterized for federal income tax purposes as capital gain or loss or as
ordinary income. The gain or loss will be characterized as capital if (i) the
holder's shares of Cigarette Common Stock are held as capital assets, and (ii)
the holder receives cash with respect to all shares of Cigarette Common Stock
which he owns, including shares owned by application of the attribution rules of
Section 318 of the Code.
Section 318 of the Code provides, in part, that a shareholder will be
considered to be the owner of shares which are owned by certain corporations,
partnerships, trusts and estates in which the shareholder has a beneficial
ownership interest, shares which such shareholder has an option to acquire, and
shares owned by certain members of his family. Under certain circumstances, the
attribution rules with respect to shares attributed from a family member may be
waived.
Dissenter's Rights
Pursuant to Section 607.1302(a) of the Florida Business Corporation Act, a
copy of which is attached hereto as Annex __, any holder of Cigarette Common
Stock who objects to the Merger will be entitled to dissent and exercise
appraisal rights. That section enables an objecting shareholder to be paid, in
cash, the value of his Cigarette Common Stock as determined by FBCA Section
607.1301, provided that the following conditions are satisfied:
(a) Such shareholder must not vote in favor of the Merger, nor submit a
proxy in which directions are given to vote in favor of the Merger.
Failure to vote against the Merger shall constitute a waiver of that
shareholder's appraisal rights.
(b) Within 10 days after the date on which the vote is taken approving the
Merger, such shareholder must make written demand on Cigarette for
payment of the fair value of such shareholder's shares.
Within 10 days after the Merger is effected, Cigarette shall give written
notice ("Notice") thereof to each dissenting shareholder who has satisfied
paragraphs (a) and (b) hereof, and Cigarette shall make a written offer to each
such shareholder to pay for such shares at a specified price deemed by Cigarette
to be the fair value thereof.
Cigarette shall also notify each dissenting shareholder that within 20 days
after Cigarette gives Notice, any dissenting shareholder(s) must file with
Cigarette a notice of such election, stating the name and address, the number,
classes, and series of shares as to which he dissents, and a demand for payment
of the fair value of his shares in order to perfect his rights. Any shareholder
failing to file such election to dissent within the period set forth shall be
bound by the terms of the proposed corporate action. Any shareholder filing an
election to dissent shall deposit his certificates for certified shares with
Cigarette simultaneously with the filing of the election to dissent. Cigarette
may restrict the transfer of uncertified shares from the date of the
shareholder's election to dissent is filed with the corporation.
In the event that Cigarette and the dissenting shareholder(s) do not agree
with the value Cigarette places on such shareholder's shares, then Cigarette,
within 30 days after the receipt of a written demand from any such shareholder
given within 60 days after the date on which the Merger was effected, shall, or
at its election at any time within such period of 60 days may, file an action in
any court of competent jurisdiction in the county in Florida where the
registered office of Alchemy is located requesting that the fair value of such
shares be found and determined. Although Cigarette intends to file an action in
a court of competent jurisdiction in the event the dissenting shareholder and
Cigarette do not agree with the value Cigarette places on the dissenting
shareholder's shares, if Cigarette fails to initiate such a proceeding, then any
dissenting shareholder may do so in the name of the corporation.
Notwithstanding the foregoing, a dissenting shareholder may withdraw his
appraisal demand so long as Cigarette consents thereto.
THE ABOVE SECTION IS A ONLY A SUMMARY OF FLORIDA LAW REGARDING DISSENTER'S
RIGHTS. FAILURE BY A SHAREHOLDER TO FOLLOW THE REQUIRED PROCEDURE AS DETERMINED
BY SECTIONS 607.1301 - 1320 OF THE FLORIDA BUSINESS CORPORATION ACT FOR
PERFECTING HIS DISSENTER'S RIGHTS WILL RESULT IN THE LOSS OF SUCH RIGHTS.
DESCRIPTION OF ALCHEMY'S SECURITIES
Capital Stock
Alchemy's authorized capital stock consists of 50,000,000 shares of Alchemy
Common Stock, $.001 par value per share and 10,000,000 shares of Alchemy
Preferred Stock, $.001 par value per share.
Common Stock
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General. Alchemy has 50,000,000 authorized shares of Common Stock,
2,592,394 of which were issued and outstanding as of the Alchemy Record Date.
All shares of Alchemy Common Stock currently outstanding are validly issued,
fully paid and non-assessable, and all shares of Alchemy Common Stock which are
the subject of this Prospectus, when issued in the Merger, will be validly
issued, fully paid and non-assessable.
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of stockholders.
Dividend Policy. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by Alchemy's Board of Directors out of
the funds legally available therefor. Any such dividends may be paid in cash,
property or additional shares of Alchemy Common Stock. Alchemy has not paid any
dividends since its inception and presently anticipates that all earnings, if
any, will be retained for Alchemy's business and that no dividends on the shares
of Alchemy Common Stock will be declared in the foreseeable future. Payment of
future dividends will be subject to the discretion of Alchemy's Board of
Directors and will depend upon, among other things, future earnings, the
operating and financial condition of Alchemy, its capital requirements, general
business conditions and other pertinent facts.
Miscellaneous Rights and Provisions. Holders of Common Stock, have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of Alchemy, each share of Alchemy Common Stock is
entitled to share ratably in any assets available for distribution to holders of
the equity of Alchemy after satisfaction of all liabilities, subject to the
rights of holders of any Alchemy Preferred Stock.
Preferred Stock
General. Alchemy's Board of Directors has the authority to issue up to
10,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions granted to or imposed upon any
unissued and undesignated shares of Preferred Stock and to fix the number of
shares constituting any series and the designations of such series, without
further vote or action by the stockholders. As of the Alchemy Record Date, no
shares of Alchemy Preferred Stock will be issued or outstanding. Although it
presently has no intention to do so, Alchemy's Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of Alchemy Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of Alchemy.
Series A
Alchemy expects to issue 100 shares of Alchemy Series A Preferred Stock,
("Series A" for the purposes of this section only) in the Merger. In the Merger
Series A will bear a 5% cumulative dividend which will be payable quarterly
unless Alchemy elects not to pay the dividend in which such dividend shall be
cumulative and shall accrue without interest. No dividend shall be declared or
paid on Alchemy Common Stock unless all dividends with respect to Alchemy
Preferred Stock have been paid in full. Series A will have a liquidation
preference equal to $10,000 per share. Series A may be repurchased at any time
at the option of Alchemy for a purchase price of $10,000 per
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share plus all accrued and unpaid dividends payable to the time of repurchase.
Holders of Series A will have no redemption rights with respect to their shares.
All shares of Alchemy Common Stock and Alchemy Series B Preferred Stock will be
of junior rank to Series A with respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of Alchemy. Series
A holders will not be entitled to any voting rights either in person or by
proxy. Series A will have no conversion rights.
Series B
Alchemy expects to issue 100 shares of Alchemy Series B Preferred Stock
("Series B" for the purposes of this section only) to Offshore in connection
with Alchemy's repurchase and retirement of the shares of Alchemy Common Stock
by Offshore. Series B will bear an 8% cumulative dividend which will be payable
quarterly unless Alchemy elects not to pay the dividend in which such dividend
shall be cumulative and shall accrue without interest. No dividend shall be
declared or paid on Alchemy Common Stock unless all preferred stock dividends
have been paid in full. Series B may be repurchased at any time at the option of
Alchemy for a purchase price of $10,000 per share plus all accrued and unpaid
dividends payable to the time of repurchase. Holders of Series B will have no
redemption rights with respect to their shares. All shares of Alchemy Common
Stock will be of junior rank to Series B with respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. Series B will, however, be of junior rank to Series A with respect
to those preferred Series B will have a liquidation preference equal to $10,000
per share. Series B holders will not be entitled to any voting rights either in
person or by proxy. Series B will have no conversion rights.
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Warrants and Options
In connection with the Merger, Alchemy will issue 1,000,000 Alchemy Class A
Warrants, 1,000,000 Alchemy Class B Warrants, 1,800,000 Alchemy Class X Warrants
and 100,000 Alchemy Class Y Warrants. Each of the Alchemy Warrants will be
exercisable for one share of Alchemy Common Stock and will have an exercise term
of 5 years. The exercise price with respect to the Alchemy Class A Warrants will
be $3.00 per share, the exercise price with respect to the Alchemy Class B
Warrants will be $4.00 per share, the exercise price with respect to the Alchemy
Class X Warrants will be $2.00 per share and the exercise price with respect to
the Alchemy Class Y Warrants will be $2.00 per share.
In connection with the Option Plan, Alchemy will have the ability to issue
50,000 Options. Each Option will be exercisable for one share of Alchemy Common
Stock and will have an exercise price equal to $2.00 per share.
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Transfer Agent
The transfer agent and registrar for the Alchemy Common Stock is Fidelity
Transfer Company, 1800 Southwest Temple, Suite 301 - Box 53, Salt Lake City,
Utah 84115.
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AGREEMENT AND PLAN OF MERGER
The following is a brief summary of certain provisions of the Agreement and
Plan of Merger (the "Merger Agreement"), a copy of which is attached hereto as
Exhibit 2.0 to this Joint Proxy Statement/Prospectus and incorporated herein by
reference. Such summary is qualified in its entirety by reference to the Merger
Agreement. Shareholders of Alchemy and Cigarette are urged to read the Merger
Agreement in its entirety for a more complete description of the Merger.
Although the Merger Agreement has not been executed and therefore ratified
by either Cigarette and Alchemy, the parties to such agreement expect to
finalize and execute the Merger Agreement prior to the effectiveness of the
Registration Statement of which this Joint Proxy Statement/Prospectus forms a
part.
The Merger
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement by the shareholders of Alchemy and Cigarette, the approval
of the issuance of shares of Alchemy pursuant to the Merger Agreement in
connection with the Merger, and the satisfaction or waiver of the other
conditions to the Merger, Merger Sub will merge with and into Cigarette, with
Cigarette continuing as the surviving corporation (the "Surviving Corporation")
and becoming a wholly-owned subsidiary of Alchemy in a reverse acquisition.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the later of (a) the date and time of the filing of a
Certificate of Merger with the Secretary of State for the States of Florida and
Delaware, respectively or (b) such later date and time as is agreed in writing
by the Merger Sub, Cigarette and Alchemy (such time shall be referred to herein
as, the "Effective Time").
Shareholders' Rights
The Florida Business Corporation Act does not distinguish between publicly
held and closely held corporations. Additionally, neither Cigarette's nor
Alchemy's articles of incorporation provide otherwise. Thus, the dissenting
rights of holders of Alchemy and Cigarette securities do not materially differ.
Conversion of Securities
Upon consummation of the Merger, each issued and outstanding share of the
capital stock of the Merger Sub shall be converted into and become one fully
paid and nonassessable share of common stock of Cigarette. All shares of
Cigarette Common Stock that are owned by Cigarette as treasury stock or by any
subsidiary of Cigarette and any shares of Cigarette Common Stock owned by
Alchemy, Merger Sub or any other wholly-owned subsidiary of Alchemy shall be
canceled and retired and shall cease to exist and no stock of Alchemy or other
consideration shall be delivered in exchange therefor. All shares of Alchemy
Common Stock owned by Cigarette shall remain unaffected by the Merger.
Subject to the terms of the Merger Agreement, at the Effective Time, each
issued and outstanding share of Cigarette Common Stock (other than shares to be
canceled in accordance with the Merger Agreement and other than shares held by
holders who have perfected their dissenters' rights under the FBCA) shall be
converted into one (1) (the "Conversion Number") fully paid and nonassessable
share of Alchemy Common Stock (the "Exchange Ratio"). All such shares of
Cigarette Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Alchemy
Common Stock to be issued in consideration therefor upon the surrender of such
certificate in accordance with the terms of the Merger Agreement, without
interest. Cigarette shareholders who vote against the Merger and perfect
dissenters' rights pursuant to the FBCA will not receive Alchemy Common Stock,
but will instead receive the fair value of their shares of Cigarette Common
Stock.
If, between the date of the Merger Agreement and the effective date, the
outstanding shares of Alchemy Common Stock or Cigarette Common Stock shall have
been changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, stock dividend, stock
combination, exchange of shares, readjustment or otherwise, then the Exchange
Ratio shall be correspondingly adjusted; provided, however, that any such
changes shall be subject to the terms of the Merger Agreement.
Subject to the terms of the Merger Agreement, at the Effective Time, each issued
and outstanding share of Cigarette Series A Preferred Stock will be converted
into one share of Alchemy Preferred Stock. Also, at the Effective Time, each
issued and outstanding Cigarette Series A Warrant, Cigarette Series B Warrant,
Cigarette Series X Warrant and Cigarette Series Y Warrant will be exchanged for,
respectively, one Alchemy Series A Warrant, one Alchemy Series B Warrant, one
Alchemy Series X Warrant and one Alchemy Series Y Warrant.
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Restriction on Alchemy Securities Issued Pursuant to the Merger
THE SHARES OF ALCHEMY COMMON STOCK ISSUED IN THE MERGER WILL BE RESTRICTED
FROM TRANSFER FOR A PERIOD OF TWELVE MONTHS FROM THE EFFECTIVE TIME (THE "LOCKUP
PERIOD"). DURING THE LOCKUP PERIOD THE BOARD OF DIRECTORS OF ALCHEMY SHALL HAVE
THE EXCLUSIVE RIGHT TO RELEASE FROM LOCKUP ANY OR ALL OF THE HOLDERS OF SUCH
SHARES OF ALCHEMY COMMON STOCK FOR ANY NECESSARY REASON.
Shares of Alchemy Common Stock received by those shareholders of Cigarette
who are deemed to be affiliates of Cigarette may be resold without registration
under the Securities Act only as permitted by Rule 145 under the Securities Act
or as otherwise permitted under the Securities Act. Each affiliate of Cigarette
has agreed not to offer, sell, pledge, transfer or otherwise dispose of any
shares of Alchemy Common Stock distributed pursuant to the Merger, except in
compliance with Rule 145 under the Securities Act, or in a transaction that is
otherwise exempt from the registration requirements of the Securities Act and
provided that an opinion of counsel, satisfactory to Alchemy, has been provided
to Alchemy to the effect that no such registration is required in connection
with the proposed transaction, or in an offering that is registered under the
Securities Act. In addition, each affiliate of Cigarette has agreed not to sell,
transfer or otherwise dispose of, or reduce such person's interest in or risk
relating to (i) any shares of Alchemy Common Stock or Cigarette Common Stock
owned or subject to vested options as of the date of the Merger Agreement or
(ii) any shares of Alchemy Common Stock issued to such person in the Merger or
otherwise beneficially owned by such person, except in each case for amounts of
Alchemy Common Stock and Cigarette Common Stock not more than the de minimis
amount permitted by the rules and releases of the Commission, until Alchemy has
publicly released combined financial results of Alchemy and Cigarette for a
period of at least 30 days of combined operations. See "The Merger Restrictions
on Resale of Alchemy Common Stock."
Representations and Warranties of Merger Sub, Cigarette and Alchemy
Merger Sub, Cigarette and Alchemy have made certain representations and
warranties in the Merger Agreement relating to, among other things, (a) the due
organization, valid existence and good standing of each of the Merger Sub,
Cigarette and Alchemy; (b) the capital structure of each of the Merger Sub,
Cigarette and Alchemy; (c) each party's authorization to execute and deliver the
Merger Agreement and the enforceability of the Merger Agreement against each
party; (d) the absence of conflicts under charters or bylaws and required
consents or approvals; (e) the accuracy and completeness in all material
respects of documents and financial statements filed by each of Cigarette and
Alchemy with the Commission; (f) the absence of undisclosed liabilities; (g) the
absence of certain material adverse changes or events; (h) the accurate
preparation and timely filing of all returns and payment of taxes owed and the
absence of any material liability for unpaid taxes that have not been accrued or
reserved for by the respective parties; (i) title to properties; (j) title to
intellectual property; (k) the absence of a breach or the cancellation of
material agreements, contracts and commitments; (l) the absence of litigation;
(m) compliance with environmental regulations; (n) certain employment tax, labor
and employee benefit matters; (o) compliance with laws; (p) the absence of
material interested party transactions; and (q) the accuracy of information
supplied by each of the Merger Sub, Cigarette and Alchemy in connection with
this Joint Proxy Statement/Prospectus. In addition, the Merger Agreement
contains a representation and warranty by Alchemy as to (r) the interim
operations of the Merger Sub, and representations and warranties by Cigarette as
to (s) the absence of payments resulting from the Merger and (t) actions taken
regarding restrictions applicable to business combinations under the FBCA.
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Certain Covenants and Agreements
Pursuant to the Merger Agreement and during the period from the date of the
Merger Agreement until the earlier of the termination of the Merger Agreement or
the Effective Time, except as otherwise consented to in writing by Alchemy or as
contemplated by the Merger Agreement, Cigarette and its subsidiaries have agreed
to; (a) carry on Cigarette's business in the ordinary course in substantially
the same manner as previously conducted, including the use of reasonable efforts
consistent with past practices and policies of Cigarette to (i) preserve intact
its present business organization, (ii) keep available the services of its
present officers and key employees and (iii) preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it; (b) not accelerate, amend or change the period of
exerciseability of Cigarette's Warrants, except as required pursuant to the plan
or any related agreement; (c) not transfer or license or otherwise extend, amend
or modify any rights to its intellectual property, other than in the ordinary
course of business consistent with past practice; (d) not declare or pay any
dividends on or make other distributions in respect of any of its capital stock,
not effect certain other changes in its capitalization, and not purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except under certain circumstances; (e) not issue, or authorize or propose the
issuance of, any shares of its capital stock or securities convertible into
shares of its capital stocks, or any subscriptions, rights, warrants, or options
to acquire, or other agreements obligating it to issue any such shares or other
convertible securities, subject to certain exceptions; (f) not agree to engage
or engage in material acquisitions (g) not sell, lease, license or otherwise
dispose of material properties or assets, except in the ordinary course of
business; (h) not increase the compensation or severance payable to its officers
or employees (except for increases in accordance with agreements entered into
prior to the Merger Agreement and increases consistent with past practices),
enter into any collective bargaining agreement or establish, adopt, enter into
or amend in any material respect any plan for the benefit of its directors,
officers or employees, subject to certain exceptions; (i) not amend its
Certificates of Incorporation or Bylaws; and (j) not take any action that would
or is reasonably likely to result in any of its representations and warranties
becoming untrue. In addition, Cigarette has agreed to confer on a regular basis
with Alchemy on material operational matters.
Pursuant to the Merger Agreement, Alchemy has agreed that, during the
period from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement or the Effective Time, except as otherwise
consented to in writing by Cigarette or as contemplated by the Merger Agreement,
Alchemy will not, without the prior written consent of Cigarette; (a) declare or
pay any dividends on or make any other distributions in respect of any of its
capital stock, or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock (other
than stock splits of Alchemy Common Stock or stock dividends payable in shares
of Alchemy Common Stock), or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants under certain circumstances; (b) issue, deliver or
sell or authorize or propose the issuance, delivery or sale of, any shares of
its capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, subject to certain exceptions; (c) amend or propose to
amend its Certificate of Incorporation or Bylaws, except as contemplated by the
Merger Agreement; (d) acquire or agree to acquire by merger or consolidation
with, or by purchase of a substantial equity interest in or substantial portion
of the assets of any business or any corporation, partnership or other business
organization or division, for consideration having a fair market value (at the
time of the public announcement of such acquisition or agreement) in excess of
$100,000,000; (e) sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the business of Alchemy and its subsidiaries, taken as a whole, except for
transactions entered into in the ordinary course of business; and (f) not take
any action that would be reasonably likely to result in any of its
representations and warranties becoming untrue. In addition, Alchemy has agreed
to confer on a regular basis with Cigarette on material operational matters.
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No Solicitation
The Merger Agreement provides that Cigarette will not, directly or
indirectly, through any officer, director, employee, representative or agent
(i)solicit, initiate or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal offer for a merger,
consolidation, share exchange, business combination, sale of substantial assets,
sale of shares of capital stock (including, without limitation, pursuant to a
tender offer) or similar transactions or series of transactions involving
Cigarette, other than the transactions contemplated by the Merger Agreement (any
of the foregoing inquiries or proposals being referred to as an "Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, provide any
non-public information to any person or entity relating to, any Acquisitions
Proposal; provided, however, that nothing contained in the Merger Agreement
shall prevent Cigarette or the Alchemy Board from (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity (including a new and unsolicited Acquisition Proposal
received by Cigarette after the execution of the Merger Agreement from a person
or entity whose initial contact with Cigarette may have been solicited by
Cigarette prior to the execution of the Merger Agreement) or recommending such
an unsolicited bona fide written Acquisition Proposal to the stockholders of
Cigarette, if and only to the extent that (1) the Cigarette Board believes in
good faith (after consultation with and based upon the advice of its financial
advisor) that such Acquisition Proposal would, if consummated, result in a
transaction more favorable to Cigarette's stockholders from a financial point of
view than the transaction contemplated by the Merger Agreement (any such more
favorable Acquisition Proposal being referred to as a "Superior Proposal") and
the Cigarette Board determines in good faith after consultation with and based
upon the advice of outside legal counsel that such action is necessary for
Cigarette to comply with its fiduciary duties to stockholders under applicable
law and (2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the Cigarette Board
receives from such persons or entity an executed confidentiality agreement; or
(b) complying with Rule 14e-2 promulgated under the Exchange Act with regard to
an Acquisition Proposal.
Upon compliance with the foregoing, following receipt of a Superior
Proposal, Cigarette shall be entitled to (i) withdraw, modify or refrain from
making its recommendation in favor of the Merger Agreement and the Merger and
approve and recommend to the stockholders of Cigarette a Superior Proposal and
(ii) enter into an agreement with such third party concerning a Superior
Proposal.
Cigarette is required to notify Alchemy (orally and in writing) within 24
hours after receiving any Acquisition Proposal, learning of a third party's
intent to make an Acquisition Proposal, or receiving any request for non-public
information or access to its properties, books or records in connection with an
Acquisition Proposal.
Indemnification and Insurance
The Merger Agreement provides that Cigarette shall and, from and after the
Effective Time, Alchemy shall, indemnify, defend and hold harmless each person
who was an officer, director or employee of Cigarette or any of its subsidiaries
as of the date of the Merger Agreement or has been an officer, director or
employee of Cigarette or any of its subsidiaries at any time prior to the date
thereof (or who becomes a director, officer or employee of Cigarette or any of
its subsidiaries prior to the Effective Time) against all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts that are paid in
settlement with the approval of the indemnifying party (which approval shall not
be unreasonably withheld or delayed) of or in connection with any claim, action,
suit, proceeding or investigation based in whole or in part on, or arising in
whole or in part out of, the fact that such person is a director, officer or
employee of Cigarette or any Cigarette subsidiary, whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, at or after, the Effective time ("Indemnified
Liabilities"), including, without limitation, all Indemnified Liabilities based
in whole or in part on, or arising in whole or in part out of, or pertaining to
the Merger Agreement or the transactions contemplated thereby, in each case to
the full extent that a corporation is permitted under the FBCA to indemnify its
own directors, officers or employees, as the case may be.
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After the Effective Time, Alchemy will fulfill, assume and honor in all
respects the obligations of Cigarette pursuant to Cigarette's Certificate of
Incorporation, as amended, and any indemnification agreements existing and in
force as of the date of the Merger Agreement with Cigarette's directors and
officers.
Neither Alchemy nor Cigarette maintain directors' and officers' liability
insurance policies. Alchemy anticipates that it will procure such insurance
subsequent to the Merger.
Conditions
The respective obligations of Alchemy, Merger Sub and Cigarette to effect
the Merger are subject to the following conditions: (a) the Merger Agreement
shall have been approved and adopted by the stockholders of Cigarette and the
issuance of Alchemy Common Stock in connection with the Merger shall have been
approved by the Alchemy stockholders; (b) all authorizations, consents, orders
or approvals of any governmental entity required to consummate the Merger shall
have been obtained and be in effect, the absence of which would be reasonably
likely to have a Material Adverse Effect on either Alchemy or Cigarette, as the
case may be; (c) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction, legal
or regulatory restraint or prohibition preventing the consummation of the Merger
or limiting or restricting Alchemy's conduct or operation of the business of
Alchemy or Cigarette after the Merger shall have been issued and be in effect,
nor shall there be any proceeding brought by any governmental entity seeking any
of the foregoing be pending; (d) no action shall be taken, or any statute, rule,
regulation, or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal or prevents or
prohibits the Merger; (e) the Alchemy Common Stock to be issued in the Merger,
or reserved for future issuance, shall have been approved for quotation on the
OTC-Bulletin Board; (f) receipt by Alchemy of a written opinion of Beckman,
Millman & Sanders, L.L.P. and receipt by Cigarette of an opinion of Beckman,
Millman & Sanders, L.L.P. both to the effect that the Merger will be treated as
a tax-free reorganization within the meaning of Section 368(a) of the Code; (g)
the accuracy in all material respects of the representations and warranties of
the other party set forth in the Merger Agreement, except for changes
contemplated by the Merger Agreement or where the failure to be true and correct
would not be reasonably likely to have a Material Adverse Effect on Alchemy or
Cigarette, as the case may be; (h) the performance by the other party in all
material respects of all obligations required to be performed by such party
under the Merger Agreement; (i) no Material Adverse Effect with respect to the
other party shall have occurred since the date of the Merger Agreement; (j) the
repurchase and retirement of the 2,000,000 shares of Alchemy Common Stock owned
by Offshore in consideration for the issuance of 100 shares of Alchemy Series B
Preferred Stock; and (k) the cancellation and forgiveness of all indebtedness
owed by Cigarette to Central in consideration for the issuance to Central of
1,000,000 shares of Cigarette Common Stock and 100 shares of Cigarette Series A
Preferred Stock.
For purposes of the Merger Agreement, a Material Adverse Effect means any
change, event or effect that is materially adverse to the business, operations
or results of operations of Cigarette or Alchemy, as the case may be, and such
party's subsidiaries taken as a whole; provided, however that any of the
following are not deemed to constitute a Material Adverse Effect; (i) adverse
changes in or effect on the financial condition, revenues or gross margins of
the party (or the direct consequences thereof) to the extent attributable to a
delay of, reduction in or cancellation or change in the terms of product
licenses by the party's customers to the extent attributable to a slowdown in a
party's sales organization; to the extent attributable to the loss of any key
officer or employee of a party to the extent attributable directly and primarily
to the transactions contemplated by the Merger Agreement; and (ii) adverse
changes in the market prices for the party's common stock between the date of
the Merger Agreement and the Effective Time of the Merger.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Alchemy or the stockholders of Cigarette:
(a) by mutual written consent of Alchemy and Cigarette; or
(b) by either Alchemy or Cigarette if the Merger shall not have been
consummated by December 31, 1999, provided that the right to terminate the
Merger Agreement under this provision is not available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date; or
(c) by either Alchemy or Cigarette if a court of competent
jurisdiction or other governmental entity shall have issued a
non-appealable final order, decree or ruling or taken any other action, in
each case having the effect or permanently restraining, enjoining or
otherwise prohibiting the Merger, except, if the party relying on such
order, decree or ruling or other action has not complied with its
obligations under Section 6.7 (Legal Conditions to the Merger) or Article
VI (Additional Agreements; Reasonable Efforts) of the Merger Agreement; or
(d) by either Alchemy or Cigarette if the required approvals of the
stockholders of Alchemy or stockholders of Cigarette contemplated by the
Merger Agreement shall not have been obtained by reason of the failure to
obtain the required vote upon a vote taken at a meeting of such
stockholders duly convened therefor or at any adjournment thereof (provided
that the right to terminate the Merger Agreement under this provision is
not available to any party where the failure to obtain approval of such
party's stockholders or stockholders shall have been caused by the action
or failure to act of such party in breach of the Merger Agreement); or
(e) by Alchemy, if (i) the Cigarette Board shall have withdrawn or
modified its recommendation of the Merger Agreement in a manner adverse to
Alchemy or shall have publicly announced its intention to do any of the
foregoing; (ii) an Alternative Transaction shall have taken place
(including execution of an agreement to engage in the same) or the
Cigarette
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Board shall have recommended to the stockholders of Cigarette an
Alternative Transaction; (iii) a tender offer or exchange offer for 20% or
more of the outstanding shares of Cigarette Common Stock is commenced
(other than by Alchemy or an Affiliate of Alchemy) and the Cigarette Board
has not recommended that the stockholders of Cigarette not tender their
shares in such tender or exchange offer within the time period prescribed
by Rule 14e-2 promulgated under the Exchange Act; or
(f) by Alchemy or Cigarette, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, which breach causes the conditions
set forth in the Merger Agreement not to be satisfied as of the time of
such breach, provided that if such breach by such party is curable by such
party through the exercise of its reasonable efforts and for so long as
such party continues to exercise such reasonable efforts, the other party
may not terminate the Merger Agreement under this provision; or
(g) by Cigarette, in the event of (i) a merger or consolidation to
which Alchemy is a party, if the stockholders of Alchemy immediately prior
to the effective date of such merger or consolidation have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of less than
50% of the total combined voting power for election of directors of the
surviving corporation following the effective date of such merger or
consolidation, (ii) the acquisition or direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) in the
aggregate of securities of Alchemy representing more than 50% of the total
combined voting power of Alchemy's then issued and outstanding voting
securities by any person, entity or group, as shown on a Schedule 13D filed
with the SEC pursuant to the Exchange Act; or (iii) the sale of all or
substantially all of the assets of Alchemy to any person or entity that is
not a subsidiary of Alchemy.
In the event of any termination of the Merger Agreement pursuant to clause
(a) above, there will be no liability or obligation on the part of any party to
the Merger Agreement or its officers, directors, stockholders or affiliates,
except as set forth in the Merger Agreement (Fees and Expenses). In the event of
any termination of the Merger Agreement, the Merger Agreement shall be of no
further force and effect, except that any applicable surviving terms of the
Merger Agreement and all terms of the Non-Disclosure Agreement shall remain in
full force and effect and survive any termination of the Merger Agreement and
nothing in the Merger Agreement shall relieve any party from liability for any
breach of the Merger Agreement.
Except as described below, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such expenses, whether or not the Merger is
consummated, provided that Alchemy and Cigarette shall share equally all fees
and expenses, other than attorneys' fees, incurred in relation to the printing
and filing of this Joint Proxy Statement/ Prospectus (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements.
As used in the Merger Agreement, "Alternative Transaction" means either (i)
a transaction pursuant to which any person (or group of persons) other than
Alchemy or its affiliates (a "Third Party"), acquires more than 20% of the
outstanding shares of Cigarette Common Stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Cigarette pursuant to which any Third Party acquires more than 20% of
the outstanding equity securities of Cigarette or the entity surviving such
merger or business combination, (iii) any other transaction pursuant to which
any Third Party acquires control of assets (including for this purpose the
outstanding equity securities of subsidiaries of Cigarette, and the entity
surviving any merger or business combination including any of them) of Cigarette
having a fair market value (as determined by the Cigarette Board in good faith)
equal to more than 20% of the fair market value of all the assets of Cigarette
immediately prior to such transaction, or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
Notwithstanding the foregoing, in no event is Cigarette required to pay any
termination fees to Alchemy.
Amendment and Waiver
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties thereto. The Merger Agreement may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Cigarette
and Alchemy, but, after any such approval, no amendment shall be made which by
law requires further approval by such stockholders without such further
approval.
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At any time prior to the Effective Time, either Alchemy or Cigarette, by
action taken or authorized by their respective Board of Directors, as the case
may be, to the extent legally allowed, (i) may extend the time for the
performance of any of the obligations or other acts of the other party, (ii) may
waive any inaccuracies in the representations and warranties of the other party
contained in the Merger Agreement or delivered pursuant to the Merger Agreement,
and (iii) may waive compliance by the other party with any condition or
agreement contained in the Merger Agreement.
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SECURITIES OF ALCHEMY
Market Price of Alchemy's Common Stock
Alchemy's management has never declared a dividend and does not anticipate
the declaration of a dividend for the foreseeable future. Quotations for
Alchemy's Common Stock are presently reported on the OTC-Bulletin Board. The
following chart sets forth the range of high and low bid information for the
five previous fiscal quarters and the most recent available price information
with respect to the Alchemy Common Stock. Such quotations do not reflect
interdealer prices, retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
DATES HIGH LOW
July 1 - September 30, 1997 4 3
October 1 - December 31, 1997 9 1/8 1 7/8
January 1 - March 31, 1998 9 3/4 21/2
April 1 - June 30, 1998 12 3/4 3 3/4
July 1 - September 30, 1998 12 3/4 4 9/16
October 1 - December 31, 1998 8 3 1/2
January 1 - March 31, 1999 6 3 3/8
April 1 - June 30, 1999 7 1/2 5 1/2
July 1 - August 11, 1999 7 5 3/4
For an additional discussion regarding Alchemy's securities see "The Merger
- - Description of Alchemy's Securities."
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Holders
As of August 11, 1999 there were approximately 200 shareholders of
unrestricted Alchemy Common Stock and no shareholders of Alchemy Preferred
Stock. The sole shareholder of more than 5% of Alchemy's Common Stock is
Offshore Racing, Inc. whose holding will be repurchased and retired in exchange
for Alchemy Series B Preferred Stock, upon the consummation of the Merger
Agreement.
<TABLE>
<CAPTION>
Classification # Shares Owned % Of Total % of Total Outstanding
Outstanding Prior To Post Effectiveness
Effectiveness
<S> <C> <C> <C>
Offshore Racing, Inc. 2,000,000 74.00% 0.00%
(control entity)(1)
Adam Schild (director) 0 0.00% 0.00%
Craig Barrie (director)(2) 15,378 .7% .2%
all directors and officers as 15,378 .7% .2%
a group
</TABLE>
(1) To be retired upon approval of the Company's disinterested shareholders.
(2) Craig Barrie and his wife Patricia Barrie own an additional 25,000 shares
of Cigarette which will be converted into Alchemy Common Stock at the same
conversion rate as the other Cigarette shareholders.
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BUSINESS
The Companies
Alchemy Holdings, Inc.
General Development of Business
Alchemy Holdings, Inc., formerly known as Hawk Marine Power, Inc., (the
"Company" for the purposes of historical overview only) is engaged in the
design, production and sale of high performance marine engines for installation
in high speed recreational powerboats and offshore racing boats. The Company
manufactures its own line of five high output, all gasoline 8 cylinder engines
for high speed recreational powerboats and racing, as well as customized engines
which are produced solely for racing boats. The Company's engines are hand built
from component parts and are sold primarily to premium boat manufacturers. The
Company's high performance engines have established distinctive reputations
among power boat enthusiasts for performance, speed and endurance. The Company's
engines have received critical acclaim in boating and other publications. The
Company regularly exhibits their engines at various international boat shows.
Swift Development, Inc. ("Swift") was incorporated under the laws of the
State of Utah on October 25, 1983, at which time it sold an aggregate of 750,000
shares in common stock to three individuals for total consideration of $15,000.
In March 1984, the Company consummated a private placement offering of shares of
common stock pursuant to Regulation D of the Securities Act of 1933, as amended,
which resulted in the sale of 752,850 shares of common stock from which the
Company received net proceeds of approximately $65,000. In August 1984, the
Company's original shareholders contributed an aggregate of 280,112 shares of
common stock of the Company.
In August of 1997, Swift was acquired by Hawk Marine Power, Inc. in a
reverse acquisition and subsequently changed its name to Hawk Marine Power, Inc.
Effective September 30, 1990, the Company was merged into its wholly owned
subsidiary, Hawk Marine Power, Inc. The effect of the transaction was to
reincorporate the Company in the state of Florida.
On December 11, 1989 and January 17, 1990, the Company completed a
registered public offering of an aggregate of 197,940 Units of its securities
consisting of 593,820 shares of common stock and 197,940 warrants. The Company
received net proceeds of approximately $969,500 from such public offering.
On May 19, 1997, the Company changed its name from Hawk Marine Power, Inc.
to its present name of Alchemy Holdings, Inc.
Products
The Company designs, manufacturers and sells high output gasoline 8
cylinder engines and also performs custom work on engines produced by other
manufacturers. Engines produced by a predecessor of the Company were initially
manufactured in 1979 for use in the offshore speed boat racing circuit which was
attaining initial popularity. They were produced to accommodate participants in
the offshore racing circuit who required high performance engines. In 1981, Hawk
Marine Power, Inc. powered speedboats attained international prominence by
winning the U.S. Championship and the World Championship of speed boat racing in
conjunction with a predecessor of Cigarette Racing Team, Inc.
The success of the Company's engines in international competition generated
more widespread interest among speedboat as well as other racing enthusiasts.
Despite its reputation, the Company has never been able to attain consistent
profitable operations or capitalize on a commercial basis from critical
recognition received by the Company's engines. The Company intends to continue
to focus its operations to serve the upper segment of the powerboat market.
Following is a more detailed description of Alchemy's engines offered
directly and through its authorized dealer network:
HAWK 600: An 8-cylinder, four stroke, 496 cubic inch engine which produces
approximately 600 horsepower and is liquid cooled.
HAWK 700: An 8-cylinder, four-stroke, 556 cubic inch engine which produces
approximately 700 horsepower and is liquid-cooled.
HAWK 750: An 8-cylinder, four-stroke, 588 cubic inch engine which produces
approximately 750 horsepower and is liquid-cooled.
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HAWK 800: An 8-cylinder, four-stroke, 589 cubic inch engine which produces
approximately 800 horsepower and is liquid-cooled.
HAWK 900: An 8-cylinder, supercharged four-stroke, 572 cubic inch engine
which produces approximately 900 horsepower and is liquid-cooled.
HAWK 1000: An 8-cylinder, four-stroke, 698 cubic inch engine which produces
approximately 1000 horsepower and is liquid-cooled.
