<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-50297
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
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. [_]
--------------
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 June 12, 1998
Prospectus
dated , 1998
2,000,000 Shares
LOGO
Common Stock
LOGO LOGO LOGO
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................................... $ $ $
- --------------------------------------------------------------------------------
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,
six 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 6,599,629 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)
------------- ---------------
<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. 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. The Company maintains general liability insurance with limits of
$2.0 million per occurrence and $2.0 million in the aggregate and additional
excess coverage of $8.0 million per occurrence and $8.0 million annually in
the aggregate (for a total of $10.0 million) and 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 6,599,629
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 4,599,629 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, 519,984 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
4,079,645 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; 4,599,629 shares issued
and outstanding, pro forma; 6,599,629
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.......... 4,599,629 69.7% $35,890,368 54.5% $ 7.80
New investors.................. 2,000,000 30.3 30,000,000 45.5% 15.00
--------- ----- ----------- -----
Total...................... 6,599,629 100.0% $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>
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.
CHART
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 15.25%. In addition, pursuant to
the facility, the Company is obligated to issue to the lender upon each
financing and in proportion to the amount being drawn, warrants to purchase
shares of Common Stock, up to an aggregate of 12,500 shares, at an exercise
price of $20.00 per share. 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, six 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) Enclosed Mall
Auburn Hills, MI
(Detroit)................ 26,840 Q4 1998 (3) Enclosed Mall
Kingston, NY.............. 15,000 Q4 1998 (3) Strip Center
Baltimore, MD............. 23,700 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
</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.
28
<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 31, 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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<PAGE>
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 and Secretary
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 and as its Secretary since May 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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<PAGE>
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 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 $100,000 (collectively, the "Named Executive Officers").
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<PAGE>
FISCAL 1997 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------------------------- ------------
NAME AND SECURITIES ALL OTHER
PRINCIPAL OTHER ANNUAL UNDERLYING COMPENSATION
POSITION SALARY ($) 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 Employee 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."
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<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)............... 1,626,096 35.0% 24.5%
Centre Partners II LLC
(2).................... 802,172 17.3% 12.1%
J.P. Morgan Investment
Corporation (3)........ 864,285 18.7% 13.1%
Mark Dickstein (4)...... 528,012 11.4% 8.0%
Dickstein & Co., L.P.
(5).................... 365,247 7.9% 5.5%
Generation Capital
Company LLC (6)........ 356,250 7.7% 5.4%
Nabil N. El-Hage (7).... 338,141 6.9% 4.9%
Kenneth J. Sanginario
(8).................... 10,000 * *
Carl H. Winston (9)..... 4,000 * *
Paul F. Balser (10)..... -- -- --
Mark E. Jennings (10)... -- -- --
Mark L. Kaufman (11).... 2,670 * *
Bruce G. Pollack (12)... -- -- --
Jonathan H. Kagan (13).. -- -- --
Directors and Executive
Officers as a group
(14)................... 354,811 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 8,218 shares of Common Stock beneficially owned 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 10,573 shares beneficially 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 13,979 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 356,250 shares of Common Stock beneficially owned by Generation
Capital Company LLC and 1,626,096 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) Includes warrants to purchase 104 shares of Common Stock exercisable
within 60 days of the date of this Prospectus. Excludes 490,936 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 1,626,096 shares of Common Stock beneficially owned by CCI and
802,172 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 802,172 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 451 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 6,599,629
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 4,599,629 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, 519,984 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 4,079,645 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 4,599,629
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 and is also obligated to issue warrants to
purchase up to an aggregate of 12,500 shares of Common Stock in connection
with, and in proportion to amounts drawn under, its $5.0 million term loan
facility.
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 4,419,129 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 4,263,472 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 TOTAL
----------------------- -------------- PAID-IN CONVERTIBLE MARKETABLE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL PREFERRED STOCK SECURITIES DEFICIT DEFICIT
---------- ----------- ------- ------ ---------- --------------- ---------- ------------- --------------
<S> <C> <C> <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) $ -- $ (9,285,011) $(12,466,695)
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) (2,031,831)
Net loss........ (2,617,588) (2,617,588)
---------- ----------- ------- ------ -------- ------------ ------ ------------- --------------
Balance at
December 31,
1995........... 12,480,821 24,662,840 165,500 1,655 118,788 (5,333,958) -- (11,902,599) (17,116,114)
Issuance of
warrants in
connection with
convertible
debentures..... 175,000 175,000
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.......... 132,255 132,255
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) (2,031,831)
Net loss........ (3,591,736) (3,591,736)
---------- ----------- ------- ------ -------- ------------ ------ ------------- --------------
Balance at
December 29,
1996........... 24,192,777 39,233,286 165,500 1,655 426,043 (7,365,789) -- (15,494,335) (22,432,426)
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 30,250
Issuance of
common stock in
December, 1997. 15,000 150 149,850 150,000
Accretion of
redeemable
convertible
preferred stock
to redemption
value.......... 3,508,775 (3,508,775) (3,508,775)
Net loss........ (4,599,905) (4,599,905)
---------- ----------- ------- ------ -------- ------------ ------ ------------- --------------
Balance at
December 28,
1997........... 26,789,912 45,490,787 180,500 1,805 606,143 (10,874,564) -- (20,094,240) (30,360,856)
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) (877,194)
Unrealized gain
on available-
for-sale
marketable
securities
(unaudited).... 9,615 9,615
Net income
(unaudited).... 146,321 146,321
---------- ----------- ------- ------ -------- ------------ ------ ------------- --------------
Balance at March
29, 1998
(unaudited).... 26,782,359 $46,317,981 180,500 $1,805 $606,143 $(11,751,758) $9,615 $(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> <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).
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.
F-16
<PAGE>
JEEPERS! INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
4,419,129 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>
[Exterior photograph of a Jeepers! Park and
photographs depicting attractions at Jeepers! Parks.]
<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
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 Form of Master Note and Security Agreement between the
Registrant and Leasing
Technologies 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>
- --------
*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. 3 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 June 12, 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. 3 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 June 12, 1998
____________________________________ Chief Executive Officer
Nabil N. El-Hage (Principal Executive
Officer)
* Chief Financial Officer June 12, 1998
____________________________________ (Principal Financial
Kenneth J. Sanginario Officer and Principal
Accounting Officer)
* Director June 12, 1998
___________________________________
Paul F. Balser
* Director June 12, 1998
____________________________________
Mark E. Jennings
* Director June 12, 1998
____________________________________
Mark L. Kaufman
* Director June 12, 1998
____________________________________
Bruce G. Pollack
* Director June 12, 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 Form of Master Note and Security Agreement between the
Registrant and Leasing Technologies 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>
- --------
*Previously filed.
<PAGE>
EXHIBIT 1.1
K&S Draft
06/10/98
2,000,000 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 options to
purchase up to an aggregate of 300,000 additional shares of Common Stock,
respectively, on the terms and for
- -----------------------------
/1/ Plus options to purchase up to an aggregate of 300,000 additional shares to
cover over-allotments.
<PAGE>
the purposes 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") promulgated 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 any
amendments thereto 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
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<PAGE>
the prospectus on file at the time the Registration Statement is or was declared
effective by the 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 clause (B) and (C) 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
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declared effective by the Commission, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceeding for that purpose has been initiated or, to the Company's
knowledge, threatened by the Commission.
(iii) The consolidated 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 consolidated financial condition of the Company as of the dates
indicated and the consolidated 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 with respect to the Company 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 disclosed 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 the business, prospects, condition
(financial or otherwise), properties or results of operations of the
Company and its subsidiaries, taken as a whole (a "Material Adverse
Effect"). None of the subsidiaries of the Company constitutes a
"significant subsidiary" within the meaning of Rule 1-02 of Regulation S-X
under the Act.
(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
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the business, prospects, condition (financial or otherwise), properties or
results of operations of the Company and its subsidiaries, taken as a
whole.
(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 could reasonably be expected to result in a Material
Adverse Effect.
(vii) Each contract, agreement, instrument, lease, license or other item
required to be disclosed in the Registration Statement or the Prospectus or
filed as an exhibit to the Registration Statement has been so described or
filed, as the case may be.
(viii) This Agreement has been duly authorized, executed and delivered by
the Company, and (assuming the due execution and delivery hereof by the
Underwriters) constitutes a valid, legal and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
federal or state securities laws or public policy relating thereto and
except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar laws affecting
the rights and remedies of creditors generally and to general principles of
equity whether in a court of law or 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, 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 be validly issued, fully paid and
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<PAGE>
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 and except with respect to any
rights that terminate on the First Closing Date, there are no preemptive
rights or other rights outstanding 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, other than rights that have been
effectively waived. 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 disclosed 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 disclosed 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. As of March 29, 1998, the Company had an
actual 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) Except as disclosed in the Prospectus, the Company and each of its
subsidiaries holds, and is operating in compliance 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, except where the failure to hold
or be in compliance could not reasonably be expected to have a Material
Adverse Effect, and all such franchises, grants, authorizations, licenses,
permits, easements, consents, certifications and orders are valid and in
full force and effect, except where the failure to hold or be in compliance
could not reasonably be expected to have a Material Adverse Effect; and the
Company and each of its subsidiaries is in compliance with all applicable
federal, state and local laws, regulations, orders and decrees, except
6
<PAGE>
where the failure to be in compliance could not reasonably be expected to
have a Material Adverse Effect.
(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"), except there the failure to be in compliance could
not reasonably be expected to have a Material Adverse Effect, 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, except there
the failure to be in compliance could not reasonably be expected to have a
Material Adverse Effect; neither the Company nor any subsidiary has
authorized, conducted or has knowledge of 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, except as could not reasonably be
expected to have a Material Adverse Effect; and there is no pending or, to
the knowledge of the Company, 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 disclosed 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 disclosed 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
disclosed 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,
7
<PAGE>
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, except for any infringement that
could not reasonably be expected to have a Material Adverse Effect, 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 obligation, agreement or condition
contained in any bond, debenture, note, indenture, loan agreement or any
other 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 property or assets
of the Company or any of its subsidiaries is subject, except for breaches
or defaults that could not reasonably be expected to have a Material
Adverse Effect.
(xv) The Company has filed all federal, state and local income and
franchise tax returns, and the Company's subsidiaries have filed all
federal, state and local income and franchise tax returns required to be
filed (except for the failure to file franchise tax returns as could not
reasonably be expected to have a Material Adverse Effect), and neither the
Company nor any of its subsidiaries is in default in the 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 (A) transactions are
executed in accordance with management's general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to assets
is
8
<PAGE>
permitted only in accordance with management's general or specific
authorization; and (D) 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 as are customary in the business in which the
Company is engaged.
