<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1998
REGISTRATION NO. 333-50297
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JEEPERS! INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7999 74-2596237
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBERS)
ORGANIZATION) 60 HICKORY DRIVE
WALTHAM, MA 02154
(781) 890-1800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
MR. NABIL N. EL-HAGE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
JEEPERS! INC.
60 HICKORY DRIVE
WALTHAM, MA 02154
(781) 890-1800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
NORMAN D. CHIRITE, ESQ. MARY A. BERNARD, ESQ.
WEIL, GOTSHAL & MANGES LLP KING & SPALDING
767 FIFTH AVENUE 1185 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10153 NEW YORK, NEW YORK 10036
(212) 310-8000 (212) 556-2100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<TABLE>
<S> <C> <C>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock, $0.01 par value per share........ $36,800,000 $10,856
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended.
(2) A fee of $10,178 has been previously paid upon the initial filing of the
Registration Statement. Accordingly, an additional fee of $678 is being
paid herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated May 19, 1998
Prospectus
dated , 1998
2,000,000 Shares
LOGO
LOGO LOGO
LOGO
Common Stock
All of the 2,000,000 shares of Common Stock offered hereby are being issued and
sold by Jeepers! Inc. (the "Company").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for listing of the
Common Stock on the Nasdaq Stock Market's National Market ("Nasdaq") under the
symbol "JPRS."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................... $ $ $
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Total(3).................................... $ $ $
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</TABLE>
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(1) The Company and certain stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $900,000.
(3) Certain stockholders have granted the Underwriters 30-day options to
purchase up to an aggregate of 300,000 additional shares of Common Stock
solely to cover over-allotments, if any, at the per share Price to Public
less the Underwriting Discount. If the Underwriters exercise these options
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters subject to
prior sale when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that certificates for such shares will be available for delivery at the offices
of Piper Jaffray Inc. in Minneapolis, Minnesota on or about , 1998.
Piper Jaffray Inc.
Cowen & Company
Gerard Klauer Mattison & Co., Inc.
<PAGE>
[Interior photographs of the Company's Parks and a drawing depicting a typical
Jeepers! Park layout.]
Jeepers! and the Jeepers! logo, as well as certain additional names and logos
appearing in this Prospectus, are registered trademarks of the Company. This
Prospectus also includes names and trademarks of companies other than the
Company.
The Company intends to furnish its stockholders with annual reports containing
audited consolidated financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim consolidated
financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THIS
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all the information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment options, (ii) gives effect to the
conversion of all outstanding shares of the Company's Preferred Stock into
Common Stock, which conversion will occur immediately prior to the closing of
the Offering (the "Preferred Conversion"), and (iii) reflects the one-for-ten
reverse stock split of the Company's Common Stock effected in April 1998. See
"Description of Capital Stock." All references in this Prospectus to the
"Company" include, unless the context otherwise requires, Jeepers! Inc. and its
subsidiaries.
THE COMPANY
The Company owns and operates 15 indoor family theme parks (the "Parks")
throughout the United States and is pursuing a rapid expansion strategy. The
Company strives to create a unique entertainment destination for families with
children ages 2 to 12 by combining a variety of interactive attractions,
including amusement park rides, skill games, state-of-the-art simulator games
and comfortable family dining, all in a whimsical jungle-themed atmosphere.
Jeepers! Parks feature a 1950's-style diner with a diverse menu of high quality
food appealing to both children and their parents and offer a full range of
birthday party packages that include ride admissions, game tokens, food and
special entertainment activities. The Company believes the quality and
diversity of attractions and food available at its Parks are a significant
competitive advantage and help drive repeat customer visits.
The Parks average approximately 25,000 square feet in size and incorporate a
high level of thematic design, including whimsical jungle imagery, vivid
graphics and proprietary mascot characters, creating a unique personality and
brand identity. The costumed mascots appear regularly in the Jeepers! Parks to
participate in promotional and entertainment activities and are featured on
Jeepers! television commercials and logoed merchandise. The Company's
interactive attractions include indoor roller coasters known as the Python Pit
and the Yak Attack, a multi-level maze of tubes, slides and play elements known
as the Jeepers Creepers! Sky Maze and skill games such as Skee Ball and Whack-
a-Gator that award tickets redeemable for prizes. The Tiny Rhino Diner offers
kids' favorites, such as Pizza Hut(R) pizza, hamburgers, hot dogs and chicken
strips, as well as a selection of entrees targeted to adults, such as chicken
caesar salads, pasta, and grilled chicken sandwiches. The Company believes the
quality and selection of its menu items are a significant attraction for
parents.
The Company enjoys a balanced revenue mix reflecting the diverse attractions
at its Parks. The Company generated total Park revenues of approximately $16.4
million in 1997, distributed among four principal revenue sources as follows:
amusement park rides, 25.9%; skill and simulator games, 21.2%; dining, 26.0%;
and birthday parties, 24.2%. The Company believes this balanced revenue
distribution evidences customers' attraction to each of the four key elements
of its Parks.
The Company's objective is to become a leading brand in the location-based
entertainment industry. With approximately 40 million children in the United
States between the ages of 2 and 12, the Company believes a significant
opportunity exists to meet the currently underserved and increasing demand for
wholesome family entertainment. In order to capitalize on this opportunity, the
Company's growth strategy includes: (i) aggressive development of new Parks,
with 12 new Jeepers! Parks planned for 1998 (of which two have already opened,
five are under development and the balance are under lease negotiations) and
approximately 24 Jeepers! Parks planned for 1999; (ii) building the Jeepers!
brand; and (iii) enhancing Park performance.
3
<PAGE>
The Company has attracted significant attention from shopping center
developers as a result of its Parks' proven ability to increase high quality
consumer traffic in both new and existing enclosed malls and outdoor strip
centers. The Company believes that developers view Jeepers! Parks as an
opportunity to distinguish new retail developments from competitors and to
revitalize existing properties. In addition, each Jeepers! Park consists of
modular components that can be arranged in various combinations to fit into
odd-shaped sites. The Company believes that the demonstrated success of the
Jeepers! concept in a variety of retail environments, as well as its modular
Park design, facilitate the Company's rapid expansion.
The Company believes its Jeepers! Parks produce attractive unit economics.
During the six-month period ended March 29, 1998, the six Jeepers! Parks open
for the entire period generated average revenues of approximately $1.1 million
for such six-month period and average Park EBITDA margin of 19.3%. Excluding
the Company's initial Jeepers! prototype Park, the eight Jeepers! Parks open as
of April 30, 1998 required an average capitalized investment of approximately
$950,000, net of landlord contributions, loans and other incentives (excluding
average pre-opening costs of approximately $64,000). The Company has incurred
net operating losses in each of the last three fiscal years and there can be no
assurance that the Company will be able to achieve or sustain revenue growth or
profitability in the future.
The Company was incorporated in 1988 in Texas and was reincorporated in
Delaware in 1991. The Company's principal executive offices are located at 60
Hickory Drive, Waltham, Massachusetts 02154 and its telephone number is (781)
890-1800.
----------------
The Company has adopted a fiscal year of 52 or 53 weeks that ends on the
Sunday closest to December 31. In this Prospectus, the fiscal years ended on
January 2, 1994, January 1, 1995, December 31, 1995, December 29, 1996,
December 28, 1997, January 3, 1999 and January 2, 2000 are referred to as
fiscal 1993, 1994, 1995, 1996, 1997, 1998 and 1999, respectively. Each of these
fiscal years contains 52 weeks, except for fiscal 1998, which will contain 53
weeks.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 2,000,000 shares
Company...........................
Common Stock to be outstanding 6,599,623 shares (1)
after the Offering................
Use of proceeds.................... To fund the development of new Parks and
for general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq symbol............. JPRS
</TABLE>
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(1) Excludes (i) 762,060 shares of Common Stock issuable upon exercise of
options outstanding as of the date of this Prospectus or granted effective
upon the completion of the Offering, and (ii) 152,500 shares of Common
Stock issuable upon exercise of warrants outstanding as of the date of this
Prospectus. See "Management--Employment Agreement," "Management--Stock
Incentive Plans," "Certain Relationships and Related Transactions" and
"Description of Capital Stock."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data and Park operating data)
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER ENDED
--------------------------- -------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 7,648 $10,070 $ 16,372 $ 3,667 $ 7,206
Costs and expenses:
Cost of revenues.......... 1,270 2,263 3,495 823 1,307
Operating payroll and
benefit costs............ 2,422 2,961 4,594 1,020 1,875
Other operating expenses.. 2,983 3,303 5,908 1,096 2,306
General and administrative
expenses................. 3,001 3,038 4,114 849 1,141
Pre-opening costs......... -- 202 369 14 16
Depreciation and
amortization............. 681 867 1,173 263 419
Impairment and park
closing costs............ 8 750 1,648 -- --
------- ------- --------- ------- ---------
Income (loss) from
operations................. (2,717) (3,314) (4,929) (398) 142
Interest income (expense),
net........................ 99 (278) 329 98 4
------- ------- --------- ------- ---------
Net income (loss) (1)....... $(2,618) $(3,592) $ (4,600) $ (300) $ 146
======= ======= ========= ======= =========
Unaudited pro forma net
income (loss) per share of
common stock (2)........... $ (1.03) $ 0.03
========= =========
Weighted average number of
shares used in calculating
unaudited pro forma net
income (loss) per share of
common stock............... 4,458,697 4,544,026
========= =========
SELECTED PARK OPERATING DATA
(3):
Number of Parks owned at
period end:
Jeepers! Parks............ 0 2 8 2 8
All Parks (4)............. 5 7 14 7 13
Average weekly sales:
Jeepers! Parks............ $ -- $44,965 $ 42,175 $54,968 $44,935
All Parks (4)............. 20,715 29,380 31,870 35,305 38,352
Average Park EBITDA margin
(4)(5)..................... 10.8% 14.7% 15.3% 20.9% 24.8%
</TABLE>
<TABLE>
<CAPTION>
MARCH 29, 1998
-----------------------------
PRO FORMA AS
PRO FORMA (6) ADJUSTED (6)(7)
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<S> <C> <C> <C>
BALANCE SHEET
DATA:
Cash and cash
equivalents..... $ 3,914 $30,914
Working capital.. (47) 26,952
Total assets..... 22,739 49,739
Long-term debt,
including
current portion. 2,425 2,425
Stockholders'
equity.......... 15,236 42,236
</TABLE>
- --------
(1) Since its inception, the Company has incurred net operating losses.
Accordingly, the Company has made no provision for income taxes payable. At
December 28, 1997, the Company had a net operating loss carryforward of
approximately $16.0 million, subject to limitations as set forth in Section
382 of the Internal Revenue Code of 1986, as amended. A full valuation
reserve has been established for all net deferred tax assets. See Note 10
of Notes to Consolidated Financial Statements.
(2) Unaudited pro forma net income (loss) per share of common stock was
computed by dividing net income (loss) by the weighted average number of
shares outstanding after giving effect to the Preferred Conversion. See
Notes 6 and 13 of Notes to Consolidated Financial Statements.
(3) Excludes two Jeepers Jr! centers opened in 1996 which are operated inside
Toys "R" Us Kids World superstores. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) Includes Jeepers! Parks and earlier-generation Parks known as Jungle Jim's
Playlands. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(5) Represents, for each period presented, income from Park operations before
Park depreciation and amortization divided by Park revenue. EBITDA should
not be considered as an alternative measure of operating results or cash
flow from operations (as determined by generally accepted accounting
principles). The Company, however, believes that average Park EBITDA margin
provides useful information regarding the operating performance of its
Parks.
(6) Pro forma to reflect the Preferred Conversion.
(7) Adjusted to reflect the sale of the 2,000,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $15.00 per
share and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information in this Prospectus, the following
risk factors should be carefully considered in evaluating an investment in the
Common Stock offered hereby. Certain statements contained herein under
"Prospectus Summary," "Risk Factors," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including, without limitation, those concerning
(i) the Company's strategy, (ii) the Company's capital expenditures and (iii)
the number of new Jeepers! Parks the Company expects to open in 1998 and 1999,
constitute forward-looking statements under applicable securities laws.
Because such statements are subject to a number of assumptions, risks and
uncertainties, actual results may differ materially from those projected.
Factors that could cause such differences include, but are not limited to,
those discussed below.
LIMITED RELEVANT OPERATING HISTORY AND HISTORY OF LOSSES
The Company opened its first-generation Jungle Jim's Playland family theme
park in 1988 and has reevaluated and updated its concept, introducing its
second-generation Jungle Jim's Playland in 1993. The Company first introduced
the Jeepers! Park concept in January 1996, and the Jeepers! Parks are expected
to account for the substantial majority of the Company's revenues in the
foreseeable future. Consequently, the Company has a limited relevant operating
history upon which an evaluation of its prospects can be based. The Company
has incurred net losses and experienced negative cash flow from operations
since inception and expects to incur a net loss in fiscal 1998. The Company
experienced net losses of approximately $3.6 million and $4.6 million in
fiscal 1996 and fiscal 1997, respectively, and net income of $146,000 in the
quarter ended March 29, 1998. At March 29, 1998, the Company had an
accumulated deficit of approximately $19.9 million. There can be no assurance
that the Company will be able to achieve or sustain revenue growth or
profitability. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH EXPANSION
The Company's continued growth depends on its ability to successfully open
new Jeepers! Parks on a timely and profitable basis. The Company currently
plans to open 12 new Parks in 1998 (of which two have already been opened) and
approximately 24 new Parks in 1999. The Company's ability to achieve its
expansion plans will depend on a variety of factors, some of which are beyond
its control. These factors include, among others, availability of attractive
sites on acceptable terms, securing required governmental permits and
approvals in a timely fashion, adequate supervision of construction, hiring,
training and retention of skilled management and other personnel, availability
of adequate financing, timely completion of new retail developments in which
the Company plans to open new Parks, and successful integration of new Parks
into the Company's existing operations. There can be no assurance that the
Company will be successful in opening the planned number of Parks in a timely
manner, or that, if opened, such Parks will be operated profitably. The
Company's expansion plans contemplate entering new geographic regions in which
the Company has no operating experience and which may have different
demographic characteristics than its existing markets. There can be no
assurance as to the level of demand for the Jeepers! concept in markets
outside of the regions in which the existing Jeepers! Parks are located.
Profitability may be adversely affected by costs associated with developing a
significant number of new Parks over a relatively short time period and by the
fact that in clustering Parks, revenues at existing Parks could be adversely
affected by new Parks opened by the Company in the same market. New Parks
typically incur above-average operating costs during the first several months
of operation, which have a material adverse effect on the profitability of
such Parks during such period. There can be no assurance that the Company will
be able to achieve its planned expansion or that its expansion will be
profitable. Failure of the Company to achieve its planned expansion on a
profitable basis would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--Growth
Strategy."
6
<PAGE>
DEPENDENCE ON ABILITY TO SECURE SITES
The success of the Company's growth strategy and expansion plans are
dependent on its ability to develop Parks in attractive locations with
acceptable lease terms. The availability of attractive sites can be adversely
affected by changes in the national, regional and local economic climate,
demographic changes, and changes in real estate, zoning and tax laws. In
addition, the Company faces intense competition for available space from a
variety of large format retailers. As a result of the foregoing, there can be
no assurance that the Company will be able to locate, lease or develop
attractive sites on terms it considers acceptable. The failure of the Company
to develop Parks in attractive locations or to lease Parks on acceptable terms
could result in an inability to implement fully its growth strategy, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Growth Strategy" and
"Business--Site Selection."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company estimates that capital expenditures during fiscal 1998 will be
approximately $14.0 million in the aggregate and that capital expenditures
during fiscal 1999 will be approximately $22.0 million in the aggregate.
Although the Company expects that the net proceeds of the Offering, combined
with the cash flow from operations, equipment leases and the Company's $5.0
million secured loan facility will be sufficient to fund its capital
requirements at least through the end of fiscal 1999, there can be no
assurance that this will be the case. The Company has experienced negative
cash flow from operations of approximately $2.2 million, $1.1 million and $1.3
million in fiscal 1995, fiscal 1996 and fiscal 1997, respectively. If future
actual cash flows from operations fail to meet the Company's expectations,
costs and capital expenditures exceed the amounts anticipated, landlord
contributions, loans and other incentives are lower than expected or the
Company is required to reduce prices in order to respond to competitive
pressures, the Company may be required to seek additional capital earlier than
anticipated. There can be no assurance that such additional financing will be
available on acceptable terms. Further, the Company anticipates that it may
need additional capital to continue its expansion plans beyond 1999. There can
be no assurance that additional capital to fund expansion beyond 1999 will be
obtained on terms acceptable to the Company, if at all. The issuance of
additional equity securities by the Company will result in dilution to the
then-existing stockholders. Moreover, if adequate funds are not available, the
Company may be required to curtail its projected growth, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
MANAGEMENT OF GROWTH
The Company's rapid expansion has strained the Company's existing
management, information systems and financial controls. There can be no
assurance that the Company will be able to respond on a timely basis to all of
the changing demands that its planned expansion will impose on management and
such systems and controls. The failure to continue to evaluate and improve
management, information systems and financial controls or unexpected
difficulties encountered during expansion could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company may seek acquisition opportunities in order to gain access to
attractive real estate in strategic markets throughout the United States. The
Company does not currently have any acquisitions planned or under negotiation.
Furthermore, there can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, obtain financing on
acceptable terms, complete acquisitions or expand into new markets. There can
also be no assurance that future acquisitions will not have a material adverse
effect upon the Company's operating results, particularly in the fiscal
quarters immediately following the completion of an acquisition while the
acquisition is being integrated into the Company's operations. As of the date
of this Prospectus, the Company does not have any definitive agreements,
arrangements or understandings regarding any particular acquisition.
7
<PAGE>
SMALL PARK BASE
The Company currently operates 15 Parks. As a result, the operating results
achieved to date by the Company's relatively small number of Parks may not be
indicative of the future operating results of the Company with a larger number
of Parks. In addition, operating results vary from Park to Park. Due to the
Company's small Park base, poor operating results at any one or more Parks
could materially adversely affect the Company's results of operations.
DEPENDENCE UPON KEY PERSONNEL
The Company's future success depends in large part on the continued services
of its senior management and the Company's ability to attract, motivate and
retain highly qualified employees. In particular, the Company is highly
dependent on the services of Nabil N. El-Hage, the Company's President, Chief
Executive Officer and Chairman of the Board of Directors (the "Board"). In
addition, as the Company expands its operations, the success of its business
will depend increasingly upon the Company's ability to attract and retain
additional skilled management personnel. Competition for such employees is
intense. Accordingly, the loss of services of Mr. El-Hage or other members of
senior management or the inability to attract additional personnel as needed
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."
COMPETITION
Competition in the location-based entertainment industry is intense. The
Company competes principally with national chains such as Chuck-E-Cheese,
Discovery Zone and potentially Club Disney (if it pursues its publicly
announced expansion plans), as well as a broad array of smaller chains and
independent operators in each of its markets. In addition, the Company
competes with children's themed restaurant chains that provide ancillary
entertainment (such as games and indoor and outdoor playgrounds) and
merchandise offerings and do not charge admission fees. While the Company
believes that its Parks are distinctive in design and unique in the variety of
entertainment attractions offered, it is aware that its competitors may
operate with similar concepts. There can be no assurance that the Company's
competitors will not adopt concepts similar to those of the Company or be more
successful in establishing businesses using similar concepts, or that such
competitors will not be more successful than the Company in developing and
marketing other concepts. Many of the Company's competitors are well
established with significantly greater financial, marketing and other
resources than the Company. Some of the Company's competitors have been in
existence for substantially longer periods than the Company and may be better
established in the areas where the Company's Parks are located or in the
markets where the Company plans to expand in the future. In addition, the
Company's profitability depends not only on its ability to compete
successfully against similar or comparable businesses, but also upon
consumers' choice of the type of entertainment the Company's Parks provide
over other available forms of entertainment, including, but not limited to,
other indoor and outdoor theme parks, travelling carnivals, movies, sporting
events, local youth sports leagues and other seasonal activities. There can be
no assurance that the Company will be able to respond to various competitive
factors affecting the location-based entertainment industry. See "Business--
Competition."
RELIANCE ON RELATIONSHIP WITH PIZZA HUT
The Company has entered into certain non-exclusive license arrangements
(collectively, the "Pizza Hut Agreements") with Pizza Hut, Inc. ("Pizza Hut"),
pursuant to a master license agreement. The Pizza Hut Agreements enable the
Company to market Pizza Hut(R) pizza and other products in the Company's
Parks. The Pizza Hut Agreements provide for a license-term of ten years from
the commencement of the license at each licensed location and may be
terminated under certain circumstances. There can be no assurance that such
arrangements will not be terminated or that the Company will be able to extend
any of its license arrangements upon their expiration. In addition, in
franchised Pizza Hut territories, it may be necessary to obtain the consent
8
<PAGE>
of the franchisee to enter into a Pizza Hut Agreement. The Company was unable
to obtain a Pizza Hut license with respect to one of its first-generation
Jungle Jim's Playlands. There can be no assurance that the Company will be
able to obtain Pizza Hut licenses for its new Parks in the future on terms
acceptable to the Company, if at all. The termination of the Pizza Hut
Agreements and the inability of the Company to replace such agreements with
comparable arrangements or the inability to obtain Pizza Hut Agreements or
comparable arrangements for new Parks, could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Relationship with Pizza Hut."
SUPPLY RISKS
The Company is dependent on a limited number of suppliers for its amusement
park rides. Each of the Company's amusement park rides is currently supplied
by a single supplier. Although the Company believes alternative suppliers for
its amusement park rides are available, there can be no assurance that the
Company would be able to replace any of its existing suppliers in a timely
manner or on terms acceptable to the Company. The Company's inability to
obtain amusement park rides from its existing suppliers could result in
delays, interruptions and increased costs in the opening of new Parks and the
operation of existing Parks, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the Company is dependent on frequent deliveries of fresh or frozen
poultry, beef, produce and other foods. Shortages or interruptions in the
supply of fresh or frozen poultry, beef, produce and other foods, which may be
caused by adverse weather or other conditions, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Park Operations and Management."
GOVERNMENT REGULATION AND LABOR COSTS
The Company is subject to federal, state and local government regulation
relating to the operation of its amusement park rides and food service
facilities, as well as regulations relating to building and zoning
requirements, environmental compliance, and the Company's relationship with
its employees, including minimum wage requirements, health benefits,
unemployment taxes and sales taxes, overtime and working conditions, and
citizenship requirements. The failure to obtain or retain required licenses
could adversely affect the operations of the Company's Parks. A significant
number of the Company's hourly personnel at its Parks are paid at rates
related to the federal minimum wage. Accordingly, legislated increases in the
federal minimum wage, as well as increases in additional labor cost
components, such as employee benefit costs, workers' compensation insurance
rates or other costs associated with employees, would increase the labor costs
at the Company's Parks, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, the Company is subject to local health board ordinances for the
manufacture, handling, storage and labeling of food products in its kitchens.
The failure by the Company to comply with laws regulating its business,
together with future changes in existing regulations, may adversely affect the
Company's business. See "Business--Government Regulation and Labor Costs."
RISK OF INJURY CLAIMS
The nature of the activities conducted in the Company's Parks entails the
potential risk of bodily injuries to children participating in such
activities, for which the Company maintains general liability insurance and
excess insurance coverage. The Company believes that its current level of
insurance coverage is adequate for its existing and currently planned Parks.
Although the Company's Parks are designed, constructed and tested with an
emphasis on children's safety and security, there can be no assurance that
injuries will not occur in the future or that claims against the Company will
not be asserted as a result of such injuries. Any successful claim against the
Company in excess of the Company's insurance limits could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the potential harm to the Company's reputation that
may result from bodily injuries occurring in its Parks could result in loss of
market share and could have a material adverse effect on the Company's
business, financial condition and results of operations.
9
<PAGE>
VARIABILITY OF RESULTS OF OPERATIONS; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. Although Parks in
different markets are subject to different seasonal influences, historically
the Company has generated the highest average Park revenue during its first
and third fiscal quarters, due to seasonal weather changes and school vacation
periods, respectively, and the lowest average Park revenue during the fourth
fiscal quarter. In addition, quarterly results are significantly affected by
the timing of new Park openings, since new Parks are less profitable during
their first several months of operation and the Company expenses pre-opening
costs as incurred. Accordingly, to the extent that Park openings are
concentrated in any fiscal period, results of operations for such fiscal
period may be materially adversely affected. As a result of the combined
impact of seasonality and the timing of new Park openings, operating margins
and profitability may fluctuate significantly from quarter to quarter. Results
for any quarter are not indicative of results that will be achieved for any
other quarter or for the full fiscal year. Unexpected fluctuations in the
Company's results of operations could have an adverse impact on the prevailing
market price for the Common Stock. See "--Possible Volatility of Common Stock
Price" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality and Quarterly Results."
INTELLECTUAL PROPERTY
Jeepers!, Jeepers! Food, Fun and a Monkey, Jeepers Jr!, Jungle Jim's
Playland and Tiny Rhino Diner, together with their associated logos, as well
as Jungle Play and Kidding Around, are registered trademarks of the Company.
All depictions of any characters illustrated herein, including the designs for
each of "JJ," "Trish," "Kronkle" and "Jungle Jim," represent trademarks
currently used by the Company in its business. The Company believes that such
trademarks have significant value to the Company and are important to the
marketing of the Company's concepts. There can be no assurance that the steps
taken by the Company to protect its proprietary rights will be adequate to
prevent misappropriation of the Company's rights or the use by others of
features based upon, or otherwise similar to, those of the Company. In
addition, although the Company believes that its trademarks have been
independently developed, there can be no assurance that any of the trademarks
used by the Company do not or will not violate the proprietary rights of
others, that the trademarks will be upheld if challenged, or that the Company
will not be prevented from using the trademarks, any of which could have a
material adverse effect on the Company. See "Business--Intellectual Property."
RISKS ASSOCIATED WITH THE LOCATION-BASED ENTERTAINMENT INDUSTRY
The location-based entertainment industry can be affected significantly by
many factors, including changes in consumer tastes and preferences,
seasonality, demographic trends, traffic patterns and the type, number and
location of competitors. Factors such as inflation, increased food, labor and
health costs and the lack of availability of an adequate number of hourly
employees may also adversely affect the Company's industry. Further, the
Company's profits are dependent on discretionary spending by consumers,
particularly by consumers living in the communities in which the Parks are
located. A significant weakening in the national economy or any of the local
economies in which the Company operates may cause the Company's patrons to
curtail discretionary spending which, in turn, could have a material adverse
effect on the Company's business, financial condition and results of
operations.
ABSENCE OF PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF INITIAL PUBLIC
OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiations among the Company and the representatives of the Underwriters.
There can be no assurance that an active trading market for the Common Stock
will develop or continue after the completion of the Offering or that the
market price of the Common Stock will not decline below the initial public
offering price. See "Underwriting."
POSSIBLE VOLATILITY OF COMMON STOCK PRICE
The market price of the Common Stock could fluctuate significantly in
response to quarterly operating results and other factors, including many over
which the Company has no control and that may not be directly
10
<PAGE>
related to the Company. The stock market has from time to time experienced
extreme price and volume fluctuations, which have often been unrelated or
disproportionate to the operating performance of particular companies.
Fluctuations or decreases in the trading price of the Common Stock may
adversely affect the liquidity of the trading market for the Common Stock and,
in the event that the Company seeks to raise capital through future equity
financings, the Company's ability to raise such equity capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
CONTROL BY CERTAIN STOCKHOLDERS
Following the Offering, Centre Capital Investors L.P., a private investment
partnership ("CCI"), and its affiliates and related entities will beneficially
own or control approximately 36.6% of the outstanding shares of Common Stock.
Accordingly, CCI will have the ability to significantly influence the results
of any matter submitted to the stockholders for approval, including
fundamental corporate transactions and the election of directors. See
"Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 6,599,623
shares of Common Stock, of which the 2,000,000 shares sold pursuant to the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any of such shares held by "affiliates"
(as defined under Rule 405 of the Securities Act) of the Company. The holders
of the remaining 4,599,623 shares of Common Stock (the "Restricted Shares")
will be entitled to sell their shares in the public securities market without
registration under the Securities Act to the extent permitted by Rule 144
promulgated thereunder or otherwise in accordance with the Securities Act. All
of the Restricted Shares have been owned by the holders thereof for more than
one year. Of such Restricted Shares, 519,983 are owned by non-affiliates of
the Company and, as a result, will be tradeable upon completion of the
Offering without compliance with the restrictions under Rule 144, and
4,079,640 are owned by affiliates of the Company and, as a result, will be
eligible for sale pursuant to Rule 144, subject to certain restrictions, upon
completion of the Offering. Certain holders of Common Stock have agreed to
certain restrictions on their ability to sell Common Stock for 180 days
following the Offering. See "Underwriting." The Company intends to file a
registration statement on Form S-8 covering all shares of Common Stock
issuable upon exercise of stock options in effect on the date of this
Prospectus and stock options or other Benefits (as defined herein) to be
granted under the Company's 1998 Incentive Plan (as defined herein). The
Company has outstanding stock options with respect to an aggregate of
approximately 622,060 shares of Common Stock as of the date of this
Prospectus. In addition, the Company has approved the grant under the 1998
Incentive Plan of options to purchase 140,000 shares of Common Stock to the
Company's President and Chief Executive Officer, effective upon the completion
of the Offering. Upon such registration on Form S-8, an additional 762,060
shares of Common Stock, together with any additional shares of Common Stock
which will be issuable pursuant to stock options or other Benefits to be
granted under the 1998 Incentive Plan, will be eligible for sale in the public
market. In addition, the stockholders' agreement among the Company and its
principal stockholders, which will become effective upon the completion of the
Offering, provides for certain demand and "piggyback" registration rights.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the prevailing
market price of the Common Stock and the ability of the Company to raise
capital through a public offering of its equity securities. See "Shares
Eligible for Future Sale," "Principal Stockholders" and "Description of
Capital Stock."
NO DIVIDENDS
The Company has never declared or paid cash dividends. The Company currently
intends to retain all future earnings for the operation and expansion of its
business and does not anticipate paying cash dividends on the Common Stock in
the foreseeable future. See "Dividend Policy."
11
<PAGE>
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of Common Stock offered hereby will suffer an immediate and
substantial dilution of $8.61 in pro forma net tangible book value per share
from the initial public offering price and may incur additional dilution upon
the exercise of stock options and warrants. See "Dilution."
ANTI-TAKEOVER PROVISIONS
The Restated Certificate of Incorporation of the Company, as amended (the
"Certificate of Incorporation") authorizes the Board to issue from time to
time one or more series of preferred stock, up to an aggregate of 5,000,000
shares of preferred stock, and to fix the designation, privileges, preferences
and rights of those shares without any further vote or action by the
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
shares that may be issued by the Company in the future. Moreover, the issuance
of preferred stock may make it more difficult for a third party to acquire, or
may discourage a third party from acquiring, a majority of the voting stock of
the Company. In addition, the Company is subject to certain anti-takeover
provisions of the Delaware General Corporation Law, which could have the
effect of discouraging, delaying or preventing a change of control of the
Company. See "Description of Capital Stock--New Preferred Stock" and
"Description of Capital Stock--Certain Provisions of Delaware Law."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$15.00 per share are estimated to be approximately $27.0 million million,
after deducting the underwriting discount and estimated Offering expenses.
The Company intends to use approximately $21.0 million of the net proceeds
of the Offering to finance the development of new Jeepers! Parks during the
next twelve months. To the extent landlord contributions, loans and other
incentives are lower than expected, the Company may use a larger portion of
the net proceeds to finance the development of new Parks. The balance of the
net proceeds from the Offering will be used to finance the development of
Jeepers! Parks in subsequent periods and for general corporate purposes. The
Company may also use a portion of the net proceeds for the acquisition of
businesses that are complementary to that of the Company. However, the Company
does not currently have any acquisitions planned or under negotiation. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds in short-term, investment-grade, interest-bearing
securities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends. The Company currently
intends to retain all future earnings for the operation and expansion of its
business and does not anticipate paying cash dividends on the Common Stock in
the foreseeable future. Any payment of cash dividends in the future will be at
the discretion of the Board and will depend upon the Company's results of
operations, earnings, capital requirements, contractual restrictions and other
factors deemed relevant by the Board. In addition, the Company anticipates
that loan facilities it may enter into in the future may restrict the
Company's ability to pay cash dividends.
13
<PAGE>
CAPITALIZATION
The following table sets forth, at March 29, 1998, (i) the cash and actual
capitalization of the Company, (ii) the cash and pro forma capitalization of
the Company, giving effect to the Preferred Conversion and the authorization
of 5,000,000 shares of undesignated preferred stock, and (iii) such cash and
pro forma capitalization as adjusted to reflect the sale of the 2,000,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $15.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1998
-------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 3,914 $ 3,914 $30,914
======= ======== =======
Long-term debt (including current portion).... $ 2,425 $ 2,425 $ 2,425
Stockholders' equity:
Existing Preferred Stock (1)................ 46,318 -- --
New Preferred Stock, $0.01 par value,
5,000,000 shares authorized; no shares
issued and outstanding..................... -- -- --
Common Stock, $0.01 par value, 30,000,000
shares authorized; 180,500 shares issued
and outstanding; 4,599,623 shares issued
and outstanding, pro forma; 6,599,623
shares issued and outstanding, pro forma as
adjusted (2)............................... 2 46 66
Additional paid-in capital.................. 606 35,128 62,108
Cumulative accretion of redeemable
convertible preferred stock................ (11,752) -- --
Unrealized gain on available-for-sale
marketable securities...................... 10 10 10
Accumulated deficit......................... (19,948) (19,948) (19,948)
------- -------- -------
Total stockholders' equity................ (31,082) 15,236 42,236
------- -------- -------
Total capitalization...................... $17,661 $ 17,661 $44,661
======= ======== =======
</TABLE>
- --------
(1) The Company is authorized to issue 961,377 shares of Series A Preferred
Stock, 441,936 shares of Series B Preferred Stock, 11,077,508 shares of
Series C Preferred Stock, 961,377 shares of Series D Preferred Stock and
25,000,000 shares of Series F Preferred Stock, each having a par value of
$1.00 per share (collectively, the "Existing Preferred Stock").
Immediately prior to the closing of the Offering, all outstanding shares
of Existing Preferred Stock, together with all accrued and unpaid
dividends thereon, will convert automatically into shares of Common Stock
at the applicable conversion price thereof. See "Description of Capital
Stock."
(2) Excludes (i) 762,060 shares of Common Stock issuable upon exercise of
options outstanding as of the date of this Prospectus or granted effective
upon the completion of the Offering, and (ii) 152,500 shares of Common
Stock issuable upon exercise of warrants outstanding as of the date of
this Prospectus. See "Management--Employment Agreement," "Management--
Stock Incentive Plans," "Certain Relationships and Related Transactions"
and "Description of Capital Stock."
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 29, 1998,
giving effect to the Preferred Conversion, was approximately $15.2 million, or
$3.30 per share of Common Stock. Pro forma net tangible book value per share
is determined by dividing the Company's net tangible worth (tangible assets
less liabilities) by the aggregate number of shares of Common Stock
outstanding pro forma for the Preferred Conversion. After giving effect to the
sale of the 2,000,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $15.00 per share and the application of the
net proceeds therefrom, the pro forma net tangible book value of the Company
as of March 29, 1998 would have been approximately $42.2 million, or $6.39 per
share of Common Stock. This represents an immediate increase in pro forma net
tangible book value of $3.09 per share to existing stockholders and an
immediate dilution of $8.61 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (mid-range).... $15.00
Pro forma net tangible book value per share as of March 29,
1998........................................................ $3.30
Increase per share attributable to new investors............. 3.09
-----
Pro forma net tangible book value per share after the Offering. 6.39
------
Dilution per share to new investors............................ $ 8.61
======
</TABLE>
The following table sets forth as of March 29, 1998, giving effect to the
Preferred Conversion, the difference between the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by new
investors (at an assumed initial public offering price of $15.00 per share):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 4,599,623 69.7% $35,890,368 54.3% $ 7.80
New investors.................. 2,000,000 30.3 30,000,000 45.7% 15.00
--------- ----- ----------- -----
Total...................... 6,599,623 100.0% $65,890,368 100.0% $ 9.98
========= ===== =========== =====
</TABLE>
The foregoing table excludes (i) 622,060 shares of Common Stock issuable
upon exercise of options outstanding as of the date of this Prospectus (at a
weighted average exercise price of $7.48 per share) and 140,000 shares of
Common Stock issuable upon exercise of options granted effective upon
completion of the Offering (at an exercise price equal to the initial public
offering price) and (ii) 152,500 shares of Common Stock issuable upon exercise
of warrants outstanding as of the date of this Prospectus (at a weighted
average exercise price of $14.71 per share). To the extent these options and
warrants are exercised, there will be further dilution to new investors. See
"Management--Employment Agreement," "Management--Stock Incentive Plans,"
"Certain Relationships and Related Transactions" and "Description of Capital
Stock."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The following selected consolidated financial data for each of the five
years in the period ended December 28, 1997 are derived from the Consolidated
Financial Statements of the Company which have been audited by Ernst & Young
LLP, independent auditors. The financial data for the quarters ended March 30,
1997 and March 29, 1998 are derived from the unaudited consolidated financial
statements of the Company. The unaudited consolidated financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for such periods. Operating results for the
quarter ended March 29, 1998 are not necessarily indicative of the results
that may be expected for the entire year ending January 3, 1999. The selected
consolidated financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER ENDED
-------------------------------------------------------- ----------------------
MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
------- ---------- ---------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 7,281 $ 7,466 $ 7,648 $ 10,070 $ 16,372 $ 3,667 $ 7,206
Costs and expenses:
Cost of revenues...... 932 986 1,270 2,263 3,495 823 1,307
Operating payroll and
benefit costs........ 2,835 2,431 2,422 2,961 4,594 1,020 1,875
Other operating
expenses............. 2,712 3,144 2,983 3,303 5,908 1,096 2,306
General and
administrative
expenses............. 2,429 3,065 3,001 3,038 4,114 849 1,141
Pre-opening costs..... -- -- -- 202 369 14 16
Depreciation and
amortization......... 671 593 681 867 1,173 263 419
Impairment and park
closing costs........ 11 1,451 8 750 1,648 -- --
------- ------- -------- -------- --------- -------- ---------
Income (loss) from
operations............. (2,309) (4,204) (2,717) (3,314) (4,929) (398) 142
Interest income
(expense), net......... (185) 80 99 (278) 329 98 4
------- ------- -------- -------- --------- -------- ---------
Net income (loss) (1)... (2,494) (4,124) (2,618) (3,592) (4,600) (300) 146
Accretion of redeemable
convertible preferred
stock.................. (643) (1,523) (2,032) (2,032) (3,509) (877) (877)
------- ------- -------- -------- --------- -------- ---------
Net income (loss)
applicable to common
stock.................. $(3,137) $(5,647) $ (4,649) $ (5,624) $ (8,109) $ (1,177) $ (731)
======= ======= ======== ======== ========= ======== =========
Basic and diluted net
income (loss) per share
of common stock........ $(18.90) $(34.12) $ (28.09) $ (33.98) $ (49.00) $ (7.11) $ (4.05)
======= ======= ======== ======== ========= ======== =========
Weighted average number
of shares used in
calculating basic and
diluted net income
(loss) per share of
common stock........... 165,500 165,500 165,500 165,500 165,500 165,500 180,500
======= ======= ======== ======== ========= ======== =========
Unaudited pro forma net
income (loss) per share
of common stock (2).... $ (1.03) $ 0.03
========= =========
Weighted average number
of shares used in
calculating unaudited
pro forma net income
(loss) per share of
common stock........... 4,458,697 4,544,026
========= =========
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 29,
1994 1995 1995 1996 1997 1998
---------- ---------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 274 $ 7,774 $ 4,405 $ 14,033 $ 6,643 $ 3,914
Working capital......... (494) 5,297 1,878 8,911 1,338 (47)
Total assets............ 6,868 14,900 11,943 23,705 24,159 22,739
Long-term debt,
including current
portion................ 1,965 1,563 1,549 3,423 2,926 2,425
Redeemable convertible
preferred stock........ 10,602 22,831 24,663 39,233 45,491 46,318
Stockholders' deficit... (6,819) (12,467) (17,116) (22,432) (30,361) (31,082)
</TABLE>
- -------
(1) Since its inception, the Company has incurred net operating losses.
Accordingly, the Company has made no provision for income taxes payable.
At December 28, 1997, the Company had a net operating loss carryforward of
approximately $16.0 million, subject to limitations as set forth in
Section 382 of the Internal Revenue Code of 1986, as amended. A full
valuation reserve has been established for all net deferred tax assets.
See Note 10 of Notes to Consolidated Financial Statements.
(2) Unaudited pro forma net income (loss) per share of common stock was
computed by dividing net income (loss) by the weighted average number of
shares outstanding after giving effect to the Preferred Conversion. See
Notes 6 and 13 of Notes to Consolidated Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
should be read in conjunction with Company's Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus.
GENERAL
The Company owns and operates 15 indoor family theme Parks in various markets
throughout the United States. The Company's first Park opened in 1988 in San
Antonio, Texas under the Jungle Jim's Playland tradename. During the next four
years, the Company opened seven additional Jungle Jim's Playlands, one of which
closed before 1993. In addition, the Company entered into franchise agreements
for two more such Parks, one of which was terminated before 1993. In 1993, the
Company developed a second-generation Jungle Jim's Playland prototype and
upgraded three of its existing Jungle Jim's Playlands to the new format. In
1995, under new management, the Company developed its current Jeepers!
prototype Park and subsequently opened ten new Jeepers! Parks. With the
introduction of the Jeepers! concept, the Company adopted a single-brand
strategy. Pursuant to such strategy, the Company has upgraded two second-
generation Jungle Jim's Playlands to the Jeepers! concept and closed three
Jungle Jim's Playlands, including two first-generation facilities in 1995. In
addition, the Company acquired the remaining franchised Jungle Jim's Playland
in 1997, which it intends to convert to the Jeepers! concept in late 1998.
During their first year of operation, Jeepers! Parks typically experience
higher revenues than in subsequent years of operation, during which years
revenues are expected to remain relatively stable. The higher revenues are a
consequence of local media coverage of the Park opening and greater frequency
of customer visits during the initial period following the opening. The Company
believes that the key factors driving the growth of the Company's earnings will
be the opening of new Jeepers! Parks and increases in the efficiency of
existing Parks, rather than increases in revenues at existing Parks.
The Company derives revenue from four principal sources: rides, games,
dining, and birthday parties. As demonstrated in the charts below, the Company
enjoys a balanced revenue mix, reflecting the diverse attractions at its Parks.
CHARTS
Cost of revenues includes the direct costs incurred in connection with
generating the Company's revenues. With respect to games, cost of revenues
includes revenue sharing fees paid to independent vendors who own and maintain
certain games in the Company's Parks, as well as the cost of redemption prizes,
tickets and tokens. Food and beverage costs include the direct costs of food
and beverage, as well as related costs of paper products and supplies. Birthday
party costs include all of the component costs of the party packages, which may
include food (pizza, soda and cake/ice cream), game tokens, T-shirts and
redemption merchandise, as well as paper products and supplies used in the
party.
17
<PAGE>
Operating payroll and benefit costs include payroll, taxes and benefits
incurred in the operation of the Parks. Other Park operating expenses include
facilities charges (rent, utilities, taxes and insurance), advertising,
repairs and maintenance and Park administrative costs.
The Company has historically incurred net operating losses, primarily due to
its limited number of Parks in operation. The Company believes that by opening
a significant number of new Jeepers! Parks, without commensurate increases in
general and administrative expenses, and by increasing the efficiency of its
existing Parks, it will achieve profitability. There can be no assurance,
however, that the Company will be able to achieve or sustain such
profitability.
The Company has a tax net operating loss carryover of approximately $16.0
million available for future use. The Company's ability to utilize loss
carryforwards is subject to limitations as set forth in Internal Revenue Code
Section 382. The Company has not been required to pay federal income taxes
since inception.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
statement of operations data expressed as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEAR QUARTER ENDED
--------------------- -------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues.................. 16.6 22.5 21.3 22.4 18.1
Operating payroll and benefit
costs............................ 31.7 29.4 28.0 27.8 26.0
Other operating expenses.......... 39.0 32.8 36.1 29.9 32.0
General and administrative
expenses......................... 39.2 30.2 25.1 23.2 15.8
Pre-opening costs................. -- 2.0 2.3 0.4 0.2
Depreciation and amortization..... 8.9 8.6 7.2 7.2 5.8
Impairment and park closing costs. 0.1 7.4 10.1 -- --
----- ----- ----- ----- -----
Income (loss) from operations...... (35.5) (32.9) (30.1) (10.9) 2.1
Interest income (expense), net..... 1.3 (2.8) 2.0 2.7 0.1
----- ----- ----- ----- -----
Net income (loss).................. (34.2)% (35.7)% (28.1)% (8.2)% 2.2%
===== ===== ===== ===== =====
</TABLE>
QUARTER ENDED MARCH 29, 1998 COMPARED TO QUARTER ENDED MARCH 30, 1997
Revenues. Revenues increased to $7.2 million for the first quarter of fiscal
1998 from $3.7 million in the same period in fiscal 1997, an increase of
94.6%. This increase was driven primarily by the opening of six new Jeepers!
Parks (opened during the last three quarters of fiscal 1997) and the Company's
acquisition of its Des Plaines, Illinois franchisee in March 1997.
Cost of Revenues. Cost of revenues decreased to 18.1% of revenues in the
first quarter of fiscal 1998 from 22.4% in the same period in fiscal 1997.
This decrease was primarily attributable to a reduction in revenue sharing
fees on game revenue, reflecting the Company's ongoing strategy to purchase
more games, and lower food and beverage costs experienced at all Jeepers!
Parks due to management's efforts to improve operating controls at the Park
level.
Operating Payroll and Benefit Costs. Operating payroll and benefit costs
decreased to 26.0% of revenues in the first quarter of fiscal 1998 from 27.8%
in the same period in fiscal 1997. This decrease reflected the impact of lower
hourly labor costs achieved through staffing efficiencies realized at the Park
level.
18
<PAGE>
Other Operating Expenses. Other operating expenses increased to 32.0% of
revenues in the first quarter of fiscal 1998 from 29.9% in the same period in
fiscal 1997. This increase reflected the impact of higher facilities costs,
including real estate taxes, associated with the more attractive real estate
sites on which Jeepers! Parks are located, partially offset by lower repair
and maintenance costs due to management's efforts to improve operating
controls at the Park level.
General and Administrative Expenses. General and administrative expenses
decreased to 15.8% of revenues in the first quarter of fiscal 1998 from 23.2%
in the same period in fiscal 1997. This decrease was primarily the result of
leverage from a larger revenue base. In the aggregate, general and
administrative expenses increased to $1.1 million in the first quarter of
fiscal 1998 from $800,000 in the same period in fiscal 1997. This absolute
increase reflects the impact of a broader management and support
infrastructure established during the second half of fiscal 1997.
Depreciation and Amortization. Depreciation and amortization increased to
$419,000 in the first quarter of fiscal 1998 from $263,000 in the same period
in fiscal 1997. This increase was primarily attributable to new Park openings
over the twelve-month period ended March 29, 1998.
Interest Income (Expense). Interest income decreased to $70,000 in the first
quarter of fiscal 1998 from $142,000 in the same period in fiscal 1997. This
decrease primarily reflected the declining cash balance. Interest income was
offset by interest expense of $66,000 in the first quarter of fiscal 1998 and
$44,000 in the same period in fiscal 1997. The increase in interest expense
was primarily attributable to interest costs associated with capital lease
obligations and other indebtedness incurred by the Company during fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues. Revenues increased to $16.4 million in fiscal 1997 from $10.1
million in fiscal 1996, an increase of 62.4%. This increase was driven
primarily by the opening of six new Jeepers! Parks in 1997, the Company's
acquisition of its Des Plaines, Illinois franchisee in March 1997, and the
full-year impact of two Jeepers! Parks and two Jeepers Jr! centers opened
during 1996.
Cost of Revenues. Cost of revenues decreased to 21.3% of revenues in fiscal
1997 from 22.5% in fiscal 1996. This decrease was primarily attributable to a
reduction in revenue sharing fees on game revenue driven by the Company's new
strategy of purchasing certain games, partially offset by an increase in food
and beverage costs associated with the broader menu served in Jeepers! Parks
as compared to Jungle Jim's Playlands.
Operating Payroll and Benefit Costs. Operating payroll and benefit costs
decreased to 28.0% of revenues in fiscal 1997 from 29.4% in fiscal 1996. This
decrease reflected the impact of lower hourly labor costs achieved through
staffing efficiencies realized at the Park level, partially offset by an
increase in the minimum wage rate.
Other Operating Expenses. Other operating expenses increased to 36.1% of
revenues in fiscal 1997 from 32.8% in fiscal 1996. This increase reflected
higher facilities costs associated with the more attractive real estate sites
on which Jeepers! Parks are located as compared to Jungle Jim's Playlands, as
well as higher repair and maintenance costs.
General and Administrative Expenses. General and administrative expenses
decreased to 25.1% of revenues in fiscal 1997 from 30.2% in fiscal 1996. This
decrease was primarily the result of spreading such expenses over a larger
revenue base. In the aggregate, general and administrative expenses increased
to $4.1 million in fiscal 1997 from $3.0 million in fiscal 1996. This absolute
increase was driven by costs associated with developing a broader management
and support infrastructure in anticipation of future expansion.
Depreciation and Amortization. Depreciation and amortization increased to
$1.2 million in fiscal 1997 from $867,000 in fiscal 1996. This increase was
primarily attributable to new Park openings in 1997.
19
<PAGE>
Interest Income (Expense). Interest income increased to $517,000 in fiscal
1997 from $88,000 in fiscal 1996. This increase reflected interest earned on
proceeds aggregating $15.5 million from the sale of convertible preferred
stock in December 1996. Interest income was offset by interest expense of
$187,000 in fiscal 1997 and $366,000 in fiscal 1996. The decrease in interest
expense from fiscal 1996 to fiscal 1997 was primarily attributable to the
conversion of $3.5 million of convertible notes that were outstanding for two
months in fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues. Revenues increased to $10.1 million in fiscal 1996 from $7.6
million in fiscal 1995, an increase of 32.9%. This increase was primarily
attributable to the opening of two Jeepers! Parks and two Jeepers Jr! centers
in 1996, and by an increase in Jungle Jim's Playlands sales of approximately
11.5% as compared to the prior year.
Cost of Revenues. Cost of revenues increased to 22.5% of revenues in fiscal
1996 from 16.6% in fiscal 1995. This increase was primarily attributable to
increased revenue sharing fees associated with the Company's decision to
increase the number of revenue-shared games in its Jungle Jim's Playlands, and
to the development of new birthday party packages that generated incremental
revenue and Park contribution, but at lower gross margins due to certain
higher cost components included in the new packages.
Operating Payroll and Benefit Costs. Operating payroll and benefit costs
decreased to 29.4% of revenues in fiscal 1996 from 31.7% in fiscal 1995. This
decrease primarily reflected the impact of lower management and hourly labor
costs achieved through staffing efficiencies realized at the Park level.
Other Operating Expenses. Other operating expenses decreased to 32.8% of
revenues in fiscal 1996 from 39.0% in fiscal 1995. This decrease was primarily
attributable to the closing of two low volume first-generation Jungle Jim's
Playlands and to lower advertising costs in fiscal 1996.
General and Administrative Expenses. General and administrative expenses
decreased to 30.2% of revenues in fiscal 1996 from 39.2% in fiscal 1995. This
decrease was primarily the result of spreading such expenses over a larger
revenue base. In the aggregate, general and administrative expenses remained
relatively flat at approximately $3.0 million in each of fiscal 1996 and 1995.
Depreciation and Amortization. Depreciation and amortization increased to
$867,000 in fiscal 1996 from $681,000 in fiscal 1995. This increase was
primarily attributable to new Park openings in fiscal 1996.
Interest Income (Expense). Interest income decreased to $88,000 in fiscal
1996 from $328,000 in fiscal 1995. This decrease primarily reflected the
declining cash balance remaining from the proceeds of the sale of convertible
preferred stock in fiscal 1994. Interest income was offset by interest expense
of $366,000 in fiscal 1996 and $229,000 in fiscal 1995. The increase in
interest expense from fiscal 1995 to fiscal 1996 was primarily attributable to
the issuance of $3.5 million of convertible notes in late fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally funded its working capital requirements with the
net proceeds received from the issuance of preferred stock. Since the
beginning of 1994, the Company has received net proceeds totaling
approximately $25.8 million from the issuance of preferred stock. Such
proceeds have been used primarily to develop and construct ten Jeepers! Parks,
develop two Jeepers Jr! centers, upgrade two Jungle Jim's Playlands to
Jeepers! Parks, purchase new rides and games for its existing Parks and
finance operating losses and working capital requirements.