HAWK 1100: An 8-cylinder, four stroke, 698 cubic inch engine which produces
approximately 1100 horsepower and is liquid-cooled.
Alchemy's engines described above may be used for recreational or offshore
racing boats. However, Alchemy also manufactures custom engines utilized solely
for racing. Alchemy's engines, which usually sell in sets of two or three, range
in price from $32,000 to $69,000 per engine.
Alchemy's engines, to its management's best knowledge, have been produced
since 1979, the longest continuous period of any high performance marine engine.
Apart from success in various offshore racing events, Alchemy's engines have
received critical recognition in various boating publications including BOATING
MAGAZINE, MOTOR BOATING AND SAILING and POWERBOAT MAGAZINE, as well as in
various consumer publications not specifically published for the benefit of
speedboat enthusiasts.
Manufacturing Operations
Alchemy's engines are manufactured at Alchemy's production facility in
Aventura, Florida. The engines are hand built from component parts and in
certain instances, are custom designed for individual customers. Alchemy
believes the recognition for its high performance engines is attributable to the
accumulated experience, knowledge and know-how related to the innovation,
design, balancing, assembly and testing of the engine.
The manufacture of Alchemy's engines consist of three stages: (i) hand
tooling and modification of component parts; (ii) assembly of the engine; and
(iii) testing of the engine. Alchemy orders most of the components used in
Alchemy's engines directly from manufacturers, distributors and specialty
automobile parts suppliers. Specifically, Alchemy purchases its engines directly
from Mercury Marine Corporation ("Mercury") which in turn purchases its engine
blocks from General Motors. With the exception of Mercury, which supplies the
engines to Alchemy, Alchemy does not regard any single supplier essential to its
operations. Although the engine blocks are manufactured and supplied by General
Motors, Alchemy's management believes that the lack of any contracts or written
agreements between Alchemy and either General Motors or Mercury affords Alchemy
the flexibility to choose alternate suppliers in the event of a work stoppage or
other disruption. Most of the components Alchemy utilizes are available from
multiple sources at competitive prices.
Following assembly of Alchemy's engines, a rigorous tuning and testing
program is utilized. The testing is performed both manually and through use of
advanced computer technology. At present time, the normal production period and
the manufacture of Alchemy's engines is five to ten working days. Alchemy has
present production capacity of approximately sixteen (16) engines per month.
Alchemy believes its extensive know-how and experience at all stages of
production has enabled it to establish a position of leadership.
Alchemy warrants its engines for up to one year against defects in
materials and workmanship, and to date has not experienced more than a limited
number of warranty claims.
Marketing, Sales and Distribution
Alchemy concentrates its sales of its engines in the high performance
recreational speedboat and racing market. Management believes the
high-performance segment of the market represents no more than 5% of the entire
recreational market. Alchemy sells its engines directly to premium boat
manufacturers including Apache Performance Boats, Pantera U.S.A., Jaguar Marine
and Cigarette Racing Team, Inc.
Of those manufacturers, 40% are comprised of offshore racing teams,
individual companies or engine rebuilds. In addition to Cigarette, some of
Alchemy's customers from this segment include: Pepsi-Mountain Dew team; Rain-X
team; Mystifier team;
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<PAGE>
Formula; Scarab; Wellcraft; Cougar; Powerplay; and Apache.
For the years ended September 30, 1998 and 1997, respectively, sales of
Alchemy's engines to Cigarette amounted to approximately 25% or equal to
$187,258 and 17%, or equal to $176,197 respectively, of total sales. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Sales to Cigarette."
Alchemy regularly exhibits its engines at various international boat shows
and receives extensive publicity in editorial articles appearing in various
boating publications as well as consumer and upscale lifestyle magazines.
Employees
Alchemy employs twelve full-time employees. Of those twelve employees,
three are executives, one is clerical and eight comprise the manufacturing
department.
Facilities
Alchemy's offices and production facilities are located at 3025 N.E. 188th
Street, Aventura, Florida 33180. These facilities total 7,500 square feet; 750
square feet of which is office space and the remaining 6,750 square feet
encompasses the manufacturing department. Alchemy is in the second year of a
five year lease. The property has water frontage on both its North and South
sides.
Competitive Conditions in the High-Performance Marine Engine Industry
The high-performance marine engine industry is highly competitive and
largely dependent on a company's ability to sell such engines at attractive
prices with ample customer service and support. Alchemy's competitors for
product sales are companies such as Mercruiser, Caterpillar, Volvo-Penta and
Johnson & Towers. Many of Alchemy's competitors have significantly greater
financial resources than Alchemy. Competition for product sales is also based
upon Alchemy's ability to reduce expenses while increasing production.
Cigarette Racing Team, Inc.
Cigarette Racing Team, Inc. was most recently incorporated under the laws
of the state of Florida on May 26, 1994. Originally incorporated as an Alabama
corporation in 1969, Cigarette has earned a reputation for being an engineering
and technological leader in the design and manufacture of its class of
powerboats. Cigarette designs, manufacturers and sells its offshore recreational
and racing boats and related accessories under the Cigarette brand name.
Cigarette's principal product line consists of eight boat models in six sizes,
from 20 to 46 feet in length, at current prices ranging from $80,000 to
$800,000.
Cigarette boats are manufactured by a core group of highly skilled
laborers. Construction of a boat generally takes from 8 to 16 weeks on a one
shift per day basis, with overtime. Currently, Cigarette has the capacity to
manufacture approximately 120 boats per year (depending on the models),
utilizing one shift per day, 5 1/2 days per week. Cigarette boats are made
completely by hand and are constructed using the finest tri-axial and bi-axial
fiberglass and resins laid up by hand. A variety of materials are used to form
the composite structure. The boats are made in molds designed and constructed by
Cigarette's own engineering department. This technique, known as "composite
construction" allows Cigarette to create a significantly stronger and more
resilient structure. The decks are bonded to the hulls using the same axial
materials with which the boats are built.
On June 30, 1997 Robert E. Torter, a resident of the United States, sold
his equity interest of 2,601,000 shares of Cigarette Racing Team, Inc. Common
Stock (the "Equity Interest"), the constituting 91.23% of Cigarette's
outstanding shares to Exale Enterprises Ltd. ("Exale"), a foreign corporation
organized under the laws of the British Virgin Islands. In exchange for thesale
of the Equity Interest, Exale transfered 1,000,000 shares of Spa Faucet, Inc., a
publicly listed company, assume certain debts to Robert E. Torter and obtain
releases from Cigarette to Robert E. Torter of certain liabilities. As a result
of an agreement between the parties, Exale represented the interests of Masada,
I.L.P ("Masada") and Winchester Partners, L.P. ("Winchester") in the
negotiations with Mr. Torter. Thus, on June 30, 1997, Exale then transferred
1,000,000 shares of Cigarette Common Stock to Masada and 601,000 shares of
Cigarette Common Stock to Winchester.
There is currently no public market for the securities of Cigarette.
Employees
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<PAGE>
Cigarette employs fifty-two full-time employees. Of those fifty-two
employees, four are executives, six are clerical and forty-two comprise the
manufacturing department.
Facilities
Cigarette's facilities, both headquarters and manufacturing, consist of
four buildings located at 3131 N.E. 188th Street, Aventura, Florida 33180. These
four structures contain a total of 44,590 square feet. The buildings sit on 3.88
acres of land in a residential area of Aventura. Of the 3.88 acres,
approximately 1.5 acres are vacant. Cigarette is immediately surrounded by boat
production facilities and marinas. The property has water frontage on both its
north and south sides. Cigarette is presently in the fifth year of an eight year
lease (the "Cigarette Lease"). The total monthly rent is equal to $28,000.
Effective upon the Merger the Cigarette lease will only require Alchemy to be
liable for the taxes and insurance associated with the property. Alchemy's
management expects such costs to equal approximately $12,000 per month.
Competitive Conditions in the Power Boat Manufacturing Industry
The recreational power boat industry is largely dependent on a company's
ability to sell high quality boats at attractive prices with ample customer
service and support. Cigarette's competitors for product sales are companies
such as Magnum, Mako, Sea Ray, and it competes with these companies in the
marketing of its boats. Many of Cigarette's competitors have significantly
greater financial resources than Cigarette. Competition for product sales is
also based on Cigarette's ability to attract independent dealers who are willing
to distribute and market Cigarette's boats.
OTAM Licensing Agreement
Cigarette and OTAM SpA, a foreign corporation ("OTAM"), entered into a
licensing agreement dated October 28, 1997 wherein OTAM Licensed from Cigarette
Mark in connection with its exclusive, world-wide right to use such Mark in the
production and marketing of a 45' and 55' boat, respectively (the "OTAM
Licensing Agreement"). The term of the OTAM Licensing Agreement is 24 months. In
exchange for OTAM's use of the Mark, Cigarette received a payment of $400,000 as
an advance on any royalties earned during the term of the OTAM Licensing
Agreement. On July 27, 1999, OTAM and Cigarette entered into an Amendment to
Distribution and License Agreement (the "Amendment to the Licensing Agreement").
The Amendment to the Licensing Agreement allows OTAM to change its name to
Cigarette Racing Team Italia SpA among other things. It is the Parties
intentions to continue the licensing relationship for an additional 60 months.
To that end, Cigarette and OTAM have executed another licensing agreement with
similar terms to the OTAM Licensing Agreement dated October 28, 1999.
Cigarette and Alchemy Year 2000 Compliance
Both Cigarette and Alchemy have taken steps to ensure that each company is
year 2000 compliant. Both companies' product testing software has been protected
and neither company utilizes machines to produce their respective products which
are computerized. Neither Alchemy nor Cigarette manufactures products which
employ computer chips as part of their ability to perform as designed. Alchemy's
primary supplier, Mercury Motors, Inc. ("Mercury"), has indicated to Alchemy
that Mercury is year 2000 compliant in all of its operations. Neither company
expects the replacement of any machinery due to inherent year 2000 problems.
38
<PAGE>
ALCHEMY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the six month period ended March 31, 1999, Alchemy reported net sales
of $319,080. This compared to net sales of $329,560 for the same period in the
1998 fiscal year. The cost of sales for the first six months of fiscal year 1999
was $233,838 as compared to $254,327 for the same period in fiscal year 1998.
The gross margin for the six month period ended march 31, 1999 was $85,242, as
compared to $75,233 for the same period in the 1998 fiscal year. Selling,
general and administration expenses for the first six months of fiscal year 1999
was $89,269 as compared to selling, general and administrative expenses of
$68,119 for the same time period in fiscal year 1998. The interest expense of $
5,361 and the provision for loan loss of $257,928 in the first six months of
fiscal year 1999 resulted in a net loss of $267,316 for the six month period
ended March 31, 1999 as compared to a net loss of $11,871 for the same time
period in fiscal year 1998.
For fiscal year ended September 30, 1998, Alchemy reported net sales of
$742,289. This compared to net sales of $1,059,498 for fiscal year ended
September 30, 1997. Alchemy's cost of sales for fiscal year 1998 was $651,071,
as compared to $901,725 for the 1997 fiscal year. The gross margin for fiscal
years 1998 and 1997 was $91,218 and $157,773, respectively. Selling, general and
administrative expenses for fiscal year 1998 was $714,637, while the same
expenses for fiscal year 1997 was $231,125. The interest expenses for the 1998
and 1997 fiscal years were $27,187 and $19,410, respectively. The provision for
loan loss was $338,885 for fiscal year ended 1998. The extraordinary gain on
forgiveness of debt was $130,203 for fiscal year ended 1998. Therefore, the net
losses for fiscal years 1998 and 1997, were $319,288 and $92,762, respectively.
The 30.0% decrease in sales in fiscal year 1998 is not necessarily
indicative of any particular trend; rather, such decrease represent a change in
the product mix combined with a decrease in volume. Gross margin as a percentage
of sales decreased by 2.6% to 12.3% in fiscal year 1998, principally as a result
of the change in product mix. The decrease in selling, general and
administrative expenses from fiscal years 1997 to 1998 was the result of new
management's institution of several cost cutting measures. Such beneficial
effect is expected to continue in future periods.
Alchemy believes that its long-term business prospects will be no more
adversely affected that those of its competitors due to change in air emission
standards for marine engines. In the short term there may be certain adverse
effects due to initial price resistance by customers and a lag in the time it
takes to quantify increased costs and reflect them in Alchemy's price structure.
Liquidity and Capital Resources
Alchemy had cash on hand in the amount of $73,698 at March 31, 1999
compared to $23,764 at March 31, 1998. At March 31, 1999 there was working
capital of $59,075 compared to working capital of $25,298 at March 31, 1998. The
working capital increase was related principally to increases in inventory and
prepaid expenses.
On May 29, 1998, Alchemy made a $45,000 payment to certain note holders in
full satisfaction of all liabilities to certain note holders. In exchange for
such payment, the note holders released all security interests that they held on
any Alchemy collateral.
Alchemy Holdings, Inc. and its subsidiaries have accumulated a net deficit
of over $2,000,000, giving rise to questions regarding the ability of the
company to continue as a going concern.
The current fiscal years loss was $110,606 exclusive of the recognition of
the loan loss provision or any gain on forgiveness of debt. Management is
currently exploring cost reduction, changes in accounting and cash flows
policies, and the potential for increases in current capacity levels to improve
profitability.
The Company's ability to continue as a going concern is dependent upon its
ability to attain a satisfactory level of profitability and to obtain suitable,
adequate financing or the restructuring of existing obligations. During the year
ended September 30, 1998, the Company satisfied its obligations to certain note
holders with the proceeds of short-term financing from a stockholder. The
Company has sought to implement cost-saving measures, reduce other operating
costs, utilize deposits from customers in connection with firm purchase orders
to help finance operating costs and to convert some its debt to equity in
connection with a merger with one of its principal customers, Cigarette Racing
Team. The Company further believes that it can generate sufficient cash to
support its operations during the next twelve months from the proceeds of
warrant exercises subsequent to the effectiveness of their Registration
Statement and the consummation of the Merger. There is no assurance that the
Company will be successful in these endeavors. The accompanying financial
statements do not include any adjustments that might result if the Company is
unable to continue as a going concern.
39
<PAGE>
Hawk Marine Power, Alchemy's operating subsidiary, produces new engines,
rebuilds engines and supercharges engines.
The current operational capacity is being run with one shift of six (6)
full-time employees producing in fiscal 1998, a typical mix of 20 new engines,
20-40 rebuilds, and filling less than 10 supercharge engine orders.
Maximum capacity focusing on only new engines would result in 52 new
engines per year given a rate of one per week. It is not anticipated that Hawk
Marine power will change its product mix in the future but capacity increases
could be early achieved with scheduled overtime. The operating subsidiary is
currently running at approximately 35-40% of maximum capacity.
40
<PAGE>
CIGARETTE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the six month period ended March 31, 1999, Cigarette reported net sales
of $5,194,008. This compared to net sales of $2,583,458 for the same time period
in the 1998 fiscal year. Increased sales resulted from an increased marketing
and promotional effort as well as the procurement of additional dealers. In
addition, Cigarette was able to significantly reduce the price discounts offered
in the prior period. The cost of sales for the first six months of fiscal year
1999 was $3,820,372 as compared to $2,189,959 for the same period in fiscal
1998. The gross margin for the six month period ended March 31, 1999 was
$1,373,636 as compared to $393,499 for the same period in the 1998 fiscal year.
Therefore, gross margin as a percentage of net sales increased to 26.4% for the
six month period ended March 31, 1999 as compared to 15.2% for the same period
in the 1998 fiscal year. This increase in gross margin percentage resulted
principally from the reduced sales discounting. Selling, general and
administrative expenses for the first six months of fiscal year 1999 was
$2,057,806 as compared to selling, general and administrative expenses of
$919,666 for the same time period in fiscal 1998. This increase in selling,
general and administrative expenses principally resulted from an increase in
volume. Interest was $247,587 and $266,867, respectively, for the six months
ended March 31, 1999 and 1998. The loss from employee embezzlement was $72,730
for the six months ended March 31, 1999. The other income was $100,000 and
$400,000, respectively, for the six months ended March 31, 1999 and 1998. Other
income reflects royalties and licensing fees. Cigarette anticipates that these
activities will continue to benefit future periods. Therefore, the net losses
for the six month periods ended March 31, 199 and 1998 were $904,487 and
$393,034, respectively.
For fiscal year ended September 30, 1998, Cigarette reported net sales of
$7,026,625. This compared to net sales of $2,158,406 for fiscal year ended
September 30, 1997. The 325.5% increase in sales in fiscal 1998 was due to
management's cultivation of the significant market interest in Cigarette's
offshore racing boats combined with a reduction in price discounting. The
Company anticipates a continuation of such trend throughout fiscal year 1999.
Cigarette's cost of sales for fiscal year 1998 was $4,946,870, as compared to
$3,403,644 for 1997 fiscal year. The gross margin for fiscal years 1998 and 1997
were $2,079,755 and a loss of $1,245,238, respectively. Therefore, gross margin
as a percentage of net sales increased to 29.6% for fiscal year 1998 as compared
to (57.7)% for the 1997 fiscal year. Selling, general and administrative
expenses for fiscal year 1998, was $2,426,629, while the same expenses for the
fiscal year 1997 was $905,566. Such expenses increased principally as a result
of volume increases. Interest expenses for the 1998 and 1997 fiscal years was
$563,620 and $449,723, respectively. The loss from employee embezzlement was
$280,571 for fiscal year 1998. The other income was $400,000 and $39,921,
respectively, for fiscal years ended 1998 and 1997. Therefore, the net losses
for fiscal years ended 1998 and 1997 were $791,065 and $2,560,606, respectively.
Liquidity and Capital Resources
Cigarette had cash on hand in the amount of $262,127 at March 31, 1999
compared to $369,968 at March 31, 1998. At March 31, 1999 there was a working
capital deficit of $8,999,812 compared to a working capital deficit of
$8,210,359 at March 31, 1998. The working capital decrease was related
principally to increases in loans from affiliates and accrued expenses.
At March 31, 1999 the Company has a net stockholders' equity deficiency of
$4,207,621. In addition, the Company was in arrears on total indebtedness to the
Seller of $5,711,040 including $3,280,000 of note principal, $1,418,618 of
accrued interest thereon and $1,012,422 of unpaid rent. Such amounts do not
include $1,241,667 of redeemable preferred stock and accrued cumulative
dividends. The Company's continuation as a going concern is dependent upon its
ability to control costs and attain a satisfactory level of profitability,
obtain suitable, sufficient financing or equity investment and renegotiation
with the Seller to restructure the applicable debt. If such an agreement is
consummated, the Company would substantially reduce its outstanding obligations
to the Seller. The Company has reduced factory and corporate overhead and has
plans to reduce other operating and overhead costs, including, but not limited
to reduction in production costs (direct labor and raw materials) through
increased labor and purchasing efficiencies. There is no assurance that the
Company will be successful in these endeavors. The accompanying financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Misappropriation of Cigarette Funds
On Friday, December 4, 1998, during its annual audit for the period ending
September 30, 1998, Cigarette's management learned that $352,160 had been
diverted from Cigarette's general business operating account (the
"Misappropriation"). Cigarette's management further determined that $280,571 of
the misappropriated funds occurred during the 1998 fiscal year. Upon concluding
that illegal activities may have occurred, Cigarette's management contacted the
local police department regarding the Misappropriation and subsequently filed a
police report accusing Cigarette's comptroller, Mark Hernandez, of diverting the
funds.
On Monday, December 7, 1998, Cigarette's management notified the banking
institutions with which it held accounts, of the Misappropriation and instructed
them to freeze all banking activities. Further, on December 7, 1998, Cigarette's
management notified its legal counsel and its auditors of the Misappropriation.
Mr. Hernandez was apprehended subsequently in December, 1998 as a result of
the charges filed against him in connection with the Misappropriation. On April
14, 1999, Mr. Hernandez pled guilty to the embezzlement and misappropriation
charges and was found guilty by the presiding court with a sentence of
probation.
As a result of the Misappropriation, Cigarette's auditors determined that
the scope of their audit should be increased and concurred with Cigarette's
management that: (i) all cash disbursements and receipts for the 1998 fiscal
year were to be re-entered; (ii) each canceled check drawn on any of Cigarette's
general bank accounts during the 1998 fiscal year were to be reviewed to
determine: the appropriateness of the payee, the characterization of each
general ledger posting and the authenticity of the signature on each check; and
(iii) all general Cigarette bank accounts were to be re-reconciled for the 1998
fiscal year as well as for the subsequent months ended October, 1998 through
December, 1998. Cigarette's auditors returned to Cigarette's offices after all
such activity had been completed and expanded their sample selections and
testing procedures as they deemed appropriate in order to express an opinion on
Cigarette's financial statements.
In addition to the above, Cigarette instituted the following specific
procedures: (i) daily reconciliation of its operating account, which is to be
reviewed by both its Chief Financial Officer and Chief Operating Officer; and
(ii) Cigarette's accounting department has been reorganized including the
termination of all previous accounting department employees.
Cigarette has retained legal counsel to advise it as to restitution
alternatives including the filing of legal actions against the financial
institutions involved in this matter. However, Cigarette is unable to predict
the likelihood of success for any of the aforementioned alternatives.
41
<PAGE>
LEGAL PROCEEDINGS
Paramount Pictures Corporation
Cigarette was a party to an Opposition to its Application for Registration
in the United States Patent and Trademark Office (the "Opposition"). Paramount
Pictures Corporation ("Paramount") filed the Opposition. The Opposition was
filed before the Trademark Trial and Appeal Board. Both parties to the
Opposition applied to register various rights associated with the term "Top Gun"
in the United States Patent and Trademark Office. A settlement agreement between
the parties was executed on June 24, 1998 and a Withdrawal of Opposition With
Prejudice was entered with the Trademark Trial and Appeal Board immediately
thereafter.
HRH Tunku Abraham Ismail
On January 23, 1997, a judgment was entered against Cigarette and in favor
of HRH Tunku Abraham Ismail ("HRH") in the amount of $981,000. Pursuant to a
previous agreement HRH has been calculating interest on that judgment at the
rate of 8.5%. Cigarette has tendered 10 payments totaling $69,789.59, the last
payment of which was made on October 5, 1998.
On March 11, 1998, Cigarette delivered a 46' Cigarette and 20' Cigarette in
partial satisfaction of the final judgment, leaving a balance due of $305,000.
Thus, as of July 31, 1999, Cigarette continues to owe to HRH approximately
$348,000 with additional interest accruing daily from that date. Cigarette
expects, but no way guarantees, the satisfaction of this debt within 120 days
after the Effective Time.
On May 7, 1999 Cigarette entered into a settlement agreement with HRH (the
"HRH Settlement Agreement") whereby HRH leased two boats, owned by him to
Cigarette for the sum of $3,000 per month. Cigarette has the option to
repurchase the two boats from HRH for the sum of $400,000. In order to exercise
such option, Cigarette must remit $50,000 per month to HRH. Cigarette paid
$70,000 to HRH on May 11, 1999. Cigarette has continued to make the $50,000
monthly payments pursuant to the terms of the option.
Mr. Fredy Link
On May 27, 1997, a judgment was entered against Cigarette and in favor of
Mr. Fredy Link ("Link") in the amount of $198,633 bearing interest at 10% per
annum After application of 15 previous payments by Cigarette, the debt remains
approximately $89,000 with additional interest accruing daily from that date.
Cigarette expects, but in no way guarantees, the satisfaction of this debt
within 120 days after the Effective Time.
Magnum Marine
On September 2, 1998, Cigarette was named as a defendant in Case No.:
98-1123 Civ-Hoeveler in United States District Court for the Southern District
of Florida. The defendant/third party plaintiff in the suit is Magnum Marine
Corporation ("Magnum"). In its complaint, Magnum asserts that Cigarette
purchased trade secrets from Giancarlo Rampezotti, the plaintiff/third party
defendant, in exchange for a license to Cigarette thereby allowing Rampezotti to
produce boats under the Cigarette name using Magnum designs. On April 28, 1999,
a memorandum of settlement was entered into by the original parties to this
action. Further, the original parties are expected to ratify a settlement
agreement within 30 days. Pursuant to that settlement agreement, Cigarette
expects to receive a general release in exchange for issuing its own general
release to the original plaintiff.
Tomas Arencibia
In 1996, Tomas Arencibia, as the plaintiff, filed a complaint with the
United States District Court of the Southern District of Florida alleging that
during his employment with Cigarette, Mr. Arencibia was subject to
discrimination and harassment based upon his age. Cigarette subsequently
answered such complaint and a Revised Joint Pretrial Stipulation was entered
into on September 21, 1998. Cigarette expects to go to trial on the above
complaint in the fourth quarter of 1999.
Mark Donato and Steven Donato
On July 22, 1998 Mark and Steven Donato (the "Donatos"), as the plaintiffs
filed a complaint with the Untied States District Court of the District of
Massachusetts (the "Donato Action"). The Donatos allege that Cigarette failed to
deliver a boat pursuant to a contract with the Donatos. The Donato Action was
dismissed on September 29, 1998 due to expiration of the statue of limitations.
CHANGES IN ACCOUNTANTS
On December 4, 1998, Jere J. Lane, C.P.A., Alchemy and Cigarette's
principal independent auditor for the previous two fiscal years ended September
30, 1997 and 1996, resigned as auditor in order to provide certain accounting
and consulting services to the Company .
42
<PAGE>
On February 10, 1999, Alchemy's Board of Directors and Cigarette's Board of
Directors, respectively, approved the engagement of Callaghan Nawrocki LLP to
serve as independent auditors for the fiscal year ending September 30, 1998.
Further, on that same date, Callaghan Nawrocki LLP entered into engagement
letters with both Cigarette and Alchemy to provide such independent auditor
services.
On March 5, 1999, Alchemy filed a Form 8-K with the Commission regarding
the change in its accountants.
The report of Jere J. Lane, CPA, on the Alchemy's financial statements for
the fiscal years ending September 30, 1997 and 1996 did not contain an adverse
opinion or disclaimer and was not qualified as to audit scope or accounting
principles but was modified due to uncertainty regarding the Company's ability
to continue as a going concern.
In regards to both Alchemy and Cigarette and during the three most recent
fiscal years and for the interim period through Mr. Lane's resignation, there
were no disagreements, whether or not resolved, with such principal accountant
on any matter of accounting principals or practices, financial statement
disclosure, or auditing scope or procedure, which if not resolved to the former
accountant's satisfaction, would have caused him to make reference to the
subject matter thereof in connection with his report.
43
<PAGE>
ALCHEMY MANAGEMENT
The following table sets forth certain information concerning directors and
executive officers of Alchemy as of the date hereof. Officers and Directors are
elected on an annual basis.
The present term for each Director is three years, Directors serve for
staggered one year periods. Executive officers are elected annually and except
to the extent governed by employment contracts, serve at the discretion of the
Board of Directors.
NAME POSITIONS(S) AGE
---- ------------ ---
Craig Barrie President/Director 49
Berton Lorow Vice President/Director 43
Penny Adams Field Chief Financial Officer 44
Adam Schild Secretary/Director 29
CRAIG BARRIE - PRESIDENT/DIRECTOR
Between 1968 and 1985, Mr. Barrie was employed by Faberge, Inc., a
manufacturer and distributor of cosmetics and other beauty products. He served
in various executive capacities, including executive vice president -
advertising, and was a member of the Board of Directors of that company. Mr.
Barrie currently races powerboats for Cigarette which are powered by Hawk
engines. Mr. Barrie has been a Director of Hawk Marine Power, Inc. ("Hawk")
since August 1987 and President of Hawk since November 1990. Mr. Barrie was
elected to the position of President of Cigarette Racing Team, Inc., Miami,
Florida during 1992. From 1985 to 1992, Mr. Barrie was the Director of Sales of
Cigarette's predecessor.
BERTON LOROW - VICE PRESIDENT/DIRECTOR
Mr. Lorow has been employed by Alchemy or its predecessors since January
1984 in various technical capacities. He was elected a Director of Hawk in 1990
and Vice President one year prior, in May 1989 and has been employed in the
marine industry since 1982, acquiring experience in boat building, rigging and
engine assembly.
PENNY ADAMS FIELD - CHIEF FINANCIAL OFFICER
Ms. Adams Field has been employed by Alchemy since June, 1999 as its Chief
Financial Officer. She is also a principal and co- founder of Executive
Concepts, a management consulting and investment banking advisory firm. As a
management consultant, Ms. Adams Field has consulted since 1989. Prior to
founding Executive Concepts, Ms. Adams Field was an administrator for the John
M. Olin School of Business at Washington University in St. Louis. Prior to her
administrative role she served as a full-time member of the accounting faculty
instructing in financial accounting and cost management for undergraduate and
graduate programs.
ADAM SCHILD - SECRETARY/DIRECTOR
Mr. Schild is Secretary and a Director of Alchemy and has held such
positions since July, 1997. Also in July, 1997 Mr. Schild was appointed
Secretary and Director of Cigarette. From November 1994 through October 1993,
Mr. Schild was a stock-broker in training at Stratton Oakmont, Inc. During his
training period and two years prior, Mr. Schild was a senior partner in Alcott
Simpson & Co., Inc., a management consulting firm specializing in crisis
management and mergers and acquisitions. Also during that time frame Mr. Schild
was a marketing assistant with Eckert Schild Productions, Inc. From 1990 to 1994
Mr. Schild was employed by a corporate communications company specializing in
Fortune 500 companies. Mr. Schild began his tenure in the finance department and
was promoted to Director of Finance.
Mr. Lorow and Mr. Schild are full time employees of Alchemy. Mr. Barrie and
Ms. Adams Field devote approximately 20 hours a week to Alchemy's operations. It
is not anticipated that any Directors will receive an annual fee or other
compensation for their directors duties. Directors will be reimbursed for
reasonable expenses incurred in connection with their attendance at meetings.
44
<PAGE>
EXECUTIVE COMPENSATION
Total cash compensation paid to all executive officers as a group for
services provided to Alchemy and its subsidiaries in all capacities during the
fiscal year ended September 30, 1998 aggregated $74,340. Set forth below is a
summary compensation table prepared in accordance with the applicable rules of
the Securities and Exchange Commission.
Summary Compensation Table - Alchemy
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------------------- -------------------------------------
Name and Other Resid. All
Principal Annual Stock LTIP
Position Year Salary Bonus Compensation Awards Options Payouts
- -------- ---- ------ ----- ------------ ------ ------- -------
<S> <C> <C>
Craig 1998 $25,000 none none none none none
Barrie
1997 26,000 none none none none none
1996 26,200 none none none none none
Berton 1998 $54,340 none none none none none
Lorow
1997 55,000 none none none none none
1995 33,385 none none none none none
</TABLE>
Compensation Pursuant to Plans
Hawk Marine, Inc. (Alchemy's predecessor) adopted an Employee Stock Option
Plan in August of 1988. Such plan has a term of 10 years and thus expired in
August of 1998 with no options being issued thereunder. Alchemy anticipates
adopting a new Employee Stock Option Plan at the next meeting of Alchemy
Shareholders.
CIGARETTE MANAGEMENT
The following table sets forth certain information concerning directors and
executive officers of Cigarette as of the date hereof. Officers and Directors
are elected on an annual basis. The present term for each Director is a
staggered one year term. Executive officers are elected annually and except to
the extent governed by employment contracts, serve at the discretion of the
Board of Directors.
NAME POSITIONS(S) AGE
---- ------------ ---
Adam Schild Secretary/Director 29
ADAM SCHILD - SECRETARY/DIRECTOR
Mr. Schild serves as the Secretary and sole Director of Cigarette, offices
he has held since 1997. See "ALCHEMY MANAGEMENT" for further information.
45
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table - Cigarette
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------- -------------------------------------
Resid.
Name and Other Stock All
Principal Annual Compensa- LTIP Other
Position Year Salary Bonus tion Awards Options Payouts
- -------- ---- ------ ----- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Adam Schild 1998 $106,403 none none none none none
1997 26,000 none none none none none
1996 26,200 none none none none none
Craig Barrie 1998 $106,403 none none none none none
1997 107,801 none none none none none
1996 102,876 none none none none none
</TABLE>
Mr. Barrie resigned from his positions as an officer and director of Cigarette
on June 1, 1999.
46
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sales to Cigarette
In fiscal 1998 and fiscal 1997, Alchemy had sales to Cigarette Racing Team,
Inc. of $187,258 and $176,197 representing 25% and 17% of total sales for the
year, respectively. Mr. Adam Schild is Cigarette's Secretary and Mr. Craig
Barrie is Cigarette's President.
Alchemy's and its Affiliates' Potential Conflicts with Mr. Craig Barrie
There are no potential conflicts of interest with regards to Alchemy and
its affiliates and Mr. Craig Barrie.
Offshore's Holdings of Alchemy's Common Stock and its Licensing Agreement With
Alchemy
Offshore owns 2,000,000 shares of Alchemy Common Stock which it received as
consideration for the following: On May 12, 1997, Hawk Marine Power, Inc.
("Hawk") (Alchemy's predecessor) entered into an agreement with Offshore whereby
Offshore assigned to Hawk all rights, title and interest in the mark known as
"Cigarette Racing Team, Inc." for any and all non-watercraft licensing purposes
(the "Licensing Agreement"). In exchange for those rights, Alchemy issued
2,000,000 shares of Alchemy Common Stock to Offshore. The term of the Licensing
Agreement is ten years. Pursuant to the Licensing Agreement, Hawk, as the user
of the license, agreed to pay to Offshore, as the owner, a royalty equal to
between 2.5% and 10% of the gross revenue generated by the use of the rights
defined therein. Such royalty is determined by Offshore's particular use of
rights granted in the Licensing Agreement. The Licensor granted to the Licensee
an exclusive, world-wide right to use the Licensor's marks in connection with
all goods and services other than the use of said marks on any form of water
craft for a period of 120 months. The Licensee has the option to renew the
License Agreement for two additional periods of 60 months each.
In connection with the Merger, Offshore has agreed to allow Alchemy to
repurchase and retire the 2,000,000 shares of Alchemy Common Stock it presently
owns, in exchange for 100 shares of Alchemy Series B Preferred Stock having an
aggregate liquidation preference equal to $1,000,000.
Management's Salaries - Post Merger
Management's salaries will not change as a result of the Merger.
Interested Directors
Adam Schild, Cigarette's sole Director is also a Director of Alchemy.
Therefore, any transaction between Cigarette and Alchemy must be closely
scrutinized by any interested party.
Relationships With Jeffrey Friedman and Central Manufacturing
Mr. Jeffrey Friedman is the beneficial owner of 3131 NE 188th Street, the
property on which Cigarette's principal executive offices are located. Mr.
Friedman is the sole shareholder of Central Manufacturing, Inc. In connection
with Cigarette's lease of that property, Central is creditor of Cigarette's and
is in negotiations with Alchemy and Cigarette for a settlement of that debt.
Cigarette and Central have reached an agreement in principle whereby Central
will extinguish and forgive all indebtedness owed to it by Cigarette in
consideration for the issuance to Central of 1,000,000 shares of Cigarette
Common Stock and 100 shares of Cigarette Series A Preferred Stock, having an
aggregate liquidation preference equal to $1,000,000. These shares would be
converted in the Merger into 1,000,000 shares of Alchemy Common Stock and 100
shares of Alchemy Series A Preferred Stock, having an aggregate liquidation
preference equal to $1,000,000. The agreement between Cigarette and Central is
conditioned upon the approval of the Merger by the shareholders of Alchemy and
Cigarette.
Relationship With Winchester Partners, L.P.
Mr. Adam Schild is the general partner in Winchester Partners, L.P.
("Winchester"), the majority shareholder of Cigarette.
47
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CIGARETTE
The following table sets forth the number of shares of Alchemy and
Cigarette's Common Stock beneficially owned by each officer and director of
Cigarette and Alchemy and each shareholder who holds more than 5% of the
outstanding Common or Preferred Stock of Cigarette and Alchemy as of August 12,
1999. At such date there were 3,641,000 shares of common stock issued and
outstanding. Unless specifically indicated otherwise, all such ownership
interest are direct. The following table also sets forth the number of common
and preferred shares of the Surviving Company held by the officers and directors
of the Surviving Company.
<TABLE>
<CAPTION>
Amount and % of Class of
Name and Address of Nature of Surviving
Title of Class: Beneficial Owner Stock Owned % of Class Company
- --------------- ---------------- ----------- ---------- -------
<S> <C> <C> <C> <C>
CIGARETTE
Common Stock: Craig Barrie 25,000 .69 .46
3025 NE 188th St.
Aventura, Florida 33180
Berton Lorow 153 .0042 .0028
3025 NE 188th Street
Aventura, Florida 33180
Adam Schild 0 0 0
3025 NE 188th Street
Aventura, Florida 33180
Masada I, L.P.(1) 1,000,000 27.5 18.44
Boca Corporate Center
2101 Corporate Blvd. - Suite 204
Boca Raton, Florida 33431
Winchester Partners, L.P. 1,601,000 44.0 29.52
3594 S. Ocean Blvd
Highland Beach, Florida 33487
Glen Laken 375,000 10.3 6.91
30 So. Wacker, Suite 1606
Chicago, IL 62454
Preferred
Series A Central Manufacturing, Inc. 100 100 100
5025 Swetland Court
Richmond Heights, Ohio 44143
ALCHEMY
Common Offshore Racing Team, Inc. 2,000,000 85.93 0(2)
3025 NE 188th Street
Aventura, FL 33180
Series B Offshore Racing Team, Inc. 0 0 100(2)
3025 NE 188th Street
Aventura, FL 33180
</TABLE>
(1) Does not include warrants to purchase 180,000 shares of Cigarette Common
Stock held by Masada which are exercisable at a price of $2.00.