(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 accordance with its terms, subject, as
to enforcement, to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws affecting the rights and
remedies of creditors generally and to general principles of equity whether
in a court of law or equity.
(b) Each Selling Stockholder, severally and not jointly, 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 (or upon conversion of the Preferred Stock (as defined in the
Prospectus) will be the record and beneficial owner of and will have), and
on the 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, and assuming that the
Underwriters acquire such shares without notice of any adverse claim (as
such term is defined in Section 8-102 of the Uniform Commercial Code in
effect in the state of New York), 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
disclosed in the Registration Statement and Prospectus.
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<PAGE>
(ii) Such Selling Stockholder has duly authorized, executed and
delivered an irrevocable power of attorney and custody agreement (the
"Custody Agreement") appointing Nabil N. El-Hage and Kenneth J. Sanginario
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 American Stock Transfer and Trust
Company, 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 (or will, upon conversion of the Preferred Stock, represent)
validly issued, 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.
(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 or public policy relating thereto and except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws affecting the rights
and remedies of creditors generally and to general principles of equity
whether in a court of law or 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 on the part of such Selling Stockholder for the execution,
delivery and performance of this Agreement and the Custody Agreement or for
the consummation by such Selling Stockholder 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
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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) The sale by such Selling Stockholder of the Option Shares pursuant
hereto is not prompted by any adverse information concerning the Company
that is not disclosed in the Registration Statement or the Prospectus.
(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 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 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 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, will be made available for
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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 options 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 options,
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 options are exercised, the obligation of each
Underwriter shall be to purchase from the Selling Stockholders granting options
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
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<PAGE>
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 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 in connection with the
distribution of the Securities by the Underwriters pursuant to this
Agreement; 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.
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(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.
(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 three 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.
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(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, (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 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
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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, provided, however, that
the Company may (i) issue shares upon the exercise of options and warrants
granted prior to the date of the Prospectus provided such options and
warrants are disclosed in the Prospectus, (ii) grant options under the
Company's 1998 Incentive Capital Accumulation Plan provided such options
are not exercisable during the 180-day period following the date of the
Prospectus, (iii) issue shares of Common Stock upon the conversion of the
Preferred Stock and (iv) issue options or warrants to landlords in
connection with the execution of a lease, provided that such options or
warrants are not exercisable during the 180-day period following the date
of the Prospectus.
(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 (other than Susan Sandoloski, Lee Sandoloski,
Stanley Rosenberg, David Pickus, Yosi Amram, Thomas Cuthbert, Daniel J.
Corrigan and Diana L. Corrigan, Daine Rauscher Inc. Custodian for Daniel J.
Corrigan IRA and HPB Associates, L.P.), 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, beneficially owned (within the meaning of
Rule 13d-3 of the Exchange Act) by him prior to the date of the Prospectus
for a period of 180 days after the date of the Prospectus, other than such
an offer, sale, contract to sell, pledge or disposition (A) not subject to
the registration requirements of the Act, (i) to a transferee who is a
stockholder of the Company on the date hereof or who is an affiliate of the
transferring stockholder, (ii) representing a distribution in kind to any
direct or indirect equity owner of the transferring stockholder, (iii)
constituting a gift or (iv) pursuant to the laws of testamentary or
intestate descent, provided that the recipient of such securities, in each
case, agrees to be bound by the foregoing restrictions or (B) pursuant to a
registered offering under the Act.
(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
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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 Underwriters 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) 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 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.
(iii) 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
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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, beneficially owned (within the meaning of Rule 13d-3 of the
Exchange Act) by him prior to the date of the Prospectus for a period of
180 days after the date of the Prospectus, other than such an offer, sale,
contract to sell, pledge or disposition (A) not subject to the registration
requirements of the Act, (i) to a transferee who is a stockholder of the
Company on the date hereof or who is an affiliate of the transferring
stockholder, (ii) representing a distribution in kind to any direct or
indirect equity owner of the transferring stockholder, (iii) constituting a
gift or (iv) pursuant to the laws of testamentary or intestate descent,
provided that the recipient of such securities, in each case, agrees to be
bound by the foregoing restrictions or (B) pursuant to a registered
offering under the Act.
(iv) 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.
(v) Such Selling Stockholder shall immediately notify you if any event
occurs, or of any change in information relating to such Selling
Stockholder or any new information relating to such Selling Stockholder,
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:
(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.
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(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 all requisite corporate power and authority to own, lease and operate
its properties and carry on its business as currently being conducted and
is duly qualified to transact business and is in good standing as a foreign
corporation in each jurisdiction in which the character of its activities
requires such qualification except where the failure to so qualify would
not have a material adverse effect on the business, operations or financial
condition of the Company and its subsidiaries considered as a whole.
(ii) The capital stock of the Company conforms as to legal matters in all
material respects 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, with no
personal liability attaching to the ownership thereof. The Firm Shares to
be issued and sold by the Company hereunder have been duly authorized and,
when issued, delivered and paid for as contemplated by this Agreement, will
be validly
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issued, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof. To 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 other than rights that have been effectively waived.
(iii) All of the issued and outstanding shares of capital stock of each
of the Company's subsidiaries have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge,
except as otherwise disclosed in the Prospectus, the Company owns of record
and beneficially, free and clear of all security interests, claims, liens
and other encumbrances, all of the issued and outstanding shares of such
capital stock.
(iv) To such counsel's knowledge and except as disclosed in the
Registration Statement and Prospectus, there are no outstanding securities
of the Company convertible into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company or any of its
subsidiaries, options, warrants, calls, subscriptions, rights, commitments
or any other agreements of any character obligating the Company or any of
its subsidiaries to issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or subscribe for any
shares of such stock, and there are no agreements or understandings with
respect to the voting, sale or transfer of any shares of capital stock of
the Company to which the Company is a party.
(v) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceeding under the Act
for that purpose has been instituted or, to the knowledge of such counsel,
threatened by the Commission.
(vi) To such counsel's knowledge, there are no agreements, contracts,
leases or other agreements to which the Company is a party which are
required by the Act to be disclosed or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not disclosed or referred to therein or filed as
required. Except as disclosed in the Prospectus, to such counsel's
knowledge, there are no legal or governmental proceedings pending or
threatened against the Company or any of its subsidiaries of a character
required to be disclosed in the Registration Statement or the Prospectus by
the Act or the Rules and Regulations which, if adversely determined, would
have a material adverse effect on the business, operations or financial
condition of the Company and its subsidiaries considered as a whole.
(vii) The Company has all requisite corporate power and authority to
enter into this Agreement, and this Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due authorization,
execution and delivery by the Underwriters and the Selling Stockholders)
constitutes a valid, legal and binding obligation
20
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of the Company. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the issuance and
delivery of the Firm Shares will not conflict with, constitute a default
under or violate (i) any of the terms, conditions or provisions of the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries, (ii) any of the provisions of any document, agreement or
other instrument to which the Company or any of its subsidiaries is a party
or by which it is bound which is filed as an exhibit to the Registration
Statement or of which such counsel is aware, (iii) any New York, Delaware
corporate or federal statute, law, rule or regulation (other than state
securities or blue sky laws, as to which such counsel need not express any
opinion) applicable to the Company or any of its subsidiaries, or (iv) any
order or decree of any court or governmental authority known to such
counsel binding on the Company or any of its subsidiaries of which such
counsel is aware. No consent, approval, authorization or other action by or
filing with any New York, Delaware corporate or federal governmental
authority is required in connection with the execution, delivery and
performance by the Company of this Agreement or the consummation by the
Company of the transactions contemplated hereby, except such as has been
obtained under the Act or as may be required under state securities or blue
sky laws (as to which such counsel need not express any opinion).
(viii) To such counsel's knowledge, no default exists in the performance
or observance of any material obligation, agreement, covenant or condition
contained in the Fourth Amended and Restated Stockholders Agreement, dated
May 18, 1998, among the Company and its stockholders.
(ix) The Registration Statement and the Prospectus (except for the
financial statements and the notes thereto and the other financial,
statistical and accounting data included in the Registration Statement or
the Prospectus, as to which such counsel need not express any opinion),
comply as to form in all material respects with the requirements of the Act
and the Rules and Regulations.
(x) The statements (1) in the Prospectus under the captions "Certain
Relationships and Related Transactions" and "Description of Capital Stock"
and (2) in the Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal matters or
documents (or provisions thereof) referred to therein, fairly present the
information required to be disclosed with respect to such legal matters and
documents (or provisions thereof) and fairly summarize in all material
respects such legal matters and documents (or provisions thereof) required
to be disclosed.
In addition, such counsel shall state that such counsel has participated in
conferences with directors, officers and other representatives of the Company,
the Selling Stockholders, the Representatives, Underwriters' Counsel and the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and Prospectus and related matters
were discussed, and, although such counsel has not independently verified and is
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not passing upon and assumes no responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to such counsel's attention which leads such
counsel to believe that, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the Closing Date, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements and related notes, including supporting schedules and other
financial, statistical and accounting data included therein as to which such
counsel expresses no belief) contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or the Prospectus and any
amendment or supplement thereto (except as aforesaid), as of its issue date and
at the Closing Date contained any untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinion such counsel may rely (i) as to matters of law
other than New York law, Delaware corporate law 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.
(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of respective counsel
for the Selling Stockholders, dated such Closing Date and addressed to you, to
the effect that:
(i) Such Selling Stockholder is the sole record owner of the Option
Shares to be sold by such Selling Stockholder. Upon transfer, assignment
and delivery of and payment for the Option Shares as contemplated herein,
the Underwriters will receive good and marketable title to the Option
Shares purchased by it from such Selling Stockholder, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest.
In rendering this opinion, such counsel may assume that the Underwriters
are acquiring the Option Shares being purchased from such Selling
Stockholder without notice of any adverse claim as such phrase is defined
in Section 8-105 of the Uniform Commercial Code in effect in the State of
New York.
(ii) Such Selling Stockholder has the power and authority to enter into
the Custody Agreement and this Agreement and to perform such Selling
Stockholder's obligations thereunder and hereunder; and this Agreement and
the Custody Agreements 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 in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general
principles of equity, including
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principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity), and except that rights to indemnification and contribution
thereunder may be limited by federal or state securities law or public
policy relating thereto.