The Company's future working capital requirements are directly related to
the development of new Jeepers! Parks. During 1998 and 1999, the Company
expects to open approximately 36 Jeepers! Parks. In addition, the
20
<PAGE>
Company plans to continually review the attractions at existing Parks and
replace existing attractions and add new ones as necessary. The Company
expects that such initiatives will require capital expenditures of
approximately $36.0 million in fiscal 1998 and 1999, assuming the Company
continues to receive landlord contributions, loans and incentives consistent
with historical levels.
The Company has a term loan facility, which permits borrowing up to $5.0
million for purposes of financing rides and equipment. Borrowings under the
loan facility bear interest at a coupon rate of 10.0% per annum and are
secured by the underlying rides and equipment. Amounts drawn under the
facility must be repaid over 48 months. Pursuant to the facility, additional
payments are to be made at the end of the loan period that increase the
effective cost of borrowings to approximately 15.3%. As of the date of this
Prospectus, the entire $5.0 million was available to be drawn.
In May 1998 the Company obtained a commitment for a $7.5 million revolving
credit and term loan facility for the purpose of financing new equipment and
new Park buildout expenses. Borrowings under the loan facility will bear
interest at prime rate. All principal outstanding under such facility will
convert to a term loan with equal monthly principal payments on the first
anniversary of the closing of the credit agreement. The loan facility will
have a final maturity date of December 31, 2002. The loan facility has not yet
closed and there can be no assurance that the closing will occur.
At March 29, 1998, the Company had cash and cash equivalents of
approximately $3.9 million. The Company expects that the net proceeds of the
Offering, combined with its current cash and cash equivalents, cash flow from
operations, equipment leases, landlord contributions, loans and incentives and
borrowings under the secured loan facility, will be sufficient to fund its
capital requirements at least through the end of fiscal 1999. However, the
Company anticipates that it may need additional capital to continue its
expansion plan beyond fiscal 1999. There can be no assurance that such
additional capital will be available on terms acceptable to the Company, if at
all. See "Risk Factors--Future Capital Needs and Uncertainty of Additional
Funding."
SEASONALITY AND QUARTERLY RESULTS
The Company's sales and earnings fluctuate seasonally. Although Parks in
different markets are subject to different seasonal influences (including
seasonal changes in weather and school vacation periods), historically the
Company has generated the highest average Park revenue during its first and
third fiscal quarters and the lowest average Park revenue during the fourth
fiscal quarter. In addition, quarterly results are significantly affected by
the timing of new Park openings, since new Parks are less profitable during
their first several months of operation and the Company expenses pre-opening
costs as incurred. Accordingly, to the extent that Park openings are
concentrated in any fiscal period, results of operations for such fiscal
period may be materially adversely affected. As a result of the combined
impact of seasonality and the timing of new Park openings, operating margins
and profitability may fluctuate significantly from quarter to quarter. Results
for any quarter are not indicative of results that will be achieved for any
other quarter or for the full fiscal year. See "Risk Factors--Variability of
Results of Operations; Fluctuations in Quarterly Results."
IMPAIRMENT AND PARK CLOSING COSTS
In 1996, the Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires the Company to evaluate the carrying value of long-lived
assets, including equipment and leaseholds, whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Under
SFAS No. 121, an assessment is made to determine if the sum of the expected
future undiscounted cash flows from the use and eventual disposition of the
assets is less than the carrying value. If the sum of the expected
undiscounted cash flows is less than the carrying value, an impairment loss is
recognized by measuring the excess of carrying value over fair value
(generally estimated by projected future discounted cash flows from the
applicable operation or independent appraisal).
21
<PAGE>
During 1996, the Company developed two Jeepers Jr! centers, which are 2,000
to 3,000 square foot facilities operated by the Company within Toys "R" Us
Kids World ("Kids World") superstores pursuant to a license agreement. In
1997, The Wall Street Journal reported that Toys "R" Us would not open
additional Kids World superstores. Further, due to the uncertainty of future
cash flows associated with both Jeepers Jr! centers, the Company recorded an
impairment charge of approximately $1.3 million. The provision includes
charges for impairments to the carrying value of all Jeepers Jr! assets,
including rides, games, leasehold improvements and concept development costs.
In 1996, the Company recorded an impairment charge of approximately $600,000
relating to certain leasehold improvements, rides and games of the Jungle
Jim's Playland in Shawnee, Kansas. In 1997, the Company accrued $368,000 of
exit costs, primarily for lease settlements, relating to the closing of the
same Jungle Jim's Playland. The Company closed this Jungle Jim's Playland in
April 1998.
In 1996, the Company also accrued $150,000 of additional exit costs relating
to the 1995 closing of an earlier generation Jungle Jim's Playland.
Contractual lease costs of $262,000 were charged in 1996 against the
applicable reserve established in 1994.
YEAR 2000 ISSUE
The Company has reviewed its computer programs and systems to ensure that
the programs and systems are Year 2000 compliant. The Company presently
believes that the Year 2000 problem will not pose significant operational
problems for the Company's computer systems. The estimated cost of the
Company's efforts to become Year 2000 compliant are not expected to be
material to the Company's financial position or any year's results of
operations, although there can be no assurance to this effect. In addition,
the Year 2000 problem may impact other entities with which the Company
transacts business, and the Company cannot predict the effect of the Year 2000
problem on such entities and, in turn, the impact of any such effect on the
Company.
IMPACT OF INFLATION
The Company does not believe that inflation has materially affected its
results of operations during the past three fiscal years. Substantial
increases in costs and expenses as a result of inflation, particularly food,
supplies, labor and operating expenses could have a significant impact on the
Company's operating results to the extent that such increases cannot be passed
along to customers.
22
<PAGE>
BUSINESS
THE JEEPERS! CONCEPT
The Company owns and operates 15 Parks throughout the United States and is
pursuing a rapid expansion strategy. The Company strives to create a unique
entertainment destination for families with children ages 2 to 12 by combining
a variety of interactive attractions, including amusement park rides, skill
games, state-of-the-art simulator games and comfortable family dining, all in
a whimsical jungle-themed atmosphere. The Company believes the quality and
diversity of attractions and food available at its Parks are a significant
competitive advantage and help drive repeat customer visits.
MULTIPLE ENTERTAINMENT ACTIVITIES. The Company distinguishes its Jeepers!
Parks from competing family entertainment destinations by featuring a broad
array of interactive entertainment attractions. The amusement park rides,
built to scale for indoor use, have imaginative names consistent with the
Jeepers! theme. These include thrill rides such as the Python Pit (a roller
coaster), JJ's Driving School (bumper cars) and Tarantula Tangle (a tilt-a-
whirl), which are popular among children between the ages of 6 to 12. Other
rides are designed for younger children, such as Jungle Patrol (kid-sized
sport utility vehicles on a simulated off-road track) and Banana Squadron (an
airplane ride). Jeepers! Parks also include the Jeepers Creepers! Sky Maze, a
multi-level maze of tubes, slides and play elements, and approximately 80 to
100 games, including skill games such as Skee Ball and Whack-a-Gator and
state-of-the-art simulator games, which appeal to both children and their
parents. The skill games award tickets that can be redeemed for toys,
stickers, sports cards, candy and other prizes at Kronkle's Big Digs, the
redemption center.
DIVERSE HIGH QUALITY MENU OFFERINGS. Each Jeepers! Park offers comfortable
family dining in the 1950's-style Tiny Rhino Diner, which seats approximately
200 guests. The Tiny Rhino Diner offers a full menu of high quality food that
includes both kids' favorites, such as Pizza Hut(R) pizza, hamburgers, hot
dogs and chicken strips, as well as a selection of entrees targeted to adults,
such as chicken caesar salads, pasta, and grilled chicken sandwiches. The
Company believes that the quality and selection of its menu items are a
significant attraction for parents.
BIRTHDAY PARTIES. The Company believes that one of its key competitive
advantages is its successful emphasis on birthday parties. The Company offers
three birthday party packages. The basic Excellent Expedition package includes
unlimited admission to all amusement park rides and play areas, a limited
number of tokens for each child, a birthday cake and special entertainment
activities. The Awesome Adventure adds pizza and a souvenir T-shirt for the
birthday child, while the Ultimate package offers, in addition, soft drinks in
logoed souvenir cups, a personalized birthday cake, goody bags and free return
passes for all the partygoers, and a candy-filled pinata. The Company believes
that each Park can accommodate more than 60 birthday parties per day,
significantly more than its competitors. The Company believes that its
birthday party business is a highly cost-effective method of generating future
Park business, both general admissions and additional birthday parties.
EXCITING THEMED ENVIRONMENT. The Jeepers! concept incorporates a high level
of thematic design, including whimsical jungle imagery, vivid graphics, bright
lighting and proprietary mascot characters, creating a unique personality and
brand identity. JJ, the Company's principal mascot, is a monkey who lives in a
treehouse that serves as the staging area for live entertainment, such as
"Storytime in the Jungle" and karoake. Trish, the Tiny Rhino, provides the
central theme for the Park diner, and Kronkle, with his cellular banana, is JJ
and Trish's mischievous friend who oversees the skill game ticket redemption
center. JJ, Trish and Kronkle appear regularly in the Parks to participate in
promotional and entertainment activities and are featured on Jeepers!
television commercials and logoed merchandise. Attractions are strategically
placed behind elaborate three-dimensional portals to establish a distinct
identity for each ride consistent with the overall theme of the Park. The
portals use bold colors, asymmetrical shapes, theatrical lighting and jungle
imagery to create a distinctive and exciting entertainment setting.
WHOLESOME FAMILY ENTERTAINMENT VENUE. The Parks are targeted exclusively at
families with young children. The Company believes that fostering parent/child
interaction will enhance families' experiences at its
23
<PAGE>
Parks. In this regard, the Company encourages parents to experience the rides
with their children at no additional cost. In addition, the Jeepers! concept
is designed not to appeal to teenagers in that the theme, rides and games (all
non-violent in nature) are all targeted to kids age 12 and under. The Company
prevents teenagers from congregating in its Parks by enforcing its policy
requiring adults to accompany minors. Jeepers! Parks are designed, constructed
and tested with an emphasis on childrens' safety and security. Play areas at
all of the Company's Parks are equipped with protective cushions and padding,
and members of the staff are available to assist children through the play
activities.
GROWTH STRATEGY
The Company's objective is to become a leading brand in the location-based
entertainment industry. The Company's growth strategy includes aggressive
development of new Parks, building the Jeepers! brand and enhancing Park
performance.
AGGRESSIVELY DEVELOP NEW PARKS. The Company intends to increase revenue
primarily through the aggressive development of Jeepers! Parks, filling in the
existing markets of Baltimore, Chicago, Detroit, New York and Washington,
D.C., and expanding to new eastern and midwestern markets with potential for
clustering multiple Parks. These potential new markets include Atlanta,
Boston, Cleveland, Indianapolis, Jacksonville, Miami, Minneapolis,
Philadelphia and Pittsburgh. The Company intends to open 12 new Parks in 1998
(of which two have already opened, five are under development and the balance
are under lease negotiations) and approximately 24 new Parks in 1999. The
Company believes that the demonstrated success of the Jeepers! concept in a
variety of retail environments, as well as its modular Park design, facilitate
the Company's rapid expansion.
. Adaptability to Various Retail Environments. The Company's Parks have
demonstrated their ability to succeed in both new and existing enclosed
malls and outdoor strip centers that meet the Company's site selection
criteria. Consequently, the Company believes it can be more flexible in
selecting a site within a particular trade area than other retailers
competing with the Company for real estate.
. Modular Park Design. Each Park consists of modular components, including
rides, play areas, a diner and a birthday party room, that can be
arranged in various combinations to fit into odd-shaped sites. Such sites
are routinely avoided by other retail concepts competing with the Company
for real estate, which the Company believes is a significant advantage in
obtaining attractive sites on favorable lease terms.
BUILD THE JEEPERS! BRAND. The Jeepers! concept was designed to promote a
highly recognizable brand identity. The elaborate theming of the Jeepers!
Parks and the proprietary mascot characters, JJ, Trish and Kronkle, are
intended to create a memorable image that children and their parents will
identify with Jeepers!. The Company's continued development and promotion of
the Jeepers! theme and its proprietary mascot characters are key components of
the Company's strategy to create broad recognition of the Jeepers! brand. Each
of the Parks offers T-shirts, sweatshirts, caps, buttons, stickers and plush
toys featuring these characters and the Jeepers! jungle theme.
ENHANCE PARK PERFORMANCE. The Company continually evaluates ways to increase
Park revenues and improve Park operating margins. For example, the Company
recently began to promote more heavily its group tour packages (similar to
birthday party packages) to day-care centers and youth sports teams at all of
its Parks. In addition, the Company is incorporating larger toddler play areas
in all of its new Parks, beginning with Parks opened in 1998, and may expand
toddler play areas in existing Parks. Both these efforts are intended to
expand the Parks' target audience to younger children who do not attend school
during the week. In addition, the Company expects to improve Park operating
margins by continuing to implement its strategy of clustering multiple Parks
in each of its markets. Clustering provides efficiencies in Park opening,
marketing and management.
24
<PAGE>
PRICING OF ATTRACTIONS
The Company enjoys a balanced revenue mix reflecting the diverse attractions
at its Parks. The Company believes that this distribution of revenues
evidences customers' attraction to each of the four key elements of its Parks.
In fiscal 1997, the average overall expenditure per child in Jeepers! Parks
was approximately $18.75. The Company believes that each child is accompanied
to the Park, on average, by one adult, thereby yielding an average expenditure
per person of approximately $9.40.
Amusement Park Rides. Customers have the option to purchase all-day passes
or individual ride tickets to access Jeepers! Park amusement rides and the
Jeepers Creepers! Sky Maze. Weekend passes are generally priced at $10.99 and
weekday passes at $6.99. At Jeepers! Parks, individual ride tickets may also
be purchased at a cost of $0.60 to $1.00 per ticket, depending on the number
of tickets purchased. Each of the rides requires between one and three
tickets. The Company believes its attractions are priced competitively and
provide its guests significant entertainment value.
Skill and Simulator Games. The games each require between one and four
tokens that are purchased at a cost of $0.25 per token. The skill games award
the players tickets that can be redeemed for toys, stickers, sports cards,
candy and other prizes at the Kronkle's Big Digs redemption center.
Dining. The Company believes that its prices are competitive with prices of
other family restaurants. Menu prices generally range from $1.49 for a grilled
cheese sandwich to $5.99 for a chicken caesar salad. Pizza prices range from
$9.99 for a medium cheese pizza to $16.49 for a large Super Supreme(R) pizza.
Birthday Parties. The Company currently offers three birthday party packages
that range in features and cost from $7.95 to $21.95 per child. In 1997, the
average Jeepers! Park party consisted of ten children and resulted in an
average expenditure of approximately $156.00.
PARK ECONOMICS
The Company believes its Jeepers! Parks produce attractive unit economics.
During the six-month period ended March 29, 1998, the six Jeepers! Parks open
for the entire period generated average revenues of approximately $1.1 million
for such six-month period and average Park EBITDA margin of 19.3%. Excluding
the Company's initial Jeepers! prototype Park, the eight Jeepers! Parks open
as of April 30, 1998 required an average capitalized investment of
approximately $950,000, net of landlord contributions, loans and other
incentives (excluding average pre-opening costs of approximately $64,000). The
Company has incurred net operating losses in each of the last three fiscal
years and there can be no assurance that the Company will be able to achieve
or sustain revenue growth or profitability in the future.
25
<PAGE>
PARK LOCATIONS
The following table provides certain information with respect to each of the
Company's Parks as of the date of this Prospectus.
<TABLE>
<CAPTION>
PARK LOCATION GROSS SQ. FT. OPENING DATE TYPE OF SITE
------------- ------------- ----------------- -------------
<S> <C> <C> <C>
Jungle Jim's Playlands:
San Antonio, TX........... 20,700 May 1988 Free Standing
Des Plaines, IL (Chicago). 21,700 October 1991 (1) Strip Center
Midvale, UT (Salt Lake
City).................... 25,000 January 1992 Strip Center
Jeepers! Parks:
Mesa, AZ (Phoenix)........ 28,000 February 1992 (2) Strip Center
Glendale, AZ (Phoenix).... 25,800 April 1993 (2) Strip Center
Rockville, MD (Washington,
D.C.).................... 27,300 January 1996 Free Standing
Greenbelt, MD (Washington,
D.C.).................... 25,000 August 1996 Enclosed Mall
Norridge, IL (Chicago).... 25,000 August 1997 Strip Center
Roseville, MI (Detroit)... 24,600 August 1997 Enclosed Mall
Olathe, KS (Kansas City).. 30,100 August 1997 Enclosed Mall
Livonia, MI (Detroit)..... 25,100 October 1997 Enclosed Mall
Albany, NY................ 23,800 November 1997 Strip Center
Buffalo, NY............... 22,600 December 1997 Enclosed Mall
Glen Burnie, MD
(Baltimore).............. 25,000 March 1998 Enclosed Mall
West Nyack, NY (New York
City).................... 25,000 May 1998 Enclosed Mall
<CAPTION>
Future Jeepers! Parks:
<S> <C> <C> <C>
Methuen, MA (Boston)...... 26,540 Q3 1998 (3) Strip Center
North Randall, OH
(Cleveland).............. 24,000 Q3 1998 (3) Enclosed Mall
Baltimore, MD............. 26,500 Q3 1998 (3) Strip Center
Auburn Hills, MI
(Detroit)................ 26,840 Q4 1998 (3) Enclosed Mall
Kingston, NY.............. 15,000 Q4 1998 (3) Strip Center
Southfield, MI (Detroit).. 25,000 Q4 1998 (4) Enclosed Mall
Lansing, IL (Chicago)..... 22,700 Q4 1998 (4) Strip Center
Baltimore, MD............. 23,700 Q4 1998 (4) Enclosed Mall
</TABLE>
--------
(1) Originally a franchised unit, acquired by the Company from the
franchisee in March 1997.
(2) Formerly a second-generation Jungle Jim's Playland, which was
upgraded to a Jeepers! Park in April 1998.
(3) Under development.
(4) Lease under negotiation. The Company also has several other
potential sites under lease negotiations and intends to select two
of such sites for late 1998 Park openings.
All of the Company's existing Parks are located on leased sites and the
Company intends to continue to lease the facilities for its future Parks. The
Company has entered into long-term leases with respect to its existing Parks
and five additional Parks which the Company expects to open in the remainder
of 1998, having expiration dates ranging from 2011 to 2018, including renewal
option periods.
The Company leases approximately 4,750 square feet for its corporate
headquarters in Waltham, Massachusetts under a lease which expires in May
2000.
SITE SELECTION
The Company believes that the location of its Parks is essential to the
Company's long-term success and devotes significant time, effort and resources
to the investigation and evaluation of potential locations. The Company has
developed specific demographic criteria and a detailed site profile to assist
in the evaluation of potential locations. In addition to carefully analyzing
market demographics (such as population, age and median income levels) with
respect to each prospective site, the Company considers factors such as
visibility from and
26
<PAGE>
accessibility to regional highway systems, traffic patterns and activity,
proximity to shopping and residential areas, convenient customer parking,
cotenancy, projected financial performance and zoning and regulatory
restrictions. The Company also carefully studies the entertainment competition
in prospective locations. The Company believes that the high level of repeat
visits enjoyed by its Parks enables the Company to roll out its Parks and
operate them profitably in less populated markets and locations, which
facilitates the Company's prospects of nationwide expansion. See "Risk
Factors--Dependence on Ability to Secure Sites."
In connection with the Company's evaluation of potential sites, the
Company's Senior Vice President--Development and Vice President of
Construction visit, analyze and prepare extensive reports covering all aspects
of each potential site. A committee comprised of senior management of the
Company meets regularly to consider the reports prepared with respect to
potential Park sites. Upon approval of a potential site by such committee, the
Company enters into lease negotiations with respect to a selected site. The
negotiated lease proposal is brought before the Real Estate Committee of the
Board for its recommendation and to the full Board for final approval. Prior
to entering into the lease, the Chief Executive Officer of the Company also
visits the potential site. The time required to complete construction of the
new site is typically between 90 and 120 days, although there can be no
assurance that such schedules can be maintained in the future.
As part of its site selection strategy, the Company has developed and will
continue to develop relationships with leading shopping center developers and
believes such relationships will facilitate the Company's rapid expansion. The
Company believes that developers of shopping centers view Jeepers! as an
opportunity to distinguish new retail developments from competitors and
revitalize existing properties, allowing the Company to obtain attractive
sites for its Parks on favorable lease terms. An additional advantage is
afforded by the flexible layout of the Parks, consisting of modular components
that can be arranged in various combinations to fit into odd-shaped sites,
which are routinely avoided by other retail concepts competing with the
Company for real estate.
The Company locates its Parks in strip centers, enclosed malls and free
standing sites. In the Company's experience, there is no material difference
in the size, operating hours or occupancy costs of Parks located in the three
types of sites. The Company generally has received greater landlord
contributions, loans and other incentives for enclosed mall sites than for
strip centers and free standing sites. The Company's future mix of strip
centers, enclosed malls and free standing sites may vary from its current site
mix.
In addition to the development of new Parks, the Company will consider the
acquisition of other businesses in order to gain access to attractive real
estate sites and build brand awareness in strategic markets. As of the date of
this Prospectus, the Company has no definitive agreements, arrangements or
understandings with respect to any such acquisitions, and there can be no
assurance that any such acquisitions will be completed. See "Risk Factors--
Management of Growth."
PARK OPERATIONS AND MANAGEMENT
The Company is committed to providing superior customer service with an
enthusiastic staff and through a high degree of interaction among the Jeepers!
employees, the younger customers and their parents. The Company works
diligently to ensure the Parks leave a strong, positive impression on all of
its consumers. The Company achieves these objectives through effective
recruiting, training and management of Park general managers, assistant
managers and other personnel.
The management at each new Park undergoes a rigorous 12-week training
process utilizing the experience and efforts of a corporate Park opening team.
The opening team, which consists of a Vice President and three opening
managers, also assists in the physical set-up of each new Park and provides
operational and administrative support up to six weeks after a new Park has
opened. Specific responsibilities also include establishing relationships with
local vendors, initiating food, beverage and merchandise orders, and orienting
and motivating employees.
Following the opening period, each Park is managed by a general manager who
is responsible for recruiting, hiring, training and scheduling a staff that
includes three assistant managers and up to 100 part-time employees throughout
most of the year, including ride operators, floor personnel, diner employees,
party organizers and
27
<PAGE>
crew leaders. The general manager is responsible for the day-to-day operations
of the Park, including managing all entertainment activities, food service,
birthday parties, inventories, shrinkage and other controllable costs. Each of
the assistant managers is typically responsible for one or more of the profit
centers: rides, games, dining and birthday parties. The Company seeks to
retain high quality Park managers by providing them with opportunities for
promotion and financial incentives based on individual Park performance. These
financial incentives include a monthly bonus program and incentive stock
options.
Each general manager reports to a regional manager who, along with the
opening team, handles the recruiting, hiring and training of the general
managers and ensures that consistent Company standards, policies and
procedures are implemented at each Park. The Company currently has three
regional managers for the existing 15 Parks and anticipates that it will
employ an additional regional manager for every four to six new Jeepers!
Parks.
The Company utilizes detailed training manuals and orientation programs that
are designed to emphasize customer service and consistency. The Company's
employees undergo extensive training in the courteous and safe operation of
attractions and the friendly, efficient and careful preparation and service of
food items. In order to enhance operating flexibility, employees are cross-
trained to perform multiple functions in the Parks.
The Company has developed detailed specifications and standards for the
products used in its Parks. These specifications and standards are developed
at the Company's headquarters, while the purchasing decisions are made by each
Park general manager after conducting price comparisons among products meeting
the Company's specifications and standards to ensure the optimal price. The
Company buys all of its Pizza Hut(R) supplies from Ameriserve, Inc.
Approximately 70% of the Company's food purchases are for its Pizza Hut(R)
products. Approximately 90% of the Parks' non-Pizza Hut(R) food products were
purchased from 11 distributors in fiscal 1997. The Company's amusement park
rides are currently purchased from a limited number of specialized suppliers.
Although the Company believes substitute rides and alternative sources of
supply are available, shortages or interruptions in the supply of any of the
products used in the Company's Parks or any inability to obtain amusement park
rides from its existing suppliers could have a material adverse effect on the
Company. See "Risk Factors--Supply Risks."
INTERNAL CONTROLS AND MANAGEMENT INFORMATION SYSTEMS
The Company maintains financial and accounting controls for each of its
Parks through the use of centralized accounting and management information
systems. The Company's information systems contain a full range of financial
and operating data capture and management capabilities. The Company uses
Micros point-of-sale devices at each Park to collect data regarding Park
performance, which is polled by corporate headquarters on a nightly basis. The
Micros system also enables the Company to collect zip code information and
other customer profile data as desired, which the Company uses for market
analysis.
The Company uses its information systems for budget analyses, planning and
inventory control. Cash is controlled through daily reconciliation to the
Micros system and deposit of receipts in local operating accounts, the
balances of which are transferred regularly to the Company's principal
operating account. Internal controls are supplemented by a weekly review of
individual Park operating results by senior level operations and financial
management. While the Company's rapid growth has strained its information
systems and financial controls, the Company believes such systems and controls
are adequate for current operations. Furthermore, the Company constantly
strives to upgrade the quality of such systems and controls to meet the
demands of its planned expansion. There can be no assurance, however, that
such systems and controls will be sufficient to meet the demands of such
planned expansion. See "Risk Factors--Management of Growth."
The Company has reviewed its computer programs and systems to ensure that
the programs and systems are Year 2000 compliant. The Company presently
believes that the Year 2000 problem will not pose significant operational
problems for the Company's computer systems. The estimated cost of the
Company's efforts to become Year 2000 compliant are not expected to be
material to the Company's financial position or any year's results of
operations, although there can be no assurance to this effect. In addition,
the Year 2000 problem may impact other entities with which the Company
transacts business, and the Company cannot predict the effect of the Year 2000
problem on such entities and, in turn, the impact of any such effect on the
Company.
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<PAGE>
MARKETING, ADVERTISING AND PROMOTION
The Company's marketing functions, consisting of advertising, promotions,
public relations, sales, direct marketing and telemarketing, are directed and
managed by its Corporate Marketing Department. In-house graphics specialists
design all print and collateral materials, and internal marketing personnel
script and direct all TV and radio spots. All direct mail pieces and
telemarketing scripts are written and designed in-house. The Company believes
that its in-house capabilities enable the Company to implement its marketing
programs and strategy efficiently and to react quickly to local market and
competitive situations. Media buying, public relations, printing, TV and radio
spot production and research are implemented by outside sources specializing
in the respective fields and are supervised by the Corporate Marketing
Department.
The Company's marketing initiatives, while managed at the corporate level,
are market specific. Each Park has its own marketing budget and plan, based on
local opportunities and market analyses. The consolidated marketing budget is
approximately 3.5% of the Company's gross revenue. This percentage varies by
Park based on several factors, including the number of Parks in a single
market, local media costs and the competitive environment. The Company relies
predominantly on television advertising to promote the Jeepers! concept and
build brand awareness. Print media are used strategically, either to promote
special events at a Park, to offer an incentive to a specific target audience,
or to distribute discount coupons.
Cross promotions with local retailers, movie theaters and other businesses
are an important element of the Company's marketing efforts. For example, the
Company has conducted joint coupon programs with Kay-Bee Toys, and the
Jeepers! mascots often appear at Toys "R" Us grand openings and special
promotions in joint markets. Recent cross promotions with family and
children's movies have included "Star Kid," "George of the Jungle," and "Leave
it to Beaver" and involve register-to-win premiere ticket offers, admission
discounts with ticket stubs, and character and celebrity appearances at the
Parks. Similar promotional tie-ins with local family entertainment productions
such as "Rugrats, A Live Performance," and the Harlem Globetrotters occur
periodically. In addition, local cross promotions with packaged goods have
proven effective, both in building brand awareness and increasing traffic.
These have included discount offers with Keebler Cookie proofs of purchase and
Chef Boyardee Jr. labels. Other cross promotions have at various times
included the Company's coupons on placemats at McDonald's and Burger King, and
register receipt coupons at local supermarkets.
The Company believes that word-of-mouth advertising is critical to its long-
term success and makes every effort to provide an enjoyable entertainment
experience to each and every customer. The Company capitalizes on existing
traffic and builds frequent repeat visits with in-Park handouts, posters and
coupons. The Company believes its birthday party business is a cost-effective
method of generating word-of-mouth advertising.
New Parks are opened with a preview party typically attended by over 1,000
invited guests, including local political officials, area media, and other
"VIPs." The Company selects a well-known local charity, such as the local
children's hospital, as the beneficiary of the party. Live broadcasts from the
Park on local TV news shows provide significant initial exposure for the Park,
and the party itself results in considerable word-of-mouth advertising.
The Company encourages local community involvement. The Jeepers! characters
regularly are a featured attraction at local kids' fairs and school events and
also appear in local and regional parades. The Company also supports local
charities, scouting, educational and civic organizations and not-for-profit
groups with regular donations of passes and birthday parties.
In support of its Park operations, the Company has introduced a centralized
call center located at the Company's headquarters in Waltham, Massachusetts,
which serves as an inbound customer service center and, call volume
permitting, conducts an outbound telemarketing program focused on building
group tour and special events business by targeting schools, day-care centers
and other youth organizations. One of the call center's primary functions is
to receive all calls addressed to newly opened Parks, including calls from
customers seeking to arrange birthday parties. This enables the Company to
project a consistent and high quality marketing
29
<PAGE>
message. The call center also receives all customer comments and complaints
and responds to them in a uniform and professional manner.
RELATIONSHIP WITH PIZZA HUT
In 1993, the Company entered into a non-exclusive master license agreement
with Pizza Hut, which provides for the Pizza Hut Agreements. The Pizza Hut
Agreements enable the Company to market Pizza Hut(R) pizza and other products
in all of its Jeepers! Parks. The Company's Parks are required to pay to Pizza
Hut a royalty on sales of the licensed products at the Parks. The term of the
license granted to each licensed Jeepers! Park is ten years from the
commencement of the license at each licensed location, renewable upon
agreement by the parties and terminable for cause upon written notice by Pizza
Hut. The Company believes that the quality and breadth of food offerings at
Jeepers! Parks in general, and the availability of Pizza Hut(R) products at
Jeepers! Parks in particular, contribute significantly to the popularity of
Jeepers! Parks.
The Company believes that its relationship with Pizza Hut provides it with a
strategic competitive advantage that independent operators and smaller chains
would find difficult to replicate. However, there can be no assurance that the
Pizza Hut Agreements will not be terminated, that the Company will be able to
renew the Pizza Hut Agreements or that the Company will be able to obtain
licenses to market Pizza Hut products in new Parks on terms acceptable to the
Company, if at all. See "Risk Factors--Reliance on Relationship with Pizza
Hut."
INTELLECTUAL PROPERTY
Jeepers!, Jeepers! Food, Fun and a Monkey, Jeepers Jr!, Jungle Jim's
Playland and Tiny Rhino Diner, together with their associated logos, as well
as Jungle Play and Kidding Around, are registered trademarks of the Company.
All depictions of any characters illustrated herein, including the designs for
each of "JJ," "Trish," "Kronkle" and "Jungle Jim," represent trademarks
currently used by the Company in its business. The Company believes that such
trademarks have significant value to the Company and are important to the
marketing of the Company's concepts. There can be no assurance that the steps
taken by the Company to protect its proprietary rights will be adequate to
prevent misappropriation of the Company's rights or the use by others of
features based upon, or otherwise similar to, those of the Company. In
addition, although the Company believes that its trademarks have been
independently developed, there can be no assurance that any of the trademarks
used by the Company do not or will not violate the proprietary rights of
others, that the trademarks will be upheld if challenged, or that the Company
will not be prevented from using the trademarks, any of which could have a
material adverse effect on the Company. See "Risk Factors--Intellectual
Property."
COMPETITION
Competition in the location-based entertainment industry is intense. The
Company competes principally with national chains such as Chuck-E-Cheese,
Discovery Zone and potentially Club Disney (if it pursues its publicly
announced expansion plans), as well as a broad array of smaller chains and
independent operators in each of its markets. In addition, the Company
competes with children's themed restaurant chains that provide ancillary
entertainment (such as games and indoor and outdoor playgrounds) and
merchandise offerings and do not charge admission fees. While the Company
believes that its Parks are distinctive in design and unique in the variety of
entertainment attractions offered, it is aware that its competitors may
operate with similar concepts. There can be no assurance that the Company's
competitors will not adopt concepts similar to those of the Company or be more
successful in establishing businesses using similar concepts, or that such
competitors will not be more successful than the Company in developing and
marketing other concepts. Many of the Company's competitors are well
established with significantly greater financial, marketing and other
resources than the Company. Some of the Company's competitors have been in
existence for substantially longer periods than the Company and may be better
established in the areas where the Company's Parks are located or in the
markets where the Company plans to expand in the future. In addition, the
Company's profitability depends not only on
30
<PAGE>
its ability to compete successfully against similar or comparable businesses,
but also upon consumers' choice of the type of entertainment the Company's
Parks provide over other available forms of entertainment, including, but not
limited to, other indoor and outdoor theme parks, travelling carnivals,
movies, sporting events, local youth sports leagues and other seasonal
activities. There can be no assurance that the Company will be able to respond
to various competitive factors affecting the location-based entertainment
industry. See "Risk Factors--Competition."
GOVERNMENT REGULATION AND LABOR COSTS
The Company is subject to federal, state and local government regulation
relating to the operation of its amusement park rides, its food service
operation, as well as regulations relating to building and zoning requirements
and environmental compliance. The Company is also subject to regulation with
respect to its relationship with its employees, including minimum wage
requirements, health benefits, unemployment taxes and sales taxes, overtime
and working conditions, and citizenship requirements. A significant number of
the Company's hourly personnel at its Parks are paid at rates related to the
federal minimum wage. Accordingly, legislated increases in the federal minimum
wage, as well as increases in additional labor cost components, such as
employee benefit costs, workers' compensation insurance rates or other costs
associated with employees, would increase the labor costs at the Company's
Parks, which could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company is
subject to local health board ordinances for the manufacture, handling,
storage and labeling of food products in its kitchens. The failure by the
Company to comply with laws regulating its business, together with future
changes in existing regulations, may adversely affect the Company's business.
The Company believes it is operating in compliance in all material respects
with applicable laws and regulations that govern its operations. See "Risk
Factors--Government Regulation and Labor Costs."
EMPLOYEES
The Company believes that a large part of its success is the result of the
training and motivation of its employees. The Company has extensive and varied
programs designed to recognize and reward employees for superior performance.
Employees are encouraged to participate in improving quality and service at
all levels of operation. At May 15, 1998, the Company employed approximately
1,115 persons, 28 of whom served in administrative or executive capacities, 72
of whom served as Park management personnel, and the remainder of whom were
part-time hourly employees. None of the Company's employees are covered by
collective bargaining agreements, and the Company has never experienced an
organized work stoppage, strike or labor dispute. The Company believes its
working conditions and compensation packages are competitive with those
offered by its competitors and considers relations with its employees to be
very good.
LEGAL PROCEEDINGS
The Company is involved in certain litigation arising in the normal course
of its business. The Company does not believe that any such litigation pending
or threatened, either alone or in aggregate, would have a material adverse
effect on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Nabil N. El-Hage.................. 39 President, Chief Executive Officer and
Chairman of the Board
Kenneth J. Sanginario............. 37 Chief Financial Officer
Carl H. Winston................... 40 Senior Vice President--Operations
Dennis J. McMullen................ 53 Senior Vice President--Development
Leonard F. Hoppe.................. 46 Vice President--Marketing
Richard J. Lynch.................. 37 Vice President--Construction
Kevin M. Smith.................... 39 Vice President--Attractions
Scott R. Woodhead................. 32 Vice President--Openings
Paul F. Balser (1)................ 56 Director
Mark E. Jennings (2).............. 36 Director
Jonathan H. Kagan................. 41 Director
Mark L. Kaufman (2)(3)............ 41 Director
Bruce G. Pollack (1)(3)........... 39 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Real Estate Committee.
Nabil N. El-Hage has served as a director of the Company since his election
in April 1993 and has served as the Company's President, Chief Executive
Officer and Chairman of the Board since January 1995. Mr. El-Hage has
extensive experience in both the restaurant industry and the private equity
investments arena. From December 1993 to January 1995, Mr. El-Hage was
associated with Advent International Corporation, where he was Vice President
from June 1994 to January 1995. From 1988 to October 1992, Mr. El-Hage served
as the Chief Financial Officer of The Westwood Group, Inc. and its restaurant
subsidiary, The Back Bay Restaurant Group, Inc., where he guided The Back Bay
Restaurant Group, Inc. through its initial public offering. From 1985 to 1988,
Mr. El-Hage was associated with TA Associates, a leading venture capital firm
located in Boston, Massachusetts. From 1984 to 1985, Mr. El-Hage served on the
finance faculty at Harvard Business School.
Kenneth J. Sanginario has served as the Company's Chief Financial Officer
since April 1995. From 1992 to April 1995, Mr. Sanginario served as Vice
President and Treasurer of The Westwood Group, Inc., a closely held company
with holdings in the entertainment and restaurant industries. From 1988 to
1992, Mr. Sanginario served as Corporate Controller of CFO Publishing Corp.
and from 1983 to 1988, Mr. Sanginario was employed by Coopers & Lybrand where
he specialized in the multi-unit retail industry.
Carl H. Winston joined the company as Senior Vice President--Operations in
June 1997. Mr. Winston has over 15 years of experience in the hospitality and
restaurant industries. Prior to joining the Company, he was Executive Vice
President of Chartwell Leisure (formerly known as Forte Hotels), a company
operating over 100 hotels, motels and restaurants in the U.S. and Canada.
Prior to joining Chartwell Leisure, Mr. Winston spent four years with Motels
of America, where he was responsible for all operational aspects as the
company grew from 16 to over 100 locations.
Dennis J. McMullen joined the company as Senior Vice President--Development
in September 1997, following a 21 year career with CVS Corporation ("CVS"),
where he served as Senior Vice President--Real
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Estate. During his tenure, CVS grew from 200 stores to 1,500 stores, followed
by the acquisition of the 2,600-store Revco Drug Company. Prior to joining
CVS, Mr. McMullen worked at The Grand Union Supermarket Company of Wayne, New
Jersey, as a Real Estate Manager. He is a licensed Real Estate Broker in
Massachusetts and New York.
Leonard F. Hoppe has served as the Company's Vice President--Marketing since
June 1996, after having served as Director of Marketing for the Company since
August 1994. From 1987 to 1994, Mr. Hoppe served as the National Director of
Advertising for CARQUEST Corporation, an association of approximately 2,500
auto parts stores. Prior to joining CARQUEST Corporation, Mr. Hoppe was
employed in the advertising business for 10 years, where he serviced accounts
such as Coca-Cola Bottling Co. of the Southwest, Church's Chicken and Mr.
Gatti's Pizza.
Richard J. Lynch serves as the Company's Vice President--Construction. Prior
to joining the Company in December 1996, Mr. Lynch was Manager of Construction
and Engineering for Staples Inc., where he helped design and construct over
300 new stores from 1990 to 1995. Mr. Lynch also was instrumental in the
development of the "Staples Express" concept, and designed and built stores in
New York, Washington DC, Philadelphia and Boston.
Kevin M. Smith serves as the Company's Vice President--Attractions and has
been employed by the Company since March 1995. From June 1993 until joining
the Company in 1995, Mr. Smith, directed design, leasing and construction for
two Moscow office-related developments with an affiliate of Zeckendorf Realty.
Prior to working in Russia, he was a principal in the New York firm of TLMP
Architects, where he also directed the activities of TLMP's Berlin office.
Scott R. Woodhead has served as the Company's Vice President--Openings since
June 1997. From 1993 to May 1997, Mr. Woodhead served the Company first as a
Park General Manager and later as Director of Training and Vice President--
Operations. Prior to joining the Company, Mr. Woodhead was employed by Smith's
Food & Drug Centers, Inc. where he supervised operations and personnel
training for several store locations.
Paul F. Balser has served as a director of the Company since May 1991. Since
August 1995, Mr. Balser has been a founding partner of Generation Capital
Partners L.P., a private investment partnership. From 1986 to August 1995, Mr.
Balser was a partner of Centre Partners L.P. ("Centre Partners"), the general
partner of CCI. From 1982 to 1986, Mr. Balser was a Managing Director and a
member of the Board of Directors of J. Henry Schroder Corp. Mr. Balser
currently serves as a director of Kansas City Southern Industries, Inc., The
Carbide/Graphite Group, Inc., Scientific Games Holdings Corp., Music Holdings
Corp. and a number of other private corporations.
Mark E. Jennings has served as a director of the Company since May 1991.
Since August 1995, Mr. Jennings has been a founding partner of Generation
Capital Partners L.P., a private investment partnership. Prior to August 1995,
Mr. Jennings was a partner of Centre Partners, where he was employed since
1987. From 1986 to 1987, Mr. Jennings was employed in the Corporate Finance
Department of Goldman, Sachs & Co. Mr. Jennings currently serves as a director
of Snyder Communications, Inc., Scientific Games Holdings Corp., Johnny
Rockets Group, Inc., Music Holdings Corp. and a number of other private
corporations.
Jonathan H. Kagan has served as a director of the Company since April 1998.
Since 1995, Mr. Kagan has served as Managing Director of Centre Partners
Management LLC, which was formed in December 1995 to manage investments on
behalf of Centre Capital Investors II, L.P. and affiliated entities ("Centre
Management"). Mr. Kagan has been a Managing Director of Corporate Advisers,
L.P. since 1990. Mr. Kagan has been associated with Lazard Freres & Co. LLC
since 1980 and has been a Managing Director since 1995 (prior thereto a
General Partner). Mr. Kagan also serves as a director of Firearms Training
Systems, Inc.
Mark L. Kaufman has served as a director of the Company since his election
in April 1994. Since July 1992, Mr. Kaufman has been a Vice President with
Dickstein Partners, L.P. Prior to joining Dickstein Partners, Mr.
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<PAGE>
Kaufman served as a Senior Vice President with Oppenheimer & Co., Inc. Prior
to joining Oppenheimer & Co., Inc., Mr. Kaufman served as Vice President and
Head of Strategic Investments for GAF Corporation. Prior to joining GAF
Corporation, Mr. Kaufman served as an analyst and portfolio manager at each of
Lehman Brothers, MKI Securities, Fourteen Research Corp. and Bankers Trust
Company. Mr. Kaufman has been a Chartered Financial Analyst since 1989. Mr.
Kaufman currently serves as a director of Carson, Pirie, Scott and Company and
of the Leslie Fay Company.
Bruce G. Pollack has served as a director of the Company since his election
in September 1995. Since December 1995, Mr. Pollack has been a Managing
Director of Centre Management. Mr. Pollack is also a partner of Centre
Partners, L.P., which he joined in January 1991. Mr. Pollack currently serves
as a director of Johnny Rockets Group, Inc., Music Holdings Corp. and a number
of other private corporations.
BOARD OF DIRECTORS; COMMITTEES
Pursuant to the Bylaws of the Company, the Board consists of three or more
members, as fixed from time to time by the Board or by the stockholders.
Currently, the Board consists of six directors. Members of the Board are
elected each year at the Company's annual meeting of stockholders, and serve
until their respective successors have been elected and qualified. Within 90
days after completion of the Offering, the Company intends to elect two
additional persons as directors who will not be officers or employees of the
Company or partners, officers or employees of the Company's principal
stockholders or any of their respective affiliates.
The Compensation Committee of the Board, comprised of Messrs. Balser and
Pollack, is responsible for reviewing and establishing the compensation
structure for the Company's officers and directors, including salary rates,
participation in incentive compensation and benefit plans, stock option plans
and other forms of compensation, and is responsible for administering the
Company's 1998 Incentive Plan. See "--Stock Incentive Plans." The Audit
Committee of the Board, comprised of Messrs. Kaufman and Jennings, is
responsible for recommending to the Board independent auditors for the
Company, analyzing the reports and recommendations of such auditors and
reviewing internal audit procedures and controls. The Real Estate Committee of
the Board, comprised of Messrs. Kaufman and Pollack, is responsible for
reviewing management's recommendations with respect to the selection of new
Park sites and making recommendations to the full Board with respect thereto.
DIRECTOR COMPENSATION
Directors of the Company are reimbursed for certain reasonable expenses
incurred in attending Board meetings. Directors who are also employees of the
Company receive no remuneration for services as members of the Board or any
committee thereof. Directors who are not employed by the Company are entitled
to receive a fee of $1,500 each for every meeting they attend.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth information
concerning compensation for fiscal 1997 earned by the Company's President and
Chief Executive Officer and each of the Company's other most highly
compensated executive officers whose total salary and bonus for such period
exceeded $100,000 (collectively, the "Named Executive Officers").
34
<PAGE>
FISCAL 1997 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------------------------- ------------
NAME AND SECURITIES ALL OTHER
PRINCIPAL OTHER ANNUAL UNDERLYING COMPENSATION
POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) ($)
--------- ---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Nabil N. El-Hage........ 278,000 180,000 -- -- --
President, Chief
Executive Officer and
Chairman
Kenneth J. Sanginario... 125,000 40,000 -- -- --
Chief Financial Officer
Carl H. Winston (2)..... 74,846 15,000 25,000 (3) 20,000 --
Senior Vice President--
Operations
</TABLE>
- --------
(1) The aggregate amount of perquisites and other personal benefits, if any,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.
(2) Mr. Winston became an employee of the Company in June 1997.
(3) One-time allowance for relocation expenses.
Stock Option Grants Table. The following table sets forth certain
information concerning all stock options granted during fiscal 1997 to the
Named Executive Officers. The Company did not grant any stock appreciation
rights or restricted stock awards during fiscal 1997.
FISCAL 1997 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION FOR
NUMBER OF PERCENT OF OPTION TERM OPTION TERM (4)
SECURITIES TOTAL OPTIONS ------------------------ -----------------
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (1) 1997 ($/SHARE) (2) DATE (3) 5% ($) 10% ($)
- ---- ----------- ------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Nabil N. El-Hage........ -- -- -- -- -- --
Kenneth J. Sanginario... -- -- -- -- -- --
Carl H.Winston.......... 20,000 31.8% $11.00 6/16/07 $138,357 $570,623
</TABLE>
- --------
(1) One-fifth of each option vests on each of the first five anniversaries of
the option grant date.
(2) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date, or in a combination of cash and
shares.
(3) The term of each option may not exceed ten years.
(4) The hypothetical potential appreciation shown in these columns reflects
the required calculations at annual assumed appreciation rates of 5% and
10%, as set by the Securities and Exchange Commission, and therefore is
not intended to represent either historical appreciation or anticipated
future appreciation of the Common Stock.
No stock options were exercised by the Named Executive Officers during
fiscal 1997.
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<PAGE>
Fiscal Year-End Option Value Table. The following table sets forth certain
information concerning unexercised stock options held by the Named Executive
Officers as of fiscal 1997 year-end.
AGGREGATE 1997 FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED
OPTIONS AT FISCAL YEAR-END
------------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ------------- --------------
<S> <C> <C>
Nabil N. El-Hage............................... 275,000 125,000
Kenneth J. Sanginario.......................... 6,000 14,000
Carl H. Winston................................ -- 20,000
</TABLE>
Based on management's estimate of the fair market value of the Common Stock,
as of 1997 fiscal year-end no unexercised options held by the Named Executive
Officers had an exercise price below the fair market value of the Common
Stock.
The Company maintains a "key man" life insurance policy for Mr. El-Hage, the
beneficiary of which is the Company. The costs of such policy are borne by the
Company.
EMPLOYMENT AGREEMENT
The Company and Mr. El-Hage are parties to an employment agreement providing
for the employment of Mr. El-Hage by the Company as President, Chief Executive
Officer and Chairman of the Board, commencing on February 1, 1995 (the
"Effective Date") until the third anniversary of the completion of the
Offering. Pursuant to the terms of his employment agreement, Mr. El-Hage is
entitled to an annual salary of $275,000, subject to a cost of living
adjustment, and annual bonuses at the discretion of the Board. At the
Effective Date, Mr. El-Hage also received non-qualified options to acquire
400,000 shares of Common Stock subject to quarterly vesting over a four-year
period and exercisable for a period of eight years. Such options are
exercisable at a price of $5.50 per share.
STOCK INCENTIVE PLANS
In June 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Option Plan"). Under the 1995 Option Plan, 123,000 shares of Common Stock have
been authorized for issuance. As of the date of this Prospectus, options to
purchase 121,250 shares of Common Stock granted under the 1995 Option Plan
were outstanding at a weighted average exercise price equal to $9.53 per
share. Shares of Common Stock subject to outstanding options that expire or
terminate prior to exercise may be available for future issuance under the
1995 Option Plan. Stock options granted under the 1995 Option Plan are
typically subject to the Company's standard vesting schedule under which 20%
of an optionee's shares vest on each of the first five anniversaries of his or
her vesting commencement date. Notwithstanding the foregoing, all options
outstanding under the 1995 Option Plan immediately become exercisable upon the
occurrence of certain change-in-control events. In April 1998, the Company
terminated the 1995 Option Plan as to future grants thereunder.
In addition, a certain landlord of the Company has an option to purchase up
to 3,310 shares of Common Stock at an exercise price of $10.00 per share,
subject to the achievement of certain financial targets that the Company does
not believe will be satisfied.
In May 1998, the Company adopted the 1998 Incentive and Capital Accumulation
Plan (the "1998 Incentive Plan") and authorized for issuance 275,000 shares of
Common Stock under such plan. A variety of benefits may be granted under the
1998 Incentive Plan to key employees of the Company, including stock options,
stock appreciation rights ("SARs"), stock awards, performance awards and stock
units (collectively, the "Benefits"). The 1998 Incentive Plan is administered
by the Compensation Committee, which determines the persons to whom Benefits
will be granted and the terms and conditions of the Benefits, including, among
36
<PAGE>
other things, the exercise price and method of payment of the exercise price,
the number of shares subject to the Benefits, the vesting of Benefits and the
terms of performance Benefits. See "Board of Directors--Committees." Stock
options granted under the 1998 Incentive Plan may be "incentive stock
options," within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or nonqualified stock options.
In the event of a "change in control" (as defined in the 1998 Incentive
Plan) the Compensation Committee may, in its discretion, take such actions as
it deems appropriate with respect to outstanding Benefits, including
accelerating the exercisability or vesting of Benefits. In addition, the
Compensation Committee, in its discretion, may determine that upon the
occurrence of a change in control, holders of stock options and SARs will
receive an amount, in cash or other property, equal to the excess of the fair
market value of the shares subject to such stock options or SARs immediately
prior to the occurrence of the change in control over the exercise price of
such stock options or SARs.
The Compensation Committee may amend the 1998 Incentive Plan from time to
time or suspend or terminate such plan at any time, except that no reduction
of the amount of any existing Benefit or adverse change in the terms and
conditions thereof may be made without the consent of the holder of the
Benefit, and no amendment to the 1998 Incentive Plan may, without approval of
the Company's stockholders, (i) increase the total number of shares which may
be issued, or with respect to which Benefits may be granted to any individual,
under the 1998 Incentive Plan, or (ii) modify the requirements as to
eligibility for Benefits under the 1998 Incentive Plan. The 1998 Incentive
Plan will terminate on May 7, 2008 unless earlier terminated by the Board or
the Compensation Committee.
The Company has granted options to purchase 97,500 shares of Common Stock
under the 1998 Incentive Plan to certain executive officers and other
employees of the Company, each at an exercise price equal to $12.75 per share.
In addition, the Company has approved the grant under such plan to Mr. El-Hage
of options to purchase 140,000 shares of Common Stock, effective upon the
completion of the Offering, at an exercise price equal to the initial public
offering price.
Section 162(m) of the Code generally disallows a publicly-held corporation a
deduction for compensation paid to its chief executive officer or any of the
corporation's other four most highly compensated executive officers (the
"Covered Officers") in excess of $1.0 million per year. Based upon a special
transition rule contained in the Treasury regulations issued pursuant to
Section 162(m) of the Code that applies to private corporations that complete
an initial public offering, and assuming no material modifications to the 1998
Incentive Plan, the Company intends to treat all payments made to the Covered
Officers under the 1998 Incentive Plan until the annual meeting of
stockholders of the Company held in the Year 2002 as not subject to the
deduction limitations of Section 162(m) of the Code. The deductibility of
payments made under the 1998 Incentive Plan resulting in total compensation in
excess of $1.0 million for the Covered Officers following the annual meeting
of stockholders of the Company held in the year 2002 and thereafter will
depend upon whether the Company and the 1998 Incentive Plan comply with the
performance-based compensation exception to Section 162(m).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Balser and Pollack. No member
of the Compensation Committee was at any time during fiscal 1997, or at any
other time, an officer or employee of the Company.
Throughout 1997 and to the date of this Prospectus, Mr. Nabil N. El-Hage,
the President, Chief Executive Officer and Chairman of the Company, also
served as a director of the Company. Mr. El-Hage has recused himself from all
discussions relating to, and abstained from voting on, resolutions of the
Board concerning his own compensation.
