AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION NO. 333-89625
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 3
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
JEREMY'S MICROBATCH ICE CREAMS, INC.
(Name of Small Business Issuer in Its Charter)
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<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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| | 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
- ----------------------------------------------------------------------------------------------------------------------------------
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-2 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.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
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ITEM
NO. SECTIONS IN PROSPECTUS
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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 FEBRUARY __, 2000
INITIAL PUBLIC OFFERING PROSPECTUS
[LOGO]
1,200,000 SHARES OF COMMON STOCK
We develop, market and distribute a super-premium ice cream under the brand
name Jeremy's Microbatch(R) 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 $6.00 and $7.00 per share.
No market currently exists for our shares. We have applied for listing of
our common stock on the Nasdaq SmallcapSM Market under the symbol JMIC and the
Boston Stock Exchange under the symbol JMI.
------------------------------
The chart below shows the basic terms of the offering:
================================================================================
| PER SHARE | TOTAL
- --------------------------------------------------------------------------------
Public Offering Price............................... | $ | $
- --------------------------------------------------------------------------------
Underwriting Discounts.............................. | $ | $
- --------------------------------------------------------------------------------
Proceeds to Us Before Expenses of the Offering...... | $ | $
- --------------------------------------------------------------------------------
Proceeds to Us After Expenses of the Offering....... | | $
================================================================================
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 3.
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.
[LOGO]
The date of this Prospectus is , 2000.
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 NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUMMARY
JEREMY'S MICROBATCH(R) 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 mailing address is: 3741 Walnut Street, Suite 423, Philadelphia, PA
19104. Our telephone number is 215/823-6885.
THE OFFERING AND JEREMY'S MICROBATCH(R)'S SECURITIES
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Securities Offered................................... 1,200,000 shares of common stock.
Offering Price....................................... Estimated between $6.00 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 advertising and promotions, retail
placement fees, repayment of debt,
inventory and working capital.
</TABLE>
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 145% of the public offering price.
o Options for an aggregate 20,000 shares held by two of our officers.
One of our principal shareholders intends to purchase 200,000 shares in the
offering.
MARKET FOR JEREMY'S MICROBATCH(R)'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 FINANCIAL DATA
In the tables below:
o historic information for the period ended December 31, 1997, and
information as of and for the year ended December 31, 1998 is derived
from audited financial statements of Jeremy's Microbatch Ice Creams, LLC.
o All other historic information is derived from unaudited financial
statements of Jeremy's Microbatch Ice Creams, LLC.
STATEMENTS OF OPERATIONS DATA
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YEAR ENDED NINE MONTHS NINE MONTHS
DECEMBER 31, YEAR ENDED ENDED ENDED
1998 DECEMBER 31, 1997 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Net Sales........................ $ 415,671 $ 79,421 $ 1,197,698 $ 252,790
Cost of Sales.................... $ 299,868 $ 114,873 $ 876,136 $ 113,170
Gross Profit (Loss).............. $ 115,803 $ (35,452) $ 321,562 $ 139,620
Total Operating Expenses......... $1,066,747 $ 72,091 $ 2,376,009 $ 620,140
(Loss) from Operations........... $ (950,944) $(107,543) $(2,054,447) $(480,520)
Net (Loss)....................... $ (956,201) $(130,103) $(2,110,611) $(484,528)
Pro Forma basic and Diluted
(Loss) Per Share............... $ (1.67) $ (0.44) $ (1.70) $ (0.97)
Pro Forma basic and Diluted
Weighted Average Number of
Common Shares Outstanding...... 572,620 298,620 1,239,025 497,406
</TABLE>
BALANCE SHEET DATA
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SEPTEMBER 30,
SEPTEMBER 30, 1999
SEPTEMBER 30, 1999 (PRO FORMA
DECEMBER 31, 1998 1999 (PRO FORMA) AS ADJUSTED)
----------------- ------------- ------------- -------------
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Cash................................. $179,730 $ 124,129 $ 209,129 $5,579,662
Current Assets....................... $377,504 $ 338,427 $ 423,427 $5,793,960
Total Assets......................... $421,894 $ 893,852 $ 978,852 $6,294,685
Current Liabilities.................. $306,476 $1,214,678 $1,199,678 $ 515,511
Long-Term Debt....................... $ 50,000 $ 24,367 $ 24,367 $ 24,367
Members' Capital (Deficiency)........ 65,418 (345,193) -- --
Stockholders' Equity (Deficiency).... $ -- $ -- $ (245,193) $5,754,807
</TABLE>
The "Pro Forma" balance sheet data reflects the following transactions:
o Events which occurred in the fourth quarter of 1999:
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 purchase of membership interests for $100,000 made by a
member.