(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
conflict with, violate or constitute a default under (i) any of the terms,
conditions or provisions of the certificate of incorporation or by-laws of
any Selling Stockholder, (ii) any of the terms, conditions or provisions of
any document, agreement or other instrument to which any such Selling
Stockholder is a party or by which it is bound of which such counsel is
aware, (iii) any New York, Delaware corporate or federal law or regulation
(other than federal and state securities or blue sky laws, as to which we
express no opinion), or (iv) any order or decree of any court or
governmental authority binding on any such Selling Stockholder of which
such counsel is aware; no consent, approval, authorization or other action
by or filing with any New York, Delaware corporate or federal governmental
authority is required in connection with the execution and delivery by any
such Selling Stockholder of this Agreement and the Custody Agreement or the
consummation by the Company of the transactions contemplated hereby and
thereby, except such as has been obtained under the Act or as may be
required under state securities or blue sky laws (as to which such counsel
need not express any opinion).
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.
(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 respect to matters involving changes or developments since the
respective dates as of which
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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 to purchase the capital stock, of
the Company or any of its subsidiaries, or any material
24
<PAGE>
adverse change or any development involving a prospective material adverse
change (whether or not arising in the ordinary course of business), in the
business, prospects, condition (financial or otherwise), properties 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 of their knowledge,
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 such Selling Stockholder
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 approved for listing 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 term sheet within the meaning of Rule 434 of
the Rules and Regulations), or arise out of or are
25
<PAGE>
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;
provided, further, that, to the extent any such losses, claims, damages or
liabilities to which such Underwriter may become subject arise under Section 12
of the Act, the foregoing indemnity agreement with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting such losses, claims, damages or liabilities purchased
Securities, if a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Securities to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses, claims,
damages or liabilities arising under Section 12 of the Act; 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.
26
<PAGE>
(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 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. The indemnified party
shall have the right to employ counsel (consisting of one law firm and any
necessary local counsel) of its choice in any such action, and the fees and
expenses of such 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) if (i) the employment of counsel
by such indemnified party has been authorized in writing by the indemnifying
party or (ii) the named parties to such action or proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party, counsel to the indemnified party shall have reasonably concluded that
and, in the reasonable opinion of the indemnified party, representation of both
parties by the same counsel would be inappropriate, due to an actual or
potential conflict of interest between them (in which
27
<PAGE>
case the indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party) or (iii) the indemnifying party
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof. 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 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
28
<PAGE>
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 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
29
<PAGE>
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.
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)
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 judgement,
30
<PAGE>
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) 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 facsimile, 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 facsimile, confirmed by letter.
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 or by facsimile with written
confirmation of transmission 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, to Jeepers! Inc., 60 Hickory Drive, Waltham, MA 02154, Attention: Nabil
N. El-Hage; if to any of the Selling Stockholders, at the address of the
Attorneys-
31
<PAGE>
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 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.
15. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[Signature Page Follows]
32
<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
33
<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 300,000 Option Shares, to
the extent the options described in Section 3(b) of the Agreement are
exercised, in the proportions and in the manner described in the Agreement.
<PAGE>
EXHIBIT 4.1
FORM COMMON STOCK CERTIFICATE
NUMBER SHARES
J [LOGO]
Jeepers! Inc.
COMMON STOCK Common Stock SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 472315 10 0
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.01 EACH OF
THE COMMON STOCK OF
JEEPERS! INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
SEAL
/s/ Kenneth J. Sanginario /s/ Nabil N. El-Hage
CHIEF FINANCIAL OFFICER AND SECRETARY PRESIDENT, CHIEF EXECUTIVE
OFFICER AND CHAIRMAN
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
Reverse Side of Stock Certificate
The Corporation will furnish without charge to each stockholder who so
requests a copy of the provisions setting forth the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof which the Corporation is authorized to
issue and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
(Cust) (Minor)
TEN ENT - as tenants by the
entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer
unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE)
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE)
Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney
to transfer the said shares on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM) PURSUANT TO S.E.C. RULE 17AD-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE.
IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE
A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
EXHIBIT 5.1
[WEIL, GOTSHAL & MANGES LLP LETTERHEAD]
June 12, 1998
Jeepers! Inc.
60 Hickory Drive
Waltham, Massachusetts 02154
Ladies and Gentlemen:
We have acted as counsel to Jeepers! Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing by the Company with
the Securities and Exchange Commission of the Registration Statement on Form S-1
(Registration No. 333-50297) (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the proposed public
offering (the "Offering") of (i) 2,000,000 shares of common stock, par value
$0.01 per share, of the Company (the "Shares") to be issued by the Company and
(ii) up to 300,000 Shares to be sold by certain stockholders of the Company (the
"Selling Stockholders") upon exercise of the Underwriters' over-allotment option
(the "Over-Allotment Option"). Capitalized terms defined in the Registration
Statement and used but not otherwise defined herein are used herein as so
defined.
In so acting, we have reviewed the Registration Statement, including
the Prospectus contained therein, and the Certificate of Incorporation and the
Bylaws of the Company. In addition, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such inquiries of such officers and representatives,
as we have deemed relevant and necessary as a basis for the opinions hereinafter
set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the
<PAGE>
Jeepers! Inc.
June 12, 1998
Page 2
conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies and the authenticity of the originals of such
latter documents. As to all questions of fact material to this opinion that
have not been independently established, we have relied upon certificates or
comparable documents of officers and representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Shares to be sold by the Company have been duly authorized
and, when issued and delivered against payment therefor in accordance with the
terms of the Purchase Agreement, will be validly issued, fully paid and
nonassessable.
2. The Shares to be sold by the Selling Stockholders upon exercise of
the Over-Allotment Option have been duly authorized and, upon the automatic
conversion of the Existing Preferred Stock held by the Selling Stockholders into
Shares immediately prior to the consummation of the Offering in accordance with
the Certificate of Incorporation, will be validly issued, fully paid and
nonassessable.
The opinions expressed herein are limited to the corporate laws of the
State of Delaware and the federal laws of the United States, and we express no
opinion as to the effect on the matters covered by this letter of the laws of
any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus, without admitting that we are "experts" under the
Securities Act or the rules and regulations promulgated thereunder with respect
to any part of the Registration Statement or Prospectus contained therein.
Very truly yours,
/s/ Weil, Gotshal & Manges LLP
<PAGE>
EXHIBIT 10.7
MASTER NOTE AND SECURITY AGREEMENT
----------------------------------
Wilton, Connecticut
Date: May 15, 1998
1. Master Agreement.
----------------
(a) This Agreement sets forth the basic terms and conditions upon which
LEASING TECHNOLOGIES INTERNATIONAL, INC. (together with its successors and
assigns, collectively, the "Lender"), shall, lend to JEEPERS! INC. a
------
Corporation organized under the laws of the State of Delaware (the "Borrower"),
--------
and the Borrower shall borrow from the Lender, funds to purchase (or refinance
the purchase of) the items of "Equipment" specified (and as defined in) one or
---------
more loan schedules hereto to be entered into from time to time (each, a "Loan
----
Schedule"). Each Loan Schedule shall reference this Master Note and Security
- --------
Agreement (this "Agreement") and shall be deemed to incorporate therein all of
---------
the terms and conditions hereof, unless and to the extent any provisions hereof
are expressly excluded or modified therein, and shall contain such additional
terms as the Lender and the Borrower shall, in their sole discretion, agree
upon. Each Loan Schedule, together with the terms and conditions of this
Agreement so incorporated therein, shall constitute a separate promissory note
that evidences a separate loan with respect to the Equipment specified in such
Loan Schedule. Each Loan Schedule may be assigned by the Lender and/or
reassigned by any assignee(s) thereof separate and apart from any other Loan
Schedule(s) hereunder. With respect to each Loan Schedule, the Lender or its
respective assignee(s) shall have all of the rights of the "Lender" thereunder
and with respect to the Equipment and other Collateral covered thereby, and such
rights shall be separately exercisable by the Lender or such assignee(s), as the
case may be, collectively with all of the other Loan Schedules then held by the
Lender or such assignee(s), but exclusively and independently of the rights of
the Lender or such assignee(s) with respect to any other Loan Schedule(s) not
then held by the Lender or such assignee(s).
(b) The term "Loan" as used in this Agreement shall mean any and all of the
----
liabilities and obligations of the Borrower under a loan evidenced by a
particular Loan Schedule, which is entered into by the Lender and the Borrower
under this Agreement with respect to the Equipment specified in such Loan
Schedule. Capitalized terms used in this Agreement and not otherwise defined
shall have the meanings ascribed to them in the relevant Loan Schedule.
2. Terms of Payment.
-----------------
(a) FOR VALUE RECEIVED, the Borrower hereby promises to pay to the order of
the Lender, the "Principal Sum" set forth in each Loan Schedule, in the "Total
------------- -----
Number of Monthly Installments" set forth in such Loan Schedule, consisting of
- ------------------------------
the "Number of Consecutive Monthly Installments" of principal and interest set
------------------------------------------
forth in such Loan Schedule, each payable in advance, and the "Final Payment" of
-------------
principal and interest set forth in such Loan Schedule, together with all other
sums then owing thereunder, payable on the "Final Payment Date" set forth in
------------------
such Loan Schedule; the first such consecutive monthly installment shall be in
the "First Monthly Installment Amount" set forth in such Loan Schedule and shall
--------------------------------
be due and payable on the "First Monthly Installment Date" set forth in such
------------------------------
Loan Schedule; the remaining consecutive monthly installments shall each be in
the "Remaining Consecutive Monthly Installment Amount" set forth in such Loan
------------------------------------------------
Schedule and shall thereafter be due and payable on the same day of each month
in each year as such First Monthly Installment Date and ending on the "Last
----
Consecutive Monthly Installment Date" set forth in such Loan Schedule; and the
- ------------------------------------
Final Payment and shall be due and payable on the Final Payment Date, except as
otherwise expressly provided in Sections 17(b), 17(c), 17(d) or 18(b) hereof.
-------------------------------------
(b) The installments described in Sections 2(a) and 17(a) hereof include
-----------------------
interest on the unpaid principal amount of the relevant Loan from time to time
outstanding, computed on the basis of a 360-day year at the "Annual Interest
---------------
Rate" set forth in the relevant Loan Schedule.
- ----
<PAGE>
(c) The proceeds of the Loan evidenced by each Loan Schedule shall be used
solely to purchase (or refinance the purchase of) the Equipment described in
such Loan Schedule.