For a description of certain relationships and related transactions between
the Company and certain of its affiliates see "Certain Relationships and
Related Transactions."
37
<PAGE>
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law (the
"DGCL"), the Company has adopted provisions in its Certificate of
Incorporation which provide that directors of the Company shall not be
personally liable for monetary damages to the Company or its stockholders for
a breach of fiduciary duty as a director, except for liability as a result of
(i) a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
the DGCL; and (iv) transactions from which the director derived an improper
personal benefit. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Certificate of Incorporation and Bylaws also obligate the
Company to indemnify its officers, directors and other agents to the fullest
extent permitted under the DGCL.
At present, there is no material pending litigation or proceeding involving
a director, officer, employee or other agent of the Company as to which
indemnification is being sought, nor is the Company aware of any pending or
threatened litigation that may result in material claims for indemnification
by any director, officer, employee or other agent.
In addition, as permitted by its Bylaws, the Company maintains an insurance
policy covering directors and officers against certain civil liabilities.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 1, 1996, the Company issued to CCI, J.P. Morgan Investment
Corporation ("J.P. Morgan"), Sixty Wall Street SBIC Fund L.P., Dickstein & Co.
L.P., Dickstein International Limited, Dickstein Focus Fund L.P. and Shad Run-
JJ Nominee Corporation convertible notes due November 1, 2002 (the "Notes") in
an aggregate principal amount of $3,500,000 and warrants to purchase 70,000
shares of Common Stock, for an aggregate purchase price of $3,500,000. The
Notes were converted into 1,359,683 shares of Series F Preferred Stock and
warrants to purchase 6,242 shares of Common Stock (other than the Notes held
by CCI, which were redeemed by the Company) in connection with the issuance of
the Series F Preferred Stock on December 26, 1996. The warrants issued by the
Company are exercisable into shares of Common Stock at a price of $7.33 per
share, subject to adjustment. The Series F Preferred Stock received by these
holders in exchange for the Notes will be converted into shares of Common
Stock in connection with the Offering. See "Description of Capital Stock."
Pursuant to a purchase agreement dated December 26, 1996 (the "December 1996
Agreement"), the Company issued on such date to certain of the investors
referred to above, as well as to certain affiliates of Centre Partners II LLC
("Centre Partners II") and Generation Capital Partners L.P. ("Generation
Capital Partners") and certain additional investors, 10,526,673 shares of
Series F Preferred Stock and warrants to purchase 48,325 shares of Common
Stock for an aggregate purchase price of $11,579,341. Pursuant to the December
1996 Agreement, on March 31, 1997 the Company issued to Braemar Capital
Partners I, L.P. and to certain other investors party to such agreement
2,272,727 shares of Series F Preferred Stock and warrants to purchase 10,433
shares of Common Stock, for an aggregate purchase price of $2,499,999. The
warrants issued by the Company are exercisable at a price of $7.33 per share,
subject to adjustment. The Series F Preferred Stock received by the purchasers
in this transaction will be converted into shares of Common Stock in
connection with the Offering. See "Description of Capital Stock."
In connection with the Offering, CCI, Centre Partners II, J.P. Morgan, Sixty
Wall Street SBIC Fund L.P., Dickstein & Co., L.P., Generation Capital
Partners, Dickstein International Limited, Dickstein Focus Fund L.P. and Shad
Run-JJ Nominee Corporation and certain other investors and the Company have
entered into an amended and restated stockholders' agreement, which will
become effective upon the completion of the Offering (the "Amended
Stockholders' Agreement"). See "Description of Capital Stock--Stockholders'
Agreement."
For additional information, see "Management--Compensation Committee
Interlocks and Insider Participation."
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of the date hereof and as adjusted
to reflect the sale of the 2,000,000 shares of Common Stock offered hereby, by
(i) each stockholder known by the Company to beneficially own more than five
percent of the Common Stock, (ii) each director of the Company, (iii) the
Named Executive Officers and (iv) all directors and executive officers of the
Company as a group. Except pursuant to applicable community property laws or
as otherwise noted below, each of the stockholders identified in the table has
sole voting and investment power with respect to the shares of Common Stock
beneficially owned by such person. The following table gives effect to the
Preferred Conversion, which will occur immediately prior to the closing of the
Offering. If the over-allotment options are exercised by the Underwriters, it
is currently expected that CCI, Generation Capital Partners and certain of its
affiliates, J.P. Morgan and one of its affiliates, Braemar Capital Partners I,
L.P., Shad Run-JJ Nominee Corporation and Mark Fisher will participate as
selling stockholders pursuant to such options.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS PERCENT OF CLASS
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING AFTER OFFERING
------------------------ ------------------ ----------------- ----------------
<S> <C> <C> <C>
Centre Capital Investors
L.P. (1)............... 1,626,098 35.0% 24.5%
Centre Partners II LLC
(2).................... 802,174 17.3% 12.1%
J.P. Morgan Investment
Corporation (3)........ 864,288 18.7% 13.0%
Mark Dickstein (4)...... 528,015 11.4% 8.0%
Dickstein & Co., L.P.
(5).................... 365,249 7.9% 5.5%
Generation Capital
Company LLC (6)........ 356,252 7.7% 5.4%
Nabil N. El-Hage (7).... 338,142 6.9% 4.9%
Kenneth J. Sanginario
(8).................... 10,000 * *
Carl Winston (9)........ 4,000 * *
Paul F. Balser (10)..... -- -- --
Mark E. Jennings (10)... -- -- --
Mark L. Kaufman (11).... 2,671 * *
Bruce G. Pollack (12)... -- -- --
Jonathan H. Kagan (13).. -- -- --
Directors and Executive
Officers as a group
(14)................... 354,813 7.2% 5.1%
</TABLE>
- --------
* Less than 1%
(1) Includes warrants to purchase 40,086 shares of Common Stock exercisable
within 60 days of the date of this Prospectus. The general partner of CCI
is Centre Partners. Centre Partners may be deemed to be indirectly
controlled, through Park Road Corporation, by Lester Pollack, a managing
director of Lazard Freres & Co. LLC. The address of CCI is 30 Rockefeller
Plaza, Suite 5050, New York, New York 10020.
(2) Includes shares held as general partner of Centre Partners Coinvestment,
L.P. and Centre Parallel Management Partners L.P. and as general partner
of the general partner of Centre Capital Investors II, L.P., Centre
Capital Offshore Investors II, L.P. and Centre Capital Tax-Exempt
Investors II, L.P. In addition, includes shares held in a separate
account of State Board of Administration of Florida with respect to which
an affiliate of Centre Partners II has management authority. Includes
warrants to purchase 31,316 shares of Common Stock exercisable within 60
days of the date of this Prospectus. The address of Centre Partners II is
30 Rockefeller Plaza, Suite 5050, New York, New York 10020.
(3) Includes 8,219 shares of Common Stock held by Sixty Wall Street SBIC Fund
L.P., an affiliate of J.P. Morgan Investment Corporation. Includes
warrants to purchase 22,367 shares of Common Stock exercisable within 60
days of the date of this Prospectus. The address of J.P. Morgan
Investment Corporation is 60 Wall Street, New York, New York 10260.
(4) Includes shares owned by Dickstein & Co., L.P. ("DCO"), Dickstein
International Limited ("DIL"), Dickstein Focus Fund L.P. ("DFF", and
together with DCO and DIL, the "Dickstein Funds"), the Dickstein
Partners, L.P. Savings Plan and Mark Dickstein. Includes warrants to
purchase 14,938 shares of Common Stock exercisable within 60 days of the
date of this Prospectus. Excludes 10,574 shares owned by the Elyssa
Dickstein, Jeffery Schwarz and Alan Cooper as Trustees U/T/A/D 12/27/88,
Mark Dickstein
40
<PAGE>
as Grantor trust. Mr. Dickstein is the President and sole shareholder of
Dickstein Partners Inc., which is the advisor to DIL and the general
partner of Dickstein Partners, L.P., which in turn is the general Partner
of DCO and DFF. Mr. Dickstein is also a trustee of the Dickstein Partners,
L.P. Savings Plan. Mr. Dickstein's address is c/o Dickstein Partners Inc.,
660 Madison Avenue, 16th Floor, New York, NY 10021.
(5) Includes warrants to purchase 9,453 shares of Common Stock exercisable
within 60 days from the date of this Prospectus. The address of Dickstein
& Co., L.P. is 660 Madison Avenue, 16th Floor, New York, New York, 10021.
(6) Includes shares held as general partner of Generation Parallel Management
Partners L.P. and as general partner of the general partner of Generation
Capital Partners L.P. In addition, includes shares held in a separate
account of State Board of Administration of Florida with respect to which
an affiliate of Generation Capital Company LLC has management authority.
Includes warrants to purchase 13,971 shares of Common Stock exercisable
within 60 days of the date of this Prospectus. The address of Generation
Partners is 551 Fifth Avenue, Suite 3100, New York, New York 10176.
(7) Includes options to purchase 325,000 shares of Common Stock and warrants
to purchase 347 shares of Common Stock exercisable within 60 days of the
date of this Prospectus.
(8) Includes options to purchase 10,000 shares of Common Stock exercisable
within 60 days of the date of this Prospectus.
(9) Includes options to purchase 4,000 shares of Common Stock exercisable
within 60 days of the date of this Prospectus.
(10) Excludes 356,252 shares of Common Stock beneficially owned by Generation
Capital Company LLC and 1,626,098 shares of Common Stock beneficially
owned by CCI. Each of Mr. Balser and Mr. Jennings is a Managing Director
of Generation Capital Company LLC and, as such, may be deemed to have
voting and investment power over the shares of Common Stock beneficially
owned by Generation Capital Company LLC. In addition, each of Mr. Balser
and Mr. Jennings are limited partners in CCI and may be deemed to have an
indirect pecuniary interest in the shares of Common Stock beneficially
owned by CCI. Each of Mr. Balser and Mr. Jennings disclaims any
beneficial ownership of such shares of Common Stock.
(11) Excludes 490,939 shares of Common Stock beneficially owned by the
Dickstein Funds. Mr. Kaufman is a Vice President of Dickstein Partners,
Inc. and, as such, may be deemed to have voting and investment power over
such shares of Common Stock. Mr. Kaufman disclaims any beneficial
ownership of such shares of Common Stock.
(12) Excludes 1,626,098 shares of Common Stock beneficially owned by CCI and
802,174 shares of Common Stock beneficially owned by Centre Partners II.
Mr. Pollack is a Vice President of Park Road Corporation and a Managing
Director of Centre Partners II and, as such, may be deemed to have voting
and investment power over such shares of Common Stock. Mr. Pollack
disclaims any beneficial ownership of such shares of Common Stock.
(13) Excludes 802,174 shares of Common Stock beneficially owned by Centre
Partners II. Mr. Kagan is a Managing Director of Centre Partners II and,
as such, may be deemed to have voting and investment power over such
shares of Common Stock. Mr. Kagan disclaims any beneficial ownership of
such shares of Common Stock.
(14) Includes options to purchase 339,000 shares of Common Stock and warrants
to purchase 347 shares of Common Stock exercisable within 60 days of the
date of this Prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 6,599,623
shares of Common Stock, of which the 2,000,000 shares sold pursuant to the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any such shares held by "affiliates" (as
defined under Rule 405 of the Securities Act) of the Company. The holders of
the remaining 4,599,623 shares will be entitled to sell their shares in the
public securities market without registration under the Securities Act to the
extent permitted by Rule 144 promulgated thereunder or otherwise in accordance
with the Securities Act. Generally, Rule 144 provides that a person who has
owned Restricted Shares for at least one year, or who may be deemed an
"affiliate" of the Company, is entitled to sell, within any three-month
period, up to the number of Restricted
41
<PAGE>
Shares that does not exceed the greater of (i) one percent of the then
outstanding shares of Common Stock, or (ii) the average weekly trading volume
during the four calendar weeks preceding the date on which notice of sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are subject to certain restrictions relating to manner of sale,
volume of sales and the availability of current public information about the
Company. All of the Restricted Shares have been owned by the holders thereof
for more than one year. Of such Restricted Shares, 519,983 are owned by non-
affiliates of the Company and, as a result, will be freely tradeable upon
completion of the Offering without regard to the restrictions under Rule 144
and 4,079,640 are owned by affiliates of the Company and, as a result, will be
eligible for sale pursuant to Rule 144, subject to certain restrictions, upon
completion of the Offering. As described below, certain holders of Common
Stock have agreed to certain restrictions on their ability to sell shares of
Common Stock for a period of 180 days following the Offering. See
"Underwriting."
The Company intends to file a registration statement on Form S-8 covering
all shares of Common Stock issuable upon exercise of stock options in effect
on the date of this Prospectus and stock options or other Benefits to be
granted under the Company's 1998 Incentive Plan. The Company has outstanding
stock options with respect to an aggregate of approximately 622,060 shares of
Common Stock as of the date of this Prospectus. In addition, the Company has
approved the grant under the 1998 Incentive Plan of options to purchase
140,000 shares of Common Stock to the Company's President and Chief Executive
Officer, effective upon the completion of the Offering. Upon such registration
on Form S-8, an additional 762,060 shares of Common Stock, together with any
additional shares of Common Stock which will be issuable pursuant to stock
options or other Benefits to be granted under the 1998 Incentive Plan, will be
eligible for sale in the public market.
In addition, the Amended Stockholders' Agreement among the Company and its
principal stockholders, which will become effective upon the completion of the
Offering, provides for registration rights exercisable following 180 days
after the date of this Prospectus, upon demand by the holders of at least
800,000 of the outstanding shares of Common Stock held by the stockholders
party thereto and, in addition, the stockholders will be entitled to
"piggyback" registration on any public offering of equity securities by the
Company subsequent to the Offering. See "Description of Capital Stock--
Stockholders' Agreement."
Prior to the Offering, there has been no market for the Common Stock, and no
predictions can be made with respect to the effect, if any, that public sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Sales of substantial amounts of Common Stock in
the public market following the Offering, or the perception that such sales
may occur, could adversely affect the prevailing market price of the Common
Stock and the ability of the Company to raise capital through a public
offering of its equity securities. See "Risk Factors--Absence of Public Market
for Common Stock; Determination of Initial Public Offering Price."
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue (i) 30,000,000 shares of common stock,
par value $.01 per share, (ii) 961,377 shares of Series A Preferred Stock,
441,936 shares of Series B Preferred Stock, 11,077,508 shares of Series C
Preferred Stock, 961,377 shares of Series D Preferred Stock and 25,000,000
shares of Series F Preferred Stock, each having a par value of $1.00 per share
(collectively, the "Existing Preferred Stock"). The Certificate of
Incorporation, as amended in May 1998, also authorizes the Company to issue
5,000,000 shares of "new" undesignated preferred stock (the "New Preferred
Stock"). Immediately prior to the closing of the Offering, all outstanding
shares of Existing Preferred Stock, together with all accrued and unpaid
dividends thereon, will convert automatically into shares of Common Stock at
the applicable conversion price thereof.
COMMON STOCK
In April 1998, the Company effected a one-for-ten reverse stock split of the
Common Stock and authorized an aggregate of 30,000,000 shares of Common Stock.
As of the date of this Prospectus, there were 4,599,623
42
<PAGE>
shares of Common Stock outstanding. In addition, 762,060 shares of Common
Stock are covered by employee options granted or approved for grant by the
Company at exercise prices per share ranging from $5.50 to the initial public
offering price. In addition, as of the date of this Prospectus, there were
outstanding warrants to purchase an aggregate of 135,000 shares of Common
Stock issued to investors and warrants to purchase an aggregate of 17,500
shares of Common Stock issued to certain landlords in connection with leases
entered into by the Company with respect to certain Park locations. The
Company has also committed to issuing warrants to purchase an aggregate of
11,000 shares of Common Stock to certain landlords in connection with other
leases the Company has executed.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by stockholders. All shares of Common Stock rank equally as to
voting and all other matters. The shares of Common Stock have no preemptive or
conversion rights, no redemption or sinking fund provisions, are not liable
for further call or assessment, and are not entitled to cumulative voting
rights. The outstanding shares of Common Stock are fully paid and non-
assessable.
Subject to the prior rights of holders of preferred stock, the holders of
Common Stock are entitled to receive dividends when and as declared by the
Board out of funds legally available therefor, when, as and if declared and
paid to the holders of Common Stock. The Company has never declared or paid
cash dividends. The Company currently intends to retain all future earnings
for the operation and expansion of its business and does not anticipate paying
cash dividends on the Common Stock in the foreseeable future. See "Dividend
Policy."
Upon a liquidation of the Company, after creditors had been paid in full and
after shares of any series of preferred stock had received the preferential
amounts to which such shares are entitled upon liquidation, the holders of
Common Stock would be entitled to receive a pro rata distribution per share of
the excess amount.
The Company has applied for listing of the Common Stock on Nasdaq under the
symbol "JPRS."
PREFERRED STOCK
As of the date of this Prospectus, the issued and outstanding Existing
Preferred Stock consists of 434,383 shares of Series B Preferred Stock,
11,077,508 shares of the Series C Preferred Stock, 961,377 shares of Series D
Preferred Stock and 14,309,091 shares of the Series Preferred F Stock.
Immediately prior to the closing of the Offering, all of the outstanding
shares of Existing Preferred Stock, together with all accrued and unpaid
dividends thereon, will be converted into an aggregate of 4,419,123 shares of
Common Stock, at the applicable conversion price of each series of Preferred
Stock as provided in the Certificate of Incorporation.
NEW PREFERRED STOCK
The Certificate of Incorporation empowers the Board to issue the New
Preferred Stock from time to time in one or more series and to fix the
designation, privileges, preferences and rights and the qualifications,
limitations and restrictions of those shares, including dividend rights,
conversion rights, voting rights, redemption rights, terms of sinking funds,
liquidation preferences and the number of shares constituting any series or
the designation of such series, which could decrease the amount of earnings
and assets available for distribution to holders of Common Stock or adversely
affect the rights and powers, including voting rights, of the holders of the
Common Stock without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred shares that may be
issued by the Company in the future. The issuance of New Preferred Stock could
have the effect of delaying or preventing a change in control of the Company
or make removal of management more difficult. Additionally, the issuance of
new preferred stock may have the effect of decreasing the market price of the
Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. While the Company has no present intention to issue
any shares of New Preferred Stock, any such issuance could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company.
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<PAGE>
STOCKHOLDERS' AGREEMENT
The Company and its principal stockholders are parties to a certain
stockholders' agreement, which provides for, among other things, (i) the
nomination and election of directors of the Company, (ii) restrictions on the
transfer of shares of capital stock of the Company, (iii) the right of certain
holders of capital stock to require the Company to purchase such shares and
the right of the Company to purchase shares held by terminated employees and
(iv) demand and "piggyback" registration rights of the Company's stockholders.
The Company and the stockholders party to the stockholders' agreement referred
to above have entered into the Amended Stockholders' Agreement, which will
become effective upon the completion of the Offering, to provide for the
termination of the foregoing provisions, other than with respect to the
registration rights of the stockholders.
The Amended Stockholders' Agreement provides for registration rights
exercisable following 180 days after the date of this Prospectus, upon demand
by the holders of at least 800,000 of the outstanding shares of Common Stock
held by the stockholders party thereto. In addition, the stockholders party to
such agreement will be entitled to "piggyback" registration on any public
offering of equity securities by the Company subsequent to the Offering. The
registration rights will be subject to customary underwriter cutback and
indemnification provisions.
CERTAIN PROVISIONS OF DELAWARE LAW
The Delaware Business Combination Act. Upon completion of the Offering, the
Company will be subject to Section 203 of the DGCL (the "Delaware Business
Combination Act"), which imposes a three-year moratorium on business
combinations between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" (in general, a stockholder owning 15% or more of a corporation's
outstanding voting stock) or an affiliate or associate thereof unless (a)
prior to an interested stockholder becoming such, the board of directors of
the corporation approved either the business combination or the transaction
resulting in the interested stockholder becoming such, (b) upon consummation
of the transaction resulting in an interested stockholder becoming such, the
interested stockholder owns 85% of the voting stock outstanding at the time
the transaction commenced (excluding, from the calculation of outstanding
shares, shares beneficially owned by directors who are also officers and
certain employee stock plans) or (c) on or after an interested stockholder
becomes such, the business combination is approved by (i) the board of
directors and (ii) holders of at least 66 2/3% of the outstanding shares
(other than those shares beneficially owned by the interested stockholder) at
a meeting of stockholders. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an "interested stockholder" involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an "interested stockholder's" percentage ownership of stock.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company has been appointed as the transfer
agent and registrar for the Company's Common Stock.
44
<PAGE>
UNDERWRITING
The Company and certain stockholders have entered into a Purchase Agreement
(the "Purchase Agreement") with the underwriters listed in the table below
(the "Underwriters"), for whom Piper Jaffray Inc., Cowen & Company and Gerard
Klauer Mattison & Co., Inc. are acting as representatives (the
"Representatives"). Subject to the terms and conditions set forth in the
Purchase Agreement, the Company has agreed to sell to the Underwriters, and
each of the Underwriters has severally agreed to purchase, the number of
shares of Common Stock set forth opposite each Underwriter's name in the table
below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Piper Jaffray Inc..................................................
Cowen & Company....................................................
Gerard Klauer Mattison & Co., Inc..................................
---------
Total.......................................................... 2,000,000
=========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold
pursuant to the Purchase Agreement, if any is purchased (excluding shares
covered by the over-allotment options granted therein). In the event of a
default by any Underwriter, the Purchase Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriters may be
increased or the Purchase Agreement may be terminated.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock directly to the public initially at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not more than $ per share.
Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the Offering, the public offering price and other selling terms may be changed
by the Underwriters.
Certain stockholders have granted to the Underwriters options, exercisable
by the Representatives within 30 days after the date of the Purchase
Agreement, to purchase up to an aggregate of 300,000 additional shares of
Common Stock at the same price per share to be paid by the Underwriters for
the other shares offered hereby. If the Underwriters purchase any of such
additional shares pursuant to such options, each Underwriter will be committed
to purchase such additional shares in approximately the same proportion as set
forth in the table above. The Underwriters may exercise the options only for
the purpose of covering over-allotments, if any, made in connection with the
distribution of the Common Stock offered hereby.
The Representatives have informed the Company that neither they, nor any
member of the National Association of Securities Dealers, Inc. participating
in the distribution of the Offering, will make sales of the Common Stock
offered hereby to accounts over which they exercise discretionary authority
without the prior specific written approval of the customer.
The Offering of the shares of Common Stock is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the Offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
The officers, directors and certain other stockholders of the Company, who
will beneficially own in the aggregate at least 4,263,329 shares of Common
Stock after the Offering, have agreed that, subject to certain exceptions,
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of Common Stock or other securities of the
Company that are substantially similar to the shares, including but not
limited to any securities that are convertible into or exchangeable for, or
that represent the right to receive, shares of Common Stock or any such
substantially similar securities, owned by them prior to the date of the
Prospectus for a period of 180 days after the date of this Prospectus, without
the prior written consent of
45
<PAGE>
Piper Jaffray. The Company has agreed that it will not, without Piper
Jaffray's prior written consent, offer, sell, contract to sell, pledge, or
otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock during the 180-day period following the date of
this Prospectus, except that the Company may issue shares upon the exercise of
options and warrants granted prior to the date hereof, and may grant options
under the 1998 Incentive Plan.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock offered hereby will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in determining the initial public offering are
prevailing market and economic conditions, the Company's revenue and earnings,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, an assessment of the Company's
management and the consideration of the above factors in relation to the
market valuations of companies in similar businesses. The initial public
offering price for the Common Stock should not be considered an indication of
the actual value of the Common Stock offered hereby. In addition, there can be
no assurance that the Common Stock can be resold at a price equal to or
greater than the initial public offering price. See "Risk Factors--Absence of
Public Market for Common Stock; Determination of Initial Public Offering
Price" and "Risk Factors--Possible Volatility of Common Stock Price."
During and after the Offering, the Underwriters may purchase and sell Common
Stock in the open market. These transactions may include over-allotment,
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offering for their
account may be reclaimed by the syndicate if such securities are repurchased
by the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise, and these activities, if commenced,
may be discontinued at any time.
The Company and certain stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Weil, Gotshal & Manges
LLP, New York, New York. The validity of the shares of Common Stock offered
hereby will be passed upon for the Underwriters by King & Spalding, New York,
New York.
EXPERTS
The Consolidated Financial Statements of the Company at December 28, 1997
and December 29, 1996 and for each of the three years in the period ended
December 28, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, and the
information under the caption "Selected Consolidated Financial Data" for each
of the five years in the period ended December 28, 1997, appearing in this
Prospectus and Registration Statement have been derived from the Consolidated
Financial Statements audited by Ernst & Young LLP, as set forth in their
reports thereon appearing elsewhere herein.
Such Consolidated Financial Statements and selected consolidated financial
data are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
46
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") pursuant to the Securities Act, covering
the shares of Common Stock offered hereby. This Prospectus, which is part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
made to the Registration Statement and the exhibits and schedules contained
therein, which may be inspected without charge at the principal office of the
Commission in Washington, D.C. and copies of all or any part of which may be
obtained from the Commission upon payment of the prescribed fees. The
summaries contained in this Prospectus concerning information included in the
Registration Statement, or in any exhibit or schedule thereto, are qualified
in their entirety by reference to such information, exhibit or schedule.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the Offering, the Company will become subject to the informational
requirements of the Exchange Act and in accordance therewith will file the
periodic reports and other information with the Commission. Reports,
registration statements (including the exhibits thereto), proxy statements,
and other information filed with the Commission by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at the regional
offices of the Commission at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and from the World Wide Web site that the commission
maintains at http://www.sec.gov. Copies of such material may be obtained at
prescribed rates from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549.
47
<PAGE>
JEEPERS! INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 29, 1996, December 28, 1997 and
March 29, 1998 (Unaudited)............................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1995, December 29, 1996, December 28, 1997 and the quarters ended March
30, 1997 (Unaudited) and March 29, 1998 (Unaudited)...................... F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit for the years ended December 31, 1995, December 29,
1996, December 28, 1997 and the quarter ended March 29, 1998 (Unaudited). F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, December 29, 1996, December 28, 1997 and the quarters ended March
30, 1997 (Unaudited) and March 29, 1998 (Unaudited)...................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Jeepers! Inc.
We have audited the accompanying consolidated balance sheets of Jeepers!
Inc. and subsidiaries as of December 28, 1997 and December 29, 1996, and the
related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' deficit, and cash flows for each of the
three years in the period ended December 28, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jeepers! Inc.
and subsidiaries at December 28, 1997 and December 29, 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 28, 1997 in conformity with generally
accepted accounting principles.
We have also previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets as of December 31, 1995,
January 1, 1995, and January 2, 1994 and the related consolidated statements
of operations, redeemable convertible preferred stock and stockholders'
deficit, and cash flows for the years ended January 1, 1995 and January 2,
1994 (none of which are presented separately herein); and we expressed
unqualified opinions on those consolidated financial statements. In our
opinion, the information set forth in the selected consolidated financial data
for each of the five years in the period ended December 28, 1997, appearing on
page 15, is fairly stated in all material respects in relation to the
consolidated financial statements from which it has been derived.
As discussed in Note 3 to the financial statements, in 1996, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of."
Ernst & Young LLP
Boston, Massachusetts
March 5, 1998, except
as to Note 13 as to
which the
date is April 6,
1998.
F-2
<PAGE>
JEEPERS! INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29, MARCH 29,
1996 1997 1998 1998
------------ ------------ ----------- -----------
(UNAUDITED) (PRO FORMA)
ASSETS: (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 14,032,761 $ 6,642,780 $ 3,914,272 $ 3,914,272
Amounts due from
landlords.............. 187,000 1,165,079 1,206,515 1,206,515
Inventories............. 168,201 253,975 278,791 278,791
Prepaid expenses and
other current assets... 69,194 90,490 93,881 93,881
------------ ------------ ----------- -----------
Total current assets.. 14,457,156 8,152,324 5,493,459 5,493,459
Equipment and leasehold
improvements:
Rides and games......... 5,347,124 9,645,929 10,431,110 10,431,110
Other equipment......... 2,155,651 3,854,758 4,129,033 4,129,033
Leasehold improvements.. 5,183,979 8,418,704 8,762,105 8,762,105
------------ ------------ ----------- -----------
Total equipment and
leasehold
improvements......... 12,686,754 21,919,391 23,322,248 23,322,248
Less accumulated
depreciation and
amortization............ 3,535,488 6,232,920 6,640,268 6,640,268
------------ ------------ ----------- -----------
Total equipment and
leasehold
improvements, net.... 9,151,266 15,686,471 16,681,980 16,681,980
Other assets, net........ 96,190 320,543 564,008 564,008
------------ ------------ ----------- -----------
Total assets.......... $ 23,704,612 $ 24,159,338 $22,739,447 $22,739,447
============ ============ =========== ===========
LIABILITIES AND
STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable........ $ 1,711,359 $ 3,560,329 $ 1,851,200 $ 1,851,200
Accrued expenses........ 892,408 1,310,202 1,650,428 1,650,428
Accrued park closing
costs.................. 352,351 374,956 373,189 373,189
Current portion of
long-term debt......... 585,660 1,568,384 1,665,708 1,665,708
Note payable to
investor............... 2,004,345 -- -- --
------------ ------------ ----------- -----------
Total current
liabilities.......... 5,546,123 6,813,872 5,540,525 5,540,525
Long-term debt........... 832,919 1,357,985 759,741 759,741
Deferred rent............ 472,862 669,237 937,766 937,766
Other long-term
liabilities............. 51,848 188,313 265,548 265,548
Commitments and
contingencies (Note 7)
Redeemable convertible
preferred stock:
Series A, $1.00 par
value, 961,377 shares
authorized; no shares
issued and outstanding . -- -- -- --
Series B, $1.00 par
value, 441,936 shares
authorized; 441,936
shares issued and
outstanding at December
29, 1996 and December
28, 1997 and 434,383
issued and outstanding
at March 29, 1998
($3,908,012 liquidation
value at March 29,
1998)................... 3,147,258 3,470,692 3,501,550 --
Series C, $1.00 par
value, 11,077,508 shares
authorized; 11,077,508
shares issued and
outstanding ($16,486,655
liquidation value at
March 29, 1998)......... 15,115,814 16,212,487 16,486,655 --
Series D, $1.00 par
value, 961,377 shares
authorized; 961,377
shares issued and
outstanding
($9,196,253 liquidation
value at March 29,
1998)................... 8,431,598 9,043,322 9,196,253 --
Series F, $1.00 par
value, 25,000,000 shares
authorized; 11,711,956
shares issued and
outstanding at December
29, 1996 and 14,309,091
shares issued and
outstanding at December
28, 1997 and March 29,
1998 ($17,510,750
liquidation value at
March 29, 1998)......... 12,538,616 16,764,286 17,133,523 --
------------ ------------ ----------- -----------
Total redeemable
convertible preferred
stock................ 39,233,286 45,490,787 46,317,981 --
Stockholders' deficit:
Common stock, $.01 par
value, 30,000,000 shares
authorized; 165,500
shares issued and
outstanding at December
29, 1996 and 180,500
shares issued and
outstanding at December
28, 1997 and March 29,
1998 ................... 1,655 1,805 1,805 45,996
Additional paid-in
capital................. 426,043 606,143 606,143 35,128,175
Cumulative accretion of
redeemable convertible
preferred stock......... (7,365,789) (10,874,564) (11,751,758) --
Unrealized gain on
available-for-sale
marketable securities... -- -- 9,615 9,615
Accumulated deficit...... (15,494,335) (20,094,240) (19,947,919) (19,947,919)
------------ ------------ ----------- -----------
Total stockholders'
deficit.............. (22,432,426) (30,360,856) (31,082,114) 15,235,867
------------ ------------ ----------- -----------
Total liabilities and
stockholders'
deficit.............. $ 23,704,612 $ 24,159,338 $22,739,447 $22,739,447
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
JEEPERS! INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 7,648,264 $10,069,888 $16,371,606 $ 3,666,590 $7,206,281
Costs and expenses:
Cost of revenues....... 1,269,740 2,262,741 3,495,384 822,719 1,307,325
Operating payroll and
benefit costs......... 2,422,414 2,960,983 4,594,398 1,019,851 1,874,507
Other operating
expenses.............. 2,983,596 3,302,781 5,907,768 1,096,470 2,305,955
General and
administrative
expenses.............. 3,001,024 3,038,609 4,114,001 848,727 1,141,358
Pre-opening costs...... -- 202,304 368,939 13,756 15,935
Depreciation and
amortization.......... 680,550 866,650 1,172,609 263,345 419,244
Impairment and park
closing costs......... 8,314 750,000 1,647,750 -- --
----------- ----------- ----------- ----------- ----------
10,365,638 13,384,068 21,300,849 4,064,868 7,064,324
----------- ----------- ----------- ----------- ----------
Income (loss) from
operations............. (2,717,374) (3,314,180) (4,929,243) (398,278) 141,957
Interest income......... 328,310 88,327 516,820 142,446 70,348
Interest expense........ (228,524) (365,883) (187,482) (44,143) (65,984)
----------- ----------- ----------- ----------- ----------
Net income (loss)....... (2,617,588) (3,591,736) (4,599,905) (299,975) 146,321
Accretion of redeemable
convertible preferred
stock.................. (2,031,831) (2,031,831) (3,508,775) (877,194) (877,194)
----------- ----------- ----------- ----------- ----------
Net income (loss)
applicable to common
stock.................. $(4,649,419) $(5,623,567) $(8,108,680) $(1,177,169) $ (730,873)
=========== =========== =========== =========== ==========
Basic and diluted net
income (loss) per share
of common stock........ $ (28.09) $ (33.98) $ (49.00) $ (7.11) $ (4.05)
=========== =========== =========== =========== ==========
Weighted average number
of shares used in
calculating basic
and diluted net income
(loss) per share of
common stock........... 165,500 165,500 165,500 165,500 180,500
=========== =========== =========== =========== ==========
Unaudited pro forma net
income (loss) per share
of common stock........ $ (1.03) $ 0.03
=========== ==========
Weighted average number
of shares used in
calculating unaudited
pro forma net income
(loss) per share of
common stock........... 4,458,697 4,544,026
=========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JEEPERS! INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
UNREALIZED
CUMULATIVE GAIN ON
REDEEMABLE CONVERTIBLE ACCRETION OF AVAILABLE-
PREFERRED STOCK COMMON STOCK ADDITIONAL REDEEMABLE FOR-SALE
----------------------- -------------- PAID-IN CONVERTIBLE MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL PREFERRED STOCK SECURITIES
---------- ----------- ------- ------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1995........... 12,511,032 $22,831,009 165,500 $1,655 $118,788 $ (3,302,127) $ --
Repurchase and
retirement of
Series B
preferred
stock.......... (30,211) (200,000)
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... 2,031,831 (2,031,831)
Net loss........
---------- ----------- ------- ------ -------- ------------ ------
Balance at
December 31,
1995........... 12,480,821 24,662,840 165,500 1,655 118,788 (5,333,958) --
Issuance of
warrants in
connection with
convertible
debentures..... 175,000
Issuance of
Series F
preferred stock
in December,
1996, net of
issuance costs
of $212,290.... 8,530,142 9,038,615
Issuance of
warrants in
connection with
Series F
preferred
stock.......... 132,255
Conversion of
convertible
debentures to
equity......... 3,181,814 3,500,000
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... 2,031,831 (2,031,831)
Net loss........
---------- ----------- ------- ------ -------- ------------ ------
Balance at
December 29,
1996........... 24,192,777 39,233,286 165,500 1,655 426,043 (7,365,789) --
Issuance of
Series F
preferred stock
in January,
1997........... 174,408 191,849
Issuance of
Series F
preferred stock
in connection
with business
acquisition.... 150,000 165,000
Issuance of
Series F
preferred stock
in April, 1997,
net of issuance
costs of
$77,873........ 2,272,727 2,391,877
Issuance of
warrants in
connection with
Series F
preferred
stock.......... 30,250
Issuance of
common stock in
December, 1997. 15,000 150 149,850
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... 3,508,775 (3,508,775)
Net loss........
---------- ----------- ------- ------ -------- ------------ ------
Balance at
December 28,
1997........... 26,789,912 45,490,787 180,500 1,805 606,143 (10,874,564) --
Repurchase of
Series B
preferred stock
(unaudited).... (7,553) (50,000)
Accretion of
redeemable
convertible
preferred stock
to redemption
value
(unaudited).... 877,194 (877,194)
Unrealized gain
on available-
for-sale
marketable
securities
(unaudited).... 9,615
Net income
(unaudited)....
---------- ----------- ------- ------ -------- ------------ ------
Balance at March
29, 1998
(unaudited).... 26,782,359 $46,317,981 180,500 $1,805 $606,143 $(11,751,758) $9,615
- --------------------------------------------------
========== =========== ======= ====== ======== ============ ======
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT DEFICIT
------------- --------------
<S> <C> <C>
Balance at
January 1,
1995........... $ (9,285,011) $(12,466,695)
Repurchase and
retirement of
Series B
preferred
stock..........
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... (2,031,831)
Net loss........ (2,617,588) (2,617,588)
------------- --------------
Balance at
December 31,
1995........... (11,902,599) (17,116,114)
Issuance of
warrants in
connection with
convertible
debentures..... 175,000
Issuance of
Series F
preferred stock
in December,
1996, net of
issuance costs
of $212,290....
Issuance of
warrants in
connection with
Series F
preferred
stock.......... 132,255
Conversion of
convertible
debentures to
equity.........
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... (2,031,831)
Net loss........ (3,591,736) (3,591,736)
------------- --------------
Balance at
December 29,
1996........... (15,494,335) (22,432,426)
Issuance of
Series F
preferred stock
in January,
1997...........
Issuance of
Series F
preferred stock
in connection
with business
acquisition....
Issuance of
Series F
preferred stock
in April, 1997,
net of issuance
costs of
$77,873........
Issuance of
warrants in
connection with
Series F
preferred
stock.......... 30,250
Issuance of
common stock in
December, 1997. 150,000
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... (3,508,775)
Net loss........ (4,599,905) (4,599,905)
------------- --------------
Balance at
December 28,
1997........... (20,094,240) (30,360,856)
Repurchase of
Series B
preferred stock
(unaudited)....
Accretion of
redeemable
convertible
preferred stock
to redemption
value
(unaudited).... (877,194)
Unrealized gain
on available-
for-sale
marketable
securities
(unaudited).... 9,615
Net income
(unaudited).... 146,321 146,321
------------- --------------
Balance at March
29, 1998
(unaudited).... $(19,947,919) $(31,082,114)
- --------------------------------------------------
============= ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
JEEPERS! INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------
MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $(2,617,588) $(3,591,736) $(4,599,905) $ (299,975) $ 146,321
Adjustment to reconcile
net income (loss) to
net cash used in
operating activities:
Interest expense...... -- 175,000 -- -- --
Depreciation and
amortization......... 680,550 866,650 1,172,609 263,345 419,244
Impairment and park
closing costs........ 8,314 750,000 1,647,750 -- --
Unrealized gain on
available-for-sale
marketable
securities........... -- -- -- -- 9,615
Changes in current
assets and
liabilities:
Inventories........... 14,165 (68,395) (116,676) (2,285) (33,388)
Prepaid expenses and
other assets......... 78,472 (14,034) (206,549) 24,649 (250,181)
Accounts payables and
accrued expenses..... 359,657 1,053,932 824,179 (522,208) (429,611)
Accrued park closing
costs................ (678,771) (262,192) (352,351) (42,988) (1,767)
Other long-term
liabilities.......... (24,888) (6,168) 332,840 6,625 345,764
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) operating
activities......... (2,180,089) (1,096,943) (1,298,103) (572,837) 205,997
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures... (1,076,029) (3,540,474) (5,182,379) (503,608) (2,342,149)
Payments for business
acquisition........... -- -- (80,000) (80,000) --
Amounts advanced to
landlords............. -- (1,237,000) (3,889,280) -- (1,145,000)
Amounts received from
landlords............. -- 1,050,000 2,911,201 -- 1,103,564
----------- ----------- ----------- ----------- ----------
Net cash used in
investing
activities......... (1,076,029) (3,727,474) (6,240,458) (583,608) (2,383,585)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
convertible debenture. -- 3,325,000 -- -- --
Proceeds from preferred
stock................. -- 9,250,905 2,661,599 191,849 --
Proceeds from issuance
of warrants........... -- 307,255 30,250 -- --
Preferred stock
issuance costs........ -- (212,290) (77,873) -- --
Proceeds (payments)
from note payable to
investor.............. -- 2,004,345 (2,004,345) (2,004,345) --
Proceeds from
borrowings............ 391,252 400,000 650,000 -- --
Payments on borrowings. (405,024) (622,589) (1,111,051) (147,427) (500,920)
Repurchase of preferred
stock................. (100,000) -- -- -- (50,000)
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities......... (113,772) 14,452,626 148,580 (1,959,923) (550,920)
----------- ----------- ----------- ----------- ----------
Change in cash and cash
equivalents........... (3,369,890) 9,628,209 (7,389,981) (3,116,368) (2,728,508)
Cash and cash
equivalents, beginning
of year............... 7,774,442 4,404,552 14,032,761 14,032,761 6,642,780
----------- ----------- ----------- ----------- ----------
Cash and cash
equivalents, end of
year.................. $ 4,404,552 $14,032,761 $ 6,642,780 $10,916,393 $3,914,272
=========== =========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 29, 1998 AND FOR THE QUARTERS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Business
The accompanying consolidated financial statements include the accounts of
Jeepers! Inc. and its wholly-owned subsidiaries ("Jeepers!" or the "Company").
Significant intercompany balances and transactions have been eliminated in
consolidation.
Jeepers! operates indoor animated theme parks (the "Parks") serving families
with children up to the age of 12. The first Park commenced operations in 1988
under the trade name Jungle Jim's Playland ("Jungle Jim's"). The Company's
Parks provide a broad variety of entertainment activities including amusement
rides, play areas and skill games. The Company also offers a range of birthday
party packages for children that combine food and special entertainment
activities. The Parks, which consist of approximately 25,000 square feet, also
incorporate a high level of thematic design including creative imagery, vivid
graphics and engaging proprietary mascot characters. All Jeepers! Parks offer
a full menu of items that appeal to both young children and their parents. The
majority of Parks also serve Pizza Hut pizza pursuant to the terms and
conditions of a master license agreement. As of December 28, 1997, the Company
had fourteen Parks in operation throughout the United States.
Fiscal Year
The Company has adopted a fiscal year of 52- or 53-week periods that end on
the Sunday closest to December 31. For purposes of these notes to consolidated
financial statements, the fiscal years ended December 31, 1995, December 29,
1996 and December 28, 1997 are referred to as 1995, 1996 and 1997,
respectively. Each fiscal year presented contains 52 weeks.
Unaudited Interim Information
In the opinion of management, the consolidated financial statements for the
unaudited periods presented include all adjustments necessary for a fair
presentation in accordance with generally accepted accounting principles,
consisting solely of normal recurring accruals and adjustments. The results of
operations and cash flows for the quarters ended March 30, 1997 and March 29,
1998 are not necessarily indicative of results which would be expected for a
full fiscal year.
Pro Forma Balance Sheet (unaudited)
The unaudited pro forma balance sheet is presented to give pro forma effect
to the conversion, immediately prior to the consummation of the initial public
offering contemplated in this Prospectus, of all of the preferred stock issued
and outstanding into 4,419,123 shares of common stock including accrued
preferred stock dividends of approximately 915,000 shares through June 5,
1998.
Revenue Recognition
The Company derives its revenues from amusement rides, skill games, food and
beverage and birthday parties. Revenues from Park admissions and rides are
recognized at the time of sale. Revenues from birthday parties are recognized
when services are provided.
Significant Estimates
In the process of preparing its consolidated financial statements, the
Company estimates the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources. The primary
estimates underlying the Company's consolidated financial statements include
the useful lives and recoverability of its assets such as property and
intangibles, accruals for insurance and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the
circumstances, and while actual results could differ from those estimates,
management does not believe that any change in those assumptions in the near
term would have a material effect on the Company's consolidated financial
position or the results of operation.
Cash Flow Information
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid, short-term investments with original maturities
of three months or less when purchased to be cash equivalents.
F-7
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash payments for interest aggregated approximately $228,000, $190,000 and
$187,000 in 1995, 1996 and 1997, respectively.
The Company paid no income taxes in 1995, 1996 and 1997.
The Company recorded accretion of redeemable convertible preferred stock in
the amount of $2,031,831 in 1995 and 1996 and $3,508,775 in 1997.
Capital lease obligations of approximately $359,000 were incurred when the
Company entered into leases for new Park games and office equipment in 1997.
There were no capital lease obligations incurred by the Company in 1995 or
1996.
Significant other non-cash investing and financing transactions are as
follows:
1995
. The Company repurchased and retired 30,211 shares of Series B preferred
stock for $100,000 and the cancellation of a $100,000 note receivable.
1996
. The Company converted $3,500,000 of 11% convertible notes into 3,181,814
shares of Series F preferred stock (see Note 5).
1997
. The Company issued 15,000 shares of Jeepers! common stock and 150,000
shares of Series F preferred stock in exchange for all outstanding shares
of Family Fun Entertainment Limited ("FFEL") (see Note 2).
. The Company executed approximately $1,350,000 of notes payable for new
Park games (see Note 4).
. The accounts payable balance at December 28, 1997 includes approximately
$1,450,000 of invoices relating to capital expenditures.
Concentration of Credit Risk
The Company invests its cash and cash equivalents with institutions that
have a strong credit rating. The Company has developed guidelines relative to
investment risk and liquidity.
Amounts Due From Landlords
The amounts due from landlords at December 29, 1996, December 28, 1997 and
March 29, 1998 relate to payments made by the Company for capital improvements
which were made on behalf of the landlords.
Inventories
Inventories, which consist of food, beverages, merchandise and supplies, are
stated at lower of cost (first-in, first-out method) or market. Inventories
also include the initial cost of smallwares with replacements charged to
expense when purchased.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Additions, renewals
and betterments that extend the life of an asset are capitalized. Expenditures
for maintenance and repairs are charged to expense. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and assets capitalized pursuant to capital lease
obligations are amortized over the shorter of the lease term or the estimated
useful life. Useful lives are as follows:
<TABLE>
<S> <C>
Rides and games............................................ 10 to 15 years
Other equipment............................................ 7 to 10 years
Leasehold improvements..................................... 15 to 25 years
</TABLE>
F-8
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense amounted to $513,127, $859,025, $1,024,121, $251,915
and $407,348 in 1995, 1996, 1997 and for the quarters ended March 30, 1997 and
March 29, 1998, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses amounted to
approximately $472,000, $417,000, $519,000, $127,000 and $256,000, in 1995,
1996, 1997 and for the quarters ended March 30, 1997 and March 29, 1998,
respectively.
Pre-opening Costs
The Company expenses pre-opening costs as they are incurred.
Deferred Rent
Deferred rent relates to leases which contain rent escalation clauses and/or
free rent incentives. The Company records the total rent payable during the
lease term on a straight line basis over the term of the lease.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
Net Loss Per Share
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings per
Share." SFAS No. 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share.
Basic and diluted historical net loss per share (see Note 11) was computed
by dividing net loss plus accretion of redeemable convertible preferred stock
(see Note 6) by the weighted average number of common shares outstanding.
Common stock equivalents were antidilutive and therefore were not included in
the computation of weighted average shares used in computing diluted loss per
share for 1995, 1996, and 1997 and for the quarters ended March 30, 1997 and
March 29, 1998, respectively.
Accounting for Stock-Based Compensation
The Company adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation." However, as permitted by SFAS No. 123, the
Company continues to account for its stock-based plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(see Note 8).
Accounting Pronouncements Not Yet Adopted
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way that public companies report
information about operating segments in financial statements. SFAS No. 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirements to report information about major
customers. SFAS No. 131 is effective for the Company in fiscal 1998. The
Company does not believe that the adoption of SFAS No. 131 will have a
material effect on disclosures in the Company's financial statements.
F-9
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS
On March 5, 1997, the Company executed a series of agreements to purchase
certain franchise rights and operations of a franchisee of the Company in
Illinois. The interests acquired included: (1) the limited partnership
interest (39%) in FFEL for $168,000, including $80,000 in cash and an $88,000
note payable (including accrued interest of $8,000) due on March 4, 1998, (2)
Illinois franchise rights for 150,000 shares of Series F preferred stock (see
Note 6) and (3) the option to purchase the entire general partnership interest
(61%) for 15,000 shares of common stock, valued at $150,000, upon exercise.
On December 28, 1997, the Company exercised its option to acquire the
general partnership interest in FFEL. The Company has accounted for this
acquisition using the purchase method of accounting. The consolidated
financial statements include the results of operations, adjusted for the
majority owners' share of earnings, which were not material, for the period
prior to December 28, 1997, of FFEL from the date of initial acquisition
(March 5, 1997). The purchase price of approximately $650,000, including the
assumption of a $100,000 loan, has been allocated principally to rides, games
and other equipment based on their estimated fair market values at the date of
acquisition, as determined by an independent valuation obtained by the
Company.
The following unaudited pro forma results of operations assume that the
purchase transaction described above occurred at the beginning of 1995, 1996
and 1997. In addition to combining historical results of operations, the
unaudited pro forma amounts shown include adjustments for the estimated effect
of depreciation, amortization and interest expense associated with such
transaction. The unaudited pro forma information below does not purport to be
indicative of the results of operations that would have actually been achieved
if the transaction described above had actually been consummated as of the
beginning of 1995, 1996 and 1997. In addition, the unaudited pro forma
information below does not purport to be indicative of the results of
operations which may be achieved in the future.
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.......................... $ 8,915,735 $11,480,612 $16,658,483
Net loss.......................... (2,526,328) (3,523,935) (4,583,437)
Pro forma net loss per share of $ (27.54) $ (33.57) $ (48.90)
common stock..................... =========== =========== ===========
</TABLE>
3. IMPAIRMENT AND PARK CLOSING COSTS
In 1996, the Company adopted the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires the Company to evaluate the carrying value of long-lived
assets including equipment and leaseholds whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Under
SFAS No. 121, an assessment is made to determine if the sum of the expected
future undiscounted cash flows from the use of the assets and eventual
disposition is less than the carrying value. If the sum of the expected
undiscounted cash flows is less than the carrying value, an impairment loss is
recognized by measuring the excess of carrying value over fair value
(generally estimated by projected future discounted cash flows from the
applicable operation or independent appraisal).
During 1996, the Company developed two scaled-down versions of the Jeepers!
prototype ("Jeepers Jr!s") which are operated by the Company within Toys "R"
Us Kids World ("Kids World") superstores pursuant to a license agreement. In
1997, the Wall Street Journal reported that Toys "R" Us would not open
additional Kids World superstores. Further, due to the uncertainty of future
cash flows associated with both Jeepers Jr!s, the Company recorded an
impairment charge of approximately $1,280,000. The provision includes charges
for impairments to the carrying value of all Jeepers Jr! assets including
rides, games and leasehold improvements.
F-10
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1996, the Company recorded an impairment charge of approximately $600,000
relating to certain leasehold improvements, rides and games at one Jungle
Jim's Playland. In 1997, the Company accrued approximately $368,000 of exit
costs, primarily for lease settlements, relating to the closing of the same
Jungle Jim's Playland. Revenues associated with this Jungle Jim's Playland
amounted to approximately $1,365,000, $1,142,000 and $939,000 in 1995, 1996
and 1997, respectively.
In 1996, the Company also accrued $150,000 of additional exit costs,
primarily for lease settlements, relating to the closing of one of the earlier
generation Jungle Jim's Playland that closed in 1995. In June 1997, the
Company settled its final obligations relating to the same Jungle Jim's
Playland. Contractual lease costs of $262,000 were charged during 1996 against
the reserve that was established in 1995.
During 1995, the Company incurred $428,000 and $72,000 of impairment and
closing costs, respectively, relating to the closing of two Jungle Jim's
Playlands. Revenues associated with these two Jungle Jim's Playlands amounted
to approximately $1,193,000 in 1995.
4. LONG-TERM DEBT
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
MARCH 29,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Borrowings under master line-of-
credit........................... $ 928,679 $ 487,880 $ 337,972
Notes payable to Toys "R" Us...... 397,500 377,500 372,500
Notes payable to investor/limited
partners......................... 2,004,345 80,000 --
Loan from financial institution... -- 105,770 88,853
Notes payable to lenders.......... 92,400 959,881 756,113
Notes payable to landlord......... -- 624,899 599,284
Capital leases (see Note 7)....... -- 290,439 270,727
----------- ----------- -----------
3,422,924 2,926,369 2,425,449
Less current portion.............. (2,590,005) (1,568,384) (1,665,708)
----------- ----------- -----------
$ 832,919 $ 1,357,985 $ 759,741
=========== =========== ===========
</TABLE>
The Company has various debt agreements (the "Agreements") pursuant to the
terms and conditions of a master line-of-credit with a financing company. The
Agreements require monthly payments of principal and interest, ranging from
$2,413 to $12,060, with interest charges on the various notes ranging between
10.5% and 13% per annum. Borrowings under the master line-of-credit and
related Agreements are for the purchase of rides, games and equipment at Park
locations. The Agreements are collateralized by the rides, games and
equipment.