(2) Offshore's holding of Alchemy Common Stock is being repurchased and retired
connection with the Merger in exchange for 100 shares of Alchemy Series B
Preferred Stock which will constitute 100% of the class issued and
outstanding.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Merger Alchemy will have 5,311,844 shares of Alchemy
Common Stock issued and outstanding. Of these shares, 1,710,844 will be freely
tradable without restriction or further registration under the Securities Act.
An additional 3,601,000 shares will be held by "affiliates" of Alchemy (in
general, a person who has a control relationship with Alchemy) and which will be
subject to the limitations of Rule 144 adopted under the Securities Act.
However, all of the shares of Alchemy Common Stock issued in the Merger will be
restricted from transfer pursuant to the terms of the Merger Agreement for a
period of twelve (12) months from the date of effectiveness of the Merger or at
such earlier date as may be permitted by Alchemy's Board of Directors. Another
2,280,000 shares of Alchemy Common Stock underlying the Alchemy Class A, Class
B, Class X warrants and Class Y Warrants will be registered under the Securites
Act but not issued. Another 50,000 shares of Alchemy Common Stock underlying
50,000 Options will also be registered under the Securities Act but not issued.
EXPERTS
The consolidated financial statements of Alchemy Holdings, Inc. and
Subsidiaries as of September 30, 1998 and for the one year period ended
September 30, 1998, was audited by Callaghan Nawrocki, LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports. The consolidated financial statements of Alchemy Holdings, Inc. and
Subsidiaries as of September 30, 1997 and for the one year period ended
September 30, 1997, have been audited by Jere J. Lane, CPA, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority from said firm as experts in giving said
reports.
Callaghan Nawrocki, LLP audited the financial statements of Cigarette
Racing Team, Inc. as of September 30, 1998 and for the one year period ended
September 30, 1998, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. The financial statements of Cigarette Racing Team, Inc. as of
September 30, 1997 and for the one year period ended September 30, 1997, have
been audited by Jere J. Lane, CPA, independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
ANNUAL FINANCIAL STATEMENTS:
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES:
Reports of Independent Auditors F-1 to F-2
Consolidated Balance Sheet as of September 30, 1998 F-3
Consolidated Statement of Operations for the Years Ended
September 30, 1998 and 1997 F-4
Consolidated Statement of Stockholders' Equity
for the Years Ended September 30, 1998 and 1997 F-5
Consolidated Statement of Cash Flows for the Years Ended
September 30, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 to F-12
CIGARETTE RACING TEAM, INC.:
Reports of Independent Auditors F-13 to F-14
Balance Sheet as of September 30, 1998 F-15
Statement of Operations for the Years Ended
September 30, 1998 and 1997 F-16
Statement of Changes in Stockholders' Equity (Deficit) for
the Years Ended September 30, 1998 and 1997 F-17
Statement of Cash Flows for the Years Ended
September 30, 1998 and 1997 F-18
Notes to Financial Statements F-19 to F-25
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES:
Consolidated Balance Sheet as of March 31, 1999 and
September 30, 1998 F-26
Consolidated Statement of Operations for the Three and
Six Months Ended March 31, 1999 and 1998 F-27
Consolidated Statement of Cash Flows for the Three and
Six Months Ended March 31, 1999 and 1998 F-28
Notes to Consolidated Financial Statements F-29
CIGARETTE RACING TEAM, INC.:
Balance Sheet as of March 31, 1999 and September 30, 1998 F-30 to F-31
Statement of Operations for the Three and
Six Months Ended March 31, 1999 and 1998 F-32
Statement of Cash Flows for the
Six Months Ended March 31, 1999 and 1998 F-33
Notes to Financial Statements F-34 to F-39
PRO-FORMA FINANCIAL STATEMENTS (UNAUDITED):
Pro-Forma Consolidated Balance Sheet as of March 31, 1999 F-40
Pro-Forma Consolidated Statement of Operations for the
Six Months Ended March 31, 1999 F-41
Pro-Forma Consolidated Statement of Operations for the
Year Ended September 30, 1998 F-42
Notes to Pro-Forma Consolidated Financial Statements F-43 to F-44
50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Alchemy Holdings, Inc. and Subsidiaries
3025 N.E. 188 Street
Aventura, Florida 33180
We have audited the accompanying consolidated balance sheet of Alchemy
Holdings, Inc. (F/K/A Hawk Marine Power, Inc.) and Subsidiaries (the Company) as
of September 30, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alchemy Holdings, Inc. and
Subsidiaries as of September 30, 1998 and the results of its operations,
stockholders' equity and cash flows for the year then ended in conformity with
generally accepted accounting principles.
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the liquidity of the Company has been
adversely affected by losses from operations that raises substantial doubt about
the Company's ability to continue as a going concern. Management's plans
concerning this matter are also described in Note 3. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
CALLAGHAN NAWROCKI, LLP
February 19, 1999
Melville, New York
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITOR
To the Board of Directors and Stockholders of
Alchemy Holdings, Inc. and Subsidiaries
3025 N.E. 188 Street
Aventura, Florida 33180
I have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Alchemy Holdings, Inc. (F/K/A Hawk Marine
Power, Inc.) and Subsidiaries for the year ended September 30, 1997. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, changes in stockholders'
equity and cash flows of Alchemy Holdings, Inc. and Subsidiaries for the year
ended September 30, 1997 in conformity with generally accepted accounting
principles.
The consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the liquidity of the Company has been
adversely affected by losses from operations and the Company is past due on its
obligations to certain note holders pursuant to a settlement agreement. All of
the foregoing raises substantial doubt about the Company's ability to continue
as a going concern. Management's plans concerning these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
JERE LANE, CPA
January 15, 1998
Coral Springs, Florida
F-2
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
Current Assets:
Cash $ 66,186
Inventories 178,655
-----------
Total Current Assets 244,841
Property and Equipment, Net of Accumulated
Depreciation of $214,680 20,060
Licensing Agreement, Net of Accumulated
Amortization of $30,250 189,750
-----------
TOTAL ASSETS $ 454,651
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable including accrued interest thereon $ 75,286
Accounts payable 10,148
Accrued expenses 7,476
Customer deposits 90,500
Due to stockholders 56,494
-----------
Total Current Liabilities 239,904
-----------
Commitments and Contingencies (Note 13)
Stockholders' Equity:
Common stock, $.001 par value, 50,000,000 shares
authorized; 2,437,394 issued and outstanding 2,437
Preferred Stock, $.001 par value, 10,000,000
shares authorized; no shares issued and outstanding --
Additional paid-in capital 2,224,598
Accumulated deficit (2,012,288)
-----------
Total Stockholders' Equity 214,747
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 454,651
===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
----------- -----------
NET SALES $ 742,289 $ 1,059,498
Cost of Sales 651,071 901,725
----------- -----------
GROSS MARGIN 91,218 157,773
Selling, General and
Administrative Expenses 174,637 231,125
Interest Expense 27,187 19,410
Provision for Loan Loss, exclusive of interest
income of $7,489 not recognized 338,885 --
----------- -----------
TOTAL EXPENSES 540,709 250,535
----------- -----------
Loss before Extraordinary Item (449,491) (92,762)
Extraordinary Gain on
Forgiveness of Debt 130,203 --
----------- -----------
NET LOSS $ (319,288) $ (92,762)
=========== ===========
BASIC AND DILUTED PER SHARE AMOUNTS:
Loss before extraordinary item $ (.20) $ (.11)
Extraordinary gain .06 --
----------- -----------
$ (.14) $ (.11)
Net loss =========== ===========
Basic and diluted weighted average number of
common shares outstanding 2,291,093 851,093
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
$.001 Par Value Additional Total
--------------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
---------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1996 2,990,198 $ 2,990 $1,604,045$ (1,600,238) $ 6,797
Effective of reverse stock split (2,952,821) (2,953) 2,953 -- --
Adjustment for fractional shares 17 -- -- -- --
Issuance of common stock 2,200,000 2,200 217,800 -- 220,000
Net loss for the year ended
September 30, 1997 -- -- -- (92,762) (92,762)
---------- ---------- ---------- ---------- ----------
Balances, September 30, 1997 2,237,394 2,237 1,824,798 (1,693,000) 134,035
Issuance of common stock 200,000 200 399,800 -- 400,000
Net loss for the year ended
September 30, 1998 -- -- -- (319,288) (319,288)
---------- ---------- ---------- ---------- ----------
Balances, September 30, 1998 2,437,394 $ 2,437 $2,224,598$ (2,012,288) $ 214,747
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
--------- ---------
Net loss $(319,288) $ (92,762)
Adjustments to reconcile net loss
to net cash used by operating activities:
Extraordinary forgiveness of debt (130,203) --
Depreciation and amortization 22,905 10,159
Accrued interest - unpaid 27,187 19,410
Provision for (recovery of) doubtful receivables 338,885 (2,046)
Decrease (increase) in accounts receivable 53,931 (43,564)
Decrease (increase) in inventory (12,661) 81,616
Decrease in prepaid expenses 1,810 1,158
Increase (decrease) in accounts payable (53,492) (19,529)
Increase (decrease) in accrued expenses (10,031) 3,549
Increase (decrease) in customer deposits 38,775 (69,975)
--------- ---------
Net cash used by operating activities (42,182) (111,984)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to affiliate (338,885) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable 50,000 71,000
Repayments of notes payable (47,500) --
Proceeds of stock issuance 400,000 --
--------- ---------
Net cash provided by financing activities 402,500 71,000
--------- ---------
NET INCREASE (DECREASE) IN CASH 21,433 (40,984)
CASH, BEGINNING OF YEAR 44,753 85,737
--------- ---------
CASH, END OF YEAR $ 66,186 $ 44,753
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid During the Year $ -- $ --
========= =========
Income Taxes Paid During the Year $ -- $ --
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Licensing Agreement Acquired Through
Issuance of Common Stock $ -- $ 220,000
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Alchemy Holdings, Inc. (the Company) is engaged in managing the business affairs
of its subsidiaries, Hawk Marine Power, Inc. (HMP) and Cigarette Licensing, Inc.
(CRI). HMP is engaged in the design, production and sale of high performance
marine engines for installation in high speed recreational powerboats and
offshore racing boats. HMP engines are custom designed and hand built from
component parts and sold primarily to premium boat manufacturers. CRI is engaged
in the world-wide licensing of trademarks and service marks.
During the fiscal year ended September 30, 1997 the Company adopted a proposal
to amend the Articles of Incorporation of the Company and change the name of the
Company from Hawk Marine Power, Inc. to Alchemy Holdings, Inc. Subsequent to the
change of the Company's name from Hawk Marine Power, Inc. to Alchemy Holdings,
Inc., the Company formed a new corporation under the laws of the State of
Delaware, a wholly owned subsidiary of the Company known as "Hawk Marine Power,
Inc." to operate its high performance engine manufacturing business.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation:
The consolidated financial statements include the accounts of Alchemy Holdings,
Inc. and its subsidiaries. All inter- ompany accounts and transactions have been
eliminated in consolidation.
(B) Cash and Cash Equivalents:
The Company considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be the equivalent of cash for financial
statement statement purposes.
(C) Financial Instruments and Concentration of Credit Risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and temporary investments and accounts
receivable. The Company invests its excess cash in high quality short-term
liquid money market instruments with major financial institutions and the
carrying value approximates market value. No losses have been incurred thereon.
(D) Inventory:
Inventory consists of merchandise held for sale and includes finished goods as
well as work in process and is valued at the lower of cost (first-in, first-out
method) or market.
E) Property and Equipment:
Property and Equipment are stated at cost. Depreciation is calculated on the
various asset classes over their estimated useful lives, which range from five
to ten years, except leasehold improvements which are depreciated over their
lease term. Expenditures for maintenance and repairs are charged against
operations as incurred.
(F) Licensing Agreement and Amortization:
The licensing agreement is being amortized over its ten-year term. The original
valuation ascribed to this agreement has been revised. (See Notes 9B and 14).
(G) Warranties:
The Company's products are generally under warranty against defects in material
and workmanship for a period of ninety days to one year from date of sale. The
Company has established an accrual for these anticipated future warranty costs.
F-7
<PAGE>
(H) Revenue and Cost Recognition:
Sales and the associated cost of sales are recognized upon delivery of finished
goods to the customer. Service revenue is recognized when the service is
performed.
(I) Income Taxes:
The Company accounts for income taxes under the liability method in accordance
with Statement of Financial Accounting Standards No. 109. Under such standard,
deferred taxes are computed based on the tax liability or benefit in future
years of the reversal of temporary differences in the recognition of income or
deduction of expenses between financial and tax reporting purposes. The
principal item resulting in the difference is depreciation. Deferred income
taxes are determined based upon the difference between the financial statement
carrying amount and the tax basis of assets and liabilities using tax rates
expected to be in effect in the years in which the differences are expected to
reverse. Deferred tax assets and/or liabilities are classified as current or
noncurrent based on the classification of the related asset or liability for
financial reporting purposes, or on the expected reversal date for deferred
taxes that are not related to an asset or liability. A valuation allowance is
provided for deferred tax assets that do not meet a more likely than not
criterion.
(J) Earnings (Loss) Per Share:
Earnings (loss) per share is calculated by dividing net income or loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are reported to reflect the effect of outstanding common
share equivalents. Such common share equivalents are excluded from loss per
share calculations as their effect would be anti-dilutive.
(K) Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements as
well as revenues and expenses during the reporting period. Actual results could
vary from those estimates.
(L) Transactions with Affiliates
Expenses incurred by the Company on behalf of its affiliate, Cigarette, are
recorded on the affiliate's books with an appropriate offset made to the
intercompany account.
NOTE 3 - GOING CONCERN
The Company's consolidated financial statements have been presented on the basis
of a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $319,288 and $92,762 for the years ended September 30,
1998 and 1997, respectively, and has cumulative losses since inception of
$2,012,288. As a result of such losses the Company's financial position has been
significantly impaired. The Company's ability to continue as a going concern is
dependent upon its ability to attain a satisfactory level of profitability and
to obtain suitable, adequate financing or the restructuring of existing
obligations. During the year ended September 30, 1998, the Company satisfied its
obligations to certain note holders with the proceeds of short-term financing
from a stockholder. (This extinguishment of debt resulted in an extraordinary
gain of $130,203.) The Company has sought to implement cost-saving measures,
reduce other operating costs, utilize deposits from customers in connection with
firm purchase orders to help finance operating costs and to convert some of its
debt to equity in connection with a merger with one of its principal customers,
Cigarette Racing Team. There is no assurance that the Company will be successful
in these endeavors. The accompanying financial statements do not include any
adjustments that might result if the Company is unable to continue as a going
concern.
F-8
<PAGE>
NOTE 4 - INVENTORY
Inventory at September 30, 1998 consists of the following:
Parts and Accessories $ 75,145
Work-In-Process 57,430
Finished Goods 46,080
--------
Total Inventory $178,655
========
NOTE 5 - PROPERTY AND EQUIPMENT
Property and Equipment at September 30, 1998 consist of the following:
Office Furniture and Equipment $ 40,193
Shop Equipment 166,026
Leasehold Improvements 28,521
--------
234,740
Less: Accumulated Depreciation 214,680
--------
Total Property and Equipment, Net $ 20,060
========
Depreciation expense was $905 and $1,909 for the years ended September 30, 1998
and 1997, respectively.
NOTE 6 - NOTES PAYABLE
During the year ended September 30, 1998, the Company satisfied its past due
obligations to certain noteholders totaling $175,203 with a $45,000 settlement
payment resulting in an extraordinary gain of $130,203. The source for the
settlement was an unsecured demand loan of $50,000 from a stockholder, which
bears interest at 11%. As of September 30, 1998, loans payable to stockholders
totaled $53,500 plus $2,994 of accrued interest.
The Company has a demand note payable to a corporation for $65,000 plus $10,286
of accrued interest at two points over the Chase Manhattan Bank prime rate.
NOTE 7 - COMMITMENTS
(A) Lease Commitments:
The Company leases its facilities in Aventura, Florida pursuant to an operating
lease. As of September 30, 1998 the Company is paying rent on a month-to-month
basis. Rent expense, excluding common overhead, amounted to $94,800 for each of
the years ended September 30, 1998 and 1997.
(B) Compensation Plan:
An agreement with an officer provides for compensation of $25,000 per year for
three years through September 30, 1999.
NOTE 8 - MAJOR CUSTOMER AND RELATED PARTY TRANSACTIONS
F-9
<PAGE>
Of the Company's total sales for the years ended September 30, 1998, and 1997,
$187,258 and $176,197 or 25% and 17%, respectively, were with one customer,
Cigarette Racing Team, Inc. A principal shareholder and President of the Company
is also an officer and employee of this customer. (See Notes 3 and 11).
During the year ended September 30, 1998, the Company transferred $338,885 in
funds to Cigarette Racing Team, Inc. (See Note 13 for further details on this
transaction.) This advance is unsecured, bears interest at the rate of 11% and
is payable upon demand. As Cigarette Racing Team, Inc. does not currently have
the financial capability to satisfy this obligation the Company has recorded a
provision for loan loss for the entire amount of the loan and interest income
has not been accrued.
NOTE 9 - CAPITAL STOCK TRANSACTIONS
(A) Stock Split:
On May 12, 1997 the Board of Directors approved a 1 for 80 reverse stock split
of the Company's common stock. Such reverse split has been given full
retroactive effect in the accompanying financial statements.
(B) Issuance of Shares to Acquire Licensing Agreement:
On May 12, 1997, the Company issued 2,000,000 post-split restricted shares of
the Company's common stock to Offshore Racing, Inc., in exchange for Offshore's
exclusive world-wide right and license to use the trademarks, and service marks
of "Cigarette Racing Team, Inc.", for all goods and services other than the use
of the trademarks and service marks on any form of watercraft. In conjunction
with the purchasing of the licensing agreement, the Company formed a corporation
under the laws of the State of Delaware, organized as a wholly owned subsidiary
of the Company known as "Cigarette Licensing, Inc." to operate the Company's
licensing business. In connection therewith, the Company issued 200,000
post-split shares of the Company's common stock to the professionals responsible
for the various services related to and for negotiating, arranging and brokering
the licensing and other related transactions described herein on behalf of the
Company. The Company has revised its original accounting for the valuation of
the license. (See Note 14).
Issuance of Shares Under Stock Payment Agreement
On June 25, 1998, the Company filed a Registration Statement on Form S-8 to
register 200,000 shares of common stock at $2 per share. Such shares were
registered pursuant to the Alchemy Stock Payment Plan dated January 2, 1998. See
Note 13 for further details on this transaction.
NOTE 10 - INCOME TAXES
Income taxes are computed at statutory rates on pretax income. Deferred taxes
would be recorded based on differences in financial statements and taxable
income. To date, the Company has incurred tax operating losses and therefore,
has generated no income tax liabilities. As of September 30, 1998, the Company
has generated net operating loss carry forwards totaling approximately
$1,875,498 which are available to offset future taxable income through 2013. As
utilization of such an operating loss for tax purposes is not assured, the
deferred tax asset has been fully reserved through the recording of a 100%
valuation allowance as of September 30, 1998.
The components of the net deferred tax as of September 30, 1998 are as follows:
Net Operating Loss Carryforward $ 637,669
Investment Credit 7,712
---------
645,381
Valuation Allowance (645,381)
---------
Net Deferred Tax $ --
=========
The increase in the valuation allowance from $536,823 as of September 30, 1997
to $645,381 as of September 30, 1998 is due primarily to the tax effect of the
current fiscal year operating loss.
Net operating loss carry forwards totaling $1,875,498 are scheduled to expire as
follows: 2003: $80,900; 2004: $20,300; 2005: $357,400; 2006: $333,000; 2007:
$259,500; 2008: $179,000; 2010: $8,820; 2011: $252,041; 2012: $65,249; and 2013:
$319,288
F-10
<PAGE>
The Company also has investment credit carry forwards of $7,712 which will
expire on September 30, 2001 if not utilized.
NOTE 11- PROPOSED MERGER WITH CIGARETTE RACING TEAM, INC.
The Boards of Directors of the Company and Cigarette Racing Team, Inc.
("Cigarette") have approved a Plan of Merger whereby Cigarette Boats, Inc., a
newly-formed, wholly-owned subsidiary of the Company will be merged with and
into Cigarette. In connection therewith, the Company has filed a Registration
Statement on Form S-4 with the Securities and Exchange Commission relating to
the shares of Common Stock of Alchemy Holdings, Inc. to be retained by holders
of Alchemy Common Stock in the proposed merger of Cigarette Racing Team, Inc.
with and into Alchemy with Alchemy continuing as the surviving corporation of
the merger.
Pursuant to the Merger Agreement, (I) Cigarette Boats, Inc. will be merged with
and into Cigarette, whereupon Cigarette will be the surviving corporation and
will become a wholly-owned subsidiary of Alchemy, (ii) each share of Cigarette
preferred stock, Series A and Series B ("Cigarette preferred stock, Series A and
Series B"), issued and outstanding as of the effective date of the merger will
be converted into one (1) share of Alchemy's preferred stock, Series A or Series
B, as applicable ("Alchemy preferred stock, Series A and Series B") possessing
similar rights, terms and conditions as the Cigarette preferred stock, Series A
and B, (iii) each issued and outstanding share of Cigarette common stock will be
converted into one (1) share of Alchemy common stock. Prior to consummation of
the Merger, Cigarette is expected to issue 1,000,000 shares of its Common Stock
and $1,000,000 of Cigarette Preferred Stock in exchange for the forgiveness and
cancellation of Cigarette's indebtedness to Central Manufacturing, Inc., an
Alabama corporation ("Central"). Thus, those common and preferred shares will be
converted along with all other non-dissenting Cigarette shareholders' shares of
Common Stock. It is also expected by Alchemy management that pursuant to the
Merger that Alchemy will repurchase and retire 2,000,000 shares of Alchemy
Common Stock held by Offshore Racing, Inc., a foreign corporation in exchange
for its receipt of $1,000,000 of Alchemy preferred stock, Series B.
Each outstanding Class A Warrant, Class B Warrant and Class X Warrant of
Cigarette will be assumed by Alchemy and become Alchemy warrants to purchase, on
the same terms and conditions as were applicable under agreements with
Cigarette.
It is anticipated that the Merger will become effective as promptly as
practicable after the requisite shareholder approvals have been obtained and all
other conditions to the Merger have been satisfied or waived (if allowed by
applicable law).
Alchemy and Cigarette may each have the right (subject to certain limitations)
to terminate the Merger Agreement if the Merger is not consummated on or before
December 31, 1999.
NOTE 12 - SUBSEQUENT EVENT
On October 13, 1998, the Company filed a Registration Statement on Form S-8 to
register 265,000 shares of common stock at $2 per share. (See Note 13 for
discussion of possible violation of security registration requirements with
respect to the Company's use of Form S-8)
NOTE 13 - COMMITMENTS AND CONTINGENCIES
On January 2, 1998, the Company established the Alchemy Employee Stock Payment
Plan (the "Plan") for the purpose of issuing shares of its common stock to
participants in payment and full satisfaction of wages and/or benefits to which
they already were or otherwise might become entitled to for services rendered or
to be rendered as employees or former employees of the Company.
On June 25, 1998 the Company filed a Registration Statement on Form S-8 (the
"Registration Statement") to register 200,000 shares of common stock at $2 per
share (the "Shares"), which upon effectiveness of the Registration Statement
were issued in the name of the Alchemy Stock Payment Plan. The terms of the Plan
contemplated that the Company's employees, who agreed to accept such shares in
lieu of their cash wages, could authorize the Company to serve as their agent to
facilitate the sale of the shares on their behalf. Immediately after the
Registration Statement's effectiveness, the Company, as agent for the
participants, sold the shares at a price of $2.00 per share to one entity. The
proceeds from the sale of the shares were then placed into a segregated account.
On a number of occasions subsequent to the aforementioned stock sale, the
Company transferred a portion of the proceeds to Cigarette Racing Team, Inc.
("Cigarette") in order to facilitate the payment of payroll by Cigarette. The
total amount transferred as of September 30, 1998 was $338,885. As more fully
discussed in Note 11, the Company and Cigarette are in the process of merging
and, in contemplation thereof, the two companies have been operating as one on a
"de-facto" basis, which due to common management was accomplished without formal
documentation. Also contributing to the companies' decision to act as one was
that (i) Cigarette, through direct and indirect means, was responsible for more
than 90% of the Company's revenue; (ii) Cigarette's employees had in essence
become the Company's employees due to Cigarette's need for additional employees;
and (iii) the majority shareholders and directors of both Cigarette and the
Company had approved the merger in principle.
F-11
<PAGE>
Accordingly, Cigarette paid the Company's employees as well as its own through
the proceeds of the sale of the shares in the exact amounts required by their
common payroll service as they became due. Upon learning that the proceeds from
the sale of the participants' shares were transferred to Cigarette to pay the
employees, the Company's legal counsel advised the Company, that the Plan should
be amended to clearly include Cigarette's employees as Plan Participants (as
that term is defined in the Plan) and that an amendment to the Registration
Statement be filed. The Company's management agreed to amend the Plan and file
an amendment to the Registration Statement.
Notwithstanding the above series of events, it is unclear whether the sale of
common stock registered in the Registration Statement constituted a violation of
registration requirements under the Securities Act of 1933 and, furthermore,
whether the use of the resulting proceeds may represent an improper application
of employee benefit funds. The accompanying financial statements do not reflect
any adjustments which may result from this uncertainty.
NOTE 14 - RESTATEMENT
The Company has restated its prior year financial statements to record interest
on certain past due indebtedness and to correct the valuation of the licensing
agreement. (See Notes 6 and 9B). The opening balance of the accumulated deficit
at October 1, 1996 has been increased by $27,682 for interest on the applicable
debt for fiscal 1996 and 1995. Interest expense in fiscal 1997 has been
increased by $19,410. The original valuation ascribed to the licensing agreement
was equal to the $2,200 par value of the new common stock used to acquire it.
The Company has corrected such valuation to reflect a then fair value of the
common stock of $.10 per share or $220,000 in the aggregate. Additional
amortization expense of $8,103 has been reflected on the statement of operations
for fiscal 1997. The effect on the September 30, 1997 balance sheet was to
increase net intangible assets, accrued interest payable, additional paid-in
capital and accumulated deficit by $209,697, $47,092, $217,800 and $55,195,
respectively. Net loss was increased by $27,513 in fiscal 1997. Net loss per
common share was increased by $.03 in 1997. The statement of cash flows for
fiscal 1997 was restated as applicable.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Cigarette Racing Team, Inc.
Aventura, Florida
We have audited the accompanying balance sheet of Cigarette Racing Team, Inc.
(the "Company") as of September 30, 1998, and the related statements of
operations, stockholders' equity and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cigarette Racing Team, Inc. as
of September 30, 1998 and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
The financial statements have been prepared assuming the Company will continue
as a going concern. As discussed in the notes to the financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in the
notes. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
CALLAGHAN NAWROCKI LLP
February 5, 1999
Melville, New York
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Cigarette Racing Team, Inc.
Aventura, Florida
I have audited the accompanying statements of operations, stockholders' equity
and cash flows of Cigarette Racing Team, Inc. (the "Company") for the year ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the results of operations, changes in stockholders' equity
and cash flows of Cigarette Racing Team, Inc. for the year ended September 30,
1997 in conformity with generally accepted accounting principles.
The financial statements have been prepared assuming the Company will continue
as a going concern. As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
JERE J. LANE, CPA
January 15, 1998
Coral Springs, Florida
F-14
<PAGE>
CIGARETTE RACING TEAM, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash $ 212,319
Loans Receivable 37,778
Inventory 1,107,970
Prepaid Expenses 92,916
-----------
Total Current Assets 1,450,983
Property and Equipment, Net of Accumulated
Depreciation of $831,677 285,785
Cost in Excess of Fair Value of Net Assets Acquired,
Net of Accumulated Amortization of $1,738,146 4,278,508
Trademark, Net of Accumulated Amortization of $105,152 258,846
Deposits 8,873
-----------
TOTAL ASSETS $ 6,282,995
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Note payable to seller and related obligations due to seller,
including accrued interest of $1,250,978 and
accrued rent of $823,058 $ 5,354,036
Loans payable 1,138,198
Due to affliliate 338,885
Accounts payable 1,257,929
Accrued expenses 445,823
Customer deposits 375,621
Stockholder loans 856,429
-----------
Total Current Liabilities 9,766,921
Redeemable Preferred Stock, Series A, Cumulative, No Par Value; 1,000
Shares Authorized, 100 Shares Issued and Outstanding,
Including Cumulative Dividends of $216,667 1,216,667
-----------
Stockholders' Equity (Deficit):
Common Stock, $.01 Par Value; 10,000,000 Shares Authorized,
3,601,000 Shares Issued and Outstanding 36,010
Additional Paid-In Capital 2,696,120
Accumulated Deficit (7,432,723)
-----------
Total Stockholders' Equity (Deficit) (4,700,593)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 6,282,995
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
CIGARETTE RACING TEAM, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
----------- -----------
NET SALES $ 7,026,625 $ 2,158,406
Cost of Sales 4,946,870 3,403,644
----------- -----------
GROSS MARGIN 2,079,755 (1,245,238)
Selling, General and Administrative Expenses 2,426,629 905,566
Interest Expense 563,620 449,723
Loss from Employee Embezzlement 280,571 --
Other Income (400,000) (39,921)
----------- -----------
NET LOSS $ (791,065) $(2,560,606)
=========== ===========
PER SHARE AMOUNTS:
Net Loss Per Share $ (0.22) $ (0.91)
=========== ===========
Weighted Average Number of
Common Shares Outstanding 3,577,027 2,819,562
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
CIGARETTE RACING TEAM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
$.01 Par Value Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1996 2,601,000 $ 26,010 $ 864,377 $(4,081,052) $(3,190,665)
Private placement on December 1,
1996 at $2 per share, net of costs
of $35,000 250,000 2,500 462,500 -- 465,000
Private placement in August and
September of 1997 at $2 per share,
net of costs of $32,500 125,000 1,250 216,250 -- 217,500
Dividends accrued on mandatorily
redeemable cumulative preferred
stock -- -- (50,000) -- (50,000)
Imputed interest expense on
stockholder loans -- -- 83,959 -- 83,959
Net loss for the year ended
September 30, 1997 -- -- -- (2,560,606) (2,560,606)
----------- ----------- ----------- ----------- -----------
Balances, September 30, 1997 2,976,000 29,760 1,577,086 (6,641,658) (5,034,812)
Private placement on October 15, 1997
at $2.00 per share, net of costs of $162,500 625,000 6,250 1,081,250 -- 1,087,500
Dividends accrued on mandatorily
redeemable cumulative preferred
stock -- -- (50,000) -- (50,000)
Imputed interest expense on
stockholder loans -- -- 87,784 -- 87,784
Net loss for the year ended
September 30, 1998 -- -- -- (791,065) (791,065)
----------- ----------- ----------- ----------- -----------
Balances, September 30, 1998 3,601,000 $ 36,010 $ 2,696,120 $(7,432,723) $(4,700,593)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
CIGARETTE RACING TEAM, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (791,065) $(2,560,606)
Adjustments to Reconcile Net Loss
to Net Cash Used by Operating Activities:
Depreciation and Amortization 621,073 617,996
Imputed Interest Expense 87,784 83,959
Increase in Loans Receivable (37,778) --
Decrease in Accounts Receivable -- 22,770
Increase in Inventory (709,802) (281,019)
Increase in Prepaid Expenses (22,954) (69,962)
Decrease in Deposits 1,127 48,590
Increase (Decrease) in Accounts Payable (20,975) 54,086
Increase (Decrease) in Accrued Expenses (740,101) 1,466,033
Increase (Decrease) in Customer Deposits 170,621 (1,340,695)
----------- -----------
Net Cash Used by Operating Activities (1,442,070) (1,958,848)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (76,363) (18,811)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Note Payable to Seller 469,595 715,588
Increase (Decrease) in Loans Payable (198,969) 449,846
Increase in Due to Affiliate 338,885 --
Advances from Shareholder -- 160,546
Proceeds from Stock Transactions 1,087,500 682,500
----------- -----------
Net Cash Provided by Financing Activities 1,697,011 2,008,480
----------- -----------
NET INCREASE IN CASH 178,578 30,821
CASH AT BEGINNING OF YEAR 33,741 2,920
----------- -----------
CASH AT END OF YEAR $ 212,319 $ 33,741
=========== ===========
Supplemental Cash Flow Information:
Cash Paid During the Year for Interest $ 56,488 $ 224,119
=========== ===========
Non-Cash Investing and Financing Activities:
Cumulative Dividends Accrued
on Preferred Stock $ 50,000 $ 50,000
=========== ===========
Imputed Interest Expense Credited
to Additional Paid-In Capital $ 87,784 $ 83,959
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND BASIS OF PRESENTATION
A. Organization:
Cigarette Racing Team, Inc. (Cigarette or the Company) was incorporated in the
State of Florida on April 28, 1994 under the name, New CRT, Inc. The Company is
engaged in the design, production and sale of high performance recreational
powerboats and offshore racing boats. Such vessels are custom designed and hand
built from component parts and sold primarily to premium boat dealers.
On May 26, 1994, New CRT, Inc. entered into an asset purchase and contribution
agreement with the predecessor Cigarette Racing Team, Inc. (the Seller) whereby
the Company acquired substantially all of the net assets of the Seller used in
the business. In consideration for the purchase of certain assets including
accounts receivable, inventory, intangible assets and intellectual property, the
Company issued the Seller a promissory note in the amount of $3,600,000 and
assumed all of the liabilities and obligations of the Seller. In consideration
for the contribution of certain machinery, equipment, molds and other tangible
personal property having an estimated fair market value of approximately
$1,000,000, the Company issued 100 shares of series A, redeemable, no par value,
cumulative preferred stock. As a result of this transaction, the Company
recorded goodwill in the amount of $6,016,654, and incurred $128,056 of
expenses. In addition, as part of the agreement, the Company entered into a
lease with the Seller for the operating facilities used in the business. On June
1, 1994, the Company changed its name from New CRT, Inc. to Cigarette Racing
Team, Inc.
B. Basis of Presentation - Going Concern:
The Company's financial statements have been presented on the basis of a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$791,065 and $2,560,606 for the fiscal years ended September 30, 1998 and 1997,
respectively, and cumulative losses since inception of $7,432,723. At September
30, 1998, the Company has a net stockholder's equity deficiency of $4,700,593
and a working capital deficit of $8,315,938. In addition, the Company was in
arrears on total indebtedness to the Seller of $5,354,036 including $3,280,000
of note principal, $1,250,978 of accrued interest thereon and $823,058 of unpaid
rent. Such amounts do not include $1,216,667 of redeemable preferred stock and
accrued cumulative dividends. The Company's continuation as a going concern is
dependent upon its ability to control costs and attain a satisfactory level of
profitability, obtain suitable, sufficient financing or equity investment and
restructure its debt to the seller. The Company has entered into negotiation
with the Seller to restructure the applicable debt. If such an agreement is
consummated, the Company would substantially reduce its outstanding obligations
to the Seller. The Company has reduced factory and corporate overhead and has
plans to reduce other operating and overhead costs, including, but not limited
to reduction in production costs (direct labor and raw materials) through
increased labor and purchasing efficiencies.
There is no assurance that the Company will be successful in these endeavors.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
F-19
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd.)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Cash:
The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be the equivalents of cash for financial
statements purposes.
B. Inventory:
Inventory consists of parts and accessories, work-in process and finished goods
which are valued at the lower of cost (first-in, first-out method) or market.
C. Property and Equipment:
Property and equipment are stated at cost. Depreciation of the various classes
of assets is provided on the straight-line method over estimated useful lives as
follows:
Molds and Tooling 5 years
Machinery and Equipment 5-7 years
Furniture and Fixtures 5 years
D. Costs In Excess Of Fair Market Value Of Net Assets Of Business Acquired
(Goodwill):
Goodwill arose in connection with the asset purchase and contribution agreement
discussed above, accounted for as a purchase. Amortization thereon is computed
using the straight-line method over 15 years. Statement of Financial Accounting
Standards No 121, "Accounting for Long - Lived Assets to Be Disposed of,"
established financial accounting and reporting standards for long - lived assets
and was effective for the Company's fiscal year beginning October 1, 1996.
Adoption of this standard did not have a material effect on the Company's
financial position or results of operations.
E. Trademarks:
Trademarks are reflected at the estimated fair market value as of the date of
acquisition. Amortization thereon is computed using the straight-line method
over 15 years.
F. Warranties:
The Company's products are generally under warranty against defects in material
and workmanship for a period of 90 days to one year from the date of sale. An
estimated warranty liability is included in accrued expenses.
G. Revenue and Income Recognition:
Sales and associated cost of sales of products are recognized upon shipment to
the customer. Service revenue is recognized when the service is performed. Other
income is recognized as earned, and includes royalties on the licensing of the
Company's trademarks, service marks and business names.
F-20
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd)
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
H. Imputed Interest Expense:
Indebtedness of $856,429 to the Company's majority stockholder is, by its terms,
non-interest bearing and due on demand. The Company has imputed interest thereon
at 10.25% per annum with an equivalent offset to additional paid in-capital.
I. Income Taxes:
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109. Under such standard, deferred taxes are computed
based on the tax liability or benefits in future years of the reversal of
temporary differences in the recognition of income or deduction of expenses
between financial and tax reporting purposes. The principal items resulting in
the difference are depreciation and amortization and the net operating loss
carryforward. The net difference, if any, between the provision for taxes and
taxes currently payable is reflected in the balance sheet as deferred income
taxes. Deferred tax assets and/or liabilities are classified as current or non
current based on the classification of the related asset or liability for
financial reporting purposes, or on the expected reversal date for deferred
taxes that are not related to an asset or liability. A valuation allowance is
provided for deferred tax assets that do not meet a "more likely than not"
criterion.