(d) The Borrower shall not have the right to prepay any Loan, in whole or
in part, at any time; provided however, that, notwithstanding the foregoing, the
Borrower may prepay any Loan in whole, but not in part, at any time after 13
months following the First Monthly Installment Date of the relevant Loan
Schedule (the "Loan Date"), upon not less than sixty (60) days' prior written
notice to Lender, provided, further, however, that on the date of such
prepayment (the "Prepayment Date") (a) no Default or Event of Default shall then
be continuing, and (b) the Borrower shall pay to the Lender an amount equal to
the sum of (i) all unpaid interest accrued on such Loan through the Prepayment
Date, (ii) the present value of all unpaid Remaining Consecutive Monthly
Installment Amounts including the Final Payment, calculated by discounting at
the prime rate (as stated by Citibank, N.A. in effect at the time such
prepayment notice is received by Lender) plus one percent, compounded monthly,
(iii) all other amounts then owing to the Lender hereunder with respect to such
Loan, and (iv) a prepayment premium calculated as follows: (A) if the
Prepayment Date is at least 13 months but not more than 23 months after the
First Monthly Installment Date, an amount equal to 3% of the outstanding
principal balance of such Loan on the Prepayment Date (the "Outstanding
Balance"), (B) if the Prepayment Date is more than 23 months but not more than
36 months after the First Monthly Installment Date, an amount equal to 2% of the
then Outstanding Balance, and (C) if the Prepayment Date is more than 36 months
after the First Monthly Installment Date, an amount equal to 1% of the then
Outstanding Balance.
(e) Whenever any installment or other amount payable to the Lender by the
Borrower hereunder is not paid when due, the Borrower agrees to pay to the
Lender, on demand, as liquidated damages and not as a penalty: (i) with respect
to overdue amounts, a late charge calculated at the rate of one and a half (1
1/2) percent a month on such amounts overdue for more than ten (10) days, or the
maximum amount permitted under applicable law, whichever is less, from the date
such payment is due until the date such payment is made in full to the Lender;
and (ii) in addition, with respect to overdue installment payments only, an
administrative fee equal to five cents ($.05) for each one dollar ($1.00) of
such delayed installment payment overdue for more than twenty (20) days, or the
maximum amount permitted under applicable law, whichever is less. The Borrower
agrees to also reimburse the Lender on demand for any and all reasonable costs
and expenses (including the Lender's reasonable attorneys' fees and
disbursements) arising out of or caused by this Agreement or any breach by the
Borrower hereunder, including (without limitation) any enforcement by the Lender
of its rights and remedies hereunder.
(f) All payments by the Borrower on account of principal, interest or fees
hereunder shall be made in lawful money of the United States of America, in
immediately available funds.
3. Grant of Security Interest. The Borrower hereby pledges, assigns and
--------------------------
grants to the Lender a continuing first priority security interest in and lien
on the following properties, assets and rights (collectively, the "Collateral"):
----------
(a) the Equipment as set forth (and defined) in each Loan Schedule hereunder,
together with all warranties thereon and all additions, improvements,
accessions, replacements and substitutions thereto and therefor, whether now
owned or hereafter acquired, and all proceeds thereof; (b) the proceeds of any
insurance payable to the Borrower with respect to the Equipment; and (c) all of
the "Other Personal Property," if any, described in any Loan Schedule hereunder
-----------------------
and all proceeds thereof. In addition, all other property of the Borrower now
or hereafter pledged to or held by the Lender to secure any Obligations (as
hereinafter defined), whether under this Agreement, any Loan Schedule or
otherwise, and all property now or hereafter leased by the Lender to the
Borrower, shall also serve as collateral security for the full payment and
performance of the Obligations.
4. Obligations Secured. The Collateral hereunder constitutes and will
-------------------
constitute continuing security for the full payment, performance and observance
by the Borrower of the following obligations (collectively, the "Obligations"):
-----------
-2-
<PAGE>
(a) "Liabilities," which shall mean all of the indebtedness evidenced
-----------
by this Agreement and each Loan Schedule hereunder together with any Lease
Agreement(s) between Lender and Borrower (and any Schedules thereunder), and all
liabilities and obligations of any kind of the Borrower to the Lender arising
out of or relating thereto, whether (i) for the Lender's own account, (ii)
acquired directly or indirectly by the Lender from the Borrower, (iii) absolute
or contingent, joint or several, secured or unsecured, liquidated or
unliquidated, due or not due, contractual or tortious, now existing or hereafter
arising, or (iv) incurred by the Borrower as principal, surety, endorser,
guarantor, borrower, lessee or otherwise, and including (without limitation) all
reasonable expenses and attorneys' fees incurred by the Lender in connection
with any such indebtedness, liabilities or obligations or any of the Collateral
(including any sale or other disposition of the Collateral);
(b) the prompt payment, when due, of all present and future
obligations and indebtedness of the Borrower to the Lender under this Agreement
and/or any Loan Schedule, as the same may hereafter be amended or modified, and
under any other agreement or instrument executed by the Borrower in favor of the
Lender, whether direct or indirect, absolute or contingent; and
(c) the strict performance and observance by the Borrower of all
warranties, covenants and agreements contained in this Agreement or any Loan
Schedule and any instrument or other agreement delivered by the Borrower to the
Lender.
5. Borrower Selected Equipment; Warranty Disclaimer. THE BORROWER
------------------------------------------------ ------------
REPRESENTS AND ACKNOWLEDGES THAT IT HAS SELECTED BOTH THE EQUIPMENT AND THE
- ---------------------------------------------------------------------------
VENDOR OF THE EQUIPMENT (THE "VENDOR") AND THAT THE EQUIPMENT SUITS THE
- -----------------------------------------------------------------------
BORROWER'S PARTICULAR NEEDS. THE LENDER MAKES NO REPRESENTATIONS OR WARRANTIES
- -------------------------------------------------------------------------------
OF ANY KIND OR NATURE DIRECTLY OR INDIRECTLY, EXPRESS OR IMPLIED, AS TO THE
- ---------------------------------------------------------------------------
EQUIPMENT OR ANY OTHER MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, TITLE TO
- --------------------------------------------------------------------------------
THE EQUIPMENT OR THE EQUIPMENT'S CONDITION, THE SUITABILITY OF THE EQUIPMENT,
- -----------------------------------------------------------------------------
ITS DURABILITY, CAPACITY, OPERATION, PERFORMANCE, DESIGN, MATERIALS, WORKMANSHIP
- --------------------------------------------------------------------------------
AND/OR QUALITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. THE
- ---------------------------------------------------------------------
BORROWER AGREES TO LOOK SOLELY TO THE MANUFACTURER, VENDOR OR CARRIER OF THE
EQUIPMENT FOR ANY CLAIM ARISING FROM ANY DEFECT, BREACH OF WARRANTY, FAILURE OR
DELAY IN DELIVERY, MISDELIVERY OR INABILITY TO USE THE EQUIPMENT FOR ANY REASON
WHATSOEVER, AND THE BORROWER'S OBLIGATIONS TO THE LENDER HEREUNDER SHALL NOT IN
ANY MANNER BE AFFECTED THEREBY. THE LENDER SHALL NOT BE LIABLE FOR ANY LOSS,
DAMAGE, INJURY OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY BY ANY ITEM OF
EQUIPMENT, THE USE, MAINTENANCE, REPAIR, DEFECT OR SERVICING THEREOF, BY ANY
DELAY OR FAILURE TO PROVIDE SAME, BY ANY INTERRUPTION OF SERVICE OR LOSS OF
SERVICE OR LOSS OF USE, OR FAILURE TO PROVIDE SAME, OR FOR ANY LOSS OF BUSINESS
HOWEVER CAUSED. NO REPRESENTATION OR WARRANTY AS TO THE EQUIPMENT OR ANY OTHER
MATTER BY THE VENDOR OF THE EQUIPMENT SHALL BE BINDING ON THE LENDER, NOR SHALL
THE BREACH OF SUCH RELIEVE THE BORROWER OF, OR IN ANY WAY AFFECT, ANY OF THE
BORROWER'S OBLIGATIONS TO THE LENDER AS SET FORTH HEREIN.
6. Representations and Warranties. The Borrower represents, warrants,
-------------------------------
covenants and agrees that:
(a) If the Borrower is a corporation or a partnership, it is duly
organized, existing and in good standing under the laws of its state of
incorporation, is duly qualified and in good standing under the laws of each
jurisdiction where the character of its properties or the transaction of its
business makes such qualification necessary and has full power to own its
properties and assets and to carry on its business as now being conducted.
-3-
<PAGE>
(b) The Borrower has full power and authority to execute, deliver and
perform this Agreement and each Loan Schedule, which has been duly authorized by
all necessary and proper corporate or partnership action. No consent of
stockholders, if any, or of any public authority is required as a condition to
the validity of this Agreement and each Loan Schedule. The making and
performance by the Borrower of this Agreement and each Loan Schedule will not
violate any provision of law and will not conflict with or result in a breach of
any order, writ, injunction or decree of any court or government
instrumentality, or its charter or by-laws or partnership agreement, if any, or
create a default under any agreement, note or indenture to which it is a party
or by which it is bound or to which any of its property is subject, or result in
the imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of its properties or assets, except for the liens created under this
Agreement or any Loan Schedule.
(c) This Agreement and each Loan Schedule have been duly executed and
delivered, and constitutes the valid and legally binding obligation of the
Borrower, enforceable in accordance with its terms.
(d) The Borrower has good title to and is the lawful owner of the
Collateral free from all claims, liens, encumbrances, charges or security
interests whatsoever, except for the liens granted by this Note. For purposes
of this Agreement, Permitted Liens shall mean the liens granted by this
Agreement or any Loan Schedule.
(e) The Collateral shall not be moved from the location(s) set forth
in the relevant Loan Schedule hereto without the prior written consent of
Lender, which consent shall not be unreasonably withheld.
(f) The provisions of this Agreement and each Loan Schedule create a
valid and perfected first priority security interest in the Collateral,
enforceable in accordance with their respective terms, subject to no prior or
equal lien, charge, encumbrance or security interest, upon the filing of
appropriate Uniform Commercial Code financing statements or equivalent
instruments, and notation and issuance of appropriate certificates of title,
with respect to the Collateral. Uniform Commercial Code financing statements or
equivalent instruments and certificates of title with the Lender's security
interest duly noted thereon, with respect to the Collateral in a form provided
by Lender, have been executed by the Borrower and delivered to the Lender for
filing at the appropriate offices.
(g) There are no judgments outstanding against the Borrower and there
are no actions or proceedings before any court or administrative agency pending
or, to the knowledge of the Borrower, threatened against the Borrower which, if
determined adversely to the Borrower, would affect the Collateral.