During 1996, the Company executed two notes with Toys "R" Us which require
equal monthly payments of principal and interest of $933. At December 28,
1997, the unpaid balance on these notes aggregated $377,500, with an effective
interest rate of 10.7%. The notes are collateralized by the assets at each
location.
The note payable of $2,004,345 relates to a 1996 loan from an investor that
was made in anticipation of proceeds to be received from the issuance of
Series F preferred stock. The loan was repaid in January 1997.
On March 5, 1997, in connection with the acquisition of FFEL (see Note 2),
the Company executed unsecured promissory notes with various limited partners
in the aggregate principal amount of $80,000. Each note bears interest at the
rate of 10% per annum and matures on March 4, 1998. The Company also assumed a
$400,000 loan obtained from a financial institution. The loan requires the
Company to pay monthly principal
F-11
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and interest payments of approximately $6,770. The loan bears interest at the
rate of 11.25% per annum and matures in May 1999. The loan is collateralized
by the assets of the Park.
In October 1997, the Company executed a $650,000 note payable to a landlord
relating to the construction of one Jeepers! Park. The note, which bears
interest at the rate of 10.45% per annum, requires monthly principal and
interest payments of $13,955. The Company is required to make accelerated
principal prepayments based on certain Park operating profit levels as defined
in the lease agreement. At December 28, 1997, the unpaid balance on this note
aggregated $624,899.
The Company has also entered into various notes payable with certain lenders
for the purchase of Park rides and games. These notes require the Company to
make weekly principal and interest payments ranging between $2,000 to $3,000
over a term of 18 to 30 months. These notes bear interest at the rate of 12%
to 13% per annum and are collateralized by the rides and games.
Maturities of long-term debt, including capital lease obligations, at
December 28, 1997 are as follows:
<TABLE>
<S> <C>
1998.......................................................... $1,568,384
1999.......................................................... 896,335
2000.......................................................... 123,597
2001.......................................................... 30,579
2002.......................................................... 30,579
Thereafter.................................................... 276,895
----------
Total..................................................... $2,926,369
==========
</TABLE>
5. CONVERTIBLE DEBENTURES
In November 1996, the Company issued $3,500,000 of 11% convertible notes at
a discount of $175,000, due November 1, 2002. All of the Company's convertible
notes were converted into 3,181,814 shares of Series F preferred stock as of
December 29, 1996 at a conversion rate of $1.10 per share. The total principal
amount converted was credited to preferred stock.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Redeemable Convertible Preferred Stock
Redeemable convertible preferred stock is recorded upon issuance at fair
value, net of issuance costs, and is periodically accreted to redemption value
principally as the result of accrued and unpaid preferred stock dividends.
Each share of preferred stock is convertible, at the option of the holder,
at any time, into a number of common shares determined by dividing the
redemption price by a conversion price per share. Each holder of preferred
shares who converts his preferred shares to common shares, in lieu of
accepting cash for accrued and unpaid dividends, may request that the Company
pay such dividends in shares of common stock. The number of shares of common
stock to be issued upon such election is determined by dividing accrued and
unpaid dividends by a conversion price per share. The conversion price for
each share of preferred stock is $10.00 per share for Series A, B and D, and
$11.00 per share for Series C and F, and is subject to adjustment, including
stock splits, combinations, stock dividends, recapitalization,
reclassification or reorganization. The conversion price for accrued and
unpaid dividends is $11.00 for all series. Each holder of preferred shares has
the right to vote at the rate of the largest number of full shares of common
stock into which all shares of preferred stock could be converted.
F-12
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On April 29, 2004, the holders of the preferred shares have the option to
require that the Company redeem all or a portion of their outstanding shares
at the redemption price. Commencing April 29, 2005, the Company shall have the
right to redeem all or any portion of the preferred shares outstanding. The
redemption price is $7.07 per share for Series A and D, $6.62 per share for
Series B, and $1.10 for Series C and F, plus accrued and unpaid dividends.
Dividends are cumulative at $0.6363 per share for Series A and D, $0.5956
per share for Series B and $0.0990 per share for Series C and F. At December
29, 1996, December 28, 1997 and March 29, 1998, there were cumulative
dividends in arrears of approximately $5,280,000, $8,606,000 and $9,453,000,
respectively. In the event of liquidation, the Series A, B, C, D and F
preferred shareholders are to be paid out of assets available to shareholders
at $7.07, $6.62, $1.10, $7.07 and $1.10 per share, respectively, plus all
accrued but unpaid dividends, before any payment is made to common
shareholders.
Warrants
The Company has issued warrants to purchase 135,000 shares of common stock
at a strike price of $7.30 per share. The warrants expire in 2001.
In addition, the Company has issued warrants to purchase 7,500 and 5,000
shares of common stock at a strike price of $13.20 and $20.00 per share,
respectively. These warrants expire in 2002.
7. COMMITMENT AND CONTINGENCIES
Leases
The Company leases all of its Park locations and corporate offices under
long-term noncancelable lease agreements. Most of the lease agreements contain
renewal options and require the Company to pay real estate taxes. Certain
agreements provide for contingent rental payments based on revenues, and
certain agreements are collateralized by the rides, games and equipment at the
respective Park location.
Future minimum lease payments pursuant to leases with noncancelable lease
terms in excess of one year at December 28, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OPERATING CAPITAL
----------- ----------- --------
<S> <C> <C>
1998............................................... $ 1,980,586 $115,956
1999............................................... 1,994,115 116,792
2000............................................... 2,007,916 110,072
2001............................................... 2,021,993 12,166
2002............................................... 2,086,175 11,152
Thereafter......................................... 17,203,117 --
----------- --------
Total future minimum lease payments.................. $27,293,902 $366,138
===========
Less amount representing interest.................... 75,699
--------
Present value of future minimum lease payments....... $290,439
========
</TABLE>
Rent expense totaled $1,263,339, $1,286,240 and $2,150,092 for 1995, 1996
and 1997, respectively.
Included in equipment and leasehold improvements at December 28, 1997 and
March 29, 1998 is $359,000 of equipment held pursuant to capital lease
arrangements. The Company had no capital leases in 1996 and 1995. The related
accumulated amortization was approximately $14,200 and $23,800 at December 28,
1997 and March 29, 1998, respectively.
F-13
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Litigation
The Company is engaged in various legal actions arising in the ordinary
course of business against which, in the judgment of management based upon
consultation with legal counsel, the Company has adequate legal defenses or
insurance coverage. The Company also believes that the ultimate outcome of
such actions would not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
8. STOCK OPTION PLANS
The Company has five stock option plans: the 1991 Stock Option Plan (the
"1991 Plan"), the 1991 Management Stock Option Plan (the "1991 Management
Plan"), the 1993 Stock Option Plan (the "1993 Plan"), the 1994 Stock Option
Plan (the "1994 Plan") and the 1995 Stock Option Plan (the "1995 Plan")
(collectively, the "Plans"). Pursuant to the Plans, the Company may grant to
management and key employees incentive and nonqualified options to purchase up
to 427,792 shares of common stock. The options are exercisable over a period
determined by the Company's Board of Directors, but not longer than ten years
after the date granted. The vesting schedule for the options granted is
determined by the Board of Directors. The exercise price of these options may
not be less than the fair market value at the date of the grant. In February
1997, the exercise price of all options previously granted under the 1995 Plan
was reduced from $11.00 to $8.00 per share in order to reflect the reduction
in value of the Company's common stock resulting from the effect of the
accumulated redeemable convertible preferred stock dividends (see Note 6).
The following table summarizes the Company's stock option activity for the
periods presented:
<TABLE>
<CAPTION>
1995 1996 1997
------------------ ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 246,901 $10.19 48,864 $9.12 64,035 $ 8.35
Granted................. 25,700 8.00 42,875 8.00 62,950 10.73
Canceled................ (223,737) 10.18 (27,704) 9.16 (4,850) 8.00
-------- ------ ------- ----- ------- ------
Outstanding at end of
period................. 48,864 $ 9.12 64,035 $8.35 122,135 $ 9.59
======== ====== ======= ===== ======= ======
Options exercisable at
end of period.......... 2,000 $10.70 5,140 $8.00 16,360 $ 8.87
======== ====== ======= ===== ======= ======
</TABLE>
The weighted average remaining contractual life of the Plans' options
outstanding at December 28, 1997 was nine years. Options available for future
grants under the Plans were 238,929, 253,757, and 305,657 at December 31,
1995, December 29, 1996 and December 28, 1997, respectively.
In addition, during 1995, the Company granted non-qualified options to the
Chairman, President and Chief Executive Officer to purchase 200,000 shares at
$11.00 per share, 100,000 shares at $16.50 per share and 100,000 shares at
$22.00 per share. These options have a contractual life of eight years and
vest in equal quarterly installments over four years. In connection with the
February 1997 option repricing discussed above, the exercise price of the
options was reduced to $8.00, $12.00 and $16.00 per share, respectively.
Furthermore, effective April 1997, the exercise price of the options was
reduced to $5.50 per share which, in the view of the Company, was not less
than the fair market value of the common stock of the Company. There has been
no other activity relating to this agreement during 1997.
Pro forma information regarding net loss and pro forma net loss per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method prescribed
by SFAS No. 123. The fair value for options granted was estimated at the date
of grant using the Black-Scholes option valuation model. The following
weighted average assumptions were used for 1995, 1996, and 1997: risk-free
interest rates of 6.0%-6.5%; no dividend yield; a .001 volatility factor; and
an expected life of the options of 8.4 years.
F-14
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics different
from those of traded options, and because the changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
option is amortized to expense over the option's vesting period. Because SFAS
No. 123 requires compensation expense to be recognized over the vesting
period, the impact on pro forma net loss, as reported below, may not be
representative of the pro forma compensation expense in future years. Pro
forma net loss and net loss per common share for 1995, 1996 and 1997 were not
materially different from reported amounts.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) retirement plan that is considered a defined
contribution discretionary plan and covers all employees meeting certain
requirements. The amount an individual employee may contribute to the plan
ranges between 1% and 15% of their compensation. The Company made no
contributions during 1995, 1996 and 1997. The Company has not yet made a
fiscal 1998 discretionary contribution.
Effective October 10, 1997, the Company implemented a nonqualified executive
deferred compensation plan providing retirement benefits to certain Company
executives. Eligible participants may elect to defer a percentage, or a
specific dollar amount, of their salary or bonus (as defined in the plan) each
year. Such amounts are credited to the participant's individual account. At
December 28, 1997 and March 29, 1998, $125,000 has been accrued by the Company
representing deferred compensation of a certain executive.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at December 29, 1996 and
December 28, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforward................ $4,551,000 $5,546,000
Asset impairment charge........................ 204,000 656,000
Accrual for park closing costs................. 120,000 127,000
Other.......................................... 341,000 511,000
---------- ----------
Total deferred tax assets.................... 5,216,000 6,840,000
DEFERRED TAX LIABILITIES:
Depreciation................................... (662,000) (756,000)
Other.......................................... (11,000) --
---------- ----------
Total deferred tax liabilities............... (673,000) (756,000)
---------- ----------
Net deferred tax assets...................... 4,543,000 6,084,000
---------- ----------
Total valuation allowance.................... (4,543,000) (6,084,000)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
F-15
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Due to the uncertainties which exist as to the future utilization of the net
operating loss carryforwards under the criteria set forth under SFAS No. 109,
it is management's opinion that a valuation allowance for net deferred tax
assets should be established at December 29, 1996 and December 28, 1997. The
Company has net operating loss carryforwards for federal income tax purposes
of approximately $16 million which, if not used, will begin to expire in years
2006 and thereafter. The Company's ability to utilize loss carryforwards is
subject to limitations as defined in Internal Revenue Code Section 382.
11. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic, diluted, and
unaudited pro forma net income (loss) per share:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------ PRO FORMA
PRO FORMA MARCH 30 MARCH 29, MARCH 29,
1995 1996 1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Numerator:
Net income (loss)...... $(2,617,588) $(3,591,736) $(4,599,905) $(4,599,905) $ (299,975) $ 146,321 $ 146,321
Accretion of redeemable
convertible preferred
stock................. (2,031,831) (2,031,831) (3,508,775) -- (877,194) (877,194) --
----------- ----------- ----------- ----------- ----------- --------- ---------
$(4,649,419) $(5,623,567) $(8,108,680) $(4,599,905) $(1,177,169) $(730,873) $146,321
=========== =========== =========== =========== =========== ========= =========
Denominator:
Denominator for basic
and diluted net loss
per share--weighted
average shares........ 165,500 165,500 165,500 165,500 165,500 180,500 180,500
Redeemable convertible
preferred stock....... -- -- -- 4,293,197 -- -- 4,363,526
----------- ----------- ----------- ----------- ----------- --------- ---------
165,500 165,500 165,500 4,458,697 165,500 180,500 4,544,026
=========== =========== =========== =========== =========== ========= =========
Basic net income (loss)
per share.............. $ (28.09) $ (33.98) $ (49.00) $ (7.11) $ (4.05)
=========== =========== =========== =========== =========
Diluted net income
(loss) per share....... $ (28.09) $ (33.98) $ (49.00) $ (7.11) $ (4.05)
=========== =========== =========== =========== =========
Unaudited pro forma net
income (loss) per
share.................. $ (1.03) $ 0.03
=========== =========
</TABLE>
Unaudited pro forma net income (loss) per share was computed by dividing net
income (loss) by the unaudited weighted average number of shares of common
stock outstanding plus the conversion of all outstanding preferred stock (see
Note 6 for discussion of conversion price), including accrued and unpaid
preferred stock dividends at December 28, 1997 and March 29, 1998, into
4,293,197 and 4,363,526 shares of common stock, respectively, which will occur
immediately prior to consummation of the Company's initial public offering
(see Note 13).
F-16
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. YEAR 2000 ISSUE (UNAUDITED)
The Company has reviewed its computer programs and systems to ensure that
the programs and systems will function properly and be Year 2000 compliant.
The Company presently believes that the Year 2000 issue will not pose any
significant operational problems for the Company's computer systems. However,
the Year 2000 issue may impact other entities with which the Company transacts
business, and the Company cannot predict the effect of the Year 2000 issue on
such entities and, in turn, the impact of any such effect on the Company.
13. SUBSEQUENT EVENTS
In March 1998, the Board of Directors of the Company authorized management
to file a registration statement with the Securities and Exchange Commission
in order to permit the Company to sell shares of its common stock to the
public. If the offering is consummated under terms presently anticipated, all
of the preferred stock issued and outstanding will automatically convert into
4,419,123 shares of common stock including accrued preferred stock dividends
of approximately 915,000 shares through June 5, 1998. Immediately following
such conversions, all currently outstanding shares of preferred stock will be
canceled, retired and eliminated from the Company's authorized shares of
capital stock and the number of authorized shares of preferred stock will be
decreased to approximately 5,000,000 shares.
In March 1998, the Company obtained a $5.0 million term loan (the " term
loan facility") for purposes of financing new rides and equipment. Borrowings
under the term loan facility bear interest at a coupon rate of 10.0% per
annum. Terms of the term loan facility also require principal and interest
payments over 48 months with additional payments at the end of the loan
facility period (resulting in an effective interest rate of approximately
15.25%). The Company has no borrowings outstanding under this facility.
A reverse stock split was approved by the Company's Board of Directors on
April 6, 1998, whereby one share of common stock is outstanding after the
split for each 10 shares of common stock outstanding prior to the split. All
share and per share amounts related to common stock presented in the
accompanying consolidated financial statements have been restated to reflect
the reverse stock split.
In May 1998, the Company obtained a commitment for a $7.5 million revolving
credit and term loan facility (the "revolving loan facility") for the purpose
of financing new equipment and new Park buildout expenses. Borrowings under
the revolving loan facility bear interest at prime rate. Commencing on the
first anniversary of the closing date all principal outstanding under such
facility will convert to a term loan with equal monthly principal payments and
a final maturity on December 31, 2002. The revolving loan facility has not yet
closed and no borrowings are outstanding thereunder.
F-17
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITA-
TION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE OF THIS PROSPECTUS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Capitalization............................................................ 14
Dilution.................................................................. 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 23
Management................................................................ 32
Certain Relationships and Related Transactions............................ 39
Principal Stockholders.................................................... 40
Shares Eligible for Future Sale........................................... 41
Description of Capital Stock.............................................. 42
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 47
Index to Consolidated Financial Statements................................ F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, REGISTERED SE-
CURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,000,000 Shares
[LOGO OF JEEPERS]
Common Stock
---------------------
PROSPECTUS
---------------------
Piper Jaffray inc.
Cowen & Company
Gerard Klauer Mattison & Co., Inc.
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's estimated expenses in
connection with the issuance of the securities being registered, other than
underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............ $10,856
NASD Filing Fee................................................ 3,950
Printing and Engraving Expenses................................ 200,000
Counsel Fees and Expenses...................................... 300,000
Accountants' Fees and Expenses................................. 250,000
Transfer Agent and Registrar Fees and Expenses................. 3,500
Nasdaq National Market Listing Fee............................. 66,875
Miscellaneous.................................................. 64,819
--------
Total...................................................... $900,000
========
</TABLE>
- --------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL"), the law of
the state in which the Registrant is incorporated, empowers a corporation
within certain limitations to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonable
incurred by him in connection with any action, suit or proceeding to which he
is or was threatened to be a party 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, as
long as he acted in good faith and in a manner which he reasonably believed to
be in, or not opposed to, the best interests of the corporation. With respect
to any criminal proceeding, he must have had no reasonable cause to believe
his conduct was unlawful. No such 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 of the State of Delaware 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 of the circumstances of the case such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery of the State of Delaware or such other court shall deem proper.
Pursuant to the Registrant's Certificate of Incorporation and Bylaws, the
Registrant is obligated to indemnify, to the fullest extent permitted by
applicable law, any person who was, is or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal administrative or investigative, by reason of the fact that he
is or was a director or officer of the corporation, or is or was serving at
the request of the corporation as a director, officer, agent, employee or
other similar functionary of another entity, against all expenses (including
attorney's fees), liability, loss, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding. The Registrant's Bylaws provide that such
indemnification shall be made if such person 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. If the proceeding was
initiated by such person, the Certificate of Incorporation requires that such
proceeding be authorized by the Board as a condition to the right to
indemnification. The Registrant also is obligated to pay the expenses of such
indemnified persons in advance of the final disposition of such action, suit
or proceeding upon certain conditions.
II-1
<PAGE>
As permitted by Section 102 of the DGCL, the Certificate of Incorporation
provides that a director of the Registrant shall not be liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director other than (i) for any breach of the director's duty of
loyalty to the Registrant 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 DGCL and (iv) for any transaction from
which the director derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On November 1, 1996, the Company issued to CCI, J.P. Morgan, Sixty Wall
Street SBIC Fund L.P., Dickstein & Co., L.P., Dickstein International Limited,
Dickstein Focus Fund L.P. and Shad Run-JJ Nominee Corporation convertible
notes due November 1, 2002 (the "Notes") in an aggregate principal amount of
$3,500,000 and warrants to purchase 70,000 shares of Common Stock, for an
aggregate purchase price of $3,500,000. The Notes were converted into
1,359,683 shares of Series F Preferred Stock and warrants to purchase 6,242
shares of Common Stock (other than the Notes held by CCI, which were redeemed
by the Company) in connection with the issuance of the Series F Preferred
Stock on December 26, 1996. The warrants are exercisable into shares of Common
Stock of the Company at a price of $7.33 per share, subject to adjustment.
Such sale was exempt from registration pursuant to Section 4(2) of the
Securities Act.
Pursuant to a purchase agreement dated December 26, 1996 (the "December 1996
Agreement"), the Company issued on such date to certain of the investors
referred to above, as well as to certain affiliates of Centre Partners II LLC
and Generation Capital Partners L.P. and to certain additional investors,
10,526,673 shares of Series F Preferred Stock and warrants to purchase 48,325
shares of Common Stock for an aggregate purchase price of $11,579,341.
Pursuant to the December 1996 Agreement, on March 31, 1997 the Company issued
to Braemar Capital Partners I, L.P. and to certain other investors party to
such agreement 2,272,727 shares of Series F Preferred Stock and warrants to
purchase 10,433 shares of Common Stock, for an aggregate purchase price of
$2,499,999. The warrants are exercisable at a price of $7.33 per share,
subject to adjustment. Such sales were exempt from registration pursuant to
Section 4(2) of the Securities Act.
During 1997, the Company issued warrants to purchase an aggregate of 17,500
shares of Common Stock to certain landlords in connection with leases entered
into by the Company with respect to certain Park locations. The warrants are
exercisable at prices of $13.20 to $20.00 per share, subject to adjustment.
Such sale was exempt from registration pursuant to Section 4(2) of the
Securities Act.
On March 5, 1997, the Company issued to Swento & Company ("Swento"), a
former franchisee in Des Plaines, Illinois, 150,000 shares of Series F
Preferred Stock in consideration for the granting of the franchise rights for
the Company's first-generation Park located in Des Plaines, Illinois. Such
sale was exempt from registration pursuant to Section 4(2) of the Securities
Act.
On December 28, 1997, the Company issued to Swento 15,000 shares of Common
Stock in consideration for the general partnership interest in the owner of
the Company's Chicago-area franchise. Such sale was exempt from registration
pursuant to Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Registration Statement:
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
1.1 Form of Purchase Agreement.
3.1 Restated Certificate of Incorporation of the Registrant,
as amended.
3.2 Bylaws of the Registrant.**
4.1 Form of Common Stock certificate.*
5.1 Opinion of Weil, Gotshal & Manges LLP.*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
10.1 Registrant's 1995 Stock Option Plan.**
10.2 Registrant's 1998 Incentive and Capital Accumulation Plan.
10.3 Fourth Amended and Restated Stockholders' Agreement.
10.4 Employment Agreement between the Registrant and Nabil N.
El-Hage, as amended.
10.5 Option Agreement between the Registrant and Nabil N. El-
Hage, as amended.**
10.6 Master License Agreement between Registrant and Pizza Hut,
Inc. dated September 20, 1993, as amended.
10.7 Loan Agreement between the Registrant and Leasing Technol-
ogies International Inc.*
21 Subsidiaries of Registrant.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)*
24 Power of Attorney (included in the signature pages to Reg-
istration Statement).**
27 Financial Data Schedule.**
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant under the DGCL or pursuant to the
Registrant's Certificate of Incorporation or Bylaws or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Waltham, Commonwealth of Massachusetts, on May 19, 1998.
Jeepers! Inc.
(Registrant)
/s/ Nabil N. El-Hage
By __________________________________
Nabil N. El-Hage
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Nabil N. El-Hage Chairman, President and May 19, 1998
____________________________________ Chief Executive Officer
Nabil N. El-Hage (Principal Executive
Officer)
* Chief Financial Officer May 19, 1998
____________________________________ (Principal Financial
Kenneth J. Sanginario Officer and Principal
Accounting Officer)
* Director May 19, 1998
___________________________________
Paul F. Balser
* Director May 19, 1998
____________________________________
Mark E. Jennings
* Director May 19, 1998
____________________________________
Mark L. Kaufman
* Director May 19, 1998
____________________________________
Bruce G. Pollack
* Director May 19, 1998
____________________________________
Jonathan H. Kagan
</TABLE>
/s/ Nabil N. El-Hage
*By _________________________________
Nabil N. El-Hage
Attorney-in Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
1.1 Form of Purchase Agreement.
3.1 Restated Certificate of Incorporation of the Registrant,
as amended.
3.2 Bylaws of the Registrant.**
4.1 Form of Common Stock certificate.*
5.1 Opinion of Weil, Gotshal & Manges LLP.*
10.1 Registrant's 1995 Stock Option Plan.**
10.2 Registrant's 1998 Incentive and Capital Accumulation
Plan.
10.3 Fourth Amended and Restated Stockholders' Agreement.
10.4 Employment Agreement between the Registrant and Nabil N.
El-Hage, as amended.
10.5 Option Agreement between the Registrant and Nabil N. El-
Hage, as amended.**
10.6 Master License Agreement between Registrant and Pizza
Hut, Inc. dated September 20, 1993, as amended.
10.7 Loan Agreement between the Registrant and Leasing Tech-
nologies International Inc.*
21 Subsidiaries of Registrant.**
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Weil, Gotshal & Manges LLP (included in Ex-
hibit 5.1)*
24 Power of Attorney (included in the signature pages to
Registration Statement).**
27 Financial Data Schedule.**
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
<PAGE>
__________ SHARES/1/
Jeepers! Inc.
Common Stock
PURCHASE AGREEMENT
------------------
June __, 1998
PIPER JAFFRAY INC.
COWEN & COMPANY
GERARD KLAUER MATTISON & CO., INC.
As Representatives of the several
Underwriters named in Schedule II hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Jeepers! Inc., a Delaware corporation (the "Company"), proposes to sell to
the several Underwriters named in Schedule II hereto (the "Underwriters") an
aggregate of 2,000,000 shares (the "Firm Shares") of Common Stock, $.01 par
value per share (the "Common Stock"), of the Company. The Firm Shares consist
of authorized but unissued shares of Common Stock to be issued and sold by the
Company. The stockholders of the Company listed in Schedule I hereto (the
"Selling Stockholders") have granted to the several Underwriters an option to
purchase up to 300,000 additional shares of Common Stock, respectively, on the
terms and for the purposes
__________________
/1/ Plus an option to purchase up to 300,000 additional shares to cover over-
allotments.
<PAGE>
set forth in Section 3 hereof (the "Option Shares"). The Firm Shares and any
Option Shares purchased pursuant to this Purchase Agreement are herein
collectively called the "Securities."
The Company and the Selling Stockholders hereby confirm their agreement
with respect to the sale of the Securities to the several Underwriters, for whom
you are acting as Representatives (the "Representatives").
1. Registration Statement and Prospectus. A registration statement on
-------------------------------------
Form S-1 (File No. 333-50297) with respect to the Securities, including a
preliminary form of prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations ("Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission; one or more amendments to such registration statement have also been
so prepared and have been, or will be, so filed; and, if the Company has elected
to rely upon Rule 462(b) of the Rules and Regulations to increase the size of
the offering registered under the Act, the Company will prepare and file with
the Commission a registration statement with respect to such increase pursuant
to Rule 462(b). Copies of such registration statement(s) and amendments and
each related preliminary prospectus have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
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Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) (and Rule 434, if applicable) or from and after the time it is first
provided to the Underwriters by the Company for such use. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
434 of the Rules and Regulations.
2. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Stockholders.
- ------------
(a) The Company represents and warrants to, and agrees with, the several
Underwriters as follows:
(i) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; except
that the foregoing shall not apply to statements in or omissions from any
Preliminary Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter through
you, specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any post-effective
amendment thereto, including a registration statement (if any) filed
pursuant to Rule 462(b) of the Rules and Regulations increasing the size of
the offering registered under the Act) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus (including any term sheet
meeting the requirements of Rule 434 of the Rules and Regulations)) and at
the First Closing Date and Second Closing Date (as hereinafter defined),
(A) the Registration Statement and Prospectus (in each case, as so amended
and/or supplemented) conformed or will conform in all material respects to
the requirements of the Act and the Rules and Regulations, (B) the
Registration Statement (as so amended) did not or will not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (C) the Prospectus (as so supplemented) did not or will
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are or were
made, not misleading; except that the foregoing shall not apply to
statements in or omissions from any such document in reliance upon, and in
conformity with, written information furnished to the Company by you, or by
any Underwriter through you, specifically for use in the preparation
thereof. If the Registration Statement has been declared effective by the
Commission, no stop order suspending the effectiveness of the Registration
Statement has
3
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been issued, and no proceeding for that purpose has been initiated or, to
the Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together with the notes
thereto, set forth in the Registration Statement and Prospectus comply in
all material respects with the requirements of the Act and fairly present
the financial condition of the Company as of the dates indicated and the
results of operations and changes in cash flows for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
stated therein); and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. No
other financial statements or schedules are required to be included in the
Registration Statement or Prospectus. Ernst & Young LLP, which has
expressed its opinion with respect to the financial statements and
schedules filed as a part of the Registration Statement and included in the
Registration Statement and Prospectus, are independent public accountants
as required by the Act and the Rules and Regulations.
(iv) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. Each of the Company and its subsidiaries
has full corporate power and authority to own its properties and conduct
its business as currently being carried on and as described in the
Registration Statement and Prospectus, and is duly qualified to do business
as a foreign corporation in good standing in each jurisdiction in which it
owns or leases real property or in which the conduct of its business makes
such qualification necessary and in which the failure to so qualify would
have a material adverse effect upon its business, condition (financial or
otherwise) or properties, taken as a whole.
(v) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred any material liabilities or obligations, direct
or contingent, or entered into any material transactions, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital stock
(other than a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt, or
any issuance of options, warrants, convertible securities or other rights
to purchase the capital stock of the Company or any of its subsidiaries, or
any material adverse change, or any development involving a prospective
material adverse change, in the general affairs, condition (financial or
otherwise), business, key personnel, property, prospects, net worth or
results of operations of the Company and its subsidiaries, taken as a
whole.
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(vi) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened or contemplated, any
action, suit or proceeding to which the Company or any of its subsidiaries
is a party before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material adverse change
in the condition (financial or otherwise), business, prospects, net worth
or results of operations of the Company and its subsidiaries, taken as a
whole.
(vii) There are no contracts or documents of the Company or any of
its subsidiaries that are required to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations that have
not been so filed.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company, and constitutes a valid, legal and binding
obligation of the Company, enforceable in accordance with its terms, except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, any agreement or instrument to which the Company is a
party or by which it is bound or to which any of its property is subject,
the Company's charter or by-laws, or any order, rule, regulation or decree
of any court or governmental agency or body having jurisdiction over the
Company or any of its properties; no consent, approval, authorization or
order of, or filing with, any court or governmental agency or body is
required for the execution, delivery and performance of this Agreement or
for the consummation of the transactions contemplated hereby, including the
issuance or sale of the Firm Shares by the Company, except such as may be
required under the Act or state securities or blue sky laws; and the
Company has full power and authority to enter into this Agreement and to
authorize, issue and sell the Firm Shares as contemplated by this
Agreement.
(ix) All of the issued and outstanding shares of capital stock of
the Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and the holders thereof are not
subject to personal liability by reason of being such holders; the Firm
Shares which may be sold hereunder by the Company have been duly authorized
and, when issued, delivered and paid for in accordance with the terms
hereof, will have been validly issued and will be fully paid and
nonassessable, and the holders thereof will not be subject to personal
liability by reason of being such holders; and the capital stock of the
Company, including the Common Stock, conforms to the description thereof in
the Registration Statement and Prospectus. Except as otherwise stated in
the Registration Statement and Prospectus, there
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are no preemptive rights or other rights to subscribe for or to purchase,
or any restriction upon the voting or transfer of, any shares of Common
Stock pursuant to the Company's charter, by-laws or any agreement or other
instrument to which the Company is a party or by which the Company is
bound. Neither the filing of the Registration Statement nor the offering
or sale of the Securities as contemplated by this Agreement gives rise to
any rights for or relating to the registration of any shares of Common
Stock or other securities of the Company. All of the issued and
outstanding shares of capital stock of each of the Company's subsidiaries
have been duly and validly authorized and issued and are fully paid and
nonassessable, and, except as otherwise described in the Registration
Statement and Prospectus and except for any directors' qualifying shares,
the Company owns of record and beneficially, free and clear of any security
interests, claims, liens, proxies, equities or other encumbrances, all of
the issued and outstanding shares of such stock. Except as described in the
Registration Statement and the Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or acquire
from the Company or any subsidiary of the Company any shares of the capital
stock of the Company or any subsidiary of the Company. The Company has an
authorized and outstanding capitalization as set forth in the Registration
Statement and the Prospectus.
(x) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement (or any such right has been effectively waived) or any securities
being registered pursuant to any other registration statement filed by the
Company under the Act.
(xi) The Company and each of its subsidiaries holds, and is
operating in compliance in all material respects with, all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect; and the Company and each of
its subsidiaries is in compliance in all material respects with all
applicable federal, state, local and foreign laws, regulations, orders and
decrees.
(xii) The operations of the Company and its subsidiaries with respect
to any real property currently leased or owned or by any means controlled
by the Company or any subsidiary (the "Real Property") are in compliance
with all federal, state, and local laws, ordinances, rules, and regulations
relating to occupational health and safety and the environment
(collectively, "Laws"), and the Company and its subsidiaries have all
licenses, permits and authorizations necessary to operate under all Laws
and are in compliance with all terms and conditions of such licenses,
permits and authorizations; neither the Company nor any subsidiary has
authorized, conducted or has knowledge of
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the generation, transportation, storage, use, treatment, disposal or
release of any hazardous substance, hazardous waste, hazardous material,
hazardous constituent, toxic substance, pollutant, contaminant, petroleum
product, natural gas, liquefied gas or synthetic gas defined or regulated
under any environmental law on, in or under any Real Property; and there is
no pending or threatened claim, litigation or any administrative agency
proceeding, nor has the Company or any subsidiary received any written or
oral notice from any governmental entity or third party, that: (A) alleges
a violation of any Laws by the Company or any subsidiary; (B) alleges the
Company or any subsidiary is a liable party under the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601
et seq. or any state superfund law; (C) alleges possible contamination of
the environment by the Company or any subsidiary; or (D) alleges possible
contamination of the Real Property.
(xiii) The Company and its subsidiaries have good and marketable
title to all property described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all
liens, claims, security interests or other encumbrances except such as are
described in the Registration Statement and the Prospectus; the property
held under lease by the Company and its subsidiaries is held by them under
valid, subsisting and enforceable leases with only such exceptions with
respect to any particular lease as do not interfere in any material respect
with the conduct of the business of the Company or its subsidiaries; the
Company and each of its subsidiaries owns or possesses all patents, patent
applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and rights necessary for the conduct of the
business of the Company and its subsidiaries as currently carried on and as
described in the Registration Statement and Prospectus; except as stated in
the Registration Statement and Prospectus, no name which the Company or any
of its subsidiaries uses and no other aspect of the business of the Company
or any of its subsidiaries will involve or give rise to any infringement
of, or license or similar fees for, any patents, patent applications,
trademarks, service marks, tradenames, trademark registrations, service
mark registrations, copyrights, licenses, inventions, trade secrets or
other similar rights of others material to the business or prospects of the
Company, and neither the Company nor any of its subsidiaries has received
any notice alleging any such infringement or fee.
(xiv) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or in breach of or otherwise
in default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, indenture, loan agreement
or any other material contract, lease or other instrument to which it is
subject or by which any of them may be bound, or to which any of the
material property or assets of the Company or any of its subsidiaries is
subject.
(xv) The Company and its subsidiaries have filed all federal,
state, local and foreign income and franchise tax returns required to be
filed and are not in default in the
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<PAGE>
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, other than any which the Company or any
of its subsidiaries is contesting in good faith.
(xvi) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Firm Shares other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xvii) The Securities have been conditionally approved for listing on
the Nasdaq Stock Market's National Market ("NASDAQ"), and, on the date the
Registration Statement became or becomes effective, the Company's
Registration Statement on Form 8-A or other applicable form under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), became or
will become effective.
(xviii) Other than the subsidiaries of the Company listed in Exhibit
21 to the Registration Statement, the Company owns no capital stock or
other equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other entity.
(xix) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xx) Other than as contemplated by this Agreement, the Company has
not incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
(xxi) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or affiliate
located in Cuba.
(xxii) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts adequate, in its reasonable
opinion, for its business and in line with the insurance maintained by
similar companies and businesses.
(xxiii) The Master License Agreement, dated September 20, 1993,
between the Company and Pizza Hut, Inc., as amended to date, has been duly
authorized, executed and delivered on behalf of the Company and is a valid
and binding contract enforceable in
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accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
affecting the enforcement of creditors' rights generally and to general
equitable principles whether in a court of law or equity.
(b) Each Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters as follows:
(i) Such Selling Stockholder is the record and beneficial owner of,
and has, and on the Second Closing Date, will have, valid and marketable
title to the Option Shares to be sold by such Selling Stockholder, free and
clear of all security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances; and upon
delivery of and payment for such Option Shares hereunder, the several
Underwriters will acquire valid and marketable title thereto, free and
clear of any security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances. Such
Selling Stockholder is selling the Option Shares to be sold by such Selling
Stockholder for such Selling Stockholder's own account and is not selling
such Option Shares, directly or indirectly, for the benefit of the Company,
and no part of the proceeds of such sale received by such Selling
Stockholder will inure, either directly or indirectly, to the benefit of
the Company other than as described in the Registration Statement and
Prospectus.
(ii) Such Selling Stockholder has duly authorized, executed and
delivered an irrevocable power of attorney and custody agreement (the
"Custody Agreement") appointing ___________ and ____________ as such
Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute, deliver and perform this Agreement on behalf of the
Selling Stockholder and appointing ____________________, as custodian
thereunder (the "Custodian"). Pursuant to the Custody Agreement, the
Selling Stockholder has placed in custody with the Custodian, for delivery
under this Agreement, the certificates representing the Option Shares to be
sold by such Selling Stockholder; such certificates represent validly
issued, outstanding, fully paid and nonassessable shares of Common Stock;
and such certificates were duly and properly endorsed in blank for
transfer, or were accompanied by all documents duly and properly executed
that are necessary to validate the transfer of title thereto, to the
Underwriters, free of any legend, restriction on transferability, proxy,
lien or claim, whatsoever. Such Selling Stockholder has full right, power
and authority to enter into the Custody Agreement and to perform its
obligations under the Custody Agreement. The Custody Agreement has been
duly executed and delivered by such Selling Stockholder and, assuming due
authorization, execution and delivery by the Custodian, is the valid and
binding agreement of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms.
9
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(iii) This Agreement and the Custody Agreement have each been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and each constitutes a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnity hereunder or thereunder may be limited by federal or
state securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or laws affecting the rights of
creditors generally and subject to general principles of equity. The
execution and delivery of this Agreement and the Custody Agreement and the
performance of the terms hereof and thereof and the consummation of the
transactions herein and therein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound, or any law,
regulation, order or decree applicable to such Selling Stockholder; no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement and the Custody Agreement or for the
consummation of the transactions contemplated hereby and thereby, including
the sale of the Option Shares being sold by such Selling Stockholder,
except such as may be required under the Act or state securities laws or
blue sky laws.
(iv) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Option Shares other than any Preliminary
Prospectus or the Prospectus or other materials permitted by the Act to be
distributed by such Selling Stockholder.
(v) Such Selling Stockholder has reviewed the Registration
Statement and the Prospectus and to the best knowledge of such Selling
Stockholder neither the Registration Statement nor the Prospectus contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading regarding such Selling Stockholder, the other Selling
Stockholders, the Company or otherwise.
(vi) To the best knowledge of such Selling Stockholder, the
representations and warranties of the Company contained in paragraph (a) of
this Section 2 are true and correct.
(c) Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby.
3. Purchase, Sale and Delivery of Securities.
-----------------------------------------
(a) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to issue and sell the
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Firm Shares to the several Underwriters, and each Underwriter agrees, severally
and not jointly, to purchase from the Company the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule II hereto. The purchase
price for each Firm Share shall be $____ per share. In making this Agreement,
each Underwriter is contracting severally and not jointly; except as provided in
paragraph (c) of this Section 3 and in Section 8 hereof, the agreement of each
Underwriter is to purchase only the respective number of Firm Shares specified
in Schedule II.
The Firm Shares will be delivered by the Company and the Custodian to you
for the accounts of the several Underwriters against payment of the purchase
price therefor by certified or official bank check or other next day funds
payable to the order of the Company and the Custodian, as appropriate, at the
offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable, at
8:00 a.m. Central time on the third (or if the Securities are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern
time, the fourth) full business day following the date hereof, or at such other
time and date as you and the Company determine pursuant to Rule 15c6-1(a) under
the Exchange Act, such time and date of delivery being herein referred to as the
"First Closing Date." If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Firm Shares, in definitive form and in such denominations and
registered in such names as you may request upon at least two business days'
prior notice to the Company and the Custodian, will be made available for
checking and packaging not later than 10:30 a.m., Central time, on the business
day next preceding the First Closing Date at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable.
(b) On the basis of the representations, warranties and agreements herein
contained, but subject to the terms and conditions herein set forth, each
Selling Stockholder, with respect to the number of Option Shares set forth
opposite the name of such Selling Stockholder in Schedule I hereto, hereby
grants to the several Underwriters an option to purchase all or any portion of
the Option Shares at the same purchase price as the Firm Shares, for use solely
in covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time (but not more than once) within 30 days after the effective date of
this Agreement upon notice (confirmed in writing) by Piper Jaffray Inc. to the
Company and to the Attorneys-in-Fact setting forth the aggregate number of
Option Shares as to which the several Underwriters are exercising the option,
the names and denominations in which the certificates for the Option Shares are
to be registered and the date and time, as determined by you, when the Option
Shares are to be delivered, such time and date being herein referred to as the
"Second Closing" and "Second Closing Date", respectively; provided, however,
that the Second Closing Date shall not be earlier than the First Closing Date
nor earlier than the second business day after the date on which the option
shall have been exercised. If the option is exercised, the obligation of each
Underwriter shall be to purchase from the Selling Stockholders
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granting an option to purchase the Option Shares, on a pro rata basis, that
number of Option Shares (to be adjusted by the Representatives to avoid
fractional shares) which represents the same proportion that the number of
Option Shares granted by each such Selling Stockholder bears to the total number
of Option Shares granted by all such Selling Stockholders. The number of Option
Shares to be purchased by each Underwriter shall be the same percentage of the
total number of Option Shares to be purchased by the several Underwriters as the
number of Firm Shares to be purchased by such Underwriter is of the total number
of Firm Shares to be purchased by the several Underwriters, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares. No Option Shares shall be sold and delivered unless the Firm
Shares previously have been, or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Custodian and the Selling
Stockholders, as appropriate, to you for the accounts of the several
Underwriters against payment of the purchase price therefor by certified or
official bank check or other next day funds payable to the order of the
Custodian or the Company, as appropriate, at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable at 8:00 a.m., Central time, on the
Second Closing Date. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Option Shares in definitive form and in such denominations and
registered in such names as you have set forth in your notice of option
exercise, will be made available for checking and packaging not later than 10:30
a.m., Central time, on the business day next preceding the Second Closing Date
at the office of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota, or such other location as may be mutually
acceptable.
(c) It is understood that you, individually and not as Representatives of
the several Underwriters, may (but shall not be obligated to) make payment to
the Company or the Selling Stockholders, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company or any Selling Stockholder.
4. Covenants.
---------
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause
the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any
supplement to the Prospectus (including any term sheet within the meaning
of Rule 434
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of the Rules and Regulations) has been filed and of any request by the
Commission for any amendment or supplement to the Registration Statement or
Prospectus or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will prepare and file a
Prospectus (or term sheet within the meaning of Rule 434 of the Rules and
Regulations) containing the information omitted therefrom pursuant to Rule
430A of the Rules and Regulations with the Commission within the time
period required by, and otherwise in accordance with the provisions of,
Rules 424(b), 430A and 434, if applicable, of the Rules and Regulations; if
the Company has elected to rely upon Rule 462(b) of the Rules and
Regulations to increase the size of the offering registered under the Act,
the Company will prepare and file a registration statement with respect to
such increase with the Commission within the time period required by, and
otherwise in accordance with the provisions of, Rule 462(b); the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) that, in your opinion, may be necessary or advisable in
connection with the distribution of the Securities by the Underwriters; and
the Company will not file any amendment or supplement to the Registration
Statement or Prospectus (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations) to which you shall reasonably object
by notice to the Company after having been furnished a copy a reasonable
time prior to the filing.
(ii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Securities for offering or
sale in any jurisdiction, or of the initiation or threatening of any
proceeding for any such purpose; and the Company will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such a stop order should be issued.
(iii) Within the time during which a prospectus (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations) relating
to the Securities is required to be delivered under the Act, the Company
will comply as far as it is able with all requirements imposed upon it by
the Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance
of sales of or dealings in the Securities as contemplated by the provisions
hereof and the Prospectus. If during such period any event occurs as a
result of which the Prospectus would include an untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the Act,
the Company will promptly notify you and will amend the Registration
Statement or supplement the Prospectus (at the expense of the Company) so
as to correct such statement or omission or effect such compliance.
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(iv) The Company will use its best efforts to qualify the Securities
for sale under the securities laws of such jurisdictions as you reasonably
designate and to continue such qualifications in effect so long as required
for the distribution of the Securities, except that the Company shall not
be required in connection therewith to qualify as a foreign corporation or
to execute a general consent to service of process in any state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations) to such documents, in each case as soon as
available and in such quantities as you may from time to time reasonably
request.
(vi) During a period of five years commencing with the date hereof,
the Company will furnish to the Representatives, and to each Underwriter
who may so request in writing, copies of all periodic and special reports
furnished to the stockholders of the Company and all information, documents
and reports filed with the Commission, the National Association of
Securities Dealers, Inc., NASDAQ or any securities exchange.
(vii) The Company will make generally available to its stockholders
as soon as practicable, but in any event not later than 15 months after the
end of the Company's current fiscal quarter, an earnings statement (which
need not be audited) covering a 12-month period beginning after the
effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(viii) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming
effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's
accountants and counsel but, except as otherwise provided below, not
including fees of the Underwriters' counsel) in connection with the
preparation, printing, filing, delivery, and shipping of the Registration
Statement (including the financial statements therein and all amendments,
schedules, and exhibits thereto), the Securities, each Preliminary
Prospectus, the Prospectus, and any amendment thereof or supplement
thereto, and the printing, delivery, and shipping of this Agreement and
other underwriting documents, including Blue Sky Memoranda, (C) all filing
fees and fees and disbursements of the Underwriters' counsel incurred in
connection with the qualification of the Securities for offering and sale
by the Underwriters or by dealers under the securities or blue sky laws of
the states and other jurisdictions which you shall designate in accordance
with Section 4(d) hereof, (D) the fees and expenses of any transfer agent
or registrar, (E) the filing fees incident to any required review by the
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National Association of Securities Dealers, Inc. of the terms of the sale
of the Securities, (F) listing fees, if any, and (G) all other costs and
expenses incident to the performance of its obligations hereunder that are
not otherwise specifically provided for herein. If the sale of the
Securities provided for herein is not consummated by reason of action by
the Company pursuant to Section 9(a) hereof which prevents this Agreement
from becoming effective, or by reason of any failure, refusal or inability
on the part of the Company or the Selling Stockholders to perform any
agreement on its or their part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be
fulfilled by the Company or the Selling Stockholders is not fulfilled, the
Company will reimburse the several Underwriters for all out-of-pocket
disbursements (including fees and disbursements of counsel) incurred by the
Underwriters in connection with their investigation, preparing to market
and marketing the Securities or in contemplation of performing their
obligations hereunder. The Company shall not in any event be liable to any
of the Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.
(ix) The Company will apply the net proceeds from the sale of the Firm
Shares to be sold by it hereunder for the purposes set forth in the
Prospectus and will file such reports with the Commission with respect to
the sale of the Firm Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 of the Rules and
Regulations.
(x) The Company will not, without Piper Jaffray's prior written
consent, offer, sell, contract to sell, pledge, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or other securities
convertible into or exchangeable for, or any options or rights to purchase
options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock during the 180-
day period following the date of the Prospectus, except that the Company
may issue shares upon the exercise of options and warrants granted prior to
the date of the Prospectus and may grant options under the Company's 1998
Stock Option Plan.
(xi) The Company either has caused to be delivered to you or will
cause to be delivered to you prior to the effective date of the
Registration Statement a letter from each of the Company's directors and
officers and each of its stockholders, stating that such person agrees that
he or she will not, without Piper Jaffray's prior written consent, offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of Common Stock or other securities of the Company
that are substantially similar to the shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive shares of Common Stock or any such
substantially similar securities, owned by him prior to the date of the
Prospectus for a period of 180 days after the date of the Prospectus.
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<PAGE>
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities, and has not effected any sales of Common
Stock which are required to be disclosed in response to Item 701 of
Regulation S-K under the Act which have not been so disclosed in the
Registration Statement.
(xiii) The Company will not incur any liability for any finder's or
broker's fee or agent's commission in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(xiv) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of the
Securities by the Underwriters if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba.
Such information will be provided within 90 days after the commencement
thereof or after a change occurs with respect to previously reported
information.
(b) Each Selling Stockholder covenants and agrees with the several
Underwriters as follows:
(i) Except as otherwise agreed to by the Company and the Selling
Stockholder, such Selling Stockholder will pay all taxes, if any, on the
transfer and sale, respectively, of the Option Shares being sold by such
Selling Stockholder and its proportionate share of the gross spread
relating to the sale, if any, of Option Shares sold by such Selling
Stockholder.
(ii) If this Agreement shall be terminated by the Underwriters
because of any failure, refusal or inability on the part of such Selling
Stockholder to perform any agreement on such Selling Stockholder's part to
be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by such Selling Stockholder
is not fulfilled, such Selling Stockholder agrees to reimburse the several
Underwriters for all out-of-pocket disbursements (including fees and
disbursements of counsel for the Underwriters) incurred by the Underwriters
in connection with their investigation, preparing to market and marketing
the Securities or in contemplation of performing their obligations
hereunder. The Selling Stockholder shall not in any event be liable to any
of the Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.
(iii) The Option Shares to be sold by such Selling Stockholder,
represented by the certificates on deposit with the Custodian pursuant to
the Custody Agreement of such Selling Stockholder, are subject to the
interest of the several Underwriters and the other
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<PAGE>
Selling Stockholders; the arrangements made for such custody are, except as
specifically provided in the Custody Agreement, irrevocable; and the
obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or in the Custody Agreement, by any
act of such Selling Stockholder, by operation of law, whether by the
liquidation, dissolution or merger of such Selling Stockholder, by the
death of such Selling Stockholder, or by the occurrence of any other event.
If any Selling Stockholder should liquidate, dissolve or be a party to a
merger or if any other such event should occur before the delivery of the
Option Shares hereunder, certificates for the Option Shares deposited with
the Custodian shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such liquidation, dissolution,
merger or other event had not occurred, whether or not the Custodian shall
have received notice thereof.
(iv) Such Selling Stockholder will not, without Piper Jaffray's prior
written consent, offer, sell, contract to sell, pledge, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or other
securities of the Company that are substantially similar to the shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive shares of Common
Stock or any such substantially similar securities, owned by him prior to
the date of the Prospectus for a period of 180 days after the date of the
Prospectus.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities, and has not effected any sales of Common Stock which, if
effected by the Company, would be required to be disclosed in response to
Item 701 of Regulation S-K.
(vi) Such Selling Stockholder shall immediately notify you if any
event occurs, or of any change in information relating to such Selling
Stockholder or the Company or any new information relating to the Company
or relating to any matter stated in the Prospectus or any supplement
thereto (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations), which results in the Prospectus (as supplemented)
including an untrue statement of a material fact or omitting to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company and the Selling Stockholders contained
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
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<PAGE>
(a) The Registration Statement shall have become effective not later than
5:00 p.m., Central time, on the date of this Agreement, or such later time and
date as you, as Representatives of the several Underwriters, shall approve and
all filings required by Rules 424, 430A and 434 of the Rules and Regulations
shall have been timely made; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereof shall have been issued; no
proceedings for the issuance of such an order shall have been initiated or
threatened; and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to your satisfaction.
(b) No Underwriter shall have advised the Company that the Registration
Statement or the Prospectus, or any amendment thereof or supplement thereto
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations), contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Except as contemplated in the Prospectus, subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries shall have incurred
any material liabilities or obligations, direct or contingent, or entered into
any material transactions, or declared or paid any dividends or made any
distribution of any kind with respect to its capital stock; and there shall not
have been any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company or any of its subsidiaries, or any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock of the Company or any of its subsidiaries or any
material adverse change or any development involving a prospective material
adverse change (whether or not arising in the ordinary course of business), in
the general affairs, condition (financial or otherwise), business, key
personnel, property, prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole, that, in your judgment, makes it
impractical or inadvisable to offer or deliver the Securities on the terms and
in the manner contemplated in the Prospectus.
(d) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Weil, Gotshal &
Manges LLP, counsel for the Company, dated such Closing Date and addressed to
you, to the effect that:
(i) Each of the Company and its subsidiaries has been duly organized
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. Each of the Company and its subsidiaries
has full corporate power and authority to own its properties and conduct
its business as currently being carried on and as described in the
Registration Statement and Prospectus, and is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in
which it owns or leases real property or in which the conduct of its
business makes such qualification necessary and in which the failure to so
qualify would have a material adverse
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<PAGE>
effect upon the business, condition (financial or otherwise) or properties
of the Company and its subsidiaries, taken as a whole.