J. Earnings (Loss) Per Share:
Earnings (loss) per share is calculated by dividing net income or loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are reported to reflect the effect of outstanding common
share equivalents. Such common share equivalents are excluded from loss per
share calculations as their effect would be anti-dilutive.
K. Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements as
well as revenues and expenses during the reporting period. Actual results could
vary from those estimates.
L. Transactions with Affiliates
Expenses incurred by the Company on behalf of its affiliate, Cigarette, are
recorded on the affiliate's books with an appropriate offset made to the
intercompany account.
Note 3 - INVENTORY
Inventory at September 30, 1998 consists of the following:
Parts and Accessories $ 111,103
Work-In-Process 617,203
Finished Goods 379,664
----------
Total Inventory $1,107,970
==========
F-21
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd)
Note 4 - PROPERTY AND EQUIPMENT
Property and Equipment consist of the following as of September 30, 1998:
Molds and Tooling $ 812,544
Machinery and Equipment 239,518
Furniture and Fixtures 65,400
----------
Total Property and Equipment 1,117,462
Less: Accumulated Depreciation 831,677
----------
Property and Equipment $ 285,785
==========
Note 5 - NOTES PAYABLE AND RELATED OBLIGATIONS DUE TO SELLER
In connection with the asset purchase and contribution agreement of May 26,
1994, the Company issued the Seller a promissory note in the amount of
$3,600,000. The note bears interest at the prime rate plus 1.75% and was to be
repayable in 12 monthly principal installments of $40,000, followed by 62
monthly principal installments of $50,000, with a final principal payment due on
September 3, 2001. The debt is secured by substantially all assets of the
Company, as well as the Company's outstanding common stock. The Company may not
pay any dividends on, issue new shares of, or redeem its common stock, merge
into or consolidate with any other entity, unless control of the new entity
remains with the Company's founder, make dispositions of its assets not in the
ordinary course of business, pay annual compensation to any one individual in
excess of $150,000, or enter into transactions with affiliates without the prior
written consent of the note holder.
The Company is in default of the note. The outstanding principal balance as of
September 30, 1998 is $3,280,000. As such, this balance has been reflected as a
current liability in the accompanying balance sheet. In addition, accrued
interest payable on this loan totals $1,250,978 as of September 30, 1998. The
Seller has the right to impose a default interest rate of 5.75% over the prime
rate, but has not yet done so. The Company is also in arrears on $823,058 of
unpaid rent owed to the Seller. As discussed, the Company is in the process of
renegotiating its obligations to the Seller.
Management is presently in the process of finalizing an agreement with the
Seller wherein the outstanding balance due on the original note, accrued
interest thereon, accrued rent, accrued real estate taxes and dividends payable
will be exchanged for common stock.
Note 6 - LOANS PAYABLE
In February 1996, the Company entered into a settlement agreement with a
supplier with respect to indebtedness which was assumed by the Company under the
asset purchase and contribution agreement. In connection therewith, the Company
agreed to pay the supplier $300,000 of the $350,000 due as of the date of the
settlement, as well as $5,000 in legal fees. A first installment of $30,000 was
paid at closing and the balance of the loan was to be repaid in nine monthly
installments of $30,000 beginning in February 1996. Interest on the unpaid
balance accrues at the prime rate. The Company is in default of this settlement
agreement, which has a balance outstanding as of September 30, 1998 totaling
$62,436 including accrued interest thereon of approximately $2,000.
The Company has loans payable to various customers in connection with
settlements. As of September 30, 1998, the balance of these loans aggregate
$224,480, including accrued interest at the rates ranging from 6% to 10%.
As of September 30, 1998, the Company has a loan payable to a limited liability
partnership in the amount of $180,000. The loan is unsecured, bears interest at
a bank's prime rate and is payable on demand. (See Note 10 regarding warrants
issued in connection with this loan.)
The Company has a loan payable to a corporation in the amount of $366,282 as of
September 30, 1998. The loan is unsecured, accrues interest at the rate of 10%
and is payable on demand.
F-22
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd)
Note 7 - DUE TO AFFILIATE
During the year ended September 30, 1998, the Company received $338,885 in funds
from Alchemy Holdings, Inc. (see Note 13 regarding a proposed merger). This
advance is unsecured, bears interest at the rate of 11% and is payable upon
demand.
Note 8 - STOCKHOLDER LOANS
As of September 30, 1998, the Company has a loan payable to a major stockholder
in the amount of $856,429. The loan is unsecured, non-interest bearing and
payable on demand (see Note 2 for discussion of imputed interest).
Note 9 - ACCRUED EXPENSES
Accrued expenses consist of the following as of September 30, 1998:
Insurance $ 92,736
Interest 82,166
Bonus 67,971
Warranty 67,420
Vacation 49,469
Property Taxes 44,628
Payroll and Payroll Taxes 41,433
--------------
Total Accrued Expenses $445,823
==============
Note 10 - CAPITAL STOCK TRANSACTION
A. Mandatorily Redeemable Cumulative Preferred Stock:
In connection with the asset purchase and contribution agreement of May 26,
1994, the Company issued 100 shares of Series A, no par value, cumulative,
redeemable preferred stock in exchange for the contribution of certain
machinery, equipment, molds and other tangible personal property having an
estimated fair market value of $1,000,000. The preferred stock was accordingly
recorded at a stated value of $1,000,000.
The preferred stock bears a dividend rate of $500 per share per annum. Dividends
are payable quarterly unless the Company elects not to pay the dividend in which
event such dividend shall be cumulative and shall accrue (regardless of whether
declared) without interest. No dividend shall be declared or paid on the
Company's common stock unless all preferred stock dividends have been paid in
full. As of September 30, 1998, cumulative dividends accrued on preferred stock
totaled $216,667. In the event of any involuntary liquidation, the amount to be
paid to preferred stockholders shall be $10,000 per share plus all cumulative
dividends accrued.
The preferred stock may be repurchased at any time at the option of the Company.
The holders of the preferred stock may require the Company to repurchase their
shares at such time as the Company has paid at least $3,500,000 of the principal
amount of the promissory note issued in connection with the asset purchase and
contribution agreement of May 26, 1994. The purchase price for the preferred
stock shall be $10,000 per share plus all dividends payable at the time of
repurchase.
B. Private Placements:
During the year ended September 30, 1998, the Company completed a private
placement of its $.01 par value common stock and raised $1,087,500 of capital
through the sale of 625,000 new shares, at $2.00 per share, net of $162,500 of
placement costs.
F-23
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd)
During the year ended September 30, 1997, the Company raised $682,500 by selling
375,000 new shares of its $.01 par value common stock at $2.00 per share in two
separate private placements, net of $67,500 of placement costs.
C. Change in Control of the Company;
On June 30, 1997, the Company's majority shareholder sold his entire interest in
Cigarette Racing Team, Inc., 2,601,000 shares then constituting 91.23% of the
Company, to a foreign corporation.
D. Stock Purchase Warrants:
The Company has authorized and issued to each subscriber of its private
placements of common stock a Class A and a Class B stock warrant for each of the
1,000,000 shares subscribed. These rights to purchase additional shares of the
$.01 par value common stock of Cigarette Racing Team, Inc. are exercisable at
$3.00 per share and $4.00 per share, respectively, subject to certain terms and
conditions. On April 1, 1998 the Company authorized and issued to a limited
partnership, the rights to purchase ("warrants") 180,000 shares of the $.01 par
value common stock of Cigarette Racing Team, Inc. on payment of $2.00 a share so
purchased, simultaneous with a loan agreement wherein the limited partnership
agreed to loan Cigarette $180,000 (see Note 6 regarding loan payable).
Note 11- INCOME TAXES
The Company neither incurred an expense for nor realized a benefit from any
current or deferred income taxes for the fiscal years ended September 30, 1998
and 1997. The Company has approximately $7,400,000 of loss carryforwards to
offset future taxable income, expiring in the years 2010 through 2013. The
following is a reconciliation of the federal statutory tax rate with the
effective tax rate:
Year Ended September 30,
1998 1997
---- ----
Statutory tax rate (34)% (34)%
Net operating loss carry-forward
resulting in no current benefit 34 34
Effective rate 0% 0%
==== ====
Note 12 - COMMITMENTS AND CONTINGENCIES
A. Facilities Lease:
In connection with the asset purchase and contribution agreement of May 26,
1994, the Company entered into an agreement with the Seller for the lease of its
facilities. Under the terms of the original agreement, the Company was subject
to rent during the initial term of $336,000 per annum, subject to adjustment for
changes in the prime interest rate as defined in the lease, plus real estate
taxes. The initial lease term was to expire on the later to occur of May 31,
2002 or the date on which the Company fully repaid all principal and interest on
its $3,600,000 promissory note to the Seller and repurchased all outstanding
shares of the Company's preferred stock. The lease provides for three five year
renewal options.
The Company is currently in default on this lease. As of September 30, 1998,
unpaid rent totals $823,058. As disclosed previously, the Company is in the
process of renegotiating its obligations to the Seller. Rent expense for the
years ended September 30, 1998 and 1997 was $390,686 and $388,318 respectively.
F-24
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd)
B. Litigation:
In October of 1996, a customer of the Company brought a lawsuit relating to an
order for certain boats placed with the Company's predecessor. In July 1997, the
Company entered into a settlement agreement with the customer whereby the
Company agreed to complete and deliver by March 31, 1998, two boats for which
the customer had made deposits of approximately $981,000. This settlement was
subsequently amended wherein the Company agreed to complete and deliver two
boats and return $305,000. The boats have each since been delivered and the
$305,000 debt is included in the loans payable reported on the accompanying
balance sheet.
The Company is currently involved in other lawsuits arising in the normal course
of business. In management's opinion, based on the advise of legal counsel, the
ultimate outcome of such lawsuits will not have a material adverse effect on the
Company's financial statements.
C. Loss From Employee Embezzlement:
During the fiscal year ended September 30, 1998, the Company experienced losses
associated with an embezzlement scheme, wherein an employee diverted Cigarette
funds of approximately $280,000 for personal use. The unauthorized use of funds
continued through December 4, 1998, at which time the embezzlement was
identified and the employee was terminated. The loss from employee embezzlement
during the subsequent period amounted to approximately $72,000. The Company is
currently pursuing its legal rights to restitution from the employee and the
various banking institutions that negotiated forged instruments.
Note 13 - PROPOSED MERGER WITH ALCHEMY HOLDINGS, INC.
The Boards of Directors of the Company and Alchemy Holdings, Inc. ("Alchemy")
have approved a Plan of Merger whereby Cigarette Boats, Inc., a newly-formed,
wholly-owned subsidiary of Alchemy will be merged with and into the Company. In
connection therewith, Alchemy has filed a Registration Statement on Form S-4
with the Securities and Exchange Commission relating to the shares of common
stock of Alchemy Holdings, Inc. to be retained by holders of Alchemy common
stock in the proposed merger of Cigarette Racing Team, Inc. with and into
Alchemy, with Alchemy continuing as the surviving corporation of the merger.
Pursuant to the Merger Agreement, (i) Cigarette Boats, Inc. will be merged with
and into Cigarette, whereupon Cigarette will be the surviving corporation and
will become a wholly-owned subsidiary of Alchemy, (ii) each share of Cigarette
preferred stock, issued and outstanding as of the effective date of the merger
will be converted into one (1) share of Alchemy's preferred stock, possessing
similar rights, terms and conditions as the Cigarette preferred stock, (iii)
each issued and outstanding share of Cigarette common stock will be converted
into one (1) share of Alchemy common stock.
Management anticipates that the Seller of Cigarette (as of the May 1994
agreement) will receive 1,000,000 shares of Alchemy common stock and $1,000,000
of Alchemy preferred stock, Series B in exchange for forgiveness and
cancellation of Cigarette's indebtedness to the Seller. It is also expected by
Alchemy management that pursuant to the merger it will repurchase and retire
2,000,000 shares of Alchemy common stock held by Offshore Racing Team, Inc., a
foreign corporation, in exchange for its receipt of $1,000,000 of Alchemy
preferred stock, Series B.
Each outstanding warrant of Cigarette will be assumed by Alchemy and become
Alchemy warrants to purchase, on the same terms and conditions as were
applicable under agreements with Cigarette.
It is anticipated that the merger will become effective as promptly as
practicable after the requisite shareholder approvals have been obtained and all
other conditions to the merger have been satisfied or waived (if allowed by
applicable law).
Alchemy and Cigarette may each have the right (subject to certain limitations)
to terminate the Merger Agreement if the merger is not consummated on or before
December 31, 1999.
F-25
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
March
(Unaudited) September
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 73,588 $ 66,186
Inventory 209,279 178,655
Prepaid Expenses 50,000 -0-
----------- -----------
Total Current Assets 332,867 244,841
PROPERTY AND EQUIPMENT 19,606 20,060
OTHER ASSETS:
Licensing Agreement, Net of Accumulated
Amortization of $35,750 178,750 189,750
----------- -----------
TOTAL ASSETS $ 531,223 $ 454,651
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 4,803 $ 10,148
Accrued Expenses 12,284 7,476
Customer Deposits 119,564 90,500
Stockholder Loans 58,695 56,494
Notes Payable, Including Accrued Interest 78,446 75,286
----------- -----------
Total Current Liabilities 273,792 239,904
----------- -----------
TOTAL LIABILITIES 273,792 239,904
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value, 20,000,000 shares
authorized; 2,592,394 and 2,437,394 shares,
respectively, issued and outstanding 2,592 2,437
Additional Paid-In Capital 2,534,443 2,224,598
Accumulated Deficit (2,279,604) (2,012,288)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 257,431 214,747
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 531,223 $ 454,651
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-26
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 163,878 123,158 $ 319,080 329,560
Cost of Sales 120,721 53,995 233,838 254,327
----------- ----------- ----------- -----------
GROSS MARGIN 43,157 69,163 85,242 75,233
Selling, General and
Administrative Expenses 41,850 35,510 89,269 68,119
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 1,307 33,653 (4,027) 7,114
Interest - Net 2,651 12,713 5,361 18,985
Provision for Loan Loss 38,318 -0- 257,928 -0-
----------- ----------- ----------- -----------
NET PROFIT (LOSS) $ (39,662) 20,940 $ (267,316) (11,871)
=========== =========== =========== ===========
BASIC LOSS PER SHARE AMOUNTS:
Net Loss (0.02) 0.01 (0.10) (0.01)
=========== =========== =========== ===========
Weighted average number of
Common shares outstanding 2,592,394 2,237,394 2,550,608 2,237,394
</TABLE>
The equation for computing basic income (loss) per common share is:
Income (Loss) available to common shareholders / Weighted average shares
F-27
<PAGE>
ALCHEMY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
Six Months Ended March 31,
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(267,316) $ (11,871)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation and Amortization 11,454 953
Accrued Interest - Unpaid 5,361 12,713
(Increase) Decrease in Prepaid Expenses (50,000) 331
(Increase) Decrease in Accounts Payable -- 1,053
(Increase) Decrease in Inventory (30,624) (63,240)
Increase (Decrease) in Accounts Payable (5,345) (27,980)
Increase (Decrease) in Accrued Expenses 4,808 17,402
Increase (Decrease) in Customer Deposits 29,064 47,775
--------- ---------
Net Cash Used by Operating Activities (302,598) (22,864)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Notes Payable -- 1,875
Proceeds from Stock Issuances 310,000 --
--------- ---------
Net Cash Used by Financing Activities 310,000 1,875
NET INCREASE (DECREASE) IN CASH 7,402 (20,989)
CASH AT BEGINNING OF PERIOD 66,186 44,753
--------- ---------
CASH AT END OF PERIOD $ 73,588 $ 23,764
========= =========
Supplemental Cash Flow Information:
Interest Paid During the Year $ -- $ --
========= =========
Income Taxes Paid During the Year $ -- $ --
========= =========
F-28
<PAGE>
ALCHEMY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements of Alchemy Holdings, Inc. have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-QSB and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) considered to be necessary for a fair presentation
have been included. Operating results for the six months ended March 31, 1999
are not necessarily indicative of the expected results for the year ending
September 30, 1999. For further information, refer to the financial statements
and footnotes included in the Company's annual report on Form 10-KSB for the
year ended September 30, 1998.
NOTE B - GOING CONCERN CONSIDERATION
The Company's consolidated financial statements have been presented on the basis
of a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $319,288 and $92,762 for the years ended September 30,
1998 and 1997, respectively, and has cumulative losses since inception of
$2,012,288. As a result of such losses the Company's financial position has been
significantly impaired. The Company's ability to continue as a going concern is
dependent upon its ability to attain a satisfactory level of profitability and
to obtain suitable, adequate financing or the restructuring of existing
obligations. During the year ended September 30, 1998, the Company satisfied its
obligations to certain note holders with the proceeds of short-term financing
from a stockholder. (This extinguishment of debt resulted in an extraordinary
gain of $130,203.) The Company has sought to implement cost-saving measures,
reduce other operating costs, utilize deposits from customers in connection with
firm purchase orders to help finance operating costs and to convert some of its
debt to equity in connection with a merger with one of its principal customers,
Cigarette Racing Team. There is no assurance that the Company will be successful
in these endeavors. The accompanying financial statements do not include any
adjustments that might result if the Company is unable to continue as a going
concern.
NOTE C - FAS 109
Deferred income taxes are provided on the tax effect of changes in temporary
differences. Deferred tax assets are subject to a valuation allowance if their
realization is not reasonably assured. Deferred tax assets are comprised of the
following at March 31, 1999:
Net Operating Loss Carry Forward Benefit $ 775,065
Investment Credit 7,712
Valuation Allowance (782,777)
---------
Net Deferred Tax Asset $ --
=========
NOTE D - MAJOR CUSTOMER
Of the Company's total sales for the six months ended March 31, 1999, and 1998,
$151,232 and $68,591 or 47% and 21%, respectively, were with one customer,
Cigarette Racing Team, Inc. A principal shareholder and President of the Company
is also an officer and employee of this customer.
During the six months ended March 31, 1999, the Company transferred $257,928 in
funds to Cigarette Racing Team, Inc. This advance is unsecured, bears interest
at the rate of 11% and is payable upon demand. As Cigarette Racing Team, Inc.
does not currently have the financial capability to satisfy this obligation the
Company has recorded a provision for loan loss for the entire amount of the loan
and interest income has not been accrued.
F-29
<PAGE>
CIGARETTE RACING TEAM, INC.
BALANCE SHEETS
MARCH 31, 1999 AND
SEPTEMBER 30, 1998
ASSETS
March
(Unaudited) September
---------- ----------
CURRENT ASSETS:
Cash $ 262,127 $ 212,319
Loan Receivable 22,466 37,778
Inventory 1,191,271 1,107,970
Prepaid Expenses 74,032 92,916
---------- ----------
Total Current Assets 1,549,896 1,450,983
PROPERTY AND EQUIPMENT 443,761 285,785
OTHER ASSETS:
Costs in excess of Fair Value of Net Assets of
Business Acquired, Net of Accumulated
Amortization 4,077,953 4,278,508
Trademark, Net of Accumulated Amortization 246,713 258,846
Intellectual Properties 14,891 --
Deposits 8,873 8,873
---------- ----------
TOTAL ASSETS $6,342,087 $6,282,995
========== ==========
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
CIGARETTE RACING TEAM, INC.
BALANCE SHEETS (CONTINUED)
MARCH 31, 1999 AND SEPTEMBER 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
March
(Unaudited) September
----------- -----------
CURRENT LIABILITIES:
Note Payable to Seller, Including
Accrued Interest and Rent $ 5,711,040 $ 5,354,036
Loans Payable 968,155 1,138,198
Due to Affiliate 596,814 338,885
Accounts Payable 963,293 1,257,929
Accrued Expenses 493,533 445,823
Customer Deposits 960,444 375,621
Stockholder Loans 856,429 856,429
----------- -----------
Total Current Liabilities 10,549,708 9,766,921
----------- -----------
TOTAL LIABILITIES 10,549,708 9,766,921
----------- -----------
STOCKHOLDERS' EQUITY:
Redeemable Preferred Stock, Series A,
Cumulative, No Par, 1,000 Shares Authorized
100 Shares Issued and Outstanding, Including
Cumulative Dividends 1,241,667 1,216,667
Common Stock, $.01 par value, 10,000,000
Shares Issued Authorized; 3,719,450 Issued
And Outstanding 37,195 36,010
Treasury Stock (100,000) --
Additional Paid-In Capital 2,950,727 2,696,120
Accumulated Deficit (8,337,210) (7,432,723)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (4,207,621) (3,483,926)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,342,087 $ 6,282,995
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
CIGARETTE RACING TEAM, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 3,136,033 $ 1,629,568 $ 5,194,008 $ 2,583,458
Cost of Sales 2,258,030 1,403,120 3,820,372 2,189,959
----------- ----------- ----------- -----------
GROSS MARGIN 878,003 226,448 1,373,636 393,499
Selling, General and
Administrative Expenses 985,909 428,040 2,057,806 919,666
Interest Expense 121,965 148,445 247,587 266,867
Loss from Employee Embezzlement 4,692 -- 72,730 --
Other Income -- -- (100,000) (400,000)
----------- ----------- ----------- -----------
NET (LOSS) $ (234,563) $ (350,037) $ (904,487) $ (393,034)
=========== =========== =========== ===========
BASIC LOSS PER SHARE AMOUNTS:
Net Loss $ (0.06) $ (0.10) $ (0.24) $ (0.11)
=========== =========== =========== ===========
Weighted average number of common
Shares outstanding 3,719,450 3,601,000 3,699,708 3,552,923
=========== =========== =========== ===========
</TABLE>
The equation for computing basic (loss) per common share is:
(Loss) available to common shareholders / Weighted average shares
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
CIGARETTE RACING TEAM, INC.
STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net (Loss) $ (904,487) $ (393,034)
Adjustments to Reconcile Net Loss
To Net Cash Used by Operating Activities:
Depreciation and Amortization 311,342 310,618
Imputed Interest Expense 43,892 43,892
Decrease in Loans Receivable 15,312 --
(Increase) in Inventory (83,301) (582,433)
Decrease in Prepaid Expenses 18,884 2,759
Increase (Decrease) in Accounts Payable (294,636) 119,447
Increase (Decrease) in Accrued Expenses 47,710 (635,477)
Increase in Customer Deposits 584,823 613,070
----------- -----------
Net Cash Used by Operating Activities (260,461) (521,158)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) in Capital Expenditures (271,521) (13,341)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Notes Payable 357,004 --
(Decrease) in Loans Payable (170,043) (216,774)
Increase in Due to Affiliate 257,929 --
Purchase of Treasury Stock (100,000) --
Increases from Stock Issuances 236,900 1,087,500
----------- -----------
Net Cash Provided by Financing Activities 581,790 870,726
NET INCREASE IN CASH 49,808 336,227
CASH AT BEGINNING OF PERIOD 212,319 33,741
----------- -----------
CASH AT END OF PERIOD $ 262,127 $ 369,968
=========== ===========
Supplemental Cash Flow Information:
Interest Paid During the Period $ 47,089 $ 44,675
=========== ===========
Non Cash Investing and Financing Activities:
Cumulative Dividends Accrued on Preferred Stock $ 25,000 $ 25,000
=========== ===========
Imputed Interest Expense Credited to Paid-In Capital $ 43,892 $ 43,892
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS
Organization and Background
Cigarette Racing Team, Inc. (the Company) was incorporated in the State of
Florida on April 28, 1994 under the name, New CRT, Inc. The Company is engaged
in the design, production and sale of high performance recreational powerboats
and offshore racing boats. Such vessels are custom designed and hand built from
component parts and sold primarily to premium boat dealers.
On May 26, 1994, New CRT, Inc. entered into an asset purchase and contribution
agreement with the predecessor Cigarette Racing Team, Inc. (the Seller) whereby
the Company acquired substantially all of the net assets of the Seller used in
the business. In consideration for the purchase of certain assets including
accounts receivable, inventory, intangible assets and intellectual property, the
Company issued the Seller a promissory note in the amount of $3,600,000 and
assumed all of the liabilities and obligations of the Seller. In consideration
for the contribution of certain machinery, equipment, molds and other tangible
personal property having an estimated fair market value of approximately
$1,000,000, the Company issued 100 shares of series A, redeemable, no par value,
cumulative preferred stock. As a result of this transaction, the Company
recorded goodwill in the amount of $6,016,654, and incurred $128,056 of
expenses. In addition, as part of the agreement, the Company entered into a
lease with the Seller for the operating facilities used in the business. In June
1, 1994, the Company changed its name from New CRT, Inc. to Cigarette Racing
Team, Inc.
Basis of Presentation, continued Existence and Subsequent events
The Company's financial statements have been presented on the basis of a going
concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$904,487 and $393,034 for the six months ended March 31, 1999 and 1998,
respectively, and cumulative losses since inception of $8,337,210. At March 31,
1999 the Company has a net stockholder's equity deficiency of $4,207,621 and a
working capital deficit of $8,999,812. In addition, the Company was in arrears
on total indebtedness to the Seller of $5,711,040 including $3,280,000 of note
principal, $1,418,618 of accrued interest thereon and $1,012,422 of unpaid rent.
Such amounts do not include $1,241,667 of redeemable preferred stock and accrued
cumulative dividends. The Company's continuation as a going concern is dependent
upon its ability to control costs and attain a satisfactory level of
profitability, obtain suitable, sufficient financing or equity investment and
restructure its indebtedness to the seller. The Company has entered into
negotiation with the Seller to restructure the applicable debt. If such an
agreement is consummated, the Company would substantially reduce its outstanding
obligations to the Seller. The Company has reduced factory and corporate
overhead and has plans to reduce other operating and overhead costs, including,
but not limited to reduction in production costs (direct labor and raw
materials) through increased labor and purchasing efficiencies.
There is no assurance that the Company will be successful in these endeavors.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Summary of Significant Accounting Policies
Cash - The Company considers all highly liquid debt instruments purchased with a
maturity of 90 days or less to be the equivalents of cash for financial
statements purposes.
Inventory - Inventory consists of raw materials, parts and accessories,
work-in-process and finished goods which are valued at the lower of cost
(first-in, first-out method) or market.
F-34
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd.)
Property and Equipment - Property and equipment are stated at cost. Depreciation
of the various classes of assets is provided on the straight-line method over
estimated useful lives us follows:
Molds and Tooling 5 years
Machinery and Equipment 3-7 years
Furniture and Fixtures 7 years
Costs In Excess Of Fair Market Value Of Net Assets Of Business Acquired
(Goodwill) - Goodwill arose in connection with the asset purchase and
contribution agreement discussed above which was accounted for as a purchase.
Amortization thereon is computed using the straight-line method over 15 years.
Statement of Financial Accounting Standards No 121, "Accounting for Long - Lived
Assets to Be Disposed of," established financial accounting and reporting
standards for long - lived assets and was effective for the Company's fiscal
year beginning October 1, 1996. Adoption of this standard did not have a
material effect on the Company's financial position or results of operations.
Trademark - Trademark is reflected at the estimated fair market value as of the
date of acquisition. Amortization thereon is computed using the straight-line
method over 15 years.
Warranties - The Company's products are generally under warranty against defects
in material and workmanship for a period of 90 days to one year from the date of
sale. An estimated warranty liability is included in accrued expenses.
Sales Recognition - Sales and associated cost of sales of products are
recognized upon shipment to the customer. Service revenue is recognized when the
service is performed. Other income is recognized as earned, and includes
royalties on the licensing of the Company's trademarks, service marks and
business name.
Imputed Interest - Indebtedness of $856,429 to the Company's majority
stockholder is, by its terms, non-interest bearing and due on demand. The
Company has imputed interest thereon at 10.25% per annum with an equivalent
offset to additional paid-in capital
Income Taxes - The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109. Under such standard, deferred taxes are
computed based on the tax liability or benefits in future years of the reversal
of temporary differences in the recognition of income or deduction of expenses
between financial and tax reporting purposes. The principal items resulting in
the difference are depreciation and amortization and the net operating loss
carryforward. The net difference, if any, between the provision for taxes and
taxes currently payable is reflected in the balance sheet as deferred income
taxes. Deferred tax assets and/or liabilities are classified as current or non
current based on the classification of the related asset or liability for
financial reporting purposes, or on the expected reversal date for deferred
taxes that are not related to an asset or liability. A valuation allowance is
provided for deferred tax assets that do not meet a "more likely than not"
criterion.
Net Loss Per Share - Net loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are reported to reflect the effect of outstanding common
share equivalents. Such common share equivalents are excluded from loss per
share calculations in these financial statements as their effect would be
anti-dilutive.
Use of Estimates - Management of the Company uses estimates and assumptions in
preparing financial statements in accordance with generally accepted accounting
principles. Those estimates and assumption affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the estimates
that management uses.
F-35
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd.)
Property and Equipment
Property and Equipment consists of the following as of March 31, 1999:
Molds and Tooling $1,060,354
Machinery and Equipment 248,336
Furniture and Fixtures 65,400
----------
Total Property and Equipment 1,374,090
Less: Accumulated Depreciation 930,329
----------
Property and Equipment $ 443,761
==========
Note Payable to Seller
In connection with the asset purchase and contribution agreement of May 26,
1994, the Company issued the Seller a promissory note in the amount of
$3,600,000. The note bears interest at the prime rate plus 1.75% and was to be
repayable in 12 monthly principal installments of $40,000, followed by 62
monthly principal installments of $50,000, with a final principal payment due on
September 3, 2001. This indebtedness is secured by substantially all assets of
the Company, as well as the Company's outstanding common stock. Under the terms
of the promissory note, the Company may not pay any dividends on, issue new
shares of, or redeem its common stock, merge into or consolidate with any other
entity, unless control of the new entity remains with the Company's founder,
make dispositions of its assets not in the ordinary course of business, pay
annual compensation to any one individual in excess of $150,000, or enter into
transactions with affiliates without the prior written consent of the note
holder.
The Company is in default of this obligation which has a principal balance
outstanding as of March 31, 1999 of $3,280,000. As such, this balance has been
reflected as a current liability in the accompanying balance sheet. In addition,
accrued interest payable on this loan totals $1,418,618 as of March 31, 1999.
The Seller has the right to impose a default interest rate of 5.75% over the
prime rate, but has not yet done so. The Company is also in arrears on
$1,012,422 of unpaid rent owed to the Seller. As discussed, the Company is in
the process of renegotiating its obligations to the Seller. Management is
presently in the process of finalizing an agreement with the Seller wherein the
outstanding balance due on the original note, accrued interest thereon, accrued
rent, accrued real estate taxes and dividends payable will be exchanged for
common stock.
F-36
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd.)
Accrued Expenses
Accrued Expenses consist of the following as of March 31, 1999:
Interest $115,023
Insurance 68,994
Bonus 67,971
Warranty 67,420
Property Taxes 70,251
Vacation 49,469
Wages 40,160
Miscellaneous 14,245
--------
Total Accrued Expenses $493,533
========
Capital Stock
Preferred Stock - In connection with the asset purchase and contribution
agreement of May 26, 1994, the Company issued 100 shares of Series A, no par
value, cumulative, redeemable preferred stock in exchange for the contribution
of certain machinery, equipment, molds and other tangible personal property
having an estimated fair market value of $1,000,000. The preferred stock was
accordingly recorded at a stated value of $1,000,000.
The preferred stock bears a dividend rate of $500 per share per annum. Dividends
are payable quarterly unless the Company elects not to pay the dividend in which
event such dividend shall be cumulative and shall accrue (regardless of whether
declared) without interest. No dividend shall be declared or paid on the
Company's common stock unless all preferred stock dividends have been paid in
full. As of March 31, 1999, cumulative dividends accrued on preferred stock
totaled $241,167.
In the event of any involuntary liquidation, the amount to be paid to preferred
stockholders shall be $10,000 per share plus all cumulative dividends accrued.
The preferred stock may be repurchased at any time at the option of the Company.
The holders of the preferred stock may require the Company to repurchase their
shares at such time as the Company has paid at least $3,500,000 of the principal
amount of the promissory note issued in connection with the asset purchase and
contribution agreement of May 26, 1994. The purchase price for the preferred
stock shall be $10,000 per share plus all dividends payable at the time of
repurchase.
Private Placement of Common Stock - During the year ended September 30, 1998 the
Company raised $1,087,500 of capital by issuing 625,000 shares of its $.01 par
value common stock through two separate private placements. The additional
capital indicated herein does not include $162,500 of placement costs.
Stock Issued for Services - During the six months ended March 31, 1999 the
Company issued 118,450 shares of its $.01 par value common stock in exchange for
services rendered.
F-37
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd.)
Stock Purchase Warrants - The Company has authorized and issued to each
subscriber of its Private Placements of Common Stock a Class A and a Class B
stock warrant for each of the 1,000,000 shares subscribed. These rights to
purchase additional shares of the $.01 par value common stock of Cigarette
Racing Team, Inc. are exercisable at $3.00 per share and $4.00 per share,
respectively, subject to certain terms and conditions. On April 1, 1998 the
Company authorized and issued to Masada L.L.P. the rights to purchase
("warrants") 180,000 shares of the $.01 par value common stock of Cigarette
Racing Team, Inc. on payment of $2.00 a share so purchased, simultaneous with a
loan agreement wherein Masada agreed to loan Cigarette $180,000.
Income Taxes
The Company neither incurred an expense for nor benefit from any current or
deferred income taxes for the six months ended March 31, 1999. The Company has
approximately $8,000,000 of loss carry forwards to offset future taxable income
expiring in the years 2009 through 2013.
Commitments and Contingencies
Facilities Lease - In connection with the asset purchase and contribution
agreement of May 26, 1994, the Company entered into an agreement with the Seller
for the lease of its facilities. Under the terms of the original agreement, the
Company was subject to rent during the initial term of $336,000 per annum,
subject to adjustment for changes in the prime interest rate as defined in the
lease, plus real estate taxes. The initial
lease term was to expire on the later to occur of May 31, 2002 or the date on
which the Company fully repaid all principal and interest on its $3,6000,000
promissory note to the Seller and repurchased all outstanding shares of the
Company's preferred stock. The lease provides for three five year renewal
options.
The Company is currently in default of this lease agreement, as of March 31,
1999 unpaid rent totals $1,012,422. As previously indicated, the Company is in
the process of renegotiating its obligations to the Seller.
Rent expense for the six months ended March 31, 1999 was $189,364.
Litigation - In October of 1996, a customer of the Company brought a lawsuit
relating to an order for certain boats placed with the predecessor company. In
July 1997, the Company entered into a settlement
agreement with the customer whereby the Company agreed to complete and deliver
by March 31, 1998, two boats for which the customer had made deposits of
approximately $981,000. This settlement was subsequently amended wherein the
Company agreed to complete and deliver two boats and return $305,000. The boats
have each since been delivered and the $305,000 debt is included in the loans
payable reported on the accompanying balance sheet.
The Company is currently involved in other lawsuits arising in the normal course
of business. In management's opinion, based on the advise of legal counsel, the
ultimate outcome of such lawsuits will not have a material adverse effect on the
Company's financial statements.
F-38
<PAGE>
CIGARETTE RACING TEAM, INC.
NOTES TO FINANCIAL STATEMENTS (contd.)
Loss from Employee Embezzlement - During the fiscal year ended September 30,
1998 and the six months ended March 31, 1999 the Company experienced losses
associated with an embezzlement scheme, wherein an employee diverted Cigarette
funds of approximately $280,000 and $70,000, respectively, for personal use. The
unauthorized use of funds continued through December 4, 1998, at which time the
embezzlement was identified and the employee was terminated. The Company is
currently pursuing its legal rights to restitution from the employee and the
various banking institutions that negotiated the forged instruments.
Proposed Merger with Alchemy Holdings, Inc.
The Boards of Directors of the Company and Alchemy Holdings, Inc. (Alchemy) have
approved a Plan of Merger whereby Cigarette Boats, Inc., a newly formed, wholly
owned subsidiary of Alchemy will be merged with and into the Company. In
connection therewith, Alchemy has filed a Registration Statement on Form S-4
with the Securities and Exchange Commission relating to the shares of common
stock of Alchemy Holdings, Inc. to be retained by the holders of Alchemy common
stock in the proposed merger of Cigarette Racing Team, Inc. with and into
Alchemy, with Alchemy continuing as the surviving corporation of the merger.
Pursuant to the Merger Agreement, (i) Cigarette Boats, Inc. will be merged with
and into Cigarette, whereupon Cigarette will be the surviving corporation and
will become a wholly owned subsidiary of Alchemy, (ii) each share of Cigarette
preferred stock, issued and outstanding as of the effective date of the merger
will be converted into one (1) share of Alchemy's preferred stock, possessing
similar rights, terms and conditions as the Cigarette preferred stock, (iii)
each issued and outstanding share of Cigarette common stock will be converted
into one (1) share of Alchemy common stock.
Management anticipates that the Seller of Cigarette (as of the May 24, 1994
agreement) will receive 1,000,000 shares of Alchemy common stock and $1,000,000
of Alchemy preferred stock, Series B in exchange for forgiveness and
cancellation of Cigarette's indebtedness to the Seller. It is also expected by
Alchemy management that pursuant to the merger it will repurchase and retire
2,000,000 shares of Alchemy common stock held by Offshore Racing, Team Inc., a
foreign corporation, in exchange for its receipt of $1,000,000 of Alchemy
preferred stock, Series B.
Each outstanding warrant of Cigarette will be assumed by Alchemy and become
Alchemy warrants to purchase, on the same terms and conditions as were
applicable under the agreements with Cigarette.
It is anticipated that the merger will become effective as promptly as
practicable after the requisite shareholder approvals have been obtained and all
other conditions to the merger have been satisfied or waived (if allowed by
applicable law).