(h) The Borrower's principal office and place of business where it
maintains its records concerning the Collateral is at its address stated on the
relevant Loan Schedule. The Borrower has no other office or place of business,
except as indicated on the relevant Loan Schedule.
7. Insurance. The Borrower shall keep and maintain the Equipment and
----------
other Collateral insured with all risk insurance, for not less than the
replacement cost thereof. The Borrower shall also provide, for the benefit of
the Lender, public liability insurance (both personal injury and property
damage) covering the Equipment and other Collateral. The amount of any such
insurance shall be sufficient so that neither the Borrower nor the Lender will
be considered a co-insurer. Such insurance shall be in form, issued by
insurance companies and in amounts reasonably satisfactory to the Lender. Each
insurer shall agree, by endorsement upon the policy or policies issued by it or
by independent instrument furnished to the Lender, that such insurer give at
least ten (10) days' prior written notice of the effective date of any
alteration or cancellation of such policy and that coverage under such policy
shall not be affected by any default, misrepresentation or other breach by the
Borrower or the Lender under this Agreement or any Loan Schedule or such policy.
The Lender shall have the option but not the obligation, to pay the premiums to
continue any such canceled insurance policy in effect or to obtain like
coverage. The Borrower agrees that any payment made by the Lender pursuant to
the foregoing authorization (and
-4-
<PAGE>
interest thereon at the rate of one and a half (1 1/2) percent a month, or if
such rate shall exceed the maximum rate allowed by law, then, at such maximum
rate from the date of such payment) shall become part of the Obligations and be
secured by the Collateral. The proceeds of all insurance payable as a result of
loss or damage to any item of the Equipment, up to the amount of the Obligations
pertaining to such Equipment may be applied by Lender to satisfy such
Obligations. The Borrower hereby irrevocably appoints the Lender as the
Borrower's attorney-in-fact to make claim for, receive payments of and execute
and endorse all documents, checks or drafts received in payment for loss or
damage under any such insurance policy. In the event that the amount of such
payments exceeds the amount of the Obligations pertaining to such Equipment or
this Agreement, Lender shall remit such excess amount to Borrower within ten
(10) business days after receipt thereof. In all events, the Borrower shall be
liable for any loss, damage, expense or costs suffered or incurred by the Lender
relating to or in any manner pertaining to this Agreement or any Loan Schedule,
the Collateral or the use or operation of the Collateral, provided that Borrower
shall not be liable for any loss, damage, expense or cost solely caused by
Lender's gross negligence or willful misconduct.
8. Maintenance; Loss of Collateral. The Borrower acknowledges that, in
-------------------------------
making its decision to extend the credit evidenced by this Agreement and each
Loan Schedule to the Borrower, the Lender is depending heavily upon the
realizable value of the Collateral at all times during the term of this
Agreement and each Loan Schedule, and the Borrower hereby represents and
warrants to the Lender that the purchase price paid by the Borrower for the
Collateral represents the retail fair market value thereof. Accordingly, the
Borrower agrees at all times to maintain the Collateral in good operating
condition, repair and appearance, and protect the same from deterioration, other
than normal wear and tear, keep the Collateral in its exclusive possession and
control at the location specified in the relevant Loan Schedule and use the
Collateral only in the regular course of its business within its normal
capacity, without abuse and in a manner contemplated by the Vendor, shall comply
with all laws, ordinances, regulations, requirements and rules with respect to
the use, maintenance and operation of the Collateral, shall not make any
modification, alteration or addition to the Collateral (other than normal
operating accessories or controls which, when added to the Collateral, shall not
impair the operation or reduce the value of the Collateral) without the prior
written consent of the Lender, and all modifications, alterations, accessories,
parts, replacements and additions to the Collateral which affect the value or
operation of the Collateral shall become part of the Collateral and be included
within the term "Collateral" as used herein. For the purpose of assuring the
Lender that the Collateral will be properly serviced, the Borrower agrees, in
the event that the Lender so requests, to cause the Collateral to be maintained
by the Vendor (or another maintenance organization approved by the Lender in
writing) pursuant to Vendor's standard preventive maintenance contract or
comparable maintenance contract, in each case covering at least prime shift
maintenance of each item of Collateral. The Borrower hereby assumes the entire
risk of loss, damage or destruction of the Collateral from any and every cause
whatsoever. The Borrower agrees that any such loss, damage or destruction of
the Collateral shall not relieve the Borrower of its obligations hereunder,
which obligations shall remain absolute, unconditional and not subject to any
claim, defense, set-off, counterclaim, reduction or abatement of any kind
whatsoever; provided, however, that the foregoing shall not limit the right of
the Borrower to bring a separate claim against Lender for breach of this
Agreement or any other reason. In the event of any loss, damage or destruction
of any item of Collateral, the Borrower shall give the Lender immediate written
notice thereof and shall, at the Borrower's sole expense (except to the extent
of any proceeds of insurance maintained by the Borrower which shall have been
received by the Borrower as a result of such loss, damage or destruction) and at
the Lender's sole option, either (a) repair such item, returning it to its
previous condition, unless damaged beyond repair, or (b) replace such item with
a like item acceptable to the Lender, in good condition and of equivalent value,
which shall be included within the term "Collateral" as used herein.
9. Books and Records. The Borrower shall give the Lender full and free
-----------------
access to the Collateral at reasonable times and with reasonable notice and to
all books, correspondence and records of the Borrower with respect thereto,
permit the Lender and its representatives to examine the same and to make copies
and extracts therefrom, all at the Borrower's expense. Notice shall not be
required at such time Borrower is in default under this Agreement.
-5-
<PAGE>
10. Taxes and Encumbrances. The Borrower shall promptly pay and
----------------------
discharge or cause to be paid and discharged all its obligations and
liabilities, including (without limitation) all taxes, assessments and
governmental charges upon it and its income or properties, when due unless and
to the extent only that the same shall be contested in good faith and by
appropriate proceedings and then only to the extent that a bond is filed in
cases where the filing of a bond is necessary to avoid the creation of a lien
against any of the Collateral or any of its other assets. Other than Permitted
Liens, the Borrower covenants and agrees to keep the Collateral free and clear
of all levies, liens, claims, security interests and encumbrances (including,
without limitation, any lease or sublease thereof) and to promptly pay all
charges, taxes and fees which may now or hereafter be imposed upon the
ownership, sale, purchase, possession or use of the Collateral. In addition,
the Borrower shall timely file all tax returns required in connection with the
use, operation or possession of the Collateral, and shall promptly furnish
copies thereof to the Lender.
11. Corporate Existence. If the Borrower is a corporation or partnership,
-------------------
the Borrower shall do, or cause to be done, all things necessary to preserve and
keep in full force and effect its corporate or partnership existence and all
franchises, rights and privileges necessary for the proper conduct of its
business, and continue to engage in the business of the same type as now
conducted by it.
12. Notice of Events of Default. The Borrower shall give notice in
---------------------------
writing promptly to the Lender of the occurrence of any event which constitutes,
or which with notice or lapse of time or both would constitute, an Event of
Default (as hereinafter defined).
13. Delivery of Financial Data.
--------------------------
(a) So long as any obligations remain unsatisfied under this Agreement,
Borrower agrees to deliver to Lender or any assignee and any successor assignee
a copy of Borrower's monthly unaudited financial statements, and the annual
financial budget for the upcoming year as soon as available and as it may be
adjusted during the year. Borrower shall also furnish, as soon as available and
in any event within ninety (90) days after the last day of Borrower's fiscal
year, a draft copy of Borrower's annual audited statements and consolidating and
consolidated balance sheet, as of the end of such fiscal year, and in any event
within one hundred twenty (120) days after the last day of Borrower's fiscal
year, a copy of Borrower's annual audited statements and consolidating and
consolidated balance sheet, if any, as of the end of such fiscal year,
accompanied by the opinion of an independent certified public accounting firm of
recognized standing. The Borrower shall furnish such other financial
information as may be reasonably requested by Lender, including but not limited
to any material changes in budgets or financial reports furnished to the
Borrower's Board of Directors or Shareholders.
(b) The Borrower acknowledges and agrees that all credit applications,
statements, financial reports and other information prepared by (including any
information prepared by the Borrower's CPA's, as hereafter defined) and
submitted by it to the Lender are material inducements to the execution by the
Lender of this Agreement and each Loan Schedule and the financing provided
hereunder. The Borrower warrants that all such credit applications, statements,
reports and other information are and all information hereafter prepared by
(including any information prepared by the Borrower's CPA's, as hereafter
defined) and furnished by the Borrower to the Lender will be, true and correct
in all material respects as of the date submitted, that no such credit
application, statement, report or other information contains any material
untrue or misleading information or omits any material fact necessary to make
such application, statement, report or other information not misleading and that
the Borrower is in no way affiliated with any Vendor of any of the Equipment.
The Borrower agrees, upon request by Lender, to obtain for the Lender such
estoppel certificates, landlord's waivers or other similar documents as the
Lender may reasonably request.
-6-
<PAGE>
14. Principal Office. The Borrower shall not change its principal office
----------------
or the place where it maintains its records pertaining to the Collateral, as
specified in Sections 6(d) and 6(g) hereof, without giving the Lender at least
----------------------
thirty (30) days' prior written notice thereof.
15. Location of Collateral; Inspection; Labels. The Borrower shall not
------------------------------------------
remove or permit the removal of the Collateral from its present location as set
forth on the relevant Loan Schedule, without the prior written consent of the
Lender which consent shall not be unreasonably withheld or delayed. Upon
reasonable notice, the Lender and its representatives shall have the right to
enter the Borrower's premises from time to time during business hours to
inspect, observe or, after the occurrence and during the continuance of an Event
of Default, remove the Collateral, and to confirm its existence, condition and
proper maintenance or otherwise protect the Lender's interest therein. The
Borrower shall comply with all laws, ordinances, regulations or requirements of
any governmental authority, official, board or department relating to the
Collateral's installation, possession, use or maintenance. The Collateral shall
remain personal property regardless of its affixation to any realty. Upon the
Lender's request, the Borrower shall affix and keep in a prominent place on each
item of Collateral labels, plates or other markings indicating the Lender's
security interest in the Collateral.