o Our borrowing of $50,000 from a related party.
o Our payment of $60,000 of a note payable to our former marketing agency.
o Our plan of reorganization whereby the total amount of Members' contributions
will be converted to 1,800,000 shares of common stock of Jeremy's Microbatch
Ice Creams, Inc.
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
notes payable in the amount of $630,000.
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.
2
<PAGE>
RISK FACTORS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT. We
have a very limited operating history upon which you can evaluate our operations
and future prospects. The "Microbatch(R)" concept, which we believe
differentiates us from our competitors, is a new marketing concept. Our limited
history may not be sufficient to judge whether our "Microbatch(R)" concept will
sufficiently differentiate us from other premium ice creams to make us
successful.
BECAUSE OF OUR LACK OF FUNDS AND PAST LOSSES, OUR ACCOUNTANTS' AUDIT REPORT
INDICATES THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
CONCERN. Without the proceeds of this offering, we will not have sufficient
funds for our operating needs after the end of the first quarter of 2000. We
will depend on the proceeds of this offering to fund our operations for
approximately 18-24 months after closing of the offering. In addition, we have
not been profitable. We have reported a net loss of approximately $2,100,000 for
the nine months ended September 30, 1999. We have accumulated losses of
approximately $3,255,000 since our inception. We expect to incur losses for
the remainder of 1999 and for at least a part of 2000. 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.
INVESTORS WILL EXPERIENCE IMMEDIATE SIGNIFICANT DILUTION IN THE BOOK VALUE
OF THEIR SHARES. Immediately after this offering the book value of your shares
will be approximately $1.78. This represents dilution of $4.22, or over 70%,
from the purchase price you will pay in the offering.
THE STRENGTH OF OUR COMPETITORS MAKES IT DIFFICULT TO COMPETE SUCCESSFULLY
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.
WE WILL NOT BE SUCCESSFUL UNLESS WE INCREASE FAVORABLE CONSUMER PERCEPTION
OF OUR BRAND. We believe that broader recognition and favorable consumer
perception of the Jeremy's Microbatch(R) 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(R) 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.
BECAUSE OF OUR LIMITED PRODUCTS AND FLAVORS, THE FAILURE OF ANY ONE FLAVOR
COULD SIGNIFICANTLY IMPACT OUR REVENUES AND PROFITS. 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.
OUR REVENUE GROWTH DEPENDS UPON OUR ABILITY TO DEVELOP NEW FLAVORS WHICH
ARE CONSISTENTLY ACCEPTED BY CONSUMERS. 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 products that are not favorably received by consumers, our reputation and
the value of our brand name could be damaged.
3
<PAGE>
OUR DEPENDENCE ON OTHERS TO DISTRIBUTE OUR PRODUCTS COULD HARM OUR ABILITY
TO SELL OUR PRODUCTS. We depend upon independent ice cream distributors located
in 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. We do not have contractual commitments from most of our
distributors. 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.
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.
DIFFICULTY IN OBTAINING GROCERY RETAILER ACCEPTANCE FOR NEW PRODUCTS MAY
LIMIT OUR REVENUE. 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.
LOSS OF CERTAIN PERSONNEL WOULD SIGNIFICANTLY IMPACT OUR BUSINESS. 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.