F-39
<PAGE>
PRO-FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
<TABLE>
<CAPTION>
Cigarette Alchemy Adjustments Pro-Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 262,127 $ 73,588 $- $ 335,715
Loan Receivables 22,466 -- 0 22,466
Inventory 1,191,271 209,279 -- 1,400,550
Prepaid Expenses 74,032 50,000 -- 124,032
---------- ---------- ---------- ----------
1,549,896 332,867 -- 1,822,763
Total Current Assets
PROPERTY AND EQUIPMENT 443,761 19,606 -- 463,367
OTHER ASSETS:
Costs in excess of Fair Value of Net Assets of
Business Acquired, Net of Accumulated Amortization 4,077,953 -- 2,147,247(A) 6,225,200
Trademark, Net of Accumulated Amortization 246,713 -- -- 246,713
Licensing Agreement, Net of Accumulated
Amortization -- 178,750 -- 178,750
Intellectual Properties 14,891 -- -- 14,891
Deposits 8,873 -- -- 8,873
---------- ---------- ---------- ----------
TOTAL ASSETS $6,342,087 $ 531,223 $2,147,247 $9,020,557
========== ========== ========== ==========
</TABLE>
F-40
<PAGE>
CIGARETTE RACING TEAM, INC. and ALCHEMY HOLDINGS,INC.
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Cigarette Alchemy Adjustments Pro-Forma
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 5,194,008 $ 319,080 $ (151,232) (1) $ 5,361,856
Cost of Sales 3,820,372 233,838 (151,232) (1) 3,902,978
------------- ------------- ----------- ------------
GROSS MARGIN 1,373,636 85,242 -- 1,458,878
Selling, General and 71,575 (2)
Administrative Expenses 2,057,806 89,269 (189,363) (3) 2,029,287
Interest Expense 247,587 5,361 (168,100) (4) 84,848
Loss from Employee Embezzlement 72,730 -- -- 72,730
Provision for loan Loss -- 257,928 257,928
Other Income (100,000) -- -- (100,000)
------------- ------------- ----------- ------------
NET LOSS $ (904,487) $ (267,316) $ 285,888 $ (885,915)
============= ============= =========== ============
BASIC LOSS PER SHARE AMOUNTS:
Net Loss $ (0.24) (0.10) $ (0.16)
============= ============= ============
Weighted average number of
common shares outstanding 3,699,708 2,658,227 5,421,844
============= ============= ============
</TABLE>
The equation for computing basic (loss) per common share is:
(Loss) available to common shareholders / Weighted-average shares.
See notes to pro-forma financial statements.
F-41
<PAGE>
CIGARETTE RACING TEAM, INC. and ALCHEMY HOLDINGS, INC.
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Cigarette Alchemy Adjustments Pro-Forma
------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 7,026,625 $ 742,289 $ (187,258) (1) $ 7,581,656
Cost of Sales 4,946,870 651,071 (187,258) (1) 5,410,683
------------- ------------- ----------- ------------
GROSS MARGIN 2,079,755 91,218 -- 2,170,973
Selling, General and 143,150 (2)
Administrative Expenses 2,426,629 174,637 (378,726) (3) 2,365,690
Interest Expense 563,620 27,187 (336,200) (4) 254,607
Loss from Employee Embezzlement 280,571 -- -- 280,571
Provision for loan Loss -- 338,885 -- 338,885
Other Income (400,000) -- -- (400,000)
------------- ------------- ----------- ------------
LOSS BEFORE EXTRAORDINARY ITEM (791,065) (449,491) 571,776 (668,780)
Extraordinary Gain on Foregiveness of Debt -- 130,203 -- 130,203
------------- ------------- ----------- ------------
NET LOSS $ (791,065) $ (319,288) $ 571,776 $ (538,577)
============= ============= =========== ============
BASIC LOSS PER SHARE AMOUNTS:
Loss before extraordinary item (0.22) (0.20) (0.12)
Extraordinary Gain on Foregiveness of Debt -- 0.06 --
Net Loss $ (0.22) (0.14) $ (0.10)
============= ============= ============
Weighted average number of
common shares outstanding 3,577,027 2,291,093 5,421,844
============= ============= ============
</TABLE>
The equation for computing basic (loss) per common share is:
(Loss) available to common shareholders / Weighted-average shares.
See Notes to pro-forma financial statements.
F-42
<PAGE>
CIGARETTE RACING TEAM, INC. and ALCHEMY HOLDINGS, INC.
NOTES TO PRO-FORMA FINANCIAL STATEMENTS
NOTES TO PRO-FORMA BALANCE SHEET
(A) This adjustment records the goodwill or cost in excess of the net assets
acquired by Cigarette, the accounting acquiror in the transaction. The
consideration for the acquisition of Alchemy is the fair value of the
Alchemy common shares outstanding prior to the merger, 2,702,394, less the
2,000,000 million shares being surrendered by Offshore, or 702,394 times
the fair value of the Alchemy stock, $2.00, as determined by the Company's
Board of Directors. To this value of $1,404,788 is added the stated and
redemption value of $1,000,000 of the new Series B Preferred Stock being
issued to Offshore. (See Note E). Series A will bear a 5% cumulative
dividend and Series B will bear an 8% dividend, both of which will be
payable quarterly unless Alchemy elects not to pay the dividend in which
such dividend shall be cumulative and shall accrue without interest. No
dividend shall be declared or paid on Alchemy Common Stock unless all
preferred stock dividends have been paid in full. Alchemy Preferred Stock,
Series A and Series B, respectively, may be repurchased at any time by
Alchemy for a purchase price of $10,000 per share plus all dividends
payable at the time of repurchase; however, such holders may not force
Alchemy to repurchase any shares of Alchemy Preferred Stock, Series A and
Series B, respectively. All shares of Alchemy Common Stock and Alchemy
Preferred Stock Series B will be of junior rank to Series A with respect to
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. The rights of the shares of
Alchemy Common Stock will be subject to the preferences and relative rights
of the Series A. Series A and Series B holders, respectively, will not be
entitled to any voting rights either in person or by proxy. Additionally,
Series A and Series B shares, respectively, will be non-convertible,
unsecured and unredeemable. The total consideration for the acquisition of
Alchemy therefore equals $2,404,788. Alchemy's liabilities of $273,792 are
fairly valued on their March 31, 1999 balance sheet; accordingly the total
of consideration paid and liabilities assumed equals $2,678,580. Alchemy's
assets of $531,223 were also fairly valued on their March 31, 1999 balance
sheet; as a result the goodwill arising from the acquisition equals
$2,678,580 less $531,333 or $2,147,247. Such goodwill will be amortized
over fifteen years.
(B) This adjustment reflects the total indebtedness to the Seller being
extinguished in exchange for equity. (see Note J).
(C) This adjustment reflects the cancellation of the original Series A
mandatorily redeemable cumulative preferred stock in exchange for the
issuance of new Series A Preferred Stock. (See Note F).
(D) This adjustment records the issuance of the new Series B Preferred Stock to
Offshore.
(E) This adjustment reduces the aggregate value of the 5,421,844 Alchemy $.001
par value common shares outstanding after the merger to $5,312. (See Note
G).
(F) The cumulative unpaid dividends on the old Series A Preferred Stock, which
were charged against additional paid-in capital, are reversed against that
account. After the conversion to the new preferred, there is no obligation
to pay the old cumulative dividends.
(G) This adjustment reflects the excess of new additional paid-in capital over
the par value of the 702,394 common shares of Alchemy retained by Alchemy's
stockholders. Since such shares have an aggregate fair value of $1,404,788,
such amount plus the adjustment of $34,475, which reduced aggregate par
value in Adjustment F, or $1,439,263 in the aggregate is credited to
additional paid-in capital.
F-43
<PAGE>
CIGARETTE RACING TEAM, INC. and ALCHEMY HOLDINGS, INC.
NOTES TO PRO-FORMA FINANCIAL STATEMENTS (contd.)
NOTES TO PRO-FORMA BALANCE SHEET (Continued)
(H) This adjustment balances additional paid-in capital for all entries
applicable to the capital accounts. It is comprised of the following:
Alchemy common stock eliminated $ 2,702
Alchemy additional paid-in capital eliminated 2,534,443
Fair value of new Cigarette stock issued to Seller (2,000,000)
------------
Net balancing adjustment to additional paid-in capital $ (537,145)
============
(I) For financial reporting purposes, Alchemy is the acquired company.
Accordingly this adjustment eliminates Alchemy's accumulated deficit.
(J) This entry records the gain on extinguishment of troubled debt. Such gain
is measured by the excess of the debt extinguished, $5,711,040, over the
fair value of the equity exchanged therefore, $2,000,000 in new Cigarette
common stock. (See Note H). The issuance of the new Cigarette shares is not
separately reflected since the legal structure of Alchemy's capital
survives the merger, even though Cigarette is the accounting acquiror.
NOTES TO PRO-FORMA STATEMENT OF OPERATIONS
(1) This adjustment eliminates from sales and cost of sales the inter-company
sales from Alchemy to Cigarette.
(2) This adjustment reflects amortization of the goodwill resulting from the
acquisition amortized over six months and one year, respectively, for the
pro-forma periods.
(3) This adjustment reflects the recurring savings of rent expense directly
related to the lease renegotiation undertaken as part of the Settlement
Agreement with the Seller.
(4) This adjustment reflects the recurring savings of interest expense on the
indebtedness extinguished as part of the Settlement Agreement with the
Seller.
F-44
<PAGE>
UNDERTAKINGS
The registrant hereby undertakes to file, during any period in which it
offers or sells securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in this
registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospects
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against the public policy as expressed in the Securities Act and is, therefore,
unenforceable.
For determining liability under the Securities Act, the registrant hereby
undertakes that it will 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.
Further, the registrant hereby undertakes to file a post-effective
amendment to remove from registration any of the securities that remain unsold
at the end of the offering.
51
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Form of Agreement and Plan of Merger
3.1 Articles of Incorporation of Hawk Marine Power, Inc. (a Utah
corporation), as Amended (1)
3.2 Articles of incorporation of Hawk Marine Power, Inc. (a Florida
corporation), as Amended (1)
3.3 Certificate of Amendment of the Articles of Incorporation of Hawk
Marine Power, Inc. (1)
3.4 By-Laws of Hawk Marine Power, Inc. (a Utah corporation) (1)
3.5 By-Laws of Hawk Marine Power, Inc. (a Florida corporation) (1)
5.1 Form of Opinion and Consent of Beckman, Millman & Sanders, LLP
regarding the legality of the securities being registered
8.1 Opinion re: Tax Matters (included in Exhibit 5.1)
10.1 Offshore License Agreement
10.2 OTAM License Agreement
10.3 OTAM s.p.a. License Agreement
10.4 OTAM s.p.a. Amendment to Distribution and License Agreement
10.5 Alchemy Lease for Aventura property (2)
10.6 Form of Exchange Agreement - by and among Alchemy Holdings, Inc.,
Central Manufacturing, Inc. and Cigarette Racing Team, Inc.
10.7 Form of Release and Waiver - by Central Manufacturing, Inc. in
favor of Cigarette Racing Team, Inc.
10.8 Form of Registration Rights agreement - Alchemy Holdings, Inc.
and Central Manufacturing, Inc.
10.9 Form of Stockholders agreement - by and among Adam Schild, Craig
Barrie, Offshore Racing, Inc. and Winchester Holdings, L.P., and
Central Manufacturing, Inc.
10.10 Form of Unconditional Guaranty Agreement - by Alchemy Holdings,
Inc., Winchester Holdings, L.P., and Jack Cabasso in conjunction
with that certain lease by and between Central Manufacturing,
Inc. and Cigarette Racing Team, Inc.
10.11 Form of Amendment to Lease Agreement - by and between Central
Manufacturing, Inc. and Cigarette Racing Team, Inc.
13.1 Form 10QSB (filed: 05/04/1999) (3)
13.2 Form 10QSB (filed: 05/04/1999) (3)
13.3 Form 10KSB (filed: 04/20/1999) (3)
13.4 Form 10QSB (filed: 08/14/1998) (3)
13.5 Form 10QSB (filed: 05/01/1998) (3)
13.6 Form 10QSB (filed: 03/11/1998) (3)
13.7 Form 10KSB/A (filed: 08/11/99) (3)
23.1 Consent of Beckman, Millman & Sanders, LLP (included in Exhibit
5.1)
23.2 Consents of Jere J. Lane, CPA
23.3 Consent of Callaghan Nawrocki, LLP
24.1 Power of Attorney
99.1 Selected Sections of the Florida Business Corporation Act
99.2 Alchemy Holdings, Inc. and Cigarette Racing Team, Inc. Joint
Proxy Statement and Alchemy Holdings, Inc. Prospectus.
- --------------
(1) Filed as the same encumbered exhibit to the Registrant's Registration
Statement (File No. 33-30906-A) previously filed.
(2) To be filed by amendment.
(3) Previously filed with the Securities and Exchange Commission as separate
filings.
52
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-4 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Miami,
State of Florida, on August 13, 1999.
ALCHEMY HOLDINGS, INC.
By: /S/ Craig N. Barrie
---------------------------
Craig N. Barrie, President*
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Name Title Date
- ---- ----- ----
Craig Barrie* President/Director August 13, 1999
Berton Lorow* Vice President/Director August 13, 1999
Adam C. Schild* Secretary/Director August 13, 1999
Penny Adams Field* Principal Financial Officer August 13, 1999
* Craig N. Barrie, pursuant to a Power of Attorney, executed by each of the
Directors and Officers noted above and filed with the Securities and Exchange
Commission, by signing his name hereto, does hereby sign and execute this Form
S-4 Registration Statement on behalf of each of the persons noted above and
designated by an asterisk, in the capacities understood and does hereby sign and
execute this Form S-4 Registration Statement on his own behalf as President.
53
(letterhead of Beckman, Millman & Sanders, LLP)
August 5, 1999
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Re: Alchemy Holdings, Inc. Registration Statement on Form S-4 -
Registration Number 333-52049
Ladies and Gentlemen:
Reference is made to the filing by Alchemy Holdings, Inc. (the "Company")
of a Registration Statement on Form S-4, as amended (the "Registration
Statement"), with the Securities and Exchange Commission pursuant to the
provisions of the Securities Act of 1933, as amended, covering the registration
of (a) 4,719,450 shares of the Company's common stock, par value $.001 per share
(the "Common Stock") to be issued in connection with the transactions
contemplated by the merger agreement to which the Company and Cigarette Racing
Team, Inc. ("Cigarette") are parties (the "Merger Agreement"), (b) an aggregate
of 2,330,000 shares of Common Stock which underlie various warrants and options
held by certain shareholders of Cigarette and (c) 100 shares of Alchemy
Preferred Stock, Series A and Series B, respectively.
As counsel for the Company, we have examined its corporate records,
including its Amended Certificate of Incorporation, Restated By-Laws, its
corporate minutes, the form of its Common Stock certificate and such other
documents, as we have deemed necessary or relevant under the circumstances.
Based upon our examination, we are of the opinion that:
1. The Company is duly organized and validly existing under the laws of
the State of Florida.
2. The Company is in good standing in the State of Florida.
3. The shares of Common Stock covered by the Registration Statement have
been duly authorized and, when issued in accordance with their terms,
as more fully described in the Registration Statement, will be validly
issued, fully paid and non-assessable.
<PAGE>
4. The Merger will be treated as a tax-free reorganization as defined in
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that, accordingly, (i) no gain or loss will be
recognized by the shareholders of Cigarette upon the exchange of their
shares of Cigarette Common Stock solely for shares of Alchemy Common
Stock pursuant to the Merger, (ii) the basis of the Alchemy Common
Stock received by each shareholder of Cigarette in exchange for shares
of Cigarette Common Stock will be the same, immediately after the
exchange, as the basis of such shareholder's Cigarette Common Stock
exchanged therefor, and (iii) the holding period for any Alchemy
Common Stock received in exchange for Cigarette Common Stock will
include the period during which the Cigarette Common Stock surrendered
for exchange was held, provided such stock was held as a capital asset
on the date of the exchange.
We hereby consent to be named in the Registration Statement, the Prospectus
and the form of Proxy Statement which constitute parts thereof as counsel to the
Company, and we hereby consent to the filing of this opinion as Exhibit 5.1 to
the Registration Statement.
Very truly yours,
By: /s/ BECKMAN, MILLMAN & SANDERS, LLP.
-------------------------------------
BECKMAN, MILLMAN & SANDERS, LLP.
LICENSE
THIS AGREEMENT, is made at North Miami, Florida, as of the 12th day of May,
1997, by and between OFFSHORE RACING TEAM, INC., a corporation organized under
the laws of the British Virgin Islands ("LICENSOR"), and HAWK MARINE POWER,
INC., a corporation organized under the laws of the state of Florida
("LICENSEE"), (hereinafter collectively referred to as "The Parties").
RECITALS
LICENSEE and LICENSOR (hereinafter collectively called "The Parties"), have
read this Agreement (hereinafter called "Agreement") and understand and accept
the terms, conditions, and covenants contained in this Agreement as being
reasonably necessary to maintain LICENSOR's standards and business practices as
it relates to the retaining of entities utilizing the LICENSOR's Marks
(hereinafter called "Marks").
WHEREAS, LICENSOR is the LICENSOR of to the best of its knowledge and
belief of the United States, trademarks, service marks, and business names, and
registrations for such trademarks, service marks and business names ("Marks"),
including those Marks listed on Schedule A;
WHEREAS, LICENSOR is in the business of licensing products and services
bearing such Marks; and
WHEREAS, LICENSEE is desirous of entering into the business of obtaining
rights in intellectual property for use in connection with products and
services, and sublicensing such intellectual property rights to others,
including merchandising such products and services, and desires to obtain rights
in LICENSOR's Marks for these and other purposes;
LICENSEE has investigated and become familiar with LICENSOR and desires
upon the terms and conditions set forth herein to enter into this Agreement.
LICENSEE acknowledges that it is essential to the maintenance of the high
standards of LICENSOR, that LICENSEE maintain and adhere to the standards,
procedures and policies described herein.
THEREFORE, The Parties, intending to be legally bound, for and in
consideration of the mutual covenants hereinafter following, do mutually
covenant and agree:
NOW THEREFORE, the parties agree as follows:
1. GRANT OF LICENSE
LICENSOR grants to LICENSEE an exclusive, world-wide right and license
to use the LICENSOR's current and after acquired Marks in connection with
all goods and services other than the use of said Marks on any form of
water craft. It is understood and agreed that LICENSEE shall have no right
of sublicense hereunder except as provided in this Section
<PAGE>
1 hereto. LICENSEE may sublicense its rights hereunder, provided such
sublicensee will restrict it to the uses permitted under this Agreement,
and further provided that said sublicense shall terminate at any time that
this License Agreement hereunder shall terminate. and that said sublicensee
agrees to conform with the terms and obligations of the licensee as
provided in this Agreement.
Any assignment, license or sublicense hereunder will, by its terms, bind
such assignee to the obligations of the LICENSEE hereunder, and refer to or
incorporate by reference this Agreement, and will provide that the LICENSOR
will be deemed a third party beneficiary of such assignment.
2. QUALITY MAINTENANCE
LICENSEE agrees to notify LICENSOR by facsimile, first class mail or
overnight mail of each product or service for which LICENSEE, or a
sublicensee of LICENSEE, intends to use LICENSOR's Marks. Upon reasonable
written request of LICENSOR, which written request shall be made no more
than seven (7) days after receipt of such notification in LICENSOR's
offices, LICENSEE agrees to submit to LICENSOR, specifications or samples
of products or services for which LICENSEE, or a sublicensee of LICENSEE,
intends to use LICENSOR's Marks. If LICENSOR disapproves of any product or
service submitted for review under this Section 2, LICENSOR shall notify
LICENSEE of LICENSOR's disapproval in writing within thirty (30) days of
receipt, in LICENSOR's offices, of such specifications or samples. Such
written disapproval shall set forth in detail:
(1) Each disapproved product or service,
(2) Each defect of each disapproved product or service, and
(3) Non-binding, commercially reasonable suggestions for correcting
each such defect.
LICENSOR shall use good faith and fair dealing in approving or
disapproving of any product or service submitted for review. LICENSEE
acknowledges that it is essential to the maintenance of the high standards
of LICENSOR that LICENSEE shall maintain and adhere to the standards,
procedures and policies described herein. If the LICENSOR feels that the
proposed use of the product is inconsistent with the standards which the
LICENSOR has established for the use of these products, then the LICENSOR
shall have the right to reject LICENSEE's right to use said product.
LICENSOR agrees that approval of all products submitted shall not be
unreasonably withheld. Once LICENSOR is given approval of specific products
and services and has notified LICENSEE of such approval, no further notice
need to be given to LICENSOR from LICENSEE, provided the products or
services are not substantially changed.
In addition to providing the information hereunder, the LICENSEE shall
also provide copies of all license agreements executed between the LICENSEE
and any sublicensee, so
<PAGE>
that the LICENSOR can confirm said license agreements conform with the
terms of this Agreement.
Once LICENSEE has given approval of specific products and services,
and notified LICENSOR of such approval, no further notice need not be given
to LICENSOR from LICENSEE provided the products or services are not
substantially changed.
3. INFRINGEMENT PROCEEDINGS
Upon notice by LICENSEE of a third party infringement of LICENSOR's
Marks, LICENSOR shall take reasonable efforts to protect the Marks against
any third party infringer at the expense of LICENSOR. LICENSEE may if it
elects to seek injunctive relief against the alleged third party in the
name of LICENSOR. LICENSOR shall notify LICENSEE of any enforcement of
LICENSOR's Marks and LICENSEE shall have the right to participate, and
consult with LICENSOR, in any enforcement action. Notwithstanding this
Section 3, LICENSEE retains all rights available to LICENSEE under law to
sue for infringement and unfair competition. Not withstanding the
foregoing, LICENSEE shall take reasonable efforts during the term of this
Agreement to protect the Marks for any other use other than for boats.
4. TERM
A. Initial Term
The initial term of this Agreement shall be for a period of 120
months, commencing on the date first mentioned above, subject to the
tenns and conditions set forth herein.
B. Renewal Option
LICENSEE shall have the option to renew this Agreement for two (2)
additional periods of sixty (60) months each. In all cases, renewal
shall require that: (1) LICENSEE not be in violation of this Agreement
or any other Agreement between LICENSOR and LICENSEE; and (2) LICENSEE
give written notice of their election to renew not less than six (6)
months prior to the end of the term then in effect. If any rules or
laws modifies, alters or amends all or part of the renewal provisions,
then such provisions shall be modified, altered or amended
accordingly, so as to be in full compliance with such rules and laws.
C. Subsequent Renewal Options
Subsequent to the periods as mentioned in Paragraph 4B hereto,
LICENSEE shall have the option to renew this Agreement for two (2)
additional periods of sixty (60) months each, if (1) LICENSEE not be
in violation of this Agreement or any other Agreement between LICENSOR
and LICENSEE; (2) LICENSEE give written
<PAGE>
notice of their election to renew not less than six (6) months prior
to the end of the term then in effect; and (3) during the last term
then in effect LICENSEE shall have paid to LICENSOR pursuant to
Paragraph 5(A) and (B) a minimum of one hundred thousand ($100,000)
dollars.
This Agreement shall continue in force and effect for as provided for
in Section 4 herein and subject to all other terms and conditions set forth
in this Agreement.
5. ROYALTY
A. In the event LICENSEE sublicenses rights to the Mark, LICENSEE shall
pay to LICENSOR on a quarterly basis (the "Period"), ten (10%) percent
of the gross royalties or other revenues collected by LICENSEE during
such Period. Said payment shall be made no later than fifteen (15)
days after the end of Period, at the offices of LICENSOR.
B. In the event, LICENSEE on its own behalt manufactures, sells or
distributes products or services using the LICENSOR's Mark, LICENSEE
shall pay to LICENSOR on a quarterly basis (the "Period"), two and
one-half (2- 1/2%) percent of the gross revenues collected by LICENSEE
for each product or service for which LICENSEE, uses LICENSOR's Mark.
Said payment shall be made no later than fifteen (15) days after the
end of the then applicable Period, at the offices of LICENSOR. Section
5(B) hereof when applied, shall be in place of and not in addition to
section 5(A) hereof.
C. During the term hereof, LICENSEE shall deliver to LICENSOR a Report
(the "Report") of all monies received by LICENSEE during each Period,
no later than fifteen (15) days of the end of the then applicable
Period. The Report shall fully disclose the amount of income, sales,
royalties, revenues or other income collected by use of the LICENSOR's
Mark for the then applicable Period.
D. As further inducement and a condition hereof, to induce LICENSOR into
entering into this Agreement, LICENSEE shall pay to LICENSOR a one
time fee of two million restricted post-split (2,000,000) shares of
Hawk Marine Power, Inc. common stock on or before the signing of this
Agreement.
LICENSEE shall not be obliged to pay any further minimum royalties or
monies to LICENSOR except as explicitly required in this Section 5.
6. DEFAULT
In the event either LICENSEE is in default in the performance of any
of the terms of this Agreement, including, but not limited to, the acts set
forth hereinafter, defaultee, in addition to all remedies that defaultee
has available to it at law or in equity, may declare this Agreement
automatically terminated, unless such default is cured within ten (10) days
after written notice thereof (as provided for herein) from defaultee to
defaulter, unless the default
<PAGE>
is of such a nature that more than (10) days are reasonably required to
effect a cure. In such event, defaulter shall commence to cure the default
within said (10) day period, if any, designated by defaultee as the
allowable additional time within which the cure must be accomplished.
7. NO JOINT VENTURE
Performance by the parties under this Agreement shall be as
licensor-licensee. No product or service developed pursuant to the terms of
this Agreement, and no provision contained herein, shall be construed to
constitute a joint venture or partnership between the parties, nor shall
either party act as the agent for each other for any purpose.
8. NOTICES
All notices, requests, demands, payments, consents and other
communications hereunder shall be transmitted in writing and shall be
deemed to have been duly given when sent by registered certified United
States mail, Postage prepaid, or other form of delivery which provides for
a receipt, and sender is in receipt of a delivery notice, signed by
recipient, if addressed as follows:
LICENSEE: HAWK MARINE POWER, INC
3025 N.E. 188th Street
Aventura, Florida 33180
LICENSOR: OFFSHORE RACING, INC.
Hirzel House, Smith Street
St. Peter Port, Guernsey
Channel Islands, GY1 2NG
A. Address Change
Either of The Parties may change his address by giving notice of such
change of address to the other, but must comply with all other terms of
this Agreement.
B. Notice by Telegram or Facsimile.
In the case of any notice required to be given by The Parties to each other
telegraphic notice or facsimlie transmission, shall not be sufficient
notice hereunder.
9. ADDITIONAL ACTIONS
The Parties agree to execute such other documents and perform such
further acts as may be necessary or desirable to carry out the purposes of
this Agreement.
<PAGE>
10. HEIRS. SUCCESSORS. AND ASSIGNS
This Agreement shall be binding and inure to the benefit of the parties,
their heirs, successors, and assigns.
11. ENTIRE AGREEMENT
The undersigned acknowledges that they, and each of them, have read
this agreement in full; are cognizant of each and every one of the terms
and provisions hereof and are agreeable thereto; that no representations or
agreements, whether oral or written, except as hereinafter set forth, have
been made or relied upon; that any and all prior agreements or
understandings between the parties, relating to the subject matter of this
Agreement, whether oral or written are automatically canceled by the
execution of this agreement; that the signatures affixed hereto were
affixed as the wholly voluntary act of the persons who signed this
agreement; and that the terms and provisions of this agreement cannot be
changed or modified unless in writing signed by an authorized corporate
officer, director or agent of LICENSEE and LICENSOR. No modification or
amendment of any provision of this Agreement shall be construed as a
waiver, breach or cancellation of any other provision.
This Agreement constitutes the sole agreement between the LICENSOR and
LICENSEE hereto pertaining to the subject matter described herein, and
effective as of the date of this Agreement.
12. WAIVER OF RIGHTS
Failure by either of The Parties to enforce any rights under this
Agreement shall not be construed as the waiver of such rights. Any waiver,
including waiver of default, in any one instance, shall not constitute a
continuing waiver or a waiver in any other instance. Any acceptance of
money or other performance by either of The Parties, shall not constitute a
waiver of any default, except as to the payment of the particular payment
or performance so received.
13. VALIDITY OF PARTS
Any invalidity of any portion of this Agreement shall not affect the
validity of the remaining portion, and unless substantial performance of
this Agreement is frustrated by any such invalidity, this Agreement shall
continue in effect.
14. HEADINGS
The headings used herein are for purposes of convenience only and
shall not be used in interpreting the provisions hereof As used herein, the
male gender shall include the female and neuter genders; the singular shall
include the plural, the plural, the singular and termination shall include
expiration.
<PAGE>
15. EXECUTION BY THE PARTIES
This Agreement shall not be binding on either of The Parties, unless
and until it shall have been accepted and signed by authorized officers or
directors of LICENSEE and LICENSOR.
16. ATTORNEY'S FEES
If either of The Parties hereto commences an action against the other,
arising out of or in connection with this Agreement, the prevailing of The
Parties shall be entitled to have and recover from the other Party its
reasonable attorneys' fees and costs at all trial and appellate levels.
17. ASSIGNMENT
Either party may delegate any obligation under this Agreement or
assign this Agreement or any interest or right hereunder without the prior
written consent of the other and any such assignment or transfer may not be
null and voided.
18. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida. Any provision of this Agreement which may
be determined by a court of competent jurisdiction to be prohibited or
nonenforceable in any jurisdiction shall, as to that jurisdiction, be
effective to the extent of the prohibition or nonenforceability, without
invalidating the remaining provisions of this Agreement.
19. NO PROJECTIONS OR REPRESENTATIONS
The Parties acknowledge and represent that no projections or
representations regarding the amount of income, sale, or profits they can
expect to eam or receive by virtue of this Agreement, has been received
from either of The Parties. The Parties acknowledge that no representations
or warranties inconsistent with this Agreement were made to induce each
other to execute this Agreement.
The Parties acknowledge that neither of the Parties nor any other
person can guarantee the success of the business. The undersigned, by
signing this Agreement, acknowledge that they have read same and that it
has been requested to state in writing hereafter any terms, claims,
covenants, promises, or representations, including representations as to
any income, sales, or profit projections, that were made by either of the
parties or its representatives contrary to the provisions of this
Agreement, including the persons making same, the location, and date
thereof
<PAGE>
20. ACKNOWLEDGMENTS
LICENSEE and LICENSOR have all requisite authority to enter into this
Agreement, whether arising under applicable Federal or State laws, rules or
regulations, to which either of The Parties may be subject to.
IN WITNESS WHEREOF, The Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
OFFSHORE RACING, INC. HAWK MARINE POWER, INC.
/s/ Michael W. Macey /s/ Craig N. Baffle
By: Michael W. Macey By: Craig N. Baffle
Its: Director Its: President
LICENSE and DISTRIBUTION AGREEMENT
THIS AGREEMENT, is made at Aventura, Florida, as of the 28th day of
October, 1997, by and between
OTAM SpA, a corporation organized under the laws of Italy, with its
registered offices at Via S. Siro, 1, 16038 Santa Margherita Ligure (Ge),
Italy ("LICENSEE")
and
CIGARETTE RACING TEAM, INC., a corporation organized under the laws of the
State of Florida, U.S.A., with offices at 3131 N.E. 188th Street, Aventura,
Florida 33180, U.S.A. ("LICENSOR")
(hereinafter collectively referred to as ("The Parties")
RECITALS
LICENSEE and LICENSOR, have read this Agreement (hereinafter called
"Agreement") and understand and accept the terms, conditions, and covenants
contained in this Agreement as being reasonably necessary to maintain LICENSOR's
standards and business practices as it relates to the retaining of entities
utilizing the LICENSOR's Marks (hereinafter called ("Marks").
WHEREAS, LICENSOR is to the best of its knowledge and belief, the
registered owner of the trademarks, service marks, and business names, and
registrations for such trademarks, service marks and business names "Cigarette")
in International Class 12, as listed on Schedule A hereto; and
WHEREAS, LICENSEE is desirous of obtaining rights in LICENSOR's Mark for
use in connection with manufacturing, selling and/or distributing of specific
watercraft bearing such Mark which are, respectively 45 feet and 55 feet in
length as more specifically defined in Schedule B, hereto (the "Boats").
LICENSEE has investigated and become familiar with LICENSOR and desires
upon the terms and conditions set forth herein to enter into this Agreement.
LICENSEE acknowledges that it is essential to the maintenance of the high
standards of LICENSOR, that LICENSEE maintain and adhere to the standards,
procedures and policies described herein.
THEREFORE, The Parties, intending to be legally bound, for and in
consideration of the mutual covenants hereinafter following, do mutually
covenant and agree:
Page 1 of 12
<PAGE>
1. GRANT OF LICENSE
LICENSOR grants to LICENSEE the exclusive, world-wide right and
license to use the LICENSOR's Mark in connection with manufacture, sale,
and/or distribution of the Boats. It is understood and agreed that LICENSEE
shall have no right of sublicense or assignment hereunder under any
condition.
2. NON-DISCLOSURE
As a condition of this Agreement, The Parties agrees that during the
term of this Agreement and any subsequent renewals as defined in Section 5
hereto, The Parties shall not disclose to any third party the terms of this
Agreement.
The Parties acknowledges that each individually would suffer
irreparable harm which could not be satisfied by monetary damages, should
either of The Parties violate the confidentiality of this Agreement and the
terms and conditions hereof, and the undertakings contemplated by this
Agreement.
3. QUALITY MAINTENANCE
LICENSEE agrees to notify LICENSOR by facsimile, first class mail or
overnight mail of any Sales Order (the "Sales Order") for the purchase of a
Boat and thereafter to further notify LICENSOR by same means of the
completion and delivery of such Boat as described in said Sales Order.
LICENSEE undertakes to manufacture the Boats in accordance with
descriptions set forth in Schedule B, applying the high quality standards
required for boats for their class and category and bearing the Mark. Upon
reasonable written request of LICENSEE, which written request shall be made
no more than three days after receipt of such notification in LICENSEE's
offices, the inspection of any Boat utilizing LICENSOR's Marks. If LICENSOR
disapproves of any product submitted for review under this Section 2,
LICENSOR shall notify LICENSEE of LICENSOR's disapproval in writing within
ten (10) days of receipt, in LICENSEE's offices, of such specifications.
Such written disapproval shall set forth in detail:
a) Each disapproval
b) Each defect of each disapproval, and
c) Non-binding, commercially reasonable suggestions for correcting
each such defect.
Page 2 of 12
<PAGE>
4. TERM
A. Initial Term
The initial term of this Agreement shall be for a period of
twenty-four (24) months, commencing on the date first mentioned above,
subject to the terms and conditions set forth herein.
B. Renewal Option
LICENSEE shall have the option to renew this Agreement for two (2)
additional periods of twenty-four (24) months each. In all cases,
renewal shall require that: (i) LICENSEE not be in violation of this
Agreement or any other Agreement between LICENSOR and LICENSEE; (ii)
LICENSEE give written notice of their election to renew not less than
three (3) months prior to the end of the term then in effect, and
(iii) LICENSEE shall have paid to LICENSOR pursuant to Section 5B
hereof royalties of at least Six Hundred Thousand United States
(US$600,000) Dollars, during the initial term inclusive of the Advance
Royalty (as defined in Section 5A hereof). If any rules or laws
modifies, alters or amends all or part of the renewal provisions, then
such provisions shall be modified, altered or amended accordingly, so
as to be in full compliance with such rules and laws.
C. Subsequent Renewal Options
Subsequent to the periods as mentioned in Paragraph 4B hereto,
LICENSEE shall have the option to renew this Agreement for two (2)
additional periods of twenty-four (24) months each, if (i) LICENSEE
not be in violation of this Agreement or any other Agreement between
LICENSOR and LICENSEE; (ii) LICENSEE give written notice of their
election to renew not less than three (3) months prior to the end of
the term then in effect; and (iii) during the last term then in effect
LICENSEE shall have paid to LICENSOR pursuant to Section 5B a minimum
of Six Hundred Thousand United States (US$600,000) Dollars.
This Agreement shall continue in force and effect for as provided for
in Section 4 herein and subject to all other terms and conditions set forth
in this Agreement.
5. ROYALTY
A. LICENSEE shall, upon execution of this Agreement, pay to LICENSOR an
advance on royalties in the sum of Four Hundred Thousand United States
Dollars (US$400,000)(the "Advance Royalty").
Page 3 of 12
<PAGE>
B. LICENSEE shall pay to LICENSOR as a royalty a percentage of the gross
revenues received by LICENSEE for each Boat sold which bears the Mark.
Said payment shall be made no later than fifteen (15) days after the
receipt of payment by LICENSEE. Payments are to be made at the offices
of LICENSOR, or to such other address as LICENSOR shall notify
LICENSEE, as follows:
(i) on the first three (3) Boats sold ten (10%) percent
(ii) on the fourth and fifth Boats sold nine (9%) percent
(iii) on the sixth Boat sold eight (8%) percent
(iv) any subsequent Boats sold seven and one-half
(7.5%) percent
C. On the sale of any Boats, until Four Hundred Thousand United States
Dollars (US$400,000) in royalties have been earned, the royalties
earned will be a credit against the Advance Royalty.
D. During the term hereof, LICENSEE shall deliver to LICENSOR a Report
(the "Report") of all monies received by LICENSEE during each calendar
quarter with respect to the sale of Boats, no later than 30 days of
the end of the then applicable calendar quarter. The Report shall
fully disclose the amount of income from the sale of the Boats for the
then applicable quarter.
E. LICENSEE shall not be obliged to pay any minimum royalties or monies
to LICENSOR except as explicitly required in this Section 5.