16. Option to Perform Obligations of the Borrower in Respect of the
---------------------------------------------------------------
Collateral. If the Borrower fails or refuses, after any applicable grace period
- ----------
and notice to the Borrower, to make any payment, perform any covenant or
obligation, or take any other action which the Borrower is obligated hereunder
to perform, observe, take or do hereunder, then the Lender may, at its option,
without releasing the Borrower from any obligation or covenant hereof, perform,
observe, take or do the same in such manner and to such extent as the Lender may
deem necessary or appropriate to protect any of the Collateral and its rights
hereunder, including (without limitation) obtaining insurance and the payment of
any taxes and the payment of any sums necessary to discharge liens or security
interests at any time levied or placed on the Collateral. The Borrower agrees
that any payment or expense incurred by the Lender pursuant to the foregoing
authorization (and interest thereon at the rate of one and a half (1 1/2)
percent a month, or if such rate shall exceed the maximum rate allowed by law,
then, at such maximum rate from the date of incurring of any such expense is
incurred) shall become part of the Obligations and be secured by the Collateral
set forth in this Agreement and each Loan Schedule.
17. Final Payment Alternatives (a) Notwithstanding anything to the
--------------------------
contrary set forth in Section 2(a) of this Agreement, if at least 120 days prior
------------
to the Final Payment Date under a Loan Schedule, the Borrower gives the Lender
written notice requesting that the Lender extend and finance the repayment of
the relevant Final Payment over an additional 12-month term commencing on such
Final Payment Date (the "Refinancing Request"), and provided that no Event of
-------------------
Default (as hereinafter defined) and no event or circumstance that, with the
giving of notice or the passage of time, or both, would constitute an Event of
Default, including (without limitation) the nonpayment or nonperformance of any
outstanding liability or obligation under this Agreement (each, a "Default"),
-------
shall have occurred and be continuing as of (i) the date such Refinancing
Request is given, or (ii) the relevant Final Payment Date, then such Final
----
Payment shall not be due and payable on such Final Payment Date but instead
shall be payable in 12 equal monthly installments of principal and interest,
each in the "Refinanced Monthly Installment Amount" set forth in the relevant
-------------------------------------
Loan Schedule and due and payable on the same day of each month as such Final
Payment Date, commencing on such Final Payment Date.
(b) Notwithstanding anything to the contrary set forth in Section 2(a) of
------------
this Agreement, so long as no Default or Event of Default has occurred and is
continuing on the Final Payment Date under a Loan Schedule and if, at least 120
days prior to the relevant Final Payment Date, the Borrower notifies the Lender
in writing (the "Return Option Exercise Notice") of the Borrower's desire to
-----------------------------
transfer title to the related Equipment to the Lender in partial satisfaction of
the Borrower's obligation to pay the relevant Final Payment (the "Return
------
Option"), the Borrower shall receive a credit in an amount equal to the "Return
------
Option Credit" set forth in such Loan Schedule against such Final Payment by
- -------------
unconditionally and irrevocably transferring and assigning to the Lender or its
designee on such Final Payment Date all of the Borrower's right, title and
interest in and to the related Equipment; provided, however, that the Borrower
-------- -------
pays the entire remaining "Return Option Balance Amount" set forth in such
----------------------------
-7-
<PAGE>
Loan Schedule to the Lender on the relevant Final Payment Date. If a Return
Option Exercise Notice is duly given as provided above, the relevant Return
Option shall be exercised by the Borrower delivering each of the following to
the Lender, at the Borrower's sole cost and expense, on or before the relevant
Final Payment Date: (i) a duly executed bill of sale in favor of the Lender with
respect to all of the Equipment covered by the relevant Loan Schedule, in form
and substance satisfactory to the Lender and its counsel; (ii) payment in full
of the relevant Return Option Balance Amount; and (iii) the relevant Equipment,
at a location within the continental Untied States designated by the Lender, in
the same operating order, repair, condition and appearance as on the date
hereof, reasonable wear and tear only excepted, and with all engineering and
safety changes prescribed by the manufacturer or approved maintenance
organization to accept such Equipment under contract maintenance at its then
standard rates. The Borrower shall promptly pay any and all costs of repair,
replacement, deinstallation, packing, shipping and delivery of the relevant
Equipment to the Lender upon the Borrower's exercise of such Return Option. If
the Borrower duly satisfies all of the terms and conditions of this Section
-------
17(b), the Borrower shall have fully satisfied all of its obligations under the
- -----
related Loan Schedule.
(c) Notwithstanding anything to the contrary set forth in Section 2(a) of
------------
this Agreement, if the Borrower believes that the "Fair Market Value" (as
hereinafter defined) of the Equipment covered by a Loan Schedule as of the
relevant Final Payment Date will be less than the amount of the Final Payment
under such Loan Schedule, the Borrower may notify the Lender in writing at least
120 days prior to such Final Payment Date of the Borrower's election to have the
amount of such Final Payment adjusted (the "Final Payment Adjustment Option
-------------------------------
Notice") to an amount equal to the greater of (i) Fair Market Value of the
- ------
relevant Equipment as of such Final Payment Date, or (ii) the "Adjusted Final
--------------
Payment" set forth in the such Loan Schedule. If such Final Payment Adjustment
- -------
Option Notice is so given, and so long as no Default or Event of Default has
occurred and is continuing as of (A) the date such Final Payment Adjustment
Option Notice is given, or (B) the relevant Final Payment Date, then unless the
----
amount of such Adjusted Final Payment is greater than the amount of such Final
Payment, such Final Payment shall automatically be deemed changed to such
Adjusted Final Payment and the Borrower irrevocably and unconditionally agrees
to pay such Adjusted Final Payment on the relevant Final Payment Date in lieu of
such Final Payment. "Fair Market Value" of any Equipment shall mean the amount
-----------------
as of the relevant Final Payment Date that would obtain for such Equipment in a
retail arms'-length transaction between an informed and willing buyer in
possession under no compulsion to buy and an informed and willing seller under
no compulsion to sell. The Lender shall initially determine the Fair Market
Value of any Equipment by notifying the Borrower thereof in writing at least 75
days prior to the relevant Final Payment Date. If the Borrower does not accept
such determination of Fair Market Value by the Lender, the Borrower shall
notify the Lender of such non-acceptance in writing not less than 60 days prior
to such Final Payment Date. If the Borrower does not so notify the Lender of
its non-acceptance of the Lender's determination within such period, then the
Fair Market Value of such Equipment as initially determined by the Lender shall
be conclusive. If the Borrower does so notify the Lender of such non-
acceptance within such period, then the Fair Market Value of such Equipment
shall conclusively be established not less than 30 days prior to the relevant
Final Payment Date by an independent appraiser selected by the Lender and
reasonably acceptable to the Borrower. All costs for such appraiser shall be
paid by the Borrower within 10 days after its receipt of an invoice therefor.
18. Events of Default; Remedies. (a) If any one of the following events
---------------------------
(each, an "Event of Default") shall occur, then to the extent permitted by
----------------
applicable law, the Lender shall have the right to exercise any one or more of
the remedies set forth in Section 18(b) hereof: (i) the Borrower fails to make
-------------
any payment when due hereunder and such failure continues for a period of five
(5) days after written notice thereof to Borrower by Lender or the then assignee
hereof; or (ii) Borrower fails to observe or perform (A) any other agreement or
obligation to be observed or performed hereunder or under any Loan Schedule or
other agreement, document or instrument delivered to the Lender by or on behalf
of an Obligor or otherwise relating to any of the Obligations (collectively, the
"Other Documents")and unless expressly set forth in this Agreement or any Loan
---------------
Schedule, such failure continues uncured for a period of thirty (30) days
following notice by Lender, or (B) any other obligation of Borrower to the
Lender and the failure to observe or perform shall continue uncured for thirty
(30) days following notice by Lender; or (iii) any representation or warranty
made by or on behalf of Borrower in this Agreement or
-8-
<PAGE>
any Loan Schedule or in any of the Other Documents shall at any time prove to
have been incorrect or untrue in any material respect when made; or (iv) the
Borrower's failure to obtain or maintain any insurance required by the Lender
hereunder and such failure continues uncured for a period of ten (10) days
following notice by Lender; or (v) a default occurs in the payment of any
indebtedness, other than a general payable incurred in the ordinary course of
business, in an amount in excess $50,000 owed by Borrower to any individual or
entity other than the Lender and such default continues beyond any applicable
cure period; or (vi) a default occurs in the performance or observance of the
terms of any agreement, document or instrument pursuant to which such
indebtedness was created, secured or guaranteed, the effect of which default is
to cause or permit the holder of any such indebtedness to cause the same to be
due prior to its stated maturity (unless however such default is permanently
waived by the holder or waived by the holder for a period of time, provided such
period of time is approved by Lender); or (vii) Borrower fails (after ten (10)
days prior notice thereof) to pay, withhold, collect or remit when asserted or
due any tax, assessment or other sum payable with respect to the Collateral or
any security for any of the Obligations (including, without limitation, any
premium on any insurance policy with respect to any of the Collateral or any
security for any of the Obligations, or any insurance policy assigned to the
Lender as security for any of the Obligations), or (viii) a judgment is entered
against the Borrower in an amount in excess of $50,000 and such judgment is not
satisfied, dismissed or stayed within 30 days, or any attachment, levy or
execution is made against any Collateral; or (ix) Borrower enters into any
transaction which adversely affects a significant portion of the business value
of Borrower and which affects the ability of the Borrower to repay the
Borrower's obligations under the Agreement; or (x) Borrower fails (or Borrower
admits in writing its inability) to generally pay its debts as they become due
or the insolvency or business failure of Borrower; or (xi) the filing of an
application for appointment of a trustee, custodian or receiver for Borrower or
of any part of Borrower's property (and in the case of an involuntary filing
against the Borrower, such filing is not dismissed within 60 days); or (xii) the
filing of a petition in bankruptcy by or against Borrower, or the commencement
by or against Borrower of any proceeding under any bankruptcy or insolvency law
or statute, or any law or statute relating to the relief of debtors or
arrangement of debt, readjustment of indebtedness, reorganization, receivership
or composition, or the extension of indebtedness (and in the case of an
involuntary filing against the Borrower, such filing is not dismissed within 60
days); or (xiii) a material adverse change in the condition or affairs
(financial or otherwise) of Borrower or any other event or circumstance occurs
that materially impairs the prospects of full and prompt payment or performance
by Borrower of any of its Obligations; or (xiv) Borrower attempts to remove,
sell, transfer, encumber, sublet or part with possession of the Equipment or any
item thereof, except as expressly permitted herein; no cure period shall apply
to this Section 18 (xiv); or (xv) any entity which is controlled by the
Borrower, or which controls the Borrower, or which is under common control with
the Borrower, fails to observe or perform any obligation under any other
agreement with the Lender, and such failure continues beyond the expiration date
of any applicable grace period.
