AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1999
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
JEREMY'S MICROBATCH ICE CREAMS, INC.
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(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 23-3017648 5451
------------------------------- ------------------------------------ ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.) (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
</TABLE>
JEREMY'S MICROBATCH ICE CREAMS, INC.
3401 MARKET ST., SUITE 312
PHILADELPHIA, PA 19104
215/823-6885
TELECOPIER: 215/823-6884
-------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
---------------------------
JEREMY D. KRAUS
JEREMY'S MICROBATCH ICE CREAMS, INC.
3741 WALNUT STREET, SUITE 423
PHILADELPHIA, PA 19104
215/823-6885
TELECOPIER: 215/823-6884
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
---------------------------
COPIES OF ALL COMMUNICATIONS TO:
GARY A. MILLER, ESQUIRE BRIAN C. DAUGHNEY, ESQUIRE
ECKERT SEAMANS CHERIN & MELLOTT, LLC GOLDSTEIN & DIGIOIA, LLP
1515 MARKET STREET -- 9TH FLOOR 369 LEXINGTON AVENUE
PHILADELPHIA, PA 19102 NEW YORK, NY 10036
215/851-8472 212/599-3322
215/851-8383 (FAX) 212/557-0295 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after effective date.
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: /x/
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 the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
CALCULATION OF REGISTRATION FEE
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<CAPTION>
==================================================================================================================================
| | PROPOSED | PROPOSED |
| AMOUNT | MAXIMUM | MAXIMUM | AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES | TO BE | OFFERING PRICE | AGGREGATE | REGISTRATION
TO BE REGISTERED(2) | REGISTERED | PER SHARE | OFFERING PRICE | FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(1)..................... | 1,380,000 | $7.00(2) | $9,660,000(2) | $2,685.48
- ----------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants.............................. | 120,000 | $ .001 | $ 120 | $ .03
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01(3)..................... | 120,000 | $8.75 | $1,050,000 | $ 291.90
- ----------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee.............................. | | | | $2,977.41
==================================================================================================================================
</TABLE>
(1) Includes up to 180,000 shares to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(3) Shares issuable upon exercise of the Underwriter's Warrants.
Pursuant to Rule 416, there are also being registered such additional shares
as may become issuable pursuant to the anti-dilution provisions of the
Underwriter's Warrants.
The Exhibit Index appears on page II-_ of the sequentially numbered pages of
this Registration Statement. This Registration Statement, including exhibits
contains __ pages.
The Registrant hereby amends this Registration Statement on such dates or
dates as may be necessary to delay its effective date until Registrants shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
We will amend and complete the information in this Prospectus. Although we
are permitted by US federal securities law to offer these securities using this
Prospectus, we may not sell them or accept your offer to buy them until the
documentation filed with the SEC relating to these securities has been declared
effective by the SEC. This Prospectus is not an offer to sell these securities
or our solicitation of your offer to buy these securities in any jurisdiction
where that would not be permitted or legal.
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM
NO. SECTIONS IN PROSPECTUS
- ---- ----------------------
<S> <C> <C>
1. Front of the Registration Statement and
Outside Front Cover of Prospectus...... Cover Page
2. Inside Front and Outside Back Cover
Pages Of Prospectus.................... Inside Front Cover Pages; Outside Back
Cover
3. Summary Information and Risk Factors... Prospectus Summary, Risk Factors
4. Use of Proceeds........................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price........ Cover Page; Risk Factors; Underwriting
6. Dilution............................... Dilution
7. Selling Security Holders............... Not Applicable
8. Plan of Distribution................... Prospectus Summary; Underwriting
9. Legal Proceedings...................... Business -- Legal Matters
10. Directors, Executive Officers,
Promoters and Control Persons.......... Management
11. Security Ownership of Certain
Beneficial Owners and Management....... Principal Shareholders
12. Description of Securities.............. Description of Securities; Dividend
Policy
13. Interest of Named Experts and
Counsel................................ Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Statement as to Indemnification
15. Organization within Last Five Years.... Our Business; Certain Relationships and
Related Transactions
16. Management's Discussion and Analysis or
Plan of Operation...................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
17. Description of Business................ Prospectus Summary, Risk Factors; Our
Business
18. Description of Property................ Our Business
19. Certain Relationships and Related
Transactions........................... Certain Relationships and Related
Transactions
20. Market for Common Equity and Related
Stockholder Matters.................... Risk Factors; Underwriting
21. Executive Compensation................. Executive Compensation
22. Financial Statements................... Index to Financial Statements
23. Changes In and Disagreements With
Accountants On Accounting and Financial
Disclosure............................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED __, 1999
INITIAL PUBLIC OFFERING PROSPECTUS
JEREMY'S MICROBATCH ICE CREAMS, INC.
1,200,000 SHARES OF COMMON STOCK
We develop, market and distribute a super-premium ice cream under the brand
name Jeremy's Microbatch(Registered) Ice Creams.
We are offering 1,200,000 shares of our common stock through First Montauk
Securities Corp., our underwriter.
This is our initial public offering. We anticipate that the initial public
offering price will be between $5.00 and $7.00 per share.
No market currently exists for our shares. We have applied for listing of
our common stock on the Nasdaq Smallcap(SM) Market under the symbol JMIC and the
Boston Stock Exchange under the symbol JMI.
------------------------------
The chart below shows the basic terms of the offering:
===============================================================================
| | UNDERWRITING
| OFFERING PRICE| DISCOUNTS
- -------------------------------------------------------------------------------
Per Share..................................... | $ | $
- -------------------------------------------------------------------------------
Total......................................... | $ | $
- -------------------------------------------------------------------------------
Proceeds to Jeremy's Microbatch | |
Ice Creams, Inc............................. | $ | $
===============================================================================
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
FIRST MONTAUK SECURITIES CORP.
The date of this Prospectus is , 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS OT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUMMARY
The following is only a summary of detailed information and financial
statements and notes to financial statements appearing elsewhere in this
Prospectus. References to "we," "us," "Jeremy's" and Jeremy's
"Microbatch(Registered)" include Jeremy's Microbatch Ice Creams, Inc. and its
subsidiary, Jeremy's Microbatch Ice Creams, LLC.
JEREMY'S MICROBATCH(REGISTERED) AND ITS PRODUCTS
Jeremy's Microbatch Ice Creams, Inc. develops, markets and sells
super-premium ice cream using high-quality ingredients. Applying a successful
concept first developed by the microbrew industry, we offer unique flavors of
ice cream primarily in small, limited edition pint-size batches. Our ice cream
products are mostly sold to supermarkets and grocery stores. We also sell
products in convenience stores and food service outlets. Our products are
currently available in more than 3,200 stores in New England, the Mid-Atlantic
region, Colorado, Minnesota, Florida, Texas and Arizona.
We do not plan to manufacture our products. We believe that the use of a
single source, or a small number of sources, for product, reduces our cost due
to the manufacturer's ability to plan production efficiently.
We began operating our business in January 1998 through Jeremy's Microbatch
Ice Creams, LLC. Jeremy's Microbatch Ice Creams, Inc. was incorporated in
October 1999 and the limited liability company will become a subsidiary of the
new corporation on the date of this prospectus. Our mailing address is: 3741
Walnut Street, Suite 423, Philadelphia, PA 19104. Our telephone number is
215/823-6885.
THE OFFERING AND JEREMY'S MICROBATCH(REGISTERED)'S SECURITIES
Securities Offered..................... 1,200,000 shares of Common Stock.
Offering Price......................... Estimated between $5.00 and $7.00 per
share
Shares of Common Stock Outstanding:
Prior to the Offering.................. 1,800,000 shares of Common Stock
After the Offering..................... 3,000,000 shares of Common Stock
Use of Proceeds........................ We will use the proceeds of this
offering for working capital,
advertising and promotions and
repayment of debt.
o The underwriter has an option to sell an additional 180,000 shares to
cover over-allotments.
In addition to the 3,000,000 shares that will be outstanding after this
offering, we will have the following securities outstanding:
o Underwriter's warrants for 120,000 shares of common stock. These warrants
will have an exercise price equal to 125% of the public offering price.
MARKET FOR JEREMY'S MICROBATCH(REGISTERED)'S SECURITIES
Before this offering, there was no market for any of our securities. We
cannot guarantee that a trading market will develop for our shares. We have
applied for listing on the Nasdaq Smallcap(SM) Market and the Boston Stock
Exchange. These listing applications have not yet been approved. Our
applications request that the following listing symbols be reserved for our
common stock:
Proposed Nasdaq Symbol............................... JMIC
Proposed Boston Exchange Symbol...................... JMI
1
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following consolidated financial data has been derived from the
consolidated financial statements at the end of this prospectus. Those
consolidated financial statements include notes which you should read. The
consolidated financial statements at the end of this prospectus for the year and
period ended December 31, 1998 and 1997, respectively, have been audited by BDO
Seidman, LLP, independent auditors. The consolidated financial statements for
the six months ended June 30, 1999 and 1998 are unaudited. The consolidated
financial statements for the six months ended June 30, 1999 do not necessarily
indicate the results to be expected for the full year.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED OCTOBER 28, 1997
DECEMBER 31, (INCEPTION) TO SIX MONTHS ENDED SIX MONTHS ENDED
1998 DECEMBER 31, 1997 JUNE 30, 1999 JUNE 30, 1998
------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Sales..................... $ 415,671 $ -- $ 854,288 $ 135,487
Cost of Sales................. $ 299,868 $ -- $ 533,476 $ 155,152
Gross Profit (Loss)........... $ 115,803 $ -- $ 320,812 $ (19,665)
Total Operating Expenses...... $1,066,747 $ -- $1,145,643 $ 408,617
(Loss) from Operations........ $ (950,944) $ -- $ (824,831) $(428,282)
Net (Loss).................... $ (956,201) $ (281) $ (857,996) $(433,313)
Basic and Diluted (Loss) Per
Share....................... $ (1.66) $ (0.01) $ (0.82) $ (1.05)
Basic and Diluted Weighted
Average Number of Common
Shares Outstanding.......... 577,502 30,495 1,049,871 412,993
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30,
JUNE 30, 1999
1999 (PRO FORMA
DECEMBER 31, 1998 JUNE 30, 1999 (PRO FORMA) AS ADJUSTED)
----------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Cash................................ $179,730 $ 43,424 $ 888,424 $6,543,424
Current Assets...................... $377,504 $485,605 $1,330,605 $6,985,605
Total Assets........................ $421,894 $834,516 $1,679,516 $7,334,516
Current Liabilities................. $306,476 $541,704 $ 636,704 $ 291,704
Long-Term Debt...................... $ 50,000 $ 35,390 $ 35,390 $ 35,390
Stockholders' Equity................ $ 65,418 $257,422 $1,007,422 $7,007,422
</TABLE>
The "Pro Forma" consolidated balance sheet data reflects:
o Additional advances of $100,000 on our line of credit expected to be used
during the fourth quarter. A portion of the net proceeds of the offering
will be used to repay the line of credit.
o Our borrowing of $40,000 from our chief executive officer and $5,000 from
our chief financial officer. These loan proceeds were used to repay a
$50,000 note owed to an unrelated third party.
o Additional purchases of 340,245 shares of common stock for $650,000 made
during the third quarter by our majority shareholder Bluestem Capital
Partners, II, L.P.
o Additional purchase of 24,148 shares of common stock for $100,000 made
during the fourth quarter by a shareholder.
2
<PAGE>
The "Pro Forma As Adjusted" balance sheet data reflects the receipt of the
anticipated net proceeds of approximately $6,000,000 from the sale of the
1,200,000 shares of common stock offered in this offering, net of repayments of
debt in the amount of $345,000.
NOTICE TO CALIFORNIA INVESTORS: Each purchaser of our shares in California
must be an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D under the Securities Act of 1933, or satisfy one of the following
suitability standards:
o minimum annual gross income of $65,000 and a net worth (exclusive of
home, home furnishings and automobiles) of $250,000; or
o minimum net worth (exclusive of home, home furnishings and automobiles)
of $500,000.
3
<PAGE>
RISK FACTORS
INVESTING IN OUR SHARES IS VERY RISKY. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISKS BEFORE MAKING AN INVESTMENT DECISION. THE TRADING PRICE OF OUR
SECURITIES COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR
PART OF YOUR INVESTMENT. YOU ALSO SHOULD REVIEW THE OTHER INFORMATION IN THIS
PROSPECTUS.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. Our
business began operations in January 1998. We have a very limited operating
history upon which you can evaluate our operations and future prospects. Our
limited history may not be sufficient to judge whether our
"Microbatch(Registered)" concept will sufficiently differentiate us from other
premium ice creams to make us successful. As an early stage company, we face
numerous risks and uncertainties relating to the implementation of our business
plan. We may not be able to successfully address these risks and uncertainties.
WE HAVE NOT BEEN PROFITABLE AND MAY NOT BECOME PROFITABLE. To date we have
not been profitable. We may never be profitable. If we become profitable, we may
be unable to sustain profitability. We expect to incur losses for the remainder
of fiscal year 1999 and a portion of 2000. Although we have experienced revenue
growth through our history, our growth rates may not continue. We reported a net
loss of $956,201 for the fiscal year ended December 31, 1998 and a loss of
$857,996 for the six months ended June 30, 1999. As of June 30, 1999 our
accumulated deficit was approximately $1,814,000.
WITHOUT THIS OFFERING, WE WILL NOT HAVE SUFFICIENT CAPITAL TO FUND OUR
FUTURE PLANS. Without the proceeds of this offering, we will not have sufficient
funds for our operating needs after the end of 1999. We will depend on the
proceeds of this offering to fund our operations for approximately 24 months
after closing of the offering. Because of our lack of funds and our history of
losses from operations, our independent certified public accountants have
included an explanatory paragraph in their report indicating that there is
substantial doubt about our ability to continue as a going concern.
WE MAY BE UNABLE TO IMPLEMENT OUR BUSINESS STRATEGY. Our continued growth
and profitability will depend, in part, upon our ability to implement our
business strategy and successfully expand our channels of distribution. This
strategy is principally dependent upon our ability to cost effectively acquire
new customers through the use of various forms of marketing. Continued
implementation of this strategy will depend in large part on:
o the level of retailer and consumer acceptance of our products;
o our ability to create product and brand name awareness;
o our ability to achieve and maintain relationships with high quality ice
cream distributors in various geographic markets; and
o our ability to continue to expand in the face of increasing competition
from other companies in the distribution of ice cream products.
If we cannot accomplish these objectives, we will not grow and may not be
profitable.
THE MARKET PRICE FOR OUR SHARES IS LIKELY TO FLUCTUATE. Upon completion of
this offering, there may be limited trading and the market price of our shares
is likely to be highly volatile. The volatility may result from factors
including:
o fluctuations in our operating results;
o changes in stock market analysts' recommendations regarding our business,
similar companies in our industry or general market and economic
conditions;
o changes in market valuations of ice cream companies;
o announcements of technological innovations or new products by us or our
competitors;
o announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o additions or departures of key personnel.
4
<PAGE>
The market prices for stocks following an initial public offering
frequently reach levels that bear no relationship to their operating
performance. Such market prices generally are not sustainable and are subject to
wide variations. If our shares trade to such levels following this offering, it
is likely they will later experience a material decline in share price.
WE NEED TO DEVELOP OUR BRAND NAME TO BE SUCCESSFUL. We believe that
broader recognition and favorable consumer perception of the Jeremy's
Microbatch(Registered) Ice Creams brand are essential to our future success.
Accordingly, we will pursue an aggressive brand-recognition strategy, which will
include mass market and multimedia advertising, promotional programs and public
relations activities. Successful positioning of our brand will largely depend
on:
o the success of our advertising and promotional efforts; and
o provision of high quality product.
To increase awareness of the Jeremy's Microbatch(Registered) Ice Creams
brand and expand it to new flavors, we will need to spend significant amounts on
advertising and promotions. These expenditures may not result in a sufficient
increase in revenues to cover such advertising and promotions expenses. In
addition, even if brand recognition increases, the number of new customers may
not justify our advertising and promotional expenditures.
WE MAY NOT BE ABLE TO COMPETE IN THE ICE CREAM MARKET. Our business is
highly competitive. There are several other companies marketing super premium
ice cream that compete with us, including Haagen-Dazs, Inc., ("Haagen-Dazs")
owned by The Pillsbury Company, Ben & Jerry's Homemade, Inc. ("Ben & Jerry's")
and numerous regional ice cream companies. Our products also compete with
non-premium ice creams as well as other frozen desserts, and with hand dipped
ice cream sold by ice cream shops. Many companies that are or will be our
competitors have well established brand names and have much more money and other
resources than we do. Additionally, Haagen-Dazs and Ben & Jerry's manufacture
their own ice cream, giving them more control and flexibility in production than
we have.
OUR REVENUES ARE DEPENDENT ON A LIMITED NUMBER OF PRODUCTS. Our revenues
come from a limited number of products. Because our only product is ice cream,
and we have only six to eight flavors available at any time. The failure of our
flavors to become popular could significantly affect our revenues.
WE DEPEND UPON INDEPENDENT DISTRIBUTORS FOR THE PROPER DISTRIBUTION OF OUR
PRODUCT. We depend upon independent ice cream distributors located in our
various geographic markets to properly distribute and maintain our products in
the freezer shelves of retailers. In most geographic markets, there are a
limited number of distributors with the ability to properly handle the
distribution of ice cream. Some of these distributors also distribute our
competitors' products. Because there are a limited number of qualified
distributors, our failure to maintain good relationships with these distributors
could harm our ability to sell product in specific geographic regions.
IT IS DIFFICULT TO OBTAIN GROCERY RETAILER ACCEPTANCE FOR NEW PRODUCTS. In
order for us to introduce our products into new markets, and to continue to sell
those products, retail grocers must agree to allocate freezer shelf space to our
products. Retailers are not inclined to allocate shelf space to new products
when existing products are performing. If we cannot convince retailers to
allocate shelf space to our products, and to increase the shelf space allocated
to us, our business will not grow. Some retailers require significant slotting
fees before they will allocate shelf space or to continue to allocate shelf
space to a product. We may not be able to fund all of these slotting fees, in
which case we could fail to obtain shelf space in certain markets or lose shelf
space already obtained.
WE NEED TO DEVELOP NEW FLAVORS. Our growth and success will depend, in
significant part, upon our ability to develop new and unique flavors. Each of
our product offerings must be responsive to customer tastes to successfully
achieve market acceptance. We will incur substantial expense and use significant
resources as we change our products from time to time. In addition, if we launch
new
5
<PAGE>
products that are not favorably received by consumers, our reputation and the
value of our brand name could be damaged.
WE ARE EXPOSED TO PRODUCT LIABILITY RISKS. Because we sell a food product
our business exposes us to potential product liability risks. We maintain
general liability and business interruption insurance. However, the loss of
insurance coverage, or claims in excess of the insurance coverage, could have a
material adverse effect on our business, operating results and financial
condition.
WE ARE DEPENDENT ON EXECUTIVE MANAGEMENT AND OTHER PERSONNEL. We believe
that our success depends on the continued employment of our management team. If
one or more members of our executive management team were unable or unwilling to
continue in their present positions, our business could be materially adversely
affected. We do not presently carry life insurance on any member of our
executive management team. Our agreements with the underwriter require us to
obtain insurance on the lives of our President, Jeremy Kraus, and our Chief
Operating Officer, Samuel Cohen.
DEPENDENCE ON OUTSIDE MANUFACTURERS MAKES IT MORE DIFFICULT FOR US TO
CONTROL QUALITY AND PRODUCTION TIMES. While we develop formulations of our ice
cream flavors, we do not manufacture or package our own product. Currently, we
depend on a single source for the manufacture of our ice cream. Use of an
outside manufacturer gives us less control over the quality and scheduling of
production than if we had our own production facility. This lack of control
could potentially lead to occasions of product below our quality standards or
production scheduling which does not meet our needs. Although we would have
recourse against our manufacturing partner if this happened, these events could
substantially damage our reputation.
OUR PROFITABILITY IS SUBJECT TO FLUCTUATIONS IN DAIRY PRICES. The primary
raw materials used in our operation are dairy products. Prices for dairy
products fluctuate, and we cannot be certain that prices for dairy products will
not increase. If the price of raw materials increases and remains high
indefinitely and we are not able to pass such prices on to our customers, our
profitability will be damaged. Some of our competitors, by virtue of greater
buying power, may not have the same risks as we do.
OUR EXECUTIVE MANAGEMENT HAS WIDE DISCRETION IN THE APPLICATION OF PROCEEDS
FROM THIS OFFERING. Our management has discretion over the use and expenditure
of the proceeds of this offering. Approximately $1,805,000, or 30% of the
proceeds, is reserved for working capital. You may have less ability to judge
the likelihood of success of our business plan than if we had more specific uses
of the proceeds of this offering.
THE CURRENT CONSUMER TRENDS OF INCREASING CONSUMPTION OF FULL FAT DAIRY
PRODUCTS MAY NOT CONTINUE. Our super-premium ice cream is a "full fat" product.
Consumer trends could return to a preference for lower fat dairy items, in which
case we would be forced to compete for a piece of a much smaller market.
AFTER THIS OFFERING, AFFILIATES OF OUR PRESENT OFFICERS AND DIRECTORS WILL
STILL BE ABLE TO ELECT OUR BOARD OF DIRECTORS. Affiliates of our officers and
directors will, in the aggregate, beneficially own over 50% of our common stock
after this offering. These stockholders will be able to exercise control over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. One of our
shareholders, Bluestem Capital Partners II, L.P., which is affiliated with two
of our directors, will own over 45% of our common stock after this Offering.
This concentration of ownership could prevent a change in control of Jeremy's
Microbatch(Registered), which could adversely affect our stock price.
OUR BUSINESS MAY BE DISRUPTED IF OUR SUPPLIERS' OR CUSTOMERS' COMPUTER
SYSTEMS ARE NOT YEAR 2000 COMPLIANT. Failure of our suppliers' or customers'
computer systems to be Year 2000 compliant could result in our inability to
receive materials, services, orders or payments on a timely basis, and could
otherwise materially adversely affect our operations. We have received oral
assurances from our material suppliers that their systems are Year 2000
compliant, but do not have independent verification. We do not have any
information as to Year 2000 compliance of our customers' systems.
6
<PAGE>
FORWARD LOOKING STATEMENTS
Some of the statements under the "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievement expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this Prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plan," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this Prospectus.
7
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of 1,200,000 shares in this
offering will be approximately $6 million. This is based upon an assumed initial
public offering price of $6 per share, after deducting estimated underwriting
fees and other expenses of the offering. We will receive additional net proceeds
of up to $939,000 if the underwriter exercises the option granted to them in
connection with this offering to purchase additional shares of our stock to
cover over-allotments.
The following table summarizes our intended use of these proceeds:
PERCENT OF
APPLICATION OF PROCEEDS AMOUNT PROCEEDS
----------------------- ---------- ----------
Advertising and Promotions............................ $3,000,000 50.00%
Fees and Costs directly Related to Retail Placement,
or "Slotting," Fees................................. 850,000 14.17
Repayment of Debt..................................... 345,000 5.75
Working Capital....................................... 1,805,000 30.08
---------- ------
Total............................................... $6,000,000 100.00%
========== ======
Advertising and Promotions. We plan to engage in an aggressive marketing
campaign to establish the Jeremy's Microbatch(Registered) brand name and to
obtain more retail outlets. Marketing and promotions include marketing directly
to retailers through promotional programs and allowances, in store sampling and
other promotional programs. We will also engage in direct consumer marketing
including sponsorships of events and advertising activities such as print and
broadcast advertising and coupons.
Retail Placement, or "Slotting," Fees. These fees are required by certain
supermarkets, grocers and other retail customers for our product to obtain and
maintain shelf space in their freezers.
Repayment of Debt. This amount includes $300,000 owed to a bank, $40,000
owed to our Chief Executive Officer and $5,000 owed to our Chief Financial
Officer, all of which is owed as of the date of this prospectus. The loans by
the President and Chief Financial Officer were made in October, 1999, to allow
us to repay a debt owed to an unrelated party who had made a $50,000 loan to us
in December, 1998. The interest rate on the loans to our officers is 10% per
annum. The interest on the loan from the unrelated party had been 14% per annum.
These notes by their terms are not due until October, 2000, but we plan to repay
them upon closing of this offering to avoid the interest charges.
Working Capital. This amount will be used for costs and expenses until we
are able to fund these costs and expenses through operations. These costs and
expenses will be incurred or already have been incurred for inventory, salaries
and benefits for employees and management, including three new marketing
employees we recently hired, rent and other customary overhead expenses.
These costs and expenses also include approximately $240,000 we owed to our
former marketing agency as of October 20, 1999. We terminated our relationship
with that agency in October 1999 and hired three individuals from that agency to
work for us. We expect that operations will fully fund our working capital costs
within twenty-four months of this offering.
The amounts in the table above are estimates developed by our management
based upon our current plans and current economic and industry conditions. Our
proposed use of proceeds may change if industry or economic conditions change or
if our financial condition changes. Management will also have the discretion to
change the amount of funds used for each purpose.
Pending use of the proceeds, as described above, funds will be held in
temporary investments in bank certificates of deposits and/or interest-bearing
insured savings accounts, United States government notes, bills and bonds and
money market funds. Any income derived from the short-term investments will be
used for working capital.
8
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $745,839 or
$0.41 per share. Our pro forma net tangible book value per share is determined
by subtracting the total amount of our liabilities from the total amount our
tangible assets and dividing the remainder by the weighted average number of
shares of our common stock outstanding.
The as adjusted pro forma net tangible book value per share after this
offering will be $2.25 based on an assumed initial public offering price of $6
per share. Therefore, purchasers of shares of common stock in this offering will
realize immediate dilution of $3.75 per share. The following table illustrates
this dilution:
Assumed initial public offering price per share............. $6.00
Pro forma net tangible book value per share as of June 30,
1999...................................................... $0.41
Increase in net tangible book value per share attributable
to new investors.......................................... 1.84
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.25
-----
Dilution per share to investors in this offering............ $3.75
=====
The following table presents the following data as of June 30, 1999, and
assumes an initial public offering price of $6.00 per share for our new
investors:
o the number of shares of our common stock acquired from us;
o the total cash consideration paid;
o the average price per share paid before deducting estimated underwriting
fees and our estimated offering expenses; and
o the average price per share paid by the existing holders of common stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON CONSIDERATION
STOCK --------------------- AVERAGE PRICE
ACQUIRED AMOUNT PERCENT PER SHARE
--------- ----------- ------- -------------
<S> <C> <C> <C> <C>
Existing Shareholders...................... 1,800,000 $ 2,833,900 32% $1.57
New Investors.............................. 1,200,000 7,200,000 68 $6.00
--------- ----------- ---
Totals................................... 3,000,000 $10,033,900 100% $3.34
========= =========== ===
</TABLE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and expansion of
our business.
9
<PAGE>
CAPITALIZATION
The following table presents our capitalization as of June 30, 1999.
The "Pro Forma" column in the table presents the capitalization taking into
account the following as if they had occurred on June 30, 1999:
o additional advances of $100,000 on our line of credit during the fourth
quarter. A portion of the net proceeds of the offering will be used to
repay the line of credit.
o borrowings of $40,000 from our chief executive officer and $5,000 from
our chief financial officer. These loan proceeds were used to repay a
$50,000 note owed to an unrelated individual. These loans bear interest
at 10% per annum.
o additional purchases of 340,245 shares of common stock for $650,000 made
during the third quarter by our majority shareholder.
o additional purchase of 24,148 shares of common stock for $100,000 made
during the fourth quarter by a shareholder.
The "Pro Forma As Adjusted" column in the table presents the capitalization
taking into account the following as if they had occurred on June 30, 1999:
o the receipt of the proceeds from the issuance and sale of the 1,200,000
shares of common stock at an assumed initial offering price of $6.00
offered by us in this offering, net of estimated underwriters'
commissions and approximately $480,000 of offering expenses.
o the estimated use of proceeds from the sale of these shares as it relates
to the repayment of debt in the amount of $345,000.
The table does not take into account:
o the issuance of additional shares if the underwriter exercises its
over-allotment option; or
o any shares that may be issued on exercise of the warrants to purchase
shares that will be held by the underwriter.
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------------
(PRO FORMA
ACTUAL (PRO FORMA) AS ADJUSTED)
---------- ----------- ------------
<S> <C> <C> <C>
Short-term debt:
Note payable, bank.............................. $ 200,000 $ 300,000 $ --
Notes payable, officers......................... -- 45,000 --
Current portion of obligations under capital
leases....................................... 5,794 5,794 5,794
Current portion of long-term debt............... 50,000 -- --
---------- ---------- ----------
Total short-term debt........................... 255,794 350,794 5,794
---------- ---------- ----------
Long-term debt:
Obligations under capital leases................ 35,390 35,390 35,390
---------- ---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value -- authorized
500,000 shares, issued and outstanding --
none......................................... -- -- --
Common stock $.01 par value -- authorized
5,000,000 shares, issued and outstanding --
1,435,607, 1,800,000 and 3,000,000 shares,
respectively................................. 14,356 18,000 30,000
Additional paid-in capital...................... 2,057,544 2,803,900 8,791,900
Accumulated (deficit)........................... (1,814,478) (1,814,478) (1,814,478)
Total shareholders' equity...................... 257,422 1,007,422 7,007,422
---------- ---------- ----------
Total capitalization............................ $ 548,606 $1,393,606 $7,048,606
========== ========== ==========
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion and analysis in conjunction with
the "Summary Consolidated Financial Data" and our consolidated financial
statements and related notes that are included in this Prospectus.
OVERVIEW
The business of Jeremy's Microbatch(Registered) Ice Creams began in 1997
when one of our principal shareholders, Strive, Inc., developed, marketed and
sold super-premium ice cream under the Jeremy's Microbatch(Registered) Ice
Creams brand. Jeremy D. Kraus, our Chief Executive Officer and director, and
Samuel V. Cohen, our Chief Operating Officer and director, are principal
shareholders of Strive. In January 1998, Strive transferred the business to
Jeremy's Microbatch Ice Creams, LLC. Simultaneously with the effectiveness of
this offering, the members of Jeremy's Microbatch Ice Creams, LLC will transfer
their respective interests in that entity to Jeremy's Microbatch Ice Creams,
Inc., and Jeremy's Microbatch Ice Creams, LLC, will become a subsidiary of
Jeremy's Microbatch Ice Creams, Inc. Since we began operating, we have derived
our revenues primarily from the sale of our branded ice cream products in pint
and other containers in supermarkets, grocery stores and similar retail outlets.
We expect our revenues will continue to be primarily from these sources. Our
long term plans include opening our own retail establishments serving primarily
our own product, but we do not expect to begin work on retail stores in the next
twelve months.