6. GOODWILL
A. LICENSEE recognizes the value of the goodwill associated with the
licensing of the Boats and that the Mark has a secondary meaning in
the mind of the public. LICENSEE acknowledges that the Mark (including
all rights therein and goodwill associated therewith) shall, as
between LICENSEE and LICENSOR, be and remain the exclusive and
complete property of the LICENSOR. LICENSEE will not, during the term
of this Agreement or thereafter, question or challenge the property
right of LICENSOR therein, or the validity of this Agreement.
B. LICENSEE acknowledges and agrees that:
(i) The Mark as owned by LICENSOR shall be and remain the sole and
complete property of LICENSOR;
(ii) LICENSEE shall not at any time acquire or claim any right, title
or interest of any nature whatsoever in the Mark by virtue of
this Agreement or of LICENSEE's uses thereof in connection with
the Boats;
Page 4 of 12
<PAGE>
(iii) Any right, title or interest in or relating to the Mark which
comes into existence during the term hereof as a result of the
exercise by LICENSEE of any right granted to it hereunder shall
immediately and automatically vest in LICENSOR.
(iv) LICENSEE acknowledges the validity of the Mark and agrees never
to contest or assist others to contest the validity thereof.
7. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS:
A. LICENSEE represents, warrants and undertakes as follows:
(i) LICENSEE is free to enter into and fully perform this Agreement;
(ii) All designs, materials and intellectual property furnished by
LICENSEE in connection with each of the Boats will be of
LICENSEE's own and original creation (except for matters in the
public domain or material which LICENSEE is fully licensed to
use;
(iii) The Boats and the manufacture, advertisement, distribution and
sale thereof hereunder will not infringe upon or violate any
rights of any third party of any nature whatsoever;
(iv) The Boat will be of high standard in style, appearance and
quality, will be safe for users and will comply with all
applicable government rules, guidelines, safety codes and
regulations;
(v) The Boat will be manufactured, advertised, distributed and sold
in accordance with all applicable federal, state and local laws
in a manner that will not reflect adversely upon LICENSOR;
(vi) LICENSEE will use its best efforts to obtain the maximum sales
thereof during the term of this Agreement, will fill orders
promptly within industry standards and will provide a customer
service representative dedicated to the sales of the Boats; and
(vii) LICENSEE will not manufacture, advertise, distribute or sell and
will not authorize the manufacture, advertising, distribution or
sale of the Boats in any manner, at any time or in any place not
specifically licensed hereunder.
Page 5 of 12
<PAGE>
B. LICENSOR warrants, represents and undertakes as follows:
(i) LICENSOR has the right to grant the license granted herein and it
is free to enter into and fully perform this Agreement; and
(ii) LICENSOR has applied for and obtained trademark registration for
the Mark and LICENSOR hereby agrees to maintain such registration
in full force and effect.
8. INDEMNITIES
A. LICENSEE will at all times indemnify and hold LICENSOR, its officers,
directors and employees and those with whom LICENSOR has contractual
arrangements with respect to the Boats harmless from and against any and
all claims, damages, liabilities, costs and expenses, (including attorneys
fees), arising out of any alleged defects (whether latent or patent) in the
Boats, or out of any breach or alleged breach by LICENSEE of any
representation, warranty, agreement or undertaking made by LICENSEE herein,
including but not limited to any infringement or violation of any third
party's rights with respect to any patent, design, intellectual property or
manufacture of the Boats.
B. LICENSOR will at all times indemnify and hold LICENSEE, its officers,
directors and employees and those with whom LICENSEE has contractual
arrangements from and against any and all claims, damages, liabilities,
costs and expenses, (including attorneys fees), arising out of any breach
or alleged breach by LICENSOR of any representation, warranty, agreement or
undertaking made by LICENSOR herein.
C. During the term hereof, and any subsequent renewals thereof, LICENSEE shall
cause to be furnished by a prime rate bank to LICENSOR a guarantee for the
maximum sum of Four Hundred Thousand United States Dollars (US$400,000),
covering the risk that a Boat owner may make a claim against LICENSOR in
connection with repairs caused by defects (both latent and patent) in the
manufacture of the Boats by LICENSEE.
9. INSURANCE
During the term hereof LICENSOR shall maintain product liability
insurance in the amount of Two Million United States Dollars (US$2,000,000)
at its own expense with a responsible insurance carrier. This insurance
shall name LICENSOR as an additional insured and will insure against any
claims, suits, losses, damages, costs and expenses (including attorneys
fees) involving or relating to any actual or alleged harm, death, injury to
any person
Page 6 of 12
<PAGE>
or loss or damage to any property arising out of or resulting from any
defect or alleged defects in the Boats. The policy will also provide for at
least sixty (60) days prior written notice to LICENSOR and LICENSEE of the
cancellation or any substantial modification of the policy. As proof of
insurance, a fully paid certificate of insurance naming LICENSOR as an
insured party will be submitted to LICENSOR by LICENSEE before any Boats
are offered for sale.
10. DEFAULT, BANKRUPTCY AND FORCE MAJEURE:
A. Default: Upon the occurrence of any of the following events (each of
which is a "Default"), then in addition and without prejudice to any
rights which it may have at law, in equity or otherwise, LICENSOR
shall have the right to upon not less than sixty (60) days written
notice to LICENSEE specifying the basis for defaults, to terminate
this Agreement, and/or to require the immediate payment of any
royalties due or to become due hereunder:
(i) LICENSEE fails to make any payment of royalties or furnish any
statement in accordance herewith which failure extends for a
period in excess of thirty (30) days; or
(ii) LICENSEE fails to comply with any other of LICENSEE's obligations
hereunder or materially breaches any warranty made by it
hereunder and does not cure such failure or breach within thirty
(30) days after notice thereof.
B. Bankruptcy: If a voluntary petition in bankruptcy is filed by LICENSEE
and is not dismissed within thirty (30) days thereafter, a receiver or
trustee of any of LICENSEE's property is appointed and such
appointment is not vacated within (30) days thereafter, or LICENSEE
takes advantage of any insolvency law, then LICENSOR shall have the
right to terminate this Agreement, and/or to require the immediate
payment of any royalties due or to become due hereunder.
C. Force Majeure: In the event that LICENSEE is prevented from
manufacturing or distributing the Boat because of any act of God,
unavoidable accident, fire, epidemic, strike, lockout, or other labor
dispute; war, riot or civil commotion, act of public enemy, enactment
of any rule, law, order or act of governmental instrumentality
(whether federal, state, local or foreign), or other cause of a
similar or different nature beyond LICENSEE's control, and such
condition continues for a period of three (3) months or more, either
party hereto shall have the right to terminate this Agreement
effective at any time during the continuation of such condition by
giving the other party at least thirty (30) days notice to such
effect.
Page 7 of 12
<PAGE>
D. LICENSEE may, in its discretion, terminate its license under this
agreement by giving at least sixty (60) days written notice to
LICENSOR.
11. NO JOINT VENTURE
Performance by the parties under this Agreement shall be as
LICENSOR-LICENSEE. No product or service developed pursuant to the terms of
this Agreement, and no provision contained herein, shall be construed to
constitute a joint venture or partnership between the parties, nor shall
either party act as the agent for each other for any purpose.
12. NOTICES
A. All notices, requests, demands, payments, consents and other
communications hereunder shall be transmitted in writing and shall be
deemed to have been duly given when sent by registered certified
United States mail, postage prepaid, or other form of delivery which
provides for a receipt, and sender is in receipt of a delivery notice,
signed by recipient, if addressed as follows:
LICENSOR: CIGARETTE RACING TEAM, INC.
3131 N.E. 188th Street
Aventura, Florida 33180 U.S.A.
LICENSEE: OTAM SpA
Via S. Siro, 1
16038 Santa Margherita Ligure (Ge),
Italy
B. Address Change
Either of The Parties may change his address by giving notice of such
change of address to the other, but must comply with all other terms
of this Agreement.
C. Notice by Telegram or Facsimile
In the case of any notice required to be given by The Parties to each
other, telegraphic notice or facsimile transmission, shall not be
sufficient notice hereunder.
Page 8 of 12
<PAGE>
13. ADDITIONAL ACTIONS
The Parties agree to execute such other documents and perform such
further acts as may be necessary or desirable to carry out the purposes of
this Agreement.
14. HEIRS, SUCCESSORS, AND ASSIGNS
This Agreement shall be binding and inure to the benefit of the
parties, their heirs, successors, and assigns.
15. ENTIRE AGREEMENT
A. The undersigned acknowledges that they, and each of them, have read
this Agreement in full; are cognizant of each and every one of the
terms and provisions hereof and are agreeable thereto; that no
representations or agreements, whether oral or written, except as
hereinafter set forth, have been made or relied upon; that any and all
prior agreements or understandings between the parties, relating to
the subject matter of this Agreement, whether oral or written are
automatically canceled by the execution of this agreement; that the
signatures affixed hereto were affixed as the wholly voluntary act of
the persons who signed this agreement; and that the terms and
provisions of this agreement cannot be changed or modified unless in
writing signed by an authorized corporate officer, director or agent
of LICENSEE and LICENSOR. No modification or amendment of any
provision of this Agreement shall be construed as a waiver, breach or
cancellation of any other provision.
B. No modification or amendment or any provision of this Agreement shall
be construed as a waiver, breach or cancellation of any other
provision.
C. This Agreement constitutes the sole agreement between the LICENSOR and
LICENSEE hereto pertaining to the subject matter described herein, and
effective as of the date of this Agreement.
16. WAIVER OF RIGHTS
Failure by either of The Parties to enforce any rights under this
Agreement shall not be construed as the waiver of such rights. Any waiver,
including waiver of default, in any one instance, shall not constitute a
continuing waiver or a waiver in any other instance. Any acceptance of
money or other performance by either of The Parties, shall not constitute a
waiver of any default, except as to the payment of the particular payment
or performance so received.
Page 9 of 12
<PAGE>
17. VALIDITY OF PARTS
Any invalidity of any portion of this Agreement shall not affect the
validity of the remaining portion, and unless substantial performance of
this Agreement is frustrated by any such invalidity, this Agreement shall
continue in effect.
18. HEADINGS AND CONSTRUCTION
The headings used herein are for purposes of convenience only and
shall not be used in interpreting the provisions hereof. As used herein,
the male gender shall include the female and neuter genders; the singular
shall include the plural, the plural, the singular and termination shall
include expiration.
19. EXECUTION BY THE PARTIES
This Agreement shall not be binding on either of The Parties, unless
and until it shall have been accepted and signed by authorized officers or
directors of LICENSEE and LICENSOR.
20. ATTORNEY'S FEES
If either of The Parties hereto commences an action against the other,
arising out of or in connection with this Agreement, the prevailing of The
Parties shall be entitled to have and recover from the other Party its
reasonable attorneys' fees and costs at all trial and appellate levels.
21. ASSIGNMENT
Neither of The Parties may delegate any obligation under this
Agreement or assign this Agreement or any interest or right hereunder
without the prior written consent of the other and any such assignment or
transfer shall be null and voided.
22. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. Any provision of this Agreement which
may be determined by a court of competent jurisdiction to be prohibited or
nonenforceable in any jurisdiction shall, as to that jurisdiction, be
effective to the extent of the prohibition or nonenforceability, without
invalidating the remaining provisions of this Agreement.
Page l0 of 12
<PAGE>
23. ARBITRATION
Any controversy arising out of or relating to this Agreement will be
settled by arbitration in New York, New York, U.S.A. under the Commercial
Arbitration Rules then in effect of the American Arbitration Association by
one or more arbitrators in accordance with its rules. Any order, decision
or award resulting from any such arbitration shall be final and binding on
the Parties and shall be enforceable in any court of competent
jurisdiction.
24. DISTRIBUTION
A. LICENSEE does hereby grant to LICENSOR the exclusive right to cause
the sale of the Boats through its sales organization as sales agent,
to be compensated through a commission of fifteen (15%) percent on the
sale of each Boat sold through its efforts. Said commissions to be
paid no later than fifteen (15) days after the receipt of any such
payments by LICENSEE. Payments are to be made at the offices of
LICENSOR, or to such other address as LICENSOR shall notify LICENSEE.
B. LICENSOR, at its election, as distributor, shall be compensated by the
profit realized after having purchased Boats at list price less
fifteen (15%) percent (list price as defined in Schedule C hereto).
C. If, for any reason, LICENSOR's sales organization fails to sell at
least two (2) Boats in any one (1) year period, LICENSEE may terminate
LICENSOR's right to sell the Boats.
D. As a condition hereof, LICENSEE agrees to provide to LICENSOR, at
LICENSEE's expense, one (1) 55' Boat, one (1) 45' Boat (or both, at
its election), to be used for furthering LICENSOR's selling efforts by
displaying the same at trade shows and in LICENSOR's showroom. The
first Boat, a 45' model, will be delivered in mid January 1998. The
Boats will enter the U.S. on temporary three (3) month import permits,
renewable from time to time. Should any Boat be returned to Italy,
LICENSOR will pay for the cost of transport. Title to the Boats will
remain in LICENSEE.
25. NO PROJECTIONS OR REPRESENTATIONS
The Parties acknowledge and represent that no projections or
representations regarding the amount of income, sale, or profits they can
expect to earn or receive by virtue of this Agreement, has been received
from either of The Parties. The Parties acknowledge that no representations
or warranties inconsistent with this Agreement were made to induce each
other to execute this Agreement.
Page 11 of 12
<PAGE>
The Parties acknowledge that neither of the Parties nor any other
person can guarantee the success of the business. The undersigned, by
signing this Agreement, acknowledge that they have read same and that it
has been requested to state in writing hereafter any terms, claims,
covenants, promises, or representations, including representations as to
any income, sales, or profit projections, that were made by either of the
parties or its representatives contrary to the provisions of this
Agreement, including the persons making same, the location, and date
thereof.
26. ACKNOWLEDGMENTS
LICENSEE and LICENSOR have all requisite authority to enter into this
Agreement, whether arising under applicable Federal or State laws, rules or
regulations, to which either of The Parties may be subject.
27. SURVIVAL
The provisions of Section 8 and 9 hereof and the obligations to pay
royalties pursuant to Section 5 hereof shall survive any termination of
this Agreement with respect to any Boats made or sold prior to such
termination and Sections 20 and 23 hereof and this Section 27 shall survive
any termination.
IN WITNESS WHEREOF, The Parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
CIGARETTE RACING TEAM, INC. OTAM SpA
/s/ Adam C. Schild /s/ Ugo Casa
By: Adam C. Schild By: Ugo Casa
Its: Chairman of the Board, Its: President
Chief Operating Officer
Page 12 of 12
LICENSE AGREEMENT
THIS AGREEMENT is made as of the 28th day of October, 1999, by and between
- - OTAM SpA, a corporation organized under the laws of Italy, with its
registered offices located at Via S. Siro, 1, Santa Margherita Ligure (GE),
Italy (hereinafter referred to as the "Licensee")
and
- - CIGARETTE RACING TEAM, INC., a corporation organized under the laws of the
State of Florida, U.S.A., with its principal place of business located at
3131 N.E. 188th Street, Aventura, Florida 33180, U.S.A. (hereinafter
referred to as the "Licensor")
(hereinafter collectively referred to as the "Parties")
WITNESSETH
WHEREAS, Licensor, to the best of its knowledge and belief, is the registered
owner of the trademarks, service marks, business names and
registrations for such trademarks, service marks and business names in
International Class 12, as listed on Schedule "A" attached hereto
(hereinafter referred to as the "Mark"); and
WHEREAS, Licensee desires to obtain rights in Licensor's Mark for use in
connection with manufacturing and selling of specific watercrafts
bearing such Marks as
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specifically defined in Schedule "B" attached hereto (hereinafter
referred to as the "Boats"); and
WHEREAS, Licensee and Licensor, have read this agreement (hereinafter referred
to as the "Agreement") and understand and accept the terms, conditions
and covenants contained in this Agreement as being reasonably
necessary in order to maintain Licensor's standards and business
practice as it relates to the retaining of entities utilizing
Licensor's Mark.
NOW THEREFORE, in consideration of the premises and of the mutual covenants and
conditions set forth herein, the Parties hereby agree as follows:
1. GRANT OF LICENSE
Licensor grants to Licensee the exclusive, world-wide right and license to
use the Licensor's Mark in connection with the manufacture and sale of the
Boats.
The Cigarette Heritage 45' will be identified as an "Express Cruiser" and
the Cigarette Millennium 55' will be identified as an "Express Cruiser
It is understood and agreed that Licensee shall have no right of sublicense
or assignment.
Licensor further grants to Licensee the right to use the Mark as part of
its corporate name as follows: "Cigarette Racing Team Italia SpA" to be
registered in Genoa, Italy, in accordance with Italian law or incorporate a
subsidiary with this name. This right will terminate upon termination of
this Agreement.
2. NON DISCLOSURE
As a condition of this Agreement, the Parties agree that
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<PAGE>
during the term of this Agreement and any subsequent renewals as defined in
Article 4 herein, the Parties shall not disclose to any third party the
terms of the Agreement.
3. QUALITY STANDARDS
A. Licensee shall manufacture the Boats in compliance with such quality
standards and technical specifications as set forth in Schedule "B" for
boats of their class and category bearing the Mark;
B. Licensor authorizes Licensee to extend its forty-five (45) foot Boat up to
fifty (50) feet and its fifty-five (55) foot up Boat to sixty (60) feet.
The authority to extend each of the Boats is granted on the condition that
a complete set of architectural drawings for the extended Boat or Boats be
prepared on or before December 31, 2001. Upon notice of the substitution of
the extended Boat or Boats to Licensor, the new dimension(s) will
substitute that licensed hereunder;
C. Licensor grants to Licensee the right of first refusal to manufacture an
80' Express Cruiser bearing the Mark;
D. The Parties undertake to consult with one another prior to manufacturing
any new model(s) of the Boat(s);
E. Upon reasonable written request to Licensee, Licensor may inspect any Boat
utilizing the Mark;
F. Should Licensor disapprove of any product submitted for review, Licensor
shall notify Licensee in writing and shall set forth in detail:
(i) the disapproval;
(ii) the defect for each disapproval; and
(iii) the commercially reasonable suggestions for correcting each such
defect, however such suggestions shall not be binding.
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<PAGE>
4. TERM
A. Initial Term
The initial term of this Agreement shall be for a period of five (5) years,
commencing on the date mentioned above, subject to the terms and conditions
set forth herein.
B. Renewal Option
Licensee shall have the option to renew this Agreement for two (2)
additional periods of thirty-six (36) months each. In all cases, renewal
shall require that: (i) Licensee not be in violation of this Agreement or
any other agreement between Licensor and Licensee; (ii) Licensee give
written notice of its election to renew not less than three (3) months
prior to the end of the term then in effect; and (iii) Licensee shall have
paid to Licensor pursuant to Article 5 herein royalties of at least Eight
Hundred Seventy Five Thousand United States Dollars ($875,000). If any
rules or laws modifies, alters or amends all or part of this renewal
provision, then such provision shall be modified, altered or amended
accordingly, so as to be in full compliance with such rules and laws.
C. Subsequent Renewal Option
Subsequent to the periods as mentioned in Article 4 (B) above, Licensee
shall have the option to renew this Agreement for two (2) additional
periods of thirty-six (36) months each, if (i) Licensee is not in violation
of this Agreement or any other agreement between Licensor and Licensee; and
(ii) Licensee gives written notice of
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<PAGE>
its election to renew not less than three (3) months prior to the end of
the term then in effect.
5. ROYALTY - ADVANCE ON ROYALTY
A. Licensee shall pay to Licensor as a royalty a sum equal to Twenty Seven
Thousand United States Dollars ($27,000) for each 45' Boat and Sixty Five
Thousand United States Dollars (5 65,000) for each 55' Boat. The royalties
are subject to renegotiation if Licensee extends the length of the Boats
pursuant to Section 3B. hereof.
B. Advance on Royalties
Licensee shall pay to Licensor as an advance on royalties the sum of One
Hundred Seventy Five Thousand United States Dollars ($ 175,000) per year
payable in four quarterly installments of Forty Three Thousand Seven
Hundred Fifty United States Dollars ($ 43,750) each commencing November 1,
1999 (the "Advance Royalty") Upon the sale of any Boat, the royalties
earned will be a credit against the Advance Royalty.
C. Licensor undertakes to invest a sum equal to ten percent (10%) of the total
sum received for Royalties and Advance on Royalties for publicity on behalf
of Licensee's products. Proof of the publicity and the investment cost
shall be furnished to Licensee
6. USE OF THE MARK
A. Licensee acknowledges that the Mark (including all rights therein and
goodwill associated therewith) shall, as between Licensee and Licensor, be
and remain the exclusive and complete property of the Licensor. Licensee
shall not, during the term of this Agreement or
[INITIALLED]
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<PAGE>
thereafter, question or challenge the property right of Licensor therein,
or the validity of this Agreement.
B. Licensee acknowledges and agrees that:
(i) The Mark as owned by Licensor shall be and remain the sole and
complete property of Licensor;
(ii) Licensee shall not at any time acquire or claim any right, title or
interest of any nature whatsoever in the Mark by virtue of this
Agreement or of Licensee's uses thereof in connection with the Boats;
(iii) Any right, title or interest in or relating to the Mark which comes
into existence during the term of this Agreement as a result of the
exercise by Licensee of any right granted to it hereunder shall
immediately and automatically vest in Licensor;
(iv) Licensee acknowledges the validity of the Mark and agrees never to
contest or assist others to contest the validity thereof.
7. LICENSEE's REPRESENTATIONS AND WARRANTIES
Licensee represents and warrants the following:
(i) Licensee is free to enter into and fully perform this Agreement;
(ii) All designs, materials and intellectual property furnished by
Licensee in connection with each of the Boats will be of Licensee's
own and original creation (except for matters in the public domain or
material which Licensee is fully licensed to use);
(iii) The manufacture, advertisement and sale of the Boats will not
infringe upon or violate any rights of any third party of any nature
whatsoever;
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<PAGE>
(iv) The Boats will be of high standard in style, appearance and quality,
will be safe for users and will comply with all applicable
governmental rules, guidelines, safety codes and regulations;
(v) The Boats will be manufactured, advertised and sold in accordance
with all applicable federal, state and local laws.
8. LICENSOR's REPRESENTATIONS AND WARRANTIES
Licensor represents and warrants the following:
(i) Licensor is the holder of the rights of the Mark and has the right to
grant the license as set forth in this Agreement;
(ii) Licensor has applied for and obtained trademark registration for the
Mark and agrees to pay all renewal fees necessary in order to maintain
the registration of the Mark during the term of this Agreement.
9. INDEMNITY
A. Licensee will at all times indemnify and hold Licensor, its officers,
directors and employees (including persons with whom Licensor has
contractual arrangements with respect to the Boats) harmless, from and
against any and all claims, damages, liabilities, costs and expenses
(including attorneys' fees) arising out of any alleged latent or patent
defects in the Boats, or any breach or alleged breach by Licensee of any
representation, warranty or obligation hereunder including, but not limited
to, any infringement or violation of any third party's rights with respect
to any patent, design, intellectual property or manufacture of the Boats.
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<PAGE>
B. Licensor will at all times indemnify and hold Licensee, its officers,
directors and employees and those with whom Licensee has contractual
arrangements from and against any and all claims, damages, liabilities,
costs and expenses (including attorneys fees) arising out of any breach or
alleged breach by Licensor of its obligations hereunder.
C. During the term of this Agreement and any subsequent renewals thereof,
Licensee shall provide a guarantee in the form of a stand--by letter of
credit in the maximum amount of four hundred thousand United States dollars
($400,000.00), for claims made by a Boat owner against Licensor in
connection with repairs caused by latent or patent defects in the
manufacture of the Boats by Licensee.
10. INSURANCE
During the term of this Agreement, Licensee shall maintain, at its expense,
product liability insurance with a reputable insurance carrier in the
amount of two million United States dollars ($2,000,000.00). This insurance
policy shall name Licensor as an additional insured and will protect
against any claims, suits, losses, costs and expenses (including attorneys'
fees) relating to any actual or alleged harm, death or injury to any person
or loss or damage to any property arising out of or resulting from any
defect or alleged defects in the Boats. This policy shall provide for at
least 60 (sixty) days prior written notice to Licensor of the cancellation
or any substantial modification of the policy. As proof of insurance,
Licensee shall provide to Licensor a fully paid certificate of insurance
naming
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<PAGE>
Licensor as an insured party before any Boats are offered for sale.
11. DEFAULT
A. In addition to and without prejudice to any rights which Licensor may have
at law or in equity, Licensor shall have the right to terminate this
Agreement with sixty (60) days prior written notice to Licensee specifying
the basis for default and termination upon the occurrence of any of the
following events:
(i) Licensee fails to make payment of royalties or furnish any statement
in accordance with the provisions set forth herein and such failure
extends for a period in excess of thirty (30) days;
(ii) Licensee fails to comply with any of its obligations or materially
breaches any warranty herein and does not cure such failure or breach
within thirty (30) days after notice thereof.
B. In the event of default, Licensor may require Licensee to provide immediate
payment of any royalties due or to become due hereunder.
12. BANKRUPTCY
If Licensee files a voluntary petition in bankruptcy and such petition is
not dismissed within thirty (30) days thereafter, or a receiver or trustee
for any of Licensee's property is appointed and such appointment is not
vacated within thirty (30) days thereafter, or Licensee takes advantage of
any insolvency law, then Licensor shall have the right to terminate this
Agreement
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<PAGE>
and/or to require the immediate payment of any royalties due or to become
due hereunder.
13. FORCE MAJEURE
Licensee shall not be in breach or default of any provisions hereunder by
reason of delay or failure in performance of its duties and obligations due
to any act of God, war, riot or civil commotion, fire, accident, epidemic,
strike, lockout or other labor dispute, enactment of any rule, law, order
or act of governmental instrumentality (whether federal, state, local or
foreign) or any other cause beyond the reasonable control of Licensee and
should such condition continue for a period of three (3) months or more,
either party shall have the right to terminate this Agreement by giving the
other party at least thirty (30) days written notice to such effect.
14. TERMINATION
Licensee may, in its discretion, terminate its license under this Agreement
by giving at least sixty (60) days written notice to Licensor.
15. NOTICES
A. All notices and other communications under this Agreement shall, unless
otherwise stated herein, be given in writing to each party at the address
set forth below or at such other address as may be designated by the party
in a written notice to the other party and confirmed by registered mail.
All notices and communications sent by registered mail, hand delivered or
delivered by other means which provide for a receipt shall be effective
when
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<PAGE>
sender is in receipt of a delivery notice signed by the recipient. All
notices shall be addressed as follows:
If to Licensor:
CIGARETTE RACING TEAM, INC.
3131 N.E. 188th Street
Aventura, Florida 33180
If to Licensee:
OTAM SpA
Via S. Siro, 1
16038 Santa Margherita Ligure (GE)
B. Notices sent by telex or facsimile transmission shall not constitute proper
notice under this Agreement.
16. HEIRS, SUCCESSORS AND ASSIGNS
This Agreement shall apply to, inure to the benefit of and be binding on
the Parties, their respective heirs, executors, administrators, successors
and assigns.
17. ENTIRE AGREEMENT
A. This Agreement constitutes the entire agreement and understanding between
the Licensor and Licensee and supersedes any and all prior written or oral
agreements, understandings or arrangements between the Parties relating to
the subject matter contained in this Agreement. Neither Licensor nor
Licensee shall be entitled to rely on any agreement, understanding or
arrangement which is not expressly contained in this Agreement.
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<PAGE>
B. The terms and conditions contained in this Agreement shall not be modified
or changed unless in writing and signed by a duly authorized corporate
officer, director or agent of the Licensor and Licensee.
C. No modification or amendment of any provision of this Agreement shall be
construed as a waiver, breach or cancellation of any other provision.
18. WAIVER
Failure by either of the Parties to enforce any rights under this Agreement
shall not be construed as a waiver of such rights. Any waiver, including
waiver of default, in any one instance, shall not constitute a continuing
waiver or a waiver in any one other instance. Any acceptance of money or
other performance by either of the Parties shall not constitute a waiver of
any default, except as to the payment of the particular payment or
performance so received.
19. ATTORNEYS' FEES
If either of the Parties commences an action against the other arising out
of or in connection to this Agreement, the prevailing party shall be
entitled to recover from the other party its reasonable attorneys' fees and
costs at the trial and appellate levels.
20. ASSIGNMENT
Neither party may assign or delegate any obligation under this Agreement or
any interest or right hereunder without prior written consent of the other
party.
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<PAGE>
21. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York. Any provision of this Agreement which may be
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
effective to the extent of the prohibition or non enforceability without
invalidating the remaining provisions of this Agreement.
22. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by arbitration in New York, New York,
U.S.A. in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. One or more arbitrators shall be
appointed in accordance to the above mentioned rules and any award rendered
by the arbitrators shall be final and binding on the Parties and shall be
enforceable in any court of competent jurisdiction.
23. PROJECTIONS
The Parties shall provide in writing any terms, covenants, promises,
representations or claims regarding any income, sales or profits
projections that were made by either of the Parties or their
representatives to the other party (including the persons who made such
representations, the location and date thereof)
24. AUTHORITY
Licensor and Licensee have all requisite authority to enter into this
Agreement, whether arising under
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<PAGE>
applicable Federal or State laws, rules or regulations to which either of
the Parties may be subject.
25. GENERAL
A. The invalidity or ineffectiveness of any provisions of this Agreement shall
not affect the validity or enforceability of any other provision or
covenant hereof or herein contained and any such invalid provision or
covenant shall be deemed to be severable.
B. The article headings contained herein are for the purpose of convenience
only and do not constitute part of this Agreement.
C. A reference to the singular includes a reference to the plural and vice
versa, and references to the masculine include a reference to the feminine
and neuter genders and vice versa.
D. This Agreement shall not be binding on either of the Parties, unless and
until it has been accepted and signed by authorized officers or directors
of the Licensor and Licensee.
26. SURVIVAL
The provisions contained in Articles 10 and 11 hereof and the obligations
to pay royalties pursuant to Article 5 hereof shall survive any termination
of this Agreement with respect to any Boats made or sold prior to such
termination and Articles 20 and 23 of this Agreement as well as this
Article 27 shall survive any termination.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
CIGARETTE RACING TEAM, INC. OTAM SpA
/s/ ADAM SCHILD /s/ UGO CASA
- ----------------------- --------------------
By: Adam Schild By: Ugo Casa
Chairman of the Board President
Chief Operating Officer
15
AMENDMENT TO DISTRIBUTION AND LICENSE AGREEMENT
THIS AMENDMENT, is made at SANTA MARGHERITA LIGURE (GE), as of the 27 day of
JULY, 1999, by and between
- - OTAM SpA, a corporation organized under the laws of Italy, with its
registered offices at Via S. Siro, 1, 16038 Santa Margherita Ligure (Ge),
Italy ("LICENSEE")
and
- - CIGARETTE RACING TEAM, INC., a corporation organized under the laws of the
State of Florida, U.S.A., with offices at 3131 N.E. 188th Street, Aventura,
Florida 33180, U.S.A. ("LICENSOR")
(hereinafter collectively referred to as the "Parties")
RECITALS
LICENSEE and LICENSOR entered into a License and Distribution Agreement
dated October 28, 1997 (hereinafter referred to as the "Agreement") in order to
grant the rights to use LICENSOR's marks (hereinafter referred to as the
"Marks") to LICENSEE in connection with manufacturing, selling and/or
distribution of specific watercrafts bearing such Mark which are respectively 45
feet and 55 feet in length (hereinafter referred to as the "Boats"); and
LICENSOR has previously waived its rights to the exclusive sale and
commissions provisions provided for in Item 24 of the Agreement; and
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LICENSEE and LICENSOR desire to further modify the Agreement in the manner
provided hereinbelow, which modifications shall be deemed effective on the date
of this Amendment as indicated above:
NOW THEREFORE, in consideration of the premises and of the mutual covenants
and conditions set forth herein, the Parties hereby agree as follows:
(1) OTAM SpA may change its name to CIGARETTE RACING TEAM ITALIA SpA or,
incorporate a subsidiary with this name.
(2) LICENSOR confirms its approval of the Royalty Statement covering the period
from October 28, 1997 to October 15, 1998.
(3) For the total term of the Agreement, the sale of nine (9) Boats (see
enclosure hereto) and the payment of royalties totaling (including the
Advance Royalty) $600,000 shall satisfy the minimum sales requirement and
entitle the Licensee to exercise its option to renew the Agreement.
(4) For all subsequent sales of Boats, the royalties shall be 7 1/2% calculated
on OTAM's standard list prices (present list prices enclosed hereto) less
thirty percent (30%)
(5) This Amendment embodies the entire understanding between the LICENSEE and
LICENSOR with respect to this subject matter and can be changed only by an
instrument in writing signed by the Parties.
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(6) All words commencing with initial capital letters shall have the same
meaning in this Amendment as in the Agreement.
(7) LICENSEE and LICENSOR have all requisite authority to enter into this
Amendment, whether arising under applicable Federal or State laws, rules,
or regulations, to which either of the Parties may be subject.
(8) Except to the extent that the Agreement is modified by this Amendment, the
remaining terms and provisions of the Agreement including the Governing Law
and Arbitration provisions shall remain in full force and effect and are
applicable hereto.
IN WITNESS WHEREOF, this Amendment is entered into by the Parties as of the
day and year first above written.
CIGARETTE RACING TEAM, Inc. OTAM SpA
/s/ ADAM SCHILD /s/ UGO CASA
- ----------------------- -----------------------
By: ADAM SCHILD By: UGO CASA
Chairman of the Board, President
Chief Operating Officer
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EXHIBIT
1. 45'/02 Mr. Parravicini G.
2. 45'/03 H.M.Y. New Yacht Sales, Inc.
3. 45'/04 Svezia Motori Srl
4. 45'/05 Mr. Rampezzotti G.
5. 45'/06 Not sold
6. 55'/01 Peak Trust Ltd.
7. 55'/02 Mabo Holding Ltd.
8. 55'/03 Associazione Amici del Mare
9. 55'/04 Not sold
[INITIALLED]
EXCHANGE AGREEMENT
This Agreement is made and entered into as of April ____, 1999, by and
among Alchemy Holdings, Inc., a Florida corporation ("Alchemy"), Cigarette
Racing Team, Inc., a Florida corporation ("Cigarette") and Central
Manufacturing, Inc., an Alabama corporation ("Central").
WHEREAS, Central is the holder of a promissory note in the original
principal amount of $3.6 million dated May 26, 1994, issued by Cigarette (the
"Note") in connection with the sale of certain assets by Central to Cigarette
pursuant to that certain Asset Purchase and Contribution Agreement dated May 26,
1994, between the predecessors of Cigarette and Central (the "Purchase
Agreement") and secured under the Security Agreement dated May 26, 1994 made by
Cigarette to Central (the "Security Agreement");
WHEREAS, the outstanding principal balance (the "Principal Balance") on the
Note as of March 31, 1999 was $3,280,000 and the interest accrued and owing on
the Note (the "Accrued Interest")as of such date was $1,409,921.74;
WHEREAS, Central is the holder of 100 shares of cumulative preferred stock,
series A, of Cigarette ("Cigarette Preferred Stock"), and is the lessor of
certain premises located in Dade County, Florida, to Cigarette under a Lease
Agreement dated May 26, 1994, between Central and Cigarette (the "Lease
Agreement");
WHEREAS, Cigarette has failed to declare and pay to Central certain
cumulative dividends on the Cigarette Preferred Stock (the "Accrued and Unpaid
Dividends") and has failed to make certain payments under the Lease Agreement
(the "Accrued and Unpaid Lease Amounts");
WHEREAS, the Principal Balance of and the Accrued Interest on the Note, the
Accrued and Unpaid Dividends, and the Accrued and Unpaid Lease Amounts at and as
of the Closing Date (as defined herein) are hereinafter collectively referred to
as the "Cigarette Indebtedness";
WHEREAS, pursuant to an Agreement and Plan of Merger dated _____________,
1999 (the "Merger Agreement") by and among Alchemy, Cigarette and Cigarette
Boats, Inc., a Delaware corporation and wholly-owned subsidiary of Alchemy
("CBI"), CBI will merge into Cigarette (the "Merger") and Cigarette will become
a wholly-owned subsidiary of Alchemy;
WHEREAS, Cigarette desires to extinguish the Cigarette Indebtedness and in
connection therewith obtain Central's consent as holder of the Note to the
Merger, its waiver of all non-monetary defaults of Cigarette under the Purchase
Agreement, the Security Agreement, the Note, the Preferred Stock and the Lease
Agreement, its forgiveness of the Cigarette Indebtedness, and its release of all
collateral pledged to secure the Note (collectively, the "Release and Waiver");
WHEREAS, Cigarette desires to exchange (the "Exchange") shares of its
common stock, $.01 par value ("Cigarette Common Stock") in return for
forgiveness and cancellation of the Principal Balance of and Accrued Interest on
the Note, and Central desires to surrender the Note for forgiveness and
cancellation of the Principal Balance of and Accrued Interest on the Note in
return for shares of Cigarette Common Stock, on the terms and conditions set
forth herein;
WHEREAS, a total of $525,000 has been previously paid by Cigarette to
Central with respect to the Note in anticipation of the settlement contemplated
hereby (the "Prior Payments");
<PAGE>
WHEREAS, Central is willing to forgive the Accrued and Unpaid Dividends in
consideration of the issuance of preferred stock of Alchemy pursuant to the
Merger Agreement;
WHEREAS, Central is willing to forgive the Accrued and Unpaid Lease Amounts
in consideration of the execution by Cigarette of the amendment to the Lease
Agreement, as referred to herein, and the guaranty agreement referred to herein;
WHEREAS, as an inducement to Central's agreeing to the Exchange, Alchemy
has agreed to be a party hereto; and
WHEREAS, shares of common stock, $.001 par value of Alchemy ("Alchemy
Common Stock"), will be issued in exchange for outstanding shares of Cigarette
Common Stock, and shares of preferred stock of Alchemy will be issued in
exchange for the Preferred Stock, all pursuant to the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, the parties agree as follows:
ARTICLE I
REPRESENTATIONS AND WARRANTIES OF CENTRAL
1.1 Representations and Warranties. Central represents and warrants to
Alchemy and Cigarette that:
(a) Corporate Organization. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Alabama, and has
all requisite corporate power and authority to enter into this Agreement,
perform its obligations hereunder and consummate the transactions contemplated
hereby.