(b) Upon the occurrence of an Event of Default, which default has not
been cured within the applicable cure period, at the Lender's sole option, all
or any part of the entire unpaid total amount of the Obligations then owed to
the Lender for the balance of the term thereof shall be at once due and payable
and; in the event that Borrower shall not immediately pay the entire unpaid
amount of the Obligations to Lender, the Lender may enter upon the premises
where any or all of the Collateral securing such Obligations is located, take
possession of and remove same, and exercise any one or more of the following
rights and remedies, without liability to the Borrower therefor and without
affecting the Borrower's obligations hereunder: (i) sell, lease or otherwise
dispose of any or all of such Collateral or any part thereof at one or more
public or private sales, leases or other dispositions, at wholesale or retail,
for such consideration, on such terms, for cash or on credit, as the Lender may
deem advisable, and the Lender may immediately, without demand of performance
and without intention of notice to sell or of the time or place of sale or of
redemption or of advertisement or other notice or demand whatsoever to the
Borrower, all of which are hereby expressly waived (if notice of any sale or
other disposition is required by law to be given, the Borrower hereby agrees
that a notice sent at least five (5) days before the time of any intended public
sale or of the time after which any private sale or other disposition of such
Collateral is to be made, shall be reasonable notice of such sale or other
disposition); or (ii) to the extent permitted by law, retain such Collateral or
any part thereof, crediting the Borrower with the reasonable fair market or
rental
-9-
<PAGE>
value thereof for the balance of the term of the related Loan Schedule; and/or
(iii) require the Borrower to assemble such Collateral at the Borrower's sole
expense, for the Lender's benefit, at a place designated by the Lender; and/or
(iv) pursue any other remedy granted by any existing or future document executed
by the Borrower or by law, including, without limitation, the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which any of such Collateral may be located. At any public sale,
the Lender may be the purchaser of all or any part of such Collateral, free from
any right of redemption on the part of the Borrower, which right is hereby
waived and released. The Borrower agrees to pay all of the Lender's reasonable
expenses, including but not limited to the costs of repossessing, storing,
repairing and preparing such Collateral for sale or lease, any commissions
payable in connection with any such sale or lease, and reasonable attorney's
fees and disbursements, if an attorney shall be consulted. The net proceeds
realized from any such sale, lease or other disposition or the exercise of any
other remedy, after deducting therefrom all related expenses, shall be applied
toward payment of the unpaid Obligations due and to become due to the Lender
hereunder, the Borrower to remain personally liable for any deficiency. The
Lender's recovery shall in no event exceed the maximum amount permitted by law.
If any of such Collateral is leased by the Lender to a bona fide third party,
the present value of such lease receivable discounted at an interest rate of 12%
per annum shall be credited to the Borrower's liability to the Lender after
deducting all expenses associated with the lease of such Collateral and the
Borrower shall remain liable for any deficiency thereof. It is understood that
facility of repossession in an Event of Default is a basis for the financial
accommodation reflected by this Agreement and each Loan Schedule. Any late
charges payable to the Lender under Section 2(e) hereof shall be payable in
------------
addition to all amounts payable by the Lender as a result of exercise of any of
the remedies herein provided. The Borrower agrees to also reimburse the Lender
for any expenses (including the Lender's reasonable attorneys' fees and
expenses) arising out of or caused by Borrower's breach of this Agreement or any
Loan Schedule. Notwithstanding anything to the contrary contained herein, if
any one or more Loan Schedules are assigned by the Lender to one or more
assignees, the Collateral securing the Obligations under each Loan Schedule
shall be limited to the Collateral securing the Obligations under each Loan
Schedule then held by the Lender or such assignee, as the case may be.
19. Power of Attorney. The Borrower authorizes the Lender and does hereby
-----------------
make, constitute and appoint the Lender and any officer, employee or agent of
the Lender with full power of substitution, as the Borrower's true and lawful
attorney-in-fact with power, in its own name or in the name of the Borrower:
upon the occurrence and during the continuance of an Event of Default, (i) to
endorse any notes, checks, drafts, money orders, or other instruments of payment
(including payments under or in respect of any policy of insurance) in respect
of the Collateral that may come into possession of the Lender, (ii) to sign and
endorse any documents relating to the Collateral, (iii) to pay or discharge
taxes, liens, security interests or other encumbrances at any time levied or
placed on or threatened against the Collateral, and/or (iv) to grant, collect,
receipt for, compromise, settle and sue for monies due in respect of the
Collateral; and (v) generally to do, at the Lender's option, all acts and things
that the Lender reasonably deems necessary or desirable to protect, preserve and
realize upon the Collateral and the Lender's security interests therein, or (vi)
in order to otherwise effectuate the intents of this Agreement and each Loan
Schedule, in each case as fully and effectually as the Borrower might or could
itself do; and the Borrower hereby ratifies all that such attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. THIS POWER OF ATTORNEY IS
COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE FOR AS LONG AS ANY OF THE
OBLIGATIONS SHALL BE OUTSTANDING. The Borrower agrees that any expense incurred
by the Lender pursuant to the foregoing authorization, and interest thereon at
the rate of one and a half (1 1/2) percent a month, or if such rate shall exceed
the maximum rate allowed by law, then, at such maximum rate from the date of
incurring any such expense, shall become part of the Obligations and be secured
by the Collateral.
20. Assignment, Etc. The Borrower shall not assign, pledge, mortgage,
---------------
lease, transfer, encumber or otherwise dispose of any of its rights in the
Collateral or any part thereof, nor permit its use by anyone other than its
regular employees without the Lender's prior written consent. Any such
purported transfer, assignment or other action without the Lender's prior
written consent shall be void. The Lender may, upon notice to (but without the
consent of) the Borrower, transfer or assign this Agreement and each Loan
Schedule or any interest herein and may mortgage, pledge, encumber or transfer
any of its rights or interest in and to the Collateral or any part thereof
-10-
<PAGE>
and, without limitation, each assignee, transferee, pledgee and mortgagee (which
may include any affiliate of the Lender) shall have the right to further
transfer or assign its interest. The Lender shall not transfer or assign this
Agreement or any Loan Schedule hereto to a person or entity which at the time of
such transfer or assignment is engaged in a business activity which is
competitive with the business activities then engaged in by Borrower. Each such
assignee, transferee, pledgee and mortgagee shall have all of the rights (but
none of the obligations, which obligations shall remain with Lender) of the
Lender under this Agreement and each Loan Schedule. The Borrower hereby
acknowledges notice of the Lender's intended assignment of this Agreement and
each Loan Schedule and, upon such assignment, the Borrower agrees not to assert
against any such assignees, transferees, pledgees and mortgagees any defense,
claim, counterclaim, recoupment or set-off that the Borrower may have against
the Lender, whether arising under this Agreement or any Loan Schedule or
otherwise. Any assignee, transferee, pledgee or mortgagee of the Lender's rights
under this Agreement or any Loan Schedule shall be considered a third party
beneficiary of all of the Borrower's representations, warranties and obligations
hereunder to the Lender. The Borrower agrees (a) in connection with any such
transfer or assignment, to provide such instruments, documents, acknowledgments
and further assurances as the Lender or any assignee, transferee, mortgagee or
pledgee may deem necessary or advisable to effectuate the intents of this
Agreement or any Loan Schedule or any such transfer or assignment, with respect
to such matters as the Agreement, any Loan Schedule, the Collateral, the
Borrower's obligations to such assignee, transferee, mortgagee or pledgee and
such other matters as may be reasonably requested, and (b) that after receipt by
the Borrower of written notice of assignment from the Lender or from the
Lender's assignee, transferee, pledgee or mortgagee, all principal, interest and
other amounts which are then and thereafter become due under this Agreement or
any Loan Schedule shall be paid to such assignee, transferee, pledgee or
mortgagee, at the place of payment designated in such notice. This Agreement and
each Loan Schedule shall be binding upon the Borrower and its successors and
shall inure to the benefit of the Lender and its successors and assigns.
21. No Waiver. No failure on the part of the Lender to exercise, and no
---------
delay in exercising any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Lender of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. No course of dealing between the Borrower and the
Lender nor any delay or omission on the part of the Lender shall operate as a
waiver of any rights of the Lender. Each and every right, remedy or power
hereby granted to the Lender or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Lender
from time to time. Waiver of any particular Event of Default shall not be
deemed to be a waiver of any other or subsequent Event of Default.
22. Further Assurances; Filing. The Borrower from time to time, at its
--------------------------
sole expense, will promptly execute and deliver all further instruments,
documents and assurances, and take all further action, that may be necessary or
desirable, or that the Lender may reasonably request, and hereby authorizes the
Lender to take all action (including the filing of any financing statements,
continuation statements or amendments thereto without the signature of the
Borrower) as the Lender may deem reasonably necessary, proper or desirable in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Lender to exercise and enforce its rights and
remedies hereunder with respect to any of the Collateral. The Borrower hereby
authorizes the Lender to file one or more financing or continuation statements,
and amendments thereto, relative to all or any part of the Collateral without
the signature of the Borrower where permitted by law. A carbon, photographic or
other reproduction of this Agreement or any Loan Schedule or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law. The Borrower agrees to pay the
Lender the actual fees for such filing, recording or stamp fees or taxes arising
from the filing or recording of any such instrument or statement. Lender shall
provide Borrower with copies of each filing which has been made hereunder.
23. Indemnity and Expenses. The Borrower shall and does hereby indemnify
----------------------
and save the Lender, its directors, officers, employees, agents, attorneys,
servants, successors and assigns, harmless from any and all liabilities
(including, without limitation, negligence, tort and strict liability), damages,
expenses, claims, actions,
-11-
<PAGE>
proceedings, judgments, settlements, losses, liens and obligations (each, an
"Indemnified Claim"), including (without limitation) attorneys' fees and
-----------------
expenses, arising out of the ordering, purchase, delivery, rejection, non-
delivery, ownership, selection, possession, leasing, renting, financing,
operation (regardless of where, how and by whom operated), control, use,
condition (including but not limited to latent and other defects, whether or not
discoverable by the Borrower), maintenance, delivery, transportation, storage,
repair, furnishing of specifications with respect to, and the return or other
disposition of, the Equipment or any other Collateral, or, in the event that the
Borrower shall be in default hereunder, arising out of the condition of any item
of Equipment or any other Collateral sold or disposed of after use by the
Borrower, including (without limitation) claims for injury to or death of
persons and for damage to property. The indemnities and obligations herein
provided shall continue in full force and effect notwithstanding the expiration,
termination or cancellation of this Agreement or any Loan Schedule for any
reason whatsoever and irrespective of whether the Borrower ever accepts the
Equipment or any other Collateral. The Lender shall give the Borrower prompt
written notice of any Indemnified Claim and, at the Lender's sole option,
Borrower shall defend the Lender against any Indemnified Claim at the Borrower's
sole expense with attorney(s) selected by the Borrower and reasonably acceptable
to Lender. The Borrower is an independent contractor and nothing contained
herein shall authorize the Borrower or any other person to operate any item of
Equipment or any other Collateral so as to incur any liability or obligation for
or on behalf of the Lender. The Borrower will upon demand pay to the Lender the
amount of any and all reasonable expenses, including the fees and disbursements
of its counsel and of any experts and agents, which the Lender may incur in
connection with (a) the exercise, enforcement or protection of any of the rights
of the Lender hereunder after the occurrence and during the continuance of an
Event of Default, or (b) the failure by the Borrower to perform or observe any
of the provisions hereof. The foregoing amounts shall become part of the
Obligations and secured by the Collateral as set forth in this Agreement or any
Loan Schedule and the Lender may at any time apply to the payment of all such
costs and expenses all proceeds arising from the possession or disposition of
all or any portion of the Collateral.
