As filed with the Securities and Exchange Commission on May 19, 2004
Registration No. 0-19409
__________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM S-3
Registration Statement
Under the
Securities Act of 1933
_________________________________________
SYNERGY BRANDS INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2993066
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification Number)
Organization)
1175 Walt Whitman Road
Melville, NY 11747
(631) 424-5500
(Address, Including Zip Code, and Telephone
Number, Including Area Code of Registrant's
Principal Executive Offices)
Mair Faibish, CEO
Synergy Brands Inc.
1175 Walt Whitman Road
Melville, NY 11747
(631) 424-5500
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code of
Agent for Service)
Copy to:
Randall J. Perry, Esq.
44 Union Avenue
Rutherford, NJ 07070
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective. If the only
securities being registered on this form are being offered pursuant to dividend
or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest-reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration number of the earlier effective Registration
Statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum Proposed
Title of each class Amount Offering Aggregate Amount of
of Securities to be to be Price Offering Registration
Registered Registered (1) Per Share (2) Price(2) Fee
- -------------------- ---------- ---------- ---------- ----------
Common Stock, $.001
par value per share, 400,000 3.36 1,344,000 $408.00
of Selling Securityholder (3)
Total $408.00
----------
(1) Pursuant to Rule 416(a) promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), this Registration Statement also
covers any additional securities that may be offered or issued to
prevent dilution resulting from stock splits, stock dividends,
re-capitalizations or similar transactions, or contractual
anti-dilution provisions.
(2) Estimated solely for the purpose of calculating the registration fee.
Based upon the average of the high and low prices on May 14, 2004 of
the common stock as reported on NASDAQ Small Cap Market pursuant to
Rule 457 (c).
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(3) Common Stock that could be issued by Synergy upon conversion of a
Convertible Term Note issued to Selling Securityholder and for exercise
of Warrants issued to Selling Securityholder which Note and Warrants
were issued in connection with a private placement by the Registrant.
(4) An undetermined number of securities are being registered pursuant to
Rule 416 under the Securities Act to cover any adjustment in the number
of shares issuable as a result of anti-dilution provisions as may be
applicable to the Warrants and the Note and any conversion of interest
payments which shall become due under the Note.
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 therefor become effective in accordance with Section 8(a) of
this Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information contained in this preliminary prospectus is not complete
and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to completion, dated May 17, 2004.
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SYNERGY BRANDS INC.
Cross-Reference Sheet Showing Location in Prospectus of Information Required by
Part I of Form S-3 Pursuant to Item 501(b) of Regulation S-K
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus...........................Outside front cover page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................Inside front cover page of Prospectus;
Outside back cover page of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...Risk Factors; otherwise Not
Applicable
4. Use of Proceeds......................Use of Proceeds
5. Determination of Offering Price......Not Applicable
6. Dilution.............................Not Applicable
7. Selling Security Holders.............Inside Front Cover;
Selling Securityholders
8. Plan of Distribution.................Selling Securityholder Offering; Plan of
Distribution
9. Description of Securities to be
Registered..........................Description of Securities
10. Interests of Named Experts
and Counsel.........................Experts
11. Material Changes....................NONE
12. Incorporation of Certain Information by
Reference.........................Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities....................Commission Position on Indemnification
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PROSPECTUS
SYNERGY BRANDS INC.
400,000 Shares of Common Stock
Offered by Selling Securityholders
The securityholder named on pages and of this Prospectus (the "Selling
Securityholders") of Synergy Brands Inc. ("Synergy") will offer pursuant to this
Prospectus an aggregate of 400,000 shares (the "Registered Stock") of Synergy's
Common Stock, $.001 par value (the "Common Stock"), consisting of (1) an
aggregate of up to 300,000 shares of the Common Stock that could be issued by
Synergy upon conversion of a Convertible Term Note due April 2, 2007 (the
"Note") (including additionally a certain number of shares of Common Stock that
may be paid as interest and/or fees on such Note); and up to 100,000 shares of
the Company's Common Stock that could be issued upon exercise of Common Stock
purchase warrants expiring April 2, 2011 (the "Investor Warrants")issued to
certain of the Selling Shareholders; and (2)
See "Selling Securityholders" and "Plan of Distribution" Synergy will not
receive any of the proceeds from the sales of the Registered Stock by the
Selling Securityholders, but will receive an aggregate of $500,000 if the
Warrants are exercised. Pursuant to agreements between Synergy and the Selling
Securityholders, Synergy has agreed to pay all of the expenses of registering
the shares of the Common Stock offered hereby, which expenses are estimated to
be $29,106. The Selling Securityholders will, however, pay the other costs
related to the sale of their securities, including discounts, commissions and
transfer fees, if any. Synergy has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The Selling Securityholders may offer all shares of the Registered Stock in
transactions in the over-the-counter market at market prices obtainable at the
time of sale, or in privately-negotiated transactions at prices determined by
negotiation. The Selling Securityholders may effect such transactions by selling
the shares of the Registered Stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Securityholders and/or the purchasers of the
shares for whom such broker-dealer may act as agent or to whom they sell as
principal, or both. See "Selling Securityholders" and "Plan of Distribution." If
any broker-dealers are used by the Selling Securityholders, any commissions paid
to such broker-dealers and, if broker-dealers purchase any shares as principals,
any profits received by such broker-dealers on the resales of the shares, may be
deemed to be underwriting discounts or commissions under the Securities Act.
The Common Stock is traded on the Nasdaq Small Cap Market under the symbol
SYBR. On May 14, 2004, the closing sales price of the Common Stock was $3.47 per
share as reported on the Nasdaq Small Cap System.
The shares of the Registered Stock being offered by this Prospectus are
speculative in that they involve certain risks. See "Risks Factors" commencing
on page hereof for a discussion of matters which should be considered by
purchasers of these shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 17, 2004
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ADDITIONAL INFORMATION
Synergy is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance with
the Exchange Act, files reports, proxy and information statements and other
information with the Commission. Reports, proxy and information statements and
other information concerning Synergy can be inspected and copied (at prescribed
rates) at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the regional offices of the Commission at
233 Broadway, New York, New York 10279. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants like Synergy that file electronically with the Commission
at the following Web site address: http://www.sec.gov. In addition, the Common
Stock is traded in the over-the-counter market on the Nasdaq System, and
reports, proxy and information statements and other information concerning
Synergy can be inspected and copied at the office of the National Association of
Securities Dealers, Inc. (the "NASD"), Nasdaq Reports Section, 1735 K Street,
N.W., Washington, D.C. 20006.
Synergy has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3, File No. 0-19409 (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of the Common Stock offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement.
For further information with respect to Synergy and this offering of shares of
the Common Stock, reference is hereby made to the Registration Statement and to
the exhibits and schedules filed therewith. Statements contained in this
Prospectus regarding the contents of any agreement or other document filed as an
exhibit to the Registration Statement are not necessarily complete and in each
instance reference is made to the copy of such agreement or document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by such reference. The Registration Statement, including exhibits and
schedules thereto and all documents incorporated by reference in such
Registration Statement, may be inspected at the Public Reference Room maintained
by the Commission at 450 Fifth Street, N.W. Washington, DC 20549, and copies of
all or any part thereof may be obtained from such office upon payment of the
prescribed fees. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Synergy's SEC
filings are also available to the public from the SEC's website at www.sec.gov.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference into this prospectus:
(1) Synergy's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003;
(2) Synergy's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 2004;
(3) Synergy's definitive proxy statement dated April 30, 2004 for the
2003 Annual Meeting of Stockholders; and
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(4) Synergy's Registration Statement on Form 8-A, File No. 0-19409,
dated July 11, 1991 including any amendments (including reference and
description therein of the Company's common stock).
All reports and definitive proxy or information statements subsequently
filed by Synergy pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to the termination of
the offering of the shares of the Common Stock shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or 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
Prospectus.