(ii) The capital stock of the Company conforms as to legal matters to
the description thereof contained in the Prospectus under the caption
"Description of Capital Stock." All of the issued and outstanding shares of
the capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and the holders thereof are
not subject to personal liability by reason of being such holders. The Firm
Shares to be issued and sold by the Company hereunder have been duly
authorized and, when issued, delivered and paid for in accordance with the
terms of this Agreement, will have been validly issued and will be fully
paid and nonassessable, and the holders thereof will not be subject to
personal liability by reason of being such holders. Except as otherwise
stated in the Registration Statement and Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's charter, by-laws or any agreement or other
instrument known to such counsel to which the Company is a party or by
which the Company is bound. To the best of such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or sale
of the Securities as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of Common Stock or
other securities of the Company.
(iii) All of the issued and outstanding shares of capital stock of
each of the Company's subsidiaries have been duly and validly authorized
and issued and are fully paid and nonassessable, and, to the best of such
counsel's knowledge, except as otherwise described in the Registration
Statement and Prospectus and except for the directors' qualifying shares,
the Company owns of record and beneficially, free and clear of any security
interests, claims, liens, proxies, equities or other encumbrances, all of
the issued and outstanding shares of such stock. To the best of such
counsel's knowledge, except as described in the Registration Statement and
Prospectus, there are no options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company or any
subsidiary of the Company any shares of the capital stock of the Company or
any subsidiary of the Company.
(iv) The Registration Statement has become effective under the Act
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of
such counsel, threatened by the Commission.
(v) The descriptions in the Registration Statement and Prospectus of
statutes, legal and governmental proceedings, contracts and other documents
are accurate and fairly present the information required to be shown; and
such counsel does not know of any statutes or legal or governmental
proceedings required to be described in the Prospectus that are not
described as required, or of any contracts or documents of a character
required
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<PAGE>
to be described in the Registration Statement or Prospectus or included as
exhibits to the Registration Statement that are not described or included
as required.
(vi) The Company has full corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid, legal and binding
obligation of the Company enforceable in accordance with its terms (except
as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting the rights
of creditors generally and subject to general principles of equity); the
execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated will not result in a breach or
violation of any of the terms and provisions of, or constitute a default
under, any statute, rule or regulation, any agreement or instrument known
to such counsel to which the Company is a party or by which it is bound or
to which any of its property is subject, the Company's charter or by-laws,
or any order or decree known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
respective properties; and no consent, approval, authorization or order of,
or filing with, any court or governmental agency or body is required for
the execution, delivery and performance of this Agreement or for the
consummation of the transactions contemplated hereby, including the
issuance or sale of the Firm Shares by the Company, except such as may be
required under the Act or state securities laws.
(vii) To the best of such counsel's knowledge, the Company and each
of its subsidiaries holds, and is operating in compliance in all material
respects with, all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates and orders of any governmental or self-
regulatory body required for the conduct of its business and all such
franchises, grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect.
(viii) To the best of such counsel's knowledge, neither the Company
nor any of its subsidiaries is in violation of its respective charter or
by-laws. To the best of such counsel's knowledge, neither the Company nor
any of its subsidiaries is in breach of or otherwise in default in the
performance of any material obligation, agreement or condition contained in
any bond, debenture, note, indenture, loan agreement or any other material
contract, lease or other instrument to which it is subject or by which any
of them may be bound, or to which any of the material property or assets of
the Company or any of its subsidiaries is subject.
(ix) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (including any term sheet within
the meaning of Rule 434 of the Rules and Regulations), comply as to form in
all material respects with the requirements of the Act and the Rules and
Regulations; and on the basis of conferences with officers of
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<PAGE>
the Company, examination of documents referred to in the Registration
Statement and Prospectus and such other procedures as such counsel deemed
appropriate, nothing has come to the attention of such counsel that causes
such counsel to believe that the Registration Statement or any amendment
thereof, at the time the Registration Statement became effective and as of
such Closing Date (including any Registration Statement filed under Rule
462(b) of the Rules and Regulations), contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus (as of its date and as of such Closing Date), as amended or
supplemented, includes any untrue statement of material fact or omits to
state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the financial
statements or other financial data included in any of the documents
mentioned in this clause.
(x) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of law
other than Delaware and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company provided that the extent
of such reliance is specified in such opinion.
(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of [Weil, Gotshal &
Manges LLP], counsel for the Selling Stockholders, dated such Closing Date and
addressed to you, to the effect that:
(i) Each of the Selling Stockholders is the sole record and
beneficial owner of the Option Shares to be sold by such Selling
Stockholder and delivery of the certificates for the Option Shares to be
sold by each Selling Stockholder pursuant to this Agreement, upon payment
therefor by the Underwriters, will pass marketable title to such Option
Shares to the Underwriters and the Underwriters will acquire all the rights
of such Selling Stockholder in the Option Shares (assuming the Underwriters
have no knowledge of an adverse claim), free and clear of any security
interests, claims, liens or other encumbrances.
(ii) Each of the Selling Stockholders has the power and authority to
enter into the Custody Agreement and this Agreement and to perform and
discharge such Selling Stockholder's obligations thereunder and hereunder;
and this Agreement, the Custody Agreements and the Powers of Attorney have
been duly and validly authorized, executed and delivered by (or by the
Attorneys-in-Fact, or either of them, on behalf of) the Selling
Stockholders and are valid and binding agreements of the Selling
Stockholders, enforceable
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<PAGE>
in accordance with their respective terms (except as rights to indemnity
hereunder or thereunder may be limited by federal or state securities laws
and except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and
subject to general principles of equity).
(iii) The execution and delivery of this Agreement and the Custody
Agreement and the performance of the terms hereof and thereof and the
consummation of the transactions herein and therein contemplated will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule or regulation, or any
agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound or to
which any of its property is subject, any such Selling Stockholder's
charter or by-laws, or any order or decree known to such counsel of any
court or government agency or body having jurisdiction over such Selling
Stockholder or any of its respective properties; and no consent, approval,
authorization or order of, or filing with, any court or governmental agency
or body is required for the execution, delivery and performance of this
Agreement and the Custody Agreement or for the consummation of the
transactions contemplated hereby and thereby, including the sale of the
Option Shares being sold by such Selling Stockholder, except such as may be
required under the Act or state securities laws or blue sky laws.
(iv) Such other matters as you may reasonably request.
In rendering such opinion such counsel may rely (i) as to matters of law
other than Delaware and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Selling Stockholders provided
that the extent of such reliance is specified in such opinion.
(f) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from King
& Spalding, counsel for the several Underwriters, dated such Closing Date and
addressed to you, with respect to the incorporation of the Company, the validity
of the Securities, the Registration Statement, the Prospectus and other related
matters as you reasonably may request, and such counsel shall have received such
papers and information as they request to enable them to pass upon such matters.
(g) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of Ernst & Young LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with
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respect to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of such letter), the conclusions
and findings of said firm with respect to the financial information and other
matters covered by its letter delivered to you concurrently with the execution
of this Agreement, and the effect of the letter so to be delivered on such
Closing Date shall be to confirm the conclusions and findings set forth in such
prior letter.
(h) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness of the
Registration Statement or any amendment thereof or the qualification of the
Securities for offering or sale has been issued, and no proceeding for that
purpose has been instituted or, to the best of their knowledge, is
contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto (including any term sheet within the meaning of Rule
434 of the Rules and Regulations), and (A) such documents contain all
statements and information required to be included therein, the
Registration Statement, or any amendment thereof, does not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and the Prospectus, as amended or supplemented, does not
include any untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented prospectus which has
not been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business, or declared
or paid any dividends or made any distribution of any kind with respect to
its capital stock, and except as disclosed in the Prospectus, there has not
been any change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights
23
<PAGE>
to purchase the capital stock, of the Company or any of its subsidiaries,
or any material adverse change or any development involving a prospective
material adverse change (whether or not arising in the ordinary course of
business), in the general affairs, condition (financial or otherwise),
business, key personnel, property, prospects, net worth or results of
operations of the Company and its subsidiaries, taken as a whole, and (D)
except as stated in the Registration Statement and the Prospectus, there is
not pending, or, to the best knowledge of the Company, threatened or
contemplated, any action, suit or proceeding to which the Company or any of
its subsidiaries is a party before or by any court or governmental agency,
authority or body, or any arbitrator, which might result in any material
adverse change in the condition (financial or otherwise), business,
prospects or results of operations of the Company and its subsidiaries,
taken as a whole.
(i) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by each of the Selling
Stockholders or either of such Selling Stockholder's Attorneys-in-Fact to the
effect that the representations and warranties of such Selling Stockholder
contained in this Agreement are true and correct as if made at and as of such
Closing Date, and that such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on such Selling Stockholder's part
to be performed or satisfied at or prior to such Closing Date.
(j) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
(k) The Common Stock of the Company shall be designated on NASDAQ.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and counsel for the Underwriters. The Company will furnish you
with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. Indemnification and Contribution.
--------------------------------
(a) The Company and, to the extent that the Selling Stockholders sell
Option Shares pursuant to this Agreement, each Selling Stockholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of the Company and/or such Selling Stockholders, as the case may be),
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, including
the information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rules 430A and 434(d) of the Rules and Regulations, if
applicable, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (including any
24
<PAGE>
term sheet within the meaning of Rule 434 of the Rules and Regulations), or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage, liability or
action; provided, however, that neither the Company nor any Selling Stockholder
shall be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof; and further provided, however,
that in no event shall any Selling Stockholder be liable under the provisions of
this Section 6 for any amount in excess of the aggregate amount of proceeds such
Selling Stockholder received from the sale of the Option Shares pursuant to this
Agreement.
In addition to their other obligations under this Section 6(a), the Company
and, to the extent that the Selling Stockholders sell Option Shares pursuant to
this Agreement, each Selling Stockholder, jointly and severally agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 6(a),
they will reimburse each Underwriter on a monthly basis for all reasonable legal
fees or other expenses incurred in connection with investigating or defending
any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's and/or the Selling Stockholder's obligation to
reimburse the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Underwriter that received such payment shall
promptly return it to the party or parties that made such payment, together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by Norwest Bank Minnesota, N.A. (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement shall be in addition to any
liabilities which the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company and, to
the extent that the Selling Stockholders sell Option Shares pursuant to this
Agreement, each Selling Stockholder against any losses, claims, damages or
liabilities to which the Company and the Selling Stockholders may become
subject, under the Act or otherwise (including in settlement of any litigation,
if such settlement is effected with the written consent of such Underwriter),
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the
25
<PAGE>
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by such Underwriter through you,
specifically for use in the preparation thereof, and will reimburse the Company
and, if applicable, the Selling Stockholders for any legal or other expenses
reasonably incurred by the Company or any such Selling Stockholder in connection
with investigating or defending against any such loss, claim, damage, liability
or action.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve the indemnifying party from any liability that it may have to any
indemnified party. In case any such action shall be brought against any
indemnified party, and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the Underwriters as incurred (in accordance with the
provisions of the second paragraph in subsection (a) above). An indemnifying
party shall not be obligated under any settlement agreement relating to any
action under this Section 6 to which it has not agreed in writing.
(d) If the indemnification provided for in this Section 6 is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above, (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and,
if applicable, the Selling Stockholders on the one hand and the Underwriters on
the other from the
26
<PAGE>
offering of the Firm and/or Option Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and, if applicable, the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and, if applicable, the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and, if applicable, the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relevant intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company, the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were to
be determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the first sentence
of this subsection (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending against any action or claim which is the subject of this subsection
(d). Notwithstanding the provisions of this subsection (d), no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under this
Section 6 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 6
shall be in addition to any liability that the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the
27
<PAGE>
Registration Statement and to each person, if any, who controls the Company or
any Selling Stockholder within the meaning of the Act.
7. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters, the Company and the Selling Stockholders contained in Section 6
hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling person
thereof, or the Company or any of its officers, directors, or controlling
persons, or any Selling Stockholder or any controlling person thereof and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.
8. Substitution of Underwriters.
----------------------------
(a) If any Underwriter or Underwriters shall fail to take up and pay for
the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule II
hereto, the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule II hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fail to take up and pay for
the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule II hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination, the Company shall not be under any
liability to any Underwriter (except to the extent provided in Section
4(a)(viii) and Section 6 hereof) nor shall any Underwriter (other than an
Underwriter who shall have failed, otherwise than for some reason permitted
under this Agreement, to purchase the amount of Firm Shares agreed by such
Underwriter to be purchased hereunder) be under any liability to the Company
(except to the extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the non-
defaulting Underwriters or by any other party or parties, the Representatives or
the Company shall have the right to postpone the First Closing Date for not more
than seven business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used herein, the term "Underwriter" includes
any person substituted for an Underwriter under this Section 8.
28
<PAGE>
9. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at 10:00 a.m., Central time, on
the first full business day following the effective date of the Registration
Statement, or at such earlier time after the effective time of the Registration
Statement as you in your discretion shall first release the Securities for sale
to the public; provided, that if the Registration Statement is effective at the
time this Agreement is executed, this Agreement shall become effective at such
time as you in your discretion shall first release the Securities for sale to
the public. For the purpose of this Section, the Securities shall be deemed to
have been released for sale to the public upon release by you of the publication
of a newspaper advertisement relating thereto or upon release by you of telexes
offering the Securities for sale to securities dealers, whichever shall first
occur. By giving notice as hereinafter specified before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or the
Company may prevent this Agreement from becoming effective without liability of
any party to any other party, except that the provisions of Section 4(a)(viii),
Section 4(b)(ii) and Section 6 hereof shall at all times be effective.
(b) You, as Representatives of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be canceled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled, (iii) trading on the New York Stock Exchange or the
American Stock Exchange shall have been wholly suspended, (iv) minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, on the New York Stock Exchange or the
American Stock Exchange, by such Exchange or by order of the Commission or any
other governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by Federal, New York or Delaware authorities, or (vi) there
has occurred any material adverse change in the financial markets in the United
States or an outbreak of major hostilities (or an escalation thereof) in which
the United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this Agreement
that, in your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(c) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section, the Company and an
Attorney-in-Fact, on behalf of the Selling Stockholders, shall be notified
promptly by you by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, you and an Attorney-
in-Fact, on behalf of the Selling Stockholders, shall be notified by the Company
by telephone or telegram, confirmed by letter.
29
<PAGE>
10. Default by One or More of the Selling Stockholders or the Company. If
-----------------------------------------------------------------
one or more of the Selling Stockholders shall fail at the Second Closing Date to
sell and deliver the number of Option Shares which such Selling Stockholder or
Selling Stockholders are obligated to sell hereunder, and the remaining Selling
Stockholders do not exercise the right hereby granted to increase, pro rata or
otherwise, the number of Option Shares to be sold by them hereunder to the total
number of Option Shares to be sold by all Selling Stockholders as set forth in
Schedule I, the Company agrees that it will sell that number of Common Shares to
the Underwriters which represents the Selling Stockholder's Option Shares that
the Selling Stockholder has failed to so sell, or such lesser number as may be
requested by you.
In the event of a default by any Selling Stockholder as referred to in this
Section, either you or the non-defaulting Selling Stockholders shall have the
right to postpone the Second Closing Date for a period not exceeding seven days
in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
If the Company shall fail at the First Closing Date to sell and deliver the
number of Firm Shares which it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any non-
defaulting party.
11. Information Furnished by Underwriters. The statements set forth in
-------------------------------------
the last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
12. Notices. Except as otherwise provided herein, all communications
-------
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402,
except that notices given to an Underwriter pursuant to Section 6 hereof shall
be sent to such Underwriter at the address stated in the Underwriters'
Questionnaire furnished by such Underwriter in connection with this offering; if
to the Company, shall be mailed, telegraphed or delivered to it at 60 Hickory
Drive, Waltham, MA 02154, Attention: Nabil N. El-Hage; if to any of the Selling
Stockholders, at the address of the Attorneys-in-Fact as set forth in the Powers
of Attorney, or in each case to such other address as the person to be notified
may have requested in writing. All notices given by telegram shall be promptly
confirmed by letter. Any party to this Agreement may change such address for
notices by sending to the parties to this Agreement written notice of a new
address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure
----------------------------------------
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein
30
<PAGE>
contained. The term "successors and assigns" as herein used shall not include
any purchaser, as such purchaser, of any of the Securities from any of the
several Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota.
[Signature Page Follows]
31
<PAGE>
Please sign and return to the Company the enclosed duplicates of this letter
whereupon this letter will become a binding agreement among the Company, the
Selling Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
Jeepers! Inc.
By _______________________
President
Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
PIPER JAFFRAY INC.
By_________________________
Managing Director
COWEN & COMPANY
By_________________________
Managing Director
GERARD KLAUER MATTISON & CO., INC.
By_________________________
Managing Director
32
<PAGE>
SCHEDULE I
Selling Stockholders
Number of
Option Shares
Name to be Sold
- ---- ----------
___________
Total............................................................ ===========
<PAGE>
SCHEDULE II
Underwriter Number of Firm Shares (1)
- ----------- -------------------------
Piper Jaffray Inc.
Cowen & Company
Gerard Klauer Mattison & Co., Inc.
______________
Total............................... ==============
_________________
(1) The Underwriters may purchase up to an additional ____________________
Option Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner described in
the Agreement.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
JUNGLE JIM'S PLAYLANDS, INC.
Jungle Jim's Playlands, Inc. is a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware. The date on
which its original Certificate of Incorporation was filed with the Secretary of
State of Delaware is February 19, 1991. This Restated Certificate of
Incorporation, which restates and amends the Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 228, 241, and
245 of the General Corporation Law of the State of Delaware. The provisions of
the original Certificate of Incorporation are hereby amended and restated so as
to read, in their entirety, as follows:
I
The name of the corporation is Jungle Jim's Playlands, Inc.
II
The purpose for which the Corporation is organized is to engage in any and all
lawful acts and activities for which corporations may be organized under the
General Corporation Law of the State of Delaware.
III
The corporation is authorized to issue two classes of shares designated
"Common Stock" and "Senior Cumulative Convertible Preferred Stock,"
respectively. The Senior Cumulative Convertible Preferred Stock shall
hereinafter be referred to as "Preferred Stock." The number of shares of Common
Stock authorized to be issued is 1,500,000 with par value of $.01 per share and
the number of shares of Preferred Stock authorized to be issued is 750,000 with
par value of $1.00 per share.
The number of authorized shares of Common Stock may be increased or decreased
by the affirmative vote of the holders of a majority of the stock of the
corporation entitled to vote without regard to class.
The rights, preferences, privileges and restrictions granted to and imposed
upon the Common Stock and the Preferred Stock are set forth below in this
Article III.
<PAGE>
Subject to the rights of the holders of the Preferred Stock, the Common Stock
shall be entitled to dividends out of funds legally available therefor, when, as
and if declared and paid to the holders of Common Stock and, upon liquidation,
dissolution or winding up of the Corporation, to share ratably in the assets of
the Common Stock.
1. Definitions. For purposes of this Article III the following
-----------
definitions shall apply:
"Affiliate" shall mean any Person which directly or indirectly controls, is
---------
controlled by, or is under common control with, the indicated Person.
"Approved Plan" shall mean a plan approved by a majority of the Board which
-------------
majority includes each of the directors nominated by the holders of Preferred
Stock for the sale, grant, award or issuance to management, directors or
employees of, or consultants to, the Company of shares of Common Stock or
options to purchase such shares pursuant to which plan any such sale, grant,
award or issuance must be approved by the Board or a committee of the Board
prior to such sale, grant, award or issuance.
"Board" shall mean the Board of Directors of the Company.
-----
"Commitment Date" shall mean the date immediately prior to the date of
---------------
original issuance of the Preferred Stock.
"Company" shall mean this corporation.
-------
"Common Stock" shall mean the Common Stock of the Company.
------------
"Conversion Price" shall mean the initial Conversion Price per share of $7.07,
----------------
as adjusted from time to time as provided by Section 6 of this Article III.
"Conversion Stock" shall mean the unissued Common Stock into which the
----------------
Preferred Stock is convertible and the Common Stock issued upon such conversion.
"Dividend Payment Date" shall have the meaning assigned to it in Section 2 of
---------------------
this Article III.
"Equity Security" shall mean any stock or similar security, including without
---------------
limitation securities containing equity features and securities containing
profit participation features, or any security convertible or exchangeable, with
or without consideration, into or for any stock or similar security, or any
security carrying any warrant or right to subscribe to or purchase any stock or
similar security, or any such warrant or right.
-2-
<PAGE>
"Event of Noncompliance" shall have the meaning assigned to it in Section 10 of
----------------------
this Article III.
"Initial Public Offering" shall mean the closing of the first underwritten
-----------------------
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offering and sale of Common
Stock for the account of the Company in which the aggregate gross proceeds
received by the Company at the public offering price equals or exceeds $10
million and the public offering price equals or exceeds $21.21 per share of
Common Stock (appropriately adjusted for subdivisions and combinations of shares
of Common Stock and dividends on Common Stock payable in shares of Common Stock
subsequent to the Commitment Date).
"Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien
----
or charge of any kind, including, without limitation, any conditional sale or
other title retention agreement, any lease in the nature thereof and the filing
of or agreement to give any financing statement under the uniform commercial
code of any jurisdiction and including any lien or charge arising by statute or
other law.
"Majority of the Preferred Stock" shall mean more than 50% of the outstanding
-------------------------------
shares of Preferred Stock.
"Majority of the Redeemed Shares" shall mean more than 50% of the shares of
-------------------------------
Preferred Stock to be redeemed pursuant to Section 4(a) or 4(b) of this Article
III.
"New Securities" shall mean any Equity Securities of the Company, provided,
--------------
however, that "New Securities" does not include: (i) the Common Stock issued or
issuable on conversion of the Preferred Stock; (ii) stock issued pursuant to any
rights or agreements including without limitation any security convertible or
exchangeable, with or without consideration, into or for any stock, options and
warrants, provided that the rights of first refusal established by Section 9 of
this Article III applied with respect to the initial sale or grant by the
Company of such rights or agreements; (iii) any Equity Security that is issued
by the Company as part of any public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended; (iv) shares
of Common Stock issued in connection with any stock split, stock dividend or
recapitalization of the Company; (v) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of all or
substantially all of the assets, or other reorganization whereby the Company
owns not less than fifty-one percent (51%) of the voting power of such
corporation; and (vi) shares of Common Stock issued prior to the issuance of the
Preferred Stock or pursuant to Approved Plans.
-3-
<PAGE>
"Person" shall include all natural persons, corporations business trusts,
------
associations, companies, partnerships, joint ventures and other entities and
governments and agencies and political subdivisions.
"Preferred Stock" shall mean the Senior Cumulative Convertible Preferred Stock
---------------
of the Company.
"Purchase Agreement" shall mean the Preferred Stock Purchase Agreement between
------------------
the Company and Centre Capital Investors L.P. relating to the purchase of the
Preferred Stock, including all schedules and exhibits thereto, as such Purchase
Agreement may be from time to time amended, modified or supplemented.
"Redemption Date" shall mean the date on which shares of Preferred Stock are
---------------
redeemed pursuant to Section 4(a) or Section 4(b) of this Article III.
"Redemption Price" shall have the meaning specified in Section 4(c) of Article
----------------
III.
"Significant Subsidiary" shall mean any subsidiary which would constitute a
----------------------
significant subsidiary within the meaning of Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission as in effect and
interpreted by said Commission on the Commitment Date.
"Subsidiary" shall mean any corporation, partnership, joint venture,
----------
association or other business entity at least fifty percent (50%) of the
outstanding voting stock or voting interest of which is at the time owned
directly or indirectly by the Company or by one or more of such subsidiary
entities, or both.
The foregoing definitions shall be equally applicable to both the singular and
plural forms of the defined terms.
2. Dividends.
---------
(a) Right to Dividends. The holders of the then outstanding Preferred Stock
------------------
shall be entitled to receive, when and as declared by the Board, and out of
any funds legally available therefor, cumulative dividends at the annual
rate of $.6363 per share payable quarterly in cash on the first day of
April, July, October and January of each year commencing July 1, 1991 (each
a "Dividend Payment Date"). Dividends on the Preferred Stock shall
accumulate and accrue on each such share from the date of its original
issue and shall accrue from day to day thereafter, whether or not earned or
declared. Such dividends shall be cumulative so that, except as provided
in Section 2(b) of this Article III, if such dividends in respect of any
previous or current quarterly dividend period,
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<PAGE>
at the annual rate specified above, shall not have been paid or declared
and a sum sufficient for the payment thereof set apart, the deficiency
shall first be fully paid before any dividend or other distribution shall
be paid or declared and set apart for the Common Stock.
(b) Priority. Unless full dividends on the Preferred Stock for all past
--------
dividend periods and the then current dividend period shall have been paid
or declared and a sum sufficient for the payment thereof set apart, (1) no
dividend whatsoever other than a dividend payable solely in Common Stock
shall be paid or declared, and no distribution shall be made, on any Common
Stock, and (2) no shares of Common Stock shall be purchased, redeemed or
acquired by the Company and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or
acquisition thereof; provided, however, that this restriction shall not
apply to the repurchase of shares of Common Stock from directors or
employees of or consultants or advisers to the Company or any Subsidiary
pursuant to agreements under which the Company has the option to repurchase
such shares upon the occurrence of certain events, including without
limitation the termination of employment by or service to the Company or
any Subsidiary. In addition, no dividends shall be paid on any share of
Common Stock unless a dividend is paid with respect to all outstanding
shares of Preferred Stock in an amount for each such share of Preferred
Stock equal to or greater than the aggregate amount of such dividends for
all shares of Common Stock into which each such share of Preferred Stock
could then be converted.
3. Liquidation Rights of Preferred.
-------------------------------
(a) Preference. In the event of any liquidation, dissolution or winding up of
----------
the Company, whether voluntary or involuntary, the holders of the Preferred
Stock then outstanding shall be entitled to be paid out of the assets of
the Company available for distribution to its stockholders, whether such
assets are capital, surplus, or earnings, before any payment or declaration
and setting apart for payment of any amount shall be made in respect of the
Common Stock, an amount equal to $7.07 per share plus an amount equal to
all accrued and unpaid dividends thereon, whether or not earned or
declared, to and including the date full payment shall be tendered to the
holders of the Preferred Stock with respect to such liquidation,
dissolution or winding up, and no more (such amount is hereinafter referred
to as the "Liquidation Amount"). If upon any liquidation, dissolution, or
winding up of the Company, whether voluntary or involuntary, the assets to
be distributed to the holders of the Preferred Stock shall be insufficient
to permit the payment to such stockholders of the full preferential amounts
aforesaid, then all of the assets of the Company shall be distributed
ratably to the holders of the Preferred Stock on the basis of the number of
shares of Preferred Stock held.
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<PAGE>
(b) Remaining Assets. If the assets of the Company available for distribution
----------------
to the Company's stockholders exceed the aggregate amount payable to the
holders of the Preferred Stock pursuant to Section 3(a) hereof, then after
the payments required by Section 3(a) shall have been made or irrevocably
set apart, such assets shall be distributed equally among the holders of
Common Stock on a per share basis.
(c) Reorganization. A consolidation or merger of the Company with or into any
--------------
other corporation or corporations or sale, lease or transfer of all or
substantially all of the assets of the Company or its Subsidiaries in one
or more transactions shall be deemed a liquidation, dissolution, or winding
up of the Company as those terms are used in this Section 3 except for any
such transaction with a wholly-owned Subsidiary of the Company.
4. Redemptions.
-----------
(a) Stockholder Optional Redemption. At any time and from time to time on or
-------------------------------
after the fifth anniversary of the Commitment Date, the holder or holders
of shares of Preferred Stock then outstanding may require the Company to
redeem all or any portion of the outstanding shares of such Preferred Stock
held by such holder at the Redemption Price by delivery of written notice
to the Company (the "Stockholder Notice"). The Company will give prompt
written notice of such election to the other holders of Preferred Stock
(but in any event within 10 days after the receipt by the Company of the
Stockholder Notice), and each such other holder of such Preferred Stock
will have until 25 days after the receipt by the Company of the Stockholder
Notice to request redemption (by written notice given to the Company) of
all or any portion of such Preferred Stock owned by such holder. Failure
by the Company to send notice to the other holders of Preferred Stock shall
not relieve the Company of its obligation to redeem shares of Preferred
Stock specified in the Stockholder Notice. Upon receipt of such
election(s), the Company will be obligated to redeem the number of shares
of Preferred Stock specified therein at the Redemption Price within 40 days
after the receipt by the Company of the Stockholder Notice (or such longer
period as may be reasonably necessary to determine the Redemption Price
pursuant to the provisions of Section 4(c)). In the event the Company does
not have funds legally available to purchase all of the shares of Preferred
Stock which the holders thereof have requested the Company to purchase
under this Section 4(a), the Company shall purchase the maximum number of
shares of Preferred Stock which it may purchase with the funds it has
legally available pro rata from the holders of Preferred Stock who have
requested redemption (based on the number of shares of Preferred Stock held
by each such holder) and shall purchase the remainder of such Preferred
Stock as soon as it has funds legally available to do so.
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<PAGE>
The Company will notify each holder of Preferred Stock who has elected to
redeem shares of Preferred Stock pursuant to the provisions of this Section 4(a)
of the Redemption Date with respect to such shares and each such holder shall
surrender the certificate or certificates representing such shares to the
Company on or before such date. Thereupon, the Redemption Price for such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. In the event less than all of the
shares represented by such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(b) Scheduled Redemption. Commencing on March 14, 1998 and on the 14th day of
--------------------
March of each year thereafter (or such later date as may be reasonably
necessary to determine the Redemption Price pursuant to the provisions of
Section 4(c)) (each such date being referred to as a "scheduled redemption
date"), so long as any shares of Preferred Stock shall be outstanding and
to the extent the Company shall have funds legally available for such
payment, the Company shall redeem the lesser of (i) the number of shares of
Preferred Stock outstanding on such scheduled redemption date and (ii) one-
fourth of the largest number of shares of Preferred Stock outstanding at
any time prior to the first scheduled redemption date. The shares to be
redeemed shall be determined pro rata among the holders of shares of
Preferred Stock.
If the Company shall fail to discharge all or any part of any scheduled
redemption obligation pursuant to this Section 4(b) because insufficient funds
are legally available therefor, the entire amount legally available for the
payment of such obligation shall be used to redeem the shares of the holders of
the Preferred Stock ratably in proportion to the full number of shares which
they would otherwise be entitled to have redeemed, and the balance of such
scheduled redemption obligation shall be discharged as soon as the Company shall
have funds legally available to permit such redemption, at which time the Board
shall promptly fix a date for such redemption and so notify the holders of such
shares in writing.
The Company shall, not less than 30 days nor more than 60 days prior to a
scheduled redemption date, mail written notice ("Redemption Notice"), postage
prepaid, to each holder of shares of record of Preferred Stock to be redeemed at
such holder's post office address last shown on the records of the Company. The
Redemption Notice shall state:
(i) The total number of shares of Preferred Stock which the Company intends
to redeem;
-7-
<PAGE>
(ii) The number of shares of Preferred Stock held by the hodler which the
Company intends to redeem;
(iii) The Redemption Date and proposed Redemption Price;
(iv) That the holder's right to convert the Preferred Stock to be redeemed
will terminate on the Redemption Date; and
(v) The time, place and manner in which the holder is to surrender to the
Company the certificate or certificates representing the shares of
Preferred Stock to be redeemed.
On or before each scheduled redemption date, each holder of Preferred Stock to
be redeemed, unless the holder has exercised his right to convert the shares as
provided in Section 6 of this Article III, shall surrender the certificate or
certificates representing such shares to the Company, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price
for such shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled and retired. In the event less than all of the
shares represented by such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) Price. The redemption price of the Preferred Stock (the "Redemption
-----
Price") under Sections 4(a) or 4(b) of this Article III shall be an amount
per share equal to the greater of (i) $7.07 plus all accrued and unpaid
dividends thereon, whether or not earned or declared, to and including the
applicable date of redemption under Section 4(a) or 4(b) of this Article
III and (ii) the Determined Value (as hereinafter defined).
The "Determined Value" shall mean the accrued but unpaid dividends on the
Preferred Stock through the redemption date plus the fair market value per share
of Preferred Stock determined by mutual agreement of the Company and the holders
of a Majority of the Redeemed Shares or, in the event the Company and holders of
a Majority of the Redeemed Shares are unable to agree on a fair market value,
the fair market value determined pursuant to the appraisal procedure set forth
in the immediately succeeding paragraph (the "Appraised Value").
In order to determine the Appraised Value of the Preferred Stock to be
redeemed pursuant to the provision of this Section 4, the holders of a Majority
of the Redeemed Shares and the Company shall mutually agree on an appraiser who
shall determine a fair market value within 30 days which shall be binding on the
Company and the holders of Preferred Stock to be redeemed for purposes of
-8-
<PAGE>
this Section 4. In the event the holders of a Majority of the Redeemed Shares
and the Company are unable to mutually agree on a fair market value or on such
appraiser within (i) 15 days after the time has elapsed for holders of Preferred
Stock to request redemption (in the case of redemptions under Section 4(a) of
this Article III) or (ii) 15 days after receipt by the Stockholders of the
Redemption Notice (or 15 days after the last date on which the Redemption Notice
could be sent under the provisions of Section 4(b) of this Article III in the
event that the Redemption Notice is not so sent) (in the case of redemptions
under Section 4(b) of this Article III), holders of a Majority of the Redeemed
Shares and the Company shall each appoint one appraiser within 5 days thereafter
which appraisers shall promptly appoint a third appraiser, which third appraiser
shall independently, within 30 days of such third appraiser's appointment,
determine a fair market value which shall be the Appraised Value. (If either a
majority of such Holders or the Company fails to appoint an appraiser within 10
days after the first appraiser is appointed, then the appraiser who has been
appointed shall be the sole appraiser and the fair market value determined by
such appraiser shall be binding on the parties.) The Company shall bear the
cost of all appraisers appointed pursuant to the foregoing provisions. All
appraisers appointed pursuant to this Section 4 shall be qualified in valuing
companies similar to the Company and shall be unaffiliated with either party.
Any determination of the Appraised Value under this Section 4 shall be made
without reduction resulting from the lack of liquidity of the Preferred Stock or
the fact that the Preferred Stock to be redeemed may, at such time, represent a
minority interest in the Company and shall exclude any accrued but unpaid
dividends on the Preferred Stock so redeemed.
(d) Dividends After Redemption Date. No shares of Preferred Stock are entitled
-------------------------------
to any dividends accruing after the date on which the Redemption Price for
such shares of Preferred Stock is paid. On such date all rights of the
holder or holders of such shares of Preferred Stock will cease, and such
shares will not be deemed to be outstanding.
5. Voting Rights.
-------------
(a) Preferred Stock. Each holder of shares of Preferred Stock shall be
---------------
entitled to vote on all matters and, except as otherwise expressly provided
herein, shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock into which all shares of Preferred
Stock held by such holder could be converted, pursuant to the provisions of
Section 6 of this Article III at the record date for the determination of
the stockholders entitled to vote on such matters or, if no such
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<PAGE>
record date is established, at the date such vote is taken or any written
consent of stockholders is first executed. This provision for
determination of the number of votes to which each holder of Preferred
Stock is entitled shall also apply in all cases in which the holders of
shares of Preferred Stock have the right to vote separately as a class.
(b) Common Stock. Each holder of shares of Common Stock shall be entitled to
------------
one vote for each share thereof held. Except as otherwise expressly
provided herein or as required by law, the holders of Preferred Stock and
the holders of Common Stock shall vote together and not as separate
classes.
6. Conversion.
----------
The holders of Preferred Stock shall have the following conversion rights:
(a) Right to Convert. Each share of Preferred Stock shall be convertible, at
----------------
the option of the holders thereof, at any time or from time to time and on
or prior to the Redemption Date, into fully paid and nonassessable shares
of Common Stock.
(b) Conversion Price. Each share of Preferred Stock shall be convertible into
----------------
the number of shares of Common Stock which results from dividing $7.07 by
the Conversion Price per share in effect at the time of conversion. The
initial Conversion Price per share shall be $7.07. Such initial Conversion
Price shall be subject to adjustment from time to time as provided below.
(c) Mechanics of Conversion. Each holder of Preferred Stock who desires to
-----------------------
convert the same into shares of Common Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for the Preferred Stock or Common Stock,
and shall give written notice to the Company at such office that such
holder elects to convert the same and shall state therein the number of
shares of Preferred Stock being converted. Thereupon the Company shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder
is entitled. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the
certificate representing the shares of Preferred Stock to be converted, and
the person entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on such date. Each holder of Preferred Stock
who converts any shares of Preferred Stock shall be entitled to, and the
Company shall promptly pay in cash, all unpaid dividends with respect to
such converted shares of Preferred Stock. If the Company does not have
funds legally available to
-10-
<PAGE>
pay all unpaid dividends with respect to such converted shares of Preferred
Stock, the Company will pay such dividends for which it has funds legally
available and shall pay the remainder of such dividends as soon as it has
funds legally available to do so. In the event the Company delays payment
of dividends on the Preferred Stock pursuant to the immediately preceding
sentence, the Company shall, if requested by a holder of Preferred Stock,
deliver evidence satisfactory to such holder of its obligation to pay such
dividends. Each holder of Preferred Stock who converts shares of Preferred
Stock pursuant to the provisions of this Section 6 may, in lieu of
accepting cash for all or any portion of accrued and unpaid dividends,
demand by written notice that the Company pay such dividends in shares of
Common Stock whereupon the Company shall promptly issue the number of
shares of Common Stock to such holder determined pursuant to the provisions
of the immediately succeeding sentence. The number of shares of Common
Stock to be issued upon such election shall be determined by dividing the
amount of accrued and unpaid dividends which such holder desires to convert
to Common Stock by the Conversion Price then in effect.
(d) Adjustment for Stock Splits and Combinations. If the Company at any time
--------------------------------------------
or from time to time after the Commitment Date effects a subdivision of the
outstanding Common Stock, the Conversion Price then in effect immediately
before the subdivision shall be proportionately decreased, and conversely,
if the Company at any time or from time to time after the Commitment Date
combines the outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
subsection (d) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. If the Company at any
--------------------------------------------------
time or from time to time after the Commitment Date makes or issues, or
fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Conversion Price
then in effect shall be decreased as of the time of such issuance or, in
the event such record date is fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a
fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date, and (2) the denominator of
which shall be the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however,
that if such record date is fixed and such
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<PAGE>
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price shall be recomputed accordingly
as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subsection (e) as of
the time of actual payment of such dividends or distributions.
(f) Adjustments for Other Dividends and Distributions. In the event the
-------------------------------------------------
Company at any time or from time to time after the Commitment Date makes or
issues, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities of
the Company which they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as
aforesaid during such period, subject to all other adjustments called for
during such period under this Section 6 with respect to the rights of the
holders of the Preferred Stock.
(g) Adjustments for Reclassification, Exchange and Substitution. In the event
-----------------------------------------------------------
that at any time or from time to time after the Commitment Date, the Common
Stock issuable upon the conversion of the Preferred Stock is changed into
the same or a different number of shares of any class or classes of stock,
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this
Section 6), then and in any such event each holder of Preferred Stock shall
have the right thereafter to convert such Preferred Stock into the kind and
amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change, by holders of the
maximum number of shares of Common Stock into which such shares of
Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further
adjustment as provided herein.
(h) Reorganizations, Mergers, Consolidations or Sales of Assets. Subject to
-----------------------------------------------------------
Section 3 of this Article III, if at any time or from time to time after
the Commitment Date there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section 6) or a merger
or consolidation of the Company with or into another corporation, or the
sale of all or substantially all of the Company's properties
-12-
<PAGE>
and assets to any other person, then, as a part of such reorganization,
merger, consolidation or sale, provision shall be made so that the holders
of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Company, or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of
the number of shares of Common Stock deliverable upon conversion would have
been entitled on such capital reorganization, merger, consolidation, or
sale. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 6 with respect to the rights
of the holders of the Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 6
(including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of the Preferred Stock) shall be
applicable after that event and be as nearly equivalent as may be
practicable.
(i) Sale of Shares Below Conversion Price.
-------------------------------------
(1) If at any time or from time to time after the Commitment Date, the Company
issues or sells, or is deemed by the express provisions of this subsection
(i) to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution on any
class of stock as provided in subsection (e) above and other than upon a
subdivision or combination of shares of Common Stock as provided in
subsection (d) above, for an Effective Price (as hereinafter defined) less
than the then existing Conversion Price, then and in each such case the
then existing Conversion Price shall be reduced, as of the opening of
business on the date of such issue or sale, to a price equal to the
Effective Price.
(2) For the purpose of making any adjustment required under this subsection
(i), the consideration received by the Company for any issue or sale of
securities shall (A) to the extent it consists of cash be computed at the
net amount of cash received by the Company after deduction of any expenses
payable by the Company and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Company in connection
with such issue or sale, (B) to the extent it consists of property other
than cash, be computed at the fair value of that property as reasonably
determined in good faith by the Board, and (C) if Additional Shares of
Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers both, be
computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or rights or
options.
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<PAGE>
(3) For the purpose of the adjustment required under this subsection (i), if
the Company issues or sells any rights or options for the purchase of, or
stock or other securities convertible or exchangeable, with or without
consideration, into or for, Additional Shares of Common Stock (such
convertible or exchangeable stock or securities being hereinafter referred
to as "Convertible Securities") and if the Effective Price of such
Additional Shares of Common Stock is less than the Conversion Price then in
effect, then in each case the Company shall be deemed to have issued at the
time of the issuance of such rights or options or Convertible Securities
the maximum number of Additional Shares of Common Stock issuable upon
exercise, conversion or exchange thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the
issuance of such rights or options or Convertible Securities, plus, in the
case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options,
plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation
of liabilities or obligations evidenced by such Convertible Securities)
upon the conversion or exchange thereof. No further adjustment of the
Conversion Price, adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such rights or
options or the conversion or exchange of any such Convertible Securities.
If any such rights or options or the conversion or exchange privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Conversion Price adjusted upon the issuance of such rights,
options or Convertible Securities shall be readjusted to the Conversion Price
which would have been in effect had an adjustment been made on the basis that
the only Additional Shares of Common Stock so issued were the Additional Shares
of Common Stock, if any, actually issued or sold on the exercise of such rights
or options or rights of conversion or exchange of such Convertible Securities,
and such Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted or
exchanged, plus the consideration, if any, actually received by the Company
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) on the conversion or exchange of such Convertible
Securities.
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<PAGE>
(4) For the purpose of the adjustment required under this subsection (i), if
the Company issues or sells any rights or opt ions for the purchase of
Convertible Securities and if the Effective Price of the Additional Shares
of Common Stock underlying such Convertible Securities is less than the
Conversion Price then in effect, then in each such case the Company shall
be deemed to have issued at the time of the issuance of such rights or
options the maximum number of Additional Shares of Common Stock issuable
upon conversion or exchange of the total amount of Convertible Securities
covered by such rights or options and to have received as consideration for
the issuance of such Additional Snares of Common Stock an amount equal to
the amount of consideration, if any, received by the Company for the
issuance of such rights or options, plus the minimum amounts of
consideration, if any, payable to the Company upon the exercise of such
rights or options and plus the minimum amount of consideration, if any,
payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
or exchange of such Convertible Securities. No further adjustment of the
Conversion Price, adjusted upon the issuance of such rights or options,
shall be made as a result of the actual issuance of the Convertible
Securities upon the exercise of such rights or options or upon the actual
issuance of Additional Shares of Common Stock upon the conversion or
exchange of such Convertible Securities. The provisions of paragraph (3)
above for the readjustment of the Conversion Price upon the expiration of
rights or options or the rights of conversion or exchange of Convertible
Securities shall apply mutatis mutandis to the rights, options and
----------------
Convertible Securities referred to in this paragraph (4).
(5) "Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Commitment Date, whether or not
subsequently reacquired or retired by the Company, other than (i) shares of
Common Stock issued upon conversion of the Preferred Stock, (ii) shares of
Common Stock issued to management, directors or employees of, or
consultants to, the Company pursuant to Approved Plans and (iii) up to an
aggregate of 250,000 shares of Common Stock issued to Susan R. Sandoloski,
Stanley D. Rosenberg and David H. Pickus on or before March 14, 1991. For
purposes of the definition of "Additional Shares of Common Stock", the sale
or other disposition of any Common Stock of the Company after the
Commitment Date theretofore held in its treasury shall be deemed to be in
issuance thereof.
The "Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Company under
this subsection (i), into the aggregate consideration received, or deemed to
have been received by the Company for such issue under this subsection (i), for
such Additional Shares of Common Stock.
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<PAGE>
(j) Accountants' Certificate of Adjustment. In each case of an adjustment or
--------------------------------------
readjustment of the Conversion Price or the number of shares of Common
Stock or other securities issuable upon conversion of the Preferred Stock,
the Company, at its expense, shall cause independent public accountants of
recognized standing selected by the Company (who may be the independent
public accountants then auditing the books of the Company) to compute such
adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall
mail such certificate, by first class mail, postage prepaid, to each
registered holder of the Preferred Stock at the holder's address as shown
in the Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (1) the consideration
received or deemed to be received by the Company for any Additional Shares
of Common Stock issued or sold or deemed to have been issued or sold, (2)
the Conversion Price at the time in effect, (3) the number of Additional
Shares of Common Stock and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the
Preferred Stock.
(k) Notices of Record Date. In the event of (i) any taking by the Company of
----------------------
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company,
any merger or consolidation of the Company with or into any other
corporation, or any transfer of all or substantially all of the assets of
the Company to any other Person or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall
mail to each holder of Preferred Stock at least thirty (30) days prior to
the record date specified therein (or such shorter period as may be agreed
to by holders of a Majority of the Preferred Stock), a notice specifying
(1) the date on which any such record is to be taken for the purpose of
such dividend or distribution and a description of such dividend or
distribution, (2) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation
or winding up is expected to become effective, and (3) the date, if any,
that is to be fixed, as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up. Notwithstanding the
foregoing, the record date for any quarterly dividends to be paid on the
Preferred Stock shall be ten days prior to the Dividend Payment Date for
such dividends.
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<PAGE>
(l) Automatic Conversion. Each share of Preferred Stock shall automatically be
--------------------
converted into shares of Common Stock based on the then effective
Conversion Price immediately upon the closing of the Initial Public
Offering, and the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Preferred Stock are either delivered to the
Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Company and its
counsel to indemnify the Company from any loss incurred by it in connection
with such certificates. Upon the occurrence of such automatic conversion
of the Preferred Stock, the holders of Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Preferred Stock or Common Stock. Thereupon, there
shall be issued and delivered to such holder promptly at such office and in
its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into
which the shares of Preferred Stock surrendered were convertible on the
date on which such automatic conversion occurred, and the Company shall
promptly pay accrued and unpaid dividends on the shares of Preferred Stock
being converted, whether or not earned or declared, to and including the
date of such conversion. If the Company does not have funds legally
available to pay all unpaid dividends with respect to such converted shares
of Preferred Stock, the Company will pay such dividends for which it has
funds legally available and shall pay the remainder of such dividends as
soon as it has funds legally available to do so. In the event the Company
delays payment of dividends on the Preferred Stock pursuant to the
immediately preceding sentence, the Company shall, if requested by a holder
of Preferred Stock, deliver evidence satisfactory to such holder of its
obligation to pay such dividends. Each holder of Preferred Stock whose
shares of Preferred Stock are converted pursuant to the provisions of this
Section 6 may, in lieu of accepting cash for all or any portion of accrued
and unpaid dividends, demand by written notice that the Company pay such
dividends in shares of Common Stock whereupon the Company shall promptly
issue the number of shares of Common Stock to such holder determined
pursuant to the provisions of the immediately succeeding sentence. The
number of shares of Common Stock to be issued upon such election shall be
determined by dividing the amount of accrued and unpaid dividends which
such holder desires to convert to Common Stock by the Conversion Price then
in effect.
-17-
<PAGE>
(m) Fractional Shares. No fractional shares of Common Stock shall be issued
-----------------
upon conversion of Preferred Stock. If more than one share of Preferred
Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. In lieu of any fractional share to which
the holder would otherwise be entitled, the Company shall pay cash equal to
the fair market value of such fractional share determined by the Board.
(n) Reservation of Stock Issuable Upon Conversion. The Company shall at all
---------------------------------------------
times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Preferred
Stock, the Company will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares
of Common Stock to such number of shares as shall be sufficient for such
purpose.
(o) Notices. All notices and other communications required by the provisions
-------
of this Section 6 shall be in writing and shall be deemed to have been duly
given if delivered personally, mailed by certified mail (return receipt
requested) or sent by overnight delivery service, cable, telegram,
facsimile transmission or telex to each holder of record at the address of
such holder appearing on the books of the Company. Notice so given shall,
in the case of notice so given by mail, be deemed to be given and received
on the fourth calendar day after posting, in the case of overnight delivery
service, on the date of actual delivery and, in the case of notice so given
by cable, telegram, facsimile transmission, telex or personal delivery, on
the date of actual transmission or, as the case may be, personal delivery.
(p) Payment of Taxes. The Company will pay all taxes (other than taxes based
----------------
upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Preferred Stock, including without limitation any tax or other
charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the
shares of Preferred Stock so converted were registered.
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<PAGE>
(q) No Dilution or Impairment. The Company shall not amend its Certificate of
-------------------------
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate
in order to protect the conversion rights of the holders of the Preferred
Stock against dilution or other impairment.
(r) Rounding of Calculations; Minimum Adjustment. All calculations under this
--------------------------------------------
Section 6 shall be made to the nearest one thousandth (1/1,000th) cent or
to the nearest one thousandth (1/1,000th) of a share, as the case may be.
Any provision of this Section 6 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.001, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of
and together with any such subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate
$0.001 or more.
7. Restrictions and Limitations.
----------------------------
(a) So long as any shares of Preferred Stock remain outstanding, the Company
shall not, and shall not permit any Subsidiary to, without the vote or
written consent by the holders of a Majority of the Preferred Stock:
(1) Redeem, purchase or otherwise acquire for value, any share or shares of
Preferred Stock otherwise than by redemption in accordance with Section 4
or Section 10 of this Article III;
(2) Purchase, redeem or otherwise acquire for value (or pay into or set aside
as a sinking fund for such purpose) any of the Common Stock; provided,
however, that this restriction shall not apply to the repurchase of shares
of Common Stock from directors or employees of or consultants or advisers
to the Company or any Subsidiary pursuant to agreements under which the
Company has the option to repurchase such shares upon the occurrence of
certain events, including the termination of employment by or service to
the Company or any Subsidiary;
(3) Authorize or issue, or obligate itself to issue, any other Equity Security
senior to or on a parity with the Preferred Stock as to dividend or
redemption rights, liquidation preferences, conversion rights, voting
rights or otherwise;
-19-
<PAGE>
(4) Declare or pay any dividends on or declare or make any other distribution,
direct or indirect (other than a dividend payable solely in shares of
Common Stock), on account of the Common Stock or set apart any sum for any
such purpose;
(5) Increase or decrease (other than by redemption or conversion) the total
number of authorized shares of Preferred Stock;
(6) Enter any agreement, contract or understanding or otherwise incur any
obligation which by its terms would violate, be in conflict with, restrict
or burden the rights of the holders of Preferred Stock hereunder or the
Company's performance of the terms of its Certificate of Incorporation;
(7) Acquire any business (as determined in accordance with Rule 11-01(d) of
Regulation S-X promulgated by the Securities and Exchange Commission as in
effect and interpreted by said Commission on the Commitment Date) by
purchase, lease, assignment or other transfer or conveyance of assets,
property or securities or by merger, consolidation or form of business
combination or otherwise, or enter into a joint venture or partnership with
any other entity, or, unless the obligations of the Company under an
agreement are expressly conditioned upon the requisite approval of the
holders of a Majority of the Preferred Stock as provided for herein, make
any agreement or become obligated to do so;
(8) Effect any sale, lease, assignment, transfer or other conveyance of all or
substantially all of the assets of the Company or any of its Significant
Subsidiaries, or any consolidation or merger involving the Company or any
of its Significant Subsidiaries, or any reclassification or other change of
any stock, or any recapitalization, or any dissolution, liquidation, or
winding up of the Company or, unless the obligations of the Company under
an agreement are expressly conditioned upon the requisite approval of the
holders of a Majority of the Preferred Stock as provided for herein, make
any agreement, or become obligated, to do so; or
(9) Permit any Subsidiary to issue or sell, or obligate itself to issue or
sell, except to the Company or any wholly-owned Subsidiary, any stock of
such Subsidiary.
(b) So long as any shares of Preferred Stock remain outstanding, the Company
shall not amend its Certificate of Incorporation or By-Laws without the
approval, by vote or written consent, of the holders of a Majority of the
Preferred Stock except that any amendment which changes the initial
Conversion Price from $7.07 (exclusive of any amendment relating to any
provision hereof providing for an adjustment to such initial Conversion
Price) shall require the approval, by vote or written consent, of 80% of
the Preferred Stock. Notwithstanding any provisions contained in the
Company's Certificate of Incorporation, the provisions of this Section 7(b)
may not be amended without the vote or written
-20-
<PAGE>
consent of the holders of 80% of the Preferred Stock.