24. Modifications, Etc. Neither this Agreement nor any Loan Schedule, nor
-------------------
any provision hereof or thereof, may be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by a duly
authorized representative of the party against whom enforcement of the change,
waiver, discharge or termination is sought.
25. Termination. Upon the non-defeasible payment in full of all
-----------
Obligations, the Lender shall execute and deliver to the Borrower all such
documents and instruments as shall be necessary to evidence termination of this
Agreement or any Loan Schedule and the security interests created hereunder.
26. Entire Agreement: Partial Invalidity. This Agreement and each Loan
------------------------------------
Schedule constitutes the entire agreement of the Lender and the Borrower with
respect to the transactions covered hereby, and supersedes any and all prior
agreements, understandings and negotiations with respect thereto. If any
provision of this Agreement or any Loan Schedule is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Agreement or any Loan Schedule as a whole, but this Agreement or such Loan
Schedule shall be construed as though it did not contain the particular
provision or provisions held to be invalid or unenforceable and the rights and
obligations of the parties shall be construed and enforced to such extent as
shall be permitted by law.
27. Miscellaneous. (a) Any notice or other communication to a party
-------------
hereunder shall be sufficiently given if in writing and personally delivered or
mailed to said party by certified mail, return receipt requested, at its address
set forth herein or such other address as either may designate for itself in
such a notice to the other and such notice shall be deemed to have been given
when received if personally delivered or served by overnight delivery or by
mail. Whenever the sense of this Agreement or any Loan Schedule requires, words
in the singular shall be deemed to include the plural and words in the plural
shall be deemed to include the singular. If more than one Borrower is named
herein, the liability of each shall be joint and several. The headings set
forth in this Agreement or any Loan Schedule are for convenience of reference
only, and shall not be given substantive effect.
-12-
<PAGE>
(b) To the extent that any Loan Schedule evidencing a Loan hereunder
would constitute "chattel paper," as such term is defined under the Connecticut
Uniform Commercial Code, a security interest therein may be created only through
the transfer or possession of the original of Counterpart No. 1 of such Loan
Schedule executed pursuant to this Agreement. Transfer or possession of an
original counterpart of this Agreement shall not be necessary to perfect such
security interest and no security interest in any such Loan Schedule may be
created by the transfer or possession of any other counterpart of such Loan
Schedule or by the transfer or possession of any counterpart of this Agreement.
28. Choice of Law and Venue; Waiver of Jury Trial. THIS AGREEMENT AND
---------------------------------------------
EACH LOAN SCHEDULE SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF
CONNECTICUT, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW.
The Borrower hereby agrees that all actions or proceedings arising directly or
- ------------------------------------------------------------------------------
indirectly from or in connection with this Agreement or any Loan Schedule or any
- --------------------------------------------------------------------------------
of the Collateral shall, at the Lender's sole option, be litigated only in the
- ------------------------------------------------------------------------------
Connecticut state courts or the United States District Court for the District
- -----------------------------------------------------------------------------
of Connecticut sitting in Fairfield County, Connecticut. The Borrower consents
----------------------------------------------------
to the jurisdiction and venue of the foregoing courts and consents that any
process or notice of motion or other application to either of such courts or a
judge thereof may be served inside or outside the State of Connecticut or the
District of Connecticut by registered mail, return receipt requested, directed
to the Borrower at its address set forth in this Agreement or any Loan Schedule
(and service so made shall be deemed complete upon receipt or by personal
service, or in such other manner as may be permissible under the rules of said
courts. THE LENDER AND THE BORROWER EACH WAIVE THE RIGHT TO TRIAL BY JURY IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY LOAN SCHEDULE, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN
THE BORROWER AND THE LENDER. The Borrower hereby waives the right to interpose
any set-off or counterclaim or cross-claim in any such litigation; provided,
--------
however, that nothing in this Section 28 shall prevent the Borrower from
- ------- ----------
asserting, in a separate and independent proceeding, any claim it may have
against the Lender.
IN WITNESS WHEREOF, the parties hereby have caused these presents to
be duly executed by their authorized representatives on the date first above
written.
JEEPERS! INC. LEASING TECHNOLOGIES
INTERNATIONAL, INC.
By: By:
----------------------------- ----------------------------------
(Title) (Title)
Attest:
-----------------------------
(Title)
-13-
<PAGE>
Loan Schedule No.
-----
to
Master Note and Security Agreement
dated _________, 199_ (the "Agreement")
---------
between
Leasing Technologies International, Inc. (the "Lender")
------
and
_____________________________(the "Borrower")
--------
The Lender and the Borrower agree that: (a) all of the terms and conditions
of the Agreement are hereby incorporated in this Loan Schedule by reference,
unless and to the extent such provisions are expressly excluded or modified
herein; and (b) this Loan Schedule, together with the terms and conditions of
the Agreement so incorporated herein, shall (i) constitute a single promissory
note to evidence a separate Loan made by the Lender to the Borrower under this
Schedule, and (ii) control the rights and obligations of the parties with
respect to such Loan, which Loan was made with respect to the personal property
described below (such personal property, together with all additions,
substitutions and replacements thereto, collectively, the "Equipment").
---------
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to them in the Agreement.
Sections 1(a) and 3: The term "Equipment" as used in this Loan Schedule and in
- ------------------- ---------
the Agreement shall include the following described personal property, together
with all warranties thereon, all replacement parts, repairs, additions and
accessories now or hereafter incorporated therein or affixed thereto, and all
additions, improvements, accessions, replacements and substitutions thereto and
therefor, whether now owned or hereafter acquired, and all proceeds and products
thereof:
Type Description Serial Number
- ---- ----------- -------------
SEE EXHIBIT A ATTACHED HERETO AND MADE A PART HEREOF.
"Other Personal Property" constituting "Collateral" under Section 3(c):
- -----------------------------------------------------------------------
Section 2(a): "Principal Sum": $
- ------------- ------------- -----------
"Total Number of Monthly Installments":
------------------------------------ ------
"Final Payment": $
------------- -------------
"Final Payment Date": ,
------------------ ------------- ----
"First Monthly Installment Amount": $
-------------------------------- --------
"First Monthly Installment Date": ,
------------------------------ ------------ ----
"Remaining Consecutive Monthly Installment Amount": $
------------------------------------------------ --------
"Last Consecutive Monthly Installment Date": ,
----------------------------------------- ----------- ----
-14-
<PAGE>
Section 2(b): "Annual Interest Rate": % per annum.
- ------------- -------------------- ----
Sections 6(d), 8
- ----------------
and 15: Collateral Location(s):
------- ----------------------
Section 6(h): Borrower's Office(s) and/or Place(s) of Business:
- ------------- ------------------------------------------------
Section 17(a): "Refinanced Monthly Installment Amount": $
- -------------- ------------------------------------- ------------
Section 17(b): "Return Option Credit": $
- -------------- -------------------- ----------
"Return Option Balance Amount": $
---------------------------- ---------
Section 17(c): "Adjusted Final Payment": $
- -------------- ---------------------- ----------
This is Counterpart No. ___ of 3 executed Counterparts of this Loan
Schedule. Counterpart No. 1 of this Loan Schedule shall constitute the only
original executed counterpart of this Loan Schedule. For purposes of
perfection of a security interest in chattel paper by possession under the
Connecticut Uniform Commercial Code, (a) such Counterpart shall be deemed
the only original counterpart of this Loan Schedule, and transfer or
possession of such Counterpart shall effect such perfection, (b) transfer
or possession of no other purported Counterpart of this Loan Schedule shall
effect such perfection, and (c) transfer or possession of an original
counterpart of the Agreement shall not be necessary to effect such
perfection.
IN WITNESS WHEREOF, the parties hereby have caused these presents to be
duly executed by their authorized representatives on the date first above
written.
- ---------------------------------- LEASING TECHNOLOGIES
[Name of Borrower] INTERNATIONAL, INC.
By: By
-------------------------- ------------------------------
(Title) (Title)
Attest:
----------------------
(Title)
-15-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
1. Jungle Jim's Playlands of Arizona, Inc.
2. Jungle Jim's Playlands of Colorado, Inc.
3. Jungle Jim's Playlands of Kansas, Inc.
4. Jungle Jim's Playlands of Maryland, Inc.
5. Jungle Jim's Playlands of Massachusetts, Inc.
6. Jungle Jim's Playlands of Texas, Inc.
7. Jungle Jim's Playlands of Utah, Inc.
8. Jungle Jim's Playlands Leasing, Inc.
9. Rhino Services, Inc.
10. Jeepers! of Jax Mall, Inc.
11. Jeepers! of Illinois, Inc.
12. Jeepers! of Des Plaines, Inc.
13. Jeepers! of Norridge, Inc.
14. Jeepers! of Olathe, Inc.
15. Jeepers! of Glen Burnie, Inc.
16. Jeepers! of Methuen, Inc.
17. Jeepers! of Michigan, Inc.
18. Jeepers! of Macomb, Inc.
19. Jeepers! of Wonderland, Inc.
20. Jeepers! of Auburn Hills, Inc.
21. Jeepers! of Missouri, Inc.
22. Jeepers! of New Jersey, Inc.
23. Jeepers! of Jersey Gardens, Inc.
24. Jeepers! of Crossgates Commons, Inc.
25. Jeepers! of Walden, Inc.
26. Jeepers! of Nyack, Inc.
27. Jeepers! of Kingston, Inc.
28. Jeepers! of Virginia, Inc.
<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. 3 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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
June 11, 1998