Synergy will provide without charge to each person to whom a copy of this
Prospectus has been delivered on the written request of any such person, a copy
of any or all of the documents described above which have been incorporated by
reference in this Prospectus. A reasonable fee for duplicating and mailing will
be charged for a copy of any exhibit if such exhibit is requested. Written
requests for copies of such documents should be addressed to Mitchell Gerstein,
Vice President, Synergy Brands Inc. 1175 Walt Whitman Road, Melville, NY 11747
or at (631) 424-5500.
This is only a summary and may not contain all of the information that you
should consider before investing in the Company's Common Stock. Prospective
investors should read the entire prospectus carefully, including the "Risk
Factors" section included elsewhere in this prospectus. In this prospectus,
"we," "us," "our," the "Company," and the "registrant" refer to Synergy Brands
Inc. its predecessors, and its consolidated subsidiaries.
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OVERVIEW OF THE COMPANY
BUSINESS
Synergy Brands Inc. (SYBR or the Company) is a holding company that
operates in wholesale distribution of consumer goods as well as retail
distribution of premium cigars and salon products through three segments. It
principally focuses on the sale of nationally known brand name consumer products
manufactured by major U.S. manufacturers. The consumer products are concentrated
within the Grocery and Health & Beauty Aids (HBA) industries as well as the
premium cigar business.
The Company distributes and sells these products through wholly owned
subsidiaries in two distinct manners.
BUSINESS-TO-BUSINESS (B2B): THE COMPANY OPERATES TWO BUSINESSES WITHIN THE
B2B SECTOR. B2B IS DEFINED AS SALES TO NON-RETAIL CUSTOMERS.
PHS Group distributes Grocery and HBA products to retailers and wholesalers
predominately located in the Northeastern United States. PHS is the largest
subsidiary of the Company and represented about 86% of the overall company sales
for the year ended December 31, 2003. PHS's core sales base remain the
distribution of nationally branded consumer products in the grocery and health
and beauty (HBA) sectors. PHS has positioned itself as a distributor for major
manufacturers as opposed to a full line wholesaler. A full line wholesaler has
the responsibility of servicing the entire needs of a retail operation, whereas
a distributor caters to specific merchandising categories. As a result, PHS is
able to plan the needs of its customers directly from the source of supply and
in turn increase sales to its customers through this unique focus. PHS
concentrates on the fastest moving promotional items such as: Tide, Bounty,
Nyquil, Pantene, Clorox bleach, Scott tissues, Marcal tissues among many others,
and uses promotions, logistics and distribution savings to streamline and reduce
its sale prices. The second business segment within the Company's B2B sector is
Proset Hair Systems (Proset). Proset distributes salon hair care products to
wholesalers, distributors, chain drug stores and supermarkets in the
Northeastern part of the United States.
BUSINESS TO CONSUMER (B2C): THE COMPANY OPERATES THREE BUSINESSES WITHIN
THE B2C SECTOR. B2C IS DEFINED AS SALES TO RETAIL CUSTOMERS.
The Company's B2C activities are conducted through its wholly owned
subsidiary Gran Reserve Corporation (GRC). GRC operates the following businesses
o Cigars Around the World is a recently acquired company that sells
premium cigars to restaurants, hotels, casinos, country clubs and many
other leisure related destinations. This company was acquired in June,
2003.
o CigarGold.com sells premium cigars through the Internet directly to
the consumer.
o BeautyBuys.com sells salon hair care products directly to the
consumer.
The Company also owns 20% of the outstanding common stock in Interline
Travel and Tours, Inc. (ITT). The Company believes that its capital investment
in this unique travel Company may provide for future capital appreciation.
Synergy Brands does not manage ITT and relies on the management of ITT for
day-to day operations. ITT provides cruise and resort hotel packages through a
proprietary reservation system to airline employees and their retirees. ITT is
believed to be the largest Company in this sector of the travel industry.
Information on ITT can be found at www.perx.com.
THE COMPANY'S CORPORATE OFFICES ARE LOCATED AT 1175 WALT WHITMAN ROAD
MELVILLE NEW YORK 11747, AND ITS TELEPHONE NUMBER IS (631) 424-5500. THE COMPANY
MAINTAINS A CORPORATE WEBSITE AT WWW.SYNERGYBRANDS.COM. The Company is a
reporting Company as defined in Regulation 12B of the Securities Exchange Act of
1934 and files electronically with the SEC the Company's quarterly 10QSB and
year end 10-KSB reports and interim Form 8K reports. The general public may read
and copy any materials the Company has filed with the SEC at the SEC Public
Reference Room at 450 Fifth Street NW, Washington DC. The general public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC which website can be accessed at
www.sec.gov. Filed reports by the Company may be viewed at the SEC Edgar filing
website to which the Company's homepage website is directly linked. Such
businesses of Synergy are conducted through corporate subsidiaries whose stock
is wholly or majority owned by Synergy, and the results of whose businesses are
consolidated for reporting purposes with the financial statements of Synergy.
See the filed reports of Synergy incorporated by reference herein under
"Documents Incorporated by Reference" for a further description of the business
of Synergy and its subsidiaries (collectively referred to herein as the
"Company").
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OFFERING
Synergy is not offering any securities pursuant to this offering. As
indicated on the Cover Page, the Selling Securityholders are offering an
aggregate of 400,000 shares of the Common Stock to be offered following
conversion of the Convertible Term Note and exercise of the Investor Warrants
(including a certain number of shares of common stock that may be paid as
interest on the Note). See also "Selling Securityholders" and "Plan of
Distribution" supra.
RISK FACTORS
The shares of the Common Stock offered by this Prospectus are speculative,
involve a high degree of risk and should not be purchased by anyone unable to
afford a loss of his, her or its entire investment. In analyzing this offering
prospective investors should review carefully the investment risk considerations
set forth below.
FORWARD LOOKING INFORMATION AND CAUTIONARY STATEMENTS
Other than the factual matters set forth herein, the matters and items set
forth in this report are forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. These statements relate to
future events or the Company's future financial performance and include, but are
not limited to, statements concerning:
The anticipated benefits and risks of the Company's key strategic
partnerships, business relationships and acquisitions;
The Company's ability to attract and retain customers;
The anticipated benefits and risks associated with the Company's
business strategy, including those relating to its distribution and
fulfillment strategy and its current and future product and service
offerings;
The Company's future operating results and the future value of its
common stock;
The anticipated size or trends of the market segments in which the
Company competes and the anticipated competition in those markets;
Potential government regulation; and
The Company's future capital requirements and its ability to satisfy
its capital needs.
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Furthermore, in some cases, you can identify forward-looking statements by
terminology such as may, will, could, should, expect, plan, intend, anticipate,
believe, estimate, predict, potential or continue, the negative of such terms or
other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. Factors that could cause such
differences include, but are not limited to, those identified herein and other
risks included from time to time in the Company's other Securities and Exchange
Commission ("SEC") reports and press releases, copies of which are available
from the Company upon request.
Although the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements. Moreover the Company assumes no
responsibility for the accuracy and completeness of the forward-looking
statements to conform such statements to actual results or to changes in its
expectations.
In addition to the other information in this Form 10-KSB, the following
risk factors should be carefully considered in evaluating the Company business
because these factors may have a significant impact on the Company's business,
operating results and financial condition. As a result of the risk factors
discussed below and elsewhere in this Form 10-KSB and the risks discussed in the
Company's other SEC filings, actual results could differ materially from those
projected in any forward-looking statements.
1. THE COMPANY HAS INCURRED OPERATING LOSSES.
The Company has a long history of operating losses. To date, a large
portion of the Company's expenses have been financed through debt capital
raising activities. Although the Company has narrowed its losses, it still
continues to report operating deficits as opposed to profits. A large portion of
the Company's historical losses are a direct result of fees and expenses paid
for in stock and/or barter. and working capital financing. Due to a pattern of
historical losses, there is no assurance that further financing will not be
needed for operating purposes.