(b) Authorization. All necessary and appropriate corporate action has been
taken by it with respect to the execution and delivery of this Agreement and the
performance by it of its obligations hereunder, and this Agreement constitutes a
valid and binding obligation of it.
(c) No Conflict or Default. The consummation of the transactions
contemplated by this Agreement will not conflict with any applicable federal,
state or local law, rule, regulation, writ, decree or order to which it is
subject, or conflict with or violate any term, provision or covenant of any
mortgage, indenture, contract, agreement, instrument or judgment applicable to
it or constitute a default (or any event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(d) Brokers, Finders. The transactions contemplated hereby were not
submitted to it by any broker or other person entitled to a commission, finder's
fee or like payment thereon, and were not, with its authority, submitted to
Alchemy or Cigarette by any broker or other person, and its actions have not
given rise to any valid claim by any person against any other party to this
Agreement for a commission, finder's fee or like payment.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ALCHEMY AND CIGARETTE
2.1 Representations and Warranties. Alchemy and Cigarette jointly and
severally represent and warrant to Central that:
(a) Corporate Organization. Each of them is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida,
and has all requisite power and authority to own, lease and operate its
properties and conduct its business as now being conducted. Each of them is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the property it owns, leases or
operates requires it to qualify to do business. Each of them has previously
delivered to Central complete and correct copies of its charter and bylaws as
presently in effect, and it is not in default in the performance, observation or
fulfillment of any provision of its charter or bylaws.
(b) Authorization. All necessary and appropriate corporate action has been
taken by each of them with respect to the execution and delivery of this
Agreement and the performance by each of them of their obligations hereunder.
This Agreement constitutes the valid and binding obligations of each of them.
(c) Brokers, Finders. The transactions contemplated hereby were not
submitted to either of them by any broker or other person entitled to a
commission, finder's fee or like payment thereon, and were not, with the consent
of either of them, submitted to Central by any broker or other person, and their
actions have not given rise to any valid claim by any person for a commission,
finder's fee or like payment against any of the parties hereto.
(d) Legal Proceedings. There are no claims, proceedings or investigations
pending or, to the best of their knowledge, threatened against either of them
(or any of their respective officers or directors in connection with its
business or affairs) before any court or governmental body, United States or
foreign which, if finally determined adversely to either of them, might
individually or in the aggregate have a material adverse effect on the business,
operations, assets, or financial condition of either of them. There are no
claims, proceedings or investigations pending or, to the best of their
knowledge, threatened challenging the validity or propriety of the transactions
contemplated by this Agreement.
(e) No Conflict or Default. Neither the execution and delivery of this
Agreement, nor compliance with the terms and provisions hereof, including
without limitation, the consummation of the transactions contemplated hereby,
will violate any statute, regulation or ordinance of any governmental authority,
or conflict with or result in the breach of any term, condition or provision of
the charter or bylaws of either of them, or of any agreement, deed, contract,
mortgage, indenture, writ, order, decree, legal obligation or instrument to
which either of them is a party or by which either of them or any of their
respective assets is or may be bound, or constitute a default (or any event
which, with the lapse of time or the giving of notice, or both, would constitute
a default) thereunder, or result in the creation or imposition of any lien,
charge, encumbrance or restriction of any nature whatsoever with respect to any
assets of either of them, or give to others any interest or rights, including
rights of termination or acceleration, in or with respect to any of the assets,
contracts or business of either of them.
(f) Issuance and Sale of Cigarette Shares. Upon issuance and exchange
pursuant hereto, each of the shares of Cigarette Common Stock delivered to
Central hereunder will be duly and validly issued, fully paid, nonassessable,
free of preemptive rights, and free and clear of all liens, charges,
encumbrances, security interests, equities, claims and restrictions.
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(g) Merger Agreement. The representations and warranties of Alchemy and
Cigarette included in the Merger Agreement are incorporated in this Agreement as
if restated herein in their entirety by Alchemy and Cigarette. All of such
representations and warranties are true and correct on the date of this
Agreement and will be true and correct on the Closing Date (as defined herein).
Each of Alchemy and Cigarette has complied through the date hereof with all of
its covenants and agreements made in the Merger Agreement and will comply with
all such covenants and agreements from the date hereof through the Closing Date.
(h) Registration Rights. Except for certain registration rights held by
holders (including Masada I, L.P. and Winchester Holdings, L.P.) of warrants or
common stock issued in private placements by Cigarette in November 1996 and
August 1997, there are no contracts, agreements, or understandings between
Alchemy or Cigarette and any person granting such person the right to request or
require Alchemy or Cigarette to include any securities of Alchemy or Cigarette
in any registration statement under the Securities Act of 1933 the ("Act"), or
granting such person the right to request or require Alchemy or Cigarette to
register any securities of Alchemy or Cigarette pursuant to any registration
statement under the Act (the "Existing Rights Agreements").
ARTICLE III
EXCHANGE
3.1 Securities. Upon the terms and subject to the conditions set forth in
this Agreement, Cigarette shall, at the Closing (as defined herein), issue and
deliver to Central, and in Central's name, twenty (20) certificates, each for
50,000 shares of Cigarette Common Stock, making a total of 1,000,000 shares of
such stock to be issued and delivered to Central hereunder (the "Cigarette
Shares").
3.2 No Liens. The Cigarette Shares, if and when issued, shall be free and
clear of all liens, security interests, encumbrances, charges, equities, claims
and restrictions.
3.3 Consideration. In consideration of the issuance and delivery of the
Cigarette Shares in accordance with this Agreement and receipt of the Prior
Payments, at the Closing Central shall surrender the Note for cancellation of
the Principal Balance and the Accrued Interest.
3.4 Investment Intent. Cigarette hereby advises Central that the Cigarette
Shares will not be registered under the Securities Act of 1933 (the "Act") or
under any state securities laws, in reliance upon an exemption from registration
thereunder, and that therefore the Cigarette Shares cannot be sold or otherwise
transferred unless they are registered under the Act or unless an exemption from
registration is available. Central represents and warrants to Cigarette that it
is acquiring the Cigarette Shares for its own account for investment only and
not with any intent or view to any distribution, resale or other disposition
thereof (except pursuant to the Merger Agreement) and that it will not sell or
transfer the Cigarette Shares (except pursuant to a registration statement
effective under the Act or the Merger Agreement) unless and until counsel
satisfactory to Cigarette shall have advised Cigarette, in a written opinion
satisfactory to it, that no registration under the Act or under applicable state
securities laws is required in connection with any such proposed sale or
transfer. Central agrees to the imprinting, so long as appropriate, of the
following legend on certificates representing the Cigarette Shares: "These
securities have not been registered under the Securities Act of 1933 and may be
re-offered and sold only if so registered or if any exemption from registration
is available and an opinion of counsel satisfactory to the Issuer is delivered
to the Issuer to the effect that registration is not required for such sale."
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ARTICLE IV
CONDITIONS TO OBLIGATIONS
4.1 Conditions to Obligations of Central. Each and every obligation of
Central to be performed under this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions:
(a) Conditions Under the Merger Agreement. All conditions in Article VII of
the Merger Agreement shall have been satisfied and Central shall be satisfied
that the parties to the Merger Agreement shall be prepared to proceed to effect
the Merger immediately following the closing of the transactions contemplated by
this Agreement.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the transactions contemplated by this Agreement
shall have been issued and be in effect, nor shall any proceeding brought by any
administrative agency or commission or other governmental entity seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Agreement which makes the consummation of such
transactions illegal or prohibits any of them.
(c) Representations and Warranties. The representations and warranties of
Cigarette and Alchemy set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date, and Central shall have received a certificate signed on
behalf of the Chief Executive Officer and the Chief Financial Officer of each of
Alchemy and Cigarette to the foregoing effect.
(d) Performance of Obligations. Each of Alchemy and Cigarette shall have
performed all of its obligations required to be performed by it under this
Agreement at or prior to the Closing Date; and Central shall have received a
certificate signed on behalf of each of Alchemy and Cigarette by its Chief
Executive Officer and Chief Financial Officer to the foregoing effect.
(e) Consent of Ohio Savings Association. Central shall have obtained from
Ohio Savings Bank, an Ohio corporation ("Savings"), written consent to the
transactions contemplated by this Agreement and to the release of the Note from
the pledge thereof granted to Savings by Central in connection with a loan made
to the sole stockholder of Central by Savings.
(f) Offshore Racing. Offshore Racing, Inc. ("Offshore"), shall have
contributed to the capital of Alchemy on or before the Closing Date all shares
of Alchemy Common Stock owned by Offshore at such date. Following the Merger,
Offshore will not own any shares of capital stock of Alchemy other than
1,000,000 shares of preferred stock of Alchemy.
ARTICLE V
CLOSING
5.1 The Closing. The transactions contemplated by this Agreement shall be
closed, and all deliveries to be made at such time in connection therewith shall
be made (the "Closing"), on the date set for and at a time immediately prior to
the closing under the Merger Agreement (the "Closing Date") and at the place set
for closing thereunder, subject to satisfaction of all conditions set forth in
Article IV hereof.
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ARTICLE VI
TERMINATION
6.1 Termination. This Agreement may be terminated by Central at any time
prior to the Closing Date if:
(a) a court of competent jurisdiction or other governmental entity issues a
non-appealable final order, decree or ruling or takes any other action having
the effect of permanently restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated hereby or by the Merger Agreement;
(b) the Merger Agreement is terminated;
(c) there occurs a breach of any representation, warranty, covenant or
agreement herein by Alchemy or Cigarette; or
(d) any event occurs that gives Alchemy or Cigarette the right to terminate
the Merger Agreement (regardless of whether Alchemy or Cigarette, as the case
may be, actually terminates the Merger Agreement as a result of such event).
6.2 Further Rights. Central may terminate this Agreement at any time on or
after June 1, 1999, if the Closing has not occurred on or before May 31, 1999.
ARTICLE VII
INDEMNIFICATION
7.1 Survival of Representations, Warranties and Agreements. Notwithstanding
any investigation conducted at any time with regard thereto by or on behalf of
any party hereto, all representations, warranties, covenants and agreements of
the parties in this Agreement shall survive the execution, delivery and
performance of this Agreement.
7.2 Indemnification. Alchemy and Cigarette hereby agree jointly and
severally to indemnify and hold harmless Central, and Central hereby agrees to
indemnify and hold harmless Cigarette and Alchemy, from and against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments or
causes of action, assessments, costs and expenses, including, without
limitation, interest, penalties, attorneys' fees, any and all expenses incurred
in investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation, asserted against, resulting to, imposed upon, or
incurred or suffered by Central or by Cigarette or Alchemy, as the case may be,
directly or indirectly, as a result of or arising from any breach or
nonfulfillment of any of the representations, warranties, covenants or
agreements made by Central or by Cigarette or Alchemy, as the case may be, in
this Agreement.
ARTICLE VIII
COVENANTS
8.1 Registration Rights. On the Closing Date, immediately following the
consummation of the Merger, Alchemy and Central shall execute and deliver to
each other the Registration Rights Agreement in substantially the form attached
hereto as Exhibit B.
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8.2 Pooling Release. If the Merger is to be accounted for as a pooling of
interests, Alchemy covenants to release to the public and file with the
Securities and Exchange Commission ("SEC") on Form 8-K or Form 8-KSB, by no
later than the fifteenth day of the month following the first full calendar
month after the closing under the Merger Agreement, combined financial results
of Alchemy and Cigarette covering a period of thirty days of combined operations
of such entities after such closing and complying with the accounting rules
promulgated by the SEC for acquisitions accounted for as poolings.
8.3 Stockholders' Agreement. On the Closing Date, immediately following the
consummation of the Merger, Adam Schild, Craig Barrie, and all affiliates of
each of them (including Winchester Holdings, L.P., a New York limited
partnership ("WHLP"), and Offshore), shall execute and deliver to Central, and
Central shall execute and deliver to them, the Stockholders' Agreement in
substantially the form attached hereto as Exhibit C.
8.4 Amendment to Lease Agreement. On the Closing Date, Central and
Cigarette shall enter into the Amendment to Lease Agreement in substantially the
form attached hereto as Exhibit D (the "Lease Amendment") and Jack Cabasso, WHLP
and Alchemy shall enter into the Guaranty Agreement (the "Guaranty") in
substantially the form attached hereto as Exhibit E, all in consideration of
Central's forgiving of the Accrued and Unpaid Lease Amounts.
8.5 Prior Payments. Upon consummation of the transactions contemplated
hereby at the Closing, the Prior Payments will constitute a portion of the
settlement contemplated hereby resulting in a discharge of the Principal Balance
of and Accrued Interest on the Note, and the two Letter Agreements dated April
21, 1998, and the Letter Agreement dated October 9, 1998, all between Cigarette
and Central, will be deemed null and void.
8.6 Waiver and Release. At the Closing, Central shall deliver the Release
and Waiver in the form attached hereto as Exhibit A.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Entire Agreement. This Agreement and the exhibits hereto embody the
entire agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous agreements
and understandings relative to said subject matter.
9.2 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
9.3 Waiver; Consent. No waiver of any of the provisions or conditions of
this Agreement or any of the rights of a party hereto shall be effective or
binding unless such waiver shall be in writing and signed by the party claimed
to have given or consented thereto. Except to the extent that a party hereto may
have otherwise agreed in writing, no waiver by that party of any breach by the
other party of any of its obligations or representations hereunder shall be
deemed to be a waiver of any other condition or subsequent breach of the same or
any other obligation or representation by the other party, nor shall any
forbearance by the first party or parties to seek a remedy for any noncompliance
or breach by the other
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party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
9.4 Other and Further Covenants. The parties shall, in good faith, execute
such other and further instruments, assignments or documents as may be necessary
for the consummation of the transactions contemplated by this Agreement, and
shall assist and cooperate with each other in connection with these activities.
9.5 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, which when taken together shall constitute a single document.
9.6 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ALCHEMY HOLDINGS, INC.
By:
------------------------
Name:
----------------------
Title:
------------------
CIGARETTE RACING TEAM, INC.,
By:
------------------------
Name:
----------------------
Title:
------------------
CENTRAL MANUFACTURING, INC.
By:
------------------------
Name:
----------------------
Title:
------------------
8
EXHIBIT A
RELEASE AND WAIVER
This Release and Waiver is made on _______, 1999 by Central Manufacturing,
Inc., an Alabama Corporation ("Central") in favor of Cigarette Racing Team,
Inc., a Florida corporation ("Cigarette").
WHEREAS, Central has agreed to deliver this Release and Waiver at the
closing of the transactions contemplated by that certain Exchange Agreement
dated ____________, 1999 by and among Central, Cigarette and Alchemy Holdings,
Inc., a Florida corporation (the "Exchange Agreement"); and
WHEREAS, all capitalized terms used and not defined herein shall have the
meanings given them in the Exchange Agreement;
NOW, THEREFORE, for good and valuable consideration received, Central
agrees as follows:
1. Central hereby forgives the indebtedness owed by Cigarette identified in
the Exchange Agreement as Principal Balance of and Accrued Interest on the Note
in consideration of the Exchange and the Prior Payments and hereby waives all
non-monetary defaults made on or prior to the date hereof by Cigarette under the
Note, the Asset Purchase Agreement, and the Security Agreement.
2. Central hereby forgives the indebtedness owed by Cigarette identified in
the Exchange Agreement as Accrued and Unpaid Lease Payments in consideration of
the execution and delivery of the Lease Amendment by Cigarette and of the
Guaranty, and hereby waives all non-monetary defaults made on or prior to the
date hereof by Cigarette under the Lease Agreement.
3. Central hereby forgives the indebtedness owed by Cigarette identified in
the Exchange Agreement as Accrued Unpaid Dividends in consideration for the
issuance of the Preferred Stock of Alchemy pursuant to the Merger Agreement as
contemplated by the Exchange Agreement and hereby waives all non-monetary
defaults made on or prior to the date hereof by Cigarette under the terms of the
Preferred Stock.
4. Central hereby consents as holder of the Note to the transactions
contemplated by the Merger Agreement.
5. Central hereby releases all security interests in any assets of
Cigarette that it holds on the date hereof under the Security Agreement. Central
covenants to execute any termination statement under the Uniform Commercial Code
and applicable state law as is necessary to effectuate the aforesaid release.
6. Central hereby delivers to Cigarette for cancellation and retirement
2,601 shares of common stock, $.01 par value, of Cigarette heretofore held by
Central under that certain Pledge Agreement dated May 26, 1994, made by Robert
E. Torter in favor of Central.
CENTRAL MANUFACTURING, INC.
By: _______________________
Name:______________________
Title:_____________________
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into on
______________, 1999, by Alchemy Holdings, Inc., a Florida corporation (the
"Company") and Central Manufacturing, Inc., an Alabama corporation ("Central").
WHEREAS, as a result of the merger (the "Merger") of Cigarette Boats, Inc.,
a Delaware corporation and wholly-owned subsidiary of the Company ("CBI") into
Cigarette Racing Team, Inc., a Florida corporation ("Cigarette") pursuant to an
Agreement and Plan of Merger dated ___________, 1999 by and among CBI, Cigarette
and the Company (the "Merger Agreement"), Central is the beneficial owner of
1,000,000 shares of Common Stock (as herein defined) of the Company;
WHEREAS, the parties hereto agreed to execute and deliver this Agreement
pursuant to the Exchange Agreement dated ______________, 1999 among the Company,
Cigarette and Central (the "Exchange Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, the parties agree as follows:
1. Certain Definitions.
(a) As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.001 par value, of the
Company, as constituted as of the date of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Fair Market Value" shall mean on the date in question (i) the closing sale
price if the Common Stock is quoted on the New York or American Stock
Exchange or in the Nasdaq National Market; (ii) the most recent bid price
if the Common Stock is traded on a regional exchange or in the
over-the-counter or other market; or (iii) if the Common Stock is not
quoted in any market, as determined in good faith by the board of directors
of the Company.
"Registration Expenses" shall mean the expenses described in Section 6.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses described in Section 6.
<PAGE>
(b) All other capitalized terms used and not defined herein shall have the
meanings given them in the Exchange Agreement.
2. Required Registration.
(a) Central may request the Company by written notice to register for sale
under the Securities Act all or any shares of Common Stock held by Central at
the time of such request.
(b) Following receipt of any notice under Section 2(a), the Company shall
use its best efforts to register under the Securities Act, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Common Stock specified in such notice. If such method of
disposition shall be an underwritten public offering, Central may designate the
managing underwriter of such offering, subject to the approval of the Company
(which approval shall not be unreasonably withheld or delayed). The Company
shall be obligated to register Common Stock pursuant to this Section 2 on five
occasions only, provided, however, that each such obligation shall be deemed
satisfied only when a registration statement covering all shares of Common Stock
specified in the notice received as aforesaid, for sale in accordance with the
method of disposition specified by Central, shall have become effective and, if
such method of disposition is a firm commitment underwritten public offering,
only when all such shares shall have been sold pursuant thereto.
(c) Without the written consent of Central, the Company or holders of
Common Stock who have registration rights under the Existing Rights Agreements
("Registration Right Holders") shall be entitled to include in any registration
statement referred to in this Section 2, for sale in accordance with the method
of disposition specified by Central, shares of Common Stock to be sold by the
Company or such holders for its or their own accounts, except as and to the
extent that (i) in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the Common Stock to be sold by Central or (ii)
with respect to any such holder, such holder may sell such shares of Common
Stock without registration pursuant to Section 4(1) of the Securities Act.
Except for registration statements on Form S-4, S-8 or any successor thereto,
the Company will not file any other registration statement with respect to its
Common Stock, whether for its own account or that of other stockholders, from
the date of receipt of a notice pursuant to Section 2(a) until 90 days after the
completion of the period of distribution of the shares Central has requested be
registered without Central's written consent (which shall not be unreasonably
withheld).
3. Incidental Registration. If the Company at any time (other than pursuant
to Section 2 or Section 4) proposes to register any of its securities under the
Securities Act for sale to the public for its own account (except with respect
to registration statements on Forms S-4 or S-8) or the account of any other
person, each such time it will give written notice to Central of its intention
so to do. Upon the written request of Central, received by the Company within
thirty (30) days after the giving of any such notice by the Company, the Company
will use its best efforts to cause such shares of Common Stock owned by Central
as Central requests to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by Central (in accordance with
its written request) of such shares. The Company may include in any registration
statement to be filed for its own account, without Central's consent, any
securities which are beneficially owned by Registration Rights Holders who have
registration rights under the Existing Rights Agreements and which cannot be
freely sold without such registration. If any registration pursuant to this
Section 3 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Common Stock offered by Central to be
included in such an underwriting may be reduced if and to the extent that the
managing underwriter shall be of the opinion
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that such inclusion would adversely affect the marketing of the securities (if
any) to be sold by the Company therein, provided, however, that such number of
shares of Common Stock held by Central shall not without Central's consent be
reduced in order to allow any shares to be included in such underwriting for the
account of any person other than the Company. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 3 without thereby incurring any liability to Central.
4. Registration on Form S-3. Subject to the limit of two registrations in
any 12 month period, if at any time (i) Central requests that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the shares of Common Stock held by it, the
reasonably anticipated aggregate price to the public of which would exceed
$250,000 and (ii) the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register, under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Common Stock specified in such notice.
Whenever the Company is required by this Section 4 to use its best efforts to
effect the registration of Common Stock, each of the procedures and requirements
of Section 2 shall apply to such registration, provided, however, that except as
provided above there shall be no limitation on the number of registrations on
Form S-3 which may be requested and obtained under this Section 4.
5. Registration Procedures. If and whenever the Company is required by the
provisions of Section 2, 3 or 4 to use its best efforts to effect the
registration of any shares of Common Stock under the Securities Act, the Company
will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section
2, shall be on Form S-1 or other form of general applicability satisfactory
to the managing underwriter selected as therein provided) with respect to
such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in paragraph (a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Common Stock covered by such registration statement in
accordance with Central's intended method of disposition set forth in such
registration statement for such period;
(c) permit Central to participate in good faith in the preparation of
such registration statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable
judgment of Central and its counsel should be included;
(d) furnish to Central and to each underwriter such number of copies
of the registration statement and each such amendment and supplement
thereto (in each case including all exhibits) and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably
may request in order to facilitate the public sale or other disposition of
the Common Stock covered by such registration statement;
(e) use its best efforts to register or qualify the Common Stock
covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as Central or, in the case of an underwritten
public offering, the managing underwriter reasonably shall request,
provided,
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however, that the Company shall not for any such purpose be required to
qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction;
(f) use its best efforts to list the Common Stock covered by such
registration statement with any securities exchange or over-the-counter or
stock market on which the Common Stock of the Company is then listed;
(g) immediately notify Central and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact or required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and promptly prepare and furnish to Central a reasonable number
of copies of a prospectus supplemented or amended so that, as thereafter
delivered to the purchasers of such Common Stock, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(h) if the offering is underwritten, use its best efforts to furnish
on the date that Common Stock is delivered to the underwriters for sale
pursuant to such registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration, addressed
to the underwriters and to Central, to such effect as reasonably may be
requested by counsel for the underwriters or by Central or its counsel, and
(ii) a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to Central,
stating that they are independent public accountants within the meaning of
the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement
or the prospectus, or any amendment or supplement thereof, comply as to
form in all material respects with the applicable accounting requirements
of the Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five business days prior to the date of such letter ) with respect to
such registration as such underwriters reasonably may request;
(i) make available for inspection by Central, any underwriter
participating in any distribution pursuant to such registration statement,
and any attorney, accountant or other agent retained by Central or
underwriter, reasonable access to all financial and other records,
pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors
and employees to supply all information reasonably requested by Central,
underwriter, attorney, accountant or agent in connection with such
registration statement;
(j) cooperate with Central and the managing underwriter, if any, to
facilitate the timely preparation and delivery of certificates representing
Common Stock to be sold, such certificates to be in such denominations and
registered in such names as Central or the managing underwriters may
request at least two business days prior to any sale of Common Stock;
(k) notify Central after it shall receive notice of the time when such
registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed;
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(l) notify Central of any request by the Commission for the amending
or supplementing of such registration statement or prospectus or for
additional information;
(m) prepare and file with the Commission, promptly upon the request of
Central, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel elected by Central, is required
under the Securities Act or the rules and regulations thereunder in
connection with the distribution of shares of Common Stock for the account
of Central; and
(n) advise Central after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceeding for such purpose and promptly use all
reasonable efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order shall be issued.
For purposes of this Agreement, the period of distribution of Common Stock
in a firm commitment underwritten public offering shall be deemed to extend
until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of Common Stock in any other
registration shall be deemed to extend until the earlier of the sale of all
Common Stock covered thereby and 120 days after the effective date thereof.
In connection with each registration hereunder, Central will furnish to the
Company in writing such information requested by the Company with respect to
itself and the proposed distribution by it as shall be reasonably necessary in
order to assure compliance with federal and applicable state securities laws.
In connection with each registration pursuant to Section 2, 3, or 4
covering an underwritten public offering, the Company and Central agree to enter
into a written agreement with the managing underwriter selected in the manner
herein provided in such form and containing such provisions as are customary in
the securities business for such an arrangement between such underwriter and
companies of the Company's size and investment stature.
6. Expenses. All expenses incurred by the Company in complying with
Sections 2, 3 and 4 including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of any insurance which might be
obtained and fees and disbursements of one counsel for Central, but excluding
any Selling Expenses, are called "Registration Expenses." "Selling Expenses"
shall include all underwriting discounts and commissions applicable to the sale
of Common Stock by Central.
The Company will pay all Registration Expenses in connection with each
registration statement under Section 2, 3, or 4. All Selling Expenses in
connection with each registration statement under Section 2, 3 or 4 shall be
borne by Central.
7. Indemnification.
(a) In the event of a registration of any of the Common Stock under the
Securities Act pursuant to Sections 2, 3 or 4, the Company will indemnify and
hold harmless Central, its officers and directors, each underwriter of such
Common Stock thereunder and each other person, if any, who controls Central or
such underwriter within the meaning of the Securities Act, against any losses,
claims,
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damages or liabilities, joint or several, to which Central, or such officer,
director, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such Common Stock was registered under
the Securities Act pursuant to Section 2, 3 or 4, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any blue sky application or other document executed by the Company specifically
for that purpose or based upon written information furnished by the Company
filed in any state or other jurisdiction in order to qualify any or all of the
Common Stock under the securities laws thereof (any such application, document
or information herein called a "Blue Sky Application"), (iii) any violation by
the Company or its agents of any rule or regulation promulgated under the
Securities Act applicable to the Company or its agents and relating to action
required of the Company in connection with such registration, or (iv) any
failure to register or qualify the Common Stock in any state where the Company
or its agents have affirmatively undertaken or agreed in writing that the
Company (the undertaking of any underwriter chose by the Company being
attributed to the Company ) will undertake such registration or qualification on
Central's behalf and will reimburse Central, and such officer and director, each
such underwriter and each such controlling person for any reasonable 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 if and 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 so
made in conformity with information furnished by Central, any such underwriter
or any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Common Stock under the
Securities Act pursuant to Sections 2, 3 or 4, Central will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities ( or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Common Stock was
registered under the Securities Act pursuant to Sections 2, 3 or 4, any
preliminary prospectus or final prospectus contained therein or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any amendment or supplement thereof, or any Blue Sky Application
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any reasonable legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, further, however, that Central
will be liable hereunder in any such case if and only to the extent that any
such loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to Central and
furnished in writing to the Company by Central specifically for use in such
registration statement or prospectus, and provided, however, that the liability
of Central shall not exceed the proceeds received by it from the sale of Common
Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made
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against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 7 and shall only relieve it from any liability which it
may have to such indemnified party under this Section 7 if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 7 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that the interests of the
indemnified party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) The indemnities provided in this Section 7 shall survived the transfer
of any Common Stock by Central.
8. Changes in Common Stock. If, and as often as, there is any change in the
Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
9. Rule 144 Reporting. The Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act; and
(c) furnish to Central forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements
of such Rule 144 and of the Securities Act and the Exchange Act,
a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the
Company as Central may reasonably request in availing itself of
any rule or regulation of the Commission allowing such holder to
sell any Common Stock without registration.
10. Other Registration Rights. Except for the registration rights granted
hereunder and registration rights instrumental to an equity or other financing
undertaken by the Company, the Company will not grant to any person the right to
request the Company to register any equity securities of the Company, or any
securities convertible or exchangeable into or exercisable for such securities,
without Central's written consent. Except for registrations pursuant to
registration rights granted under
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the Existing Rights Agreements, hereunder, or with Central's consent to other
persons pursuant to this paragraph 10, or registrations of securities by the
Company, the Company will not register any equity securities of the Company, or
any securities convertible or exchangeable into or exercisable for any
securities, without Central's written consent (which will not be unreasonably
withheld).
11. Representations and Warranties of the Company. The Company represents
and warrant to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the charter or bylaws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
in accordance with its terms.
(c) Other than the Existing Rights Agreements, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to request or require the Company to include any securities of
the Company in any registration statement under the Securities Act or granting
such person the right to request or require the Company to register any
securities of the Company pursuant to any registration statement under the
Securities Act.
12. Issuances of Securities by the Company. Each time during the term of
this Agreement that the Company intends to issue or sell any securities (either
equity or debt) of any class for cash in a private or public offering, the
Company will notify Central in writing of such and thereby offer to purchase
(the "Offer") from Central up to such number of shares of Common Stock then
owned by Central as equals the amount of such cash divided by the Fair Market
Value of the Common Stock on the date of such notice (the "Sale Price"). If
Central wishes to accept the Offer in whole or in part, it shall provide written
notice to the Company accepting the Offer (the "Acceptance") and stating the
number of shares of Common Stock it thereby agrees to sell to the Company at the
Sale Price. If Central sends the Acceptance within 30 days of the Offer, the
Acceptance will be deemed to constitute a valid and binding agreement of the
Company and Central, and the closing of the sale of shares of Common Stock
indicated in the Acceptance will be held no later than the 5th business day
following receipt of the Acceptance by the Company, the exact time, date and
place of closing to be agreed upon by the parties. If Central does not send the
Acceptance within 30 days of the Offer, then the Company will no longer have any
obligation to apply the proceeds of that particular issuance of securities to
the purchase of shares of Common Stock from Central.
13. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties (including without limitation
transferees of Central's Common Stock), whether so expressed or not, provided,
however, that registration rights conferred herein on Central shall only inure
to the benefit of a transferee of Central's Common Stock if (i) there is
transferred to such transferee at least five
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percent (5%) of the total shares of Common Stock originally issued pursuant to
the Exchange Agreement, or (ii) such transferee is a partner, member,
shareholder or affiliate of Central.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed as follows:
(i) if to the Company or Central, at the address of such party set
forth in the Exchange Agreement;
(ii) if to any subsequent holder of Common Stock, to it at such
address as may have been furnished to the Company in writing by such
holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing in accordance with the provisions of this paragraph.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Ohio.
(d) This Agreement may not be amended or modified, and no provision hereof
may be waived, without the written consent of the Company and Central.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligation of the Company to register shares of Common Stock under
Sections 2, 3 or 4 shall terminate on ______________, 2015.
(g) If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable, such illegality, invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render illegal,
invalid or unenforceable any other provision of this Agreement, and this
Agreement shall be carried out as if any such illegal, invalid, or unenforceable
provision were not contained herein.
(h) Central will be entitled to enforce its rights hereunder specifically,
recover damages caused by reason of any breach of this Agreement and exercise
all other rights granted by law.
14. Lockup Release. Neither Alchemy nor Cigarette shall release any person
or entity that is a shareholder and affiliate of Alchemy from the lockup
restrictions provided under Section 2.1(d) of the Merger Agreement without first
notifying Central of such release and simultaneously releasing Central on the
same terms and conditions and with respect to a number of shares equal in the
aggregate to all shares so released; provided, however, that if Alchemy or
Cigarette releases Masada I, L.P. ("Masada") from such lockup restrictions, it
shall notify Central promptly of such release but will not be obligated to
release Central from such restrictions merely because it has released Masada.
[The remainder of this page is intentionally left blank.]
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INWITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ALCHEMY HOLDINGS, INC.
By:________________________
Its:_______________________
CENTRAL MANUFACTURING, INC.
By:________________________
Its:_______________________
10
EXHIBIT C
STOCKHOLDERS AGREEMENT
This Agreement is made on _______________, 1999, by and among Adam Schild,
Craig Barrie, Offshore Racing, Inc., a Florida corporation, and Winchester
Holdings, L.P., a New York limited partnership (collectively the "Holders" and
singularly a "Holder") and Central Manufacturing, Inc., an Alabama corporation
("Central").
WHEREAS, the Holders beneficially own ____________ shares of Common Stock,
$.001 par value (the "Common Stock"), and _______ shares of Cumulative Preferred
Stock, Series A (the "Preferred Stock"), in the aggregate, of Alchemy Holdings,
Inc., a Florida corporation (the "Company");
WHEREAS, Central beneficially owns _________ shares of Common Stock and
______ shares of Preferred Stock as a result of the consummation of the merger
(the "Merger") of Cigarette Boats, Inc., a Delaware corporation and wholly-owned
subsidiary of the Company into Cigarette Racing Team, Inc., a Florida
corporation ("Cigarette");
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Holders and Central agree as follows:
1. Prohibited Transfers. None of the Holders shall sell, assign, transfer,
distribute, pledge, hypothecate, mortgage or dispose of, by gift, operation of
law, dissolution or otherwise, or in any way encumber, all or any part of the
Shares (as hereinafter defined) beneficially owned by him or it except in
compliance with the terms of this Agreement. For purposes of this Agreement, the
term "Shares" shall mean and include all shares of Common Stock and Preferred
Stock of the Company beneficially owned by each of the Holders, whether
presently held or hereafter acquired.
2. Right of First Refusal on Dispositions by the Holders. If at any time
any of the Holders wishes to sell, assign, transfer or otherwise dispose of any
or all Shares owned by him or it pursuant to the terms of a bona fide offer
received from a third party, whether in the public or private markets, he or it
shall submit a written offer to sell such Shares to Central on terms and
conditions, including price, not less favorable than those on which he or it
proposes to sell such Shares to such third party (the "Offer"). The Offer shall
disclose the identity of the proposed purchaser or transferee, the Shares
proposed to be sold or transferred (the "Offered Shares"), the agreed terms of
the sale or transfer and any other material facts relating to the sale or
transfer. Within three days after receipt of the Offer, Central shall give
notice to such Holder of its intent to purchase all or any portion of the
Offered Shares on the same terms and conditions as set forth in the Offer and
communicate in writing such election to purchase to whichever of the Holders has
made the Offer, which communication shall be delivered by hand or mailed to such
Holder at the address set forth in Section 6 below and shall, when taken in
conjunction with the Offer, be deemed to constitute a valid, legally binding and
enforceable agreement for the sale and purchase of the Shares covered thereby.
Central shall have the right to transfer its right to purchase any Offered
Shares or part thereof to any Qualified Transferee (as defined below); provided
such transferee becomes a party to this Agreement by executing and delivering to
the Company an Instrument of Accession in the form of Exhibit A hereto (the
"Accession").
If Central does not purchase all of the Offered Shares offered by a Holder
pursuant to and within three days after receipt of the Offer, any Offered Shares
not so purchased may be sold by the Holder making the Offer at any time within
five days after the expiration of the aforesaid three days, but subject
<PAGE>
to the provisions of Section 3 below. Any such sale shall be at not less than
the price and upon such other terms and conditions, if any, not more favorable
to the purchaser than those specified in the Offer. Any Shares not sold within
such five-day period shall continue to be subject to this Agreement. In the
event that Shares are sold to any purchaser pursuant to this Section, such
Shares shall no longer be entitled to the benefits conferred by, or subject to
the restrictions imposed by, this Agreement.
For purposes of this Section 2, a Qualified Transferee shall mean any
person who is an affiliate, as that term is defined in the Investment Company
Act of 1940, of Central, or acquires at least 50,000 shares of Common Stock (as
adjusted for stock splits, stock dividends, reclassifications, recapitalizations
or other similar events) from Central.
3. Right of Participation by Central in Sales by Holders. If at any time
any Holder wishes to sell or otherwise dispose of any Shares owned by him or it
to any person (the "Purchaser") in a transaction which is subject to the
provisions of Section 2 hereof, Central shall have the right to require, as a
condition to such sale or disposition, that the Purchaser purchase from Central
at the same price per share and on the same terms and conditions as involved in
such proposed sale or disposition by the Holder the same percentage of shares of
Common Stock or Preferred Stock owned by Central as such sale or disposition (as
proposed to be consummated) represents with respect to said shares of Common
Stock or Preferred Stock then owned by whichever of the Holders is selling.