Throughout our short history, our revenues have increased steadily. Our
revenues in the first six months of 1999 were more than double our revenues for
the entire year of 1998. However, we have not achieved net cash flow from
operations. If we effectively apply the proceeds of this offering to promotional
marketing activities and other applications, we believe that our revenues will
continue to rise. We also expect that our operating expenses will continue to
decline as a percentage of sales. However, we cannot guarantee that our sales
will continue to grow or that we will be able to reduce expenses as a percentage
of sales.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data for the
periods indicated expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ -------------------
1998 1999 1998
------------ ------ ------
<S> <C> <C> <C>
Net sales............................................. 100.0% 100.0% 100.0%
Cost of sales....................................... 72.1 62.5 114.5
------ ------ ------
Gross profit (loss).............................. 27.9 37.5 (14.5)
Selling.......................................... 139.8 53.7 221.0
Distribution..................................... 15.8 12.0 3.8
General and administrative....................... 99.7 59.0 76.4
Amortization of deferred shares.................. -- 9.2 --
Depreciation..................................... 1.4 0.2 0.4
------ ------ ------
Operating (loss).................................... (228.8) (96.6) (316.1)
Other income........................................ 0.5 0.6 --
------ ------ ------
Loss on sale of property and equipment.............. -- (2.2) --
Interest expense.................................... (1.7) (2.3) (3.7)
------ ------ ------
Net (loss)............................................ (230.0)% (100.5)% (319.8)%
====== ====== ======
</TABLE>
11
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
1998
Net Sales. Our net sales increased by over 500% in the first six months of
1999 compared to the first six months of 1998. This expansion can be attributed
both to an increase in the number of retail outlets carrying our products and an
increase in the revenues per outlet. We believe that this increase is a direct
result of our marketing and promotional efforts and expenditures.
Gross Profit. Our gross profit as a percentage of sales was 37.5% in the
first six months of 1999 as compared to a gross (loss) in the similar 1998
period. The gross profit percentage for the first six months of 1999 also
represents an increase of 34.4% from the gross profit percentage for the fiscal
year ended December 31, 1998. The improvement in our gross profit percentage was
a result of a few factors. We were able to increase the size of our
manufacturing runs in the later period, which resulted in less waste per unit
produced and generally increased efficiency in our purchases of product. During
the year ended December 31, 1998 and six months ended June 30, 1998, we sold
certain ice cream products to food service customers at a loss, in an effort to
establish our brand. We discontinued this practice in 1999. In addition, we have
improved our ability to change our flavors and accompanying packaging
efficiently. Currently, all of our product is manufactured and packaged by a
single outside source. We do not plan to manufacture the product ourselves. We
believe that the use of a single source, or a small number of sources, for
product, reduces our cost due to the manufacturer's ability to plan production
more efficiently.
Operating Expenses. Our total operating expenses increased from $408,617
in the first six months of 1998 to $1,145,643 in the first six months of 1999.
The major components of operating expenses, our selling, distribution, general
and administrative expenses and amortization of deferred charges all increased
during this period. We believe that the increases in dollar amounts were
consistent with our growth. As a percentage of sales, operating expenses
decreased from more than 300% of sales to 134% of sales. This is primarily
attributable to increased sales and the fixed elements of some of those
expenses. Most components of operating expense have decreased as a percentage of
sales. However, distribution expense did increase as a percentage of sales from
less than 4% of sales to approximately 12% of sales due to our geographic
expansion and servicing of new accounts in Colorado, Texas, Arizona and other
areas outside of the Northeastern United States. We expect that when we are able
to build sales volume in any particular area, distribution costs will decrease
as a percentage of sales.
The deferred charges represent certain product placement costs, also known
as slotting fees, paid to our retail customers to obtain and maintain shelf
space in retail outlets, generally over a twelve month period. The payment of
these fees is common in most segments of the food industry. We expect that the
deferred charges will continue to rise for a period of time and then decrease as
our brand becomes more established.
General and administrative expenses include rent, salaries, and other costs
for general corporate functions such as finance, accounting, legal fees and
other professional service expenses. The increase in general and administrative
expenses is primarily attributable to increased salaries and related expenses
associated with hiring additional personnel and increased professional fees to
support the growth of our operations. We expect to incur additional general and
administrative expenses as we hire additional personnel and additional costs
related to the growth of our business and operation as a public company. We
expect these expenses to include facilities expansion, directors and officers
liability insurance, investor relations programs and professional service fees.
Accordingly, we anticipate the general and administrative expenses will continue
to increase in absolute dollars. We believe that general and administrative
expenses will follow the pattern for a growth company, increasing initially and
then decreasing as a percentage of revenue.
Selling expenses consist primarily of promotional activities, advertising,
salaries and commissions of sales and marketing personnel, brokers and
distributors. Selling expenses increased in absolute dollar amounts from the
first six months of 1998 to the first six months of 1999 primarily due to
increases in volume, which caused additional fees to brokers and distributors,
as well as an increase in advertising and other promotional activities. We
expect that selling expenses will continue to increase
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<PAGE>
in absolute dollars for the foreseeable future as we increase expenditures for
sales, marketing, and brand promotion and we hire additional sales and marketing
personnel. In September, 1999, we made a decision to terminate our existing
advertising relationship and hire additional marketing personnel in-house. We
expect that sales and marketing expenses will follow the pattern for a growth
company, increasing initially and then decreasing as a percentage of sales.
Other Income and Expenses. Our other income during 1999 consisted of a
one-time cash prize from our victory in the Mail Boxes, etc. "See Your Small
Business on the Superbowl" contest. Our loss on the sale of a fixed asset in
1999 resulted from our sale of a promotional vehicle. We do not expect that
either this type of income or expense will recur in the future. Our interest
expense increased from approximately $5,000 in 1998 to approximately $19,000 in
1999, due to additional borrowings to finance growth. We expect that we will
eliminate interest expense entirely for approximately the first 12 months after
this offering due to the availability of the proceeds of this offering. After
that time, we expect that we will obtain lines of credit consistent with our
level of sales. Interest expense also increased in 1999 due to the introduction
of a receivables factoring arrangement put into place during that period.
YEAR ENDED DECEMBER 31, 1998
The year ended December 31, 1998 was our first full operating period, and
therefore no prior fiscal year comparative data is available. In the year ended
December 31, 1998, we had net sales of approximately $416,000 and our costs of
sales were $299,868, approximately 72.1% of net sales. We had a loss from
operations of approximately $951,000 and a net loss of approximately $956,000.
For financial statement purposes, Strive, Inc. is deemed to be our
predecessor. Strive's financial statements for the year ended December 31, 1997
are included in this prospectus. While Strive focused on developing and
marketing products under the Jeremy's Microbatch(Registered) name, because of
Strive's limited operations in 1997, any comparison between our 1998 results and
Strive's 1997 results would not be meaningful.
SEASONALITY
While our sales have fluctuated due to our rapid growth, our sales are
generally not expected to be seasonal. The market segment in which we compete,
super premium ice creams, does not experience significant seasonality. We do not
expect that our sales will be affected by significant seasonal fluctuations in
the future.
INDUSTRY TRENDS
The ice cream industry, and the super premium segment in particular, has
recently experienced significant changes. The consumer demand for ice cream has
shifted back to full fat ice creams, like those we produce, from low fat and
non-fat ice creams and yogurt products which were popular in the 1980's and
early 1990's. We expect, based on our review of industry statistics, that the
demand for full fat product, and super premium ice creams in particular, will
continue to grow rapidly. However, we also believe that competition in our
segment will increase. Competitors in the segment have helped to drive growth
and a reallocation of retail space to super premium products. Therefore, we
believe that the market segment in which we compete will continue to grow.
However, should industry trends change, and consumers once against focus on
lower fat products, our growth could be severely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through capital
contributions of our shareholders. Since inception through September 1999, we
had received $2,700,000 in cash capital contributions from two of our
shareholders, which includes $650,000 received during the third quarter of 1999.
One of these shareholders also converted a $50,000 note payable to equity during
1998. We
13
<PAGE>
received an additional $100,000 from another shareholder in October, 1999. We
also received working capital through an accounts receivable factoring
arrangement and a line of credit from Norwest Bank.
Net cash used in operating activities was $442,270 in the first six months
of 1998, $928,835 in the year ended December 31, 1998, and $977,430 in the first
six months of 1999. All of these negative cash flows were offset primarily
through additional investments by our existing shareholders.
Our line of credit with Norwest Bank accrues interest at the rate of 12.25%
per annum. As of the date of this offering, we owed approximately $300,000 under
the line of credit. We intend to repay our outstanding obligations to Norwest
Bank with the proceeds of this offering.
In May 1999 we entered into a factoring agreement under which we agreed to
sell substantially all of our receivables to a finance company. We pay the
finance company a fee of 1.5% of the amount of receivables purchased. The total
unpaid receivables outstanding at any time under the factoring agreement may not
exceed $500,000. Under this agreement, we must repurchase a receivable if the
customer does not pay within a certain time period. We intend to terminate our
accounts receivable factoring arrangement as soon as practicable after the
closing of this offering.
We plan to increase our inventory levels at the end of 1999 and at the
beginning of 2000 as insurance against possible production delays due to year
2000 problems. Potential Year 2000 problems are discussed below under "Impact of
the Year 2000 Issues on Our Information Systems".
We believe that our existing cash balance together with its existing line
of credit and projected cash flow from operations will not be sufficient to fund
projected order flow, overhead and debt repayment for the fiscal year ending
December 31, 1999. Accordingly, we must obtain additional financing in order to
maintain its current level of operations. If financing is not obtained in the
immediate future, then we will have to reduce operations to a level consistent
with available working capital. We expect to raise additional working capital
through this proposed initial public offering. There can be no assurances that
any such additional equity financing will be available on a timely basis and/or
under acceptable terms. We have experienced recurring operating losses since
inception. Our independent certified public accountants have included an
explanatory paragraph in their report indicating there is a substantial doubt
about our ability to continue as a going concern.
As we do not manufacture, store or distribute products ourselves, we do not
anticipate any significant capital requirements in the next twenty (24) months,
other than the payment of increased slotting fees as we enter new markets and
pay new retail customers. We believe that the cash supplied by this offering
will be sufficient to finance all of our needs for at least twenty-four (24)
months. While our ability to increase our revenues and obtain net cash flow from
operations is unproven, we believe that at the end of the twenty-four (24) month
period following closing, we will be able to finance operations from cash flow.
After closing, we may be able to enter into receivables financing or line of
credit arrangements with lower cost than those presently in place. However, if
our revenues do not increase as quickly as anticipated, or the expenses we incur
are greater than anticipated, we may need to raise additional funds to fund more
aggressive brand promotion or more rapid expansion. We cannot be sure that any
required additional financing will be available on terms favorable to us, or
will be available at all. If additional funds are raised through the issuance of
equity securities, stockholders may experience dilution of their ownership
interest and the new securities may have rights superior to the holders of our
common stock. If additional funds are raised by the issuance of debt, we may be
subject to certain limitations on our operations and our ability to pay
dividends. If adequate funds are not available, or not available on acceptable
terms, we may be unable to fund our expansion, successfully promote our brand
name, develop or enhance our services, respond to competitive pressures or take
advantage of business opportunities. Any of these events could have a material
adverse effect on our business, results of operation or financial condition.
14
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which will be effective for fiscal year
2001. This Statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measure at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. SFAS 133 is not anticipated to have a significant
impact on the Company's operating results or financial condition when adopted,
because the Company currently does not engage in derivative instruments.
IMPACT OF THE YEAR 2000 ISSUE ON OUR INFORMATION SYSTEMS
The Year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We do not expect to be directly affected by the Year 2000 issue as we do
not rely on date-sensitive software or affected hardware. Our current accounting
and other systems were purchased "off-the-shelf". We intend to timely update our
accounting and other systems that are determined to be affected by the Year 2000
issue by purchasing Year 2000 compliant software and hardware available from
retail vendors at a reasonable cost.
We have contacted our primary vendors and are in the process of contacting
our primary customers to determine whether such companies' systems are Year 2000
compliant. If our systems or other companies on whose services we depend,
including our vendors, are not Year 2000 compliant, this could have a material
adverse effect on our business, results of operation or financial condition.
INFLATION
The impact of general inflation on our business has been insignificant to
date. Inflation may affect our raw materials prices, but we do not expect that
it will affect our gross profit.
15
<PAGE>
OUR BUSINESS
BACKGROUND
We are a leading and rapidly growing specialty developer, marketer and
seller of super-premium ice cream in unique, limited edition flavors. We entered
the premium ice cream industry with an innovative concept first introduced by
the microbrewing industry: combine super-premium ice cream with high-quality
ingredients to produce small, limited batches of delicious ice cream. We have
strengthened our brand name recognition by designing and implementing a vigorous
marketing campaign that emphasizes the youthful, entrepreneurial spirit of our
company and our current management team.
Our products are currently available in more than 3,200 stores in New
England, the Mid-Atlantic region, Colorado, Minnesota, Florida, Texas and
Arizona. We currently market flavors of our ice cream primarily in packaged
pints, for sale primarily in supermarkets, other grocery stores, convenience
stores and other retail food outlets.
During 1997, one of our principal shareholders, Strive, Inc. focused
primarily on developing, marketing and selling super-premium ice cream using
high-quality ingredients under the name of Jeremy's Microbatch(Registered) Ice
Creams. Because of this, we have included the financial statements of Strive for
1997 in this Prospectus. We began operations in January, 1998, when Strive
transferred the business to Jeremy's Microbatch Ice Creams, LLC. Our President
and our Chief Operating Officer are principal shareholders of Strive.
Jeremy Kraus, now our President and Chief Executive Officer, founded the
business in his junior year at the University of Pennsylvania. We believe that
we have maintained a reputation for producing gourmet-quality ice cream, and for
establishing and promoting a light-hearted, youthful promotional campaign that
fosters our image as an energetic and creative company.
THE ICE CREAM MARKET
The packaged ice cream industry includes economy, regular, premium, premium
plus and super-premium products. Super-premium ice cream is generally
characterized by a greater richness and density than other kinds of ice cream.
This higher quality ice cream generally costs more than other kinds and is
usually marketed by emphasizing quality, flavor selection, texture and brand
image. Other types of ice cream are largely marketed on the basis of price. Ice
cream is also part of the larger market for frozen desserts, which includes
products such as yogurts and sorbets. In addition to packaged ice cream, ice
cream is also sold hand dipped by ice cream shops. Some of our competitors have
their own ice cream shops, but many ice cream shops are owned and run by
independent operators.
Super-premium ice cream has become an important part of the frozen dessert
industry. Based on information provided by the International Dairy Food
Association, we believe that sales of super-premium ice cream grew 12% from 1997
to 1998, while sales of all full fat ice creams grew only 3%.
JEREMY'S MICROBATCH(REGISTERED) ICE CREAMS
Our products are primarily sold in pint containers. The flavors we develop
generally have a high content of products mixed in with the ice cream, such as
nuts, chips, cookie pieces and swirls of other flavorings. The small container
size is part of our Microbatch(Registered) image.
Jeremy's ice cream has a high level of butter fat and low level of air
incorporation, known in the industry as "overrun", during the freezing process.
The approximate fat content of our ice cream is 16% excluding products mixed in.
The approximate air incorporation is 20%. These characteristics give our ice
cream the rich taste and dense, creamy texture that characterizes super-premium
ice creams. The fat content of our ice cream comes primarily from the butter fat
in the cream, but also from egg yolks. The ice cream mix consist of cream,
sugar, non-fat milk solids, egg yolks and natural stabilizers. Our products are
made from the finest quality ingredients. To date, we have not
16
<PAGE>
experienced any difficulty obtaining the dairy products used to make our ice
cream. Various flavorings and products mixed in are readily available from many
suppliers throughout the U.S.
Our business plan includes continual development of new products and
retiring older products unless they are super achievers. We believe this will
help stimulate sales by the interest in the new products and generally give us a
fresher image. Through the end of September, 1999 our flavors included:
o Cinnamon Bun;
o Chocolate Overload;
o Coffee Extravaganza;
o Fuzzy Navel;
o Chocolate Down Under; and
o Classic S'mores.
Consistent with our overall business plan, during the fourth quarter of
1999, we plan to gradually phase out all the existing flavors other than
Cinnamon Bun and introduce the following new products:
o Revenge of Chocolate Overload (chocolate with chocolate covered almonds);
o Wired (vanilla ice cream with caffeine);
o Purple Passion Pills (purple ice cream with blue candies);
o Eve's Sinful Cider (apple cider flavor with chunks of apple);
o Welcome to Tiramisu (tiramisu flavored ice cream with honey covered lady
fingers);
o Triple Expresso (coffee flavor with chocolate covered expresso beans);
and
o Vanilla Cream Stout (vanilla bean ice cream with nonalcoholic beer swirl
and chocolate covered pretzels).
In developing new flavors, we generally explore different types of desserts
to determine which are not currently represented by ice cream flavors but could
be converted to ice cream flavors. Once we develop a concept, we develop several
test flavors and refine them to two or three potential flavors. We then test the
two or three potential flavors with both consumers and food experts.
Costs of particular ingredients included in a flavor are not generally
considered by us in determining whether or not to produce a new flavor. The
prices of our products are based upon average product cost.
OUR CUSTOMERS AND CONSUMER ORIENTED MARKETING
Our target market consists of 15-35 year olds and affluent educated
households, especially dual income young professionals without children, and
college students. Our consumer oriented marketing has consisted primarily of:
o Sponsorship of concerts, exhibits, fairs and other public amusements;
o Entering into relationships in which we obtain promotional consideration
such as mention on radio programs and in newspaper stories;
o The Jeremy's Microbatch(Registered) Secret Service "Guerilla Marketing
Teams." These are teams, generally made up of college students, which go
to areas of high concentration of our target customers and distribute
coupons, samples and other premiums to promote the brand.
In early 1998, we won the Mailboxes, Etc. "See Your Small Business on the
Superbowl" contest which gave us a free 30 second television spot during
Superbowl XXXIII and enabled us to promote the product in other ways, such as
appearance on television talk shows.
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<PAGE>
Before this offering we did not spend significant funds on conventional
consumer advertising such as print, radio and television. We intend to use a
significant portion of the proceeds of this offering to begin that type of
direct consumer advertising. We now have in-house marketing staff to assist us
in these efforts.
OUR RETAIL CUSTOMERS.
In order to successfully market our product, we must convince retailers to
allocate freezer shelf space to the product. Approximately 45 chains now carry
our ice cream in approximately 3,200 stores. Most of these customers are
regional grocery chains of significant size, such as Giant, Shop-Rite and Stop
'n Shop and independent grocery stores. We also sell through privately owed
gourmet grocery chains and convenience stores.
Approximately 80% of our sales are through regional grocery chains, and
less than 20% is through independent grocery stores.
In the six months ended June 30, 1999, Giant Foods, a retail chain, and
three distributors, C&S Wholesaler Grocers, Inc., Edy's Grand Ice Cream of New
York and Specialty Frozen Products, each accounted for between 10% and 20% of
our sales. We expect the three distributors to continue to account for
significant sales in the near future. C&S Wholesale Grocers will service Giant
Foods in the future, therefore we will no longer sell directly to Giant Foods.
We market to the grocery chains by offering lower introductory prices and
promotional programs and allowances. We also conduct in-store sampling and
provide promotional funds to chains. We have historically paid and expect to
continue to pay slotting fees for shelf space. During the six months ended June
30, 1999, we incurred approximately $340,000 of slotting fees. These fees are
common in most segments of the food industry and vary from chain to chain.
Chains are generally reluctant to give up shelf space to new products when they
already have products which are performing.
We market directly to retail chains but are assisted by regional brokers.
MANUFACTURING ARRANGEMENTS
Our products are produced and packed by contractors who are in the business
of producing and packing ice cream. We currently have a single source for the
production and packing of our product, through a co-packing agreement with Roney
Oatman, Inc., of Illinois. Although we currently use only this single source,
our contract with Roney Oatman is not exclusive and we could use other sources
if that became advantageous. Under our contract with Roney Oatman, we pay the
manufacturer its actual cost for raw material such as butter, milk and packaging
materials, plus a fixed processing fee for each flavor. Therefore, the cost of
each production run may change if the cost of raw materials changes. We may
elect to cancel this agreement on sixty days' notice at any time. However, we
are then required to purchase all of the manufacturer's inventory related to our
product and compensate the manufacturer for the amortized cost of its equipment
used in the production of our product. We estimate the original cost of this
equipment would not exceed $50,000. Our obligations to the manufacturer are
guaranteed by Bluestem Capital Partners, II, L.P., our majority shareholder.
DISTRIBUTION ARRANGEMENTS
Arrangements with experienced ice cream distributors are essential to the
success of our business. Generally, each geographic region has a limited number
of distributors with the ability to properly handle the distribution of ice
cream products. Establishing relationships with distributors and maintaining
those relationships is therefore crucial to our business. In order to obtain
favorable relationships with distributors, we expect that we will be required to
grant distributors exclusive rights within certain territories. Currently, we
have agreements with Delta Ice Cream covering Illinois and Melody Farms, LLC
covering Michigan. Both of these agreements grant the distributor rights to
distribute our products exclusively in the respective territories.
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Our distributors are responsible for stocking our product on the shelves of
our retail customers. Independent brokers who maintain relationships with the
individual stores or chains usually assist the distributors in insuring that our
product is properly displayed and in maintaining promotional displays.
COMPETITION
The super-premium ice cream business is highly competitive, with the
distinction between the super-premium category and the "adjoining" premium and
premium plus categories more marked than in the past. The Company's principal
competitors are The Haagen-Dazs Company, Inc., Ben & Jerry's, Godiva, Starbucks
and Edy's. Edy's is marketed by Dreyers, Inc., an independent publicly owned
company. Starbucks and Godiva are distributed by Dreyer's. We believe
Haagen-Dazs controls approximately twenty percent (20%) of the super-premium
market. Other significant frozen dessert competitors are Dannon, Columbo,
Healthy Choice, and numerous other regional ice cream companies. Haagen-Dazs, an
industry leader in the super-premium ice cream market, is owned by The Pillsbury
Company, which in turn is owned by Diageo (previously known as Grand
Metropolitan PLC), a British food and liquor conglomerate. Diageo is a large,
diversified company with resources significantly greater than ours, and
Haagen-Dazs has a significant share of the markets that we have entered in
recent years. Haagen-Dazs has also entered foreign markets (including certain
markets in Europe and the Pacific Rim). Ben & Jerry's is an independent
publicly-owned Company. Haagen-Dazs, Ben and Jerry's and certain other
competitors also market flavors using pieces of cookies and candies as
ingredients. In addition, unlike Jeremy's Microbatch(Registered), Haagen-Dazs
and Ben & Jerry's manufacture their own ice cream.
In addition to competition within the super-premium category, we also
compete for both retail shelf space and customer dollars with other types of ice
cream and other frozen desserts, such as frozen yogurt, low fat ice cream and
sorbet. Intense competition within the super-premium category, as well as the
proliferation of various types of frozen desserts, such as lower fat, lower
cholesterol products like frozen yogurt, low fat ice cream and sorbet, have
combined to make it more difficult to obtain shelf space and customer dollars.
The ability to introduce innovative new flavors and low fat offerings on a
periodic basis is also a significant competitive factor. The Company expects
strong competition to continue, including price/promotional competition and
competition for adequate distribution and limited shelf space within the frozen
dessert market generally and the super-premium category specifically.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expense of a national marketing campaign and the limited
availability of space in the freezer compartments of retailers. Our ability to
increase our market share will be dependent upon several factors, including
consumer acceptance of our products, the quality and price of our products,
advertising, and the availability of sufficient capital to allow product
expansion.
GOVERNMENT REGULATION
We are subject to regulation by various governmental agencies, including
the U.S. Food and Drug Administration ("FDA") and the U.S. Department of
Agriculture. We must also obtain licenses from certain states where Jeremy's
Microbatch(Registered) Ice Creams products are sold. We cannot predict the
impact of possible changes that we will be required to make in response to
legislation, rules or inquiries made from time to time by governmental agencies.
FDA regulations may, in certain instances, affect our ability, as well as others
in the frozen dessert industry, to develop and market new products.
Nevertheless, we do not believe that these legislative and administrative rules
and regulations will have a significant impact on our operations.
The Company's manufacturers must comply with federal and local
environmental laws and regulations relating to air quality, waste management and
other related land use matters. Our manufacturers must maintain waste water
discharge permits and pre-treat production affluent prior to discharge to the
municipal treatment facilities. We believe that our manufacturers are in
compliance with all required operational permits relating to environmental
regulations.
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PROPRIETARY RIGHTS
We have registered the trademarks "Microbatch(Registered)" and "Jeremy's
Microbatch(Registered) Ice Creams". While we believe that we would obtain common
law protection on our flavor names through their use, we generally do not intend
to obtain federal registration of those trademarks given the expected limited
lifespan of each flavor. We rely on trade secret protection for the formulation
of our flavors. We generally require our employees and consultants to execute
confidentiality agreements. Other than the rights to the Jeremy's
Microbatch(Registered) Ice Cream name, we do not anticipate that proprietary
rights will be extremely important to our business.
We intend to rely primarily on trade secret and copyright protection and
non-disclosure agreements with our employees to establish and protect any ideas,
concepts and marketing or promotional materials used in our business. Trademark
protection of the Microbatch(Registered) name will also be important. These
methods of protecting our proprietary rights may not afford complete protection.
Agreements with employees may be breached and we may not have adequate remedies
for any breach. We may not have sufficient resources to prosecute any party
which infringes our trademark, or our other proprietary rights. Trade secrets do
not protect against independent development of any secret concepts or processes
we maintain. We cannot be sure that our trademark or any materials we develop in
the future will not infringe upon the rights of third parties. Any defense to
any infringement claim may require substantial resources which we may not have.
Therefore, any infringement on our proprietary rights, or any claim that we
infringe upon the rights of others, could have a material adverse effect on us.
We received a United States trademark registration for the
"Microbatch(Registered)" name in 1998. We are not aware of any claims of
infringement or other challenges on our right to use this trademark. However,
this trademark is not yet incontestable and we cannot be sure that a challenge
will not be brought at some time.
EMPLOYEES
As of October 20, 1999, we employed approximately 28 employees,
approximately 11 of whom were employed full-time. The remaining employees are
primarily part-time employees engaged in our "Secret Service" marketing teams.
Most of those employees are college students. We also employ additional
personnel during peak selling periods. We consider our relationship with our
employees to be good.
INSURANCE
Our business exposes us to potential liability which is inherent in the
marketing and distribution of food products. We currently maintain $1,000,000 of
product liability insurance. We also maintain $1,000,000 of general and personal
injury insurance per occurrence and $2,000,000 in the aggregate. Any product
liability judgment entered against us which is not covered by insurance could
have a material adverse affect on our business, financial condition and results
of operations.
PROPERTIES
Our corporate headquarters are located in the University City Science
Center at 3401 Market Street, Philadelphia where we lease approximately 2,400
square feet for an aggregate monthly rental of approximately $3,000. Our lease
is on a month-to-month basis and can be terminated by either party on thirty
(30) days' notice. We anticipate that this space or similar space we may obtain
will be sufficient for our current needs and planned expansion. The company is
currently negotiating an agreement for new office space. We do not anticipate
requiring any space other than office space, as we do not store any raw
material, product or packing materials.
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LEGAL MATTERS
In August of 1998, we received notice that Yablon Enterprises claimed a
finder's fee in connection with the investment of Bluestem Capital Partners, II,
L.P. in Jeremy's. Mr. Yablon, through his attorney, demanded payment of five
(5%) percent of the initial cash invested by Bluestem, and an amount between
four (4%) percent and six (6%) percent of additional investments made by
Bluestem, plus 6.5 percent of Jeremy's equity. We believe that Mr. Yablon is
entitled to no fee for the Bluestem financing as he did not introduce us to
Bluestem or provide any other services which would have entitled him to a fee.
Our attorney contacted Mr. Yablon's attorney in September, 1998. We have not
received any further demand or correspondence with respect to that matter since
September, 1998.
In August, 1999, we received a demand for payment of finder's fees from
American Maple Leaf Corporation, an entity with which we previously had a
non-exclusive finder's fee agreement. The demand did not specify reasons for
which the finder's fee was payable. Since we had not received any financing from
any party introduced by American Maple Leaf, or in any other way attributable to
the services of American Maple Leaf, we concluded that this demand was
completely without merit.
In June of 1999, we terminated the employment of Thomas Shelton, who, at
that time, was a member of the Board of Managers of Jeremy's Microbatch Ice
Creams, LLC. At that time, Mr. Shelton was also a member of the Board of
Directors and a shareholder of Strive, Inc., one of our principal shareholders.
We subsequently received a demand by Mr. Shelton to provide him with certain
documents, and give him access to our books and records, in his capacity as a
manager of Jeremy's Microbatch Ice Creams, LLC. Our attorney subsequently
provided certain documents to Mr. Shelton's attorney. We have subsequently
removed Mr. Shelton as a manager of Jeremy's Microbatch Ice Creams, LLC. We do
not believe we owe Mr. Shelton any further duty.
On October 1, 1999, we terminated our relationship with our former
marketing agency, the Weightman Group, Inc. We subsequently received a demand
for payment to Weightman of approximately $240,000 payment for goods and
services. We believe that the amount demanded is approximately the amount owed
to the Weightman Group as set forth in our financial statements or in our books
and records subsequent to the date of our financial statements. The
correspondence demanding payment requested that we pay this amount in three
monthly installments beginning October 15, 1999. We do not have sufficient funds
to make such payments, but intend to pay the entire amount actually owed to the
Weightman Group with the proceeds of this offering. We had no written contract
with the Weightman Group.
After termination of our relationship with the Weightman Group, we hired
three former employees of the Weightman Group. The letter demanding payment also
advised us that the efforts of those individuals while employed by Weightman are
the property of Weightman and that Weightman intended to monitor our activities
to determine if we were improperly using the property created by these
individuals. We believe that we are entitled to use all property created by
Weightman on our behalf while Weightman was engaged as our marketing agency. To
the extent that Weightman does have some claim which may prevent us from using
any property created by an employee of Weightman, we believe we can utilize
other materials without adversely affecting our business. We are currently
attempting to negotiate a settlement of this matter with Weightman which would
encompass payment of the amounts owed to them from the proceeds of this offering
and a release of any other claims Weightman may have.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and positions of our Directors,
Executive Officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jeremy D. Kraus...................... 23 President, Chief Executive Officer and Director
Samuel V. Cohen...................... 22 Chief Operating Officer, Secretary and Director
Jeffrey S. Rosen..................... 29 Chief Financial Officer
Jay H. Bern.......................... 48 Vice President of Business Development
Kristoffer J. Murphy................. 24 Promotions Manager
Paul Schock.......................... 41 Director
Steve Kirby.......................... 47 Director
</TABLE>
The Company has agreed to use its best efforts to elect a designee of the
underwriter to the Company's Board of Directors after the closing of this
offering, including solicitation of proxies. In addition, our principal
shareholders have agreed to vote in favor of the underwriter's nominee to the
Board. If the Company is unable to have a designee of the underwriter elected to
the Board, the underwriter will have the right to have an observer at all board
meetings. The underwriter has not advised us of the name of any designee to our
Board.