2. INTERNET
The internet environment is still relatively new to business and is subject
to inherent risks as in any new developing business including rapidly developing
technology with which to attempt to keep pace and level of acceptance and level
of consumer knowledge regarding its use.
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3. DEPENDENCE ON PUBLIC TRENDS.
The Company's business is subject to the effects of changing customer
preferences and the economy, both of which are difficult to predict and over
which the Company has no control. A change in either consumer preferences or a
down-turn in the economy may affect the Company's business prospects.
4. POTENTIAL PRODUCT LIABILITY.
As a participant in the distribution chain between the manufacturer and
consumer, the Company would likely be named as a defendant in any product
liability action brought by a consumer. To date, no claims have been asserted
against the Company for product liability; there can be no assurance, however,
that such claims will not arise in the future. Currently, the Company does carry
product liability insurance. In the event that any products liability claim is
not fully funded by insurance, and if the Company is unable to recover damages
from the manufacturer or supplier of the product that caused such injury, the
Company may be required to pay some or all of such claim from its own funds. Any
such payment could have a material adverse impact on the Company.
5. RELIANCE ON COMMON CARRIERS.
Although the Company has in the last year leased a fleet of trucks operated
by the Company to make deliveries, the Company is still dependent, for shipping
of product purchases, on common carriers in the trucking industry. Although the
Company uses several hundred common carriers, the trucking industry is subject
to strikes from time to time, which could have material adverse effect on the
Company's operations if alternative modes of shipping are not then available.
Additionally the trucking industry is susceptible to various natural disasters
which can close transportation lanes in any given region of the country. To the
extent common carriers are prevented from or delayed in utilizing local
transportation lanes, the Company will likely incur higher freight costs due to
the limited availability of trucks during any such period that transportation
lanes are restricted.
6. COMPETITION.
The Company is subject to competition in all of its various product sale
businesses. While these industries may be highly fragmented, with no one
distributor dominating the industry, the Company is subject to competitive
pressures from other distributors based on price and service and product quality
and origin. While the business of the operating subsidiaries are diversified,
each subsidiary independently faces competition from numerous organizations
which possess similar expertise and provide comparable products or services as
those furnished by the subsidiary. In most instances, the competitors are larger
organizations with substantially greater resources. This is especially true in
the cigar industry where the Company competes with various small and large
regional, national and international firms selling both wholesale and retail.
The ability of the Company to successfully compete within each industry segment
will depend upon numerous factors, including the Company's ability to generate
additional working capital to expand both domestic and international marketing
activity and to identify additional products which can either be developed
internally or acquired from third parties to improve the Company's competitive
positions. There can be no assurance that Synergy can successfully support the
capital requirements of its subsidiaries to enable them to achieve competitive
parity or that, even if such capital is made available, the subsidiaries will
effectively compete.
7. LITIGATION
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions should not materially affect
the financial position, results of operations or cash flows of the Company, but
there can be no assurance as to this.
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8. POSSIBLE LOSS OF NASDAQ SMALL CAP LISTING.
Synergy's qualification for trading on the NASDAQ Small Cap system has in
the recent past been questioned, the focus being on the market quotes for the
Company's stock, the current bid price having for a time been reduced below the
minimum NASDAQ standard of $1 and having been below such level for an
appreciable period of time, as well as the Company also being notified that
stockholders' equity has fallen below minimum NASDAQ continued listing standard
of $2,500,000. NASDAQ has adopted, and the Commission has approved, certain
changes to its maintenance requirements including the requirement that a stock
listed in such market have a bid price greater than or equal to $1.00 and the
listed Company maintain stockholders equity above $2,500,000. The bid price per
share for the Common Stock of Synergy has been below $1.00 in the past and the
Common Stock has remained on the NASDAQ Small Cap System because Synergy has
complied with alternative criteria which are now eliminated under the new rules.
If the bid price dips below $1.00 per share, and is not brought above such level
for a sustained period of time or the Company fails to maintain stockholders'
equity at a level of at least $2,500,000 the Common Stock could be delisted from
the NASDAQ Small Cap System and thereafter trading would be reported in the
NASDAQ's OTC Bulletin Board or in the "pink sheets." In the event of delisting
from the NASDAQ Small Cap System, the Common Stock would become subject to the
rules adopted by the Commission regulating broker-dealer practices in connection
with transactions in "penny stocks." The disclosure rules applicable to penny
stocks require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized list disclosure
document prepared by the Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market. In addition, the
broker-dealer must identify its role, if any, as a market maker in the
particular stock, provide information with respect to market prices of the
Common Stock and the amount of compensation that the broker-dealer will earn in
the proposed transaction. The broker-dealer must also provide the customer with
certain other information and 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. Further, the rules require
that following the proposed transaction the broker-dealer provide the customer
with monthly account statements containing market information about the prices
of the securities. 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 Common Stock became subject to the
penny stock rules, many broker-dealers may be unwilling to engage in
transactions in the Company's securities because of the added disclosure
requirements, thereby making it more difficult for purchasers of the Common
Stock to dispose of their shares. The Company's common stock has historically
remained at NASDAQ trading levels above $1 except for limited periods of time
and the Company has achieved and is confident of maintaining a level of
Stockholders' equity above $2,500,000. Historical stability combined with the
Company's increasing business share in the market and its continuing
establishment as a viable force in the industries wherein it participates gives
the Company confidence that its susceptibility to market deficiencies is in a
much lessened state then in years past and that it can continue to achieve and
maintain NASDAQ listing compliance, but of this there can be no assurance.
9. RISKS OF BUSINESS DEVELOPMENT.
Because still the lines of product and product distribution established for
the Company are relatively new and different from its historical non-internet
product distribution business, the Company's operations in these areas should
continue to be considered subject to all of the risks inherent in a new business
enterprise, including the absence of an appreciable operating history and the
expense of new product development and uncertainties on demand and logistics of
delivery and other satisfaction of customer demands. Various problems, expenses,
complications and delays may be encountered in connection with the development
of the Company's new products and methods of product distribution. These
expenses must either be paid out of the proceeds of future offerings or out of
generated revenues and Company profits and will likely be a drain on Company
capital if revenue and revenue collection does not keep pace with Company
expenses. There can be no assurance as to the continued availability of funds
from any of these sources.
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10. RAPIDLY CHANGING MARKET MAY IMPACT OPERATIONS.
The market for the Company's products is rapidly changing with evolving
industry standards and frequent new product introductions. The Company's future
success will depend in part upon its continued ability to enhance its existing
products and to introduce new products and features to meet changing customer
requirements and emerging industry standards and to continue to have access to
such products from their sources on a pricing schedule conducive to the Company
operating at a profit. The Company will have to develop and implement an
appropriate marketing strategy for each of its products. There can be no
assurance that the Company will successfully complete the development of future
products or that the Company's current or future products will achieve market
acceptance levels and be made available for sale by the Company conducive to the
Company's fiscal needs. Any delay or failure of these products to achieve market
acceptance or limits on their availability for sale by the Company would
adversely affect the Company's business. In addition, there can be no assurance
that the products or technologies developed by others will not render the
Company's products or technologies non-competitive or obsolete.
Management believes actions taken and presently being taken to meet and
enhance the Company's operating and financial requirements should assure and
provide the opportunity for the Company to continue as a going concern. However,
Management cannot predict the outcome of future operations and no adjustments
have been made to offset the outcome of this uncertainty.
11.EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS AND LITIGATION
MAY IMPACT CIGAR INDUSTRY.