Central shall notify the selling Holder of its intention to so participate as
soon as practicable after its receipt of the Offer made pursuant to Section 2,
and in all events within three days after its receipt thereof. In the event that
Central shall elect to participate in such sale or disposition, it shall
individually communicate such election to the selling Holder, which
communication shall be delivered by hand or mailed to such Holder at the address
set forth in Section 6 below. The Holder and/or Central shall sell to the
Purchaser all, or at the option of the Purchaser, any part of the Common Stock
or Preferred Stock proposed to be sold by them at not less than the price and
upon other terms and conditions, if any, not more favorable to the Purchaser
than those originally offered; provided, however, that any purchase of less than
all of such Common Stock or Preferred Stock by the Purchaser shall be made from
each of the Holder and Central based upon a fraction, the numerator of which is
the number of shares of Common Stock or Preferred Stock of the Company (assuming
conversion of all shares of capital stock convertible into and/or exercisable
for Common Stock or Preferred Stock) then owned by the Holder or Central, as the
case may be, and the denominator of which is the aggregate number of shares of
Common Stock or Preferred Stock so owned by the Holder and Central. Each selling
Holder shall use his or its best efforts to obtain the agreement of the
Purchaser to the participation of Central in the contemplated sale, and shall
not sell any Common Stock or Preferred Stock to such Purchaser if such Purchaser
declines to permit Central to participate pursuant to the terms of this Section
3. Notwithstanding anything to the contrary in the foregoing, if the Preferred
Stock is convertible into Common Stock at any time any Holder of Preferred Stock
wishes to sell or otherwise dispose of such Preferred Stock, Central shall have
the right to sell Common Stock under this Section 3 as if such Preferred Stock
had been converted into Common Stock and was being sold pursuant hereto.
4. Permitted Transfers. Anything herein to the contrary notwithstanding,
the provisions of Sections 1, 2 and 3 shall not apply to: (a) any transfer of
Shares by a Holder by gift or bequest or through inheritance to, or for the
benefit of, any member or members of his immediate family; (b) any transfer of
Shares by a Holder to a trust in respect of which he or it serves as trustee,
provided that the trust instrument governing said trust shall provide that such
Holder, as trustee, shall retain sole and exclusive control over the voting and
disposition of said Shares until the termination of this Agreement; or (c) any
sale of Shares in a public offering pursuant to a registration statement filed
by the Company with Central's permission with the Securities and Exchange
Commission. In the event of any such
2
<PAGE>
transfer, other than pursuant to subsection (c) of this Section 4, the
transferee of the Shares shall hold the Shares so acquired with all the rights
conferred by, and subject to all the restrictions imposed by, this Agreement,
and such transferee shall execute an Accession at Central's request.
5. Termination. This Agreement, and the respective rights and obligations
of the parties hereto, shall terminate on ______________, 2015.
6. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered or mailed by first
class, registered or certified mail, return receipt requested, postage prepaid,
if to each Holder at 3131 N.E. 188th Street, Aventura, Florida 33180, and if to
Central, c/o Jeffrey Friedman at 5025 Swetland Court, Richmond Heights, Ohio
44143, or to such other address as the addressee shall have furnished to the
other parties hereto in the manner prescribed by this Section 7.
7. Specific Performance. The rights of the parties under this Agreement are
unique and, accordingly, the parties shall, in addition to such other remedies
as may be available to any of them at law or in equity, have the right to
enforce their rights hereunder by actions for specific performance to the extent
permitted by law.
8. Legend. The certificates representing the Shares bear on their face a
legend indicating the existence of the restrictions imposed hereby. The Holders
and the Company hereby provide Central with a copy of such certificates showing
the legend thereon. If at any time any Holder wishes to sell any Shares in
accordance herewith and Central does not wish to exercise its rights under
Section 2 or Section 3 of this Agreement with respect to such sale, Central will
provide such Holder and the transfer agent for the Company with a letter
authorizing the aforesaid legend to be removed from the certificate(s)
representing the Shares to be sold by such Holder as aforesaid.
9. Entire Agreement. This Agreement constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings between them or any of them as to such subject
matter.
10. Waivers and Further Agreements. Any waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach of that provision or of any other provision hereof. Each
of the parties hereto agrees to execute all such further instruments and
documents and to take all such further action as any other party may reasonably
require in order to effectuate the terms and purposes of this Agreement.
11. Amendments. Except as otherwise expressly provided herein, this
Agreement may not be amended except by an instrument in writing executed by
Central and the Holders.
12. Successors. This Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, executors, legal
representatives, and successors.
13. Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
3
<PAGE>
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
CENTRAL MANUFACTURING, INC.
By:______________________________________
Its:_____________________________________
HOLDERS:
_________________________________________
Adam Schild
_________________________________________
Craig Barrie
Offshore Racing, Inc.
By:______________________________________
Its:_____________________________________
Winchester Holdings, L.P.
_______________, Managing General Partner
By:______________________________________
Its:_____________________________________
4
<PAGE>
EXHIBIT A
INSTRUMENT OF ACCESSION
The undersigned, ____________________, as a condition precedent to becoming
the owner or holder of record of ________________________ shares of the Common
Stock, par value $.001 per share or ____________ shares of the Cumulative
Preferred Stock, Series A, of Alchemy Holdings, Inc., a Florida corporation (the
"Company"), hereby agrees to become a party to and bound by that certain
Stockholders' Agreement, dated as of ___________, 1999, by and among certain
stockholders of the Company. This Instrument of Accession shall take effect and
become an integral part of such Stockholders' Agreement immediately upon
execution and delivery to the Company of this instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by
or on behalf of the undersigned, as a sealed instrument under the laws of the
State of Ohio, as of the date below written.
Signature:
_________________________________________
(Print Name)
Address:
Date:____________________________________
Accepted:
ALCHEMY HOLDINGS, INC.
By:______________________________________
Name:________________________________
Title:_______________________________
Date:____________________________________
EXHIBIT E
UNCONDITIONAL GUARANTY AGREEMENT
This Unconditional Guaranty Agreement (the "Guaranty") is given jointly and
severally this day of , 1999, by Alchemy Holdings, Inc., a Florida corporation
and the parent of Lessee as defined herein (the "Parent"), Winchester Holdings,
L.P., a New York limited partnership and affiliate of Parent and Lessee, and
Jack Cabasso (WHLP, Parent, and Cabasso, each a "Guarantor") in conjunction with
that certain lease by and between Central Manufacturing, Inc. ("Lessor"), and
Cigarette Racing Team, Inc. ("Lessee"), originally executed on May 26, 1994, and
amended on , 1999 (the "Amendment"), for the premises described therein (the
"Premises") in Dade County, Florida (as amended, the "Lease").
W I T N E S S E T H:
A. In order to induce Lessor to enter into the Amendment and as additional
security for Lessee's performance of the terms of and Lessee's payment of the
monies to be paid by Lessee under the Lease, Lessee has agreed to procure and
deliver to Lessor this Guaranty to be executed by each Guarantor; and
B. Lessor has refused to enter into the Amendment unless this Guaranty is
executed by each Guarantor and delivered to Lessor, and this Guaranty is a
material inducement to Lessor in connection with Lessor's executing the
Amendment with Lessee.
NOW, THEREFORE, in consideration of the premises herein and the execution
by Lessor of the Amendment, each Guarantor jointly and severally hereby
covenants and agrees with Lessor as follows:
1. Subject to the provisions of paragraph 16 below, such Guarantor
irrevocably, absolutely and unconditionally guarantees to Lessor the due and
punctual payment, when due, by acceleration or otherwise, of all obligations to
pay under the Lease and the performance of all obligations of Lessee under the
Lease and related documents.
2. Such Guarantor hereby acknowledges and consents that the terms,
covenants and conditions contained in the Lease and related documents may be
altered, extended, changed, modified or released by Lessee, with the approval of
Lessor, without in any manner affecting this Guaranty or releasing such
Guarantor herefrom, or without the consent of such Guarantor.
3. This is a guaranty of payment and not of collection and the liability of
such Guarantor to Lessor shall be direct and immediate and unconditional. Such
Guarantor hereby waives any and all legal requirements that Lessor shall
institute any action or proceedings at law or in equity against Lessee, or
anyone else, with respect to the Lease or with respect to any other security
held by Lessor, as a condition precedent to bringing an action against such
Guarantor upon this Guaranty. All remedies afforded to Lessor by reason of this
Guaranty are separate and cumulative remedies and the exercise of any one of
such remedies, whether any one of the other remedies are available to Lessor,
its successors or assigns, shall not limit or prejudice any other legal or
equitable remedies which Lessor may have under the Lease, at law or in equity.
4. Until each and all of the terms, covenants and conditions of this
Guaranty are fully performed, such Guarantor shall not be released by any act or
thing which might, but for this provision of this Guaranty, be deemed a legal or
equitable discharge of such Guarantor, or by reason of any waiver, extension,
modification, or delay of Lessor, or its failure to proceed promptly or
otherwise, or by
<PAGE>
reason of any further obligation or agreement between any assignee or sublessee
of the Premises and Lessor or any beneficial assignee of Lessor's interest in
the Lease, and such Guarantor hereby expressly waives and surrenders any defense
to such Guarantor's liability hereunder based upon any of the foregoing acts,
things, agreements or waivers or any of them.
5. Such Guarantor hereby waives presentment for payment, demand, protest,
notice of protest and of dishonor, notice of acceptance hereof, notices of
default and all other notices now or hereafter provided by law.
6. In the event that for any reason Lessee or any subsequent assignee or
sublessee of the Premises is now or shall hereafter become indebted to such
Guarantor, the amount of each sum and of such indebtedness shall at all times be
subordinate as to lien, time of payment and in all other respects to the amounts
owing to Lessor under the Lease.
7. Any notice, demand or request by Lessor to such Guarantor shall be in
writing and shall be deemed to have been duly given or made if either delivered
personally to such Guarantor or if mailed by registered mail or certified mail,
return receipt requested, at the aforementioned address.
8. This instrument shall inure to the benefit of Lessor, its successors and
assigns, and shall bind such Guarantor and his or its legal representatives,
successors and assigns.
9. This Guaranty constitutes the entire agreement between such Guarantor
and Lessor covering the subject matter hereof.
10. If at any time or times hereafter Lessor employs counsel to intervene,
or to file a petition, answer, motion or other pleading in any suit or
proceeding relating to this Guaranty, then in such event, all of the reasonable
attorneys' fees and appellate fees relating thereto and other costs of
collection, shall be an additional liability of such Guarantor to Lessor,
payable on demand.
11. As security for such Guarantor's obligations hereunder, such Guarantor
agrees that (a) in the event such Guarantor fails to pay its obligations
hereunder when due and payable under this Guaranty, any of such Guarantor's
assets of any kind, nature or description (including, without limitation,
deposit accounts) in the possession, control or custody of Lessor, may, without
notice to such Guarantor, be reduced to cash or the like, and applied by Lessor
in reduction or payment of such Guarantor's obligations hereunder and (b) all
indebtedness, liability or liabilities now and at the time or times hereafter
owing by Lessee to such Guarantor are hereby subordinated to the indebtedness
owing by Lessee to Lessor.
12. Such Guarantor warrants and represents to Lessor that (a) upon the
execution and delivery of this Guaranty it is fully enforceable against such
Guarantor in accordance with its terms, (b) that the execution and delivery of
this Guaranty does not violate or constitute a breach of any agreement to which
such Guarantor is a party or of any applicable laws, (c) such Guarantor has
knowledge of Lessee's financial condition and affairs and will hereafter keep
informed of Lessee's financial condition so long as this Guaranty is in force,
and (d) such Guarantor will furnish financial statements prepared according to
generally accepted accounting principles to Lessor from time to time at Lessor's
request.
13. Such Guarantor hereby waives and agrees not to assert or take advantage
of (a) the defense of the statute of limitations in any action hereunder or for
the collection of the indebtedness or the payment of any obligation hereby
guaranteed, (b) any defense that may arise by reason of the
<PAGE>
incapacity, lack of authority, death or disability of such Guarantor or any
other person or entity, or the failure of Lessor to file or enforce a claim
against the estate (either in administration, bankruptcy, or any other
proceeding) of Lessee or any other person or entity, (c) any defense based on
the failure of Lessor to give notice of the existence, creation or incurring of
any new or additional indebtedness or obligation or of any action or non-action
on the part of any other person whomsoever, in connection with any obligation
hereby guaranteed, (d) any defense based upon an election of remedies by Lessor
which destroys or otherwise impairs any subrogation rights of such Guarantor or
the right of such Guarantor to proceed against Lessee for reimbursement, or
both, (e) any defense based upon failure of Lessee to commence an action against
Lessee, (f) any failure on the part of Lessor to disclose to such Guarantor any
facts it may now or hereafter know regarding Lessee, (g) any failure to receive
acceptance or notice of acceptance of this Guaranty by Lessor, (h) any failure
to give notice of presentment and demand for payment of any of the indebtedness
or performance of any of the obligations hereby guaranteed, (i) any failure to
give protest and notice of dishonor or of default to such Guarantor or to any
other party with respect to the indebtedness or performance of obligations
hereby guaranteed, (j) failure to give any and all other notices whatsoever to
which such Guarantor might otherwise be entitled, and (k) any defense based on
lack of due diligence by Lessor in collection, protection or realization upon
any collateral securing the indebtedness evidenced by the Lease.
14. This Guaranty is assignable by Lessor, and any assignment hereof or any
transfer or assignment of the Lease by Lessor shall not require the consent of
such Guarantor.
15. This Guaranty shall be construed, interpreted, enforced and governed by
and in accordance with the laws of the State of Florida. The parties agree that
proper venue for the purposes of enforcing the terms of this Guaranty shall lie
in Dade County, Florida.
16. Notwithstanding anything to the contrary contained herein, the
liability of such Guarantor under this Guaranty shall survive expiration or
earlier termination of the Lease.
IN WITNESS WHEREOF, each Guarantor has duly executed this Guaranty this
______ day of , 1998. ----------------------------
Signed, sealed and delivered in the presence of:
WINCHESTER HOLDINGS, L.P.
- ------------------------------
By:
--------------------------
- ------------------------------ Managing General Partner
- ------------------------------
ALCHEMY HOLDINGS, INC.
- ------------------------------ By:
--------------------------
- ------------------------------
--------------------------
Jack Cabasso
- ------------------------------
<PAGE>
STATE OF FLORIDA )
)
COUNTY OF )
The foregoing instrument was acknowledged before me this _______ day of
_______, 1998, by __________________________, the ________________ of Alchemy
Holdings, Inc. He is personally known to me or has produced _______________ as
identification.
___________________________
(Notary Signature)
(NOTARY SEAL) ___________________________
(Notary Name Printed)
NOTARY PUBLIC
Commission No. ____________
STATE OF FLORIDA )
)
COUNTY OF )
The foregoing instrument was acknowledged before me this _____________ day
of _______________, 1998, by ___________________________________, the managing
general partner of Winchester Holdings, L.P. He is personally known to me or has
produced _________________________ as identification.
___________________________
(Notary Signature)
(NOTARY SEAL) ___________________________
(Notary Name Printed)
NOTARY PUBLIC
Commission No. ____________
STATE OF FLORIDA )
)
COUNTY OF )
The foregoing instrument was acknowledged before me this _________________
day of _________________, 1998, by Jack Cabasso, individually. He is personally
known to me or has produced ______________________ as identification.
___________________________
(Notary Signature)
(NOTARY SEAL) ___________________________
(Notary Name Printed)
NOTARY PUBLIC
Commission No. ____________
EXHIBIT D
AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and entered
into by and between Central Manufacturing, Inc., an Alabama corporation
("Lessor") previously known as Cigarette Racing Team, Inc., an Alabama
corporation and Cigarette Racing Team, Inc., a Florida corporation ("Lessee")
previously known as New CRT, Inc., a Florida corporation, as of this _____ day
of ___________, 1999, for purposes of amending that certain Lease dated May 26,
1994 (the "Lease") by and between Cigarette Racing Team, Inc., an Alabama
corporation, as lessor, and New CRT, Inc., a Florida corporation, as lessee.
WITNESSETH:
WHEREAS, Lessor and Lessee have agreed to modify the terms and provisions
of the Lease and to enter into this Amendment to evidence their agreement; and
NOW, THEREFORE, the parties hereto, for and in consideration of the mutual
premises set forth herein and in the Lease, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledge, do
hereby agree as follows:
1. Upon the full execution of this Amendment and as additional
consideration for Lessor's execution of this Amendment, Lessee shall
simultaneously deliver to Lessor the amount of Fifty Thousand Four Hundred Eight
and No/100ths Dollars ($50,408.00) in satisfaction of Lessee's obligation to
reimburse Lessor for costs and expenses associated with Lessor's procurement of
insurance for the Premises during the 1997/1998 period during which Lessee was
obligated to provide such insurance, but did not so provide.
2. Section 2 of the Lease is hereby deleted in its entirety and replaced by
the following:
Term. TO HAVE AND TO HOLD the Leased Premises unto Lessee for a term (the
"Term") commencing on the Effective Time of the merger contemplated under
that certain Agreement and Plan of Merger by and among Alchemy Holdings,
Inc., a Florida corporation, Cigarette Boats, Inc., a Delaware corporation
and Lessee dated the ____ day of ________, 1999 (the "Commencement Date")
and ending on the first anniversary of the Commencement Date.
It is the intent of the parties that there be no Option to Extend the Term
of the Lease.
3. Section 3 of the Lease is hereby deleted in its entirety and replaced by
the following:
(a) Subject to adjustment as may be provided for herein, Lessee covenants
and agrees, without demand and without deduction or setoff of any kind, to pay
Lessor, at Lessor's address hereinafter specified for receipt of notices or at
such other address as Lessor from time to time may designate in writing, rent,
together with all applicable sales tax thereon, for the Leased Premises during
the Term of the Lease in such amounts as Lessor may deem reasonably necessary to
enable Lessor to utilize such funds to pay, when due, all real estate taxes,
assessments and all other charges of any other kind described in Section 7 of
this Lease, payable by Lessee to Lessor in monthly installments, in advance, on
or before the first day of each and every calendar month during the Term,
commencing on the Commencement Date, and, if in Lessor's sole and absolute
discretion Lessee is not in full compliance with the terms and provisions of
this Lease concerning repair, maintenance, and insurance of the Leased Premises,
such amounts as Lessor may
<PAGE>
deem reasonably necessary therefor, payable either in lump sum or in monthly
installments at Lessor's sole and absolute discretion, in advance, on or before
the first day of each and every calendar month during the Term, commencing on
the Commencement Date. If the Commencement Date occurs on other than the first
day of a calendar month, rent for the partial month between the Commencement
Date and the last day of the calendar month during which the Commencement Date
occurs shall be prorated on a daily basis as determined by Lessor, and shall be
payable in advance on or before the Commencement Date.
(b) Without derogation of any other rights Lessor may have under the Lease,
Lessee's failure to comply with any of the requirements set forth in the Lease
concerning the delivery to Lessor of certificates of insurance, proof of
payments of insurance premiums, or any other evidence of insurance that may be
requested by Lessor in Lessor's sole and absolute discretion shall be cause for
Lessor's immediate demand of payment from Lessee sufficient therefore, which
shall thereupon be due in full to Lessor.
(c) All amounts due from Lessee to Lessor hereunder shall be deemed rent,
and Lessee's failure to pay any such amount to Lessor when required hereunder
shall be deemed an event of default under the Lease.
(d) Lessor shall provide to Lessee, by telecopy notice to Lessee's office,
or by other methods permitted in Section 31 of the Lease, at least three (3)
days prior to the first day of each month for which there is to be a change in
the rent payment from the prior month, an invoice setting forth the new rent
amount. Lessor shall deliver to Lessee at Lessor's earliest convenience an
invoice setting forth the rent that shall be paid by Lessee for the first
monthly payment, or prorated portion thereof.
4. Section 7(a) of the Lease is hereby modified to provide that Lessor
shall remit payment for those items specified therein for which Lessor has
billed and collected funds therefor from Lessee. Lessee shall bear
responsibility for the payment of all other items specified therein.
5. The first sentence of Section 7(b) is hereby deleted.
6. In the first sentence of Section 16(b), the dollar amount of
"$3,000,000.00" shall be replaced by the dollar amount of "$4,000,000.00."
7. The names and addresses provided in Section 31 shall be deleted and
replaced by the following:
If to Lessor, at:
Central Manufacturing, Inc.
_________________________________
_________________________________
Attn: ___________________________
If to Lessee, at:
Cigarette Racing Team, Inc.
_________________________________
_________________________________
Attn: ___________________________
-2-
<PAGE>
8. Section 32 of the Lease is hereby deleted in its entirety and replaced
with the following:
Should Lessee hold over the Leased Premises or any part thereof after the
expiration of the Term, such tenancy shall constitute a month to month
tenancy on the same terms and conditions; provided, however, that rent
shall be payable in the amount of $25,000.00 per month for the duration
thereof, plus all applicable sales tax.
9. Section 40 of the Lease is hereby deleted in its entirety and there
shall be no right of first refusal for the benefit of Lessee.
10. Notwithstanding the foregoing, all terms of the Lease not amended
pursuant to this Amendment shall remain in full force and effect throughout the
entire Term of the Lease.
11. Unless specifically defined in this Amendment, all capitalized terms
shall be defined as set forth in the Lease.
IN WITNESS WHEREOF, the undersigned hereunto have set their hands this
_________ day of ________, 1999.
Lessor:
Signed, sealed and delivered Central Manufacturing, Inc.
in the presence of:
______________________________ By:________________________
Witness
Print Name:________________
As its:____________________
______________________________
Witness
Lessee:
Signed, sealed and delivered Cigarette Racing Team, Inc.
in the presence of:
______________________________ By:________________________
Witness
Print Name:________________
As its:____________________
______________________________
Witness
<PAGE>
STATE OF FLORIDA )
) SS.
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this ______ day of
________________, 1999, by __________________________ as _______________________
of Central Manufacturing, Inc., an Alabama corporation, on behalf of the
corporation. He/she is personally known to me or has produced as identification.
___________________________
(Notary Signature)
(NOTARY SEAL) ___________________________
(Notary Name Printed)
NOTARY PUBLIC
Commission No. ___________
STATE OF FLORIDA )
) SS.
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this
______ day of ________________, 1999, by __________________________ as
_______________________ of Cigarette Racing Team, Inc., an Alabama corporation,
on behalf of the corporation. He/she is personally known to me or has produced
as identification.
___________________________
(Notary Signature)
(NOTARY SEAL) ___________________________
(Notary Name Printed)
NOTARY PUBLIC
Commission No. ___________
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 15, 1998, which includes an
explanatory paragraph discussing the factors described in Note 3 to the
financial statements about Alchemy Holdings, Inc.'s ability to continue as a
going concern. Such notes accompany the financial statements of Alchemy
Holdings, Inc. contained in the Registration Statement on Form S-4 and
Prospectus. Further, we have issued our report dated January 15, 1998, which
includes an explanatory paragraph discussing the factors described in Note 1 to
the financial statements about Cigarette Racing Team, Inc.'s ability to continue
as a going concern. Such notes accompany the financial statements of Cigarette
Racing Team, Inc. contained in the Registration Statement on Form S-4 and
Prospectus.
We consent to the use of the aforementioned reports in the Registration
Statement and Joint Proxy Statement/Prospectus, and the use of our name as it
appears under the caption "Experts."
JERE J. LANE, CPA
Coral Springs, Florida 33065
July 8, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 19, 1999, which includes an
explanatory paragraph discussing the factors described in our notes to the
financial statements about Alchemy Holdings, Inc.'s ability to continue as a
going concern. Such notes accompany the financial statements of Alchemy
Holdings, Inc. contained in the Registration Statement on Form S-4 and
Prospectus.
Further, we have issued our report dated February 5, 1999, which includes
an explanatory paragraph discussing the factors described in our notes to the
financial statements about Cigarette Racing Team, Inc.'s ability to continue as
a going concern. Such notes accompany the financial statements of Cigarette
Racing Team, Inc. contained in the Registration Statement on Form S-4 and
Prospectus.
We consent to the use of the aforementioned reports in the Registration
Statement and Prospectus, and the use of our name as it appears under the
caption "Experts."
CALLAGHAN NAWROCKI, LLP
Melville, New York
July 8, 1999
EXHIBIT 24.1
POWER OF ATTORNEY
Know All Men By These Presents, that each person whose signature appears
below constitutes and appoints Craig Barrie as his true and lawful
attorney-in-fact and agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments, including any post-effective amendments, to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary 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
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
Craig Barrie Chairman of the Board August 13, 1999
- --------------------------- and President (Principal
(Craig Barrie Executive Officer)
Berton Lorow Vice President and August 13,1999
- --------------------------- Director
(Berton Lorow)
Adam C. Schild Secretary and August 13, 1999
- --------------------------- Director
(Adam C. Schild)
Penny Adams Field Principal Financial August 13, 1999
- --------------------------- Officer
(Penny Adams Field)
Florida 1989 Business
Corporation Act
607.1301 DISSENTER'S RIGHTS; DEFINITIONS.--The following definitions apply
to ss.607.1302 and 607.132:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize
<PAGE>
the action, or, in the case of a merger pursuant to s.607.1104, the day prior to
the date on which a copy of the plan of merger was mailed to each shareholder of
record of the subsidiary corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.--(l) Any shareholder has the
right to dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent under
s.607.1104, and the shareholders would have been entitled to vote on action
taken, except for the applicability of s.607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of the
property of the corporation, other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s.607.1202, including a sale in dissolution but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within 1 year after the date of sale;
(c) As provided in s.607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is a
party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely affect
such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of his
shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of new shares
then being authorized of any existing or new class or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any of his
shares, when such exchange, cancellation, or reclassification would alter or
abolish his voting rights or alter his percentage of equity in the corporation,
or effecting a reduction or cancellation of accrued dividends or other
arrearages in respect to such shares;
4. Reducing the stated redemption price of any of his redeemable shares,
altering or abolishing any provision relating to any sinking fund for the
redemption or purchase of any of his shares, or making any of his shares subject
to redemption when they are not otherwise redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred shares;
or
7. Reducing any stated preferential amount payable on any of his preferred
shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of incorporation
provide that a voting or nonvoting shareholder is entitled to dissent and obtain
payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
<PAGE>
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation. (Last amended by Ch. 94-327, L. `94, eff.
6-2-94.)
- ----------
Ch. 94-327, L. `94, eff. 6-2-94, added matter in italic.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.--(l)(a) If a
proposed corporate action creating dissenters' rights under s.607.1320 is
submitted to a vote at a shareholders' meeting, the meeting notice shall state
that shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of ss.607.1301, 607.1302, and 607.1320. A shareholder who
wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of
his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or vote
against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under
s.607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss.607.1301, 607.1302, and 607.1320 to each shareholder
simultaneously with any request for his written consent or, if such a request is
not made, within 10 days after the date the corporation received written
consents without a meeting from the requisite number of shareholders necessary
to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares. Any
shareholder failing to file such election to dissent within the period set forth
shall be bound by the terms of the proposed corporate action. Any shareholder
filing an election to dissent shall deposit his certificates for certificated
shares with the corporation simultaneously with the filing of the election to
dissent. The corporation may restrict the transfer of uncertificated shares from
the date the shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other fights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
shares. After such offer, no such notice of election may be withdrawn unless the
corporation consents thereto. However, the right of such shareholder to be paid
the fair value of his shares shall cease, and he shall be reinstated to have all
his rights as a shareholder as of the filing of his notice of election,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is
not entitled to the relief provided by this section.
<PAGE>
(5) days after the expiration of the period in which shareholders may file
their notices of election to dissent, or within 10 days after such corporate
action is effected, whichever is later (but in no case later than 90 days from
the shareholders' authorization date), the corporation shall make a written
offer to each dissenting shareholder who has made demand as provided in this
section to pay an amount the corporation estimates to be the fair value for such
shares. If the corporate action has not been consummated before the expiration
of the 90-day period after the shareholders' authorization date, the offer may
be made conditional upon the consummation of such action. Such notice and offer
shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the dissenting
shareholder holds, as of the latest available date and not more than 12 months
prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month period
ended on the date of such balance sheet or, if the corporation was not in
existence throughout such 12-month period, for the portion thereof during which
it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his shares shall be made within 90 days after the
making of such offer or the consummation of the proposed action, whichever is
later. Upon payment of the agreed value, the dissenting shareholder shall cease
to have any interest in such shares.
(7) If the corporation fails to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30 days
thereafter, then the corporation, within 30 days after receipt of written demand
from any dissenting shareholder given within 60 days after the date on which
such corporate action was effected, shall, or at its election at any time within
such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholder may do
so in the name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a copy
of the initial pleading in such proceeding upon each dissenting shareholder who
is a resident of this state in the manner provided by law for the service of a
summons and complaint and upon each nonresident dissenting shareholder either by
registered or certified mail and publication or in such other manner as is
permitted by law. The jurisdiction of the court is plenary and exclusive. All
shareholders who are proper parties to the proceeding are entitled to judgment
against the corporation for the amount of the fair value of their shares. The
court may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The appraisers
shall have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of
<PAGE>
the shares, as determined, materially exceeds the amount which the corporation
offered to pay therefor or if no offer was made, the court in its discretion may
award to any shareholder who is a party to the proceeding such sum as the court
determines to be reasonable compensation to any attorney or expert employed by
the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
(1)authorized but unissued shares of the corporation, except that, in the case
of a merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation. (Last amended by Ch. 93-281, L. `93, eff. 5-15-93.)
- ----------
Ch. 93-281, L. `93, eff. 5-15-93, added matter in italic and deleted (1)"in
the case of other treasury shares".
Subject to Completion, dated August 13, 1999
JOINT PROXY STATEMENT/PROSPECTUS
---------------------------------------
PROSPECTUS RELATING TO
7,049,450 Common Stock
1,000,000 Class A Warrants
1,000,000 Class B Warrants
180,000 Class X Warrants
100,000 Class Y Warrants
50,000 Options
100 Shares of Preferred Stock, Series A
100 Shares of Preferred Stock, Series B
of Alchemy Holdings, Inc.
---------------------------------------
PROXY STATEMENT RELATING TO
ALCHEMY HOLDINGS, INC. CIGARETTE RACING TEAM, INC.
SPECIAL MEETING OF SHAREHOLDERS SPECIAL MEETING OF SHAREHOLDERS
To Be Held on ________________, 1999 To Be Held on ________________, 1999
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement/Prospectus")
is being furnished to holders of common stock, par value $0.001 per share
("Alchemy Common Stock") of Alchemy Holdings, Inc. ("Alchemy"), in connection
with the solicitation of proxies by the Board of Directors of Alchemy (the
"Alchemy Board") for use at a Special Meeting of Alchemy shareholders to be held
on __________, __________, 1999, (including any adjournments or postponements
thereof, the "Alchemy Special Meeting"). At the Alchemy Special Meeting, the
Alchemy shareholders will be asked (i) to consider and vote upon a proposal (the
"Merger Proposal") to authorize and approve the issuance of up to 4,719,450
shares of Alchemy Common Stock to holders of shares of common stock, par value
$.01 per share ("Cigarette Common Stock") of Cigarette Racing Team, Inc., a
Florida corporation ("Cigarette"), in connection with the proposed merger (the
"Merger") of Cigarette Boats, Inc., a Delaware corporation and a wholly-owned
subsidiary of Alchemy ("Merger Sub") with and into Cigarette pursuant to an
Agreement and Plan of Merger dated as of __________, 1999 by and among Alchemy,
Cigarette and Merger Sub (the "Merger Agreement") whereby each share of
Cigarette Common Stock outstanding immediately prior to the effective time of
the Merger (other than shares of Cigarette Common Stock held by holders who have
perfected dissenters' rights under the Florida Business Corporation Act) will be
converted into one share of Alchemy Common Stock and Cigarette will become a
wholly-owned subsidiary of Alchemy; (ii) to consider and vote upon a proposal
(the "Repurchase Proposal") to authorize and approve the repurchase and
retirement by Alchemy of 2,000,000 shares of Alchemy Common Stock held by
Offshore Racing, Inc., a __________ corporation ("Offshore") in consideration
for the issuance to Offshore of 100 shares of newly created series B preferred
stock, par value $.001 per share of Alchemy ("Alchemy Series B Preferred Stock")
having an aggregate liquidation preference equal to $1,000,000; and (iii) to
consider and vote upon a proposal (the "Option Plan Proposal") to approve and
adopt the Alchemy Employee Incentive Stock Option Plan (the "Option Plan").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Cigarette Common Stock, in connection with the solicitation of proxies by the
Board of Directors of Cigarette (the "Cigarette Board") for use at a special
meeting of Cigarette shareholders to be held on ____________, 1999, (including
any adjournments or postponements thereof, the Cigarette Special Meeting). At
the Cigarette Special Meeting, the Cigarette shareholders will be asked to vote
to consider and vote upon a proposal to approve and adopt the Merger Agreement.
<PAGE>
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Alchemy for use in connection with (i) the offer and sale of shares of Alchemy
Common Stock, shares of Alchemy Series A Preferred Stock and warrants to
purchase shares of Alchemy Common Stock, together with the shares of Alchemy
Common Stock for which such warrants are exercisable all to be issued, pursuant
to the Merger, (ii) shares of preferred stock, series B of Alchemy ("Alchemy
Series B Preferred Stock") to be issued to Offshore in connection with the
proposed repurchase and retirement by Alchemy of 2,000,000 shares of Alchemy
Common Stock currently held by Offshore and (iii) non-qualified options to
purchase shares of Alchemy Common Stock issuable pursuant to the Option Plan
("Options"), together with the shares of Alchemy Common Stock for which such
Options are exercisable.
Alchemy has filed a Registration Statement on Form S-4 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") of
which this Joint Proxy Statement/Prospectus forms a part, registering a total of
7,049,450 shares of Alchemy Common Stock, 4,719,450 of which represent shares to
be issued in the Merger to the holders of shares of Cigarette Common Stock,
2,280,000 of which represent shares which may be issued upon the exercise of the
Alchemy warrants to be issued in the Merger to holders of warrants to purchase
shares of Cigarette Common Stock and 50,000 of which represent shares which may
be issued upon the exercise of the Options. The Registration Statement also
registers (w) the 100 shars of Alchemy Series A Preferred Stock to be issued in
the Merger, (x) the 100 shares of Alchemy Series B Preferred Stock to be issued
to Offshore, (y) a total of 2,280,000 warrants to purchase Alchemy Common Stock,
consisting of 1,000,000 class A warrants of Alchemy ("Alchemy Class A Warrants")
to be issued in the Merger to the holders of 1,000,000 class A warrants of
Cigarette ("Cigarette Class A Warrants"), 1,000,000 class B warrants of Alchemy
("Alchemy Class B Warrants") to be issued in the Merger to the holders of
1,000,000 class B warrants of Cigarette ("Cigarette Class B Warrants"), 180,000
class X warrants of Alchemy ("Alchemy Class X Warrants") to be issued in the
Merger to the holders of 180,000 class X warrants of Cigarette ("Cigarette Class
X Warrants") and 100,000 class Y warrants of Alchemy ("Alchemy Class Y
Warrants") to be issued in the Merger to the holders of 100,000 class Y warrants
of Cigarette ("Cigarette Class Y Warrants") and (z) 50,000 Options to be issued
pursuant to the Option Plan. For a description of the terms of the Alchemy
Series A Preferred Stock and the Alchemy Series B Preferred Stock, see
"Description of Alchemy's Sercurities--Preferred Stock". For a description of
the terms of the Alchemy Class A Warrants, the Alchemy Class B Warrants, the
Alchemy Class X Warrants, the Alchemy Class Y Warrants and the Options, see
"Description of Alchemy's Securities--Warrants and Options."
The outstanding shares of Alchemy Common Stock are listed on the OTC-
Bulletin Board under the symbol "ALCH". As a condition to the merger, the shares
of Alchemy Common Stock to be issued pursuant to the Merger must be approved for
listing on the OTC- Bulletin Board, upon official notice of issuance. The last
reported sale price of Alchemy Common Stock on the OTC-Bulletin Board on August
11, 1999 was $7.00 per share.
The information included herein with respect to Alchemy and its affiliates
was supplied by Alchemy and the information included herein with respect to
Cigarette and its affiliates was supplied by Cigarette.
Holders of shares of Cigarette Common Stock who exercise their right to
dissent from the Merger and who otherwise comply with the applicable provisions
of the Florida Business Corporation Act may seek payment of the fair value of
their shares of Cigarette Common Stock. See "The Meetings--Cigarette
Shareholders' Appraisal Rights" in this Joint Proxy Statement/Prospectus and
Exhibit __ hereto, for a description of the procedures to be followed in order
to perfect such dissenters' rights. See "Risk Factors" beginning on page 10, for
certain information that should be considered by Alchemy shareholders and
Cigarette shareholders before voting at the Alchemy Special Meeting or the
Cigarette Special Meeting.
<PAGE>
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of Alchemy and Cigarette on or
about__________, 1999.
The date of this Joint Proxy Statement/Prospectus is _________________, 1999.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ALCHEMY OR CIGARETTE. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO PURCHASE THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR PROXY SOLICITATION
IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY
<PAGE>
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
INFORMATION CONTAINED HEREIN SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
BY VOTING FOR THE MERGER AGREEMENT A CIGARETTE SHAREHOLDER WILL BE DEEMED TO
HAVE ASSENTED TO ALL TERMS SET FORTH THEREIN. ONE SUCH TERM WILL RESTRICT
SHAREHOLDERS WHO RECEIVE SHARES OF ALCHEMY COMMON STOCK IN THE MERGER FROM
TRANSFERRING SUCH SHARES FOR A PERIOD OF TWELVE MONTHS FROM THE EFFECTIVE DATE
OF THE MERGER (THE "LOCKUP PERIOD"). DURING THE LOCKUP PERIOD THE BOARD OF
DIRECTORS OF ALCHEMY WILL HAVE THE EXCLUSIVE RIGHT TO RELEASE SHAREHOLDERS WHO
RECEIVE SHARES OF ALCHEMY COMMON STOCK AS A RESULT OF THE MERGER FROM THESE
TRANSFER RESTRICTIONS FOR ANY REASON THAT IT DEEMS NECESSARY IN ITS SOLE
DISCRETION.