(c) So long as any shares of Preferred Stock are outstanding, the Company shall
not increase the number of outstanding shares of Preferred Stock by means
of a stock dividend payable in shares of Preferred Stock or by a
subdivision or splitup of the shares of Preferred Stock. Notwithstanding
any provisions contained in the Company's Certificate of Incorporation, the
provisions of this Section 7(c) may not be amended without the vote or
written consent of the holders of a Majority of the Preferred Stock.
8. No Reissuance of Preferred Stock.
--------------------------------
No share or shares of Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be cancelled, retired and eliminated from the shares which the
Company shall be authorized to issue.
9. Rights of First Refusal.
-----------------------
(a) Each holder of Preferred Stock shall have the right of first refusal to
purchase, pro rata, all (or any part) of New Securities that the Company
may, from time to time, propose to sell and issue after the first date of
issuance of the Preferred Stock. Each such holder's pro rata share of New
Securities, for the purposes of this right of first refusal, is the ratio
of the number of shares of Conversion Stock held by such holder at the time
the New Securities are offered (treating the Preferred Stock as if it were
fully converted) to the total number of Conversion Stock held by all
holders thereof having a right of first refusal under this Section 9
(treating the Preferred Stock as if it were fully converted).
(b) If the Company proposes to undertake an issuance of New Securities, it
shall give each holder of Preferred Stock having a right of first refusal
under this Section 9 written notice of its intention, describing the type
of New Securities, the price, and the general terms and conditions upon
which the Company proposes to issue the same. Each such holder shall have
20 days from the giving of such notice to agree to purchase its pro rata
share of New Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. The Company shall
give each holder of Preferred Stock having a right of first refusal under
this Section 9 written
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<PAGE>
notice on the date following such 20 day period as to any New Securities
with respect to which holders of Preferred Stock have not exercised their
right of first refusal. Each such holder shall have a right of over
allotment such that if any holder of Preferred Stock having a right of
first refusal under this Section 9 fails to exercise its rights hereunder
to purchase its pro rata portion of the New Securities, the other holders
may purchase the non-purchasing holder's portion on a pro rata basis, by
agreeing in writing to purchase such New Securities within 10 days after
the end of such first 20 day period.
(c) If the holders of Preferred Stock fail to exercise in full such right
within such 30 days, the Company shall have 120 days thereafter to sell the
New Securities in respect of which such holders' rights were not exercised,
at a price and upon general terms and conditions no more favorable to the
purchasers thereof than specified in the Company's notice to the holders of
Preferred Stock pursuant to Section 9(b) of this Article III. If the
Company has not sold the New Securities within such 120 days, the Company
shall not thereafter issue or sell any New Securities, without first
offering such securities to the holders of Preferred Stock in the manner
provided above.
(d) The rights of first refusal established by this Section 9 shall terminate
upon the closing of, and shall not be applicable to, the Initial Public
Offering.
(e) A holder of Preferred Stock shall not be entitled to exercise any right of
first refusal pursuant to this Section 9 unless (i) such holder acquired
shares of Preferred Stock from the Company upon the original issuance
thereof, (ii) such holder is a partner in or an Affiliate of a Person who
acquired shares of Preferred Stock from the Company upon the original
issuance thereof, or (iii) if such holder did not acquire shares of
Preferred Stock from the Company upon the original issuance thereof, such
holder is an immediate or remote transferee of a Person who acquired shares
of Preferred Stock from the Company upon the original issuance thereof and
such holder holds, immediately after such transfer, a number of shares of
Preferred Stock not less than the greater of (i) 50% of the number of
shares of Preferred Stock purchased by such Person and (ii) 5% of the total
shares of Preferred Stock sold under the Purchase Agreement.
10. Events of Noncompliance.
-----------------------
(a) Definition. An Event of Noncompliance will be deemed to have occurred if:
----------
(i) the Company fails to pay, when payment shall be required pursuant hereto,
the full amount of dividends accrued on the Preferred Stock;
-22-
<PAGE>
(ii) the Company fails to make any redemption payment with respect to the
Preferred Stock which it is obligated to make hereunder, whether or not
such payment is legally permissible;
(iii) the Company breaches or otherwise fails to perform or observe any other
covenant or agreement set forth herein or in the Purchase Agreement;
(iv) any representation or warranty contained in the Purchase Agreement or
required to be furnished to any holder of Preferred Stock pursuant to the
Purchase Agreement, or any information contained in writing furnished by
the Company or any Subsidiary to any holder of Preferred Stock, is false
or misleading in any material respect on the date made or furnished;
(v) the Company or any Subsidiary makes an assignment for the benefit of
creditors or admits in writing its inability to pay its debts generally as
they become due; or an order, judgment or decree is entered into
adjudicating the Company or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Company or any Subsidiary is entered
under the Federal Bankruptcy Code; or the Company or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Company or any Subsidiary or any
substantial part of the assets of the Company or any Subsidiary, or
commences any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a Subsidiary) relating to the Company or
any Subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any Subsidiary and either
(a) the Company or any such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such petition,
application or proceeding is not dismissed within 60 days;
(vi) a judgment in excess of $50,000 is rendered against the Company or any
Subsidiary and, within 60 days after entry thereof, such judgment is not
discharged or execution thereof stayed pending appeal, or within 60 days
after the expiration of any such stay, such judgment is not discharged; or
(vii) the Company or any Subsidiary defaults in the performance of any
obligation or agreement if the effect of such default is to cause an
amount exceeding $50,000 to become due prior to its stated maturity or to
permit the holder or holders of any obligation to cause an amount
exceeding $50,000 to become due prior to its stated maturity.
-23-
<PAGE>
(b) Consequences of Certain Events of Noncompliance.
-----------------------------------------------
(i) If an Event of Noncompliance has occurred, the holder or holders of a
Majority of the Preferred Stock then outstanding may demand (by written
notice delivered to the Company) immediate redemption of all or any portion
of the Preferred Stock owned by such holder or holders at a price per share
equal to the Redemption Price determined pursuant to Section 4 hereof. The
Company will give prompt written notice of such election to the other
holders of Preferred Stock (but in any event within 10 days after receipt
of the initial demand for redemption), and each such other holder may
demand immediate redemption of all or any portion of such holder's
Preferred Stock by giving written notice thereof to the Company within 15
days after receipt of the Company's notice. The Company will redeem all
Preferred Stock as to which rights under this paragraph have been exercised
within 30 days after receipt of the initial demand for redemption. The
rights granted to the holders of Preferred Stock under this subparagraph
(b)(i) are subject to revesting upon each occurrence of an Event of
Noncompliance.
(ii) If Events of Noncompliance exist for an aggregate of 90 days (whether or
not such days are successive), the Conversion Price of the Preferred Stock
will be reduced immediately by 5% of the Conversion Price in effect
immediately prior to such adjustment. Thereafter, the Conversion Price
will be reduced automatically at the end of each succeeding period during
which Events of Noncompliance have existed for an aggregate of 90 days
(whether or not such days are successive but measured beginning from the
date of the previous adjustment pursuant to this subparagraph (b)(ii)) by
5% of what the Conversion Price would have been immediately prior to any
adjustment made pursuant to this subparagraph (b)(ii) (the "Original
Conversion Price"); provided, however, that the Conversion Price shall not
be reduced below a price equal to 50% of the Original Conversion Price. In
no event will any Conversion Price adjustment be rescinded.
For example, assume that the Conversion Price of the Preferred Stock is $1.00.
If Events of Noncompliance are in existence for an aggregate of 90 days (whether
or not such days are successive), the Conversion Price would be reduced
immediately by 5% of $1.00, or $0.05, for a new Conversion Price of $0.95. If
Events of Noncompliance exist for an additional 90 days (whether or not such
days are successive), the existing Conversion Price would be reduced by 5% of
what the Conversion Price would have been if there had been no previous
adjustment pursuant to this subparagraph (i.e., $1.00), or $0.05, for a new
Conversion Price of $0.90. Then assume that there is a two-for-one stock split,
in which case the Conversion Price would be decreased pursuant to Section 6(d)
of this Article III from $0.90 to $0.45 and assume that Events of Noncompliance
exist for an additional 90 days. In
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<PAGE>
this case, the Conversion Price would be reduced by 5% of what the Conversion
Price would have been immediately prior to such adjustment if there had been no
previous adjustments pursuant to this subparagraph (i.e., $0.50), or $0.025, for
a new Conversion Price of $0.425.
(iii) If any Event of Noncompliance exists, each holder of Preferred Stock
will also have any other rights which such holder may have been afforded under
any contract or agreement at any time and any other rights which such holder may
have pursuant to applicable law.
11. Waivers. With the written consent of the holders of Preferred
-------
Stock who would otherwise be required to amend a particular provision of this
Article III, the obligations of the Company and the rights of the holders of the
Preferred Stock under such provision of this Article III may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely). Upon the effectuation
of each such waiver, the Company shall promptly give written notice thereof to
the holders of Preferred Stock who have not previously consented thereto in
writing.
IV
The registered office of the corporation in the State of Delaware is located
at Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle. The name of the corporation's registered agent at such
address is The Corporation Trust Company.
V
The corporation is to have perpetual existence.
VI
In furtherance and not in limitation of the powers conferred by statute, the
board of directors of the corporation is expressly authorized to adopt, alter or
repeal the Bylaws of the corporation, except to the extent such power may be
modified or divested by action of stockholders representing a majority of the
issued and outstanding shares of the capital stock of the corporation entitled
to vote thereon taken at any regular or special meeting o(Pounds) the
stockholders and except as provided in Article III hereof.
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<PAGE>
VII
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(whether or not 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), liability, loss,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding to the fullest extent
permitted by any applicable law; provided, however, that the corporation shall
-------- -------
be required to indemnify such person in connection with a proceeding initiated
by such person only if such action, suit or proceeding is authorized by the
board of directors of the corporation, and such indemnity shall inure to the
benefit of the heirs, executors and administrators of any such person so
indemnified pursuant to this Article IX. The right to indemnification under
this Article IX shall be a contract right and shall include, with respect to
directors and officers, the right to be paid by the corporation the expenses
incurred in defending any such proceeding in advance of its disposition;
provided, however, that, if the General Corporation Law of the State of Delaware
- -------- -------
requires, the payment of such expenses incurred by a director or officer in
advance of the final disposition of a proceeding shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article IX or otherwise. The corporation may, by action of its board of
directors, pay such expenses incurred by employees and agents of the corporation
upon such terms as the board of directors deems appropriate. Any repeal or
modification of any provision of this Article IX shall not adversely affect any
right or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
VIII
Elections of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
-26-
<PAGE>
IX
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
X
Whenever a compromise or arrangement is proposed between this corporation and
its creditors or any class of them and/or between this corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangements and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
XI
If any provisions contained in this Certificate of Incorporation shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not invalidate the entire
Certificate of Incorporation or any other provisions hereof. Such provision
shall be deemed to be modified to the extent necessary to render it valid and
enforceable and if no such modification shall render it valid and enforceable,
then the Certificate of Incorporation shall be construed as if not containing
such provision.
-27-
<PAGE>
XII
To the fullest extent permitted by the General Corporation Law of the State of
Delaware, as the same presently exists or may hereafter be amended, a director
of the corporation shall not be liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article XIV shall not adversely affect any
right or protection of a director of the corporation with respect to any act or
omission occurring prior to such repeal or modification.
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<PAGE>
We, the undersigned, being a majority of the directors named in the original
Certificate of Incorporation each hereby declare and certify that the
Corporation has not received any payments for any of its stock and that this
Restated Certificate of Incorporation has been duly adopted in accordance with
the provisions of Section 141 of the General Corporation Law of Delaware, and
that there are no officers of the Corporation; and we, the undersigned each do
hereby execute this Restated Certificate of Incorporation, each declaring and
certifying under penalties of perjury that the facts herein stated are true, and
we have accordingly hereunto set our hands this 8th day of March, 1991.
/s/ Lee R. Sandoloski
-----------------------
Lee R. Sandoloski
/s/ David H. Pickus
-----------------------
David H. Pickus
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<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
JEEPERS! INC.
JEEPERS! INC. (formerly known as Jungle Jim's Playlands, Inc.), a Delaware
corporation (the "Company"), hereby certifies as follows:
FIRST: The Board of Directors of the Company duly adopted the following
resolutions:
WHEREAS, in connection with the proposed initial public offering of the
Company, the Board of Directors finds it advisable to amend the Company's
Restated Certificate of Incorporation, as amended (the "Restated Certificate of
Incorporation") pursuant a Certificate of Amendment to the Restated Certificate
of Incorporation (the "Amendment") so as to (i) change the par value of the
common stock of the Company from $0.001511 per share to $0.01 per share; (ii)
change the number of authorized shares of common stock of the Company from
70,000,000 to 30,000,000; and (iii) effect the Reverse Split (as defined below),
such that the number of issued shares of common stock of the Company shall be
reduced by a factor of ten;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors declares it
advisable to amend its Restated Certificate of Incorporation as set forth in the
Amendment and that the Amendment be, and hereby is, adopted and approved, with
the effect that the first paragraph of Section 1 of Article III of the Restated
Certificate of Incorporation shall read, in its entirety, as follows:
III.
Section 1. Authorized Capital Stock
------------------------
The Company is authorized to issue 30,000,000 shares of common stock,
par value $0.01 per share ("Common Stock"), and 38,442,198 shares of
preferred stock, par value $1.00 per share ("Preferred Stock"), of which
961,377 shares shall be designated as "Series A Preferred Stock," 441,936
shares shall be designated as "Series B Preferred Stock," 11,077,508 shares
shall be designated as "Series C Preferred Stock," 961,377 shares
<PAGE>
shall be designated as "Series D Preferred Stock" and 25,000,000 shares
shall be designated as "Series F Preferred Stock."
(HERE ENDS THE TEXT OF THE AMENDED FIRST PARAGRAPH OF SECTION 1 OF ARTICLE III)
and it is further
RESOLVED, that the Amendment shall have the further effect of adding the
following paragraph as the final paragraph of Section 1 of Article III of the
Restated Certificate of Incorporation:
Every share of common stock, par value $0.001511 per share ("Old
Common Stock"), issued and outstanding immediately prior to the filing
of the Certificate of Amendment dated April 8, 1998, is automatically
combined and changed (the "Reverse Split"), without any further act on
the part of the Company or any stockholder thereof, into one-tenth
(1/10) of a share of fully paid and nonassessable Common Stock;
provided, however, that, if any stockholder has rights to receive a
-----------------
fraction of a share of Common Stock as a result of the Reverse Split,
the Company will purchase such fractional shares at a purchase price
of $16.00 per share, with the effect that no fractional shares of
Common Stock shall be issued in connection with the Reverse Split.
(HERE ENDS THE TEXT OF THE FINAL PARAGRAPH OF SECTION 1 OF ARTICLE III)
SECOND: The Stockholders of the Company have duly adopted such resolutions by
consent action effective as of April 8, 1998, in accordance with the provisions
of Sections 228 and 242 of the General Corporation Law of the State of Delaware
and the By-laws of the Company.
2
<PAGE>
IN WITNESS WHEREOF, JEEPERS! INC. has caused this certificate to be signed by
Nabil N. El-Hage, its President, and attested by Kenneth J. Sanginario, its
Secretary, on the 8th day of April, 1998.
JEEPERS! INC.
By: /s/ Nabil N. El-Hage
___________________________
Nabil N. El-Hage
President
ATTEST
/s/ Kenneth J. Sanginario
____________________________
Kenneth J. Sanginario
Secretary
3
<PAGE>
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
JEEPERS! INC.
JEEPERS! INC. (formerly known as Jungle Jim's Playlands, Inc.), a Delaware
corporation (the "Company"), hereby certifies as follows:
FIRST: The Board of Directors of the Company duly adopted the following
resolutions:
RESOLVED, that the Board of Directors declares it advisable and in the best
interest of the Company to amend the Restated Certificate of Incorporation as
set forth in the Amendment and that the Amendment be, and hereby is, adopted and
approved, with the effect that Section 1 of Article III of the Restated
Certificate of Incorporation shall read, in its entirety, as follows:
III.
Section 1. Authorized Capital Stock
------------------------
The Company is authorized to issue 30,000,000 shares of common stock,
par value $0.01 per share (the "Common Stock"); 38,442,198 shares of
preferred stock, par value $1.00 per share (the "Preferred Stock"), of
which 961,377 shares shall be designated as "Series A Preferred Stock,"
441,936 shares shall be designated as "Series B Preferred Stock,"
11,077,508 shares shall be designated as "Series C Preferred Stock,"
961,377 shares shall be designated as "Series D Preferred Stock" and
25,000,000 shares shall be designated as "Series F Preferred Stock;" and
5,000,000 shares of undesignated preferred stock, par value $0.01 per share
(the "Preference Stock").
The number of authorized shares of Common Stock may be increased or
decreased by the affirmative vote of the holders of a
<PAGE>
majority of the outstanding capital stock of the Company entitled to vote
without regard to class.
The rights, preferences, privileges and restrictions granted to and
imposed upon the Common Stock and the Preferred Stock are set forth below
in this Article III and, with respect to the Preference Stock, shall be
subject to the provisions of Section 11 of this Article III.
Subject to the rights of the holders of the Preferred Stock and the
Preference Stock, the Common Stock shall be entitled to dividends out of
funds legally available therefor, when, as and if declared and paid to the
holders of Common Stock and, upon liquidation, dissolution or winding up of
the Company, to share ratably in the assets of the Company.
(HERE ENDS THE TEXT OF AMENDED SECTION 1 OF ARTICLE III)
and it is further
RESOLVED, that the Amendment shall have the further effect of replacing the
text of Section 6(b) of Article III of the Restated Certificate of
Incorporation, in its entirety, with the following text:
Conversion Price. The shares of each Series of Preferred Stock shall be
----------------
convertible into the number of shares of Common Stock which results from
dividing the (x) Liquidation Preference of the shares of such Series of
Preferred Stock determined in accordance with Section 3(a) hereof as of the
date of conversion by (y) the Conversion Price (as defined below) per share
in effect at the time of conversion; provided, however, that in a case of
-------- -------
an automatic conversion of the Preferred Stock pursuant to subsection
(l)(1) of this Section 6 in connection with a Qualified Public Offering as
defined in clause (i) of the definition of such term in such subsection
(l)(1), the Liquidation Preference shall be calculated to include accrued
dividends only through and as of June 5, 1998, and not as of the date of
conversion. Effective as of April 8, 1998, the "Conversion Price" per
share for each share of Preferred Stock shall be (i) $10.00 in the case of
shares of Series A Preferred Stock, Series B Preferred Stock and Series D
Preferred Stock or, in the case of the portion of the Liquidation
Preference of such shares consisting of accrued and unpaid dividends
thereon for the period from and after April 29, 1994, $11.00 and (ii)
$11.00 in the case of shares
2
<PAGE>
of Series C Preferred Stock and Series F Preferred Stock, in each case
subject to adjustment from time to time as provided below.
(HERE ENDS THE TEXT OF AMENDED SECTION 6(B) OF ARTICLE III)
and it is further
RESOLVED, that the Amendment shall have the further effect of replacing the
text of Section 6(d) of Article III of the Restated Certificate of
Incorporation, in its entirety, with the following text:
Adjustment for Stock Splits and Combinations. If the Company at any time
--------------------------------------------
or from time to time after April 9, 1998 effects a subdivision of the
outstanding Common Stock, the Conversion Price with respect to such Series
of Preferred Stock then in effect immediately before the subdivision shall
be proportionately decreased, and conversely, if the Company at any time or
from time to time after April 9, 1998 combines the outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price with
respect to each Series of Preferred Stock then in effect immediately before
the combination shall be proportionately increased. Any adjustment under
this subsection (d) shall become effective at the close of business on the
date the subdivision or combination becomes effective.
(HERE ENDS THE TEXT OF AMENDED SECTION 6(D) OF ARTICLE III)
and it is further
RESOLVED, that the Amendment shall have the further effect of replacing the
text of Section 6(l)(1) of Article III of the Restated Certificate of
Incorporation, in its entirety, with the following text:
Each share of Preferred Stock shall automatically be converted into
shares of Common Stock based on the then effective Conversion Price
immediately prior to the closing of a Qualified Public Offering (as
hereinafter defined), and the outstanding shares of Preferred Stock shall
be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares
are surrendered to the Company or its transfer agent; provided, however,
that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion
3
<PAGE>
unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Company or its transfer agent as provided below, or
the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company and its counsel to indemnify the Company from
any loss incurred by it in connection with such certificates. A "Qualified
Public Offering" shall mean (i) an underwritten public offering pursuant to
that certain registration statement, Registration Number 333-50297, under
the Securities Act of 1933, as amended, provided such offering shall be
consummated on or before August 31, 1998; or (ii) an underwritten public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offering and sale of
Common Stock for the account of the Company (A) in which the aggregate
gross proceeds at the public offering price equals or exceeds $20,000,000
and (B) the public offering price equals or is not less than $40.00 per
share of Common Stock, in each case appropriately adjusted for subdivisions
and combinations of shares of Common Stock and dividends on Common Stock
payable in shares of Common Stock pursuant hereto.
(HERE ENDS THE TEXT OF THE AMENDED SECTION 6(l)(1) OF ARTICLE III)
and it is further
RESOLVED, that the Amendment shall have the further effect of adding the
following new Section 11 immediately following Section 10 of Article III of the
Restated Certificate of Incorporation:
Section 11. Preference Stock.
----------------
The Company is authorized to issue shares of Preference Stock from time
to time in one or more series as may from time to time be determined by the
Board of Directors, each of such series to be distinctly designated. The
voting powers, privileges, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations or
restrictions thereof, if any, of each such series may differ from those of
any and all other series of Preference Stock at any time outstanding, and
the Board of Directors is hereby expressly granted authority to fix or
alter, by resolution or resolutions, the designation, number, voting
powers, privileges, preferences and
4
<PAGE>
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of each such series,
including, but without limiting the generality of the foregoing, the
following:
(a) The distinctive designation of, and the number of shares of Preference Stock
that shall constitute such series, which number (except where otherwise
provided by the Board of Directors in the resolution establishing such
series) may be increased (but not above the total number of shares of
Preference Stock) or decreased (but not below the number of shares of such
series then outstanding) from time to time by like action of the Board of
Directors.
(b) The rights in respect of dividends, if any, of such series of Preference
Stock, the extent of the preference or relation, if any, of such dividends
to the dividends payable on any other class or classes or any other series
of the same or other class or classes of capital stock of the Company, and
whether such dividends shall be cumulative or noncumulative.
(c) The right, if any, of the holders of such series of Preference Stock to
convert the same into, or exchange the same for, shares of any other class
or classes or of any other series of the same or any other class or classes
of capital stock of the Company, and the terms and conditions of such
conversion or exchange.
(d) Whether or not shares of such series of Preference Stock shall be subject to
redemption, and the redemption price or prices and the times at which, and
the terms and conditions on which, shares of such series of Preference
Stock may be redeemed.
(e) The rights and preferences, if any, of the holders of such series of
Preference Stock upon the voluntary or involuntary liquidation, dissolution
or winding up of the Company or in the event of any merger or consolidation
of or sale of assets by the Company.
(f) The terms of any sinking fund or redemption or purchase account, if any, to
be provided for shares of such series of the Preference Stock.
5
<PAGE>
(g) The voting powers, if any, of the holders of any series of Preference Stock
generally or with respect to any particular matter, which may be less than,
equal to or greater than one vote per share, and which may, without
limiting the generality of the foregoing, include the right, voting as a
series by itself or together with the holders of any other series of
Preference Stock or all series of Preference Stock as a class, to elect one
or more directors of the Company generally or under such specific
circumstances and on such conditions as shall be provided in the resolution
or resolutions of the Board of Directors adopted pursuant hereto,
including, without limitation, in the event there shall have been a default
in the payment of dividends on or redemption of any one or more series of
Preference Stock.
(HERE ENDS THE TEXT OF THE NEW SECTION 11 OF ARTICLE III
OF THE RESTATED CERTIFICATE OF INCORPORATION)
and it is further
RESOLVED, that the Board of Directors directs that the Amendment be presented
to the stockholders of the Company for their approval;
and it is further
RESOLVED, that the Board of Directors shall, and it hereby does, recommend
that the stockholders of the Company approve the Amendment;
SECOND: The Stockholders of the Company have duly adopted such resolutions by
consent action effective as of May 18, 1998, in accordance with the provisions
of Section 228 and 242 of the Delaware General Corporation Law and the By-laws
of the Company.
6
<PAGE>
IN WITNESS WHEREOF, JEEPERS! INC. has caused this certificate to be signed by
Nabil N. El-Hage, its President, and attested by Kenneth J. Sanginario, its
Secretary, on the 18th day of May, 1998.
JEEPERS! INC.
By: /s/ Nabil N. El-Hage
-----------------------
Nabil N. El-Hage
President
ATTEST:
/s/ Kenneth J. Sanginario
- -------------------------------------
Kenneth J. Sanginario
Secretary
7
<PAGE>
EXHIBIT 10.2
JEEPERS! INC.
1998 INCENTIVE AND CAPITAL ACCUMULATION PLAN
1. Purpose. The Jeepers! Inc. 1998 Incentive and Capital Accumulation
Plan (the "Plan") is intended to provide incentives which will attract, retain
and motivate highly competent persons as key employees of Jeepers! Inc. (the
"Company") and of any of its subsidiaries now existing or hereafter formed or
acquired, by providing them opportunities to acquire shares of the common stock,
par value $0.01 per share, of the Company ("Common Stock") or to receive
monetary payments based on the value of such shares pursuant to the Benefits (as
defined below) described herein. Furthermore, the Plan is intended to assist in
aligning the interests of the Company's key employees to those of its
stockholders.
2. Administration.
(a) The Plan will be administered by a committee of the Board of
Directors of the Company (the "Board") or a subcommittee of a committee of the
Board (which may be the Company's Compensation Committee), appointed by the
Board from among its members (the "Committee"), and shall be comprised solely of
not less than two members who shall be (i) "Non-Employee Directors" within the
meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) unless
otherwise determined by the Board, "outside directors" within the meaning of
Treasury Regulation Section 1.162-27(e)(3) under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Committee is authorized,
subject to the provisions of the Plan, to establish such rules and regulations
as it deems necessary for the proper administration of the Plan and to make such
determinations and interpretations and to take such action in connection with
the Plan and any Benefits (as defined below) granted hereunder as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act hereunder,
except in circumstances involving his or her bad faith, gross negligence or
willful misconduct, or for any act or failure to act hereunder by any other
member or employee or by any agent to whom duties in connection with the
administration of this Plan have been delegated. The Company shall indemnify
members of the Committee and any agent of the Committee who is an employee of
the Company, against any and all liabilities or expenses to which they may be
subjected by reason of any act or failure to act with respect to their duties on
behalf of the Plan, except in circumstances involving such person's bad faith,
gross negligence or willful misconduct.
(b) The Committee may delegate to one or more of its members, or to one
or more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company, or the subsidiary or affiliate whose employees have benefitted
from the Plan, as determined by the Committee.
<PAGE>
3. Participants. Participants will consist of such key employees of the
Company and any subsidiary of the Company as the Committee in its sole
discretion determines to be in a position to impact the success and future
growth and profitability of the Company and whom the Committee may designate
from time to time to receive Benefits under the Plan; provided that the sale by
the Company of any subsidiary shall be deemed a termination of employment of any
employee of such subsidiary for purposes of the Plan. Designation of a
participant in any year shall not require the Committee to designate such person
to receive a Benefit in any other year or, once designated, to receive the same
type or amount of Benefit as granted to the participant in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective
Benefits.
4. Type of Benefits. Benefits under the Plan may be granted in any one
or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards, and (e) Stock Units (each as described below,
and collectively, the "Benefits"). Stock Awards, Performance Awards, and Stock
Units may, as determined by the Committee in its discretion, constitute
Performance-Based Awards, as described in Section 11 below. Benefits shall be
evidenced by agreements (which need not be identical) in such forms as the
Committee may from time to time approve; provided, however, that in the event of
any conflict between the provisions of the Plan and any such agreements, the
provisions of the Plan shall prevail.
5. Common Stock Available Under the Plan. The aggregate number of
shares of Common Stock that may be subject to Benefits, including Stock Options,
granted under this Plan shall be 275,000 shares of Common Stock, which may be
authorized and unissued or treasury shares, subject to any adjustments made in
accordance with Section 12 hereof. The maximum number of shares of Common Stock
with respect to which Benefits may be granted or measured to any individual
participant under the Plan during the term of the Plan, and the maximum number
of shares of Common Stock with respect to which Stock Options and Stock
Appreciation Rights may be granted to any individual participant under the Plan
during the term of the Plan, shall not exceed 275,000 (subject to adjustments
made in accordance with Section 12 hereof). Other than those shares of Common
Stock subject to Benefits that are cancelled or terminated as a result of the
Committee's exercise of its discretion with respect to Performance-Based Awards
as provided for in Section 11, any shares of Common Stock subject to a Stock
Option or Stock Appreciation Right which for any reason is cancelled or
terminated without having been exercised or otherwise settled, any shares
subject to Stock Awards, Performance Awards or Stock Units which are forfeited
or any shares delivered to the Company as part or full payment for the exercise
of a Stock Option or Stock Appreciation Right shall again be available for
Benefits under the Plan. The preceding sentence shall apply only for purposes of
determining the aggregate number of shares of Common Stock subject to Benefits
but shall not apply for purposes of determining the maximum number of shares of
Common Stock with respect to which Benefits (including the maximum number of
shares of Common Stock subject to Stock Options and Stock Appreciation Rights)
may be granted to any individual participant under the Plan.
6. Stock Options. Stock Options will consist of awards from the Company
that will enable the holder to purchase a specific number of shares of Common
Stock, at set terms and at a fixed purchase price. Stock Options may be
"incentive stock options" ("Incentive Stock Options"), within the meaning
2
<PAGE>
of Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Committee will have the
authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with or
without Stock Appreciation Rights). Each Stock Option shall be subject to such
terms and conditions, including vesting periods, consistent with the Plan as the
Committee may determine from time to time, subject to the following limitations:
(a) Exercise Price. Each Stock Option granted hereunder shall have
such per-share exercise price as the Committee may determine at the
date of grant; provided, however, that in the case of Incentive Stock
Options, the provisions of subsection (d) below shall apply.
(b) Payment of Exercise Price. The option exercise price may be
paid in cash or, in the discretion of the Committee determined at the
date of grant, by the delivery of shares of Common Stock of the Company
then owned by the participant, by the withholding of shares of Common
Stock for which a Stock Option is exercisable, by delivering to the
Company an executed promissory note (or such other form of
indebtedness) on such terms and conditions as the Committee shall
determine in its sole discretion at the date of grant, in the case of
Incentive Stock Options, or at any time prior to exercise, in the case
of Nonqualified Stock Options, or by a combination of these methods. In
the discretion of the Committee determined at the date of grant,
payment may also be made by delivering a properly executed exercise
notice to the Company together with a copy of irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale or
loan proceeds to pay the exercise price. To facilitate the foregoing,
the Company may enter into agreements for coordinated procedures with
one or more brokerage firms. The Committee may prescribe any other
method of paying the exercise price that it determines to be consistent
with applicable law and the purpose of the Plan, including, without
limitation, in lieu of the exercise of a Stock Option by delivery of
shares of Common Stock of the Company then owned by a participant,
providing the Company with a notarized statement attesting to the
number of shares owned, where, upon verification by the Company, the
Company would issue to the participant only the number of incremental
shares to which the participant is entitled upon exercise of the Stock
Option. In determining which methods a participant may utilize to pay
the exercise price, the Committee may consider such factors as it
determines appropriate.
(c) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee; provided, however,
that no Stock Option shall be exercisable later than ten years after
the date it is granted. All Stock Options shall terminate at such
earlier times and upon such conditions or circumstances as the
Committee shall in its discretion set forth in such option agreement at
the date of grant.
(d) Limitations on Incentive Stock Options. Incentive Stock
Options may be granted only to participants who are employees of the
Company or its subsidiaries at the date of grant. The aggregate market
value (determined as of the time the option is granted) of the Common
Stock with respect to which Incentive Stock Options are exercisable for
the first time by a participant
3
<PAGE>
during any calendar year (under all option plans of the Company) shall
not exceed $100,000. For purposes of the preceding sentence, (i)
Incentive Stock Options will be taken into account in the order in
which they are granted and (ii) Incentive Stock Options granted before
1987 shall not be taken into account. Except as provided in the next
sentence, the per-share exercise price of an Incentive Stock Option
shall not be less than 100% of the Fair Market Value (as defined in
Section 15 below) of the Common Stock on the date the option is
granted. Incentive Stock Options may not be granted to any participant
who, at the time of grant, owns stock possessing (after the application
of the attribution rules of Section 424(d) of the Code) more than 10%
of the total combined voting power of all outstanding classes of stock
of the Company or any subsidiary of the Company, unless the option
price is fixed at not less than 110% of the Fair Market Value of the
Common Stock on the date of grant and the exercise of such option is
prohibited by its terms after the expiration of five years from the
date of grant of such option. Notwithstanding anything to the contrary
contained herein, no Incentive Stock Option may be exercised later than
ten years after the date it is granted. In addition, no Incentive Stock
Option shall be issued to a participant in tandem with a Nonqualified
Stock Option.
7. Stock Appreciation Rights. The Committee may, in its discretion,
grant Stock Appreciation Rights to the holders of any Stock Options granted
hereunder. In addition, Stock Appreciation Rights may be granted independently
of, and without relation to, options. A Stock Appreciation Right means a right
to receive a payment, in cash, Common Stock or a combination thereof, in an
amount equal to the excess of (x) the Fair Market Value, or other specified
valuation, of a specified number of shares of Common Stock on the date the right
is exercised over (y) the Fair Market Value, or other specified valuation (which
shall be no less than the Fair Market Value), of such shares of Common Stock on
the date the right is granted, all as determined by the Committee; provided,
however, that if a Stock Appreciation Right is granted retroactively in tandem
with or in substitution for a Stock Option, the designated Fair Market Value in
the award agreement may be the Fair Market Value on the date such Stock Option
was granted. Each Stock Appreciation Right shall be subject to such terms and
conditions as the Committee shall impose from time to time.
8. Stock Awards. The Committee may, in its discretion, grant Stock
Awards (which may include mandatory payment of bonus incentive compensation in
stock) consisting of Common Stock issued or transferred to participants with or
without other payments therefor as additional compensation for services to the
Company. Stock Awards may be subject to such terms and conditions as the
Committee determines appropriate, including, without limitation, restrictions on
the sale or other disposition of such shares, the right of the Company to
reacquire such shares for no consideration upon termination of the participant's
employment within specified periods, and may constitute Performance- Based
Awards, as described in Section 11 below. The Committee may require the
participant to deliver a duly signed stock power, endorsed in blank, relating to
the Common Stock covered by such an Award. The Committee may also require that
the stock certificates evidencing such shares be held in custody or bear
restrictive legends until the restrictions thereon shall have lapsed. The Stock
Award shall specify whether the participant shall have, with respect to the
shares of Common Stock subject to a Stock Award, all of the rights of a holder
of shares of Common Stock of the Company, including the right to receive
dividends and to vote the shares.
4
<PAGE>
9. Performance Awards.
(a) Performance Awards may be granted to participants at any time and
from time to time, as shall be determined by the Committee. Performance Awards
may, as determined by the Committee in its sole discretion, constitute
Performance-Based Awards. The Committee shall have complete discretion in
determining the number, amount and timing of awards granted to each participant.
Such Performance Awards may be in the form of shares of Common Stock or Stock
Units. Performance Awards may be awarded as short-term or long-term incentives.
With respect to those Performance Awards that are intended to constitute
Performance-Based Awards, the Committee shall set performance targets at its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Awards that will be paid out to the
participants, and may attach to such Performance Awards one or more
restrictions. Performance targets may be based upon, without limitation,
Company-wide, divisional and/or individual performance.
(b) With respect to those Performance Awards that are not intended to
constitute Performance- Based Awards, the Committee shall have the authority at
any time to make adjustments to performance targets for any outstanding
Performance Awards which the Committee deems necessary or desirable unless at
the time of establishment of goals the Committee shall have precluded its
authority to make such adjustments.
(c) Payment of earned Performance Awards shall be made in accordance
with terms and conditions prescribed or authorized by the Committee. The
participant may elect to defer, or the Committee may require or permit the
deferral of, the receipt of Performance Awards upon such terms as the Committee
deems appropriate.
10. Stock Units.
(a) The Committee may, in its discretion, grant Stock Units (as defined
in subsection (d) below) to participants hereunder. Stock Units may, as
determined by the Committee in its sole discretion, constitute Performance-Based
Awards. The Committee shall determine the criteria for the vesting of Stock
Units. A Stock Unit granted by the Committee shall provide payment in shares of
Common Stock at such time as the award agreement shall specify. Shares of Common
Stock issued pursuant to this Section 10 may be issued with or without other
payments therefor as may be required by applicable law or such other
consideration as may be determined by the Committee. The Committee shall
determine whether a participant granted a Stock Unit shall be entitled to a
Dividend Equivalent Right (as defined in subsection (d) below).
(b) Upon vesting of a Stock Unit, unless the Committee has determined
to defer payment with respect to such unit or a Participant has elected to defer
payment under subsection (c) below, shares of Common Stock representing the
Stock Units shall be distributed to the participant unless the Committee, with
the consent of the participant, provides for the payment of the Stock Units in
cash or partly in cash and partly in shares of Common Stock equal to the value
of the shares of Common Stock which would otherwise be distributed to the
participant.
5
<PAGE>
(c) Prior to the year with respect to which a Stock Unit may vest, the
participant may elect not to receive Common Stock upon the vesting of such Stock
Unit and for the Company to continue to maintain the Stock Unit on its books of
account. In such event, the value of a Stock Unit shall be payable in shares of
Common Stock pursuant to the agreement of deferral.
(d) A "Stock Unit" means a notational account representing one share of
Common Stock. A "Dividend Equivalent Right" means the right to receive the
amount of any dividend paid on the share of Common Stock underlying a Stock
Unit, which shall be payable in cash or in the form of additional Stock Units.
11. Performance-Based Awards. Certain Benefits granted under the Plan
may be granted in a manner such that the Benefits qualify for the
performance-based compensation exemption of Section 162(m) of the Code
("Performance-Based Awards"). As determined by the Committee in its sole
discretion, either the granting or vesting of such Performance-Based Awards are
to be based upon one or more of the following factors: net sales, pretax income
before allocation of corporate overhead and bonus, budget, earnings per share,
net income, division, group or corporate financial goals, return on
stockholders' equity, return on assets, attainment of strategic and operational
initiatives, appreciation in and/or maintenance of the price of the Common Stock
or any other publicly-traded securities of the Company, market share, gross
profits, earnings before interest and taxes, earnings before interest, taxes,
dividends and amortization, economic value-added models and comparisons with
various stock market indices, reductions in costs or any combination of the
foregoing. With respect to Performance- Based Awards, (i) the Committee shall
establish in writing (x) the objective performance-based goals applicable to a
given period and (y) the individual employees or class of employees to which
such performance-based goals apply no later than 90 days after the commencement
of such period (but in no event after 25% of such period has elapsed) and (ii)
no Performance-Based Awards shall be payable to or vest with respect to, as the
case may be, any participant for a given period until the Committee certifies in
writing that the objective performance goals (and any other material terms)
applicable to such period have been satisfied. With respect to any Benefits
intended to qualify as Performance-Based Awards, after establishment of a
performance goal, the Committee shall not revise such performance goal or
increase the amount of compensation payable thereunder (as determined in
accordance with Section 162(m) of the Code) upon the attainment of such
performance goal. Notwithstanding the preceding sentence, the Committee may
reduce or eliminate the number of shares of Common Stock or cash granted or the
number of shares of Common Stock vested upon the attainment of such performance
goal.
12. Adjustment Provisions; Change in Control.
(a) If there shall be any change in the Common Stock of the Company,
through merger, consolidation, reorganization, recapitalization, stock dividend,
stock split, reverse stock split, split up, spinoff, combination of shares,
exchange of shares, dividend in kind or other like change in capital structure
or distribution (other than normal cash dividends) to stockholders of the
Company, an adjustment shall be made to each outstanding Stock Option and Stock
Appreciation Right such that each such Stock Option and Stock Appreciation Right
shall thereafter be exercisable for such securities, cash and/or other property
as would have been received in respect of the Common Stock subject to such
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Stock Option or Stock Appreciation Right had such Stock Option or Stock
Appreciation Right been exercised in full immediately prior to such change or
distribution, and such an adjustment shall be made successively each time any
such change shall occur. In addition, in the event of any such change or
distribution, in order to prevent dilution or enlargement of participants'
rights under the Plan, the Committee will have authority to adjust, in an
equitable manner, the number and kind of shares that may be issued under the
Plan, the exercisability and vesting pensions of such Benefits, the number and
kind of shares subject to outstanding Benefits, the exercise price applicable to
outstanding Benefits, and the Fair Market Value of the Common Stock and other
value determinations applicable to outstanding Benefits. Appropriate adjustments
may also be made by the Committee in the terms of any Benefits under the Plan to
reflect such changes or distributions and to modify any other terms of
outstanding Benefits on an equitable basis, including modifications of
performance targets and changes in the length of performance periods. In
addition, other than with respect to Stock Options, Stock Appreciation Rights
and other awards intended to constitute Performance-Based Awards, the Committee
is authorized to make adjustments to the terms and conditions of, and the
criteria included in, Benefits in recognition of unusual or nonrecurring events
affecting the Company or the financial statements of the Company, or in response
to changes in applicable laws, regulations, or accounting principles.
Notwithstanding the foregoing, (i) any adjustment with respect to an Incentive
Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii)
in no event shall any adjustment be made which would render any Incentive Stock
Option granted hereunder other than an incentive stock option for purposes of
Section 422 of the Code.
(b) In the event of a Change in Control (as defined below), the
Committee, in its discretion, may take such actions as it deems appropriate with
respect to outstanding Benefits, including, without limitation, accelerating the
exercisability or vesting of such Benefits.
The Committee, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, each Stock Option and Stock
Appreciation Right outstanding hereunder shall terminate within a specified
number of days after notice to the holder, and such holder shall receive, with
respect to each share of Common Stock subject to such Stock Option or Stock
Appreciation Right, an amount equal to the excess of the Fair Market Value of
such shares of Common Stock immediately prior to the occurrence of such Change
in Control over the exercise price per share of such Stock Option or Stock
Appreciation Right; such amount to be payable in cash, in one or more kinds of
property (including the property, if any, payable in the transaction) or in a
combination thereof, as the Committee, in its discretion, shall determine.
For purposes of this Section 12(b), a "Change in Control" of the
Company shall be deemed to have occurred upon any of the following events:
(A) A person or entity or group of persons or entities, acting in
concert, other than any existing stockholders of the Company as of the
Effective Date (as defined in Section 22 below), shall become the
direct or indirect beneficial owner (within the meaning of Rule 13d-3
of the Exchange Act) of securities of the Company representing
fifty-one percent (51%) or more of the combined voting power of the
issued and outstanding common stock of the Company (a
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"Significant Owner"), unless such shares are originally issued to such
Significant Owner by the Company; or
(B) The majority of the Board is no longer comprised of the
incumbent directors who constitute the Board on the Effective Date and
any other individual(s) who becomes a director subsequent to the
Effective Date whose initial election or nomination for election as a
director, as the case may be, was approved by at least a majority of
the directors who comprised the incumbent directors as of the date of
such election or nomination; or
(C) A sale of all or substantially all of the assets of the
Company; or
(D) The Board shall approve any merger, consolidation, or like
business combination or reorganization of the Company, the consummation
of which would result in the occurrence of any event described in
clause (C) above, and such transaction shall have been consummated.
13. Transferability. Each Benefit granted under the Plan to a
participant shall not be transferable otherwise than by will or the laws of
descent and distribution, and shall be exercisable, during the participant's
lifetime, only by the participant. In the event of the death of a participant,
each Stock Option or Stock Appreciation Right theretofore granted to him or her
shall be exercisable during such period after his or her death as the Committee
shall in its discretion set forth in such option or right at the date of grant
and then only by the executor or administrator of the estate of the deceased
participant or the person or persons to whom the deceased participant's rights
under the Stock Option or Stock Appreciation Right shall pass by will or the
laws of descent and distribution. Notwithstanding the foregoing, at the
discretion of the Committee, an award of a Benefit other than an Incentive Stock
Option may permit the transferability of a Benefit by a participant solely to
the participant's spouse, siblings, parents, children and grandchildren or
trusts for the benefit of such persons or partnerships, corporations, limited
liability companies or other entities owned solely by such persons, including
trusts for such persons, subject to any restriction included in the award of the
Benefit.
14. Other Provisions. The award of any Benefit under the Plan may also
be subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Committee determines, at the date of
grant, to be appropriate, including, without limitation, for the installment
purchase of Common Stock under Stock Options, for the installment exercise of
Stock Appreciation Rights, to assist the participant in financing the
acquisition of Common Stock, for the forfeiture of, or restrictions on resale or
other disposition of, Common Stock acquired under any form of Benefit, for the
acceleration of exercisability or vesting of Benefits in the event of a change
in control of the Company, for the payment of the value of Benefits to
participants in the event of a change in control of the Company, or to comply
with federal and state securities laws, or understandings or conditions as to
the participant's employment in addition to those specifically provided for
under the Plan.
15. Fair Market Value. For purposes of this Plan and any Benefits
awarded hereunder, Fair Market Value shall be the closing price of the Company's
Common Stock on the date of calculation (or on the last preceding trading date
if Common Stock was not traded on such date) if the Company's
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Common Stock is readily tradeable on a national securities exchange or other
market system, and if the Company's Common Stock is not readily tradeable, Fair
Market Value shall mean the amount determined in good faith by the Committee as
the fair market value of the Common Stock of the Company.
16. Withholding. All payments or distributions of Benefits made
pursuant to the Plan shall be net of any amounts required to be withheld
pursuant to applicable federal, state and local tax withholding requirements. If
the Company proposes or is required to distribute Common Stock pursuant to the
Plan, it may require the recipient to remit to it or to the corporation that
employs such recipient an amount sufficient to satisfy such tax withholding
requirements prior to the delivery of any certificates for such Common Stock. In
lieu thereof, the Company or the employing corporation shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
it or from such corporation to the recipient as the Committee shall prescribe.
The Committee may, in its discretion and subject to such rules as it may adopt
(including any as may be required to satisfy applicable tax and/or non-tax
regulatory requirements), permit an optionee or award- or right-holder to pay
all or a portion of the federal, state and local withholding taxes arising in
connection with any Benefit consisting of shares of Common Stock by electing to
have the Company withhold shares of Common Stock having a Fair Market Value
equal to the amount of tax to be withheld, such tax calculated at rates required
by statute or regulation.
17. Tenure. A participant's right, if any, to continue to serve the
Company as a director, officer, employee, or otherwise, shall not be enlarged or
otherwise affected by his or her designation as a participant under the Plan.
18. Unfunded Plan. Participants shall have no right, title, or interest
whatsoever in or to any investments which the Company may make to aid it in
meeting its obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan. The Plan is not intended to
be subject to the Employee Retirement Income Security Act of 1974, as amended.
19. No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Committee shall
determine whether cash, or Benefits, or other property shall be issued or paid
in lieu of fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
20. Duration, Amendment and Termination. No Benefit shall be granted
more than ten years after the Effective Date; provided, however, that the terms
and conditions applicable to any Benefit granted prior to such date may
thereafter be amended or modified by mutual agreement between the
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Company and the participant or such other persons as may then have an interest
therein. The Committee may amend the Plan from time to time or suspend or
terminate the Plan at any time. However, no action authorized by this Section 20
shall reduce the amount of any existing Benefit or adversely change the terms
and conditions thereof without the participant's consent. No amendment of the
Plan shall, without approval of the stockholders of the Company, (i) increase
the total number of shares which may be issued under the Plan or the maximum
number of shares with respect to Stock Options, Stock Appreciation Rights and
other Benefits that may be granted to any individual under the Plan or (ii)
modify the requirements as to eligibility for Benefits under the Plan; provided,
however, that no amendment may be made without approval of the stockholders of
the Company if the amendment will disqualify any Incentive Stock Options granted
hereunder.
21. Governing Law. This Plan, Benefits granted hereunder and actions
taken in connection herewith shall be governed and construed in accordance with
the laws of the State of Delaware (regardless of the law that might otherwise
govern under applicable Delaware principles of conflict of laws).
22. Effective Date. (a) The Plan shall be effective as of May 7, 1998,
the date on which the Plan was adopted by the Board (the "Effective Date"),
provided that the Plan is approved by the stockholders of the Company at an
annual meeting or any special meeting of stockholders of the Company within 12
months of the Effective Date, and such approval of stockholders shall be a
condition to the right of each participant to receive any Benefits hereunder.
Any Benefits granted under the Plan prior to such approval of stockholders shall
be effective as of the date of grant (unless, with respect to any Benefit, the
Committee specifies otherwise at the time of grant), but no such Benefit may be
exercised or settled and no restrictions relating to any Benefit may lapse prior
to such stockholder approval, and if stockholders fail to approve the Plan as
specified hereunder, any such Benefit shall be cancelled.
(b) This Plan shall terminate on May 7, 2008 (unless sooner terminated
by the Board or the Committee).
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EXHIBIT 10.3
FOURTH AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, dated as of May 18,
1998 among JEEPERS! INC., a Delaware corporation (the "Company"), and the
stockholders listed on the signature pages hereto (individually, a "Stockholder"
and, collectively, the "Stockholders").
RECITALS
A. The Company and the Stockholders are parties to a Third Amended and
Restated Stockholders and Voting Agreement dated as of December 26, 1996 (the
"Predecessor Agreement").
B. The Company intends to commence an underwritten initial public
offering (the "Offering") of its shares of Common Stock (as defined herein) and
the Company and the Stockholders desire to amend and restate the Predecessor
Agreement upon the terms and conditions set forth herein.
Accordingly, the parties hereto agree that the Predecessor Agreement
shall be amended and restated as follows:
ARTICLE 1.
DEFINITIONS
1.1. Defined Terms. The following terms are defined as
-------------
follows:
(a) "Affiliate" shall mean, with respect to any person, any
other person which directly or indirectly controls, is controlled by, or is
under common control with such person, including any limited partner, the
general partner of which is any such other person.
(b) "Board" shall mean the Board of Directors of the Company.
<PAGE>
(c) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(d) "Common Stock" shall mean the Company's Common Stock, par
value $.01 per share.
(e) "Common Stock Equivalents" shall mean, with respect to any
Stockholder, the number of shares of Common Stock owned by such Stockholder and
the number of shares of Common Stock into or for which any Convertible
Securities owned by such Stockholder shall be convertible, exchangeable or
exercisable (other than in respect of accrued and unpaid dividends) as of the
date of determination thereof.
(f) "Convertible Securities" means any options, warrants,
convertible notes or other securities or rights convertible, exchangeable or
exercisable, with or without the payment of additional consideration, into or
for shares of Common Stock, directly or indirectly.
(g) "Preferred Stock" means, collectively, the Company's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series F Preferred Stock, in each case having par
value $1.00 per share.
(h) "Securities Act" shall mean the Securities Act of 1933, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(i) "Shares" shall mean any shares of capital stock of the
Company, including Common Stock and Preferred Stock, now or hereafter issued.
ARTICLE 2.
REGISTRATION RIGHTS
2.1. Demand Registration Rights. At any time and from time to
--------------------------
time, after 180 days following the consummation of the Offering, if the Company
receives written notice from Stockholders representing not less than 800,000 of
the outstanding shares of Common Stock held by the Stockholders (as such number
may be adjusted to reflect any subdivision, combination or recapitalization of
the Common Stock occurring following the date of this Agreement), which notice
demands the registration of all or any portion of the Common Stock held by such
Stockholders and specifies the intended methods of disposition thereof
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(the "Registration Demand"), then, subject to the provisions of this Agreement,
the Company shall promptly (and in any event within 10 days after its receipt of
the Registration Demand) provide notice thereof to the other Stockholders and
cause to be prepared a registration statement, file and obtain a receipt for the
registration statement as soon as practicable (but not later than 90 days after
the date of the Registration Demand), and exercise its best efforts to file a
final registration statement and obtain a receipt therefore as soon as
practicable thereafter, in each case under the Securities Act and such other
securities laws as shall be directed by such holders, to the end that such
Shares may be sold thereunder as soon as practicable after the receipt of such
Registration Demand; provided, however, that the Company shall not be obligated
to take any action to effect such registration, qualification or compliance
pursuant to this Section 2.1, (i) from the initial filing date until 180 days
immediately following the effective date of any registration statement that had
been filed (and not withdrawn) prior to the date of the Registration Demand and
pertains to a firmly underwritten offering of equity securities of the Company
unless otherwise consented to by the managing underwriter of such offering; or
(ii) unless such registration may be effected pursuant to Form S-3 or any or
successor form promulgated under the Securities Act, after the Company has
effected three requested registrations pursuant to this Agreement which either
have been declared or ordered effective and the Shares offered pursuant to such
registrations have been sold or have been terminated by the selling Stockholders
for reasons other than a material adverse change in the business, condition
(financial or otherwise) or prospects of the Company (except that any such
terminated registration shall not constitute one of the three demand
registrations provided herein if the selling Stockholders shall have reimbursed
the Company for all expenses incurred by the Company in connection with such
terminated registration). Any such registration shall hereinafter be called a
"Demand Registration".