The tobacco industry in general has been subject to extensive regulation at
the federal, state and local levels. Recent trends have increased regulation of
the tobacco industry. Although regulation initially focused on cigarette
manufacturers, it has begun to have a broader impact on the industry as a whole
and may focus more directly on cigars in the future. The increase in popularity
of cigars may likely lead to an increase in regulation of cigars. A variety of
bills relating to tobacco issues have been introduced in the U.S. Congress,
including bills that would (i) prohibit the advertising and promotion of all
tobacco products or restrict or eliminate the deductibility of such advertising
expense, (ii) increase labeling requirements on tobacco products to include,
among others things, addiction warnings and lists of additives and toxins, (iii)
shift control of tobacco products and advertisements from the Federal Trade
Commission (the "FTC") to the Food and Drug Administration (the "FDA"), (iv)
increase tobacco excise taxes and (v) require tobacco companies to pay for
health care costs incurred by the federal government in connection with tobacco
related diseases. Future enactment of such proposals or similar bills may have
an adverse effect on the results of operations or financial condition of the
Company. Although, except for warning labeling and smoke free facilities,
current legislation and regulation focuses on cigarette smoking and sales, there
is no assurance that the scope of legislation will not be expanded in the future
to encompass cigars as well.
A majority of states restrict or prohibit smoking in certain public places
and restrict the sale of tobacco products to minors. Local legislative and
regulatory bodies also have increasingly moved to curtail smoking by prohibiting
smoking in certain buildings or areas or by designating "smoking" areas. These
restrictions generally do not distinguish between cigarettes and cigars. These
restrictions and future restrictions of a similar nature have and likely will
continue to have an adverse effect on the Company's sales or operations because
of resulting difficulty placed upon advertising and sale of tobacco products,
such as restrictions and in many cases prohibition of counter access to or
display of premium handmade cigars, and/or decisions by retailers not to
advertise for sale and in many cases to sell tobacco products because of public
pressure to stop the selling of tobacco products. Numerous proposals also have
been and are being considered at the state and local levels, in addition to
federal regulations, to restrict smoking in certain public areas, regulating
point of sale placement and promotions of tobacco products and requiring warning
labels.
Increased cigar consumption and the publicity such increase has received
may increase the risk of additional regulation. The Company cannot predict the
ultimate content, timing or effect of any additional regulation of tobacco
products by any federal, state, local or regulatory body, and there can be no
assurance that any such legislation or regulation would not have a material
adverse effect on the Company's business.
In addition numerous tobacco litigation has been commenced and may in the
future be instituted, all of which may adversely affect(albeit focusing
primarily on cigarette smoking) cigar consumption and sale and may pressure
applicable government entities to institute further and stricter legislation to
restrict and possibly prohibit cigar sale and consumption, any and all of which
may have an adverse affect on Company business
-13-
12. NO DIVIDENDS LIKELY.
No dividends have been paid on the Common Stock since inception, nor, by
reason of its current financial status and its contemplated financial
requirements, does Synergy contemplate or anticipate paying any dividends upon
its Common Stock in the foreseeable future.
13. POTENTIAL LIABILITY FOR CONTENT ON THE COMPANY'S WEB SITE.
Because the Company posts product information and other content on its Web
sites, the Company faces potential liability for negligence, copyright, patent,
trademark, defamation, indecency and other claims based on the nature and
content of the materials that the Company posts. Such claims have been brought,
and sometimes successfully pressed, against other Internet content distributors.
In addition, the Company could be exposed to liability with respect to the
unauthorized duplication of content or unauthorized use of other parties'
proprietary technology or infiltration into the Company's system by unauthorized
personnel.
14. THE COMPANY'S NET SALES WOULD BE HARMED IF IT EXPERIENCES SIGNIFICANT
CREDIT CARD FRAUD.
A failure to adequately control fraudulent credit card transactions would
harm the Company's net sales and results of operations because it does not carry
insurance against such risk. Under current credit card practices, the Company
may be held liable for fraudulent credit card transactions where it does not
obtain a cardholder's signature, a frequent practice in internet sales.
15. THE COMPANY DEPENDS ON CONTINUED USE OF THE INTERNET AND GROWTH OF THE
ONLINE PRODUCT PURCHASE MARKET.
The Company's future revenues and profits, if any, substantially depend
upon the widespread acceptance and use of the internet as an effective medium of
business and communication by the Company's target customers. Rapid growth in
the use of and interest in the Internet has occurred only recently. As a result,
acceptance and use may not continue to develop at historical rates, and a
sufficiently broad base of consumers may not adopt, and continue to use, the
Internet and other online services as a medium of commerce.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements and/or potential customer
continued preferences for more traditional see and touch purchasing. The
Company's success will depend, in large part, upon third parties maintaining the
Internet infrastructure to provide a reliable network backbone with the speed,
data capacity, security and hardware necessary for reliable Internet access and
services and hopeful continued shifting of potential customers shopping
preferences to the internet.
16. IF THE COMPANY DOES NOT RESPOND TO RAPID TECHNOLOGY CHANGES, ITS
SERVICES COULD BECOME OBSOLETE AND ITS BUSINESS WOULD BE SERIOUSLY
HARMED.
As the Internet and online commerce industry evolve, the Company must
license leading technologies useful in its business, enhance its existing
services, develop new services and technology that address the increasingly
sophisticated and varied needs of its prospective customers and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. The Company may not be able to successfully
implement new technologies or adapt its proprietary technology and transaction
processing systems to customer requirements or emerging industry standards. If
the Company is unable to do so, it could adversely impact its ability to build
on its varied businesses and attract and retain customers.
-14-
17. POTENTIAL FUTURE SALES OF COMPANY STOCK.
The majority of the shares of common stock of the Company outstanding are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act of 1933. In general under Rule 144 a person (or persons whose
shares are aggregated) who has satisfied a one year holding period may, under
certain circumstances, sell within any three month period a number of shares
which does not exceed the greater of 1% of the then outstanding shares of common
stock or the average weekly trading volume during the four calendar weeks prior
to such sale. Rule 144 also permits, under certain circumstances, the sale of
shares by a person who is not an affiliate of the Company and who has satisfied
a two year holding period without, any quantity limitation. The vast majority of
holders of the shares of the outstanding common stock of the Company deemed
"restricted securities" have already satisfied at least their one year holding
period or will do so with the next fiscal year, and such stock is either
presently or within the next fiscal year will become eligible for sale in the
public market (subject to volume limitations of Rule 144 when applicable). The
Company is unable to predict the effect that sales of its common stock under
Rule 144, or otherwise, may have on the then prevailing market price of the
common stock. However, the Company believes that the sales of such stock under
Rule 144 may have a depressive effect upon the market. The Selling
Securityholders may, from time to time, offer an aggregate of 400,000 shares of
the Common Stock, (see "Plan of Distribution"). The possibility that substantial
amounts of the Common Stock may be sold in the public market may have a
depressive effect on prevailing market prices for the Common Stock and, in such
event, could impair Synergy's ability to raise capital in the future through the
sale of equity securities.
18. NEGATIVE IMPACT ON VOTING OF PREFERRED STOCK.
The Class A Preferred Stock, $.001 par value (the "Series A Preferred
Stock"), currently entitles the holder to 13 votes for every one share of Class
A Preferred held on all matters on which the holders of the Common Stock may
vote. Accordingly, the holder thereof will, when voting its Class A Preferred
Stock as a single class, currently controls approximately 39% of the voting
power of the Company and, therefore, may effectively control the election of all
of the members of the Board of Directors and the business affairs and policies
of Synergy. Such control may also have the effect of delaying, deferring or
preventing a change in control of the Company. The terms of the Class A
Preferred Stock also provide that no additional shares of Class A Preferred
Stock or other preferred stock of the Company may be issued without the approval
of a majority of the holders of the Class A Preferred Stock.
19. THE COMPANY MAY NOT BE ABLE TO CONTINUE ATTRACTING NEW CUSTOMERS.
The success of the Company's business model depends in large part on its
continued ability to increase its number of customers. The market for its
businesses may grow more slowly than anticipated because of or become saturated
with competitors, many of which may offer lower prices or broader distribution.
The Company is also highly dependant on internet sales which require interest of
potential suppliers in the internet mode of product purchasing. Some potential
suppliers may not want to join the Company's networks because they are concerned
about the possibility of their products being listed together with their
competitors' products thus limiting availability of product mix made available
by the Company. If the Company cannot continue to bring new customers to its
sites or maintain its existing customer base or attract listing of a mixture of
product, the Company may be unable to offer the benefits of the network model at
levels sufficient to attract and retain customers and sustain its business.