Our shareholders prior to this offering, who will continue to own more than
50% of our shares after this offering, have agreed with each other to vote their
shares to elect Mr. Kraus, Mr. Cohen and two nominees of Bluestem Capital
Partners, II, L.P. to our Board of Directors through the end of 2003.
A brief description of the backgrounds of the current Directors, Executive
Officers and key employees are set forth below:
EXECUTIVE OFFICERS
JEREMY D. KRAUS. Jeremy D. Kraus is the founder of our business and has
been Chief Executive since its inception. He received his Bachelor of Science
with a specialty in entrepreneurial management from the Wharton School of the
University of Pennsylvania in 1998. Jeremy has received many academic and
professional awards recognizing his entrepreneurial ability. While at Wharton he
was named a Berg Scholar and awarded both the Gloeckner Award and the Trilogy
Award for entrepreneurial excellence -- becoming the first student to win both
awards in the school's history. In addition, Governor Tom Ridge named him
Pennsylvania's Young Entrepreneur of the Year in 1997. In 1998, Jeremy was named
one of the top 40 marketers under 40 years of age by Brandweek magazine, as well
as one of Philadelphia's top 40 businessmen under 40 years of age by the
Philadelphia Business Journal.
Jeremy Kraus is also a director, officer and shareholder of one of our
principal shareholders, Strive, Inc. Mr. Kraus devotes substantially all of his
time to the activities of Jeremy's.
SAMUEL V. COHEN. Samuel V. Cohen has served us in various capacities since
the inception of our business. He is experienced in areas of operations
management, information systems and project management. In recognition of his
work at Jeremy's Microbatch(Registered) Ice Creams, he was named one of
Advertising Age's Top 100 Marketers of 1998. He has done operations and
technology consulting projects for Rosenbluth International and Valley National
Bank. He is a 1998 graduate of the Wharton School of the University of
Pennsylvania, with a focus on operations management. Through those and other
experiences, as well as academic coursework, Samuel has worked to develop unique
solutions for supply and distribution chain management, service process
management, quality control/assurance, and perishable inventory purchasing. In
addition, he has been integral in implementing these solutions through the
creation of proprietary technologies utilizing both continuous and discrete
event simulation, mathematical modeling, and interactive software. He has also
worked as a technical
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professional himself, serving as a technical support specialist and assistant
system administrator for a 100+ client intranet and internet multi-webserver
host network.
Samuel Cohen is also a director, officer and shareholder of our
shareholder, Strive, Inc. Mr. Cohen devotes substantially all of his time to the
activities of Jeremy's.
JEFFREY S. ROSEN. Mr. Rosen joined us in April, 1999. He is a graduate of
Rowan University with a Bachelors of Science degree in finance. Before joining
Jeremy's, Jeff was the assistant controller of Megasoft, a computer software
company, from 1997 to 1998. Megasoft filed for bankruptcy protection in 1998.
For four years prior to joining Megasoft, Mr. Rosen was an accountant with a
public accounting firm in New York City. He studied and practiced all facets of
accounting both as an auditor and a financial statement and tax preparer.
KEY EMPLOYEES.
JAY H. BERN. Jay H. Bern joined us as Vice President of Business
Development in July 1998. He is a seasoned sales professional in the ice cream
business. Jay has over twenty years of experience in broker management, direct
sales, distributor sales and sales management in the consumer packaged goods
industry. From 1997 to 1998, Jay served as a sales executive with Old Fashioned
Kitchen, which makes frozen foods. From 1996 to 1997 Jay was a sales executive
with New England Frozen Foods. From 1993 to 1996, Jay served as the Director of
Sales for Mr. Cookie Face. Jay has experience working with some of Jeremy's key
competitors, such as Edy's Grand Ice Creams as a Senior Account Executive from
1991 to 1993 where he sold Ben & Jerry's, as well as Haagen-Dazs where he served
as a Key Account Executive and Sales Manager from 1985 to 1987.
KRISTOFFER J. MURPHY. Kris Murphy joined us in 1999. He graduated from
Temple University in 1998 with a degree in radio, television and film. While
still in high school he produced a daily television show for a local cable
station. During his sophomore year at Temple, he began as a promotions assistant
for WPLY(Y100), a highly rated Philadelphia radio station. In his time there he
was promoted several times, eventually becoming the Sales Promotion Coordinator.
He began the Y100 Street Squad, a promotional team responsible for over 1200
events in the Philadelphia Metro in 1998. He was an intricate part in Y100 being
named the most promotionally active radio station on the East Coast by numerous
trade publications and the Philadelphia City Paper.
DIRECTORS
PAUL SCHOCK. Paul Schock is the co-fund manager of Bluestem Capital
Company, the general partner of Bluestem Capital Partners, II, L.P., and other
investment partnerships. He attended Stanford University and graduated in 1981
Magna Cum Laude from Augustana College with a degree in Business. Mr. Schock was
a commercial banker and manager for eight years with the First Bank Systems of
Minneapolis, Minnesota and left to become CFO of American Western Company, a
$150 million (sales) public manufacturing company in Sioux Falls, South Dakota.
In 1989, he left American Western Company and formed the predecessor to Bluestem
Capital Company.
STEVE KIRBY. Steve Kirby, is the co-fund manager of Bluestem Capital
Company. He is a graduate of Arizona State University with a BS Degree in
Political Science and a graduate of the University of South Dakota School of Law
with a Juris Doctorate Degree. Mr. Kirby was secretary and senior claim counsel
for Western Surety Company, a national surety bond company from 1977-1992. He
was also the 35th Lieutenant Governor of the State of South Dakota from 1993
through 1995.
COMPENSATION OF DIRECTORS
We do not currently pay our directors any compensation for their service as
directors. In the future, we plan to reimburse directors' expenses for
attendance at board meetings. We have agreed with the underwriter that the
underwriter's designee on the board will receive compensation appropriate for an
outside director. We do not anticipate paying any compensation to this designee
unless we also pay compensation to our other outside directors.
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EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
The following table sets forth information concerning the compensation
earned by our Chief Executive Officer, our Chief Operating Officer and our Vice
President -- Business Development for services rendered in all capacities to us
in the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ------- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Jeremy D. Kraus............................. 1998 48,000 0 0 3,600
Chief Executive Officer
Samuel V. Cohen............................. 1998 36,000 0 0 3,600
Chief Operations Officer
Jay Bern.................................... 1998 40,000 0 0 4,200
Vice President-Business Development
</TABLE>
Our Chief Financial Officer, Jeffrey Rosen, joined us in 1999. Prior to Mr.
Rosen joining us, Mr. Cohen acted as our Chief Financial Officer.
The figure under "All Other Compensation" for Mr. Kraus and Mr. Cohen
consists of a $300 monthly car allowance. The figure under "All Other
Compensation" for Mr. Bern consists of a $700 monthly car allowance. From
January 1 through the date of this prospectus, Mr. Cohen and Mr. Kraus were each
paid at a rate of $70,000 per year, and Mr. Bern was paid at a rate of $80,000
per year. Mr. Cohen, Mr. Kraus and Mr. Bern will continue to receive
compensation at this rate through the end of 1999. During this time, Mr. Kraus,
Mr. Cohen and Mr. Bern will continue to receive their car allowances. As
discussed below, Mr. Kraus and Mr. Cohen will be receiving salary increases
after this offering closes.
EMPLOYMENT AGREEMENTS
In the fourth quarter of 1999, we will enter into employment agreements
with Jeremy D. Kraus and Samuel V. Cohen, which will become effective as of
January 1, 2000, contingent upon closing of our initial public offering.
These agreements will provide for three-year terms with identical
compensation provisions for Mr. Kraus and Mr. Cohen. Under these agreements, Mr.
Kraus and Mr. Cohen will each receive the following compensation:
o Salary of $120,000 in the year 2000 increasing to $130,000 in 2001 and
$140,000 in 2002. The increases in 2001 and 2002 are contingent upon our
profitability in the prior year.
o Options issued at the end of each year under the contract to purchase
10,000 shares at an exercise price equal to the market value of the
shares at the beginning of the year.
Under these agreements, Mr. Kraus and Mr. Cohen will be entitled to
participate in, and receive, standard employee benefits which we adopt for our
employees generally or executive officers specifically. The agreements will
provide that if we terminate Mr. Kraus or Mr. Cohen without cause, he will be
entitled to a severance payment in the amount equal to six months salary. Under
the employment agreements, cause will include:
o Continuing willful neglect of the employee's duties.
o Willful disregard or violation of law or governmental rules which is
likely to subject us to loss.
o The employee's breach of his duty to us if it involves personal profit to
the employee or his family or the taking of an opportunity available to
us to our detriment.
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o The conviction of the employee for certain crimes as well as violation of
securities laws or regulations.
o A material breach of the terms of the Employment Agreement.
o Any misappropriation of funds, theft or fraud by the employee involving
us or any of our affiliates, customers or suppliers.
Mr. Cohen and Mr. Kraus will be entitled to terminate their employment
agreements if we fail to timely pay cash compensation to them in an amount
exceeding $5,000. In the event that Mr. Kraus or Mr. Cohen terminates his
employment agreement for this reason, he will be entitled to six months
severance pay.
STOCK OPTION PLAN
We intend to adopt a stock option plan before the effective date of this
offering. The purpose of this plan will be to enable us to attract, retain and
motivate key employees, directors and consultants, by providing them with stock
options. We anticipate that we will benefit from the added interest which such
personnel will have in the success of Jeremy's as a result of their proprietary
interest.
If adopted, the plan will provide that options may or may not be incentive
stock options within the meaning of Section 422 of the Internal Revenue Code.
Only our employees would be eligible to receive incentive stock options.
Employees and non-employee directors, advisors and consultants would be eligible
to receive options which are not incentive stock options. Incentive stock
options receive favorable treatment under federal tax laws.
If the plan is adopted, we intend to reserve 300,000 shares of our common
stock for issuance under the stock option plan.
We anticipate that our board of directors would administer the plan or
establish a stock option committee consisting of at least two directors to
administer the stock option plan. The board or committee would have the power to
determine the terms of any options granted under the plan, including the
exercise price, the number of shares subject to the option and conditions of
exercise. Options granted under the plan generally would not be transferable and
would only be exercisable during the lifetime of the initial holder of the
option. The exercise price of all incentive stock options granted under the plan
would be at least equal to the fair market value of the shares of common stock
on the date the option is granted. For any participant who owns stock possessing
more than 10% of the voting power of all classes of our stock, the exercise
price of any incentive stock option must be equal to at least 110% of the fair
market value on the date the option is granted. The term of all incentive stock
options under the plan may not exceed ten years, or five years in the case of
10% owners.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
o For any breach of the directors duty of loyalty to Jeremy's or its
stockholders;
o For acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o Under Section 174 of the Delaware General Corporation Law relating to
unlawful dividends or stock redemptions; or
o For any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware Law.
Our by-laws provide that:
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o We must indemnify our directors and officers to the fullest extent
permitted by Delaware Law, subject to very limited exceptions;
o We may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our certificate of incorporation, or our by-laws or other
agreements; and
o We must advance expenses as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law, subject to very limited exceptions.
We intend to obtain directors and officers insurance for our directors,
officers and certain key employees for specific liabilities.
Limitation of liability and indemnification provisions in our certificate
of incorporation and by-laws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty. These provisions may also
have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though an action of this kind, if successful, might
otherwise benefit us and our stockholders. Furthermore, a stockholder's
investment may be adversely affected to the extent we pay the costs of
settlement and damage awards against directors and officers pursuant to these
indemnification provisions. However, we believe that these indemnification and
limitation of liability provisions are necessary to attract and retain qualified
directors and officers.
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PRINCIPAL SHAREHOLDERS
The table presented below sets forth, as of October 20, 1999, information
regarding the beneficial ownership of our common stock by:
o our chief executive officer, other executive officers and directors;
o all directors and executive officers as a group; and
o each person known to us to own beneficially more than 5% of our
outstanding shares.
A person has beneficial ownership of shares if he or she has the power to
vote or dispose of the shares. This power can be exclusive or shared, direct or
indirect.
<TABLE>
<CAPTION>
ADJUSTMENTS FOR OFFERING
------------------------
BENEFICIAL OWNERSHIP OWNERSHIP ASSUMING THE
BEFORE OFFERING(1) SALE OF ALL SHARES
-------------------- ------------------------
NUMBER OF PERCENT NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(3) OF CLASS SHARES(1) PERCENTAGE
- ------------------------------------ --------- -------- ---------- -----------
<S> <C> <C> <C> <C>
(I) DIRECTORS AND EXECUTIVE OFFICERS
Jeremy D. Kraus(1).......................... 323,388 17.966% 323,388 10.78%
Samuel V. Cohen(1).......................... 323,388 17.966% 323,388 10.78%
Paul Schock(2).............................. 1,360,980 75.61% 1,360,980 45.37%
Stephen Kirby(2)............................ 1,360,980 75.61% 1,360,980 45.37%
All Officers and Directors as a Group....... 1,684,368 93.58% 1,684,368 56.15%
(II) OTHER BENEFICIAL OWNERS
Strive, Inc................................. 323,388 17.966% 323,388 10.78%
Bluestem Capital Partners, II, L.P.......... 1,360,980 75.61% 1,360,980 45.37%
</TABLE>
- ------------------
(1) The shares shown as beneficially owned by Mr. Kraus and Mr. Cohen are owned
of record by Strive, Inc., a Texas corporation. Mr. Kraus and Mr. Cohen are
directors and officers of Strive, Inc. Jeremy D. Kraus, our President,
Samuel V. Cohen, our Chief Operating Officer and Edward Kraus, Jeremy D.
Kraus' father, own in the aggregate more than 90% of the outstanding shares
of Strive, Inc. This does not include certain shares which Strive may
acquire from other current shareholders, as described under "Certain
Relationships and Related Transactions."
(2) The shares shown as beneficially owned by Mr. Schock and Mr. Kirby are owned
of record by Bluestem Capital Partners, II, L.P. Mr. Schock and Mr. Kirby
are the co-managers of Bluestem Capital Company, the general partner of
Bluestem Capital Partners, II, L.P.
(3) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934.
Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the number and
percentage owned by each other person listed.
Mr. Kraus and Mr. Cohen's address is 3401 Market Street, Suite 312,
Philadelphia, PA 19104. The address for Mr. Schock, Mr. Kirby and Bluestem
Capital Partners, II, L.P. is 122 South Philips Avenue, Suite 300, Sioux Falls,
South Dakota 57104.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONVERSION OF JEREMY'S MICROBATCH(REGISTERED) ICE CREAMS TO CORPORATE
FORM. In October, 1997, Jeremy's Microbatch Ice Creams, LLC was formed as a
Delaware limited liability company. On the date of this Prospectus, all of the
members of Jeremy's Microbatch Ice Creams, LLC contributed their interests of
that limited liability company to Jeremy's Microbatch Ice Creams, Inc. Each of
the members of Jeremy's Microbatch Ice Creams, LLC received a portion of the
initial shares of Jeremy's Microbatch Ice Creams, Inc. equal to their percentage
interests in the limited liability company. At that time, Jeremy's Microbatch
Ice Creams, LLC, became a wholly owned subsidiary of Jeremy's Microbatch Ice
Creams, Inc.
GUARANTEES BY BLUESTEM. Bluestem Capital Partners, II, L.P. guarantees our
obligations under our agreement with the primary manufacturer of our products.
These obligations include our obligation to pay for product produced and to pay
certain other amounts if we terminate the agreement. These obligations are
discussed in more detail under the heading "Manufacturing Arrangements" on page
18. Bluestem Capital Partners, II, L.P. also guarantees our obligations to
Norwest Bank under our unsecured line of credit from Norwest Bank. This line of
credit expires on December 31, 1999. As of the date of this offering, we expect
that we will have borrowed the maximum amount permitted under this line of
credit, $300,000. Bluestem Capital Partners, II, LP is a venture capital
investment firm that is our majority shareholder. Two of our directors, Mr.
Schock and Mr. Kirby, are principals of Bluestem Capital Partners, II, L.P.
OPERATION OF OUR BUSINESS BY STRIVE, INC. During 1997, one of our
principal shareholders, Strive, Inc. tested several ice cream marketing
concepts, including the Jeremy's Microbatch(Registered) concept. Strive operated
the Jeremy's Microbatch(Registered) business on a limited basis during 1997 and
as of January 1, 1998 transferred the business to Jeremy's
Microbatch(Registered) Ice Creams, LLC. The transfer of the business included
our assumption of $43,937 in liabilities and Strive's contribution of assets,
principally account receivables with a book value of $15,837. Because of this,
we have included the financial statements of Strive for 1997 in this Prospectus.
AGREEMENTS BETWEEN STRIVE, INC. AND OTHER SHAREHOLDERS. In connection with
the conversion of Jeremy's Microbatch(Registered) Ice Creams to corporate form,
we and our principal shareholders entered into a plan of reorganization. This
plan of reorganization contains certain provisions which grant Strive the right
to purchase a portion of the shares owned by Bluestem Capital Partners, II, L.P.
and MBCP-I, L.P. This agreement provides:
o Strive has the right to purchase 47,110 shares from Bluestem upon a sale
of Jeremy's if the aggregate cash and fair market value of securities
received by us or our shareholders is at least $10,000,000. The purchase
price for these shares will be $217,155 if the option is exercised on or
before April 23, 2003. On April 24, 2003 and on each April 24 thereafter,
the purchase price will increase by 20%.
o Strive has the right to purchase 7,115 shares from MBCP-I in the event of
the sale of Jeremy's in which we and/or our shareholders receive at least
$10,000,000. The purchase price for the exercise of this option will be
$32,845 until April 23, 2003 and thereafter increased by 20% each year.
o Strive has the right to purchase 94,220 shares from Bluestem in the event
of a sale of Jeremy's in which the aggregate cash and fair market value
of securities received by us or our shareholders is at least $20,000,000.
The purchase price for these shares will be $434,310 through April 23,
2003 and thereafter will increase by 20% per year.
o Strive will have the right to purchase 14,220 shares from MBCP-I in the
event of the sale of Jeremy's in which the aggregate cash and fair market
value of security i.e. received by us or our shareholders is at least
$20,000. The purchase price for these shares will be $65,690 through
April 23, 2003 and thereafter increased by 20% each year.
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o Strive has the right to purchase up to 261,727 shares from Bluestem at
any time. The purchase price will be $5.73 per share through July 14,
2001, $7.64 per share after July 14, 2001 and before July 14, 2002 and
$9.55 per share after July 14, 2002.
LOANS BY EXECUTIVE OFFICERS. In October, 1999, Jeremy D. Kraus, our
President, loaned us $40,000 and Jeffrey Rosen, Chief Financial Officer, loaned
us $5,000. In exchange for these loans, we issued promissory notes bearing
interest at 10% per annum, due in full in October, 2000. We intend to repay
these notes with the proceeds of this offering. We borrowed these funds to repay
an obligation to an unrelated party which would have matured on June 11, 2000
and bore interest at 14% per annum.
PRIOR LEASE ARRANGEMENTS. From January 1, 1998 through April 1, 1999, we
operated in space leased from an unrelated third party by Jeremy D. Kraus. We
paid the monthly rent of $2,000 directly to the landlord.
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<PAGE>
DESCRIPTION OF SECURITIES
As of the date of this Prospectus, we have the authority to issue 5,000,000
shares of common stock, $.01 par value per share and 500,000 shares of preferred
stock, $.01 par value per share. Immediately prior to the effective date of this
offering there were 1,800,000 shares of common stock outstanding. The Company
has agreed with the underwriter that it will not issue any new shares of common
stock or preferred stock without the underwriter's consent for twelve (12)
months following the date of this prospectus, except under our proposed stock
option plan.
COMMON STOCK
o Holders of common stock are entitled to receive dividends only if
Jeremy's Microbatch(Registered) has funds legally available and the Board
of Directors declares a dividend.
o Holders of common stock do not have any rights to purchase additional
shares.
o Holders of common stock are entitled to one vote per share on all matters
requiring a vote of shareholders.
o Since the common stock does not have cumulative voting rights in electing
directors, the holders of more than a majority of the outstanding shares
of common stock can elect all of the directors whose terms expire that
year, if they choose to do so.
o There is no public market for our common stock at the present time.
VOTING REQUIREMENTS
Delaware corporate law and our By-Laws require the approval of the holders
of a majority of our voting securities for most actions requiring shareholder
approval. These actions include:
o election of directors;
o mergers;
o sales of substantially all of our shares; and
o amendment to our Articles of Incorporation.
There are no provisions in our Articles of Incorporation or By-Laws that
would delay, defer or prevent a change in control of Jeremy's
Microbatch(Registered), except the undesignated preferred stock described below.
Our shareholders prior to this offering, who will continue to hold more than 50%
of our outstanding shares to after this offering, have agreed with each other to
vote their shares to elect Mr. Kraus, Mr. Cohen and two nominees of Bluestem
Capital Partners, II, L.P., to our Board of Directors through the end of 2003.
UNDESIGNATED PREFERRED STOCK.
Our Board of Directors has the authority to issue up to 500,000 shares of
preferred stock in one or more series and fix the number of shares in any
series. The board has the right to set the terms of any series without
shareholder approval. These terms include the voting powers, liquidation and
dividend preferences, dividend rates, terms of mandatory or optional redemption,
conversion rights and other rights and preferences of the shares of preferred
stock. For example, the Board of Directors may issue a series of preferred stock
which would have the right to approve, as a class, any amendment to our
Certificate of Incorporation or any other proposed corporate action, including
business combinations and other transactions. These provisions could dilute and
in other ways adversely affect the rights of our common shareholders, and could
be used in ways which could make a takeover of Jeremy's more difficult.
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DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations, under certain circumstances, from engaging in a "business
combination" with:
o A stockholder who owns 15% or more of our outstanding voting stock (known
as an "interested stockholder");
o An affiliate of an interested stockholder; or
o An associate of an interested stockholder,
for three years following the date that the stockholder became an "interested
stockholder." A "business combination" includes a merger or sale of more than
10% of our assets.
However, the above provisions of Section 203 do not apply if:
o Our board approves the transaction that made the stockholder an
"interested stockholder," prior to the date of that transaction;
o After the completion of the transaction that resulted in the stockholder
becoming an "interested stockholder," the stockholder owned at least 85%
of our voting stock outstanding at the time the transaction began,
excluding shares owned by persons who are our officers and directors; or
o On or subsequent to the date of the transaction, the business combination
is approved by our board and authorized at a meeting of our stockholders
by an affirmative vote of at least 2/3 of the outstanding voting stock
not owned by the "interested stockholder."
The provisions of this statute could prohibit or delay mergers or other
change and control attempts, and thus may discourage attempts to acquire
Jeremy's.
TRANSFER AGENT
The transfer agent and registrar for our Common Stock is Stocktrans, Inc.,
7 East Lancaster Avenue, Ardmore, PA 19003. Its telephone number is
610-649-7300.
WE CANNOT GUARANTEE THERE WILL BE A TRADING MARKET FOR OUR SECURITIES
There has been no prior public market for our shares. You cannot be certain
that a market will develop or be sustained.
THE MARKET PRICE OF OUR SECURITIES MAY NOT BE AS HIGH AS THE OFFERING PRICE
The offering price of our shares has been arbitrarily determined by
negotiation between Jeremy's Microbatch(Registered) and the underwriter. The
offering price is not related to our assets or book value or other accepted
methods of valuing a business. Since the price has been determined in this
manner and not by the market, the price at which the shares trade after the
offering may decrease.
RISK OF DELISTING FROM NASDAQ
If our shares are not listed on the Nasdaq Smallcap Market, there will be
less interest in the market place for our securities. This may result in lower
prices for our securities and make it more difficult for you to sell the shares.
We have applied for initial listing on the Nasdaq Smallcap Market upon the date
of this prospectus. We cannot guarantee that our listing application will be
approved. Even if our securities are approved for initial listing, we must
continue to meet certain maintenance requirements, such as minimum capital
levels and periodic reporting under SEC regulations, in order for our securities
to continue to be listed on Nasdaq. We may not be able to continue to meet such
requirements.
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INVESTORS MAY FACE ADDITIONAL RISKS RELATED TO PENNY STOCK REGULATIONS
If our common stock does not qualify for quotation on Nasdaq and fails to
maintain a price of $5.00 or more per share, our common stock would become
subject to the SEC's "penny stock" rules. These rules require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and its risks. In addition, broker/dealers who
recommend penny stocks to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. In the event our common stock became subject to these rules, it
may become difficult for broker/dealers to sell the common stock. Shareholders
might then have difficulty selling our common stock in the public market.
POSSIBLE NEGATIVE EFFECT OF UNDERWRITER'S WARRANTS ON MARKET FOR OUR STOCK AND
ABILITY TO OBTAIN ADDITIONAL FINANCING
We will issue to the underwriter, for a very small payment, underwriter's
warrants to purchase 120,000 shares, at $.001 per share. Exercise of the
underwriter's warrants and subsequent sale of the shares could adversely affect
the market price of our common stock. The potential for exercise of these
underwriter's warrants may adversely affect the terms we can negotiate for new
financings.
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UNDERWRITING
First Montauk Securities Corp. has agreed, subject to the terms and
conditions of the Underwriting Agreement (a complete copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part), to
purchase from Jeremy's Microbatch(Registered) Ice Creams, Inc. ("Jeremy's") an
aggregate of 1,200,000 shares of Common Stock.
Jeremy's is obligated to sell, and First Montauk is obligated to purchase,
on a "firm commitment" basis, all of the shares of Common Stock offered hereby,
if any are purchased. The Underwriting Agreement provides that the obligations
of First Montauk thereunder are subject to approval of certain legal matters by
counsel and to various other conditions precedent, including the absence of any
material adverse change in Jeremy's business.
First Montauk has advised Jeremy's that it proposes to offer the Shares to
the public at the public offering price per Share set forth on the cover of this
Prospectus, and that they may allow to certain dealers who are members of the
National Association of Securities Dealers, Inc. ("NASD") concessions not
exceeding $.__ per Share, of which not more than $.__ per Share may be
re-allowed to other dealers who are members of the NASD or to foreign banks,
dealers, or institutions not registered under the Exchange Act, under certain
conditions. First Montauk reserves the right to reject orders, in whole or in
part, in its sole discretion. After the completion of the initial public
offering, the offering price, the concessions and the re-allowance may be
changed by First Montauk. First Montauk has advised Jeremy's that it does not
expect any sales to accounts for which it exercises discretion as to such sale.
Jeremy's has granted an option to First Montauk, exercisable at any time
during the 45-day period from the date of this Prospectus, to purchase from
Jeremy's up to 180,000 additional Shares at the price per Share set forth on the
cover page of this Prospectus, less the stated underwriting discounts and
commissions. First Montauk may exercise these options only for the purpose of
covering over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
Jeremy's and First Montauk against certain liabilities that may occur in
connection with the Registration Statement, including liabilities under the
Securities Act.
Jeremy's has agreed to pay First Montauk a "non-accountable" expense
allowance equal to 3% of the gross proceeds of the offering (including any
Shares purchased pursuant to the exercise of First Montauk's over-allotment
options), of which $__ has been paid on account.
Jeremy's has further agreed that, for a period of three years following the
closing of this offering, First Montauk may appoint a designee as either a
member of the Board of Directors or as an advisor to all Board meetings during
such three year period. Such Board member or advisor would be entitled to the
same cash compensation and reimbursement of expenses as Jeremy's affords its
directors who are not also officers or employees of Jeremy's. As of the date of
this Prospectus, no person has been identified by First Montauk as a Board
member or an advisor.
Jeremy's has also agreed to retain First Montauk, for a period of two years
commencing upon the closing of this offering, to render financial consulting
services in consideration of an annual payment of $30,000 to First Montauk
(i.e., an aggregate of $60,000) payable at the closing of this offering. In the
event First Montauk originates a financing or a merger, acquisition, joint
venture or other transaction to which Jeremy's is a party, First Montauk will be
entitled to receive a finder's fee in consideration for origination of such
transaction.
In connection with this offering, Jeremy's has agreed to sell to First
Montauk for a nominal consideration, warrants (the "Underwriter's Warrants") to
purchase up to 120,000 Shares of Common Stock at an exercise price of $__ per
Share (__% of the public offering price per Share). The Underwriter's Warrants
will be subject to anti-dilution provisions providing for appropriate adjustment
in the event of a consolidation or merger of Jeremy's or a transfer of
substantially all of Jeremy's assets to another corporation, such that the
holders of the Underwriter's Warrants will be entitled to receive
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the securities or other property which it would have been entitled to receive
had they, on the date of such action, owned the Shares of Common Stock
comprising the Underwriter's Warrants. The holders of the Underwriter's Warrants
will not have voting, dividend or other rights as stockholders of Jeremy's in
respect of the shares of Common Stock issuable upon exercise of the
Underwriter's Warrants until such warrants are exercised. The Underwriter's
Warrants may not be exercised for a one-year period following the effective date
of this Prospectus and may not be sold, transferred, assigned or hypothecated
during such one year period except to officers of First Montauk and to dealers
who are part of the selling group and/or their officers or partners. The holders
of the Underwriter's Warrants are entitled to 20 days' notice in the event of
liquidation, dissolution or winding-up of Jeremy's.
The holders of the Underwriter's Warrants or the shares of Common Stock
issuable upon exercise thereof will have the right to require Jeremy's to
include such shares in any registration statement filed by Jeremy's during the
seven year period commencing on the date of this Prospectus at Jeremy's expense
(a "piggyback registration"). In addition, at any time during the four-year
period commencing one year from the date of this Prospectus, holders of the
Underwriter's Warrants or the shares of Common Stock issuable upon exercise
thereof have the right to require Jeremy's to prepare and file, one time at
Jeremy's expense (excluding the costs and expense of such holders' counsel), and
one time at the holder's expense, one registration statement so as to permit the
public offering of such shares, so long as holders of not less than 50% of such
warrants and shares make such request (a "demand registration").
In the case of either a piggyback or demand registration, Jeremy's will be
required to keep such registration statement effective so as to permit the
public resale of the shares issuable upon exercise of the Underwriter's Warrants
for a period of at least nine months from the effective date of such
registration statement. Jeremy's will also be required to indemnify any holder
whose securities are included in any registration statement filed pursuant to a
piggyback or demand registration for any liabilities and expenses incurred by
such holder arising from such registration statement except to the extent such
liability or expense arises from written information furnished by such holder to
Jeremy's expressly for inclusion in such registration statement.