2.2. "Piggyback" Registration Rights. Subject to applicable
-------------------------------
stock exchange rules and securities regulations, prior to any public offering of
any class of its equity securities for the account of the Company or any other
person (other than a registration statement on Form S-4 or S-8 (or any successor
forms under the Securities Act) or other registrations relating solely to
employee benefit plans or any transaction governed by Rule 145 of the Securities
Act), including pursuant to the exercise of any Demand Registration pursuant to
Section 2.1, the Company shall give written notice of such proposed filing and
of the proposed date thereof to each Stockholder and if, on or before the
twentieth (20th) day following the date on which such notice is given, the
Company shall receive a written request from any Stockholder requesting that the
Company include among the securities covered by such registration statement any
Shares owned by such Stockholder for offering for sale in a manner and on terms
set forth in such request, the Company shall include such Shares in such
registration statement, if filed, so as to permit such Shares to be sold or
disposed of in the manner and on the terms of the offering thereof set forth in
such request, subject to the
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provisions of this Agreement. Such registration shall hereinafter be called a
"Piggyback Registration".
2.3. Terms and Conditions of Registration or Qualification. In
-----------------------------------------------------
connection with any registration statement filed pursuant to Section 2.1 or 2.2
hereof, the following provisions shall apply:
(a) Each selling Stockholder shall, if requested by the
managing underwriter, agree not to sell publicly any Shares held by such
Stockholder (other than the Shares so registered) for such period of time
following the effective date of the registration statement relating to such
offering, but in no event in excess of 180 days, as the managing underwriter may
require and the Company shall agree.
(b) If the managing underwriter advises that the inclusion in
such registration or qualification of some or all of the Shares sought to be
registered exceeds the number (the "Saleable Number") that can be sold in an
orderly fashion within a price range acceptable to the Company, if such
registration is being effected at the Company's determination, or the selling
Stockholders, in the case of a Demand Registration, then the number of Shares
offered shall be limited to the Saleable Number and shall be allocated as
follows:
(i) if such registration is being effected at the
Company's determination to sell Shares for its own account, (1) first,
all the Shares the Company proposes to register and (2) second, the
difference between the Saleable Number and the number to be included
pursuant to clause (1) above, allocated among all selling Stockholders
pro rata on the basis of the relative number of Shares offered for sale
by each such Stockholder; and
(ii) if the registration is being effected pursuant
to a Demand Registration, (1) first, the entire Saleable Number
allocated among all selling Stockholders pro rata on the basis of the
relative number of Shares offered for sale by each such Stockholder and
(2) second, the difference (if positive) between the Saleable Number
and the number to be included pursuant to clause (1) above, allocated
to the Company.
(c) The selling Stockholders shall promptly provide the
Company with such information as the Company shall reasonably request in order
to prepare such registration statement and, upon the Company's request, each
such Stockholder shall provide such information in writing and signed by such
holder and stated to be specifically for inclusion in the registration
statement. In the event that the distribution of the Shares covered by the
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registration statement shall be effected by means of an underwriting, the right
of any Stockholder to include its Shares in such registration shall be
conditioned on such Stockholder's execution and delivery of a customary
underwriting agreement with respect thereto; provided, however, that except with
respect to information concerning such Stockholder and such Stockholder's
intended manner of distribution of the Shares, no Stockholder shall be required
to make any representations or warranties in such agreement as a condition to
the inclusion of its Shares in such registration.
(d) All expenses in connection with the preparation of any
registration statement filed pursuant to Section 2.1 or 2.2 hereof (other than
underwriting fees, discounts or commissions with respect to Shares of the
selling Stockholders or fees and disbursements of counsel for such Stockholders)
shall be borne solely by the Company.
(e) Following the effective date of such registration
statement, the Company shall, upon the request of the selling Stockholders,
forthwith supply such number of prospectuses (including preliminary prospectuses
and amendments and supplements thereto) meeting the requirements of the
Securities Act or such other securities laws where the registration statement or
prospectus has been filed and such other documents as are referred to in the
registration statement as shall be requested by the selling Stockholders to
permit such Stockholders to make a public distribution of their Shares, provided
that such Stockholders furnish the Company with such appropriate information
relating to such holders' intentions in connection therewith as the Company
shall reasonably request in writing.
(f) The Company shall use its best efforts to register or
qualify the Shares of the selling Stockholders covered by any such registration
statement under such securities or blue sky laws in such jurisdictions as the
Stockholders may request; provided, however, that the Company shall not be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified in order to comply with such request.
(g) In connection with any registration pursuant to Article 2,
the Company will as expeditiously as possible:
(i) cause the Shares covered by such registration
statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business
and operations of the Company to enable the selling Stockholders to
consummate the disposition of such Shares;
(ii) cause all Shares covered by the registration
statement to be listed on each securities exchange on which similar
securities issued by the Company
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are then listed, and, unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all such Shares not
later than the effective date of the registration statement;
(iii) enter into such customary agreements (including
an underwriting agreement in customary form) and take all such other
actions as the holders of a majority of the voting power of the Shares
being sold or the underwriters retained by such holders, if any,
reasonably request in order to expedite or facilitate the disposition
of such Shares;
(iv) make available for inspection by any selling
Stockholder, any underwriter participating in any disposition pursuant
to such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company as shall be necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
requested by any such Inspector in connection with such registration
statement;
(v) obtain "cold comfort" letters and updates thereof
from the Company's independent public accountants and an opinion from
the Company's counsel in customary form and covering such matters of
the type customarily covered by "cold comfort" letters and opinions of
counsel, respectively, as the holders of a majority of the voting power
of the Shares of the selling Stockholders shall request; and
(vi) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(h) Notwithstanding anything herein to the contrary, the
Company shall not be required to register any Shares (i) representing less than
5% of the outstanding Common Stock Equivalents with respect to which the Company
shall furnish an opinion of counsel reasonably acceptable to the holder thereof
that such Shares may be distributed in the manner contemplated by the holder
without registration under Rule 144(k) promulgated under the Securities Act, or
(ii) pursuant to any Registration Demand in accordance with Section 2.1 if the
gross proceeds from such registration and intended distribution are not
reasonably
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anticipated to exceed $10,000,000 (or, in the case of any registration pursuant
to Form S-3, $5,000,000 or such lesser amount of proceeds as may be obtained in
a registration of all remaining Shares owned by any Stockholder).
2.4. Registration to Be Kept Effective. (a) In connection with
---------------------------------
any registration of Shares pursuant to this Article 2, subject to Section
2.4(b), the Company shall, at its expense, keep effective and maintain such
registration and any related qualification of Shares under state securities laws
for such period not exceeding 90 days as may be necessary for the selling
Stockholders, underwriters and selling agents to dispose of such Shares, from
time to time to amend or supplement the prospectus used in connection therewith
to the extent necessary to comply with applicable laws, and to furnish to such
Stockholders such number of copies of the registration statement, the prospectus
constituting part thereof, and any amendment or supplement thereto as such
Stockholders may reasonably request in order to facilitate the disposition of
the registered Shares.
(b) The Company shall give written notice to the selling
Stockholders (which notice shall be accompanied by an instruction to suspend the
use of the prospectus until the requisite changes have been made):
(i) of any request by the Commission for amendments
or supplements to the registration statement or the prospectus included
therein or for additional information;
(ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose;
(iii) of the receipt by the Company or its legal
counsel of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(iv) of the happening of any event that requires the
Company to make changes in the registration statement or the prospectus
in order that the registration statement or the prospectus do not
contain an untrue statement of a material fact nor omit to state a
material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading, which written
notice need not provide any detail as to the nature of such event.
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(c) Upon the occurrence of any event contemplated by clauses
(i) through (iv) above during the period for which the Company is required to
maintain an effective registration statement, the Company shall as promptly as
practicable prepare and file a post-effective amendment to the registration
statement or an amendment or supplement to the related prospectus and any other
required document so that, as thereafter delivered to the selling Stockholders
or purchasers of Shares, the prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated herein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided in the case of clause (iv) the
Company's obligation pursuant to this Section 2.4(c) may be suspended for a
period of up to 30 days in the aggregate for any registration if the Board has
determined in good faith and using reasonable judgment that disclosure of
information sufficient to ensure that the registration statement and related
prospectus contain no such misstatement or omission would be significantly and
materially disadvantageous to the Company's financial condition, business or
prospects. If the Company notifies the selling Stockholders in accordance with
paragraphs (i) through (iv) above to suspend the use of the prospectus until the
requisite changes to the prospectus have been made and such suspension is
consistent with this paragraph, then the selling Stockholders shall suspend use
of such prospectus. The number of days during which use of the prospectus is
suspended shall be added to the end of the period referred to in Section 2.4(a)
during which registration shall remain effective.
2.5. Postponement of Registration.
----------------------------
Notwithstanding anything herein to the contrary, the Company
shall be entitled to postpone for a reasonable period of time up to 60 days the
filing of any registration statement otherwise required to be prepared and filed
by it pursuant to Section 2.1 hereof, if the Board determines, in its reasonable
judgment and in good faith, that such registration and offering would materially
interfere with any material financing, acquisition, corporate reorganization or
other material transaction involving the Company, and the Company gives the
selling Stockholders written notice including an explanation of such
determination. If the Company shall so postpone the filing of a registration
statement, the selling Stockholders shall have the right to withdraw the
Registration Demand by giving written notice to the Company within 30 days after
receipt of the notice of postponement (and, in the event of such withdrawal,
such Registration Demand shall not be counted for purposes of the Demand
Registration right to which the Stockholders are entitled pursuant to Section
2.1 hereof). The exercise by the Company of its rights under this Section 2.5
shall not affect the timeliness of a Registration Demand made prior to such
exercise that is not so withdrawn.
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2.6. Indemnification.
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(a) In the event of the registration or qualification of any
Shares of the Stockholders under the Securities Act or any other applicable
securities laws pursuant to the provisions of this Article 2, the Company agrees
to indemnify and hold harmless each Stockholder thereby offering such Shares for
sale (a "Seller"), underwriter, broker or dealer, if any, of such Shares, and
each other person, if any, who controls any such Seller, underwriter, broker or
dealer within the meaning of the Securities Act or any other applicable
securities, from and against any and all losses, claims, damages or liabilities
(or actions in respect thereof), joint or several, to which such Seller,
underwriter, broker or dealer or controlling person may become subject under the
Securities Act or any other applicable securities laws or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Shares were registered or qualified under the Securities Act or any other
applicable securities laws, any preliminary prospectus or final prospectus
relating to such Shares, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of any rule or regulation under
the Securities Act or any other applicable securities laws applicable to the
Company or relating to any action or inaction required by the Company in
connection with any such registration or qualification and will reimburse each
such Seller, underwriter, broker or dealer and each such controlling person for
any legal or other expenses reasonably incurred by such Seller, underwriter,
broker or dealer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or omission made in such registration statement, such preliminary
prospectus, such final prospectus or such amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by such Seller, underwriter, broker, dealer or controlling person
specifically and expressly for use in the preparation thereof.
(b) In the event of the registration or qualification of any
Shares of the Stockholders under the Securities Act or any other applicable
securities laws for sale pursuant to the provisions hereof, each selling
Stockholder, each underwriter, broker and dealer, if any, of such Shares, and
each other person, if any, who controls any such Stockholder, underwriter,
broker or dealer within the meaning of the Securities Act, agrees severally, and
not jointly, to indemnify and hold harmless the Company, each person who
controls the Company within the meaning of the Securities Act, and each officer
and director of the Company from and against any losses, claims, damages or
liabilities, joint or several, to
9
<PAGE>
which the Company, such controlling person or any such officer or director may
become subject under the Securities Act or any other applicable securities laws
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement of any
material fact contained in any registration statement under which such Shares
were registered or qualified under the Securities Act or any other applicable
securities laws, any preliminary prospectus or final prospectus relating to such
Shares, or any amendment or supplement thereto, or arise out of or are based
upon an untrue statement or the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, which untrue statement or omission was made therein in reliance upon
and in conformity with written information furnished to the Company by such
selling Stockholder, underwriter, broker, dealer or controlling person
specifically for use in connection with the preparation thereof, and will
reimburse the Company, such controlling person and each such officer or director
of any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that no selling Stockholder shall be liable under
this Section 2.6(b) for any amount in excess of the net proceeds to such
Stockholder of Shares sold by it.
(c) Promptly after receipt by a person entitled to
indemnification under this Section 2.6 (an "indemnified party") of notice of the
commencement of any action or claim relating to any registration statement filed
under Section 2.1 or 2.2 hereof or as to which indemnity may be sought
hereunder, such indemnified party will, if a claim for indemnification hereunder
in respect thereof is to be made against any other party hereto (an
"indemnifying party"), give written notice to such indemnifying party of the
commencement of such action or claim, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than pursuant to the provisions of this Section
2.6 and shall also not relieve the indemnifying party of its obligations under
this Section 2.6 except to the extent that the indemnifying party is actually
prejudiced thereby. In case any such action is brought against an indemnified
party, and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled (at its own expense) to participate in and,
to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense, with counsel reasonably satisfactory
to such indemnified party, of such action and/or to settle such action and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof, other
than the reasonable cost of investigation; provided, however, that no
indemnifying party shall enter into any settlement agreement without the prior
written consent of the indemnified party unless such indemnified party is fully
released and discharged from any such liability. Notwithstanding the foregoing,
the indemnified party
10
<PAGE>
shall have the right to employ its own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying party in connection with the defense of such suit, action,
claim or proceeding, (ii) the indemnifying party shall not have employed counsel
(reasonably satisfactory to the indemnified party) to take charge of the defense
of such action, suit, claim or proceeding, or (iii) such indemnified party shall
have reasonably concluded, based upon the advice of counsel, that there may be
defenses available to it which are different from or additional to those
available to the indemnifying party which, if the indemnifying party and the
indemnified party were to be represented by the same counsel, could result in a
conflict of interest for such counsel or materially prejudice the prosecution of
the defenses available to such indemnified party. If any of the events specified
in clauses (i), (ii) or (iii) of the preceding sentence shall have occurred or
shall otherwise be applicable, then the fees and expenses of one counsel or firm
of counsel selected by a majority in interest of the indemnified parties (and
reasonably acceptable to the indemnifying party) shall be borne by the
indemnifying party. If, in any such case, the indemnified party employs separate
counsel, the indemnifying party shall not have the right to direct the defense
of such action, suit, claim or proceeding on behalf of the indemnified party and
the indemnified party shall assume such defense and/or settle such action;
provided, however, that, an indemnifying party shall not be liable for the
settlement of any action, suit, claim or proceeding effected without its prior
written consent, which consent shall not be unreasonably withheld.
ARTICLE 3.
ADDITIONAL AGREEMENTS
3.1. Amendments to Certificate of Incorporation. Each
------------------------------------------
Stockholder agrees that such Stockholder shall vote all of such Stockholder's
Shares entitled to vote in favor of any one or more amendments to or
restatements of the Restated Certificate of Incorporation of the Company, as
amended, which are deemed desirable by the Board in connection with the
Offering, including, but not limited to,
(a) providing for the automatic conversion of all
outstanding shares of the Preferred Stock immediately prior to
the closing of the Offering, taking into account dividends
accrued on such shares of Preferred Stock until such date as
determined by the Board;
(b) eliminating all previously issued series of
Preferred Stock from the Company's authorized capital stock;
and
11
<PAGE>
(c) authorizing such number of shares of undesignated
preferred stock as shall be determined by the Board and
empowering the Board to issue such preferred stock from time
to time in one or more classes or series and to fix the
rights, priorities, privileges, qualifications, limitations
and restrictions of such preferred stock.
ARTICLE 4.
MISCELLANEOUS
4.1. Certificate Legend. Upon execution of this Agreement, the
------------------
certificates representing Shares and Convertible Securities held by the
Stockholders shall contain substantially the following legend, in addition to
any other legends deemed appropriate or necessary by the Company:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH REGISTRATION, EXCEPT
UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE AS MAY BE SATISFACTORY TO
COUNSEL FOR THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT
BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED
THEREUNDER."
4.2. Specific Performance. The parties hereto recognize that
--------------------
the parties hereto would be irreparably damaged if this Agreement is not
specifically enforced in the event of a breach hereof. If this Agreement is
breached, the parties hereto hereby agree that remedies at law might be
inadequate and that, therefore, this Agreement, shall be enforceable by specific
performance. The remedy of specific performance shall not be an exclusive
remedy, but shall be cumulative of all other rights and remedies of the parties
hereto at law, in equity or under this Agreement.
4.3. Transferees. Any Stockholder may cause any transferee of
-----------
any Shares or Convertible Securities that is not already a party to this
Agreement to execute a consent in form and substance reasonably acceptable to
the Company to be bound by the terms and conditions of the Agreement and upon
execution thereof, such transferee shall be entitled to the rights of an owner
of the Shares or Convertible Securities held by a Stockholder
12
<PAGE>
hereunder, provided that the foregoing shall not apply to Shares or Convertible
Securities that have been sold pursuant to an effective registration statement
under the Securities Act or Rule 144 thereunder.
4.4. Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in writing and delivered in
person, transmitted by telecopier or sent by registered or certified mail
(return receipt requested) or recognized overnight delivery service, postage
pre-paid, addressed as follows, or to such other address as any such party may
notify to the other parties in writing:
(a) if to the Company:
Jeepers! Inc.
60 Hickory Drive
Waltham, MA 02154
Attn: President
Facsimile No.: (781) 890-1810
(b) if to a Stockholder, at the address set forth on the
stock transfer ledger of the Company.
A notice or communication will be effective (i) if delivered in person or by
overnight courier, on the business day it is delivered, (ii) if transmitted by
telecopier, on the business day of actual confirmed receipt by the addressee
thereof, and (iii) if sent by registered or certified mail, three business days
after dispatch.
4.5. Binding Effect; Assignment. This Agreement shall be
--------------------------
binding upon the parties hereto, together with their respective executors,
administrators, successors, personal representatives, heirs and assigns.
4.6. Governing Law. The Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware.
4.7. Severability. If any provision of this Agreement is held
------------
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in
13
<PAGE>
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
4.8. Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to the subject matter hereof. This Agreement constitutes an amendment
and restatement of, and supersedes and supplants, the Predecessor Agreement in
all respects.
4.9. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
4.10. Amendments. This Agreement may be amended, modified or
----------
supplemented only by a written instrument executed by (i) the Company and (ii)
the Stockholders holding not less than two-thirds of the Common Stock
Equivalents held by the Stockholders; provided, however, that no amendment,
modification or supplement shall be effected that shall adversely affect any
Stockholder without such Stockholder's written consent, unless such amendment,
modification or supplement shall affect all Stockholders equally.
4.11. Captions. The captions of this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
4.12. Termination of Registration Rights; Waiver of
---------------------------------------------
Preemptive Rights.
- -----------------
(a) The Company and each of the Stockholders hereby agree that
any right of any Stockholder to demand registration of its Shares pursuant to
federal or state securities laws or to require the inclusion of any of its
Shares in any such registration of securities for the account of the Company or
any other person, including pursuant to any agreement to which the Company and
any one or more Stockholders is a party (other than such rights granted pursuant
to this Agreement), in each case existing as of the date hereof, shall be
terminated and of no further force or effect.
(b) Each Stockholder hereby irrevocably waives any preemptive
rights or rights of first refusal that may now exist or that heretofore existed
with respect to the issuance by the Company of any and all shares its capital
stock.
14
<PAGE>
4.13. Pronouns. Any masculine personal pronoun shall be
--------
considered to mean the corresponding feminine or neuter personal pronoun, and
vice versa, as the context requires.
4.14. Effectiveness. This Agreement shall be effective upon
-------------
(i) the execution thereof by the Company and by the Stockholders holding not
less than two-thirds of the Common Stock Equivalents held by the Stockholders
and (ii) the consummation of the Offering, provided that the Offering shall be
consummated on or prior to August 31, 1998; provided, however, that Article 3
hereof shall be effective upon the execution of this Agreement in accordance
with clause (i) above.
15
<PAGE>
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
THE COMPANY:
JEEPERS! INC.
By: /s/ Kenneth J. Sanginario
----------------------------------------
Kenneth J. Sanginario,
Chief Financial Officer
CENTRE PARTIES:
CENTRE CAPITAL INVESTORS L.P.
By: Centre Partners L.P., as general partner
By: Park Road Corporation, its general partner
By: /s/ Bruce Pollack
-------------------------------------------
Name: Bruce Pollack
Title:
CENTRE CAPITAL INVESTORS II, L.P.
CENTRE CAPITAL OFFSHORE INVESTORS II, L.P.
CENTRE CAPITAL TAX-EXEMPT INVESTORS II, L.P.
By: Centre Partners II, L.P., as general
partner of such partnerships
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Bruce Pollack
-------------------------------------------
Name: Bruce Pollack
Title:
16
<PAGE>
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGE
CENTRE PARTNERS COINVESTMENT, L.P. CENTRE
PARALLEL MANAGEMENT PARTNERS, L.P.
By: Centre Partners II, LLC, as general partner
By: /s/ Bruce Pollack
-------------------------------------------
Name: Bruce Pollack
Title:
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Centre Parallel Management Partners L.P.
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Bruce Pollack
-------------------------------------------
Name: Bruce Pollack
Title:
GENERATION PARTIES:
GENERATION CAPITAL PARTNERS L.P.
By: Generation Partners L.P., as General
Partner
By: Generation Capital Company LLC, its general
partner
By: /s/ Mark E. Jennings
---------------------------------------
Name: Mark E. Jennings
Title:
17
<PAGE>
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGE
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Generation Parallel Management Partners
L.P., as Manager
By: Generation Capital Company LLC, as General
Partner
By: /s/ Mark E. Jennings
--------------------------------------
Name: Mark E. Jennings
Title:
GENERATION PARALLEL MANAGEMENT PARTNERS L.P.
By: Generation Capital Company LLC, as General
Partner
By: /s/ Mark E. Jennings
--------------------------------------
Name: Mark E. Jennings
Title:
JPM PARTIES:
J.P. MORGAN INVESTMENT CORPORATION
By: /s/ J.E. Colloton
--------------------------------------
Name: J.E. Colloton
Title: Vice President
SIXTY WALL STREET SBIC FUND L.P.
BY: SIXTY WALL STREET SBIC CORPORATION, ITS
GENERAL PARTNER
By: /s/ J.E. Colloton
--------------------------------------
Name: J.E. Colloton
Title: Vice President
18
<PAGE>
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGE
DICKSTEIN PARTIES:
DICKSTEIN & CO., L.P.
By: Dickstein Partners, L.P.
By: Dicksteun Partners Inc.
By: /s/ Alan S. Cooper
-------------------------------------------
Name: Alan S. Cooper
Title: Vice President
DICKSTEIN INTERNATIONAL LIMITED
By: Dickstein Partners, L.P.
By: Dicksteun Partners Inc.
By: /s/ Alan S. Cooper
--------------------------------------------
Name: Alan S. Cooper
Title: Vice President
DICKSTEIN FOCUS FUND L.P.
By: Dickstein Partners, L.P.
By: Dicksteun Partners Inc.
By: /s/ Alan Cooper
--------------------------------------------
Name: Alan S. Cooper
Title: Vice President
DICKSTEIN PARTNERS, L.P. SAVING PLAN
/s/ Mark Dickstein
-----------------------------------------------
Mark Dickstein, Trustee
19
<PAGE>
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGE
SCOGGIN CAPITAL MANAGEMENT L.P.
By: /s/ Craig Effron
-------------------------------------------
Name: Craig Effron
Title: Managing Partner
ELYSSA DICKSTEIN & JEFFREY SCHWARZ,
AND ALAN COOPER TTEES u/t/d 12/27/88
By: /s/ Alan S Cooper
-------------------------------------------
Name: Alan S. Cooper
Title: Trustee
/s/ MARK DICKSTEIN
-----------------------------------------------
MARK DICKSTEIN
/s/ MARK FISHER
-----------------------------------------------
MARK FISHER
/s/ MARK KAUFMAN
-----------------------------------------------
MARK KAUFMAN
20
<PAGE>
FOURTH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SIGNATURE PAGE
BRAEMAR PARTIES:
BRAEMAR CAPITAL PARTNERS I, LP
By: Braemar Management I LLC, as general
partner
By: /s/ Neil S. Susuak
-------------------------------------------
Name: Neil S. Susuak
Title: Managing Director
HPB ASSOCIATES, L.P.
By: HPB Group, LLC, as general partner
By: /s/ Howard Berkowitz
-------------------------------------------
Name: Howard Berkowitz
Title: General Partner
OTHER PARTIES:
SHAD RUN -- JJ NOMINEE CORPORATION
By: /s/ Sara M. Hendrickson
-------------------------------------------
Name: Sara M. Henrickson
Title: President
/s/ NABIL N. EL-HAGE
-----------------------------------------------
NABIL N. EL-HAGE
/s/ YOSI AMRAM
-----------------------------------------------
YOSI AMRAM
21
<PAGE>
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of February 1, 1995, by
and between JUNGLE JIM'S PLAYLANDS, INC., a Delaware corporation (the
"Company"), with its executive offices currently located at 9000 Wurzbach Road,
San Antonio, Texas 78240, and NABIL N. EL-HAGE ("Employee"), an individual
currently residing at 153 North Avenue, Weston, Massachusetts 02193;
In consideration of the promises and mutual covenants contained
herein and the mutual benefits to be gained by the performance hereof, the
parties hereto agree as follows:
1. Employment. The Company hereby employs Employee as Chairman of
the Board, President and Chief Executive Officer of the Company and Employee
hereby accepts such employment upon the terms and conditions set forth herein.
2. Term. The term of this Agreement shall commence as of the date
hereof (the "Effective Date") and shall continue until the third anniversary of
the Effective Date, subject to earlier termination as hereinafter provided.
3. Duties. Employee shall devote his full business time and
attention to the duties of Chairman of the Board, President and Chief Executive
Officer of the Company and in such capacity shall report directly to the Board
of Directors and shall be responsible for the overall management, strategic
direction and financial and operating strategy of the Company, in accordance
with the policies and directions adopted by the Board of Directors from time to
time and such other responsibilities as may be directed to him by the Board of
Directors of the Company consistent with the terms of this Agreement. In further
consideration hereof, Employee shall act, upon the Company's request and for no
additional compensation, in an executive officer and/or director capacity for
any subsidiary of the Company, and at Employee's election, Employee shall act as
Chief Executive Officer for any subsidiary of the Company. In the performance of
his duties hereunder, Employee shall at all times report solely to and be
subject to the direction of the Board of Directors of the Company and perform
his duties hereunder subject to and in accordance with the resolutions of the
Board of Directors of the Company and the Bylaws of the Company, in each case
consistent with this Agreement, as from time to time in effect. During the term
of this Agreement, Employee shall be entitled to participate in any executive
committees of the Board of Directors as from
<PAGE>
time to time constituted. The duties and responsibilities to be performed
pursuant hereto by Employee for the Company and/or any subsidiary of the Company
shall not be modified to require the performance of services materially
different from those customarily required of senior executive officers. This
Agreement shall not be construed as preventing employee from serving as a
director of up to two outside corporate boards so long as service on any such
board does not require more than six business days annually and does not
conflict with Employee's duties to the Company or otherwise require Employee to
undertake substantial additional duties in connection therewith.
4. Compensation.
(a) Initial Base Salary. The Company agrees to pay Employee
compensation at the rate of $275,000 per annum during the initial employment
year ending January 31, 1996. The compensation during each twelve month period
ending on January 31 during the term of this Agreement (each an "employment
year") shall be payable periodically in accordance with the Company's payroll
policy in effect from time to time for executive officers.
(b) Adjustments of Base Salary. The Company agrees to review
Employee's performance at least once each year at least forty-five days prior to
each anniversary date of this Agreement and to discuss with Employee his
compensation. Notwithstanding the previous sentence, the base salary to be paid
to Employee during each subsequent employment year shall automatically be
increased over the base salary of $275,000 provided for the initial employment
year by any increase in the cost of living determined in accordance with the
formula set forth in subparagraph (c).
(c) Cost of Living Increase in Base Salary.
(i) As promptly as practicable following the end of each
employment year during the term hereof and the publication of the Index
(hereinafter defined), the Company shall compute the increase, if any, in
the cost of living, using as the basis of such computation the "Consumer
Price Index-All Urban Consumers Earners (1982-1984=100)," hereinafter
called the Index, published by the Bureau of Labor Statistics of the
United States Department of Labor.
(ii) The Index number in the column for "all cities",
entitled "all items," for the month of January, 1995, shall be the "base
Index number" and the corresponding
2
<PAGE>
Index number for the month of January in succeeding calendar years, shall
be the current Index number for purposes of determining base salary during
each succeeding employment year during the term of this Agreement;
provided, however, if the Company's headquarters are relocated to a
metropolitan area for which a separate Index is published, the base Index
number and the current Index number shall be determined by reference to
the Index for such metropolitan area.
(iii) The increase in the cost of living for purposes of
determining base salary during each succeeding year during the term of
this Agreement shall be determined by dividing the current Index number
(CIN) by the base Index number (BIN), and subtracting the integer 1 from
the quotient, in accordance with the following formula:
Increase in cost of living = (CIN) - 1.
-----
(BIN)
(iv) The percentage of increase in the cost of living,
multiplied by $275,000, shall be the increase required to be paid by
subparagraph (b). Any portion of the increase retroactively due shall be
payable within five days after the computation hereunder has been made.
(v) Appropriate adjustment shall be promptly made in
case there is a published amendment of the Index figures upon which the
computation is based.
(vi) If publication of the Consumer Price Index is
discontinued, the parties shall accept comparable statistics on the cost
of living as computed and published by an agency of the United States or
by a responsible financial periodical of recognized authority to be
selected by the parties.
(d) Bonus.
(i) Upon the execution of this Agreement, Employee will
receive a one-time bonus of $100,000 plus an amount equal to Employee's
initial base salary, less normal payroll deductions, for a two week
period.
(ii) Commencing with the fiscal year ending
December 31, 1995, Employee will have the potential to receive an annual
bonus of up to 40% of his current base salary payable generally in the
month of January during the following employment year, with the payment of
such bonus
3
<PAGE>
and the amount thereof to be determined in the sole discretion of the
Company's Board of Directors based upon the attainment of qualitative and
quantitative financial and other goals established by the Board of
Directors from time to time in consultation with Employee.
(e) Deductions. The Company shall deduct from any compensation
payable to Employee the sums which it is required by law to deduct, including
but not limited to federal and, if applicable, state withholding taxes, social
security taxes and state disability insurance.
(f) Vacation, Illness and Holidays. Employee shall be entitled
to no less than four (4) weeks of vacation each year, and holidays and sick-pay
days with full pay in accordance with the Company's policy for executive
officers from time to time in effect.
(g) Stock Purchase Opportunity. Employee shall be granted an
option, upon the terms set forth in Exhibit A which is attached hereto and
incorporated by reference herein (hereinafter the "Stock Option"), to purchase
2,000,000 shares of the Company's Common Stock, par value $.01 (the "Common
Stock") at a price of $1.10 per share, 1,000,000 shares of Common Stock at a
price of $1.65 per share and 1,000,000 shares of Common Stock at a price of
$2.20 per share, in each case, subject to customary anti-dilution adjustments as
provided therein.
(h) Additional Benefits. Employee shall be eligible to
participate in the Company's other employee benefit plans of general application
and any such plans authorized for executives only, including without limitation
any plans covering pension and profit sharing hereafter adopted in accordance
with the rules established for individual participation in any such plan.
Further, the Company shall reimburse Employee for any deductibles or co-payments
incurred or required to be paid in connection with any Company health insurance
plan and for any other health or medical expenses as may be necessary so that
Employee shall receive health and medical benefits from the Company no less
favorable than those provided in the benefit plans provided by Employee's
immediately preceding employer as set forth in Exhibit C hereto. In addition,
the Company agrees to reimburse Employee for his reasonable attorneys' fees
incurred in connection with the negotiation of this Agreement.
(i) Life Insurance. The Company shall provide at its expense
during the term of this Agreement a $500,000 term life insurance policy to be
owned by Employee (or his spouse, if
4
<PAGE>
he so elects) for beneficiaries to be designated by the owner of such policy,
subject to appropriate proof of insurability. If requested by Employee, the
Company will assign such policy to Employee at the expiration of the term of
this Agreement.
5. Nondisclosure/Noncompetition Agreement. As a condition to the
execution of this Agreement by the Company and as additional consideration
therefor, Employee shall concurrently herewith execute and deliver to the
Company a Nondisclosure/ Noncompetition Agreement in the form attached hereto as
Exhibit B, which is hereby incorporated by reference and shall be deemed an
integral part hereof. Such Nondisclosure/Noncompetition Agreement shall survive
the termination of this Agreement in accordance with the terms thereof.
6. Reimbursement of Business Expenses Incurred by Employees. The
Company hereby authorizes Employee to incur reasonable business expenses in the
performance of Employee's duties under this Agreement and in promoting the
business of the Company. The Company will reimburse Employee from time to time
for all such expenses, including reasonable expenses of commuting from
employee's current residence, and temporary living accommodation, until the
Company's headquarters are relocated, provided that Employee presents to the
Company documentary evidence, such as receipts or paid bills, that states
sufficient information to establish the amount, date, place, and essential
character of each such expenditure.
7. Termination.
(a) Death. If Employee shall die during the term of this
Agreement, this Agreement and all compensation and benefits hereunder shall
terminate as of the date of such death; except that the Company shall continue
to pay to Employee's estate, or persons designated to receive such payments
pursuant thereto, the salary and additional benefits provided for by Section 4
hereof (plus a pro rated bonus based on the amount, if any, payable in the
immediately preceding year) as it would otherwise become due and payable for a
period which shall terminate on the expiration of 180 days after Employee's
death.
(b) Disability. If Employee shall become Disabled during the
term of this Agreement, this Agreement and all compensation and benefits
hereunder shall terminate as of the Date of Disability (as defined below);
except that the Company shall continue to pay to Employee the salary and
additional benefits provided for by Section 4 hereof (plus a pro rated bonus
based on the amount, if any, payable in the immediately preceding
5
<PAGE>
year) as it would otherwise become due and payable for a period which shall
terminate on the expiration of 180 days after the Date of Disability. As used in
this Agreement, Disabled shall mean Employee's inability to perform
substantially his duties and responsibilities to the Company by reason of
physical or mental illness, injury, infirmity or condition: (i) for a continuous
period of 180 days or (ii) at such earlier time as Employee or the Company
submits the other medical evidence, in the form of physician's certification,
that Employee has a physical or mental disability or infirmity that will likely
prevent Employee from substantially performing his duties and responsibilities
for 180 days or longer. As used in this Agreement, the Date of Disability shall
mean the earlier to occur of (i) the last day of such 180-day period and (ii)
the day on which Employee or the Company submits such evidence, as the case may
be. Employee shall cooperate with and submit to a medical examination requested
by the Company for purposes of such determination at the Company's expense.
(c) Cause. The Company may terminate Employee for Cause (as
defined below) by giving written notice thereof to Employee, whereupon this
Agreement and all compensation and benefits hereunder shall terminate
immediately.
For purposes of this Agreement "Cause" shall mean: (i) the willful
and continued failure by Employee to perform substantially his duties to the
Company (other than any such failure resulting from his Disability), which
failure is not cured by Employee within 10 business days after a written notice
specifically describing such failure is provided by the Company to Employee;
(ii) willful misconduct by Employee in the performance of his duties to the
Company; (iii) gross negligence in the performance by Employee of his duties to
the Company if such grossly negligent performance is determined by the Board of
Directors in good faith to have had or to be reasonably likely to have a
material adverse effect on the business, assets, prospects or financial
condition of the Company and its subsidiaries taken as a whole or (iv) the
conviction of Employee by a court of competent jurisdiction of a felony or any
other crime which involves fraud, dishonesty or moral turpitude. Termination of
Employee for Cause shall be communicated by Notice of Termination. For purposes
of this Agreement, a "Notice of Termination" shall mean delivery to Employee of
a copy of a resolution duly adopted by the affirmative vote of the majority of
the entire membership of the Board of Directors at a meeting of the Board of
Directors called and held for that purpose (after reasonable notice to Employee
and reasonable opportunity for Employee, together with Employee's counsel, to be
heard before
6
<PAGE>
the Board of Directors prior to such vote), finding that in the good faith
opinion of the Board of Directors Employee was guilty of conduct set forth above
under (i), (ii), (iii) or (iv), and specifying the particulars thereof in
detail. Notwithstanding the foregoing, no act or failure to act of Employee
shall provide a basis for a termination for "Cause" after a period of twelve
months from the date any director of the Company acquired actual knowledge of
such act or failure to act. It is specifically acknowledged that the Company is
incurring significant losses from operations as of the date hereof, the
continuation of losses is anticipated, additional capital may be required to
fund the Company's operations in the future and Employee has agreed to become
employed by the Company pursuant to the terms of this Agreement but has not made
any commitments to the achievement of any revenue, profitability, expense or
other financial plans or targets.
(d) Termination for other than Death, Disability or Cause or
for Good Reason. If Employee shall be terminated by the Company other than for
Cause and other than as a result of Employee's death or his becoming Disabled,
including, without limitation, if this Agreement is rejected pursuant to Title
11 of the United States Code or any other federal or state bankruptcy or similar
law or in the event Employee voluntarily resigns for "Good Reason" (as defined
below), the Company shall after the effective date of such termination pay to
Employee an amount equal to the amount of Employee's base salary then remaining
to be paid hereunder for the remaining term of this Agreement and continue to
provide the health and medical insurance benefits set forth in Section 4(h) for
the lesser of (i) the remaining term of this Agreement or (ii) employment of
Employee by another employer offering health and medical insurance benefits.
Except as provided in the preceding sentence, this Agreement and all other
compensation and benefits hereunder shall in any such case terminate as of such
effective date. Any payments due pursuant to this Section 7(d) may be made at
the Company's election either (1) as such payments would otherwise become due in
periodic installments or (2) in a lump sum payment equal to the present value of
such payment obligation, applying a discount rate equal to the prevailing
interest rate on certificates of deposit paid by The Chase Manhattan Bank, N.A.
in New York City, with a maturity nearest to the period over which such payments
would otherwise become due. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to Employee of any material duties inconsistent
with Employee's position as Chairman of the Board, President and Chief Executive
Officer of the Company and all
7
<PAGE>
subsidiaries of the Company as to which Employee has elected to serve as Chief
Executive Officer (or the assignment to any other employee of the Company of any
material duties inconsistent with the assignment to Employee of the duties
provided in Section 3 hereof), excluding for this purpose isolated,
insubstantial or inadvertent actions not taken in bad faith and which are
remedied by the Company within 10 business days after receipt of written notice
thereof specifically describing such inconsistent duties given by Employee to
the Company, provided, however, that any change or diminution of the business of
the Company or any subsidiary or subsidiaries of the Company, including without
limitation the sale or transfer of assets or stock of the Company or any such
subsidiaries shall not constitute "Good Reason";
(ii) any failure by the Company to comply with any of the
provisions of this Agreement, other than any isolated, insubstantial or
inadvertent failure not occurring in bad faith, which is not remedied by the
Company within 10 business days after receipt of written notice thereof
specifically describing such failure given by Employee to the Company; or
(iii) the Company's requiring Employee to be based at any office
or location other than within a radius of 25 miles from Boston, Massachusetts,
or, in the event the Company's headquarters is not relocated in accordance with
Section 9 hereof, San Antonio, Texas (or any other metropolitan area to which
the Company's headquarters is relocated in compliance with Section 9 of this
Agreement); except for travel reasonably required in the performance of
Employee's responsibilities.
(e) Material Disagreement. Notwithstanding any other provision in
this Agreement, if (i) there is a material disagreement between Employee and the
Board of Directors of the Company (A) resulting from any determination by or
directions from the Board of Directors to significantly change the strategic
direction or format of the Company (including without limitation significant
changes to the targeted market segments for the Company or significant changes
to the types of products or services offered by the Company at such date) or (B)
relating to the termination of employment of Senior Employees other than
Employee (even if such other employees have employment agreements with the
Company), (ii) Employee and the Board of Directors of the Company are not able
to resolve such differences to their mutual satisfaction, and (iii) Employee
informs the Board of Directors of the Company in writing that he will not
implement the decisions of the Board of Directors and/or with respect to
employment decisions intends to instead implement or continue contrary actions
or decisions, such refusal or contrary
8
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implementation by Employee shall not constitute "Cause" for any purpose
hereunder. Employee acknowledges that nothing herein shall limit the scope or
exercise of the authority of the Board of Directors of the Company and that he
may be removed, without cause, for any such refusal or contrary implementation;
provided, however, that failure of the Board of Directors to terminate
Employee's employment within a reasonable time following written notice pursuant
to clause (iii) above shall constitute a ratification of Employee's actions or
inactions by the Board of Directors and acknowledgment by the Board of Directors
that Employee was acting within the scope of his employment for all purposes
(including without limitation Section 19 hereof).
8. Liquidation or Change of Control. Upon the (i) liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary or
(ii) merger or consolidation of the Company with or into another corporation
resulting in the stockholders of the Company immediately prior to such
transaction owning less than a majority of the outstanding voting stock of the
surviving or successor entity, or the sale of all or substantially all of the
Company's assets (any event in (i) or (ii) above being called the "Event")
Employee shall receive his base salary (A) until the third anniversary of the
Effective Date if the Event occurs before the first anniversary of the Effective
Date or (B) for two years from the date of the Event if the Event occurs on or
after the first anniversary of the Effective Date, and except as provided in
this sentence, this Agreement and all other compensation and benefits hereunder
shall in any such case terminate upon the occurrence of such Event.
9. Relocation of Business. It is acknowledged and agreed that
Employee may, in his sole discretion, relocate the headquarters of the Company
to the Boston, Massachusetts metropolitan area. Employee may relocate the
headquarters of the Company to any other major United States metropolitan area,
subject to approval of the Board of Directors of the Company, which approval
shall not be unreasonably withheld. In the event Employee elects not to relocate
the Company's headquarters to the Boston, Massachusetts metropolitan area or
Executive with approval of the Board of Directors elects to relocate the
headquarters from San Antonio, Texas to a metropolitan area other than Boston,
not later than August 15, 1995, Employee shall cause his principal residence to
be relocated in the metropolitan area in which the Company's headquarters is
located and the Company shall advance or pay on behalf of Employee all
reasonable out-of-pocket expenses in connection with such relocation (including
without limitation expenses in connection with enrolling
9
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Employee's children in public or private schools, other than tuition).
10. No Conflict. Employee represents and warrants that the
execution, delivery and performance of this Agreement by Employee will not
violate any agreement, undertaking or covenant to which Employee is party or is
otherwise bound.
11. Notices. Any notice to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by certified
mail, postage prepaid with return receipt requested. Mailed notices shall be
addressed to the parties at the addresses appearing in the introductory
paragraph of this Agreement, but either party may change his or its address by
written notice in accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of the actual receipt thereof; mailed notices
shall be deemed communicated and received three (3) business days after the
mailing of same.
12. Invalid Provisions. The invalidity or unenforceability of a
particular provision of this Agreement shall not affect the enforceability of
any other provisions hereof and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions were omitted.
13. Amendments to the Agreement. This Agreement may only be amended
in writing by an agreement executed by both parties hereto.
14. Law Governing Agreement. This Agreement is made
and shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
15. Construction. Waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party. This Agreement shall not be assignable. Subject
to the prohibition against assignment herein contained, this Agreement and the
terms and conditions herein shall inure to the benefit of and be binding upon
the parties hereto, their successors, heirs and legal representatives.
16. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto and supersedes any and all prior agreements, oral or
written, and negotiations between said parties regarding the subject matter
herein contained.
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17. Mitigation. In no event shall Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to Employee under any of the provisions of this Agreement.
18. Costs and Expenses to Prevailing Party. In the event there shall
be instituted any legal proceedings between the parties hereto in connection
with the enforcement or interpretation of this Agreement, the prevailing party
shall be entitled to an award of its costs and expenses, including reasonable
attorneys' fees, incurred in connection therewith.
19. Indemnification. The Company hereby agrees to indemnify and hold
harmless Employee from and against any and all losses, claims, expenses and/or
liabilities of any kind or nature whatsoever, incurred or sustained by Employee
relating to or arising from Employee's performance of this Agreement and acting
within the scope of his employment contemplated hereby, including with respect
to the performance of services for any subsidiary of the Company, to the maximum
extent permissible under the General Corporation Law of the State of Delaware or
other applicable law. Without limiting the foregoing, the Company agrees to
reimburse Employee for any expenses (including without limitation attorneys
fees, retainers and court costs) incurred by Employee in any action or
proceeding for which such indemnification may be claimed, upon a receipt of an
undertaking by Employee to repay all amounts so advanced in the event that it
shall ultimately be determined that Employee is not entitled to be indemnified
by the Company hereunder or under the Certificate of Incorporation or By-laws of
the Company or under any other agreement between Employee and the Company.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
/s/ Nabil N. El-Hage
---------------------------
NABIL N. EL-HAGE
JUNGLE JIM'S PLAYLANDS, INC.
By: /s/ Mark E. Jennings
------------------------------
Name: Mark E. Jennings
Title: Director
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AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (this "Amendment"), dated as
of April 11, 1997, among JEEPERS! INC. (f/k/a Jungle Jim's Playlands, Inc.), a
Delaware corporation (the "Company"), and Nabil N. El-Hage ("Employee").
RECITALS
A. The Company and Employee previously entered into an Executive
Employment Agreement, dated as of February 1, 1995 (the "Existing Employment
Agreement"), under which the Company has employed Employee as Chairman of the
Board, President and Chief Executive Officer.
B. The Company and Employee wish to extend the term of the Existing
Employment Agreement for an additional two-year period and to reflect the
modification concurrently herewith of the terms of the Option Agreement dated
effective February 1, 1995 between the Company and the Optionee.
In consideration of the foregoing, the Company and Employee agree as
follows:
SECTION 1
Amendments to Existing Employment Agreement
-------------------------------------------
The Existing Employment Agreement is hereby amended as follows:
(a) Section 2 is amended by deleting the reference in such Section to the
phrase "third anniversary" and inserting in lieu thereof the phrase "fifth
anniversary."
(b) Section 4(g) is amended by adding to the end of such Section the
phrase "and as such Stock Option may be otherwise amended and in effect from
time to time."
SECTION 2
Miscellaneous
-------------
(a) Effective Date. This Amendment shall be effective as of the date
hereof upon the
<PAGE>
execution and delivery hereof by the Company and Employee. Except as expressly
amended herein, the Existing Employment Agreement shall remain in full force and
effect in accordance with its terms.
(b) Governing Law. This Amendment is made and shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
(c) Entire Agreement. This Amendment contains the entire agreement of the
parties hereto and supersedes any and all prior agreements, oral or written, and
negotiations between said parties regarding the subject matter herein contained.
IN WITNESS WHEREOF, this Amendment has been executed by a duly authorized
officer of the Company and by the Employee.
/s/ Nabil N. El-Hage
--------------------------
Nabil N. El-Hage
COMPANY:
JEEPERS! INC.
By: /s/ K. Sanginario
----------------------------
Name: K. Sanginario
Title: Chief Financial Officer
2
<PAGE>
SECOND AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
SECOND AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT, (this "Amendment"),
dated as of May 12, 1998, among JEEPERS! INC. (f/k/a Jungle Jim's Playlands,
Inc.), a Delaware corporation (the "Company"), and Nabil N. El-Hage
("Employee").
RECITALS
A. The Company and Employee previously entered into an Executive
Employment Agreement, dated as of February 1, 1995, as amended as of April 11,
1997 (the "Existing Employment Agreement"), under which the Company has employed
Employee as Chairman of the Board, President and Chief Executive Officer.
B. The Company and Employee wish to extend the term of the Existing
Employment Agreement as provided herein.
In consideration of the foregoing, the Company and Employee agree as
follows:
SECTION 1
Amendment to Existing Employment Agreement
------------------------------------------
The Existing Employment Agreement is hereby amended as follows:
Section 2 is amended by deleting the reference in such Section to the
phrase "the fifth anniversary of the Effective Date," and inserting in lieu
thereof the following:
"(i) the third anniversary of the closing date of the Company's initial public
offering of common stock (the "IPO") (pursuant to registration statement file
no. 333-50297), or (ii) if for any reason the IPO is not consummated on or prior
to August 31, 1998, the fifth anniversary of the Effective Date, in each case"
SECTION 2
---------
Miscellaneous
(a) Effective Date. This Amendment shall be effective as of the date
hereof upon the execution and delivery hereof by the Company and Employee.
Except as expressly amended
<PAGE>
herein, the Existing Employment Agreement shall remain in full force and effect
in accordance with its terms.
(b) Governing Law. This Amendment is made and shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
(c) Entire Agreement. This Amendment contains the entire agreement of
the parties hereto and supersedes any and all prior agreements, oral or written,
and negotiations between said parties regarding the subject matter herein
contained.
IN WITNESS WHEREOF, this Amendment has been executed by a duly
authorized officer of the Company and by the Employee.
EMPLOYEE:
/s/ Nabil N. El-Hage
-----------------------------
Nabil N. El-Hage
COMPANY:
JEEPERS! INC.
By: /s/ Bruce Pollack
-----------------------------------
Name: Bruce Pollack
Title: Director
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EXHIBIT 10.6
MASTER LICENSE AGREEMENT
DATE: As of September 20, 1993
PARTIES: "PHI" - Pizza Hut, Inc.
9111 E. Douglas
P. O. Box 428
Wichita, KS 67201
"Licensee" - Jungle Jim's Playlands, Inc.
9000 Wurzbach
San Antonio, TX 78240
WHEREAS, PHI is the owner of a unique retail food business operated
by it and its franchisees and licensees throughout the United States and in many
foreign countries under the name and mark "Pizza Hut"; and
WHEREAS, PHI and Licensee each desire that PHI authorize Licensee
(and its wholly-owned operating subsidiaries who have adopted this Agreement by
signing one or more individual "Schedules", as defined below) to use some of
PHI's trademarks to sell from specified locations a limited variety of food
products that Licensee has prepared pursuant to PHI's proprietary recipes, all
as described in this Agreement and in the supplementary Schedules to this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth in this Agreement, PHI and Licensee agree as follows:
1. Definitions. For purposes of this Agreement, the following terms
have the respective meanings given:
1.0 Affiliate. An "Affiliate" of a party is a person controlling,
controlled by, or under control with, the party. Affiliates do not include a
party's franchisees, unless the franchisee is controlled by the party through
common ownership or other means independent of the franchise agreement.
1.1 Agreement. "Agreement" means this Master License Agreement
between PHI and Licensee, as amended from time to time, including (unless the
context clearly requires otherwise) all Schedules.
1.2 Brand Umbrella. The "Brand Umbrella" is the area of the Licensed
Location that is associated with the Licensed Concept in such a way that it
appears to the average consumer to be related to the Marks. The size of the
Brand Umbrella may vary from installation to installation, depending upon the
context. The factors that will influence the extent of the Brand Umbrella
include the nature of the Licensed Concept; the decor; and the type, variety,
and number of other ready-to-eat products (unrelated to the Marks) sold from the
Licensed Location. As an example, and without limiting the generality of this
definition, the full area under a canopy bearing one of the Marks is within the
Brand Umbrella.
<PAGE>
1.3 Gross Sales. Except as otherwise provided in this Section,
"Gross Sales" means the total of all cash or other payments received (including
by check, credit, charge account, or otherwise, regardless of whether any such
checks, credits, charge accounts, or other means of payment are ultimately paid,
and also including the fair value of any exchange) for the sale of (a) any item
that is sold under the Brand Umbrella, and (b) any item that is identified by
one or more of the Marks.
Gross Sales exclude only those taxes imposed directly on sales by
governmental authorities when the amount of the tax is added to or absorbed in
the selling price and is actually paid to the appropriate governmental
authority.
If prices of Licensed Products sold at the Licensed Location are not
priced separately from a "package" price for Licensed Products and other items
(as, for example, by inclusion of Licensed Products in Licensee's birthday party
or field trip packages), the parties will negotiate, in good faith, a proper
measure of Gross Sales.
1.4 Includes. The verb "to include" (in all of its forms, tenses,
and variations) is always used in the nonexclusive sense. As a result, the words
"includes" and "including" in this Agreement have the same meaning as they would
if followed by the phrase "but [is] not limited to" or the phrase "without
limitation".
1.5 Licensed Concept. The "Licensed Concept" is the type of
PHI-developed food service distribution outlet that PHI authorizes Licensee to
operate at a particular Licensed Location. For each Licensed Location, a
Schedule describes the Licensed Concept applicable to that Licensed Location.