-15-
20. BECAUSE THE COMPANY'S INDUSTRY IS HIGHLY COMPETITIVE AND HAS LOW
BARRIERS TO ENTRY, THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY COMPETE.
The U.S. market for e-commerce services is extremely competitive. The
Company expects competition to intensify as current competitors expand their
product offerings and enter the e-commerce market, and new competitors enter the
market.
The principal competitive factors are the quality and breadth of services
provided, potential for successful transaction activity and price. E-commerce
markets are characterized by rapidly changing technologies and frequent new
product and service introductions. The Company may fail to update or introduce
new market pricing formats, selling techniques and/or other mechanics and
administrative tools and formats for internet sales consistent with current
technology on a timely basis or at all. If its fails to introduce new service
offerings or to improve its existing service offerings in response to industry
developments, or if its prices are not competitive, the Company could lose
customers, which could lead to a loss of revenues.
Because there are relatively low barriers to entry in the e-commerce
market, competition from other established and emerging companies may develop in
the future. Many of the Company's competitors may also have well-established
relationships with the Company's existing and prospective customers. Increased
competition is likely to result in fee reductions, reduced margins, longer sales
cycles for the Company's services and a decrease or loss of its market share,
any of which could harm its business, operating results or financial condition.
Many of the Company's competitors have, and new potential competitors may
have, more experience developing Internet-based software applications and
integrated purchasing solutions, larger technical staffs, larger customer bases,
more established distribution channels, greater brand recognition and greater
financial, marketing and other resources than the Company has. In addition,
competitors may be able to develop products and services that are superior to
those of the Company or that achieve greater customer acceptance. There can be
no assurance that the e-commerce solutions offered by the Company's competitors
now or in the future will not be perceived as superior to those of the Company
by either businesses or consumers.
21. THE COMPANY'S BUSINESS MAY SUFFER IF IT IS NOT ABLE TO PROTECT
IMPORTANT INTELLECTUAL PROPERTY.
The Company's ability to compete effectively against other companies in its
industry will depend, in part, on its ability to protect its proprietary
technology and systems designs relating to its technologies. The Company does
not know whether it has been or will be completely successful in doing so.
Further, its competitors may independently develop or patent technologies that
are substantially equivalent or superior to those of the Company.
22. THE COMPANY MAY NOT BE ABLE TO MAINTAIN THE CONFIDENTIALITY OF ITS
PROPRIETARY KNOWLEDGE.
The Company relies, in part, on contractual provisions to protect its trade
secrets and proprietary knowledge. These agreements may be breached, and the
Company may not have adequate remedies for any breach. Its trade secrets may
also be known without breach of such agreements or may be independently
discovered by competitors. Its inability to maintain the proprietary nature of
its technology could harm its business, results of operations and financial
condition by adversely affecting its ability to compete.
-16-
23. OTHERS MAY ASSERT THAT THE COMPANY'S TECHNOLOGY INFRINGES THEIR
INTELLECTUAL PROPERTY RIGHTS.
The Company believes that its technology does not infringe the proprietary
rights of others. However, the e-commerce industry is characterized by the
existence of a large number of patents and trademarks and frequent claims and
litigation based on allegations of patent infringement and violation of other
intellectual property rights. As the e-commerce market and the functionality of
products in the industry continues to grow and overlap, the Company believes
that the possibility of an intellectual property claim against it will increase.
For example, the Company may inadvertently infringe an intellectual property
right of which it is unaware, or there may be applications to protect
intellectual property rights now pending of which it is unaware which it may be
infringing when they are issued in the future, or the Company's service or
systems may incorporate and/or utilize third party technologies that infringe
the intellectual property rights of others. The Company has been and expects to
continue to be subject to alleged infringement claims. The defense of any claims
of infringement made against the Company by third parties, whether or not
meritorious, could involve significant legal costs and require the Company's
management to divert time and attention from its business operations. Either of
these consequences of an infringement claim could have a material adverse effect
on the Company's operating results. If the Company is unsuccessful in defending
any claims of infringement, it may be forced to obtain licenses or to pay
royalties to continue to use its technology. The Company may not be able to
obtain any necessary licenses on commercially reasonable terms or at all. If the
Company fails to obtain necessary licenses or other rights, or if these licenses
are costly, its operating results may suffer either from reductions in revenues
through the Company's inability to serve customers or from increases in costs to
license third-party technologies.
24. THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED IF IT IS UNABLE TO
CONTINUE TO LICENSE SOFTWARE THAT IS NECESSARY FOR ITS SERVICE
OFFERING.
Through distributors, the Company licenses a variety of commercially
available Internet technologies, which are used in its services and systems to
perform key functions. As a result, the Company is to a certain extent dependent
upon continuing to maintain these technologies. There can be no assurance that
the Company would be able to replace the functionality provided by much of its
purchased Internet technologies on commercially reasonable terms or at all. The
absence of or any significant delay in the replacement of that functionality
could have a material adverse effect on the Company's business, financial
condition and results of operations.
25. THE COMPANY'S SYSTEMS INFRASTRUCTURE MAY NOT KEEP PACE WITH THE DEMANDS
OF ITS CUSTOMERS.
Interruptions of service as a result of a high volume of traffic and/or
transactions could diminish the attractiveness of the Company's services and its
ability to attract and retain customers. There can be no assurance that the
Company will be able to accurately project the rate or timing of increases, if
any, in the use of its service, or that it will be able to expand and upgrade
its systems and infrastructure to accommodate such increases in a timely manner.
The Company currently maintains systems in the U.S. Any failure to expand or
upgrade its systems could have a material adverse effect on its results of
operations and financial condition by reducing or interrupting revenue flow and
by limiting its ability to attract new customers. Any such failure could also
have a material adverse effect on the business of its customers, which could
damage the Company's reputation and expose it to a risk of loss or litigation
and potential liability.
-17-
26. A SYSTEM FAILURE COULD CAUSE DELAYS OR INTERRUPTIONS OF SERVICE TO THE
COMPANY'S CUSTOMERS.
Service offerings involving complex technology often contain errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial implementation of new
services or enhancements to existing services. Although the Company attempts to
resolve all errors that it believes would be considered serious by its customers
before implementation, its systems are not error-free. Errors or performance
problems could result in lost revenues or cancellation of customer agreements
and may expose the Company to litigation and potential liability. In the past,
the Company has discovered errors in software used in the Company after its
incorporation into Company sites. The Company cannot assure that undetected
errors or performance problems in its existing or future services will not be
discovered or that known errors considered minor by it will not be considered
serious by its customers. The Company has experienced periodic minor system
interruptions, which may continue to occur from time to time.
27. THE FUNCTIONING OF THE COMPANY'S SYSTEMS OR THE SYSTEMS OF THIRD
PARTIES ON WHICH IT RELIES COULD BE DISRUPTED BY FACTORS OUTSIDE THE
COMPANY'S CONTROL.
The Company's success depends on the efficient and uninterrupted operation
of its computer and communications hardware systems. These systems are
vulnerable to damage or interruption from natural disasters, fires, power loss,
telecommunication failures, break-ins, sabotage, computer viruses, intentional
acts of vandalism and similar events. Despite any precautions the Company takes
or plans to take, the occurrence of a natural disaster or other unanticipated
problems could result in interruptions in its services. In addition, if any
hosting service fails to provide the data communications capacity the Company
requires, as a result of human error, natural disaster or other operational
disruption, interruptions in the Company's services could result. Any damage to
or failure of its systems could result in reductions in, or terminations of, its
services, which could have a material adverse effect on its business, results of
operations and financial condition.
28. THE COMPANY MAY ACQUIRE OTHER BUSINESSES OR TECHNOLOGIES, WHICH COULD
RESULT IN DILUTION TO ITS STOCKHOLDERS, OR OPERATIONAL OR INTEGRATION
DIFFICULTIES WHICH COULD IMPAIR ITS FINANCIAL PERFORMANCE.