For the term of the Underwriter's Warrants, the holders thereof will have
the opportunity to profit from a rise in the market value of the Common Stock,
with a resulting dilution in the interests of the other stockholders of
Jeremy's. The holders of the Underwriter's Warrants can be expected to exercise
them at a time when Jeremy's would, in all likelihood, be able to obtain any
needed capital from an offering of its unissued Common Stock on terms more
favorable to Jeremy's than those provided for in the Underwriter's Warrants.
This may adversely affect the terms on which Jeremy's can obtain additional
financing. To the extent that First Montauk realizes any gain from the resale of
the Underwriter's Warrants and/or the shares issuable upon exercise of the
Underwriter's Warrants, such gain may be deemed additional underwriting
compensation under the Securities Act.
Jeremy's executive officers and directors and all of Jeremy's stockholders
(all of such persons owning, in the aggregate 1,800,000 shares) have entered
into an agreement ("Lock-Up Agreement") with First Montauk pursuant to which
they have agreed not to sell any of such shares owned by them, pursuant to Rule
144 under the Securities Act or otherwise, without the prior written consent of
First Montauk, for a period of 12 months from the date of this Prospectus except
in private transactions in which the purchaser agrees to be bound by such
agreement with First Montauk.
Jeremy's has agreed with First Montauk that it shall not issue any shares
of Common Stock or other equity securities or sell or grant any options or
warrants or other rights to purchase any equity securities without First
Montauk's consent, for a two year period following the closing of this offering,
except that it may issue (i) options under the Option Plan, provided that (a)
the exercise price of any such options shall not be less than the market price
per share of Common Stock on the date of grant and (b) recipients of such
options shall enter into a Lock-Up Agreement with First Montauk in substantially
the same form as existing officers and directors which prohibits the sale of the
shares issuable upon exercise of such options for a period of 24 months after
the closing of this offering
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without First Montauk's prior written consent and grants First Montauk a right
of first refusal with respect to the sale of such shares during the following 24
months; and (ii) securities in connection with an acquisition, merger or similar
transaction, provided that such securities are not publicly registered and the
acquirer of the securities is not granted registration rights with respect
thereto which may be exercised prior to 24 months after closing of this
offering.
Jeremy's has agreed with First Montauk that, for the 24-month period
following the closing of this offering it will not, without the prior written
consent of First Montauk, file any registration statement relating to the offer
of sale of any of its securities, including any registration statement on Form
S-8 (or other similar form).
Jeremy's has agreed with First Montauk that after the closing of this
offering it shall for a period of three years following the offering, maintain
in full force policies of life insurance on the lives of our President, Jeremy
D. Kraus and our Chief Operating Officer, Samuel V. Cohen. Jeremy's shall be the
sole beneficiary of said policies and the face amount of such policy shall be at
least $1,000,000 each.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between Jeremy's Ice Cream and First
Montauk. Among the factors considered in determining these prices were:
o Jeremy's current financial condition and its future prospects;
o market prices of, and demand for, similar securities of comparable
publicly-traded companies;
o the abilities of Jeremy's management;
o the prospects for future growth and earnings; and
o the general condition of the securities market.
In order to facilitate this offering, First Montauk may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock and impose penalty bids in accordance with Regulation M under the
Exchange Act. Specifically, First Montauk may over-allot in connection with this
offering, creating a short position in the Common Stock for its own account. In
addition, to cover over-allotments or to stabilize the price of the Common
Stock, First Montauk may bid for, and repurchase, shares of Common Stock in the
open market. Penalty bids allow First Montauk to reclaim selling concessions
allowed to a dealer for distributing the Common Stock in this offering, if First
Montauk repurchases previously distributed Common Stock in transactions to cover
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. First Montauk is not required to engage in these
activities, and if undertaken, may end any of these activities at any time.
First Montauk cannot predict the effect that the transactions as described above
may have on the price of the Common Stock. It is anticipated that First Montauk
will make a market in the Common Stock after completion of the offering. First
Montauk is not obligated to make a market in the Common Stock and if it does it
may discontinue such activities at any time.
Pursuant to the Underwriting Agreement between Jeremy's and First Montauk,
Jeremy's has agreed to indemnify First Montauk and all persons controlling First
Montauk with respect to certain liabilities, losses and expenses, including
liabilities under the Securities Act, arising in connection with this offering,
with certain exceptions, or to contribute to payments that First Montauk may be
required to make in respect of such liabilities, losses and expenses.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market, or
the perception that these sales could occur, could adversely affect prevailing
market prices of our common stock. Those circumstances could also adversely
affect our ability to raise capital on favorable terms.
All of the shares issued in this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, except for
such shares which may be purchased by our "affiliates." The term affiliates is
defined in Rule 144 of the Securities Act of 1933. All 1,800,000 of our shares
outstanding before this offering are "restricted securities" as that term is
defined in Rule 144. Restricted securities may be sold publicly only if
registered or if the sale qualifies for an exemption under Rule 144. Of these
1,800,000 shares, 1,715,328 shares are held by our affiliates.
Subject to the Lock-Up Agreements described below, and the provisions of
Rule 144, additional shares will be available for public sale, subject to volume
limitations, as follows:
DATE NUMBER OF SHARES
---- ----------------
Currently available........................... 91,484
January 2000.................................. 323,388
April - August 2000........................... 1,020,735
October 2000.................................. 24,148
August 2001................................... 340,245
LOCK-UP AGREEMENTS
The holders of all of our outstanding shares have agreed not to sell any
shares of our common stock for a period of 12 months after the date of this
prospectus, without the consent of the underwriter. These shareholders have also
agreed that during the twelve month period beginning one year after the date of
this prospectus, they will sell no more than 25% of their shares in each three
month period.
RULE 144
Under Rule 144, a person who has beneficially owned restricted shares of
our common stock for at least one year can sell within any three month period a
number of shares that does not exceed the greater of:
o 1% of the shares of common stock then outstanding (in our case, 30,000
shares immediately after this offering)
o the average weekly trading volume during the four preceding weeks
RULE 144(K)
Under Rule 144(k), a person who has not been our affiliate for 90 days
preceding a sale can sell shares owned for at least two years without the volume
limitations referred to above.
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LEGAL MATTERS
The validity of the securities offered hereby is being passed upon for us
by Eckert Seamans Cherin & Mellott, LLC, 1515 Market Street, 9th Floor,
Philadelphia, PA 19102. Certain legal matters will be passed upon for the
Underwriter by Goldstein & DiGioia, LLP, 369 Lexington Avenue, New York, NY
10017.
EXPERTS
The consolidated financial statements included in this prospectus and in
the Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports (one of which contains an explanatory paragraph regarding the
Company's ability to continue as a going concern) appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such reports
given upon the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN GET MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC. This
prospectus, which forms a part of that registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract or document. You may review a copy of the registration statement
at the SEC's public reference room in Washington, D.C., and at the SEC's
regional offices in Chicago, Illinois and New York, New York. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings and the registration statement can also be
reviewed by accessing the SEC's Internet site at http://www.sec.gov. As a result
of this offering, we will become subject to the information and reporting
requirements of the Securities Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the SEC.
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INDEX
TO FINANCIAL STATEMENTS
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Financial Statements
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Changes in Stockholders' Equity............. F-5
Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
STRIVE, INC.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-13
Financial Statements
Statement of Operations................................... F-14
Statement of Stockholders' Equity (Deficiency)............ F-15
Statement of Cash Flows................................... F-16
Notes to Financial Statements............................... F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
[THE FOLLOWING IS THE FORM OF THE OPINION THAT BDO SEIDMAN, LLP WILL BE IN A
POSITION TO ISSUE UPON THE COMPLETION OF THE REORGANIZATION DESCRIBED IN NOTE 8]
Jeremy's Microbatch Ice Creams, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying consolidated balance sheet of Jeremy's
Microbatch Ice Creams, Inc. and subsidiary as of December 31, 1998 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the year ended December 31, 1998 and the period from October
28, 1997 (inception) to December 31, 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Jeremy's Microbatch
Ice Creams, Inc. and subsidiary as of December 31, 1998, and the results of
their operations and their cash flows for the year ended December 31, 1998 and
the period from October 28, 1997 (inception) to December 31, 1997 in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered losses from
operations since inception, including a net loss of $956,201 for the year ended
December 31, 1998. The Company has also sustained recurring losses for the
period subsequent to December 31, 1998. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to this matter are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 2, 1999,
except for Note 8
which is as of October ___, 1999.
F-2
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 179,730 $ 43,424
Accounts receivable
Trade.................................................. 22,550 94,014
Due from factor........................................ -- 43,144
Inventories............................................... 175,224 261,215
Prepaid expenses.......................................... -- 43,808
---------- ----------
Total current assets........................................ 377,504 485,605
---------- ----------
Property and equipment, net (Note 4)........................ 36,032 75,658
---------- ----------
Other assets
Deferred charges, net of accumulated amortization of
$78,331................................................ -- 261,583
Other..................................................... 8,358 11,670
---------- ----------
Total other assets.......................................... 8,358 273,253
---------- ----------
Total assets................................................ $ 421,894 $ 834,516
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable, bank (Note 5)............................... $ -- $ 200,000
Accounts payable and accrued expenses..................... 256,476 285,910
Current maturities of long-term debt (Note 6)............. 50,000 55,794
---------- ----------
Total current liabilities................................... 306,476 541,704
Long-term debt, net of current maturities (Note 6).......... 50,000 35,390
---------- ----------
Total liabilities........................................... 356,476 577,094
---------- ----------
Commitments and contingencies (Notes 3 and 7)
Stockholders' equity (Note 9)
Preferred stock, $.01 par value
Authorized 500,000 shares
Issued and outstanding none............................ -- --
Common stock, $.01 par value
Authorized 5,000,000 shares
Issued and outstanding 885,980 shares and 1,435,607
shares, respectively................................. 8,860 14,356
Additional paid-in capital................................ 1,013,040 2,057,544
Accumulated (deficit)..................................... (956,482) (1,814,478)
---------- ----------
Total stockholders' equity.................................. 65,418 257,422
---------- ----------
Total liabilities and stockholders' equity.................. $ 421,894 $ 834,516
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 28,
1997 SIX MONTHS ENDED
YEAR ENDED (INCEPTION) TO JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1998 1997 1999 1998
------------ -------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales (Note 3).................... $ 415,671 $ -- $ 854,288 $ 135,487
Cost of sales (Note 3)................ 299,868 -- 533,476 155,152
--------- ------- ---------- ---------
Gross profit (loss)................... 115,803 -- 320,812 (19,665)
--------- ------- ---------- ---------
Operating expenses
Selling............................. 581,086 -- 458,796 299,404
Distribution........................ 65,584 -- 102,371 5,186
General and administrative.......... 414,418 -- 504,441 103,513
Amortization of deferred charges.... -- -- 78,331 --
Depreciation........................ 5,659 -- 1,704 514
--------- ------- ---------- ---------
Total operating expenses.............. 1,066,747 -- 1,145,643 408,617
--------- ------- ---------- ---------
(Loss) from operations................ (950,944) -- (824,831) (428,282)
--------- ------- ---------- ---------
Other income (expense)
Other income........................ 1,914 79 5,000 --
Loss on sale of property and
equipment........................ -- -- (18,816) --
Interest expense.................... (7,171) (360) (19,349) (5,031)
--------- ------- ---------- ---------
Total other (expense)................. (5,257) (281) (33,165) (5,031)
--------- ------- ---------- ---------
Net (loss)............................ $(956,201) $ (281) $ (857,996) $(433,313)
========= ======= ========== =========
Basic and diluted (loss) per share.... $ (1.66) $ (0.01) $ (0.82) $ (1.05)
========= ======= ========== =========
Basic and diluted weighted average
number of common shares
outstanding......................... 577,502 30,495 1,049,871 412,993
========= ======= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 28, 1997
(inception)................ -- $ -- $ -- $ -- $ --
Issuance of common stock in
connection with conversion
of debt (Note 6)........... 30,495 305 (305) -- --
Net loss..................... -- -- -- (281) (281)
---------- ------- ---------- ----------- ----------
Balance, December 31, 1997... 30,495 305 (305) (281) (281)
Issuance of common stock for
net liabilities assumed
(Note 1)................... 323,388 3,234 (31,334) -- (28,100)
Issuance of common stock for
conversion of note payable
(Note 6)................... 20,330 203 49,797 -- 50,000
Issuance of common stock..... 511,767 5,118 994,882 -- 1,000,000
Net loss..................... -- -- -- (956,201) (956,201)
---------- ------- ---------- ----------- ----------
Balance, December 31, 1998... 885,980 8,860 1,013,040 (956,482) 65,418
Issuance of common stock
(unaudited)................ 549,627 5,496 1,044,504 -- 1,050,000
Net loss (unaudited)......... -- -- -- (857,996) (857,996)
---------- ------- ---------- ----------- ----------
Balance, June 30, 1999
(unaudited)................ 1,435,607 $14,356 $2,057,544 $(1,814,478) $ 257,422
========== ======= ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 28,
1997 SIX MONTHS ENDED
YEAR ENDED (INCEPTION) TO JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1998 1997 1999 1998
------------ -------------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss)......................................... $ (956,201) $ (281) $ (857,996) $(433,313)
Adjustments to reconcile net (loss) to net cash
(used in) provided by operating activities
Loss on sale of property and equipment........... -- -- 18,816 --
Depreciation..................................... 5,659 -- 1,704 514
Amortization of deferred charges................. -- -- 78,331 --
Changes in assets and liabilities
(Increase) in assets
Accounts receivable
Trade..................................... (6,713) -- (71,464) (8,926)
Due from factor........................... -- -- (43,144) --
Inventories................................. (175,224) -- (85,991) (3,200)
Prepaid expenses............................ -- -- (43,808) (10,800)
Other....................................... (8,535) -- (3,312) (1,366)
Increase in liabilities
Accounts payable and accrued expenses....... 212,179 360 29,434 14,821
---------- -------- ---------- ---------
Net cash (used in) provided by operating
activities......................................... (928,835) 79 (977,430) (442,270)
---------- -------- ---------- ---------
Cash flows from investing activities
Deferred charges................................... -- -- (339,914) --
Proceeds from sale of property and equipment....... -- -- 9,500 --
Purchase of property and equipment................. (41,514) -- (26,646) (41,514)
---------- -------- ---------- ---------
Net cash (used in) investing activities.............. (41,514) -- (357,060) (41,514)
---------- -------- ---------- ---------
Cash flows from financing activities
Issuance of common stock........................... 1,000,000 -- 1,050,000 500,000
Proceeds from note payable, bank................... -- -- 300,000 --
Repayments of note payable, bank................... -- -- (100,000) --
Proceeds from long-term debt....................... 50,000 100,000 -- --
Repayments of long-term debt....................... -- -- (51,816) --
---------- -------- ---------- ---------
Net cash provided by financing activities............ 1,050,000 100,000 1,198,184 500,000
---------- -------- ---------- ---------
Net increase (decrease) in cash...................... 79,651 100,079 (136,306) 16,216
Cash at beginning of period.......................... 100,079 -- 179,730 100,079
---------- -------- ---------- ---------
Cash at end of period................................ $ 179,730 $100,079 $ 43,424 $ 116,295
========== ======== ========== =========
Supplemental disclosure of cash flow information
Cash paid during the period for interest........... $ 7,531 $ -- $ 19,349 $ 5,031
========== ======== ========== =========
Noncash financing activities
Issuance of common stock for net liabilities
assumed.......................................... $ (28,100) $ -- $ -- $ (28,100)
========== ======== ========== =========
Property and equipment purchases through capital
lease............................................ $ -- $ -- $ 43,000 $ --
========== ======== ========== =========
Issuance of common stock for conversion of note
payable.......................................... $ 50,000 $ -- $ -- $ 50,000
========== ======== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Jeremy's Microbatch Ice Creams, Inc. and subsidiary ("Jeremy's" or the
"Company") develops, markets and sells super-premium ice cream using
high-quality ingredients through its wholly owned subsidiary, Jeremy's
Microbatch Ice Creams, LLC (the "LLC"). Unique flavors of ice cream are offered
primarily in small, limited edition batches in pint size containers. Ice cream
products are sold mostly in supermarkets and grocery stores in New England,
Mid-Atlantic Region, Colorado, Minnesota, Florida, Texas and Arizona.
The Company is a successor to Strive, Inc., which during 1997 focused
primarily on developing, marketing and selling super-premium ice cream using
high quality ingredients under the name of Jeremy's Microbatch Ice Creams. On
January 1, 1998, Strive, Inc. contributed certain assets ($15,837) to, and had
certain liabilities ($43,937) assumed by, the LLC in exchange for a 96.25%
membership interest in the LLC.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared as if Jeremy's and
the LLC had operated as a single consolidated group since inception of the LLC.
Any intercompany balances and transactions have been eliminated (see Note 8).
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1999 and for the six months
ended June 30, 1999 and 1998 are unaudited. In the opinion of management, such
statements reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the results of the interim periods. The
results of operations for the six months ended June 30, 1999 are not necessarily
indicative of the results for the entire year.
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost
or market, with cost determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
approximate five to seven years.
DEFERRED CHARGES
Deferred charges represent certain product introductory placement costs
(i.e., slotting fees) paid to customers which are incurred to develop new and
retain existing markets for products. The payment of such fees is common in the
industry. These costs are amortized generally over a 12-month period.
F-7
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
INCOME TAXES
The LLC had elected to be treated as a partnership under the Internal
Revenue Code and the tax regulations in the states in which it operates. As a
result, the LLC's loss is reported on the income tax returns of the members and,
accordingly, no corporate income taxes were imposed at the Company level.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash, accounts receivable, trade and due from
factor.
The Company's policy is to limit the amount of credit exposure by placing
cash with financial institutions evaluated as being creditworthy. At times, the
Company's cash exceeds Federal Deposit Insurance Corporation insurance limits.
The Company attempts to minimize credit risk with respect to receivables by
reviewing customers' credit history before extending credit, and by monitoring
customers' credit exposure regularly. The Company does not generally require
collateral for its trade accounts receivable.
On May 26, 1999, the Company entered into a Factoring and Security
Agreement with a finance company whereby the Company has agreed to sell with
recourse substantially all of its receivables up to a predetermined amount as
stipulated in the Factoring and Security Agreement. The maximum amount of total
outstanding purchased receivables at any given time is $500,000. The Company is
required to remit to the finance company a factoring fee of 1.5% of the
purchased receivables at the time of sale. The agreements will be accounted for
as financing arrangements and the factoring fee will be accounted for as
interest expense.
ADVERTISING
Advertising costs are expensed as incurred and are included in selling
expenses. Advertising expense for the periods ended December 31, 1998 and 1997
approximated $301,000 and $-0-, respectively. Advertising expense for the six
months ended June 30, 1999 and 1998 approximated $326,000 and $179,000,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value at
December 31, 1998 and June 30, 1999, because of the relatively short maturity of
these instruments. The carrying amount of note payable, bank and long-term debt
also approximate fair value because the Company's interest rates approximate
current interest rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(LOSS) PER SHARE
Net (loss) per share is based on the weighted average number of shares of
common stock outstanding during each period. Basic and diluted (loss) per share
are the same because there are no stock equivalents; and, if there were, they
would be anti-dilutive in all the periods presented because of losses.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Financial Instruments and for Hedging
Activities," which will be effective for fiscal year 2001. This Statement
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. SFAS 133 is not anticipated to have a significant
impact on the Company's operating results or financial condition when adopted,
because the Company currently does not engage in derivative instruments.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered losses from operations since inception, including a net loss of
$956,201 for the year ended December 31, 1998. The Company has also sustained
recurring losses for the period subsequent to December 31, 1998. The
accompanying consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company's continued growth depends on additional financing.
Management's plans for the Company include raising additional working capital
through equity financing. The Company entered into a letter of intent with First
Montauk Securities Corp. ("Underwriter") relating to a proposed initial public
offering of its securities ("Initial Public Offering").
The Company's proposed Initial Public Offering ("IPO") calls for the
Company to offer for public sale up to 1,200,000 shares of common stock at an
anticipated price of $6 per share.
3. TRANSACTIONS WITH MAJOR SUPPLIERS AND CUSTOMERS
The Company purchased substantially all of its inventory from one vendor.
For the year ended December 31, 1998, the Company had purchases from this vendor
of approximately $475,000. For the six months ended June 30, 1999 and 1998,
total purchases from this vendor approximated $619,000 and $104,000,
respectively.
During June 1999, the Company entered into a Co-Packing Agreement (the
"Agreement") whereby the Company agreed to purchase ice cream products from a
different vendor. The term of the Agreement is the longer of two years or until
such time that the Company has purchased two million pints of ice cream. The
Company may elect to cancel this agreement on sixty days' notice at any time.
However, the Company is then required to purchase all of the manufacturer's
inventory and compensate the manufacturer for the amortized cost of its
equipment used in the production of the Company's product. These obligations are
guaranteed by the majority stockholder of the Company.
F-9
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
3. TRANSACTIONS WITH MAJOR SUPPLIERS AND CUSTOMERS -- (CONTINUED)
The following table shows the percentage of net sales to major customers:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------
1998 1999 1998
------------ ---- ----
<S> <C> <C> <C>
Customer A................................. 15% 1% 24%
Customer B................................. 22 15 36
Customer C................................. 11 1 --
Customer D................................. 13 -- 17
Customer E................................. -- 17 --
Customer F................................. -- 13 --
Customer G................................. -- 11 --
-- -- --
61% 58% 77%
== == ==
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
USEFUL LIFE 1998 1999
----------- ------------ --------
<S> <C> <C> <C>
Automobile......................... 5 Years $33,284 $18,216
Equipment.......................... 5 Years 8,230 51,230
Furniture.......................... 7 Years -- 8,430
------- -------
41,514 77,876
Less accumulated depreciation...... 5,482 2,218
------- -------
$36,032 $75,658
======= =======
</TABLE>
5. NOTE PAYABLE, BANK
During February 1999, the Company secured a $300,000 line of credit with a
bank, which is due in full on December 31, 1999. Interest accrues on outstanding
balances at a rate of 12.25%. The line of credit is guaranteed by the Company's
majority shareholder.
F-10
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
<S> <C> <C>
$50,000 note payable to a related party, due on December
18, 1999, including interest at 10%. The note is
guaranteed by a stockholder of the Company............ $ 50,000 $ --
$50,000 note payable to an individual, due June 11,
2000, including interest at 12% (increased to 14% on
June 11, 1999). The note is guaranteed by a
stockholder of the Company............................ 50,000 50,000
The Company leases certain equipment through capital
lease agreements. The Company makes minimum monthly
payments of $1,568 including interest of 18%.......... -- 41,184
-------- -------
100,000 91,184
Less current maturities................................. 50,000 55,794
-------- -------
$ 50,000 $35,390
======== =======
</TABLE>
In connection with the note payable to a related party above, the Company
issued 20,330 shares of the Company's common stock for a minimal percentage
ownership interest in the Company. The shares were deemed to have a diminimus
value, and, therefore, no amounts were assigned to them.
In connection with a note payable of $50,000 issued in December 1997 to
another related party, the Company issued 10,165 shares of the Company's common
stock for a minimal percentage ownership interest in the Company. The shares
were deemed to have a diminimus value, and, therefore, no amounts were assigned
to them. On April 28, 1998, these notes were converted for additional ownership
interest in the Company.
In October 1999, the Company issued notes payable to its chief executive
officer and chief financial officer of $40,000 and $5,000, respectively. The
proceeds of these notes were used to repay a portion of the $50,000 note to an
individual (see above). The notes to the officers are due in October 2000 and
accrue interest at 10% per annum.
The total minimum capitalized lease commitments at June 30, 1999 is as
follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -------
1999 (six months)................................. $ 9,408
2000.............................................. 18,816
2001.............................................. 18,816
2002.............................................. 9,408
-------
56,448
Less interest..................................... 15,264
-------
$41,184
=======
Property and equipment of approximately $43,000 at June 30, 1999 is covered
by capitalized lease commitments.
F-11
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
Through April 1999, a stockholder of the Company agreed to provide office
space to the Company on a month-to-month basis at a rate of approximately $2,000
per month. On April 16, 1999, the Company entered into a new lease agreement
with an unrelated party whereby the Company leases office space on a
month-to-month basis at a monthly rate of approximately $3,000. Rent expense
approximated $23,000 for the year ended December 31, 1998. Rent expense for the
six months ended June 30, 1999 and 1998 approximated $18,000 and $10,200,
respectively.
The Company is a party to various legal proceedings in the ordinary course
of its business. The Company believes that none of these proceedings are
material to its financial position, results of operations and changes in cash
flows.
8. REORGANIZATION
In connection with the Company's proposed Initial Public Offering of common
stock (see Note 2), certain events have occurred or will occur (the
"Reorganization"). Prior to, or simultaneously with the effective date of the
proposed offering, the Company, the LLC, and the members of the LLC will
undertake a reorganization transaction, pursuant to the Plan of Reorganization,
dated as of October ___, 1999, among the members of the LLC, the LLC and the
Company. The members of the LLC will contribute all of their respective
ownership interests in the LLC to the Company. In exchange, the Company will
deliver to the members of the LLC 1,800,000 shares of common stock. As a result
of the Reorganization, the Company will own all of the members' respective LLC
interests and the LLC will become a wholly owned subsidiary of the Company (see
Note 1).
The proposed Reorganization also includes provisions whereby a certain
stockholder will have the right to acquire a certain number of shares at
predetermined prices from other stockholders upon the occurrence of defined
triggering events which include: (1) a merger in which the stockholders receive
cash and/or securities of another entity; (2) the acquisition of the Company's
shares in one transaction or a series of related transactions or (3) the sale of
all or substantially all of the Company's assets in one transaction or a series
of related transactions. These triggering events are predicated on the aggregate
cash and fair market value of securities received by the Company and/or its
stockholders.
9. SUBSEQUENT EVENTS
In contemplation of the IPO, the Company intends to enter into employment
agreements with two key executive officers, the terms of which are expected to
expire in December 2002. Such agreements will provide for minimum annual salary
levels of $120,000 for each officer. In addition to each executive's salary, the
Company will grant to each officer employee stock options to purchase 10,000
shares of the Company's common stock on each of December 31, 2000, 2001 and
2002. The stock options will have an exercise price equal to the market price of
the Company's common stock as of the preceding January 1. The employee stock
options will be exercisable for five years after the date of issue and will be
vested upon issuance.
During the third quarter of 1999, the Company sold 340,245 shares of its
common stock for $650,000 to its majority stockholder.
During October 1999, the Company sold 24,148 of its common stock for
$100,000 to an existing stockholder.
F-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Strive, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying statements of operations, stockholders' equity
(deficiency), and cash flows of Strive, Inc. for the year ended December 31,
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects the results of operations and cash flows of Strive, Inc.
for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 16, 1999
F-13
<PAGE>
STRIVE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Net sales (Note 2).......................................... $ 79,421
Cost of sales (Note 2)...................................... 114,873
---------
Gross (loss)................................................ (35,452)
---------
Operating expenses
Selling................................................... 31,630
Distribution.............................................. 3,110
General and administrative................................ 32,931
Depreciation and amortization............................. 4,420
---------
Total operating expenses.................................... 72,091
---------
(Loss) from operations...................................... (107,543)
---------
Other income (expense)
Other income.............................................. 2,516
Loss on disposal of equipment............................. (24,795)
---------
Total other (expense)....................................... (22,279)
---------
Net (loss).................................................. $(129,822)
=========
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
STRIVE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK
---------------
NUMBER ADDITIONAL
OF PAID-IN ACCUMULATED
YEAR ENDED DECEMBER 31, 1997 SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
- ---------------------------- ------ ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.............. 7,110 $7,110 $124,870 $ (51,884) $ 80,096
Issuance of common stock.............. 1,049 1,049 31,120 -- 32,169
Net (loss)............................ -- -- -- (129,822) (129,822)
----- ------ -------- --------- ---------
Balance, December 31, 1997............ 8,159 $8,159 $155,990 $(181,706) $ (17,557)
===== ====== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
STRIVE, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Cash flows from operating activities
Net (loss)................................................ $(129,822)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities
Loss on disposal of equipment.......................... 24,795
Depreciation and amortization.......................... 4,420
Changes in assets and liabilities
(Increase) decrease in assets
Accounts receivable.............................. (15,668)
Prepaid expenses................................. 15,771
Other............................................ (1,200)
Increase in liabilities
Accounts payable and accrued expenses............ 41,350
---------
Net cash (used in) operating activities..................... (60,354)
---------
Cash flows from investing activities
Purchase of property and equipment........................ (2,000)
---------
Cash flows from financing activities
Proceeds from issuance of common stock.................... 32,169
Proceeds from stockholder loan............................ 3,405
---------
Net cash provided by financing activities................... 35,574
---------
Net (decrease) in cash and cash equivalents................. (26,780)
Cash and cash equivalents at beginning of year.............. 42,522
---------
Cash and cash equivalents at end of year.................... $ 15,742
=========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
STRIVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Strive, Inc. (the "Company") was incorporated on May 2, 1995 in the state
of Texas. The Company is an entrepreneurial enterprise that seeks to develop
businesses where clear market opportunities exist. During 1997, the Company
focused primarily on developing, marketing and selling super-premium ice cream
using high-quality ingredients under the name of Jeremy's Microbatch Ice Creams
in the northeast region (see Note 4).
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
approximate five years.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments, which are readily
convertible into cash and have maturities of three months or less.
INCOME TAXES
The Company has net operating loss carryforwards approximating $182,000 at
December 31, 1997 expiring December 31, 2011 through December 31, 2012. A
deferred tax asset of $27,000, resulting from this loss carryforward, has been
offset with a 100% valuation allowance.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs approximating
$27,000 are included in selling expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. TRANSACTIONS WITH MAJOR CUSTOMERS AND SUPPLIERS
The following table shows the percentage of net sales to major customers:
Customer A........................................... 24%
Customer B........................................... 25%
Customer C........................................... 37%
The Company purchased substantially all of its inventory from two vendors.
Total purchases from each vendor approximated 39% and 38%, respectively.
F-17
<PAGE>
STRIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RELATED PARTY TRANSACTIONS
A stockholder of the Company agreed to provide office space to the Company
on a month-to-month basis. Rent expense aggregating $6,900 is included in
general and administrative expenses.
4. SUBSEQUENT EVENT
On January 1, 1998, the Company contributed certain assets ($15,837) to,
and had certain liabilities ($43,937) assumed by, Jeremy's Microbatch Ice
Creams, LLC ("LLC") in exchange for a 96.25% membership interest.