Each Licensed Concept is more fully described in the Schedule
identifying the Licensed Concept applicable to a particular Licensed Location
and in the applicable portion of the Manual, and is identified by one or more of
the Marks.
1.6 Licensed Location. "Licensed Location" means a specific site,
designated in a Schedule, at which PHI authorizes Licensee to operate the
Licensed Concept designated in that Schedule. The extent of the Licensed
Location (for example, whether only a single cafeteria or an entire complex of
buildings is included) will vary, depending upon the nature of the Licensed
Concept designated in the Schedule; see the applicable Schedule for a more
extensive discussion of the extent of the Licensed Location.
1.7 Licensed Products. "Licensed Products" are the only food and
beverage items that Licensee may sell under the Brand Umbrella without PHI's
prior written consent; all Licensed Products must be prepared and served in
accordance with the Manual. The Licensed Products are Personal Pan Pizzas, other
items as identified in the definition of Licensed Concept in the appropriate
Schedule, and any other food or beverage item for which the Manual provides,
from time to time, recipes or preparation instructions.
1.8 Manual. The "Manual" is the set of documents (in one or more
volumes), as published, supplemented, and revised (from time to time), and
disseminated by PHI, containing policies, procedures, and instructions for
operating each of the Licensed Concepts. The Manual includes such matters as
2
<PAGE>
recipes for Licensed Products and various standards for their preparation, sale,
presentation, and marketing; design standards for facilities; instructions on
use of the Marks; and general standards of operations
1.9 Marks. "Marks" means all of the trademarks, trade names, service
marks, trade dress, symbols, slogans, emblems, logos, insignia, designs, and any
combination of them used from time to time by PHI and its licensees and
franchisees in connection with the offer and sale of goods and services.
1.10 Pizza Hut Information. "Pizza Hut Information" means all of the
trade secrets, knowledge, know-how, formulas, processes, recipes, ingredient
charts, the Manual, equipment layout plans, designs, specifications, marketing
strategies, and other confidential information shared by PHI with Licensee
pursuant to this Agreement.
1.11 Schedule. "Schedule" means a document associated with this
Agreement, pursuant to which PHI authorizes Licensee to operate a particular
Licensed Concept at a particular Licensed Location, and in which any terms or
conditions unique to the particular Licensed Concept or Licensed Location are
contained. There may be more than one Schedule associated with this Agreement.
1.12 Term. With respect to each Licensed Location, "Term" means the
period beginning on the date specified in the Schedule for that Licensed
Location as the "Starting Date", and ending 5 years from that date, unless this
Agreement or the applicable Schedule is terminated sooner as provided elsewhere
in this Agreement. Licensee has no right to renew this Agreement or any Schedule
upon expiration of the Term.
1.13 Transfer. The noun "transfer" and the verb "to transfer" mean
any activity or event, or series of activities or events, whether voluntary,
involuntary, or by operation of law, that result (or reasonably could result) in
an assignment or other change in the ultimate legal or beneficial ownership of,
or right to operate pursuant to, this Agreement, including grants of security
interests, conveyances of corporate stock, mergers, and the execution of
management agreements
2. Grant of Licenses. Subject to all of the terms and conditions of
this Agreement, PHI grants to Licensee, during the Term, (a) a nonexclusive
license to operate the Licensed Concept specified in an applicable Schedule, in
accordance with the Manual, at the Licensed Location specified in the same
Schedule, and (b) a nonexclusive license to use the Marks to promote the
operation of the Licensed Concept at the Licensed Location.
2.1 Scope of Licenses. The scope of the license extends only to the
Licensed Concept specified in an applicable Schedule at the Licensed Location
specified in the same Schedule. This license does not extend to any other
location, product, concept, or distribution channel.
Specifically, but without limiting the prior provisions of this
Section 2.1, this Agreement does not allow Licensee to operate the Licensed
Concept specified in any Schedule at any other location, nor does this Agreement
allow Licensee to operate any of PHI's other concepts at the Licensed Location.
3
<PAGE>
2.2 Delivery. Licensee may, without exceeding the scope of this
license, deliver Licensed Products (on a nonexclusive basis) to customers in the
same building (but not to any other building(s), even if interconnected) as that
in which a particular Licensed Location is situated. Licensee may not deliver
any Licensed Products to any other locations.
2.3 Preferential Arrangements. Licensee may not allow, suffer, or
permit the production, distribution, or sale of (a) any ready-to-eat pizza
product (other than a Licensed Product) from the Licensed Location, or (b)
except as permitted by the remainder of this Section 2.3, any restaurant-branded
pizza product (except Licensed Products and frozen pizza products sold in their
frozen state) in, on, or from any location (including a Licensed Location) owned
or operated by Licensee or any parent, subsidiary, or other Affiliate of
Licensee.
Notwithstanding subparagraph (b) of the prior paragraph of this
Section 2.3, Licensee (or its parent, subsidiary, or other Affiliate) may sell
other non-frozen, restaurant-branded pizza products from locations other than a
Licensed Location under the following circumstances:
(i) If Licensee (or its parent, subsidiary, or other Affiliate)
applies to PHI for authority to sell PHI's proprietary brands of pizza
products from a location, and Licensee is not (at that time) in default
under this Agreement or any other license agreement from PHI, but PHI
refuses to grant that authority to Licensee, then Licensee may sell at
that location (but no others, without first complying with this
provision), restaurant-branded pizza products other than PHI's proprietary
brands.
(ii) If Licensee is a "contract feeder" (i.e., a person who, for a
fee, provides foodservice operations in a facility operated by a third
party) and Licensee's client for a specific site specifically requires
Licensee to sell another restaurant-branded pizza product at the site,
despite Licensee's best efforts to sell PHI's proprietary brands of pizza
at the site, and Licensee has given PHI a "meaningful opportunity" to
influence the client's decision, then Licensee may sell the brand required
by its client at that specific site. A "meaningful opportunity" to
influence the client's decision includes, at a minimum, an opportunity for
PHI to discuss the issue with Licensee's client at least 5 business days
before Licensee commits to using the other brand. Licensee may, at its
option, participate in these discussions, and must (in any event) notify
PHI of the name of Licensee's contact person at the client, the contact's
telephone number, and the reason (if known to Licensee) why another brand
is preferred.
For purposes of this Section 2.3, a "restaurant-branded pizza
product" is any brand of pizza product identified by or with a company engaged
in the operation or franchising of restaurants, whether or not those restaurants
primarily feature pizza, and whether or not the company that owns the brand
manufactures the pizza product. "Restaurant-branded pizza products" do not
include unbranded pizza products or pizza products identified solely by a brand
or trademark owned exclusively by Licensee for use in its own operations.
4
<PAGE>
3. Designation and Use of Marks. PHI will, from time to time,
designate certain Marks as applicable to each Licensed Concept. A list of the
word/logo Marks designated as applicable to a specified Licensed Concept or some
or all of the Licensed Products on the date of a Schedule will be included as
part of that Schedule. PHI may, from time to time, designate new Marks as
applicable to one or more Licensed Products or to a Licensed Concept as a whole.
In addition, PHI may, from time to time, modify or delete existing Marks or may
withdraw authority to use certain Marks in connection with one or more Licensed
Products or a Licensed Concept as a whole. PHI will give Licensee written notice
of the addition, modification, or deletion of Marks. Any additional or modified
Marks designated as applicable to particular Licensed Products or to a Licensed
Concept as a whole will be subject to the terms of this Agreement. Licensee may
use the Marks only where, when, and as approved by PHI. Licensee must cease use
of any deleted Marks or any Marks no longer applicable to a particular Licensed
Concept or Licensed Product within the time stated in the notice from PHI.
3.1 Use of Marks. The license granted to Licensee to use the
designated Marks is applicable only to the offer and sale of Licensed Products
prepared in accordance with the Manual from the Licensed Location. Licensee may
only use the designated Marks strictly according to the terms and conditions of
this Agreement. Licensee may not use, in any context associated in any way with
the Licensed Concept, any trademarks, service marks, trade names, trade dress,
symbols, slogans, emblems, logos, insignias, designs, or any combination thereof
other than the designated Marks, without PHI's prior, written consent in each
case.
Licensee may not offer or sell any Licensed Product(s) under or in
connection with any trademark, service mark, trade name, trade dress (including
product package design), symbol, slogan, emblem, logo, insignia, design, or any
combination thereof other than the Marks, without PHI's prior, written consent
in each case.
3.2 Ownership of Marks. Licensee acknowledges that PHI is the sole
and exclusive owner of the Marks. Nothing contained in this Agreement may be
construed to vest in Licensee any right, title, or interest in any of the Marks,
other than the limited license granted by this Agreement. All goodwill now or in
the future associated with the Marks (including any goodwill arising out of
Licensee's use of the Marks) belongs exclusively to PHI.
The licenses granted by this Agreement are nonexclusive. Except as
expressly limited by the terms and conditions of this Agreement, PHI retains the
right (in its sole and absolute discretion) to grant to any other person(s) the
license, in addition to any license(s) previously granted, to use for any
purpose all or any part of the Marks, including within the trade areas (if any)
of the Licensed Location.
3.3 Nonimpairment. Licensee covenants never (whether during or after
the Term) to misuse the Marks, to use the Marks in an unauthorized manner, or to
take any other actions whatever that may impair PHI's ownership of and goodwill
in the Marks. Licensee may not interfere in any manner with the use of the Marks
by PHI or by any other licensee or any franchisee of PHI. Without limiting the
foregoing, Licensee may not directly or indirectly object
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to, attack, or contest PHI's ownership of any or all of the Marks in connection
with any service or product whatever, nor may Licensee assist others to do so.
Licensee must exercise caution in its use of the Marks to ensure
that the Marks (and the goodwill associated with them) are not jeopardized in
any manner. Without limiting the foregoing, Licensee may not use the Marks in
any manner or in connection with any statement or material that may (in PHI's
good faith judgment) be in bad taste or inconsistent with PHI's public image, or
tend to involve PHI in a matter of political or public controversy, or tend to
bring disparagement, ridicule, or scorn upon PHI, the Marks, or the goodwill
associated with the Marks.
Licensee may not conduct any business operations, nor market any
products (other than Licensed Products sold by Licensee in accordance with this
Agreement or another license agreement from PHI), under any name or mark that,
in PHI's reasonable opinion, is confusingly similar to one or more of the Marks,
or to any portion of one or more of the Marks.
The provisions of this Section 3.3 survive the termination or
non-renewal of this Agreement.
3.4 Protection of Marks. Licensee must immediately notify PHI of any
challenge to Licensee's use of the Marks. In addition, Licensee must provide PHI
with copies of any such challenge (if written) and provide PHI with any
information known to Licensee concerning the challenging party. Licensee must
immediately notify PHI, in writing, of any known or suspected infringement of
the Marks by a third party, and supply PHI with any information known to
Licensee concerning the suspected infringement and the suspected infringing
party. Licensee may not take any action with respect to any such challenge, or
any such known or suspected infringements, absent PHI's prior, written approval
(which PHI may grant or withhold in its sole discretion).
PHI has sole discretion over issues involving the defense or
protection of the Marks. Whenever so requested by PHI, Licensee must cooperate
fully in PHI's efforts to protect the Marks; PHI will reimburse Licensee's
actual out-of-pocket expenses (including reasonable attorneys' fees) incurred in
cooperating with PHI in accordance with this provision.
4. Duties of PHI. Except as expressly provided in this Agreement,
PHI is not obligated under this Agreement to Licensee (that is, this Agreement
may not be read as implying obligations on PHI that are not expressly stated).
4.1 Training Programs.
4.1.1 PHI Programs. PHI will offer a training program for the
person(s) who will manage the Licensed Concept for Licensee at the Licensed
Location. These training program classes will be conducted from time to time by
PHI at locations and at times selected by PHI. The training program, which may
include more than one segment, will be structured to provide practical training
in the operation of the Licensed Concept and the preparation of Licensed
Products. PHI will not be required to provide general training in restaurant
operation. PHI will bear its own costs in providing the training programs.
Licensee must pay all traveling, living, compensation, and other expenses
incurred by its employees in connection with attendance at the
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training programs. The training program content will be in the sole control
of PHI.
4.1.2 Training Mandatory. The Licensed Concept may be managed
only by persons who have successfully completed PHI's training course ("approved
managers"). If the approved manager transfers or is terminated, Licensee will
not be in default of this requirement so long as the successor manager
successfully completes the required training course within 45 days after the
departure of the former approved manager (or, if PHI has not offered a training
program within that period, as soon thereafter as the training program is
offered).
4.2 Marketing Programs. PHI may, from time to time, provide various
channel-specific marketing ideas to Licensee, designed specifically to enhance
Licensee's business pursuant to this Agreement. Licensee is under no obligation
to utilize these marketing ideas.
4.3 Additional Assistance. PHI will make available to Licensee, from
time to time, additional advice and assistance on performance of this Agreement
as Licensee may reasonably request. PHI may, in its sole discretion, establish
fees for various services made available pursuant to this Section 4.3; Licensee
must pay to PHI all such fees within 30 days of date of invoice for such
services provided at Licensee's request.
5. Manual. For each Licensed Location, PHI will loan to Licensee, at
no charge, one complete copy of the portions of the Manual applicable to the
Licensed Concept to be operated at that Licensed Location. Within reason,
Licensee may borrow from PHI further copies of the Manual, upon payment of the
reasonable fee set by PHI (from time to time) in its sole discretion.
5.1 Ownership of Manual. The Manual and all copies of the Manual
will remain the exclusive property of PHI. Licensee may not copy, and must use
its best efforts to keep all persons, including its Affiliates and their
respective employees, from copying, any portion of the Manual. Licensee must
return to PHI, upon the expiration or earlier termination of this Agreement, all
Manuals loaned to Licensee.
5.2 Updates. PHI may, from time to time, update or modify the Manual
by providing substitute pages or volumes to Licensee, or by informing Licensee
of changes or corrections to make to existing pages, Licensee must follow any
and all instructions from PHI concerning the changes.
5.3 Interpretation of Standards. PHI has sole discretion in
interpreting the standards set forth in the Manual.
5.4 Promulgation of Standards. In the Manual, PHI will promulgate
standards relating to the Licensed Concept. The standards may include quality,
cleanliness, appearance, service, food, brands, signage, supplies, fixtures, and
equipment to be used in connection with the Licensed Concept. PHI will also
promulgate standards of usage for the Marks. PHI may, from time to time, add,
delete, or change standards. At all times throughout the Term, Licensee must
comply with all then-current standards pertaining to the Licensed Concept, the
Licensed Products, and the Marks.
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At the time PHI promulgates a new standard, PHI will simultaneously
set forth a last date to implement the new standard. The last date, which will
be uniform as to all similar products and concepts (regardless of the operator),
will be at least 30 days after PHI omulates the new standard.
5.5 Product Quality. The Licensed Products sold by Licensee must
comply with this Agreement and with the instructions and recipes contained in
the Manual.
6. Duties of Licensee.
6.1 Inspections. Licensee grants to PHI's authorized representatives
the right to enter upon the premises relating to operation of the Licensed
Concept (including the right to pass over/through the remainder of the Licensed
Location) at any time during normal business hours, and at any other reasonable
time, for the purposes of: examining the facilities utilized in connection with
the Licensed Concept; conferring with Licensee's employees; inspecting and
checking operations, food, supplies, and fixtures and equipment; and determining
whether the portions of the business directly related to the Marks are being
conducted in accordance with PHI's standards and the terms of this Agreement.
PHI's representatives will comply, during these inspections, with the
non-discriminatory security rules (if any) applicable to the Licensed Location.
Furthermore, PHI will use reasonable care, in the course of all inspections, not
to disrupt Licensee's operations (and, if applicable, the operations of
Licensee's host/client/landlord).
If any inspection indicates any deficiency, Licensee must, within 2
business days after Licensee's receipt of a written report, correct or repair
the deficiency or unsatisfactory condition; but if the deficiency or
unsatisfactory condition is one that cannot be corrected or repaired within 2
business days Licensee will not be in default if Licensee begins (within the
2-business day period), and diligently pursues to completion, the necessary
corrections or repairs. In addition, if the deficiency or unsatisfactory
condition (in the reasonable opinion of PHI's authorized representative)
reflects a "critical deviation" from PHI's standards, or constitutes an imminent
danger to public health, Licensee will immediately cease sale of Licensed
Products until PHI's authorized representative agrees that the deficiency or
unsatisfactory condition has been corrected. Licensee's failure to comply with
the foregoing obligations to correct and repair constitutes a material default
under this Agreement.
6.2 Employees. Licensee must require all employees, while working in
connection with the Licensed Concept, to present a neat and clean appearance,
and to wear either PHI's standard uniform, or another uniform approved by PHI.
PHI may withhold its consent to any uniform; PHI will generally not approve a
substitute uniform: (a) that is identified with a company other than Licensee,
(b) that is not generally consistent with the uniforms worn by Licensee's other
employees at the building or other facility in which the Licensed Location is
situated, or (c) that is not in keeping with PHI's image.
6.3 No Unprepared Products. Licensee may not sell or distribute any
Licensed Product, any other products prepared substantially in accordance with
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the Manual, or any ingredient thereof, except as a complete and fully prepared
food product ready for immediate consumption.
6.4 Use of Licensed Location. Except with PHI's prior, written
consent, Licensee may not take any action that would lead consumers to believe
that items other than Licensed Products are identified by or with the Marks or
that items other than Licensed Products are endorsed by, or produced in
accordance with recipes and instructions of, PHI. Without limiting the
generality of the preceding sentence, Licensee may not (without PHI's prior,
written consent) prepare or sell any item (other than Licensed Products) under
the Brand Umbrella. PHI's consent to activities that would otherwise be in
violation of this Section 6.4 may be conditioned upon payment by Licensee of
royalties based upon Licensee's revenues from those activities. If Licensee
violates this Section 6.4 by engaging in prohibited activities without PHI's
consent, PHI may (in addition to its right to declare a default for Licensee's
breach) require Licensee to treat all revenue from sales of items that were
produced or sold in violation of this Section 6.4 as "Gross Sales" for purposes
of calculating royalties.
7. Advertising.
7.1 Approval of Advertising. All materials advertising Licensed
Products or bearing one or more of the Marks must be submitted to PHI and
approved by PHI in writing. Any request by Licensee for PHI's approval should be
addressed to PHI (marked, "Attention: Licensing Department - Ad Review"), and
PHI will endeavor to respond within 5 business days. Until PHI notifies
Licensee, in writing, that the proposed advertisement is approved, the submitted
item is considered unapproved and may not be used by Licensee.
Upon written notice from PHI, Licensee must immediately discontinue
use of any unapproved advertising materials. If Licensee does not discontinue
and remove the unapproved materials within 24 hours after notice, PHI or its
authorized agents may, in addition to PHI's other remedies, at any time (subject
to the non-discriminatory security rules of the facility in which the materials
are located), enter upon Licensee's premises or elsewhere and remove and destroy
the materials without paying for them and without being liable for trespass or
other tort.
7.2 National Advertising. PHI may use a portion of the royalties
paid to PHI pursuant to Section 9.1, below, to develop and administer
advertising, promotional, and marketing programs designed to promote and enhance
the collective success of Pizza Hut products and services. PHI need not expend
the funds in the same year (or other period) as those payments are received, and
PHI need not prove that Licensee received any benefit from Licensee's payments.
PHI's good faith decisions on expenditures of advertising funds (including
allocation between research, production costs, and advertising; type, quantity,
timing, and placement of advertisements; choice of media, market areas, and
advertising agencies; and levels of expenditures on various products or
concepts, which may not correspond to fees paid in connection with those
products or concepts), are final and binding. PHI may, in its sole discretion,
seek input from Licensee as to expenditures of advertising funds, but that input
will be advisory only. PHI may, in its sole discretion, pay some or all national
advertising monies to "The Joint
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Advertising Committee of Pizza Hut, Inc. and I.P.H.F.H.A., Inc." ("Ad Comm"),
and delegate to Ad Comm some or all of PHI's duties under this Section 7.
7.3 Co-operative Advertising. PHI recognizes certain co-operative
advertising associations ("Co-ops") for various restaurants and other units
operated by its subsidiaries and franchisees. Licensee will not be a member of
any Co-op, and will not make a monthly contribution to any Co-op, relating to
operation of the Licensed Concept at the Licensed Location.
8. Use of Approved Supplies and Approved Distributors. PHI will,
from time to time, publish one or more listings of approved equipment, fixtures,
signage, supplies, and distributors. PHI may add to or delete from the listings
at any time. Licensee may lease, purchase, and use only approved equipment and
supplies in connection with Licensee's operations under this Agreement, and may
obtain the approved equipment and supplies only from approved distributors. If
Licensee desires to purchase or use any equipment or supplies that are not then
approved, or to purchase any approved items from or through an unapproved
distributor, Licensee must submit to PHI a written request for approval. PHI has
the right to inspect the facilities of the manufacturer, producer, or
distributor, and to require Licensee to submit samples, specifications, and
other information concerning any equipment or supplies for which approval is
sought. PHI reserves the right, at its option, to reinspect the facilities and
to retest the products of any approved manufacturer, producer, or distributor
from time to time, and to revoke PHI's approval upon failure to continue to meet
any of PHI's criteria as then in effect. All costs associated with inspection
and reinspection of manufacturers, producers, or distributors proposed by
Licensee, and all costs of testing and retesting samples of their products
(including salaries of PHI employees, travel costs, and laboratory charges) are
to be borne by Licensee (unless Licensee arranges for the proposed manufacturer,
producer, or distributor to reimburse PHI directly). Nothing in this Section
requires PHI to approve any particular manufacturer, producer, or distributor.
8.1 Trade Secret Items. Licensee acknowledges that PHI's spice blend
is a highly confidential secret recipe and is a trade secret of PHI. Because of
the importance of quality and uniformity of product, and the significance of the
spice blend in the preparation of Licensed Products to achieve and maintain that
quality and uniformity, it is to the mutual benefit of the parties that PHI
closely controls the production and distribution of the spice blend. Similar
considerations may also apply to other trade secret or patented items that PHI
may develop in the future. Accordingly, Licensee may use only PHI's secret spice
blend in the preparation of Licensed Products and may buy only from PHI, or a
source designated by PHI, Licensee's full requirements of PHI's spice blends as
well as any other trade secret or patented items that PHI may develop in the
future.
8.2 Beverages. Licensee may sell non-alcoholic beverages such as
milk, coffee, tea, juice, bottled water, and carbonated soft beverages, under
the Brand Umbrella. At PHI's option, PHI may set standards for these beverages,
and may publish listings of approved suppliers. If Licensee elects to sell
carbonated soft beverages under the Brand Umbrella, Licensee may not display
under the Brand Umbrella the brand of any carbonated soft beverage (even if that
brand is contained on or referenced within the approved brands
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list) unless the displayed brand identifies a beverage manufactured by or under
authority of the Pepsi-Cola Company.
9. License Fees.
9.1 Initial Fees and Royalties. As partial consideration for
Licensee's use of the Marks and the Pizza Hut Information during the Term,
Licensee must pay PHI the initial fee (if any) and monthly royalties specified
by the Schedule applicable to a particular Licensed Concept and Licensed
Location. Each monthly royalty payment is due on or before the 10th day of each
month for sales during the preceding month. All payments (both initial fees and
royalties) are fully earned when due, and are not refundable to Licensee, in
whole or in part, under any circumstances.
9.2 Late Payments. If any payment under this Agreement is more than
10 days overdue, then Licensee must pay a finance charge on all amounts due of
18% per annum, compounded monthly (or, if lower, the maximum rate permitted by
law), retroactively to the date due and continuing until paid in full. Moreover,
if Pizza Hut does not receive any payment within 30 days after the date due from
Licensee, then Licensee must pay Pizza Hut (in addition to applicable finance
charges) an administrative charge equal to 5% of the delinquent amount or $150,
whichever is greater, in addition to the amount due. Payments will be applied
first to the amounts longest over due.
10. Maintenance of Books and Records. Licensee must keep on the
premises of the Licensed Location or at Licensee's principal place of business,
and must preserve for at least 5 years after the date of their preparation
(regardless of any intervening expiration or termination of this Agreement),
accurate records, ledgers, accounts, books, and data reflecting Gross Sales and
all other sales of ready-to-eat foods from the entirety of the Licensed Location
(as defined in the applicable Schedule). Licensee must submit to PHI with its
payment of the monthly royalties a monthly statement (in the form of Exhibit A)
of Gross Sales and of the total sales of the particular business unit (such as a
cafeteria or concession stand) that includes the Licensed Concept. PHI reserves
the right to require such further information relating to Licensee's business
under this Agreement (including food and labor costs) as PHI may from time to
time reasonably prescribe.
10.1 Inspection and Audit. At all reasonable times, PHI and its
agents or representatives may examine and audit all records relating to
Licensee's operations under this Agreement; upon reasonable cause, PHI may also
examine and audit the records relating to the remainder of Licensee's sales of
ready-to-eat foods from the remainder of the Licensed Location. Licensee must
cooperate with any such examination or audit by gathering records, accounts and
books for easy access, and by providing other assistance PHI reasonably
requests.
10.2 Limited Access Locations. If the Licensed Location is one to
which access is restricted by governmental authority or a need for strict
confidentiality of Licensee's client at the Licensed Location, then Licensee
must use commercially reasonable efforts to obtain access by representatives of
PHI to the Licensed Location for purposes of operational inspections and
financial audits. In the event access for PHI is not reasonably available, then
Licensee will use other reasonable means and otherwise cooperate with PHI
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to assure PHI that Licensee is in full compliance with this Agreement at the
Licensed Location.
10.3 Reporting Errors. If any inspection or audit discloses that any
statement of Gross Sales delivered to PHI by Licensee is in error, Licensee
must, within 2 business days after notice from PHI, pay to PHI any deficiency
found to be owing, plus a finance charge at the rate of 18% per annum,
compounded monthly (or, if lower, the maximum rate permitted by law), accruing
from the date payment was first due. If the deficiency is 5% or more of the
amount due, then in addition, Licensee must reimburse PHI for the reasonable
cost and expense of the inspection or audit upon billing by PHI.
10.4 Product Purchase Data. PHI has developed certain auditing
techniques that allow PHI to estimate Gross Sales based upon a review of product
purchases. In support of that review, Licensee authorizes all of its suppliers
(including PFS) to provide data to PHI concerning purchases by Licensee with
respect to each Licensed Location.
11. Covenants Concerning Confidentiality.
11.1 Disclosure. In performance of this Agreement, each party has
disclosed and will disclose to the other party and its employees certain
confidential information, including the Pizza Hut Information and Licensee's
sales information.
11.2 Obligations and Restrictions. Except as expressly provided
otherwise elsewhere in this Agreement:
(a) Each party may use the other party's confidential information
only for purposes of performing its obligations and enforcing its rights
under this Agreement, and not for any other purpose, including for its own
account.
(b) Neither party may disclose any portion of the other party's
confidential information to anyone (including its employees and the
employees of its divisions, subsidiaries, and Affiliates) that does not
have a need to know the portion disclosed for purposes of this Agreement.
Each party must inform any person to whom it discloses any of the other
party's confidential information of the obligations of confidentiality and
the restrictions on use contained in this Agreement.
(c) Neither party may attempt to evade its obligations under this
Agreement by selecting a series of items of knowledge from unconnected
sources and fitting them together (through knowledge of the other party's
confidential information) to justify use of information substantially
duplicating the other party's confidential information for its own or any
other person's account or purposes.
(d) Each party must take all reasonable measures to enforce the
obligations of confidentiality and use contained in this Agreement with
respect to any of its employees or former employees who, while in its
employ, had access to any part of the other party's confidential
information.
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(e) Immediately after termination of this Agreement (unless a
continuing agreement is in effect), each party must return to the other
party the originals and all copies of all documents containing any of the
other party's confidential information and not then used in connection
with a License Agreement then still in effect.
11.3 Exceptions and Exclusions. The limitations and restrictions
contained in Section 11.2 do not apply to any party's confidential information:
(a) that was previously known by the other party without limitations
of confidentiality or restrictions on use; or
(b) that is in, or that comes into, the public domain without the
fault of the other party.
11.4 Employee Agreements. To protect the Pizza Hut Information more
fully, and in implementation of Paragraph b. of Section 11.2, Licensee must
require each of its management-level employees who is given access to the Pizza
Hut Information to sign a Disclosure and Confidentiality Agreement in the form
of Exhibit B.
If Licensee knows that one of its employees has a conflicting
interest to PHI (such as a relative working for another pizza company), Licensee
may not train the employee in the production of Licensed Products or otherwise
disclose any of the Pizza Hut Information to the employee without PHI's prior
written consent.
11.5 Sales and Cost Data. Notwithstanding any other provisions of
this Section 11, PHI may: (a) disclose Licensee's sales and cost information as
part of general disclosures to regulators, potential licensees, and other third
parties, provided that the information is combined with other data from similar
licensees or is otherwise done in a fashion that protects the integrity of
Licensee's confidential information (as, for example, by disclosure without
identifying Licensee's identity or the location of any Licensed Location); (b)
disclose Licensee's sales data as necessary to enforce PHI's rights under this
Agreement; and (c) retain, after termination of this Agreement, the originals
of, as well as data derived from, Licensee's sales reports.
12. Transfers.
12.1 Transfers by Licensee. Under no circumstances may Licensee
transfer a Schedule (or any interest in a Schedule) independent of the entirety
of this Agreement without the prior, written consent of PHI. In addition,
Licensee may not assign this Agreement as a whole without the prior, written
consent of PHI. In each such case, PHI may withhold its consent in its sole
discretion, or may condition its consent upon payment of a transfer fee (in an
amount determined by PHI from time to time).
Licensee may make transfers (that do not constitute assignments) of
this Agreement as a whole without PHI's prior consent, but PHI may (after any
such transfer) terminate this Agreement in accordance with Section 16.4.
12.2 Transfer of Assets. Prior to a transfer by Licensee of any of
the fixtures, equipment, smallwares, or other personal property used in
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connection with Licensee's operations pursuant to this Agreement, made to any
person other than PHI, a subsidiary of PHI, or a franchisee or licensee of PHI
that is authorized by PHI to utilize the items transferred, Licensee must remove
from any assets transferred or to be transferred any of the Marks that appear
thereon. Licensee may not transfer any equipment or smallwares that incorporate
PHI's proprietary designs or information, or any supplies, inventory,
ingredients, or packaging, to anyone other than PHI without the prior, written
consent of PHI.
12.3 Effect of Consent. PHI's consent to a transfer by Licensee is
not a waiver of the right to demand strict compliance with any of the terms of
this Agreement by the transferee. Consent to one transfer does not affect either
party's rights, including PHI's right to withhold consent to future proposed
transfers.
13. Indemnification and Waiver. Each party must indemnify the other,
its Affiliates, and their respective employees, officers, directors, and
shareholders against all losses (including reasonable attorney's fees and costs)
incurred by any of them owing to claims that arise from any breach of, or
operations under, this Agreement by the indemnifying party. Before beginning
operation of the Licensed Concept at the Licensed Location, Licensee must
provide to PHI a certificate of general liability insurance in form and content
(including with respect to policy limits and the primacy of Licensee's
insurance) reasonably acceptable to counsel for PHI.
Licensee waives all claims arising out of or based upon this
Agreement relating to training, establishment of procedures, and food and other
products distributed but not manufactured by PHI or its affiliates, that
Licensee may have against PHI, its Affiliates, and their respective officers,
directors, employees, and shareholders, except for claims arising from
intentional misconduct or gross negligence.
This Section 13 survives termination or expiration of this
Agreement.
14. PHI Authority. PHI warrants that it has the right to grant to
Licensee the rights granted in this Agreement and in each Schedule executed by
PHI; that the Marks PHI has designated for use with the Licensed Concept and the
Licensed Products, and the Pizza Hut Information, do not infringe upon any
patent, trademark, service mark, or copyright, whether statutory or common law;
and that the designated Marks and the Pizza Hut Information contain no unlawful
matter.
If Licensee loses the right to use (in their then-current forms) any
of the designated Marks, or any portion of the Pizza Hut Information, due to a
final, unappealable order of a court of competent jurisdiction in a case
alleging infringement of a patent, trademark, service mark, copyright, trade
secret, or other proprietary interest, PHI will, at its expense and option,
procure for Licensee the right to continue using those Marks and the applicable
portion of the Pizza Hut Information, replace or modify those Marks and the
applicable portion of the Pizza Hut Information so that they become
non-infringing, or otherwise provide Licensee with a reasonably equivalent
substitute.
15. Requests for Waivers or Consents. Whenever Licensee desires
PHI's waiver of any obligation in this Agreement, and whenever this Agreement
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requires Licensee to obtain PHI's prior, written consent, Licensee should
address its written request for that waiver or consent to PHI's New Concepts
Department or to any other person or department specified by this Agreement or
designated by PHI in writing. PHI will consider each request and advise Licensee
in writing of PHI's decision within 45 days after receipt of the request. PHI's
failure to advise Licensee on a timely basis that a request is granted
constitutes a denial of the request.
16. Default and Termination.
16.1 Default by Licensee. If Licensee does not comply promptly with
any term or condition of this Agreement at or with respect to any Licensed
Location, Licensee will be in default under this Agreement. In addition to all
other remedies PHI may have at law or in equity, PHI may (at its option but
subject to the notice and cure provisions described below and the terms of this
Agreement): (a) terminate the applicable Schedule and the Licensee's right to
operate the specified Licensed Concept at the specified Licensed Location, if
the default under the Schedule is material, or (b) terminate this Agreement as a
whole if Licensee's default relates to 20% or more of the Schedules issued to
Licensee pursuant to this Agreement. In addition, PHI may terminate this
Agreement (as a whole) if the schedules or license agreements issued by PHI to
Licensee for 20% or more of the total units operated by Licensee under authority
of PHI are terminated by PHI for Licensee's default.
PHI may not terminate any Schedule issued pursuant to this
Agreement, or this Agreement as a whole, unless PHI gives Licensee prior written
notice of, and (except as provided below) an opportunity to cure, the default
providing the basis for termination. Licensee will have 10 business days after
the effective date of notice from PHI to cure any default, except that Licensee
will have only 5 business days after the effective date of notice from PHI to
cure a default, if Licensee has previously been in default (and notified of the
default by PHI) under any individual Schedule issued pursuant to this Agreement
in the 12 months immediately preceding the effective date of the notice of the
current default, and will have no opportunity to cure the default if 3 or more
times in the 12 months, or 5 or more times in the 24 months, immediately
preceding the effective date of notice of the current default, PHI had given
Licensee notice of other defaults (even though cured) under the same Schedule.
Notwithstanding these notice provisions, if applicable law requires a longer
cure period, Licensee will have the longer cure period required by law.
16.2 Default by PHI. If PHI does not comply promptly with any term
or condition of this Agreement, PHI will be in default under this Agreement. In
addition to all other remedies Licensee may have at law or in equity, Licensee
may (at its option but subject to the notice and cure provision described below)
terminate this Agreement if the non-compliance by PHI is material to this
Agreement, taken as a whole. Licensee may not terminate this Agreement unless
Licensee first gives PHI written notice of, and an opportunity to cure, the
default providing the basis for termination. PHI will have 20 business days
after the effective date of notice from Licensee to cure any default, except
that if applicable law requires a longer cure period, PHI will have the longer
cure period required by law.
16.3 Voluntary Termination by Licensee. In addition to its other
rights, Licensee may terminate any Schedule issued pursuant to this Agreement
15
<PAGE>
at any time if either of the following events occurs: (a) if Licensee is
operating at the Licensed Location specified in the Schedule pursuant to a right
granted by a third party, and (1) Licensee's contract or lease allowing Licensee
to operate at the Licensed Location is terminated or cancelled, or expires
without renewal, or (2) the third party has a right to control the products sold
by Licensee and requires Licensee to remove the Licensed Concept from Licensee's
foodservice operation at the Licensed Location; (b) Licensee's operation of the
Licensed Concept at the Licensed Location specified in the Schedule is conducted
at a loss for any 6 out of 12 consecutive months; or (c) Licensee ceases all
business operations at the Licensed Location.
Furthermore, Licensee may, After at least 90 days' prior written
notice to PHI, terminate this Agreement and all Schedules, with or without
cause. If Licensee exercises this right of termination, the Licensee must
simultaneously terminate all other license agreements from PHI. Licensee may not
terminate this Agreement pursuant to this provision without simultaneously
terminating all other license agreements (for the same or different Licensed
Concepts) from PHI.
16.4 Termination by PHI. PHI may, at its option, terminate this
Agreement as a whole on written notice to Licensee (without right to cure), if
any of the following transfers or attempted transfers occurs:
(a) an assignment of this Agreement to a party other than the
original Licensee, without PHI's prior written consent;
(b) a transfer of any interest in a Schedule independently of the
entirety of this Agreement without PHI's prior written consent;
(c) a transfer of ownership of Licensee to a transferee that would
not, in PHI's reasonable judgment, be able to maintain the operation of
the Licensed Concept at a quality level consistent with PHI's standards;
or
(d) a direct or indirect transfer of interests totalling 25% or more
of the ultimate ownership of this Agreement (as discussed in Section 1.13)
to a competitor of PHI or to an individual or entity whose image is
inconsistent with PHI's image as a family restaurant operator. For
purposes of this subsection "d", a competitor of PHI is defined as any
entity that directly or through subsidiary or affiliated entities conducts
a business that is primarily engaged in the manufacture and sale of
carbonated soft drinks or soft-drink concentrates, the manufacture and
sale of salty snack foods, or the operation and franchising of restaurants
or delivery units that primarily feature, pizza, moderately-priced
Mexican-style food, or fried chicken.
PHI's right to terminate pursuant to this Section 16.4 will continue
from the date of the transfer until Licensee (or the transferee) gives PHI full
details of the transfer and PHI (after an opportunity to review those details)
waives, in writing, its right to terminate for that transfer. The mere passage
of time after a transfer, without compliance with this process, will not impair
PHI's right to terminate.
16
<PAGE>
16.5 Absence of Schedules. If all of the Schedules issued by PHI to
Licensee in accordance with this Agreement have expired or been terminated,
either party may terminate this Agreement on written notice to the other.
17. Post-Termination Provisions.
17.1 Use of Marks, Pizza Hut Information and Equipment. Upon
expiration or earlier termination of any Schedule issued pursuant to this
Agreement, Licensee must immediately discontinue use of the Marks and of all
Pizza Hut Information at the Licensed Location specified in that Schedule. In
addition, Licensee must immediately take all further steps that PHI directs to
effectively distinguish the specified Licensed Location from PHI's proprietary
design(s) and trade dress, and to reconfigure the ovens to their "stock" or
"standard" designs (i.e., without modifications to cook Licensed Products).
Because of the likelihood of confusion as to source, Licensee covenants not to
sell after termination any non-frozen pizza products from the Licensed Location
until the decor and configuration of the Licensed Location has been sufficiently
modified so as not (in PHI's reasonable opinion) to cause customer confusion.
Furthermore, upon such expiration or earlier termination, Licensee
must offer for sale to PHI each piece of equipment (excluding ovens and
proofers) used in the operation of the Licensed Concept at the Licensed Location
that: (a) PHI deems proprietary, such as certain parts of the kiosk assembly,
and (b) Licensee purchased from PHI or an Affiliate of PHI, or that is
manufactured to specifications promulgated by PHI. PHI will, upon request from
Licensee, notify Licensee of the pieces of equipment PHI deems proprietary. The
price to PHI for each piece of equipment will be the lower of fair market value
and Licensee's depreciated net book value at the time of sale to PHI. PHI's
right to purchase the equipment pursuant to this paragraph will expire 10
business days after Licensee has offered the equipment to PHI.
If Licensee does not make all required changes and offer to sell the
proprietary equipment to PHI within 10 days after written notice, then PHI may
(in addition to its other remedies) enter upon the premises of the Licensed
Location and make or cause to be made all necessary changes, and take possession
of the proprietary equipment, at the expense of Licensee (without being liable
to Licensee for trespass or any other tort). In exercising its rights pursuant
to this provision, PHI will comply with the non-discriminatory security rules
(if any) applicable to the Licensed Location. Licensee must pay, upon demand,
all reasonable costs incurred by PHI pursuant to this provision.
17.2 Return of Manual. Upon termination or expiration of any
Schedule issued pursuant to this Agreement, Licensee must immediately return to
PHI all originals and copies of the Manual loaned to or made by Licensee with
respect to the Licensed Concept and Licensed Location specified in the Schedule.
17.3 Cessation of Rights and Duties. Licensee's obligation to pay
accrued monetary obligations, and all other provisions of this Agreement
providing for survival after termination of this Agreement (including the
covenants of confidentiality and against competition in Section 11) will survive
termination of each Schedule issued pursuant to this Agreement and of
17
<PAGE>
this Agreement as a whole. All other rights and duties of both parties will
cease upon expiration or earlier termination of this Agreement as a whole.
17.4 Spice Blends. Upon expiration or earlier termination of this
Agreement as a whole, Licensee must sell and PHI must buy, at Licensee's cost,
all quantities of the secret spices and other trade secret items that Licensee
may have in stock on the date of expiration or earlier termination of this
Agreement as a whole.
18. Dispute Resolution.
18.1 Jurisdiction and Governing Law. This Agreement takes effect
upon its acceptance and execution by PHI, and is to be governed by and construed
in accordance with the internal laws of the State of Kansas. Licensee consents
(and waives any objections it might otherwise have) to the jurisdiction and
venue of any state or federal court of general jurisdiction in Sedgwick County,
Kansas, with respect to any proceedings arising out of this Agreement. Delivery
by any lawful means of written process to a party's respective address as
specified in, and pursuant to the requirements of Section 19.5, constitutes
lawful and valid process for purposes of this Agreement.
18.2 Attorneys' Fees. If PHI and Licensee become involved in
litigation, the losing party will reimburse the prevailing party's outside
attorneys' fees and expenses to the extent those fees and expenses are
reasonable.
19. Miscellaneous.
19.1 Relation of Parties. Licensee represents and warrants to PHI
that Licensee has in good faith determined that its sales contemplated by this
Agreement of Licensed Products will not constitute more than 20% of its business
(either at a specific Licensed Location or as a whole) in the foreseeable
future. PHI and Licensee are not and may not be considered as
franchisor/franchisee, joint venturers, partners, or agents of each other.
Neither Licensee nor PHI has the power to bind or obligate the other except as
set forth in this Agreement.
Licensee specifically acknowledges that the
relationship created by this Agreement is not a fiduciary or any other similar
or special relationship, but solely an arm's-length business relationship.
19.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, is an original, but
all counterparts together constitute one and the same instrument.
19.3 No Third-Party Beneficiaries. Nothing in this Agreement confers
any rights or remedies on any person or legal entity not a party to this
Agreement.
19.4 Severability. The portions of this Agreement relating to the
payment of fees to PHI, and the portions relating to the protection and
preservation of the Marks and the Pizza Hut Information are critical to this
Agreement. If any portion of this Agreement relating to those matters is
18
<PAGE>
declared invalid or unenforceable for any reason, PHI may terminate this
Agreement immediately, on written notice to Licensee.
All other terms and conditions of this Agreement, and every portion
of those other terms and conditions, are severable. If, for any reason, any
portion of this Agreement (other than the nonseverable portions, as defined in
the first paragraph of this Section 19.4) is determined to be invalid or
contrary to or in conflict with any applicable present or future law, rule, or
regulation, in a final, unappealable ruling issued by any court, agency, or
tribunal with valid jurisdiction in a proceeding to which PHI is a party, that
ruling does not impair the operation of, or have any other effect upon, any
other portion of this Agreement, each of which remains binding upon the parties
and should continue to be given full effect. Any invalid portion is deemed
removed from this Agreement as of the date upon which the ruling becomes final,
and is to be replaced by the closest enforceable provision.
19.5 Notices. All notices required or permitted by the terms of this
Agreement must writing and sent (a) by facsimile (or telecopier) machine
immediately confirmed by first-class mail, (b) by certified or registered mail
(return receipt requested), (c) by reputable private delivery service, or (d) by
hand delivery. All notices must be sent to the respective addresses on the first
page of this Agreement, if to PHI, marked, except as otherwise required by this
Agreement, "Attention: New Concepts Department", and if to Licensee, marked,
"Attention: Legal Compliance Officer", until PHI or Licensee (as the case may
be) gives notice, in writing, of a new address. Neither PHI nor Licensee need
send multiple notices; a single notice to the specified address is sufficient,
and if multiple addresses are specified by either party, the sending party may
send notices to any single address chosen in good faith. Notices are effective
on the day delivery is made (or, in the case of certified/registered mail,
overnight delivery service, or hand delivery, on the date delivery is first
attempted) at the specified address during normal business hours (8 a.m. to 5
p.m., Monday through Friday, except national or pertinent state holidays),
except that notices of change of address are effective 10 business days after
the date of delivery (or first attempted delivery).
19.6 Time of Essence. Time is of the essence of this Agreement and
of each provision of this Agreement.
19.7 Merger. This Agreement (together with each Schedule and the
Manual, as it exists from time to time, each of which is incorporated by
reference into this Agreement) contains the entire agreement of the parties with
respect to the subject matter discussed in this Agreement. All prior discussions
or negotiations (written or oral) are merged into this Agreement and no
representations, inducements, promises, or agreements not embodied in this
Agreement survive the execution of this Agreement. This Agreement may not be
modified or amended except (i) by issuance of a Schedule, signed by both
parties, (ii) by a modification, supplement, or revision to the Manual issued by
PHI in accordance with the terms of this Agreement, or (iii) by a written
document, signed by the party to be bound, specifically referring to this
Agreement.
The Offering Circular for Prospective Licensees (the "Offering
Circular") that was presented to Licensee by PHI before execution of this
Agreement is neither
19
<PAGE>
part of this Agreement nor part of any prior negotiations. Rather, it is an
explanatory document that is (or may be) required by law. In case of conflict
between this Agreement and the Offering Circular, this Agreement will control;
however, if there is uncertainty about the intention of provisions contained in
this Agreement, the parties may refer to the Offering Circular for evidence of
PHI's understanding of this Agreement.
20. Representations and Warranties. PHI warrants that all of the
recitals set forth above are true as they pertain to PHI, its assets, and its
business.
Licensee warrants that all of the recitals set forth above are true
as they pertain to Licensee, its assets, and its business.
IN WITNESS WHEREOF, the parties through their duly authorized
signatories have executed this Agreement this 20th day of September, 1993.
ATTEST: PIZZA HUT, INC.
/s/ Peter E. McNally
___________________________ By:_________________________
Clay G. Small, Secretary Peter E. McNally,
Vice President-Non
traditional Development
WITNESS: JUNGLE JIM'S PLAYLANDS, INC.
/s/ Lee Sandoloski
___________________________ By:_________________________
David H. Pickus, Secretary Lee Sandoloski, Chairman
20
<PAGE>
EXHIBIT A
SALES REPORT
for
PIZZA HUT LICENSEES
Licensee ____________________
Account ____________________
Pizza Hut K-Number ____________________
Period/Month ____________________
Pizza Hut Unit Sales $___________________
Royalties @ ___% $___________________
Total foodservice $___________________
sales of the food-
service business
unit of which the
Licensed Concept
is a portion
<PAGE>
EXHIBIT B
Disclosure and
Confidentiality Agreement
I, ________________________________, agree as follows:
1. My employer, ____________________________, has asked me to learn
how to make and market Pizza Hut(R) pizzas at the facilities operated by my
employer.
2. I understand that the information concerning the preparation and
sale of Pizza Hut(R) pizzas is confidential, and that my employer has entered
into an agreement with Pizza Hut, Inc., to protect the confidentiality of this
information.
3. Neither I nor any of my relatives or close friends are employees
or franchisees of Godfather's Pizza, Domino's Pizza, Little Caesar's Pizza,
Pizza Inn, Sbarro's Rocky Roccoco's Pizza, Chuck E. Cheese Pizza, Show Time
Pizza, Pizzaria Uno, or any other pizza company, except as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. I ageee not to use any of the information provided to me in the
training session except for making and selling Pizza Hut# pizzas, and I agree
not to reveal that information to anyone except other employees of my employer.
-------------------------------
(Signature)
<PAGE>
April 14, 1998
Mr. Kevin Smith
Vice President
Jungle Jim's Playlands, Inc.
60 Hickory Drive
Waltham, MA 02154
Re: Pizza Hut Master License Agreement
Dear Mr. Smith:
This Letter amends the Master License Agreement dated as of
September 20, 1993, including all Schedules to that Master License Agreement,
whether executed before or after the date of this letter (collectively, the
"MASTER LICENSE AGREEMENT"), by and between Jungle Jim's Playlands, Inc.
("LICENSEE") and Pizza Hut, Inc. ("PHI"). All bold-faced terms are used in this
Letter Agreement as they are defined in the MASTER LICENSE AGREEMENT, unless
another definition is specifically set forth in this Letter agreement. A list of
the Schedules outstanding on the date of this Letter, showing the site of the
Licensed Locations and other data is attached as Exhibit A to this letter.
For purposes of this Letter Agreement, "Franchised Locations" means
all Licensed Locations operated by Licensee that are within the exclusive
territory of a franchisee of PHI. On the date of this Letter, only the Licensed
Locations identified by Schedules 14 and 15 (as identified in Exhibit A) are
Franchised Locations. With respect to Licensed Locations developed in the
future, Licensee and PHI will sign a "Franchise Location Addendum" for all
Franchised Locations. All current and future Licensed Locations that are not
Franchised Locations are "Non-Franchised Locations" for purposes of this Letter
Agreement.
1. Notwithstanding Section 1.12 of the Master License Agreement, the term
for each current or future Non-Franchised location will be 10 years from the
Open Date.
2. Except as specifically amended by this Letter Agreement, the patties
reaffirm all provisions of the Master License Agreement.
<PAGE>
Mr. Kevin Smith
April 14, 1998
Page 2
To indicate your agreement to the modifications of the Master
License Agreement set forth in this Letter Agreement, please sign below. When
signed by both parties, this document will constitute an Amendment to the Master
License Agreement as contemplated by Section 19.7 of the Master License
Agreement.
Sincerely yours,
PIZZA HUT, INC.
By: PIZZA HUT, LTD.,
Its Agent
Michael A. Miles, Jr.
Senior Vice President
Concept Development and Franchise
Understood and Agreed:
JEEPERS! INC.
F/K/A JUNGLE JIM'S PLAYLAND, INC.
By: /s/ Carl H. Winston
---------------------------------
Title: Senior Vice President
<PAGE>
EXHIBIT A
NON-FRANCHISED LOCATIONS
<TABLE>
<CAPTION>
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
CRNT AMEND
SCHD EXP. EXP.
# LOCATION ADDRESS CITY ST OPEN DATE DATE DATE
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Jungle Jim's 11010 W. 74th Terrace Shawnee KS 09/28/93 09/27/98 09/27/03
Playland
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
2 Jungle Jim's 2726 S. Alma Schl Rd. Mesa AZ 12/21/94 12/20/99 12/20/04
Playland
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
3 Jungle Jim's 4961 West Bell Rd. Glendale AZ 12/15/94 12/14/99 12/14/04
Playland
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
4 Jeepers! @ 700 Hungerford Dr. Rockville MD 01/19/96 01/18/01 01/18/06
Rockville
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
5 Jeepers! @ 6000 Greenbelt Rd. Greenbelt MD 08/07/96 08/06/01 08/06/06
Greenbelt
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
6 Jeepers Jr. 999 Center Drive Elizabeth NJ 10/25/96 10/24/01 10/24/06
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
7 Jeepers Jr. 13035 N. Fair Lakes Fairfax VA 11/22/96 11/21/01 11/21/06
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
8 Jeepers! 4516 N. Harlem Ave. Norridge IL 07/31/97 07/31/02 07/31/07
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
9 Jeepers! 32241 Gratiot Ave. Roseville MI 08/12/97 08/11/02 08/11/02
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
10 Jeepers! 29859 Plymouth Rd. Livonia MI 10/31/97 10/30/02 10/30/07
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
11 Jeepers! 161 Washington Ave. Albany NY 11/19/97 11/18/02 11/18/07
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
12 Jeepers One Walden Galleria Buffalo NY 12/31/97 12/30/02 12/30/07
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
13 Jeepers! NY State Rt 303 West Nyack NY *
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
*anticipated opening 5/1/98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRANCHISED LOCATIONS
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
CRNT AMEND
SCHD EXP. EXP.
# LOCATION ADDRESS CITY ST OPEN DATE DATE DATE
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
14 Jeepers 6711 Richie Hwy Glen Burnie MD 04/01/98 03/31/03 N/A
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
15 Jeepers! 20070 W. 151st Street Olathe KS 03/20/98 03/19/03 N/A
- ----------- -------------------- -------------------------- ---------------- ------ ---------- ----------- ------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 5, 1998 (except as to Note 13 as to which the date is April 6, 1998) in
Amendment No. 2 to the Registration Statement (Form S-1 No. 333-50297) and
related Prospectus of Jeepers! Inc. for the registration of 2,000,000 shares
of its common stock.
Ernst & Young LLP
Boston, Massachusetts
May 18, 1998