If appropriate opportunities present themselves, the Company may acquire
complementary or strategic businesses, technologies, services or products that
it believes will be useful in the growth of its business. The Company does not
currently have any commitments or agreements with respect to any new
acquisitions. They may not be able to identify, negotiate or finance any future
acquisition successfully. Even if the Company does succeed in acquiring a
business, technology, service or product, the process of integration may produce
unforeseen operating difficulties and expenditures and may require significant
attention from the Company's management that would otherwise be available for
the ongoing development of its business. Moreover the anticipated benefits of
any acquisition may not be realized or may depend on the continued service of
acquired personnel who could choose to leave. If the Company makes future
acquisitions, it may issue shares of stock that dilute other stockholders, incur
debt, assume contingent liabilities or create additional expenses related to
amortizing intangible assets, any of which might harm its financial results and
cause its stock price to decline. Any financing that it might need for future
acquisitions may only be available to it on terms that restrict its business or
that impose on it costs that reduce its revenue.
29. THE COMPANY'S SUCCESS DEPENDS ON THE CONTINUED GROWTH OF THE INTERNET
AND ONLINE COMMERCE.
The Company's future revenues and profits depend to a large extent upon the
widespread acceptance and use of the Internet and other online services as a
medium for commerce by merchants and consumers. The use of the Internet and
e-commerce may not continue to develop at past rates and a sufficiently broad
base of business and individual customers may not adopt or continue to use the
Internet as a medium of commerce. The market for the sale of goods and services
over the Internet is a relatively new and emerging market. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty. Growth in the Company's customer base
depends on obtaining businesses and consumers who have historically used
traditional means of commerce to purchase goods. For the Company to be
successful, these market participants must accept and use novel ways of
conducting business and exchanging information.
-18-
E-commerce may not prove to be a viable medium for purchasing for the
following reasons, any of which could seriously harm the Company's business:
- the necessary infrastructure for Internet communications may not
develop adequately;
- the Company's potential customers, buyers and suppliers may have
security and confidentiality concerns;
- complementary products, such as high-speed modems and high-speed
communication lines, may not be developed or be adequately available;
- alternative-purchasing solutions may be implemented;
- buyers may dislike the reduction in the human contact inherent in
traditional purchasing methods;
- use of the Internet and other online services may not continue to
increase or may increase more slowly than expected;
- the development or adoption of new technology standards and protocols
may be delayed or may not occur; and
- new and burdensome governmental regulations may be imposed.
30. THE COMPANY'S SUCCESS DEPENDS ON THE CONTINUED RELIABILITY OF THE
INTERNET.
The Internet continues to experience significant growth in the number of
users, frequency of use and bandwidth requirements. There can be no assurance
that the infrastructure of the Internet and other online services will be able
to support the demands placed upon them. Furthermore, the Internet has
experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face such outages and delays in the
future. These outages and delays could adversely affect the level of Internet
usage and also the level of traffic and the processing of transactions. In
addition, the Internet or other online services could lose their viability due
to delays in the development or adoption of new standards and protocols required
to handle increased levels of Internet or other online service activity, or due
to increased governmental regulation. Changes in or insufficient availability of
telecommunications services or other Internet service providers to support the
Internet or other online services also could result in slower response times and
adversely affect usage of the Internet and other online services generally and
the Company's service in particular. If use of the Internet and other online
services does not continue to grow or grows more slowly than expected, if the
infrastructure of the Internet and other online services does not effectively
support growth that may occur, or if the Internet and other online services do
not become a viable commercial marketplace, the Company will have to adapt its
business model to the new environment, which would materially adversely affect
its results of operations and financial condition.
-19-
31. GOVERNMENT REGULATION OF THE INTERNET MAY IMPEDE THE COMPANY'S GROWTH
OR ADD TO ITS OPERATING COSTS.
Like many Internet-based businesses, the Company operates in an environment
of tremendous uncertainty as to potential government regulation. The Internet
has rapidly emerged as a commerce medium, and governmental agencies have not yet
been able to adapt all existing regulations to the Internet environment. Laws
and regulations have been introduced or are under consideration and court
decisions have been or may be reached in the U.S. and other countries in which
the Company does business that affect the Internet or other online services,
covering issues such as pricing, user privacy, freedom of expression, access
charges, content and quality of products and services, advertising, intellectual
property rights and information security. In addition, it is uncertain how
existing laws governing issues such as taxation, property ownership, copyrights
and other intellectual property issues, libel, obscenity and personal privacy
will be applied to the Internet. The majority of these laws were adopted prior
to the introduction of the Internet and, as a result, do not address the unique
issues of the Internet. Recent laws that contemplate the Internet, such as the
Digital Millennium Copyright Act in the U.S., have not yet been fully
interpreted by the courts and their applicability is therefore uncertain. The
Digital Millennium Copyright Act provides certain "safe harbors" that limits the
risk of copyright infringement liability for service providers such as the
Company with respect to infringing activities engaged in by users of the
service.
In the area of user privacy, several states have proposed legislation that
would limit the uses of personal user information gathered online or require
online services to establish privacy policies. The Federal Trade Commission also
has become increasingly involved in this area. The Company does not sell
personal user information regarding its customers. The Company does use
aggregated data for analysis regarding the Company network, and does use
personal user information in the performance of its services for its customers.
Since the Company does not control what its customers do with the personal user
information they collect, there can be no assurance that its customers' sites
will be considered compliant.
As online commerce evolves, the Company expects that federal, state or
foreign agencies will adopt regulations covering issues such as pricing,
content, user privacy, and quality of products and services. Any future
regulation may have a negative impact on its business by restricting its methods
of operation or imposing additional costs. Although many of these regulations
may not apply to its business directly, the Company anticipates that laws
regulating the solicitation, collection or processing of personal information
could indirectly affect its business.
Title V of the Telecommunications Act of 1996, known as the Communications
Decency Act of 1996, prohibits the knowing transmission of any comment, request,
suggestion, proposal, image or other communication that is obscene or
pornographic to any recipient under the age of 18. The prohibitions scope and
the liability associated with a violation are currently unsettled. In addition,
although substantial portions of the Communications Decency Act of 1996 have
been held to be unconstitutional, the Company cannot be certain that similar
legislation will not be enacted and upheld in the future. It is possible that
such legislation could expose companies involved in online commerce to
liability, which could limit the growth of online commerce generally.
Legislation like the Communications Decency Act could reduce the growth in
Internet usage and decrease its acceptance as a communications and commerce
medium.
The worldwide availability of Internet web sites often results in sales of
goods to buyers outside the jurisdiction in which the Company or its customers
are located, and foreign jurisdictions may claim that the Company or its
customers are required to comply with their laws. As an Internet Company, it is
unclear which jurisdictions may find that the Company is conducting business
therein. Its failure to qualify to do business in a jurisdiction that requires
it to do so could subject the Company to fines or penalties and could result in
its inability to enforce contracts in that jurisdiction.
-20-
The Company is not aware of any recent related legislation specifically
mentioned herein but there can be no assurance that future government regulation
will not be enacted further restricting use of the internet that might adversely
affect the Company's business.
32. NEW TAXES MAY BE IMPOSED ON INTERNET COMMERCE.
In the U.S., the Company does not collect sales or other similar taxes on
goods sold through the Company's internet websites. The Internet Tax Freedom Act
of 1998, (extended through November 2003), prohibits the imposition of taxes on
electronic commerce by federal and state taxing authorities. The Company is not
aware of any further extensions regarding but understands that more permanent
application is currently being discussed in the federal legislature. A number of
proposals have been made at the state and local level that would impose
additional taxes on the sale of goods and services through the Internet. Such
proposals, if adopted and not in conflict with federal prohibitions, could
substantially impair the growth of electronic commerce, and could adversely
affect the Company's opportunity to derive financial benefit from such
activities. There has been recent activity in attempts to enforce the federal
Jenkins Act which historically allowed State taxation of sales of goods made
through use of the United States mail and is currently being reviewed toward
possibly allowing the States to tax internet sales. . In addition, non-U.S.
countries may seek to impose service tax (such as value-added tax) collection
obligations on companies that engage in or facilitate Internet commerce. A
successful assertion by one or more states or any foreign country that the
Company should collect sales or other taxes on the sale of merchandise could
impair its revenues and its ability to acquire and retain customers.