F-18
<PAGE>
================================================================================
A PROSPECTIVE INVESTOR SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS OR IN THE COMPANY'S REGISTRATION STATEMENT FILED WITH THE SEC. THE
COMPANY AND THE UNDERWRITER HAVE NOT AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU
WITH ANY OTHER INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY, ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 1
Summary Consolidated Financial Data..... 2
Risk Factors............................ 4
Forward Looking Statements.............. 7
Use of Proceeds......................... 8
Dilution................................ 9
Dividend Policy......................... 9
Capitalization.......................... 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 11
Our Business............................ 16
Management.............................. 22
Executive Compensation.................. 24
Principal Shareholders.................. 27
Certain Relationships and Related
Transactions.......................... 28
Description of Securities............... 30
Underwriting............................ 33
Shares Eligible for Future Sale......... 36
Legal Matters........................... 37
Experts................................. 37
Where You Can Get More Information...... 37
Index to Financial Statements........... F-1
</TABLE>
------------------
UNTIL _________, 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OF DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
1,200,000 SHARES
$___ PER SHARE
JEREMY'S MICROBATCH
ICE CREAMS, INC.
-------------------
PROSPECTUS
-------------------
FIRST MONTAUK
SECURITIES CORP.
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our bylaws require us to indemnify each person who is or was a director or
officer of Jeremy's against all expenses, liabilities, and loss actually and
reasonably incurred in connection with any civil, criminal, administrative or
investigative proceeding brought by reason of the fact that such person is or
was a director or executive officer of Jeremy's or is or was serving at our
request in certain other capacities, to the extent such person is not otherwise
indemnified and such indemnification is not prohibited by law. Under the
Delaware General Corporation Law, we may indemnify such persons if they acted in
good faith and in a manner which they reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding had no reasonable cause to believe their conduct
was unlawful. With respect to a proceeding brought in the right of Jeremy's, we
may indemnify such person if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, except that we may indemnify a person in that situation only to the
extent the Court of Chancery or other court determines that such person is
fairly and reasonably entitled to indemnification. Subject to the standards
stated in the last two sentences, our by-laws require us to advance the expense
(including attorneys' fees) incurred by such person in defending such action.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling Jeremy's
pursuant to the foregoing provisions, we are informed 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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimates of fees and expenses incurred or to be incurred in connection
with the issuance and distribution of securities being registered, all of which
are being paid exclusively by the Company, other than underwriting discounts and
commissions are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 2,977
Underwriter's Expense Allowance............................. 216,000
National Association of Securities Dealers filing fee....... 1,500
Nasdaq and Exchange filing fees*............................ 14,000
State Securities Laws (Blue Sky) fees and expenses*......... 25,000
Printing and mailing costs and fees*........................ 30,000
Legal fees and costs*....................................... 100,000
Accounting fees and costs*.................................. 80,000
Transfer Agent fees*........................................ 5,000
Miscellaneous expenses*..................................... 5,523
--------
Total..................................................... $480,000
========
</TABLE>
- ------------------
*Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In _________, 1999, all of the members of Jeremy's Microbatch(Registered)
Ice Creams, LLC, (the "LLC") contributed their membership interest in that
entity to Jeremy's Microbatch Ice Creams, Inc. in exchange for 1,8000,000 shares
of Jeremy's Microbatch Ice Creams, Inc., This transaction was exempt from
registration under Section 4(2) of the Securities Act of 1933. No public
solicitation was employed and the purchasers represented that they were
acquiring the shares with investment intent.
In October, 1999, we issued a $40,000 Promissory Note to our President and
a $5,000 Promissory Note to our Chief Financial Officer in exchange for loans in
the same amounts. These transactions were exempt from registration under Section
4(2) of the Securities Act because the investors were our executive officers and
acquired the Notes with investment intent.
In December, 1998, the LLC issued a $50,000 Promissory Note to Stanley
Osofsky in exchange for a loan in that amount. This transaction was exempt from
registration under Section 4(2) of the Securities Act of 1933 based upon the
sophistication of the single investor, his investment intent, and the lack of
any public solicitation.
From January 1, 1998 through the date of this Registration Statement, the
LLC received an aggregate of $2,600,000 in investment from Bluestem Capital
Partners, II, L.P., $150,000 in investment from MBCP-I, L.P. and a $100,000
investment from Christopher Coons. All of these investments were made in
exchange for membership interests in the LLC. These transactions were exempt
from registration under Section 4(2) of the Securities Act of 1933 as no public
solicitation was employed, the investors were sophisticated and acquired the
interests with investment intent. In addition, Mr. Coons was, at the time of his
investment, a member of the LLC's Board of Managers and principals of Bluestem
and MBCP-I, L.P. were on the LLC's Board of Managers.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement between Jeremy
Microbatch Ice Creams, Inc. and First Montauk
Securities Corp.
1.2 Form of Selected Dealers Agreement
1.3 Form of Underwriter's Warrant Agreement and Form of Warrant
Certificate
1.4 Form of Consulting Agreement with Underwriter
3.1 Articles of Incorporation and Amendments thereto
3.2 Bylaws
3.3 Form of Specimen Common Stock Certificate*
4.0 Agreement between Jeremy's Microbatch(Registered) Ice
Creams, Inc. and Stocktrans, Inc.*
5.0 Form of Opinion of Eckert Seamans Cherin & Mellott, LLP
10.1 Form of Employment Agreement between Jeremy's
Microbatch(Registered) Ice Creams, Inc. and Jeremy D. Kraus*
10.2 Form of Employment Agreement between Jeremy's
Microbatch(Registered) Ice Creams, Inc. and Samuel V. Cohen*
10.3 Plan of Reorganization among Jeremy's Microbatch(Registered)
Ice Creams, LLC, Jeremy's Microbatch(Registered) Ice Creams,
Inc, Strive, Inc., Bluestem Capital Partners II, L.P.,
MBCP-I, L.P. and Christopher Coons*.
10.4 Co-Packing Agreement between Jeremy Microbatch(Registered)
Ice Creams, Inc. and Roney Oatman, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.5 Promissory Notes from the Company to Jeremy D. Kraus and
Jeffrey Rosen.
24.1(a) Consent of BDO Seidman, LLP (Jeremy's)
24.1(b) Consent of BDO Seidman, LLP (Strive)
24.2 Consent of Eckert Seamans Cherin & Mellott, LLC (contained
in Exhibit 5.0).
27 Financial Data Schedule
27.1 Financial Data Schedule
</TABLE>
- ------------------
*To be filed by Amendment
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(a)(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or event which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(a)(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(a)(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(d) Will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, 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 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.
(f)(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in Philadelphia,
Pennsylvania, on October 25, 1999.
JEREMY'S MICROBATCH(Registered) ICE
CREAMS, INC.
By: /s/ JEREMY D. KRAUS
-------------------------------------
Jeremy D. Kraus
Chief Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JEREMY D. KRAUS Chief Executive Officer, President October 25, 1999
- ------------------------------------ and Director
Jeremy D. Kraus
/s/ SAMUEL V. COHEN Chief Operating Officer, Secretary October 25, 1999
- ------------------------------------ and Director
Samuel V. Cohen
/s/ JEFFREY S. ROSEN Chief Financial Officer and October 25, 1999
- ------------------------------------ Principal Accounting Officer
Jeffrey S. Rosen
/s/ PAUL SCHOCK Director October 25, 1999
- ------------------------------------
Paul Schock
/s/ STEPHEN KIRBY Director October 25, 1999
- ------------------------------------
STEPHEN KIRBY
</TABLE>
II-4
<PAGE>
EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement between Jeremy
Microbatch Ice Creams, Inc. and First Montauk
Securities Corp.
1.2 Form of Selected Dealers Agreement
1.3 Form of Underwriter's Warrant Agreement and Form of Warrant
Certificate
1.4 Form of Consulting Agreement with Underwriter
3.1 Articles of Incorporation and Amendments thereto
3.2 Bylaws
3.3 Form of Specimen Common Stock Certificate*
4.0 Agreement between Jeremy's Microbatch(Registered) Ice
Creams, Inc. and Stocktrans, Inc.*
5.0 Form of Opinion of Eckert Seamans Cherin & Mellott, LLP
10.1 Form of Employment Agreement between Jeremy's
Microbatch(Registered) Ice Creams, Inc. and Jeremy D. Kraus*
10.2 Form of Employment Agreement between Jeremy's
Microbatch(Registered) Ice Creams, Inc. and Samuel V. Cohen*
10.3 Plan of Reorganization among Jeremy's Microbatch(Registered)
Ice Creams, LLC, Jeremy's Microbatch(Registered) Ice Creams,
Inc, Strive, Inc., Bluestem Capital Partners II, L.P.,
MBCP-I, L.P. and Christopher Coons*.
10.4 Co-Packing Agreement between Jeremy Microbatch(Registered)
Ice Creams, Inc. and Roney Oatman, Inc.
10.5 Promissory Notes from the Company to Jeremy D. Kraus and
Jeffrey Rosen.
24.1(a) Consent of BDO Seidman, LLP (Jeremy's)
24.1(b) Consent of BDO Seidman, LLP (Strive)
24.2 Consent of Eckert Seamans Cherin & Mellott, LLC (contained
in Exhibit 5.0).
27 Financial Data Schedule
27.1 Financial Data Schedule
</TABLE>
- ------------------
*To be filed by Amendment
1,200,000 Shares of Common Stock
of
JEREMY'S MICROBATCH ICE CREAM, INC.
UNDERWRITING AGREEMENT
Red Bank, New Jersey
_________, 1999
First Montauk Securities Corp.
328 Newman Springs Road
Red Bank, New Jersey 07701
Ladies and Gentlemen:
Jeremy's MicroBatch Ice Cream, Inc., a Delaware corporation (the
"Company"), confirms its agreement with First Montauk Securities Corp. (the
"Underwriter"), with respect to the sale by the Company and the purchase by the
Underwriter, of 1,200,000 shares of the Company's common stock, par value $.___
per share ("Common Stock") and with respect to the grant by the Company to the
Underwriter of the option described in Section 2(b) hereof to purchase all or
any part of 180,000 additional shares for the purpose of covering
over-allotments, if any. The aforesaid 1,200,000 shares of Common Stock (the
"Firm Securities") and together with all or any part of the 180,000 additional
shares of Common Stock subject to the over allotment option described in Section
2(b) hereof (the "Over allotment Securities") are hereinafter collectively
referred to as the "Securities". The Company will also issue and sell, for an
aggregate purchase price of $120.00, to the Underwriter, warrants (the
"Underwriter's Warrant") pursuant to the Underwriter's Warrant Agreement (the
"Underwriter's Warrant Agreement") for the purchase of an aggregate of up to
120,000 additional shares of Common Stock (the "Underwriter's Warrant Shares").
The Securities, the Underwriter's Purchase Option Agreement and Underwriter's
Warrant Shares are more fully described in the Registration Statement (as
defined in Subsection 1(a) hereof) and the Prospectus (as defined in Subsection
1(a) hereof) referred to below. Unless the context otherwise requires, all
references to the "Company" shall include all presently existing subsidiaries
and any entities created or acquired by the Company on or prior to the Closing
Date (defined in Subsection 2(c) hereof). All representations, warranties and
opinions of counsel required hereunder shall cover any such subsidiaries and
acquired entities taken as a whole.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter as of the date hereof,9 and as
of the Closing Date and any Over allotment Closing Date (as defined in
Subsection 2(c) hereof), if any, as follows:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, and an amendment or amendments
thereto, on Form SB-2 (No. 333-_____) including any related preliminary
prospectus (each a "Preliminary Prospectus"), for the registration of the
Securities, the Underwriters Warrant and the Underwriters Warrant Shares
<PAGE>
under the Securities Act of 1933, as amended (the "Act"), which registration
statement and any amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act and the rules and regulations of the
Commission under the Act. Following execution of this Agreement, the Company
will promptly file (i) if the Registration Statement has been declared effective
by the Commission, (A) a Term Sheet (as defined in the Rules and Regulations (as
hereinafter defined)) pursuant to Rule 434 under the Act or (B) a Prospectus
under Rules 430A and/or 424(b) under the Act, in either case in form
satisfactory to the Underwriter or (ii) in the event the registration statement
has not been declared effective, a further amendment to said registration
statement in the form heretofore delivered to the Underwriter and will not,
before the registration statement becomes effective, file any other amendment
thereto unless the Underwriter shall have consented thereto after having been
furnished with a copy thereof. Except as the context may otherwise require, such
registration statement, as amended, on file with the Commission at the time the
registration statement becomes effective (including the prospectus, financial
statements, schedules, exhibits and all other documents filed as a part thereof
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations)(as hereinafter
defined), is hereinafter called the "Registration Statement" and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the Rules and Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations adopted
by the Commission under either the Act or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has issued
any order preventing or suspending the use of any Preliminary Prospectus, the
Registration Statement or Prospectus or any part thereof and no proceedings for
a stop order have been instituted or are pending or, to the best knowledge of
the Company, threatened. Each of the Preliminary Prospectus, the Registration
Statement and the Prospectus at the time of filing thereof conformed in all
material respects with the requirements of the Act and the Rules and
Regulations, and neither the Preliminary Prospectus, the Registration Statement
nor the Prospectus at the time of filing thereof, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein and necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Over allotment Closing Date
(as hereinafter defined) and during such longer period as the Prospectus may be
required to be delivered in connection with sales by the Underwriter or a
dealer, the Registration Statement and the Prospectus will contain all material
statements which are required to be stated therein in compliance with the Act
and the Rules and Regulations, and will in all material respects conform to the
requirements of the Act and the Rules and Regulations; neither the Registration
Statement, nor any amendment thereto, at the time the Registration Statement or
such amendment is declared effective under the Act, will contain any
2
<PAGE>
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 at the time the Registration Statement becomes
effective, at the Closing Date and at any Over allotment Closing Date, will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, not misleading; provided,
however, that this representation and warranty does not apply to statements made
or statements omitted in reliance upon and in conformity with information
supplied to the Company in writing by or on behalf of the Underwriter expressly
for use in the Registration Statement or Prospectus or any amendment thereof or
supplement thereto.
(d) The Company has been duly incorporated and is now, and at the
Closing Date and any Over allotment Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own, directly or indirectly, an interest in any corporation,
partnership, trust, joint venture or other business entity; provided, that the
foregoing shall not be applicable to the investment of the net proceeds from the
sale of the Securities in short-term, low-risk investments as set forth under
"Use of Proceeds" in the Prospectus and provided further, except to the extent
that any failure of the Company to comply with the foregoing does not have a
material adverse effect on the Company. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of its properties or the character of its
operations require such qualification to do business, except where the failure
to so qualify would not have a material adverse effect on the Company. The
Company has all requisite power and authority (corporate and other), and has
obtained any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having jurisdiction
over environmental or similar matters), to own or lease its properties and
conduct its business as described in the Prospectus; the Company is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local and
foreign laws, rules and regulations upon the Company; and the Company has not
received any notice of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate, franchise, or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operation of the Company.
The disclosures, if any, in the Registration Statement concerning the effects of
federal, state, local, and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact necessary to make the
statements contained therein not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and will have the adjusted capitalization set forth therein on the Closing Date,
based upon the assumptions set forth therein, and the Company is not a party to
or bound by any instrument, agreement or other arrangement providing for the
Company to issue any capital stock, rights, warrants, options or other
securities, except for this
3
<PAGE>
Agreement and as otherwise described in the Prospectus. The Securities, the
Underwriter's Warrant and the Underwriter's Warrant Shares and all other
securities issued or issuable by the Company conform or, when issued and paid
for, will conform in all respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company, or similar contractual rights granted by the Company to subscribe for
or purchase securities. The Securities, the Underwriter's Warrant and the
Underwriter's Warrant Shares to be issued and sold by the Company hereunder, and
upon payment therefor, are not and will not be subject to any preemptive or
other similar rights of any stockholder to subscribe for or purchase securities,
have been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof and thereof, will be validly issued, fully paid and
non-assessable and will conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issuance and sale of the Securities, the Underwriter's Warrant and the
Underwriter's Warrant Shares has been duly and validly taken; and the
certificates, if any, representing the Securities and the Underwriter's Warrant
Shares will be in due and proper form. Upon the issuance and delivery pursuant
to the terms hereof of the Securities to be sold to the Underwriter by the
Company hereunder, the Underwriter will acquire good and marketable title to
such Securities free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever.
(f) The financial statements of the Company, together with the related
notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a prospective
change in the condition, financial or otherwise, or in the earnings, business
affairs, position, prospects, value, operation, properties, business, or results
of operation of the Company, whether or not arising in the ordinary course of
business, since the dates of the financial statements included in the
Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company, conform
in all material respects to the descriptions thereof contained in the
Registration Statement and in the Prospectus.
(g) [Accounting Firm] whose report is filed with the Commission as a
part of the Registration Statement, is an independent certified public
accountant as required by the Act and the Rules and Regulations.
(h) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and taxes payable under the Internal
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Revenue Code of 1986 (the "Code"), (ii) has furnished all tax and information
returns it is required to furnish pursuant to the Code, and has established
adequate reserves for such taxes which are not due and payable, and (iii) does
not have knowledge of any tax deficiency or claims outstanding, proposed or
assessed against it.
(i) The Company maintains insurance, which is in full force and effect,
of the types and in the amounts which it reasonably believes to be adequate for
its business, including, but not limited to, personal injury and product
liability insurance covering all personal and real property owned or leased by
the Company against fire, theft, damage and all risks customarily issued
against.
(j) There is no action, suit, proceeding, inquiry, investigation,
litigation or governmental proceeding (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or foreign,
pending or to the knowledge of the Company threatened against (or circumstances
that may give rise to the same), or involving the properties or business of the
Company which: (i) questions the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to
or in connection with this Agreement; (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
respects); or (iii) might materially affect the condition, financial or
otherwise, or the earnings, business affairs, position, prospects, value,
operation, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to enter into
this Agreement, the Underwriter's Warrant Agreement, the Consulting Agreement
(as described in Section 4(x) hereof) and to consummate the transactions
provided for in such agreements; and this Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement have each been duly authorized, executed
and delivered by the Company. Each of this Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement, constitutes a legally valid and binding
agreement of the Company, subject to due authorization, execution and delivery
by the Underwriter, enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriter's Warrant
Agreement, or the Consulting Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any material breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a material default under, or result in the creation or imposition of
any material lien, charge, claim, encumbrance, pledge, security interest defect
or other restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of the Company pursuant to the terms of: (i) the
Certificate of Incorporation
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<PAGE>
or By-Laws of the Company; (ii) any material license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of its
properties or assets (tangible or intangible) is or may be subject; or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing with,
any court, regulatory body, government agency or other body, domestic or
foreign, is required for the performance by the Company of this Agreement and
the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriter's purchase and distribution of the
Firm Securities and Over allotment Securities to be sold by the Company
hereunder; or (ii) the issuance and delivery of the Underwriter's Warrant or the
Underwriter's Warrant Shares.
(m) All executed agreements or copies of executed agreements (whether
electronically scanned or otherwise) filed as exhibits to the Registration
Statement to which the Company is a party or by which the Company may be bound
or to which any of its assets, properties or businesses may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legally valid and binding agreements of the Company, enforceable
against it in accordance with their respective terms, except to the extent there
is no material adverse effect upon the Company. The descriptions contained in
the Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown with
respect thereto by the Rules and Regulations and there are no material contracts
or other documents which are required by the Act or the Rules and Regulations to
be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required, and the
exhibits which have been filed are materially or substantially complete and
correct copies of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not: (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money in any material amount; (ii) entered into any transaction
other than in the ordinary course of business; (iii) declared or paid any
dividend or made any other distribution on or in respect of its capital stock;
or (iv) made any changes in capital stock, material changes in debt (long or
short term) or liabilities other than in the ordinary course of business; or (v)
made any material changes in or affecting the general affairs, management,
financial operations, stockholders equity or results of operations of the
Company.
(o) No default exists in the due performance and observance of any
material term, covenant or condition of any license, contract, indenture,
mortgage, installment sales agreement,
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lease, deed of trust, voting trust agreement, stockholders agreement, note, loan
or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which any of the Company may be bound or to which any
of its property or assets (tangible or intangible) of the Company is subject or
affected except where such default does not, and will not, have a material
adverse effect upon the Company.
(p) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance in all material respects
with all federal, state, local, and foreign laws and regulations respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
(q) Since its inception, the Company has not incurred any liability
arising under or as a result of the application of the provisions of the Act.
(r) Except as disclosed in the Prospectus, the Company does not
presently maintain, sponsor or contribute to, and never has maintained,
sponsored or contributed to, any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan " or a "multiemployer
plan" as such terms are defined in Sections 3(2), 3(1) and 3(37) respectively of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"). Except as disclosed in the Prospectus, the Company does not
maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA.
(s) The Company is not in violation of any domestic or foreign laws,
ordinances or governmental rules or regulations to which it is subject.
(t) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
or to require the Company to file a registration statement under the Act.
(u) Neither the Company, nor, to the Company's best knowledge after due
inquiry, any of its employees, directors, stockholders or affiliates (within the
meaning of the Rules and Regulations) has taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
(v) None of the patents, patent applications, trademarks, service marks,
trade names and copyrights, or licenses and rights to the foregoing presently
owned or held by the Company is in dispute or are in any conflict with the right
of any other person or entity within the Company's current area of operations
nor has the Company received notice of any of the foregoing. The
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<PAGE>
Company: (i) owns or has the right to use, free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever, all patents, trademarks, service marks,
trade names and copyrights, technology and licenses and rights with respect to
the foregoing, used in the conduct of its business as now conducted or proposed
to be conducted without infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing; and (ii) except as set forth in the Prospectus,
is not obligated or under any liability whatsoever to make any payments by way
of royalties, fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark trade name, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(w) The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of all the material trade secrets,
trademarks, know-how (including unpatented and/or unpatentable proprietary and
confidential information) technical data and information ("Intellectual
Property") material to its operations.
(x) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than liens for taxes or assessments not yet due and
payable.
(y) The Company has not incurred any liability and there are no
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities or any other
arrangements, agreements, understandings, payments or issuances with respect to
the Company or any of its officers, directors, employees or affiliates that may
adversely affect the Underwriter's compensation, as determined by the National
Association of Securities Dealers, Inc. ("NASD").
(z) The Firm Securities have been approved for quotation on the Nasdaq
SmallCap Market of the Nasdaq Stock Market, Inc. subject to official notice of
issuance.
(aa) Neither the Company nor any of its respective officers, employees,
agents or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or official
or employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which: (i) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign); (ii) if
not given in the past, might have had a materially adverse effect on the assets,
business or operations of the Company; and (iii) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
8
<PAGE>
Company. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any such
person or entity or the Company, has or has had, either directly or indirectly,
(i) a material interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, except with respect to the beneficial ownership
of not more than 1% of the outstanding shares of capital stock of any
publicly-held entity; or (ii) a beneficial interest in any material contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions",
there are no presently existing, and have not been during the last three years
prior to the date hereof, any agreements, arrangements, understandings or
transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, or
principal stockholder of the Company, or any affiliate or associate of any such
person or entity.
(cc) Any certificate signed by any officer of the Company and delivered
to the Underwriter or to the Underwriter's counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(dd) The Company has entered into employment agreements with each of
Jeremy D. Kraus and Samuel V. Cohen upon the terms as described in the
Prospectus. The Employment Agreements are valid and binding agreements on each
of the Company, Mr. Kraus and Mr. Cohen, respectively, and have been duly and
validly authorized by the Board of Directors of the company, and are enforceable
in accordance with their terms. The Company has obtained key-man life insurance
policy with respect to such individuals in an amount of at least $1,000,000 and
the Company is the beneficiary of said insurance policies.
(ee) No securities of the Company have been sold by the Company since
its inception, except as disclosed in Part II of the Registration Statement.
(ff) The minute books of the Company have been made available to
Underwriter's counsel and contain a complete summary of all meetings and actions
of the Board of Directors and Stockholders of the Company since the date of its
inception. The stock ledger books have also been delivered to the Underwriter's
counsel, and are accurate and complete in all respects.
(gg) Except as disclosed in writing to the Underwriter no officer, or
director or to the Company's knowledge, stockholder of the Company has any
affiliation or association with any member of the NASD.
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<PAGE>
(hh) The Company has filed Form 8-A with the Commission providing for
the registration under the Exchange Act of its Common Stock.
2. Purchase, Sale and Delivery of the Securities and Agreement to Issue
Underwriter's Warrant.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, 1,200,000 shares of Common Stock at a net purchase
price of $___ per share.
(b) Payment of the purchase price for, and delivery of definitive
certificates in negotiable form for, the Firm Securities shall be made at the
offices of the Underwriter at 328 Newman Springs Road, Red Bank, New Jersey
07701 or at such other place as shall be designated by the Underwriter. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on ___,
1999 or at such other time and date as shall be designated by the Underwriter
but not less than three (3) nor more than five (5) business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being hereafter called "Closing Date"). In addition, in the event that
any or all of the Over allotment Securities are purchased by the Underwriter,
payment of the purchase price for, and delivery of certificates for such Over
allotment Securities shall be made at the above-mentioned office or at such
other place and at such time (such time and date of payment and delivery being
hereinafter called "Over allotment Closing Date") as shall be agreed upon by the
Underwriter and the Company on each Over allotment Closing Date as specified in
the notice from the Underwriter to the Company. Delivery of the certificates for
the Firm Securities and the Over allotment Securities, if any, shall be made to
the Underwriter against payment by the Underwriter of the purchase price for the
Firm Securities and the Over allotment Securities, if any, to the order of the
Company as the case may be by certified check in New York Clearing House funds,
certificates for the Firm Securities and the Over allotment Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two (2) business days prior to
Closing Date or the relevant Over allotment Closing Date, as the case may be.
The certificates for the Firm Securities and the Over allotment Securities, if
any, shall be made available to the Underwriter at the above-mentioned office or
such other place as the Underwriter may designate for inspection, checking and
packaging no later than 9:30 a.m. on the last business day prior to Closing Date
or the relevant Over allotment Closing Date, as the case may be.
(c) In addition, on the basis of the representations, warranties,
covenants and agreements, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase up to an additional 180,000 shares of Common Stock. The
option granted hereby will expire 45 days after the date of this Agreement, and
may be exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Underwriter to the
Company setting forth the number of Over allotment Securities
10
<PAGE>
as to which the Underwriter is then exercising the option and the time and date
of payment and delivery for such Over allotment Securities. Any such time and
date of delivery shall be determined by the Underwriter, but shall not be later
than seven full business days after the exercise of said option, nor in any
event prior to the Closing Date, as defined in paragraph (c) below, unless
otherwise agreed to between the Underwriter and the Company. Nothing herein
contained shall obligate the Underwriter to make any over-allotments. No Over
allotment Securities shall be delivered unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered as herein
provided.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter, the Underwriter's Warrant at a purchase price of $120.00 which
Underwriter's Warrant shall entitle the holders thereof to purchase an aggregate
of 120,000 shares of Common Stock. The Underwriter's Warrant shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at an initial exercise price equal
to one hundred twenty-five percent (125%) of the initial public offering price
of the Firm securities. The Underwriter's Warrant Agreement and form of Warrant
Certificate shall be substantially in the form filed as an Exhibit to the
Registration Statement. Payment for the Underwriter's Warrant shall be made on
the Over Allotment Closing Date.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Underwriter deems advisable, but in no
event more than five (5) business days after such effective date, the
Underwriter shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus and otherwise in compliance with the Rules and
Regulations. The Underwriter may allow such concessions and discounts upon sales
to other dealers as set forth in the Prospectus. After the completion of the
initial public offering, the Underwriter may from time to time increase or
decrease the public offering price, the concessions and the reallowance to such
extent as the Underwriter, in its sole discretion, deems advisable.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Exchange Act or
within 25 days after the Closing Date except for Form 8-A: (i) before
termination of the offering of the Securities by the Underwriter which the
Underwriter shall not previously have been advised and furnished with a copy; or
(ii) to which the Underwriter shall have objected; or (iii) which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
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<PAGE>
(b) As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriter and confirm by notice in writing: (i) when
the Registration Statement, as amended, becomes effective, if the provisions of
Rule 430A promulgated under the Act will be relied upon, when the Prospectus has
been filed in accordance with said Rule 430A and when any post-effective
amendment to the Registration Statement becomes effective; (ii) of the issuance
by the Commission of any stop order or of the initiation, or the threatening of
any proceeding, suspending the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution or
proceeding for that purpose; (iii) of the issuance by any state securities
commission of any proceedings for the suspension of the qualification of the
Securities for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose; (iv) of the receipt of any
comments from the Commission; and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every reasonable
effort to obtain promptly the lifting of such order.
(c) If required under the Act or the Rules or Regulations, the Company
shall file the Prospectus (in form and substance satisfactory to the
Underwriter) or transmit the Prospectus by a means reasonably calculated to
result in filing with the Commission pursuant to Rule 424(b)(1) (or, if
applicable and if consented to by the Underwriter pursuant to Rule 424(b)(4))
not later than the Commission's close of business on the earlier of (i) the
second business day following the execution and delivery of this Agreement and
(ii) the fifth business day after the effective date of the Registration
Statement.
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriter in connection with the offering of the Securities which differs from
the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
will furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriter or
Underwriter's counsel, shall reasonably object.
(e) The Company shall cooperate in good faith with the Underwriter, and
Underwriter's counsel, at or prior to the time the Registration Statement
becomes effective, in endeavoring to qualify the Securities for offering and
sale under the securities laws of such jurisdictions as the Underwriter may
reasonably designate, and shall cooperate with the Underwriter and Underwriter's
counsel in the making of such applications, and filing such documents and shall
furnish such information as may be required for such purpose; provided, however,
the Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process
12
<PAGE>
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when the Prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange 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 in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriter's counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriter promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriter's counsel, and the Company will furnish
to the Underwriter a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period commencing on the day after the end of the
fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof and provided
that the Company is required to file reports with the Commission under Section
12 of the Exchange Act, the Company will furnish to its stockholders, as soon as
practicable, annual reports (including financial statements audited by
independent public accountants), and will deliver to the Underwriter:
(i) as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
(ii) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
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(iii) every press release and every material news item or article of
interest to the financial community in respect of the Company and any future
subsidiaries or their affairs which was released or prepared by the Company;
(iv) any additional information of a public nature concerning the
Company and any future subsidiaries or their respective businesses which the
Underwriter may reasonably request;
(v) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received
or filed by the Company from time to time.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) For as long as the Company is required to file reports with the
Commission under Section 12 of the Exchange Act, the Company will maintain a
registrar and transfer agent for its Common Stock, which shall be reasonably
acceptable to the Underwriter.
(j) The Company will furnish to the Underwriter or pursuant to the
Underwriter's direction, without charge, at such place as the Underwriter may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriter may reasonably
request.
(k) Neither the Company, nor its officers or directors, nor affiliates
of any of them (within the meaning of the Rules and Regulations) will take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company except as may be permitted under the
Exchange Act.
(l) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the provisions, set forth under the
caption "Use of Proceeds" in the Prospectus. No portion of the net proceeds will
be used directly or indirectly to acquire any securities issued by the Company.
(m) For a period of five (5) years following the effective date of the
Registration Statement, the Company shall timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the
Exchange Act, and the Rules and Regulations, and all
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such reports, forms and documents filed will comply as to form and substance
with the applicable requirements under the Act, the Exchange Act, and the Rules
and Regulations.
(n) The Company shall furnish to the Underwriter as early as practicable
prior to each of the date hereof, the Closing Date and each Over allotment
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited consolidated interim financial
statements of the Company (which in no event shall be as of a date more than
forty-five (45) days prior to the date of the Registration Statement) which have
been read by the Company's independent public accountants, as stated in their
letters to be furnished pursuant to Section 6(k) hereof.
(o) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Underwriter at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Securities upon the Underwriter's
request; (ii) a list of holders of Common Stock upon the Underwriter's request;
(iii) a list of, if any, the securities positions of participants in the
Depository Trust Company upon the Underwriter's request.
(p) Until a date which is three (3) years from the Closing Date shall
use its best efforts to cause one (1) individual selected by the Underwriter to
be elected to the Board of Directors of the Company (the "Board"), if requested
by the Underwriter and provided such individual is reasonably acceptable to and
approved by the Company. The Underwriter's nominee, if elected, shall receive
the same compensation as the other non-employee members of the Board.
Alternatively, the Underwriter shall be entitled to appoint an individual who
shall be permitted to attend all meetings of the Board and to receive all
notices and other correspondence and communications sent by the Company to
members of the Board, and copies of all minutes thereof. The Company shall
reimburse the Underwriter's designee for his or her out-of-pocket expenses
reasonably incurred and authorized in advance by the Company in connection with
his or her attendance of the Board meetings. To the extent permitted by law, the
Company agrees to indemnify and hold the designee (as a director or observer)
and the Underwriter harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or an observer and
the Company shall maintain a liability insurance policy in an amount of not less
than $1,000,000 affording coverage for the action of its officer and directors,
to include such designee and the Underwriter as an insured under such policy.
The Underwriter's nominee shall, if a member of the Board, be a member of the
Audit Committee of the Board. The Underwriter's nominee or designee, as the case
may be, shall agree not to disclose any non-public information and shall, if
requested by the Company, execute and deliver a non-disclosure agreement upon
terms reasonably acceptable to the Company.
(q) For a period equal to the lesser of (i) five (5) years from the date
hereof, or (ii) the sale to the public of the Underwriter's Warrant Shares, the
Company will not take any action or actions that may prevent or disqualify the
Company's use of Form SB-2 or, if applicable, Form S-3 (or other appropriate
form) for the registration under the Act of the Underwriter's Warrant Shares.
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<PAGE>
(r) For a period of five (5) years from the date hereof, use its best
efforts at its cost and expense to maintain the listing of the Company's Common
Stock on the Nasdaq SmallCap or National Market System.
(s) Following the Effective Date of the Registration Statement and for a
period of two (2) years thereafter, the Company shall, at its sole cost and
expense, prepare and file such blue sky trading applications with such
jurisdictions as the Underwriter may reasonably request after consultation with
the Company, and on the Underwriter's request, furnish the Underwriter with a
secondary trading survey prepared by securities counsel to the Company.
(t) During the term of any existing employment agreement between the
Company and an executive officer, the Company shall not amend or alter the terms
of any written or oral employment agreement between the Company and any
executive officer in a manner more favorable to such employee without the prior
consent of the Underwriter, which consent shall not be unreasonably withheld by
the Underwriter. For a period of three (3) years from the date hereof prior to
the Company entering into any oral or written employment agreement with any
person who will, upon commencement of such persons duties be deemed an executive
officer, the Company shall consult with the Underwriters and the entire Board of
Directors as to the proposed terms of such employment.
(u) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Underwriter, which
consent shall not be unreasonably withheld, issue, directly or indirectly, any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby, other than
trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
(v) The Company will use its best efforts to maintain its registration
under the Exchange Act in effect for a period of five (5) years from the Closing
Date.
(w) On the Closing Date, the Company and the Underwriter shall enter
into a financial consulting agreement, in the form filed as an Exhibit to the
Registration Statement, pursuant to which the Underwriter will provide financial
consulting services to the Company for a two year period for an aggregate fee of
$2,500 per month, payable in full at the Closing and the term of which shall
commencing on the Closing Date (the "Financial Consulting Agreement"). Among
other provisions, the Consulting Agreement shall contain terms which provide
that the Company shall pay the Underwriter a fee equal to five (5%) percent of
the amount up to $5,000,000 and two and one half (2 1/2 percent) of the excess,
if any, over $5,000,000 of the consideration involved in any transaction
(regardless of the form of transaction, whether by merger, acquisition or sale
of assets or otherwise) consummated by the Company with a party introduced by
the Underwriter to the Company for a period of four (4) years commencing on the
Closing Date.
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(x) For a period of 12 months commencing on the Closing Date, except
with the written consent of the Underwriter, will not issue or sell, directly or
indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Underwriter's Warrant , (iii) the exercise of
warrants and options of the Company heretofore issued and described in the
Prospectus, and (iv) the grant of options and the issuance of shares issued upon
exercise of options issued or to be issued under the Company's stock option
plans as described in the Prospectus. Except as discussed in the Prospectus,
prior to the Closing Date, the Company will not issue any options or warrants
without the prior written consent of the Underwriter.
(y) The Company will not file any registration statement relating to the
offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the 24 months following the Closing Date without
the Underwriter's prior written consent.
(z) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any material adverse
change in the condition (financial or other), business, operations, income, net
worth or properties, including any material loss or damage to the properties of
the Company (whether or not such loss is insured against), which could
materially adversely affect the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iii) the
Company shall not pay or declare any dividend or other distribution on its
Common Stock or its other securities or redeem or repurchase any of its Common
Stock or other securities.
(aa) Except as disclosed in or contemplated by the Registration
Statement and Prospectus, the Company, for a period of 24 months following the
Closing Date, shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Closing Date without obtaining the Underwriter's prior written consent,
which consent shall not be unreasonably withheld.
(bb) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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<PAGE>
(cc) On or before the effective date of the Registration Statement, the
Company shall cause to be duly executed legally binding and enforceable
agreements pursuant to which (i) each of the Company's officers and directors,
has agreed not to, directly or indirectly, offer to sell, sell, grant any option
for the sale of, assign, transfer, pledge, hypothecate or otherwise encumber any
of their shares of Common Stock or other securities (either pursuant to Rule 144
of the Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than 12 months from the date hereof, (ii) all
other persons owning the Company's Common Stock (or Securities convertible into
Common Stock) have agreed not to, directly or indirectly, offer to sell, sell,
grant any option for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber any of their shares of Common Stock or other securities
(either pursuant to Rule 144 of the Rules and Regulations or otherwise) or
dispose of any beneficial interest therein for a period of not less than 12
months. In addition, all such persons shall also agree not to sell more than 25%
of the shares per quarter of the Common Stock owned by them during the period
commencing on the 12th month to the 24th month. The Company will cause the
Transfer Agent, as defined below, to mark an appropriate legend on the face of
stock certificates representing all of such shares of Common Stock.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date and the
Over allotment Closing Date (to the extent not paid at the Closing Date) all its
expenses and fees (other than fees of Underwriter's Counsel, except as provided
in (iv) below) incident to the performance of the obligations of the Company
under this Agreement, including, without limitation: (i) the fees and expenses
of accountants and counsel for the Company; (ii) all costs and expenses incurred
in connection with the preparation, duplication, mailing, printing and filing of
the Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing and delivery of this Agreement, the Selected
Dealer Agreements, and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriter in
quantities as hereinabove stated; (iii) the printing, engraving, issuance and
delivery of the Securities and Underwriter's Warrant Shares including any
transfer or other taxes payable thereon; (iv) disbursements and fees of
Underwriter's counsel in connection with the qualification of the Securities
under state or foreign securities or "Blue Sky" laws and determination of the
status of such securities under legal investment laws, including the costs of
printing and mailing the "Preliminary Blue Sky Memorandum," the "Supplemental
Blue Sky Memorandum" and "Legal Investments Survey," if any, which Underwriter's
counsel fees (exclusive of filing fees and disbursements) shall equal $35,000
and of which $10,000 has previously been paid; (v) advertising costs and
expenses, including but not limited to costs and expenses in connection with one
information meeting held in New York, New York, one tombstone advertisement, at
least four bound volumes of the Offering documents for the Underwriter and its
counsel and prospectus memorabilia; (vi) fees and expenses of the transfer
agent; (vii) the fees payable to the NASD; and (viii) the fees and expenses
incurred in connection with the listing of the Securities on the Nasdaq SmallCap
Market. All fees and expenses payable to the Underwriter hereunder shall be
payable at the Closing Date or Over allotment Closing Date, as applicable;
provided, however, the company shall pay such fees and costs in advance of the
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<PAGE>
Closing Date if requested by the Underwriter. The Underwriter shall be
responsible for all of its own costs of counsel.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 6, Section 10(a) or Section 11, the Company shall
reimburse and indemnify the Underwriter for up to $50,000 out-of-pocket actual
expenses reasonably incurred in connection with the transactions contemplated
hereby including the fees and disbursements of counsel for the Underwriter of
which the Underwriter acknowledges $30,000 has been paid prior to the date
hereof.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 5, it will pay to the Underwriter a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Firm Securities, $40,000
of which has been paid to date to the Underwriter . The Company will pay the
remainder of the non-accountable expense allowance on the Closing Date by
certified or bank cashier's check or, at the election of the Underwriter , by
deduction from the proceeds of the offering contemplated herein. In the event
the Underwriter elect to exercise the over-allotment option described in Section
2(b) hereof, the Company further agrees to pay to the Underwriter on the Over
allotment Closing Date (by certified or bank cashier's check or, at the
Underwriter's election, by deduction from the proceeds of the offering) a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Over allotment Securities.
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Over allotment Closing Date, if any, as if they had been made on and as of
the Closing Date or each Over allotment Closing Date, as the case may be; the
accuracy on and as of the Closing Date or Over allotment Closing Date, if any,
of the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Over allotment Closing Date, if any, of each of its covenants and
obligations hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Underwriter, and, at Closing
Date and each Over allotment Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated to the knowledge of the Company by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriter's counsel. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Securities and any price-related information previously omitted
from the effective Registration Statement pursuant to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to Closing
Date the Company shall have provided evidence satisfactory to the Underwriter of
such
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<PAGE>
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, and the opinion of its counsel is
material or omits to state a fact which, in the Underwriter's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein not misleading, or that the Prospectus, or any supplement
thereto, contains an untrue statement of fact which, in the Underwriter's
reasonable opinion, or the opinion of its counsel is material, or omits to state
a fact which, in the Underwriter's reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) At the Closing Date and the Over allotment Closing Date, the
Underwriter shall have received the favorable opinion of ______________________
_______________________, counsel to the Company, dated the Closing Date, or Over
allotment Closing Date, as the case may be, addressed to the Underwriter and in
form and substance satisfactory to Underwriter's counsel, to the effect that:
(i)(A) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
full corporate power and authority to own or lease its properties and to carry
on its business as set forth in the Registration Statement and Prospectus; (B)
the Company is duly qualified as a foreign corporation in all jurisdictions in
which by reason of maintaining an office in such jurisdiction or by owning or
leasing real property in such jurisdiction it is required to be so qualified
except where the failure to be so qualified would have no material adverse
effect upon the business, properties, results of operations, conditions
(financial or otherwise) affairs or properties of the Company (a "Material
Adverse Effect"); and (C) to the best of counsel's knowledge, the Company has
not received any notice of proceedings relating to the revocation or
modification of any such license or qualification which revocation or
modification would have a Material Adverse Effect upon the Company.
(ii) The Registration Statement, each Preliminary Prospectus that
has been circulated and the Prospectus and any post-effective amendments or
supplements thereto (other than the financial statements, schedules and other
financial and statistical data included therein, as to which no opinion need be
rendered) comply as to form in all material respects with the requirements of
the Act and Regulations and the conditions for use of a registration statement
on Form SB-2 have been satisfied by the Company.
(iii) Except as described in the Prospectus, the Company does not
own an interest of a character required to be disclosed in the Registration
Statement in any corporation, partnership, joint venture, trust or other
business entity;
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(iv) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus as of the date indicated therein,
under the caption "Capitalization". The Securities, Underwriter's Warrant and
the Underwriter's Warrant Shares conform or upon issuance will conform in all
material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and all shares of
capital stock are fully paid and non-assessable; the holders thereof are not,
except by reason of their own conduct or acts, subject to personal liability by
reason of being such holders, and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company.
The Securities to be sold by the Company hereunder, the Underwriter's Warrant to
be sold by the Company under the Underwriter's Warrant Agreement and
Underwriter's Warrant Shares have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and conform or upon issuance will conform to the
description thereof contained in the Prospectus; are not, subject to any
preemptive or other similar rights of any stockholder of the Company; that, to
such counsel's knowledge, the holders of the Securities and Underwriter's
Warrant Shares shall not be personally liable for the payment of the Company's
debts solely by reason of being such holders except as they may be liable by
reason of their own conduct or acts; and that the certificates representing the
Securities, Underwriter's Warrant and Underwriter's Warrant Shares are in due
and proper legal form. Upon delivery of the Securities to the Underwriter
against payment therefor as provided for in this Agreement, the Underwriter
(assuming they are bona fide purchasers within the meaning of the Uniform
Commercial Code) will acquire good title to the Securities, free and clear of
all liens, encumbrances, equities, security interests and claims.
(v) The Registration Statement has been declared effective under the
Act, and, if applicable, filing of all pricing information has been timely made
in the appropriate form under Rule 430A, and, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened or
contemplated under the Act;
(vi) To the best of such counsel's knowledge, (A) there are no
material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations;
(vii) This Agreement, the Underwriter's Warrant Agreement and the
Financial Consulting Agreement have each been duly and validly authorized,
executed and delivered by the Company, and assuming that each is a valid and
binding agreement of the Underwriter , as the case may be, constitutes a legally
valid and binding agreement of the Company, enforceable as against the Company
in accordance with their respective terms (except as such enforceability may be
limited
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by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting enforcement of creditors rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law or pursuant to public policy).
(viii) Neither the execution or delivery by the Company of this
Agreement, the Underwriter's Warrant Agreement or the Financial Consulting
Agreement, nor its performance hereunder or thereunder, nor its consummation of
the transactions contemplated herein or therein, nor the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, nor the issuance of the Securities pursuant to this
Agreement, conflicts with or will conflict with or results or will result in any
material breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company except to
the extent such event will not have a Material Adverse Effect pursuant to the
terms of, (A) the Certificate of Incorporation or By-Laws of the Company, (B)
any material indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument that is material to the Company to which the Company is a party or by
which it is bound or to which its properties or assets (tangible or intangible)
are subject, or any indebtedness, or (C) any statute, judgment, decree, order,
rule or regulation applicable to the Company or any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body,
having jurisdiction over the Company or any of its respective activities or
properties.
(ix) No consent, approval, authorization or order, and no filing
with, any court, regulatory body, government agency or other body (other than
such as may be required under state securities laws or the NASD, as to which no
opinion need be rendered) is required in connection with the issuance by the
Company of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Underwriter's Warrant
Agreement and the Financial Consulting Agreement by the Company, and the taking
of any action by the Company contemplated hereby or thereby, which has not been
obtained;
(x) Except as described in the Prospectus, the Company is not in
breach of, or in default under, any material term or provision of any indenture,
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets (tangible or
intangible) of the Company is subject or affected; and the Company is not in
violation of any material term or provision of its Certificate of Incorporation
or By-Laws or in violation of any material franchise, license, permit, judgment,
decree, order, statute, rule or regulation material to the Company business;
(xi) The statements in the Prospectus under the captions "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
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TRANSACTIONS," "DESCRIPTION OF SECURITIES STOCK," and "SHARES ELIGIBLE FOR
FUTURE SALE" have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
(xii) To the best of such counsel's knowledge after due inquiry, no
person, corporation, trust, partnership, association or other entity holding
securities of the Company has the contractual right to include and/or register
any securities of the Company in the Registration Statement, require the Company
to file any registration statement or, if filed, to include any security in such
registration statement;
(xiii) the Securities are eligible for listing on the Nasdaq
SmallCap Market.
In addition, such counsel shall state that in connection with the
preparation of the Registration Statement and the Prospectus such counsel has
participated in conferences with officers and other representatives of the
Company, Underwriters of the independent public accountants for the Company and
Underwriters of the Underwriter at which the contents of the Registration
Statement, the Prospectus and related matters were discussed and, although such
counsel is not passing upon, has not verified, and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus and made no independent
check or verification thereof, on the basis of the foregoing, no facts have come
to the attention of such counsel which lead them to believe that either the
Registration Statement or any amendment thereto at the time such Registration
Statement or amendment became effective or the Prospectus as of the date of such
opinion 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 in light of the circumstances under which they were made, not misleading
(it being understood that such counsel need express no opinion with respect to
the financial statements and schedules and other financial and statistical data
included in the Registration Statement or Prospectus or with respect to
statements or omissions made therein in reliance upon information furnished in
writing to the Company on behalf of the Underwriter expressly for use in the
Registration Statement or the Prospectus).
In rendering such opinion, such counsel may rely, (A) as to matters
involving the application of laws other than the laws of the United States, the
corporate laws of Delaware and New Jersey and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriter's counsel) of other counsel reasonably
acceptable to Underwriter's counsel, familiar with the applicable laws of such
other jurisdictions, and (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of the
Company and certificates or other written statements of officers of departments
of various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company; provided, that copies of any such
statements or certificates shall be delivered to Underwriter's counsel if
requested. The opinion of such counsel for the Company shall state that the
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opinion of any such other counsel is in form satisfactory to such counsel and,
in their opinion, the Underwriter and they are justified in relying thereon.
(d) At each Over allotment Closing Date, if any, the Underwriter shall
have received the favorable opinion of counsel to the Company, each dated the
Over allotment Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's counsel confirming as of the Over
allotment Closing Date the statements made by such firm, in their opinion,
delivered on the Closing Date.
(e) On or prior to each of the Closing Date and the Over allotment
Closing Date, Underwriter's Counsel shall have been furnished such documents,
certificates and other legal opinions (including, without limitation, legal
opinions related to patent, trademark or Food and Drug matters) as they may
reasonably require and request for the purpose of enabling them to review or
pass upon the matters referred to in subsection (c) of this Section 6, or in
order to evidence the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained.
(f) Prior to the Closing Date and each Over allotment Closing Date, if
any: (i) there shall have been no material adverse change nor development
involving a prospective change in the condition, financial or otherwise,
prospects or the business activities of the Company, whether or not in the
ordinary course of business, from the latest dates as of which such condition is
set forth in the Registration Statement and Prospectus; (ii) there shall have
been no transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company; (iii) the Company shall not be in material default under
any provision of any instrument relating to any outstanding indebtedness for
money borrowed, except as described in the Prospectus; (iv) no material amount
of the assets of the Company shall have been pledged or mortgaged, except as set
forth in the Registration Statement and Prospectus; (v) no action, suit or
proceeding, at law or in equity, shall have been pending or to its knowledge
threatened against the Company, or affecting any of its properties or businesses
before or by any court or federal, state or foreign commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus; and (vi) no stop order shall have been issued under
the Act and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(g) At the Closing Date and each Over allotment Closing Date, if any,
the Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Over allotment Closing Date,
as the case may be, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are, in all material respects, true and correct, as if made on and as
of the Closing Date or the Over
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<PAGE>
allotment Closing Date, as the case may be, and the Company has complied with
all agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Over allotment Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending or, to the best of each of such person's knowledge,
are contemplated or to their knowledge threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes 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, in light of
the circumstances under which they were made, not misleading and neither the
Preliminary Prospectus nor any supplement thereto included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading except to the extent
any such material fact may be corrected in the Final Prospectus; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as otherwise
contemplated therein: (A) the Company has not incurred up to and including the
Closing Date or the Over allotment Closing Date, as the case may be, other than
in the ordinary course of its business, any material liabilities or obligations,
direct or contingent; (B) the Company has not paid or declared any dividends or
other distributions on its capital stock; (C) the Company has not entered into
any material transactions not in the ordinary course of business; (D) there has
not been any change in the capital stock or any increase in long-term debt or
any increase in the short-term borrowings (other than any increase in the
short-term borrowings in the ordinary course of business) of the Company; (E)
the Company has not sustained any material loss or damage to its property or
assets, whether or not insured; (F) there is no litigation which is pending or
threatened against the Company which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or affiliates shall
have taken, and the Company, its officers and affiliates will not take, directly
or indirectly, any action designed to, or which might reasonably be expected to,
cause or result in the stabilization or manipulation of the price of the
Company's securities to facilitate the sale or resale of the Shares.
References to the Registration Statement and the Prospectus in this
subsection (S) are to such documents as amended and supplemented at the date of
such certificate.
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<PAGE>
(h) By the Effective Date, the Underwriter shall have received clearance
from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriter hall have
received a letter, dated such date, addressed to the Underwriter in form and
substance satisfactory in all respects (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) to the
Underwriter, from [Accounting Firm].
(A) confirming that they are independent public accountants with
respect to the Company within the meaning of the Act and the applicable Rules
and Regulations;
(B) stating that it is their opinion that the combined financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Underwriter may rely upon the opinion of Arthur Andersen LLP with
respect to the financial statements and supporting schedules included in the
Registration Statement;
(C) stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim combined financial statements
of the Company (with an indication of the date of the latest available unaudited
interim combined financial statements), a reading of the latest available
minutes of the stockholders and board of directors and the various committees of
the boards of directors of the Company, consultations with officers and other
employees of the Company responsible for financial and accounting matters and
other specified procedures and inquiries, nothing has come to their attention
that would lead them to believe that (A) the unaudited combined financial
statements and supporting schedules of the Company included in the Registration
Statement do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited combined
financial statements of the Company included in the Registration Statement, or
(B) at a specified date not more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in the capital stock or
long-term debt of the Company, or any decrease in the stockholders' equity or
net current assets or net assets of the Company as compared with amounts shown
in the financial statements included in the Registration Statement, other than
as set forth in or contemplated by the Registration Statement, or, if there was
any change or decrease, setting forth the amount of such change or decrease, and
(C) during the period from to a specified date not more than five (5) days prior
to the effective date of the Registration Statement, there was any decrease in
net revenues, net earnings or increase in net earnings per common share of
the Company, in each case as compared with the corresponding period beginning
____________ other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of such
decrease;
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<PAGE>
(D) setting forth, at a date not later than five (5) days prior to
the effective date of the Registration Statement, the amount of liabilities of
the Company (including a breakdown of commercial paper and notes payable to
banks);
(E) stating that they have compared specific dollar amounts, numbers
of Securities, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(F) stating that they have not during the immediately preceding five
(5) year period brought to the attention of the Company's management any
"weakness", as defined in Statement of Auditing Standard No. 60 "Communication
of Internal Control Structure Related Matters Noted in an Audit, "in the
Company's internal controls;
(G) stating that they have in addition carried out certain specified
procedures, not constituting an audit, with respect to certain pro forma
financial information which is included in the Registration Statement and the
Prospectus and that nothing has come to their attention as a result of such
procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all material respects with the applicable
accounting requirements of Rule ll-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information; and
(H) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriter may reasonably request.
At the Closing Date and each Over allotment Closing Date, the
Underwriter shall have received from [Accounting Firm], a letter, dated as of
the Closing Date, or Over allotment Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (i) of this Section, except that the specified date referred to
shall be a date not more than five days prior to Closing Date and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause
(iii) of subsection (i) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriter and deemed
to be a part of the Registration Statement pursuant to Rule 430A(b) and have
found such amounts, percentages and financial information to be in agreement
with the records specified in such clause (iii).
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<PAGE>
(k) On each of Closing Date and Over allotment Closing Date, if any,
there shall have been duly tendered to the Underwriter for their accounts the
appropriate number of Securities against payment therefore.
(l) No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriter pursuant to subsection (e) of Section 4 hereof
shall have been issued on either the Closing Date or the Over allotment Closing
Date, if any, and no proceedings for that purpose shall have been instituted or
to its knowledge or that of the Company shall be contemplated.
If any condition to the Underwriter's obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Over allotment Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter o elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless the Underwriter,
and each person, if any, who controls the Underwriter ("controlling person")
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), whatsoever (including but not
limited to any and all expenses whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), as such are incurred, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or any
other statute or at common law or otherwise or under the laws of foreign
countries arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in any Preliminary Prospectus (except
that the indemnification contained in this paragraph with respect to any
preliminary prospectus shall not inure to the benefit of the Underwriter or to
the benefit of any person controlling the Underwriter on account of any loss,
claim, damage, liability or expense arising from the sale of the Firm Securities
by the Underwriter to any person if a copy of the Prospectus, as amended or
supplemented, shall not have been delivered or sent to such person within the
time required by the Act, and the untrue statement or alleged untrue statement
or omission or alleged omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus, as amended and supplemented, and
such correction would have eliminated the loss, claim, damage, liability or
expense), the Registration Statement or the Prospectus (as from time to time
amended and supplemented); (ii) in any post-effective amendment or amendments or
any new registration statement and prospectus in which is included Securities of
the Company issued or issuable upon exercise of the Underwriter's Warrant; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, the Nasdaq Stock Market,
Inc. or any other securities exchange; or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading (in the case of the
28
<PAGE>
Prospectus, in the light of the circumstances under which they were made),
unless in any case above such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company with respect
to any Underwriter by or on behalf of such Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, in any post-effective amendment, new
registration statement or prospectus or in any application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees, to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act to the
same extent as the foregoing indemnity from the Company to the Underwriter (i)
with respect to statements or omissions, or alleged statements or omissions if
any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto in any post-effective
amendment, new registration statement or prospectus, or in any application made
in reliance upon, and in strict conformity with, written information furnished
to the Company with respect to the Underwriter by the Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any post-effective amendment,
new registration statement or prospectus, or in any such application, directly
related to the transactions effected by the Underwriter in connection with this
Offering; provided that such written information or omissions only pertain to
disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto, in any post-effective
amendment, new registration statement or prospectus or in any such application,
and (ii) for any claim, loss, damages or liability for violation or alleged
violations of any federal or state securities laws in the offer or sale of the
Securities; provided, further, that the liability of the Underwriter to the
Company shall be limited to the product of the Underwriter's discount or
commission for the Shares multiplied by the number of Shares sold by the
Underwriter hereunder. The Company acknowledges that the statements with respect
to the public offering of the Firm Securities set forth under the heading
"Underwriting" and the stabilization legend and the last paragraph of the cover
page in the Prospectus have been furnished by the Underwriter expressly for use
therein and any information furnished by or on behalf of the Underwriter filed
in any jurisdiction in order to qualify the Securities under state securities
laws or filed with the Commission, the NASD or any securities exchange
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Prospectus and the Underwriter hereby confirm
that such statements and information are true and correct and shall be on each
Closing Date and Over allotment Closing Date.
(c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof
29
<PAGE>
(but the failure so to notify an indemnifying party shall not relieve it from
any liability which it may have under this Section 7 except to the extent that
it has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, the indemnifying party may assume the defense
thereof with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing the indemnified party or parties shall have the
right to employ its or their own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnifying party or
parties shall have reasonably concluded that there may be defenses available to
it or them that are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses of
one additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided however, that
such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) 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 each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
the contributing party and the Underwriter are the
30
<PAGE>
indemnified party the relative benefits received by the Company on the one hand,
and the Underwriter, on the other, shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Securities (before deducting
expenses) bear to the total underwriting discounts and commissions received by
the Underwriter hereunder, in each case as set forth in the table on the cover
page of the Prospectus. 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 or by the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this
subdivision (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. 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 which 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. For purposes
of this Section 7, each person, if any, who controls the Company within the
meaning of the Act, each officer of the Company who has signed the Registration
Statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to this subparagraph (d). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect to
which a claim for contribution may be made against another party or parties
under this subparagraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any
obligation it or they may have hereunder or otherwise than under this
subparagraph (d), or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
8. Representations and Agreements to Survive Delivery. All representations,
warranties and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations, warranties and agreements at the Closing Date and
the Over allotment Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Underwriter , the
Company, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at 9:30 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after
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<PAGE>
the Registration Statement becomes effective as the Underwriter, in its
discretion, shall release the Securities for the sale to the public, provided,
however that the provisions of Sections 5, 7 and 10 of this Agreement shall at
all times be effective. For purposes of this Section 9, the Securities to be
purchased hereunder shall be deemed to have been so released upon the earlier of
dispatch by the Underwriter of telegrams to securities dealers releasing such
Securities for offering or the release by the Underwriter for publication of the
first newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination
(a) The Underwriter shall have the right to terminate this Agreement:
(i) if any calamitous domestic or international event or act or occurrence has
materially disrupted, or in the Underwriter's commercially reasonable opinion
will in the immediate future materially disrupt general securities markets in
the United States; or (ii) if trading on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market shall have been
suspended or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction; or (iii) if the United States shall
have become involved in a war or major hostilities; or (iv) if a banking
moratorium has been declared by a New York State or federal authority; or (v) if
a moratorium in foreign exchange trading has been declared; or if the Company
shall have sustained a material loss, whether or not insured, by reason of fire,
flood, accident or other calamity; or (vi) if there shall have been such
material adverse change in the conditions or prospects of the Company, involving
a change not contemplated by the Registration Statement, or (vii) if there shall
have been such material adverse change in general economic, political or
financial conditions as in the Underwriter's reasonable judgment would make it
inadvisable or impracticable to proceed with the offering, sale or delivery of
the Securities.
(b) Notwithstanding any contrary provision contained in this Agreement,
any election hereunder or any termination of this Agreement (including, without
limitation, pursuant to Sections 9 and 10 hereof), and whether or not this
Agreement is otherwise carried out, the provisions of Section 5 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the Closing Date
or any Over allotment Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Over allotment Closing Date, the
Underwriter s may at the Underwriter's option, by notice from the Underwriter to
the Company, terminate the Underwriter's obligations to purchase Securities from
the Company on such date) without any liability on the part of any
non-defaulting party other than pursuant to Section 5 and Section 7 hereof. No
action taken pursuant to this Section shall relieve the Company from liability,
if any, in respect of such default.