33. THERE MAY BE SIGNIFICANT SECURITY RISKS AND PRIVACY CONCERNS RELATING
TO ONLINE COMMERCE.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. A compromise or
breach of the technology used to protect the Company's customers' and their
end-users' transaction data could result from, among other things, advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments. Any such compromise could have a material adverse effect
on the Company's reputation and, therefore, on its business, results of
operations and financial condition. Furthermore, a party who is able to
circumvent the Company's security measures could misappropriate proprietary
information or cause interruptions in its operations. The Company may be
required to expend significant capital and other resources to protect against
security breaches or to alleviate problems caused by such breaches. Concerns
over the security of transactions conducted on the Internet and other online
services and the privacy of users may also inhibit the growth of the Internet
and other online services generally, especially as a means of conducting
commercial transactions. The Company currently has practices and procedures in
place to protect the confidentiality of its customers' and their end-users'
information. However, its security procedures to protect against the risk of
inadvertent disclosure or intentional breaches of security might fail to
adequately protect information that it's obligated to keep confidential. The
Company may not be successful in adopting more effective systems for maintaining
confidential information, and its exposure to the risk of disclosure of the
confidential information of others may grow with increases in the amount of
information it possesses. To the extent that the Company activities involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage its reputation and expose it to a risk
of loss or litigation and possible liability. The Company's insurance policies
may not be adequate to reimburse it for losses caused by security breaches.
34. IF THE COMPANY'S FULFILLMENT CENTERS ARE NOT EFFECTIVELY OPERATED THE
COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED.
If the Company does not successfully operate its fulfillment centers such
could significantly limit the Company's ability to meet customer's demands,
which would likely result in diminished revenues, adversely affecting the
Company's business. Because it is difficult to predict sales increases the
Company may not manage its facilities in an optimal way which may result in
excess inventory, warehousing, fulfillment and distribution capacity having an
adverse impact on working capital of the Company, or the lack of sufficiency in
such areas causing delays in fulfillment of customer orders adversely affecting
customer confidence and loyalty.
-21-
FACILITIES
The Company's corporate offices and administrative headquarters are located
in Melville, New York.
The Company maintains satellite offices in New York, Pennsylvania, New
Jersey, Toronto, Maine, Illinois and Florida.
Warehousing facilities utilized by the Company are located in New Jersey,
New York and Florida. The Grocery inventory is warehoused in New York, Salon
products are warehoused in New Jersey, and cigars are warehoused in Florida.
The facilities operate under contractual warehousing agreements except in
Florida which facility is leased.
USE OF PROCEEDS
Synergy will not receive any proceeds from the sale of the Registered Stock
being offered for resale on behalf of the Selling Securityholders. Synergy will,
however, receive $500,000 if all of the Warrants are exercised, which proceeds
will be added to working capital when and if received.
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding the Common
Stock held by Selling Securityholders as of May 17, 2004 and to be owned after
the offering pursuant to this Prospectus. To the best knowledge of Synergy, the
Selling Securityholders have had no material relationship with Synergy within
the past three years, other than as a result of ownership of securities of
Synergy, except as expressly noted. The information in the table as to the
Selling Securityholder has been furnished to Synergy by the Securityholders.
Name & address Number of Shares Percentage (1)
-------------------------------- ---------------------
of Beneficial Owner Before Offered After Before After
- -------------------- ------ ------- ----- ------ -----
Laurus Master Funds, Ltd -0- 400,000(2) 400,000(2) -0- 16.5
c/o Ironshore Corporate
Services Ltd
PO Box 1234 GT
Queensgate House
South Church Street
Grand Cayman, Cayman Islands
(1) The percentages computed in this column of the table are based upon
2,031,154 shares of the Common Stock outstanding on May 14, 2004 and
effect being given, where appropriate, pursuant to Rule 13d-3(d)(1)(i)
under the Exchange Act, to shares issuable upon the exercise of Common
Stock purchase warrants and the conversion of the Convertible Term Note
which are currently exercisable or convertible within 60 days of ,
2004.
(2) The shares reported in the table reflect those with the probability of
being issued upon the conversion of the Convertible Term Note and the
exercise of the Investor Warrants, but the shares reported in this
table do not reflect the number of shares of common stock that may be
paid as interest on the Convertible Term Note.
-22-
PLAN OF DISTRIBUTION
GENERAL
The Selling Securityholders have advised Synergy that sales of the shares
of the Registered Stock may be effected from time to time in transactions (which
may include block transactions) in the over-the-counter market at market prices
prevailing at the time of sale or in negotiated transactions at negotiated
prices. The Selling Securityholders may effect such transactions by selling
shares of the Registered Stock directly to purchasers or through broker-dealers
that may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the shares of Registered Stock
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions).
The Selling Securityholders and any broker-dealers that act in connection
with the sale of the shares of the Registered Stock as principals may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securities Act
and any commissions received by them and any profit on the resale of the shares
of the Registered Stock as principals might be deemed to be underwriting
discounts and commissions under the Securities Act. Synergy has agreed to
indemnify the Selling Securityholders against certain liabilities, including
liabilities arising under the Securities Act. Synergy will not receive any
proceeds from the sale of shares of the Registered Stock by the Selling
Securityholders. Sales of the shares of the Registered Stock by the Selling
Securityholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the Common Stock.
The shares of the Registered Stock are offered by the Selling
Securityholders on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act. Synergy has agreed to pay all expenses incurred in connection
with the registration of the shares offered by the Selling Securityholders;
provided, however, that the Selling Securityholders shall be exclusively liable
to pay any and all commissions, discounts and other payments to broker-dealers
incurred in connection with their sale of the shares.
Synergy, its officers, directors, affiliates and the Selling
Securityholders are obligated to take such steps as may be necessary to ensure
that the offer and sale by the Selling Securityholders of the shares of the
Registered Stock offered by this Prospectus (the "Distribution") shall comply
with the requirements of the federal securities laws, including Regulation M
under the Securities Act and the Exchange Act.
-23-
In general, Regulation M prohibits the Selling Securityholder or a
broker-dealer acting for the Selling Securityholder from directly or indirectly
bidding for, or purchasing any shares of the Common Stock or attempting to
induce any person to bid for or to purchase shares of the Common Stock until
after he, or it has completed his, or its participation in the Distribution.
Rule 102 sets forth certain exceptions for the Selling Securityholders including
exercising a Common Stock purchase warrant.
PRIVATE PLACEMENT ISSUANCE.
As to the 400,000 shares of the Common Stock being offered pursuant to this
Prospectus the Company is obligated to issue and have reserved for issuance
these shares pending the conversion of the Convertible Term Note and the
exercise of the Investor Warrants. The holders of the Convertible Note and the
Investor Warrants received these securities in connection with a private
placement of such securities pursuant to Section 4(2) under the Securities and
Exchange Act in April 2004 as reflected in and in accord with the provisions of
that certain Securities Purchase Agreement dated April 2, 2004 by and between
Synergy Brands Inc. and Laurus Master Funds Ltd., a copy of which is included
herewith as an exhibit. The principal purpose of this financing was to assist
Synergy in furthering its cash flow by increasing its access to available
product for resale and to finance associated carrying charges and administrative
expense. The Convertible Term Note is convertible at a conversion price of $5.
The Convertible Term Note bears interest at a variable annual rate of interest
based on prime plus 3%, but no less than 7% and no higher than 12%, which
amounts of interest are also convertible on the same basis as the principal
amount of the Convertible Term Note.