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<PAGE>
12. Venue; Submission to Jurisdiction. The Company (a) agrees that any
legal suit, action or proceeding arising out of or relating to this Agreement
shall be instituted exclusively in ___________, or in the ___________, (b)
waives any objection which the Company may have now or hereafter to the venue of
any such suit, action or proceeding, and (c) irrevocably consents to the
jurisdiction of the ___________ and the United States District Court for the
____________ in any such suit, action or procedure. Each of the Company and the
Underwriter further agrees to accept and acknowledge service of any and all
process which may be served in any suit, action or proceeding in the
____________ for the ____________, and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the company in any such suit,
action or proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
13. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to First Montauk
Securities Corp., 328 Newman Springs Road, Red Bank, New Jersey 07701,
Attention: Robert Rabinowitz, Esq., with a copy to Goldstein & DiGioia, LLP, 369
Lexington Avenue, New York, New York 10017, Attention: Brian C. Daughney, Esq.
Notices to the Company shall be directed to the Company at ____________________,
with a copy to ____________________________________, Attention: ___________,
Esq.
14. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers referred to in Section 7 hereof, and their respective
successors, legal Underwriters and assigns, and their respective heirs and legal
Underwriters and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
15. Applicable Law/Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New Jersey
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. Waiver. The waiver by either party of the breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any subsequent breach.
18. Assignment. Except as otherwise provided within this Agreement, neither
party hereto may transfer or assign this Agreement without prior written consent
of the other party.
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19. Titles and Captions. All article, section and paragraph titles or
captions contained in this Agreement are for convenience only and shall not be
deemed part of the context nor affect the interpretation of this Agreement.
20. Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the Person or Persons may require.
21. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
JEREMY'S MICROBATCH ICE CREAM, INC.
By:
-------------------------------
Name:
Title: President
Confirmed and accepted as of the date first above written.
FIRST MONTAUK SECURITIES CORP.
By:
--------------------------
Name:
Title: President
34
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JEREMY'S MICROBATCH ICE CREAM, INC.
--------------
UNDERWRITER'S WARRANT AGREEMENT
- -------------------------------------------------------------------------------
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of __________, 1999 between
JEREMY'S MICROBATCH ICE CREAM, INC., a Delaware corporation with its principal
address at __________________________________ (the "Company") and FIRST MONTAUK
SECURITIES CORP., with its principal address at ______________
___________________ , as Underwriter, a (hereinafter referred to variously as
the "Holder" or the "Underwriter").
W I T N E S S E T H :
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
Underwriter and the Company, to underwrite the Company's proposed public
offering (the "Public Offering") of 1,200,000 shares of common stock $_____ par
value (the "Common Stock") of the Company at a public offering price of $____
per share (the "Shares"); and
2
<PAGE>
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Underwriter's Warrants") to purchase up to an aggregate of 120,000 fully paid
non-assessable shares (the "Warrant Shares") of the Company's Common Stock, at
an exercise price of $____ per share (125% of the public offering price of the
Shares); and
WHEREAS, the Underwriter's Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the compensation in connection with the Public Offering;
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of an aggregate of One Hundred and Twenty ($120.00),
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
l. Grant. The Holder is hereby granted the right to purchase, at any time
from __________, 2000 [one year
3
<PAGE>
after effective date] until 5:30 P.M., New York time, on _____________, 2003
[four years after effective date], up to an aggregate of 120,000 Shares at an
initial exercise price (subject to adjustment as provided in Section 8 hereof)
of $____ per Share (the "Exercise Price"), subject to the terms and conditions
of this Agreement. Except as set forth herein, the Shares issuable upon exercise
of the Underwriter's Warrants are in all respects identical to the shares of
Common Stock being purchased by the Underwriter for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Underwriter's Warrant Certificates. The Underwriter's warrant
certificates (the "Underwriter's Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth in Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions, and other variations as required or permitted by this
Agreement.
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3. Exercise of Underwriter's Warrants
Section 3.1 Exercise. The Underwriter's Warrants initially are exercisable
at an aggregate initial exercise price (subject to adjustment as provided in
Section 8 hereof) per share, as set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender at the Company's
principal offices currently located at _________________________________, of an
Underwriter's Warrant Certificate with the annexed Form of Election to Purchase
duly executed, together with payment of the Purchase Price (as hereinafter
defined) for the Shares purchased, the registered holder of an Underwriter's
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase rights
represented by each Underwriter's Warrant Certificate are exercisable at the
option of the Holder thereof, in whole or in part (but not as to fractional
shares of Common Stock underlying the Underwriter's Warrants). In the case of
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the purchase of less than all the Shares purchasable under any Underwriter's
Warrant Certificate, the Company shall cancel the Underwriter's Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Underwriter's Warrant Certificate of like tenor for the balance of the Shares
purchasable thereunder.
Section 3.2 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange the Warrants represented by such
Holder's Warrant certificate, in whole or in part (a "Warrant Exchange), into
the number of fully paid and non-assessable Shares determined in accordance with
this Section 3.2, by surrendering such Warrant certificate at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
take place on the date specified in the Notice of Exchange, or, if later, the
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date the Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new Warrant of like tenor evidencing the balance of the Shares
remaining subject to the Holder's Warrant certificate, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) business days
following the Exchange Date. In connection with any Warrant Exchange, the
Holder's Warrant certificate shall represent the right to subscribe for and
acquire (i) the number of Shares (rounded to the next highest integer) equal to
(A) the number of Shares specified by the Holder in its Notice of Exchange (the
"Total Share Number") less (B) the number of Shares equal to the quotient
obtained by dividing (i) the product of the Total Share Number and the existing
Exercise Price (as hereinafter defined) per Share by (ii) the Market Price (as
defined in Section 3.3 hereof) of a share of Common Stock.
Section 3.3 Market Price. For the purpose of this Agreement, the phrase
"Market Price" at any date shall be deemed to be the (i) last reported sale
price
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on the last trading day or, in case no such reported sale takes place on such
day, the average last reported sale price for the last three (3) trading days,
in either case as officially reported by the principal securities exchange on
which the Common Stock is listed or admitted to trading, or, (ii) if the Common
Stock is not listed or admitted to trading on any national securities exchange
but is listed or quoted upon the Nasdaq National Market or SmallCap Market
(together referred to hereinafter as "NASDAQ"), the closing bid price on the
last trading day, or, in case no such reported bid takes place on such day, the
average closing bid price for the last three (3) trading days, as furnished by
NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or (iii) if the Common Stock is not listed upon a principal
exchange or quoted on NASDAQ, but quotes for the Common Stock are available in
the OTC Bulletin Board or "pink sheets" the closing bid price on the last
trading day, or, in case no such bid takes place on such day, the average
closing bid price for the last three (3) trading days as furnished on the OTC
Bulletin
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Board or (iv) in the event the Common Stock is not traded upon a principal
exchange and not listed on NASDAQ and quotes are not available on the OTC
Bulletin Board, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
4. Issuance of Certificates. Upon the exercise of the Underwriter's
Warrants, the issuance of certificates for the Shares or other securities,
properties or rights underlying such Underwriter's Warrants, shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in
such names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificates
in a name other than that of the
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Underwriter and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Underwriter's Warrant Certificates and the certificates representing
the Shares issuable upon exercise of the Underwriter's Warrants shall be
executed on behalf of the Company by the manual or facsimile signature of the
then Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary of the Company. The Underwriter's Warrant Certificates shall
be dated the date of the execution by the Company upon initial issuance,
division, exchange, substitution or transfer. The certificates representing the
Shares issuable upon exercise of the Underwriter's Warrant shall be identical in
form to those issued in connection with the Public Offering.
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5. Restriction On Transfer of Underwriter's Warrants. The Holder of an
Underwriter's Warrant Certificate, by its acceptance thereof, covenants and
agrees that the Underwriter's Warrants are not being acquired with a view to the
distribution thereof; and that the Underwriter's Warrants may not be sold,
transferred, assigned, pledged or hypothecated, in whole or in part, for a
period of one (1) year from the date hereof, except members of the Selling Group
and bona fide officers or parties thereof (as defined in the Underwriting
Agreement).
6. Exercise Price
Section 6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Underwriter's
Warrant shall be $____ per Share. The exercise price shall be adjusted from time
to time in accordance with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise prices or the adjusted exercise price, depending upon the
context of the Underwriter's Warrants.
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7. Registration Rights.
Section 7.1 Registration Under the Securities Act of 1933. The
Underwriter's Warrants and the Shares issuable upon exercise of the
Underwriter's Warrants, have been registered (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act").
Section 7.2 Piggyback Registration. If, at any time commencing after
__________, 2000 (one (1) year from the Effective Date), through and including
__________, 2004 (five (5) years from the Effective Date), the Company proposes
to register any of its securities under the Act (other than in connection with a
merger or acquisition) it will give written notice by registered or certified
mail, at least thirty (30) days prior to the filing of each such registration
statement, to the Underwriter and to all other Holders of the Underwriter's
Warrants and Shares underlying the Underwriter's Warrants, of its intention to
do so. If any of the Underwriter or other Holders of the Underwriter's Warrants
and/or the Shares underlying the Underwriter's Warrants,
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notify the Company within twenty (20) days after receipt of any such notice of
its or their desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders of
the Underwriter's Warrants and/or Shares underlying the Underwriter's Warrants,
the opportunity to have any of such securities registered under such
registration statement; provided, however, that in the event the underwriters
advise the Company that in their opinion the number of securities requested to
be included in such registration pursuant to this Agreement and pursuant to any
other rights granted by the Company to holders of its securities exceeds the
number of securities that can be sold in the offering without adversely
affecting the offering price of the Company's securities, the Company may first
include in such registration all securities the Company proposes to sell
(without including the holders of other rights granted by the Company), and each
Holder shall accept a pro rata reduction in the number of shares to be included
in such registration statement.
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Notwithstanding the provisions of this Section 7.2, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.2 (irrespective of whether a written request for inclusion of any such
securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 Demand Registration.
(a) At any time commencing after ____________, 2000 (one (1) year from the
Effective Date) through and including ____________, 2004 (five (5) years from
the Effective Date), the Holders of the Underwriter's Warrants and Shares
underlying the Underwriter's Warrants, representing a "Majority" of the shares
of Common Stock issuable upon the exercise of the Underwriter's Warrants
(assuming the exercise of all of the Underwriter's Warrants) shall have the
right (which right is in addition to the registration rights under Section 7.2
hereof), exercisable by written notice to the Company, to have the Company
prepare and file with the Commission,
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at on one occasion, a registration statement and such other documents, including
a prospectus, as may be necessary in the opinion of both counsel for the Company
and counsel for the Underwriter and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale of their
respective Warrant Shares for a period of time equal to the greater of (i) least
nine (9) consecutive months or (ii) the unexpired term of the Underwriter's
Warrants by such Holders and any other Holders of the Underwriter's Warrants and
the Shares who shall notify the Company within ten (10) days after receiving
notice from the Company of such request. Such registration and all costs
incident thereof shall be at the expense of the Company, as provided in Section
7.4(b).
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Underwriter's Warrants and Shares within ten
(10) days from the date of the receipt of any such registration request.
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(c) The Company and the Holders agree that the Holders of Underwriters
Warrants and Shares (the "Securities") will suffer damages if the Company fails
to fulfill its obligations under this Section 7.3 and that ascertaining the
extent of such damages with precision would not be feasible. Accordingly, the
Company agrees to pay liquidated damages in the form of interest with respect to
the Securities held by each Holder ("Liquidated Damages"), if:
(i) any Registration Statement required to be filed pursuant to this
Section 7.3 is not filed with the SEC on or prior to the date specified in
Section 7.4(a) for such filing in this Agreement;
(ii) any such Registration Statement has not been declared effective
by the SEC on or prior to the earliest possible time but in no event later
than 90 days after such filing (the "Effectiveness Target Date"); or
(iii) any Registration Statement required to be filed pursuant to this
Section 7.3 is filed and declared effective but shall thereafter cease to
be effective or fail to be
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usable for its intended purpose without being succeeded immediately by a
post effective amendment to such Registration Statement that cures such
failures and that is itself immediately declared effective;
(each such event in clauses (i) through (iii) above being referred to
herein as a "Registration Default"). The additional interest comprising
Liquidated Damages shall be an amount equal to (A) with respect to the
first 90-day period immediately following the occurrence of a Registration
Default, 10% of the number of Securities held by such Holder (pro-rated
weekly), plus (B) an additional 10% of the number of Securities held by
such Holder with respect to each 30-day period after the first 90 day
period, until all Registration Defaults have been cured, up to 100% of the
number of Securities held by such Holder. The Company shall notify the
Holders within one Business Day after each and every date on which a
Registration Default occurs. All accrued and unpaid Liquidated Damages
shall be paid immediately by the Company on the expiration of each 90-day
and 30-day period by mailing certificates for
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such securities to Holders of record of the Securities at such address as
is set forth on the stock record books of the Company. Each obligation to
pay Liquidated Damages shall be deemed to accrue beginning on the day of
the applicable Registration Default (other than as set forth above).
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease until the next Registration Default, if any.
Section 7.4 Covenants of the Company With Respect to Registration. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration statement
within ninety (90) days of receipt of any demand therefor in accordance with
Section 7.3(a), shall use its best efforts to have any registration statement
declared effective by the Effectiveness Target Date, and shall furnish each
Holder desiring to sell the Shares underlying the Underwriter's Warrants such
number of prospectuses as shall reasonably be requested. Notwithstanding the
foregoing sentence, the
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Company shall be entitled to postpone the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to this Section
7.4(a) if the Company (i) is publicly committed to a self-tender or exchange
offer and the filing of a registration statement would cause a violation of
Regulation M under the Securities Exchange Act of 1934 as amended (the "Exchange
Act") or (ii) or if the Company is involved in negotiating or consummating an
acquisition or merger which would make such registration impracticable in which
case the filing of the registration statement may be delayed for a period of up
to 90 days. In the event of such postponement, the Company shall be required to
file the registration statement pursuant to this Section 7.4(a) upon the earlier
of (i) the consummation or termination, as applicable, of the event requiring
such postponement or (ii) 90 days after the receipt of the initial demand for
such registration. Additionally, notwithstanding anything to the contrary
contained herein, during any period that a registration statement filed pursuant
to Section 7.3 hereof is effective, the Company shall have the
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right to prohibit the sale of any shares thereunder upon notice to the Holder(s)
(A) if in the opinion of counsel for the Company, the Company would thereby be
required to disclose information not otherwise then required by law to be
publicly disclosed where it is significant to the operations or well being of
the Company that such information remain undisclosed, provided that the Company
shall use its best efforts to minimize the period of time in which it shall
prohibit the sale of any of such shares pursuant to this clause (A), (B) for
periods of up to 30 days if the Company reasonably believes that such sale might
reasonably be expected to have an adverse effect on any significant proposal or
plan of the Company to engage in an acquisition of assets or any merger,
consolidation, tender offer, financing, corporate reorganization or similar
transaction; (C) during the period starting with the date 10 days prior to the
Company's estimate of the date of filing of, and ending on a date 90 days after
the effective date of, a Company initiated registration in which the Holders are
entitled to and may in fact participate in accordance
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with Section 7.2 hereof, but in no event longer than 180 days; or (D) upon the
happening of any event, as a result of which the prospectus under the
registration statement includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing (in which case, the Company shall within a reasonable period provide
the Holder with revised or supplemental prospectuses and the Holders shall
promptly take action to cease making any offers of such shares until receipt and
distribution of such revised or supplemental prospectuses.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s) counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and
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blue sky fees and expenses. The Holder(s) will pay all costs, fees and expenses
in connection with any registration statement filed pursuant to Section 7.3(c).
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant underlying the Underwriter's Warrants
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Underwriter's Warrants
and Shares to be sold pursuant to any registration statement and each person, if
any, who controls such Holders within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them
may become subject under the Act, the Exchange Act or otherwise, arising from
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such registration statement but only to the same extent and with the same effect
as the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Underwriter's Warrants and Shares underlying the
Underwriter's Warrants to be sold pursuant to a registration statement, and
their successors and assigns, shall severally, and not jointly, indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all loss, claim, damage or expense or liability (including
all expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from information furnished by or on
behalf of such Holders, or their successors or assigns, for specific inclusion
in such registration statement to the same extent and with
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the same effect as the provisions contained in Section 7 of the Underwriting
Agreement pursuant to which the Underwriter has agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as requiring the
Holder(s) to exercise their Underwriter's Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other than
the Shares underlying the Underwriter's Warrants to be included in any
registration statement filed pursuant to Section 7.3 hereof, or permit any other
registration statement (other than in connection with a merger or acquisition)
to become effective within 120 days of a registration statement filed pursuant
to Section 7.3 hereof, without the prior written consent of the Holders of the
Underwriter's Warrants or Shares underlying the Underwriter's Warrants
representing a majority of the shares of Common Stock issuable upon the exercise
of such Underwriter's Warrants.
(h) If the Shares underlying the Shares underlying the Underwriter's
warrants are to be sold in an underwritten public offering, the Company shall
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<PAGE>
use its best efforts to furnish to each Holder participating in the offering and
to each such underwriter, a signed counterpart, addressed to such underwriter,
of (i) an opinion of counsel to the Company dated the date of the closing under
the underwriting agreement, and (ii) a "cold comfort" letter dated the date of
the closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the Company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date of
the registration statement, and in any event within 15 months thereafter, have
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made "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described below, and the
managing underwriters, copies of all correspondence between the Commission and
the Company, its counsel or auditors and all memoranda relating to discussions
with the Commission or its staff with respect to the registration statement and
permit each Holder and underwriter to do such investigation, upon reasonable
advance notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such
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investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable times
and as often as any such Holder shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriter(s) selected for such underwriting, if any, by Holders
holding a Majority of the Underwriter's Warrants and Shares underlying the
Underwriter's Warrants requested to be included in such underwriting. Such
underwriting agreement shall be satisfactory in form and substance to the
Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter(s).
The Holders shall be parties to any underwriting agreement relating to an
underwritten sale of their Underwriter's Warrants and the Shares underlying the
Underwriter's Warrants and may, at their option, require that any or all the
representations, warranties
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and covenants of the Company to or for the benefit of such underwriter(s) shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such Holders, their
intended methods of distribution, and except for matters related to disclosures
with respect to such Holders, contained or required to be contained, in such
registration statement under the Act and the rules and regulations thereunder.
(l) For purposes of this Agreement, the term "Majority" in reference to the
Holders of Underwriter's Warrants and Shares, shall mean in excess of fifty
percent (50%) of the then outstanding Shares, assuming the full exercise of all
Underwriter's Warrants that (i) are not held by the Company, an affiliate,
officer, creditor, employee or agent thereof or any of their respective
affiliates, members of their families, persons acting as nominees or in
conjunction therewith or (ii) have
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not been resold to the public pursuant to Rule 144 under the Act or a
registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price of the Underwriter's Warrants shall forthwith be proportionately decreased
in the case of subdivision or increased in the case of combination.
Section 8.2 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price of the Underwriter's Warrants, pursuant to the provisions of this
Section 8, the number of shares issuable upon the exercise of the Underwriter's
Warrants, shall be adjusted to the nearest full amount by multiplying a number
equal to the exercise price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon exercise of the Underwriter's
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Prices.
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Section 8.3 Definition of Common Stock. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Articles of Incorporation of the Company as amended as of the date
hereof, or (ii) any other class of stock resulting from successive changes or
reclassifications of such Common Stock, consisting solely of changes in par
value, or from par value to no par value, or from no par value to par value. In
the event that the Company shall after the date hereof issue common securities
with greater or superior voting rights than the shares of Common Stock
outstanding as of the date hereof, the Holder, at its option, may receive upon
exercise of any Underwriter's Warrant, either shares of Common Stock or a like
number of such securities with greater or superior voting rights.
Section 8.4 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or
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change of the outstanding Common Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such warrant) to receive, upon exercise of such
warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such warrant might have been
exercised immediately prior to such consolidation, merger, sale or transfer.
Such supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
Section 8.5 No Adjustment of Exercises Price in Certain Cases. No
adjustment of the Exercise Price of the Underwriter's Warrants shall be made:
(a) Upon the issuance or sale of the Underwriter's Warrants or Shares
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issuable upon the exercise of the Underwriter's Warrants or the exercise of
options and warrants outstanding on the date hereof and described in the
prospectus relating to the Public Offering; or
(b) If the amount of such adjustment shall be less than two cents ($.02)
per share of Common Stock, provided, however, that in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at least
two cents ($.02) per share of Common Stock.
9. Exchange and Replacement of Underwriter's Warrant Certificates. Each
Underwriter's Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office of
the Company, for a new Underwriter's Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Shares as
provided in the original Underwriter's
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Warrants in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Underwriter's Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Underwriter's Warrants, if mutilated, the Company will make and deliver a
new Underwriter's Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Underwriter's Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be
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eliminated by rounding any fraction up to the nearest whole number of shares of
Common Stock or other securities, properties or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Underwriter's Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Underwriter's Warrants and payment of the Exercise
Price therefor, all shares of Common Stock and other securities issuable upon
such exercise shall be duly and validly issued, fully paid, non-assessable and
not subject to the preemptive rights of any stockholder. As long as the
Underwriter's Warrants shall be outstanding, the Company shall use its best
efforts to cause all shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants to be listed (subject to official notice of issuance) on
all securities exchanges on which the Common
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Stock issued to the public in connection herewith may then be listed and/or
quoted on the Nasdaq Stock Market (National Stock Market or SmallCap Market).
12. Notices to Underwriter's Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Underwriter's Warrants and their exercise, any of
the following events shall occur:
(a) the Company shall take a record of the holders of its shares of Common
Stock for the purpose of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
35
<PAGE>
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or substantially all
of its property assets and business as an entirety shall be proposed; then, in
any one or more of such events the Company shall give written notice to the
Holders of such event at least fifteen (15) days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein
36
<PAGE>
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend, or the issuance of any convertible
or exchangeable securities, or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
13. Notices
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Underwriter's Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof or to
such other address as the Company may designate by notice to the Holders.
14. Supplements and Amendments. The Company and the Underwriter may from
time to time supplement or amend this Agreement without the approval of any
37
<PAGE>
holders of Underwriter's Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Underwriter's Warrant Certificates.
15. Successors. All the covenants and provisions of this Agreement shall be
binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business on
___________, 2004. Notwithstanding the foregoing, the indemnification provisions
of Section 7 shall survive such termination until the close of business on
___________, 2006.
17. Governing Law: Submission to Jurisdiction. This Agreement and each
Underwriter's Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of New Jersey and for all purposes
38
<PAGE>
shall be construed in accordance with the laws of such State without giving
effect to the rules of said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any action,
proceeding or claim against it arising out of, or relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New Jersey
or of the United States of America for the ___________, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Underwriter and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
13 hereof. Such mailing shall be deemed personal service and
39
<PAGE>
shall be legal and binding upon the party so served in any action, proceeding or
claim. The Company, the Underwriter and the Holders agree that the prevailing
party(ies) in any such action or proceeding shall be entitled to recover from
the other party(ies) all of its/their reasonable legal costs and expenses
relating to such action or proceeding and/or incurred in connection with the
preparation therefor.
18. Entire Agreement: Modification. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and, except as provided in Section 14 hereof, may not be
modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
40
<PAGE>
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Underwriter's Warrant
Certificates or Shares underlying the Underwriter's Warrants any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Underwriter and any
other Holder(s) of the Underwriter's Warrant Certificates or Shares.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] JEREMY'S MICROBATCH ICE CREAM, INC.
By
--------------------------------
Name:
Title:
Attest:
- ---------------------
Secretary
FIRST MONTAUK SECURITIES CORP.
By
--------------------------------
Name:
Title:
42
<PAGE>
EXHIBIT A
[FORM OF UNDERWRITER'S WARRANT CERTIFICATE]
THE UNDERWRITER'S WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITER'S WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE UNDERWRITER'S WARRANT AGREEMENT
REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, _____________, 2004
No. UW-1 120,000 Underwriter's Warrants
UNDERWRITER'S WARRANT CERTIFICATE
This Underwriter's Warrant Certificate certifies that _____________________
______________________, or registered assigns, is the registered holder of
120,000 Underwriter's Warrants to purchase initially, at any time from
________________, 2000 [one year from the effective date of the offering] until
5:30 p.m. New York time on _____________, 2004 [five years from the effective
<PAGE>
date of the offering] ("Expiration Date"), up to 120,000 fully-paid and
non-assessable shares of Common Stock, par value $.001 per share (the
"Warrants") of JEREMY'S MICROBATCH ICE CREAM, INC., a Delaware corporation (the
"Company"), at an initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $____ per Share upon surrender of this
Underwriter's Warrant Certificate and payment of the Exercise Price at an office
or agency of the Company, but subject to the conditions set forth herein and in
the warrant agreement dated as of _____________, 1999 between the Company and
FIRST MONTAUK SECURITIES CORP. (the "Underwriter's Warrant Agreement"). Payment
of the Exercise Price shall be made by certified or official bank check in New
York Clearing House funds payable to the order of the Company or otherwise in
accordance with the terms of the Underwriter's Warrant Agreement. In accordance
with Section 3.2 of the Underwriter's Warrant Agreement, payment of the exercise
price may also be made by the delivery of Shares of Common Stock of the Company.
No Underwriter's Warrant may be exercised after 5:30 p.m., New York time,
on the Expiration Date, at which time all Underwriter's Warrants evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Underwriter's Warrants evidenced by this Underwriter's Warrant
Certificate are part of a duly authorized issue of warrants pursuant to the
Underwriter's Warrant Agreement, which Underwriter's Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Underwriter's Warrants.
The Underwriter's Warrant Agreement provides that upon the occurrence
of certain events the exercise price and/or number of the Company's securities
2
<PAGE>
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Underwriter's
Warrant Certificate evidencing the adjustment in the exercise price and the
number and/or type of securities issuable upon the exercise of the Underwriter's
Warrants; provided, however, that the failure of the Company to issue such new
Underwriter's Warrant Certificates shall not in any way change, alter or
otherwise impair, the rights of the holder as set forth in the Underwriter's
Warrant Agreement.
Upon due presentment for registration of transfer of this Underwriter's
Warrant Certificate at an office or agency of the Company, a new Underwriter's
Warrant Certificate or Underwriter's Warrant Certificates of like tenor and
evidencing in the aggregate a like number of Underwriter's Warrants shall be
issued to the transferee(s) in exchange for this Underwriter's Warrant
Certificate, subject to the limitations provided herein and in the Underwriter's
Warrant Agreement, without any charge except for any tax or other governmental
charge imposed in connection with such transfer.
Upon the exercise of less than all of the Underwriter's Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Underwriter's Warrant Certificate representing such number of unexercised
Underwriter's Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Underwriter's Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
3
<PAGE>
All terms used in this Underwriter's Warrant Certificate which are defined
in the Underwriter's Warrant Agreement shall have the meanings assigned to them
in the Underwriter's Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Underwriter's Warrant
Certificate to be duly executed under its corporate seal.
Dated as of ______________, 1999
JEREMY'S MICROBATCH ICE CREAM, INC.
[SEAL] By
-------------------------------
Name:
Title:
Attest:
- ------------------
Secretary
4
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Underwriter's Warrant Certificate, to purchase _____ shares
of Common Stock and herewith tenders in payment for such securities a certified
or official bank check payable in New York Clearing House Funds to the order of
_______________________________ in the amount of $_______, all in accordance
with the terms hereof. The undersigned requests that a certificate for such
securities be registered in the name of ________________ whose address is
___________________ and that such Certificate be delivered to ________________
whose address is _________________.
Dated:
Signature
---------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Underwriter's Warrant Certificate.)
-------------------------------
Insert Social Security or Other
Identifying Number of Holder)
FIRST MONTAUK FINANCIAL CORP.
328 Newman Street
Red Bank, New Jersey 07701
____________, 1999
Jeremy's Microbatch Ice Creams, Inc.
3741 Walnut Street
Philadelphia, PA 19104
Attention: Jeremy Kraus, President
Gentlemen:
This letter, when executed by the parties hereto, will constitute an
agreement between Jeremy's Microbatch Ice Creams, Inc (the "Company") and First
Montauk Financial Corp. ("FMFC") pursuant to which the Company agrees to retain
FMFC and FMFC agrees to be retained by the Company under the terms and
conditions set forth below.
1. The Company hereby retains FMFC to perform consulting services related
to corporate finance and other financial services matters, and FMFC hereby
accepts such retention. In this regard, subject to the terms set forth below,
FMFC shall furnish to the Company advice and recommendations with respect to
such aspects of the business and affairs of the Company as the Company shall,
from time to time, reasonably request upon reasonable notice. In addition, FMFC
shall hold itself ready to assist the Company in evaluating and negotiating
particular contracts or transactions, if requested to do so by the Company, upon
reasonable notice.
2. As compensation for the services described in paragraph 1 above, the
Company shall pay to FMFC a fee of $60,000, for the full term of 24 months,
payable in one installment payable on the date hereof. In addition to the
compensation payable in this Section 2, the Company will reimburse FMFC for any
and all reasonable expenses incurred by FMFC in the performance of its duties
under paragraphs 3 or 4 hereunder, and FMFC shall account for such expenses to
the Company. Such reimbursement shall accumulate and be paid monthly. No
expenses in excess of $1,000 shall be incurred or reimbursed without the prior
consent of the Company. Nothing contained herein shall prohibit FMFC from
receiving any additional compensation under paragraphs 3 and 4 herein or
otherwise.
<PAGE>
3. In addition, FMFC shall hold itself ready to assist the Company in
evaluating and negotiating particular contracts or transactions, if requested to
do so by the Company, upon reasonable notice, and will undertake such
evaluations and negotiations upon prior written agreement as to additional
compensation to be paid by the Company to FMFC with respect to such evaluations
and negotiations.
4. The Company and FMFC further acknowledge and agree that FMFC may act as
a finder or financial consultant in various business transactions in which the
Company may be involved, such as mergers, acquisitions or joint ventures. The
Company hereby agrees that if in the event FMFC shall first introduce to the
Company another party or entity, and that as a result of such introduction, a
transaction is consummated, the Company shall pay to FMFC a fee equal to five
percent (5%) of the amount up to $5 million and two and one half percent
(2-1/2%) of the excess, of the consideration received by the Company from
parties introduced to the Company by FMFC in non-financing related transactions
(including mergers, acquisitions, joint ventures and other business
transactions) consummated by the Company with a party introduced to the Company
by FMFC. Such fee shall be paid in cash at the closing of the transaction to
which it relates or at such time as the consideration is received or paid by the
Company, and shall be payable whether or not the transaction involves stock, or
a combination of stock and cash, or is made on the installment sale basis.