In connection with the private placement, Laurus Master Fund, Ltd.
("Laurus"), as the Holder of the Convertible Term Note, received a Common Stock
Purchase Warrant (the "Investor Warrant") expiring April 2, 2011 to purchase
100,000 shares at $5 per share, which is the Investor Warrant mentioned in the
preceding paragraphs. Laurus is offering the 300,000 shares into which the
Convertible Term Note may be converted (with any increase thereof to cover
accruing interest on such Note) and the 100,000 shares underlying exercise of
the Investor Warrant pursuant to this Prospectus as a Selling Securityholder.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed on
for Synergy by Randall J. Perry, Esq., Rutherford, New Jersey.
-24-
EXPERTS
The consolidated financial statements of the Company as of December 31,
2003, and for each of the two years in the period ended December 31, 2003 which
were included in Synergy's Annual Report on Form 10-KSB for the year ended
December 31, 2003, and incorporated herein by reference, have been audited by
Grant Thornton LLP, independent certified public accountants , as stated in
their report appearing therein. In each case, these financial statements have
been so incorporated herein by reference in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
COMMISSION POSITION ON INDEMNIFICATION
The by-laws of Synergy provide for the indemnification of officers and
directors to the maximum extent allowable under Delaware law. Insofar as the
indemnification for liabilities arising under the Securities Act may be
permitted to directors and officers or persons controlling Synergy pursuant to
such provisions, Synergy has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Synergy of expenses incurred
or paid by a director, officer or controlling person of Synergy in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Synergy will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
-25-
=======================
No dealer, salesperson or other person has been
authorized to give any information or to make any
representations in connection with this offering SYNERGY BRANDS INC.
other than those contained in this Prospectus and, if
given or made, such information or representations 400,000 Shares Of Common Stock
must not be relied upon as having been authorized by Offered By Selling Securityholders
the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy
the securities offered hereby to any person in any
state or other jurisdiction in which such offer or
solicitation would be unlawful. Neither the delivery
of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that
the information contained herein is correct as of any
time subsequent to the date hereof.
__________________
TABLE OF CONTENTS
Page
Additional Information............. 6 _______________
Documents Incorporated
By Reference..................... 6 PROSPECTUS
The Company........................ 8 _______________
Risk Factors....................... 9
Use of Proceeds....................22
Selling Stockholders...............22
Plan of Distribution...............23
Legal Matters......................24
Experts............................25
Commission Position on
Indemnification.................25
=======================
-26-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Estimated expenses payable in connection with the sale of shares of the
Common Stock, $.001 par value, of Synergy Brands Inc. (the "Registrant") offered
hereby are as follows:
Amount
Securities and Exchange Commission Registration Fee $ 408.00
Legal Fees and Expenses $ 15,000.00
Accounting Fees and Expenses $ 2,500.00
Printing and Engraving Expenses $ 1,000.00
Transfer Agent Fees and Expenses $ 5,000.00
Miscellaneous $ 5,000.00
-------------
Total $ 28,908.00
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgment, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
-27-
(b) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
-28-
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement or expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person."
-29-
(b) As permitted by Section 145 of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of
the Registrant provide that (i) the Registrant is required to indemnify its
directors, executive officers and employees with respect to any action, suit or
proceeding by reason of the fact that he is or was a director, officer or
employee of the Registrant, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Registrant, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; (ii)
upon receipt of an undertaking to repay such advances if indemnification is
determined to be unavailable, the Registrant may advance expenses as incurred,
to its directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law in connection with a proceeding (except if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding or, in certain circumstances, by independent legal counsel in a
written opinion that the facts known to the decision making party demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation); (iii) the rights conferred in the Bylaws are not exclusive and the
Registrant is authorized to enter into indemnification agreements with its
directors, officers, employees and agents; (iv) the Registrant may not
retroactively amend the By-law provisions relating to indemnification; and (vi)
to the fullest extent permitted by the Delaware General Corporation Law, a
director or executive officer will be deemed to have acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interest of the Registrant, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his or her conduct
was unlawful, if his or her action is based on information, opinions, reports
and statements, including financial statements and other financial data, in each
case prepared or presented by:
(i) one or more officers or employees of the corporation whom the
director or executive officer believed to be reliable and competent in the
matters presented;
(ii) counsel, independent accountants or other persons as to matters
which the director or executive officer believed to be within such person's
professional competence; and
(iii) with respect to a director, a committee of the Board upon which
such director does not serve, as to matters within such Committee's designated
authority, which committee the director believes to merit confidence; so long
as, in each case, the director or executive officer acts without knowledge that
would cause such reliance to be unwarranted.
The indemnification provisions contained in the By-Laws may be sufficiently
broad to permit indemnification of the Registrant's executive officers and
directors for liabilities arising under the Securities Act of 1933, as amended
(the "Securities Act"). For information as to a limitation on indemnification of
directors, officers and controlling persons of the Registrant, see the last
undertaking in Item 17 to this Registration Statement.
-30-
ITEM 16. EXHIBITS.
Exhibit No. Description of Exhibit
- ----------- ----------------------
5 Opinion of Randall J. Perry, Esq.
10.1 Securities Purchase Agreement dated April 2, 2004 between
Laurus Master Funds Ltd. and Synergy Brands Inc.
10.2 Registration Rights Agreement dated April 2, 2004 between
Laurus Master funds Ltd. and Synergy Brands Inc.
10.3 Form of Common Stock Purchase Warrant dated April 2, 2004
between Laurus Master funds Ltd. and Synergy Brands Inc.
10.4 Master Security Agreement dated April 2, 2004 dated April 2,
2004 between Laurus Master funds Ltd. and Synergy Brands Inc.
10.5 Secured Convertible Term Note dated April 2, 2004 issued to
Laurus Master Fund Ltd., by Synergy Brands Inc.
23.1 Consent of Grant Thornton LLP
23.2 Consent of Randall J. Perry, Esq. (included in Exhibit 5)
24.1 Power of Attorney (included on the signature page of this
registration statement)
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement;
(c) To include any material information with respect to the plan or
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (1)(a) and (1)(b) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission (the "Commission") by the Registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that are incorporated by reference in the Registration Statement.
-31-
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the Securities
Act, each filing of the Registrant's Annual Report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the Registration Statement shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To deliver or cause to be delivered with the Prospectus, to each person
to whom the Prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the Prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the Prospectus, deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
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 public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
-32-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Melville, State of New York, on MAy 17, 2004.
SYNERGY BRANDS INC.
By: /s/ Mair Faibish, CEO
------------------------------------
Mair Faibish, CEO
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POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Synergy Brands Inc., hereby
severally and jointly constitute and appoint Mair Faibish and/or Mitchell
Gerstein, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this Registration Statement, and generally do all things in our names and on our
behalf in such capacities to enable Synergy Brands Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Name and Signature Title(s) Date
- ------------------ -------- ----
/s/ Henry Platek
- ----------------------------
Henry Platek President, May 17, 2004
(Principal Executive Officer and Director)
/s/ Mair Faibish
- ----------------------------
Mair Faibish Chief Executive Officer , May 17, 2004
and Chairman of the Board
and Director
/s/ Mitchell Gerstein
- ----------------------------
Mitchell Gerstein Secretary, Chief Accounting Officer May 17, 2004
Chief Financial Officer, and Director
/s/ Dominic A. Marsicovetere
- ----------------------------
Dominic A. Marsicovetere Director May 17, 2004
/s/ Michael V. Ferrone
- ----------------------------
Michael V. Feronne Director May 17, 2004
/s/ Randall J. Perry
- ----------------------------
Randall J. Perry Director May 17, 2004
/s/ Dail Miller
- ----------------------------
Dail Miller Director May 17, 2004
/s/ Frank A. Bellis Jr.
- ----------------------------
Frank A. Bellis Jr. Director May 17, 2004
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