5. All obligations of FMFC contained herein shall be subject to FMFC's
reasonable availability for such performance, in view of the nature of the
requested service and the amount of notice received. FMFC shall devote such time
and effort to the performance of its duties hereunder as FMFC shall determine is
reasonably necessary for such performance. FMFC may look to such others for such
factual information, investment recommendations, economic advice and/or
research, upon which to base its advice to the Company hereunder, as it shall
deem appropriate. The Company shall furnish to FMFC all information relevant to
the performance by FMFC of its obligations under this Agreement, or particular
projects as to which FMFC is acting as advisor, which will permit FMFC to know
all facts material to the advice to be rendered, and all material or information
reasonably requested by FMFC. In the event that the Company fails or refuses to
furnish any such material or information reasonably requested by FMFC, and thus
2
<PAGE>
prevents or impedes FMFC's performance hereunder, any inability of FMFC to
perform shall not be a breach of its obligations hereunder.
6. Nothing contained in this Agreement shall limit or restrict the right of
FMFC or of any partner, employee, agent or representative of FMFC, to be a
partner, director, officer, employee, agent or representative of, or to engage
in, any other business, whether of a similar nature or not, nor to limit or
restrict the right of FMFC to render services of any kind to any other
corporation, firm, individual or association.
7. FMFC will hold in confidence any confidential information which the
Company provides to FMFC pursuant to this Agreement unless the Company gives
FMFC permission in writing to disclose such confidential information to a
specific third party. In addition, all confidential information which the
Company provided to FMFC in connection with its initial public offering shall be
considered confidential information for purposes of this Agreement.
Notwithstanding the foregoing, FMFC shall not be required to maintain
confidentiality with respect to information (i) which is or becomes part of the
public domain through no fault of FMFC; (ii) of which it had independent
knowledge prior to disclosure; (iii) which comes into the possession of FMFC in
the normal and routine course of its own business from and through independent
non-confidential sources; or (iv) which is required to be disclosed by FMFC by
governmental requirements. If FMFC is requested or required (by oral questions,
interrogatories, requests for information or document subpoenas, civil
investigative demands, or similar process) to disclose any confidential
information supplied to it by the Company, or the existence of other
negotiations in the course of its dealings with the Company or its
representatives, FMFC shall, unless prohibited by law, promptly notify the
Company of such request(s) so that the Company may seek an appropriate
protective order.
8. Each of the Company and FMFC agrees to indemnify and hold harmless each
other, and their respective partners, employees, agents, representatives and
controlling persons (and the officers, directors, employees, agents,
representatives and controlling persons of each of them) from and against any
and all losses, claims, damages, liabilities, costs and expenses (and all
actions, suits, proceedings or claims in respect thereof) and any legal or other
expenses in giving testimony or furnishing documents in response to a subpoena
or otherwise (including, without limitation,
3
<PAGE>
the cost of investigating, preparing or defending any such action, suit,
proceeding or claim, whether or not in connection with any action, suit,
proceeding or claim in which FMFC or the Company is a party), as and when
incurred, directly or indirectly, caused by, relating to, based upon or arising
out of FMFC's service pursuant to this Agreement. The Company further agrees
that FMFC shall incur no liability to the Company or any other party on account
of this Agreement or any acts or omissions arising out of or related to the
actions of FMFC relating to this Agreement or the performance or failure to
perform any services under this Agreement except for FMFC's intentional or
willful misconduct. This paragraph shall survive the termination of this
Agreement. Notwithstanding the foregoing, no party otherwise entitled to
indemnification shall be entitled thereto to the extent such party has been
determined to have acted in a manner which has been deemed gross negligence or
wilful misconduct regarding the matter for which indemnification is sought
herein.
9. This Agreement may not be transferred, assigned or delegated by any of
the parties hereto without the prior written consent of the other party hereto.
10. The failure or neglect of the parties hereto to insist, in any one or
more instances, upon the strict performance of any of the terms or conditions of
this Agreement, or their waiver of strict performance of any of the terms or
conditions of this Agreement, shall not be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
11. This Agreement is for a term of 24 months and may not be terminated by
the Company. This Agreement may be terminated by FMFC at any time upon 30 days'
notice; provided FMFC shall repay any portion of their fee which was not earned
on the effective date of such termination. Paragraphs 4, 7 and 8 shall survive
the expiration or termination of this Agreement under all circumstances.
12. Any notices hereunder shall be sent to the Company and to FMFC at their
respective addresses set forth above. Any notice shall be given by registered or
certified mail, postage prepaid, and shall be deemed to have been given when
deposited in the United States mail. Either party may designate any other
4
<PAGE>
address to which notice shall be given, by giving written notice to the other of
such change of address in the manner herein provided.
13. This Agreement has been made in the State of New Jersey and shall be
construed and governed in accordance with the laws thereof without giving effect
to principles governing conflicts of law.
14. This Agreement contains the entire agreement between the parties, may
not be altered or modified, except in writing and signed by the party to be
charged thereby, and supersedes any and all previous agreements between the
parties relating to the subject matter hereof.
15. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in Section 7, and their respective heirs,
administrators, successors and permitted assigns.
5
<PAGE>
If you are in agreement with the foregoing, please execute two copies of
this letter in the space provided below and return them to the undersigned.
Very truly yours,
FIRST MONTAUK FINANCIAL CORP.
By:
-------------------------------
Name:
Title:
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
JEREMY'S MICROBATCH ICE CREAMS, INC.
By:
--------------------------------
6
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
JEREMY'S MICROBATCH ICE CREAMS, INC.
FIRST: The name of the Corporation is Jeremy's Microbatch Ice Creams, Inc.
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is as follows:
(a) 5,000,000 shares of Common Stock, $.01 par value per share; and
(b) 500,000 shares of Preferred Stock, $.01, par value per share. The
preferred stock may be issued in one or more series, and may have such
voting powers, special, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or
other special right qualifications, limitations or restrictions,
including, without limitation, conversion rights and redemption right,
<PAGE>
as shall be stated in the resolution or resolutions providing for the
issue therefore adopted by the Board of Directors of the Corporation.
FIFTH: The designations and powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
SIXTH: The name and mailing address of the person who is to serve as a
director of the Corporation until the first annual meeting of stockholders or
until a successor is elected and qualified are as follows:
NAME MAILING ADDRESS
Jeremy Kraus Suite 312
3401 Market Street
Philadelphia, PA 19104
SEVENTH: The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
Maxine M. DiRenza 1515 Market Street
9th Floor
Philadelphia, PA 19102
EIGHTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or repeal
the By-Laws of the Corporation.
NINTH: The corporation is to have perpetual existence.
<PAGE>
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and the Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the amended Delaware
General Corporation Law. Any repeal or modification of this Article shall not
adversely affect any right or protection of a director of the corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
EXECUTED at Philadelphia, Pennsylvania on October 8, 1999
-------------------------------
Maxine M. DiRenza, Incorporator
Exhibit 3.2
BYLAWS {PRIVATE}
OF
JEREMY'S MICROBATCH ICE CREAMS, INC.,
a Delaware corporation
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
JEREMY'S MICROBATCH ICE CREAMS, INC.
a Delaware corporation
ARTICLE I - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors (the "Board") or the President or, if not so
designated, at the registered office of the Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on the first tuesday in October each
year, at a time fixed by the Board or, if not so fixed by the Board, by the
President. If this date shall fall upon a legal holiday, then such meeting shall
be held on the next succeeding business day at the same hour.
1.3 Special Meeting. Special meetings of stockholders may be called at any
time by the Board or the President, and shall be called by the Board upon the
request of the holders of a majority of the outstanding shares of stock of the
Corporation entitled to vote at the meeting. Business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall state, in addition, the purpose or purposes for which the
meeting is called.
1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at the place where the meeting is to be held
or, if such place is specified in the notice of the meeting at a place within
the city which the meeting is to be held other than the place of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and may be inspected by any stockholder
who is present.
<PAGE>
1.6 Quorum and Required Vote. Except as otherwise provided by law or in the
Certificate of Incorporation, the holders of a majority of the shares of stock
entitled to vote on a particular matter present in person or represented by
proxy shall constitute a quorum for the purpose of considering such matter.
1.7 Voting and Proxies. Each stockholder shall have one vote for each share
of stock entitled to vote and held of record by such stockholder, and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of the stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for such
stockholder by proxy in accordance with applicable law.
ARTICLE II - Directors
2.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board, which may exercise all of the
powers of the Corporation except as may be otherwise provided by law or the
Certificate of Incorporation.
2.2 Number and Term. Except as may be provided in the Certificate of
Incorporation and subject to any resolution of the shareholders, the Board shall
have the authority to determine the number of directors which shall constitute
the Board and the terms of office of directors.
2.3 Regular Meetings. Regular meetings of the Board may be held without
notice at such time and place, either within or without the State of Delaware,
as shall be determined from time to time by the Board.
2.4 Special Meeting. Unless the Board shall otherwise direct, special
meetings of the Board may be held at any time and place, within or without the
State of Delaware, and shall be called at any time by or at the request of the
President and shall be called by or at the written request of one-third of the
directors, or by one director in the event that there is only a single director
in office. Notice, which need not be written, of the time and place of special
meetings shall be given to each director at least twenty-four (24) hours before
the time for which the meeting is scheduled. A notice or waiver of notice of a
meeting of the Board need not specify the purposes of the meeting. Any business
may be transacted at a special meeting.
2.5 Meetings by Telephone Conference Calls. Directors or any members of any
committee designated by the Directors may participate in a meeting of the Board
or such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation by such means shall constitute presence in person
at such meeting.
2
<PAGE>
2.6 Quorum. A majority of all the directors in office shall constitute a
quorum at all meetings of the Board.
2.7 Committees. The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board and subject to the provisions of the General Corporation
Law of the State of Delaware, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation.
ARTICLE III - Officers
3.1 Enumeration. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board may determine.
3.2 Election. Officers shall be elected annually by the Board at its first
meeting following the annual meeting of stockholders.
3.3 Duties and Powers. Except as otherwise provided by the Board, the
officers shall have, exercise and perform the duties and powers usually incident
to their offices and as set forth herein:
(i) President. The President shall be the chief operating officer and
executive officer of the Corporation. The President shall, subject to the
direction of the Board, have general charge and supervision of the business
of the Corporation. Unless otherwise provided by the Board, the President
shall preside at all meetings of the stockholders, and if he is a director,
at all meetings of the Board.
(ii) Vice President. Any Vice President shall perform such duties and
possess such powers as the Board or the President may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
President in the order determined by the Board) shall perform the duties of
the President and when so performing shall have all the powers of and be
subject to all the restrictions upon the President.
(iii) Secretary. The Secretary shall perform such duties and shall
have such powers as the Board or the President may from time to time
prescribe, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board, to
attend all meetings of stockholders and the Board and keep a record of the
3
<PAGE>
proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and
the corporate seal and to affix and attest to the same on documents.
(iv) Treasurer. The Treasurer shall perform such duties and shall have
such powers as may from time to time be assigned to him by the Board or the
President, including without limitation the duty and power to keep and be
responsible for all funds and securities of the Corporation, to deposit
funds of the Corporation in depositories selected by the Board, to disburse
such funds as ordered by the Board, to make proper accounts of such funds,
and to render as required by the Board statements of all such transactions
and of the financial condition of the Corporation.
3.4 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board.
ARTICLE IV - Transfer of Share Certificates
Except as otherwise established by rules and regulations adopted by the
Board and subject to applicable law, shares of stock may be transferred on the
books of the Corporation only by the registered holder or by duly authorized
attorney. Transfers shall be made only on surrender to the Corporation or its
transfer agent of the certificate representing such shares properly endorsed or
accompanied by a written assignment or power of attorney properly executed, and
with such proof of authority of the authenticity of signature as the Corporation
or its transfer agent may reasonably require. Except as may be otherwise
required by law, by the Certificate of Incorporation or by these Bylaws, the
Corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to such stock, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
transferred on the books of the Corporation in accordance with the requirements
of these Bylaws.
ARTICLE V - Indemnification
5.1 Right to Indemnification. The Corporation shall indemnify any person
who was or is a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (collectively, a "proceeding"), by reason of the
fact such person is or was a director or officer of the Corporation or a
constituent corporation absorbed in a consolidation or merger (hereinafter, a
"constituent corporation"), or is or was serving at the request of the
Corporation or a constituent corporation as a director, officer, partner,
employee or agent of another corporation, partnership, joint venture or other
enterprise or entity, or is or was a director or officer of the Corporation
serving at its request as an administrator, trustee or other fiduciary of one or
more of the employee benefit plans, if any, of the Corporation or another entity
which may be in effect from time to time (any such person, an "Authorized
Representative"), against all expenses, liability and loss actually and
4
<PAGE>
reasonably incurred or suffered by such Authorized Representative in connection
with such proceeding, whether or not the indemnified liability arises or arose
from any proceeding by or in the right of the Corporation, to the extent that
such Authorized Representative is not otherwise indemnified and to the extent
that such indemnification is not prohibited by law as it presently exists or may
hereafter be amended.
5.2 Advance of Expenses. Absent a bylaw, written agreement or resolution of
stockholders of the Corporation to the contrary, the Corporation may, but shall
have no obligation to, pay expenses incurred by an Authorized Representative in
defending a proceeding in advance of the final disposition of such proceeding.
5.3 Procedure for Determining Permissibility. To determine whether any
indemnification under this Article V is permissible, the Board by a majority
vote of a quorum consisting of directors not parties to such proceeding may, and
on request of any Authorized Representative seeking indemnification shall be
required to, determine in each case whether the applicable standards in any
applicable statute have been met, or such determination shall be made by
independent legal counsel if such quorum is not obtainable, or, even if
obtainable, a majority vote of a quorum of disinterested directors so directs,
provided that, if there has been a change in control of the Corporation between
the time of the action or failure to act giving rise to the claim for
indemnification and the time such claim is made, at the option of the Authorized
Representative seeking indemnification, the permissibility of indemnification
shall be determined by independent legal counsel. If a claim for indemnification
under this Article is not paid in full within ninety (90) days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim, and the Corporation shall have the
burden of proving that the claimant was not entitled to the requested
indemnification under applicable law. The reasonable expenses of any Authorized
Representative in prosecuting a successful claim for indemnification, and the
fees and expenses of any independent legal counsel engaged to determine
permissibility of indemnification, shall be borne by the Corporation. For
purposes of this paragraph, "independent legal counsel" means legal counsel
other than that regularly or customarily engaged by or on behalf of the
Corporation.
5.4 Proceedings Initiated by Authorized Representatives. Notwithstanding
any other provision of this Article V, the Corporation shall be required to
indemnify an Authorized Representative in connection with a proceeding initiated
by such Authorized Representative only if the proceeding was authorized by the
Board.
5.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification
provided by this Article V shall not be deemed exclusive of any other right to
which one seeking indemnification may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, these Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise, and shall inure to
the benefit of the heirs, executors and administrators of any such person.
5
<PAGE>
5.6 Insurance and Other Indemnification. The Board shall have the power to
(i) authorize the Corporation to purchase and maintain, at the Corporation's
expenses, insurance on behalf of the Corporation and on behalf of others to the
extent that power to do so has not been prohibited by applicable law, and (ii)
give other indemnification to the extent not prohibited by applicable law.
5.7 Modification or Repeal. Any modification or repeal of any provision of
this Article V shall not adversely affect any right or protection of an
Authorized Representative existing hereunder with respect to any act or omission
occurring prior to such modification or repeal.
ARTICLE VI - Amendments
6.1 By the Board of Directors. These Bylaws may be altered, amended or
repealed or new Bylaws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board at which a
quorum is present.
6.2 By the Stockholders. These Bylaws may be altered, amended or repealed
or new Bylaws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the Corporation entitled to vote
at any regular meeting of stockholders, or at any special meeting of
stockholders, provided such change shall have been set forth, or a summary
thereof shall have been provided, in the notice of such special meeting.
These Bylaws have been adopted by the unanimous written consent of all
Directors of the Corporation dated as of October 8, 1999, effective as of that
date, and have been filed with the undersigned this 8th day of October, 1999.
--------------------------
Samuel V. Cohen, Secretary
Record of Amendments
--------------------
Section Amended Date Amended Adopted By
- --------------- ------------ ----------
6
[Letterhead of Eckert Seamans Cherin & Mellott, LLC]
October 21, 1999
Jeremy's Microbatch Ice Creams, Inc.
3741 Walnut Street, Suite 423
Philadelphia, PA 19104
Re: Registration Statement on Form SB-2
File No.
Gentlemen:
We have acted as counsel to Jeremy's Microbatch Ice Creams, Inc. (the
"Company") in connection with the preparation and filing of the above captioned
Registration Statement (the "Registration Statement") relating to the public
offering of up 1,380,000 shares of common stock (the "Shares") which are
proposed to be sold by the Company pursuant to the Registration Statement
(including Shares subject to the underwriter's over-allotment option).
We are familiar with the Registration Statement. We have reviewed the
Company's Certificate of Incorporation and By-laws, each as amended to date. We
also have examined such public and private corporate documents, certificates,
instruments and corporate records, and such questions of law, as we have deemed
necessary for the purpose of expressing an opinion on the matters set forth
below. In all examinations of documents we have assumed the genuineness of all
signatures appearing on such documents, and the genuineness and authenticity of
all copies submitted to us conformed, photostatic or other copies as true copies
of the original document.
On the basis of the foregoing, we are of the opinion that the Shares, when
issues in accordance with the terms set forth in the Registration Statement,
will be validly issued, fully paid and non-assessable.
Gary A. Miller
215.851.8472
[email protected]
<PAGE>
Jeremy's Microbatch Ice Creams, Inc.
October 21, 1999
Page 2
We consent to the filing of this opinion as an Exhibit to the Registration
Statement, and consent to the reference to us under the caption "Legal Matters"
in the Prospectus included in the Registration Statement.
Very truly yours,
ECKERT SEAMANS CHERIN &
MELLOTT, LLC
By:
-------------------------------
Gary A. Miller
PROMISORRY NOTE
$40,000.00 Philadelphia, Pennsylvania
October 1, 1999
FOR VALUE RECEIVED, Jeremy's Microbatch Ice Creams, L.L.C., a Delaware
limited liability Company (the "Maker"), with an address at 3741 Walnut Street,
Suite 423, Philadelphia, PA 19104, hereby promises to pay to Jeremy Kraus, with
an address at _______________ ____________________________ (or such other
address as the Holder hereunder may provide by notice to Maker from time to
time) or any other lawful holder of this Note (Jeffrey Rosen or any other such
holder hereafter referred to as the "Holder"), the principal sum of Forty
Thousand Dollars ($40,000.00), together with interest on the principal amount
outstanding from the date hereof until payment in full.
The principal amount of this Note together with all interest then accrued
but unpaid shall be due and payable on the Due Date, as defined in the next
sentence. The Due Date shall be October 1, 1999.
Interest on the outstanding principal balance hereof shall accrue at a rate
equal to TEN PERCENT (10%) per annum, simple interest, until all principal and
other amounts due hereunder have been paid in full.
Interest shall be payable in monthly installments in arrears on the FIRST
(1st) day of every month beginning November 1, 1999, until the principal amount
hereof has been paid in full. All accrued and unpaid interest hereunder shall be
due and payable in full on the Due Date. If any installment of interest is not
paid by the end of the fifth calendar day after the date when due in accordance
with this paragraph, a late charge equal to five percent (5%) of the delinquent
payment shall be added to principal and shall be payable together with the
delinquent installment.
All interest shall be calculated on the basis of a 360-day year, and 30-day
months, counting the actual number of days elapsed from the beginning of the
period.
The principal of this Note may be prepaid in whole at any time without
premium or penalty.
All principal and interest payments hereunder are payable in lawful money
of the United States of America to the Holder at the address first shown above,
or at such other address as may be directed by Holder, in immediately available
funds.
The Maker hereby waives presentment, demand, dishonor, protest, notice of
protest, diligence and any other notice or action otherwise required to be given
or taken under the
<PAGE>
law in connection with the delivery, acceptance, performance, default,
enforcement or collection of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended, modified or subordinated (by forbearance
or otherwise) from time to time, without in any way affecting the liability of
the Maker.
In the event that (a) the Maker shall fail to pay, within five (5) calendar
days after the date when due, any payment of principal or interest due
hereunder, or (b) if the Maker shall (i) make a general assignment for the
benefit of creditors; (ii) be adjudicated a bankrupt or insolvent; (iii) file a
voluntary petition in bankruptcy; (iv) take advantage of any bankruptcy or
insolvency law or statute of the United States of America or any state or
jurisdiction thereof now or hereafter in effect; (v) have a petition or
proceeding filed against the Maker under any bankruptcy or insolvency law or
statute of the United States of America or any state or jurisdiction thereof,
which petition or proceeding is not dismissed within ninety (90) days from the
date of commencement thereof; or (vi) have a receiver, trustee, custodian,
conservator or other person appointed by any court to take charge of the Maker's
affairs, assets or business and such appointment is not vacated or discharged
within ninety (90) days thereafter; then, and upon the happening of any such
event, the Holder, at Holder's option, by written notice to the Maker, may
declare the entire indebtedness evidenced by this Note immediately due and
payable, whereupon the same shall forthwith mature and become immediately due
and payable without presentment, demand, protest or further notice.
In the event that Maker shall fail to pay when due any principal or
interest payment, and the Holder shall exercise or endeavor to exercise any of
its remedies hereunder, the Maker shall pay all reasonable costs and expenses
incurred in connection therewith, including, without limitation, reasonable
attorneys' fees, and the Holder may take judgment for all such amounts in
addition to all other sums due hereunder.
No consent or waiver by the Holder with respect to any action or failure to
act by Maker which, without such consent or waiver, would constitute a breach of
any provision of this Note shall be valid and binding unless in writing and
signed by the Holder. No such consent or waiver given by Holder on any one
occasion shall be construed to constitute a consent or waiver by Holder on any
subsequent occasion. No forbearance in the exercise of any right or remedy of
Holder shall be construed as a waiver of such right or remedy.
All agreements between the Maker and the Holder are expressly limited to
provide that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Holder for the use,
forbearance or detention of the indebtedness evidenced hereby exceed the maximum
amount which the Holder is permitted to receive under applicable law. If, from
any circumstances whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, without the necessity of any action by
Holder or Maker, the obligation to be fulfilled shall automatically be reduced
to the limit of such validity, and if from any circumstance the Holder should
ever receive as interest an amount which would exceed the highest lawful rate,
such amount which would be excessive interest shall be applied to the reduction
of the principal balance hereof, and not to the payment of interest. As used
herein, the term "applicable law"
2
<PAGE>
shall mean the law in effect as of the date hereof, provided, however, that
in the event there is a change in the law which results in a higher permissible
rate of interest, then this Note shall be governed by such new law as of its
effective date. This provision shall control every other provision of all
agreements between the Maker and the Holder.
This Note shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania, except to the extent that such laws are
superseded by Federal enactments.
If any covenant or other provision of the Note is invalid, illegal, or
incapable of being enforced by reason of any rule of law or public policy, all
other covenants and provisions of the Note shall nevertheless remain in full
force and effect, and no covenant or provision shall be deemed dependent upon
any other covenant or provision.
This Note is transferable by the Holder upon at least five (5) days prior
written notice to Maker.
IN WITNESS WHEREOF, the Maker, by its duly authorized officer, has executed
this Note under seal as of the date first above written.
WITNESS: JEREMY'S MICROBATCH ICE CREAMS, L.L.C.
BY:
- --------------------------- -----------------------------------
Samuel D. Cohen, Vice-President
3
<PAGE>
PROMISORRY NOTE
$5,000.00 Philadelphia, Pennsylvania
October 1, 1999
FOR VALUE RECEIVED, Jeremy's Microbatch Ice Creams, L.L.C., a Delaware
limited liability Company (the "Maker"), with an address at 3741 Walnut Street,
Suite 423, Philadelphia, PA 19104, hereby promises to pay to Jeffrey Rosen, with
an address at _______________ ____________________________ (or such other
address as the Holder hereunder may provide by notice to Maker from time to
time) or any other lawful holder of this Note (Jeremy Kraus or any other such
holder hereafter referred to as the "Holder"), the principal sum of Five
Thousand Dollars ($5,000.00), together with interest on the principal amount
outstanding from the date hereof until payment in full.
The principal amount of this Note together with all interest then accrued
but unpaid shall be due and payable on the Due Date, as defined in the next
sentence. The Due Date shall be October 1, 1999.
Interest on the outstanding principal balance hereof shall accrue at a rate
equal to TEN PERCENT (10%) per annum, simple interest, until all principal and
other amounts due hereunder have been paid in full.
Interest shall be payable in monthly installments in arrears on the FIRST
(1st) day of every month beginning November 1, 1999, until the principal amount
hereof has been paid in full. All accrued and unpaid interest hereunder shall be
due and payable in full on the Due Date. If any installment of interest is not
paid by the end of the fifth calendar day after the date when due in accordance
with this paragraph, a late charge equal to five percent (5%) of the delinquent
payment shall be added to principal and shall be payable together with the
delinquent installment.
All interest shall be calculated on the basis of a 360-day year, and 30-day
months, counting the actual number of days elapsed from the beginning of the
period.
The principal of this Note may be prepaid in whole at any time without
premium or penalty.
All principal and interest payments hereunder are payable in lawful money
of the United States of America to the Holder at the address first shown above,
or at such other address as may be directed by Holder, in immediately available
funds.
4
<PAGE>
The Maker hereby waives presentment, demand, dishonor, protest, notice of
protest, diligence and any other notice or action otherwise required to be given
or taken under the law in connection with the delivery, acceptance, performance,
default, enforcement or collection of this Note, and expressly agrees that this
Note, or any payment hereunder, may be extended, modified or subordinated (by
forbearance or otherwise) from time to time, without in any way affecting the
liability of the Maker.
In the event that (a) the Maker shall fail to pay, within five (5) calendar
days after the date when due, any payment of principal or interest due
hereunder, or (b) if the Maker shall (i) make a general assignment for the
benefit of creditors; (ii) be adjudicated a bankrupt or insolvent; (iii) file a
voluntary petition in bankruptcy; (iv) take advantage of any bankruptcy or
insolvency law or statute of the United States of America or any state or
jurisdiction thereof now or hereafter in effect; (v) have a petition or
proceeding filed against the Maker under any bankruptcy or insolvency law or
statute of the United States of America or any state or jurisdiction thereof,
which petition or proceeding is not dismissed within ninety (90) days from the
date of commencement thereof; or (vi) have a receiver, trustee, custodian,
conservator or other person appointed by any court to take charge of the Maker's
affairs, assets or business and such appointment is not vacated or discharged
within ninety (90) days thereafter; then, and upon the happening of any such
event, the Holder, at Holder's option, by written notice to the Maker, may
declare the entire indebtedness evidenced by this Note immediately due and
payable, whereupon the same shall forthwith mature and become immediately due
and payable without presentment, demand, protest or further notice.
In the event that Maker shall fail to pay when due any principal or
interest payment, and the Holder shall exercise or endeavor to exercise any of
its remedies hereunder, the Maker shall pay all reasonable costs and expenses
incurred in connection therewith, including, without limitation, reasonable
attorneys' fees, and the Holder may take judgment for all such amounts in
addition to all other sums due hereunder.
No consent or waiver by the Holder with respect to any action or failure to
act by Maker which, without such consent or waiver, would constitute a breach of
any provision of this Note shall be valid and binding unless in writing and
signed by the Holder. No such consent or waiver given by Holder on any one
occasion shall be construed to constitute a consent or waiver by Holder on any
subsequent occasion. No forbearance in the exercise of any right or remedy of
Holder shall be construed as a waiver of such right or remedy.
All agreements between the Maker and the Holder are expressly limited to
provide that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Holder for the use,
forbearance or detention of the indebtedness evidenced hereby exceed the maximum
amount which the Holder is permitted to receive under applicable law. If, from
any circumstances whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, without the necessity of any action by
Holder or Maker, the obligation to be fulfilled shall automatically be reduced
to the limit of such validity, and if from any circumstance the Holder should
ever receive as interest an amount which would exceed the highest lawful rate,
such
5
<PAGE>
amount which would be excessive interest shall be applied to the reduction
of the principal balance hereof, and not to the payment of interest. As used
herein, the term "applicable law" shall mean the law in effect as of the date
hereof, provided, however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. This provision shall control
every other provision of all agreements between the Maker and the Holder.
This Note shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania, except to the extent that such laws are
superseded by Federal enactments.
If any covenant or other provision of the Note is invalid, illegal, or
incapable of being enforced by reason of any rule of law or public policy, all
other covenants and provisions of the Note shall nevertheless remain in full
force and effect, and no covenant or provision shall be deemed dependent upon
any other covenant or provision.
This Note is transferable by the Holder upon at least five (5) days prior
written notice to Maker.
IN WITNESS WHEREOF, the Maker, by its duly authorized officer, has executed
this Note under seal as of the date first above written.
WITNESS: JEREMY'S MICROBATCH ICE CREAMS, L.L.C.
BY:
- --------------------------- -----------------------------------
Samuel D. Cohen, Vice-President
6
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Jeremy's Microbatch Ice Creams, Inc.
Philadelphia, Pennsylvania
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 2, 1999 except for
Note 8 which is as of _____________________, 1999, relating to the consolidated
financial statements of Jeremy's Microbatch Ice Creams, Inc. and Subsidiary
which is contained in that Prospectus. Our report contains an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
October 22, 1999
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Strive, Inc.
Philadelphia, Pennsylvania
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated September 16, 1999, relating to
the financial statements of Strive, Inc., which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
October 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 43,424
<SECURITIES> 0
<RECEIVABLES> 94,014
<ALLOWANCES> 0
<INVENTORY> 261,215
<CURRENT-ASSETS> 485,605
<PP&E> 77,876
<DEPRECIATION> 2,218
<TOTAL-ASSETS> 834,516
<CURRENT-LIABILITIES> 541,704
<BONDS> 0
0
0
<COMMON> 14,356
<OTHER-SE> 243,066
<TOTAL-LIABILITY-AND-EQUITY> 834,516
<SALES> 854,288
<TOTAL-REVENUES> 854,288
<CGS> 533,476
<TOTAL-COSTS> 1,679,119
<OTHER-EXPENSES> 18,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,349
<INCOME-PRETAX> (857,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> (857,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (857,996)
<EPS-BASIC> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 179,730
<SECURITIES> 0
<RECEIVABLES> 22,550
<ALLOWANCES> 0
<INVENTORY> 175,224
<CURRENT-ASSETS> 377,504
<PP&E> 41,514
<DEPRECIATION> 5,482
<TOTAL-ASSETS> 421,894
<CURRENT-LIABILITIES> 306,476
<BONDS> 0
0
0
<COMMON> 8,860
<OTHER-SE> 56,558
<TOTAL-LIABILITY-AND-EQUITY> 421,894
<SALES> 415,671
<TOTAL-REVENUES> 415,671
<CGS> 299,868
<TOTAL-COSTS> 1,366,615
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,171
<INCOME-PRETAX> (956,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (956,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (956,201)
<EPS-BASIC> (1.66)
<EPS-DILUTED> (1.66)
</TABLE>