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 REVENUE GROWTH WILL BE LIMITED IF THE CURRENT CONSUMER TRENDS OF
INCREASING CONSUMPTION OF FULL FAT DAIRY PRODUCTS DOES 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. If this happens our growth will be
limited.
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.
THE UNDERWRITER MAY HAVE SIGNIFICANT INFLUENCE OVER US AFTER THIS OFFERING.
After completion of this offering, First Montauk Securities Corp. will have the
right to have an observer on our board of directors. In addition, First Montauk
will have warrants for 120,000 shares of our common stock, and the right to
demand that the shares issuable on exercise of those warrants be registered for
public sale. First Montauk will also have an agreement with us to be our
4
<PAGE>
financial advisor for two years. Through these mechanisms, First Montauk may
have significant influence over our affairs.
OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS LIMITING THE LIABILITY
OF OUR DIRECTORS TO US AND OUR STOCKHOLDERS. Our Certificate of Incorporation
contains provisions, authorized by Delaware law, which eliminate our directors'
liability for breach of fiduciary duty except under limited circumstances. These
provisions may limit our ability to have any remedy against a director who
breaches his fiduciary duty.
SINCE WE DO NOT EXPECT TO PAY DIVIDENDS, YOU CANNOT EXPECT TO RECEIVE
INCOME FROM THIS INVESTMENT. We expect to reinvest our income in our growth.
Therefore, an investor cannot expect to receive income from an investment in us.
BECAUSE THIS OFFERING WAS APPROVED IN CALIFORNIA IN THE BASIS OF A LIMITED
OFFERING QUALIFICATION, THERE WILL BE LIMITATIONS ON THE TRADING OF OUR COMMON
STOCK IN CALIFORNIA. This offering was approved in California on the basis of a
limited offering qualification. Under this qualification, we can only sell
common stock to investors who meet certain suitability standards described at
the end of the prospectus summary. Because of this, we were not required to
demonstrate compliance with some or all of the merit regulations of the
California Division of Corporations found in Title 10, California Code of
Regulations, Rule 260.140 and Rules following that Rule. Secondary trading for
common stock will not qualify for the exemption from registration usually
available to companies who fully register a public offering in California,
California Corporations Code Section 25104 (h). Therefore, other exemptions must
be found for any investor who wishes to sell his stock in California. While
there may be other exemptions available, such as exemptions for private sales,
an investor's ability to sell his shares in California will be limited for a
period of time.
SINCE WE ARE PAYING DEBT WITH THE PROCEEDS OF THIS OFFERING, WE HAVE LESS
FUNDS AVAILABLE TO IMPLEMENT OUR BUSINESS PLAN. Our use of proceeds from this
offering includes the payment of approximately $860,000 of existing debt. As a
result, we will have less funds available to use for other purposes, including
advertising and inventory.
WE HAVE BEEN GRANTED A TEMPORARY WAIVER FROM THE NASDAQ STOCK MARKET AND
CERTAIN STATE SECURITIES ADMINISTRATORS FOR THE REQUIREMENT FOR TWO INDEPENDENT
DIRECTORS AND THEREFORE OUR COMMON STOCK MAY BE DELISTED IF WE DO NOT TIMELY
COMPLY. We do not currently have two independent directors on our Board of
Directors. The Nasdaq Stock Market and certain state securities administrators
have granted us a temporary waiver for 90 days to provide us with an opportunity
to get two independent directors. In the event that we cannot attract
individuals to join our board, we may be subject to delisting from the Nasdaq
Stock Market. If our Common Stock is delisted, our common stock may be traded on
the over the counter market. Investors may have greater difficulty selling their
shares because of decreased liquidity in the over the counter market.
THE UNDERWRITER HAS A DISCIPLINARY HISTORY AND LIMITED EXPERIENCE IN PUBLIC
OFFERINGS. Although the underwriter was formed and registered as a broker dealer
in 1983, current management has operated the underwriter since 1986. The
underwriter has managed only two public offerings to date, although it has
participated in over 200 public offerings as a selling group member.
Since 1989, the underwriter has been subject to 13 regulatory actions. Two
of the more serious violations occurred in June 1997 and August 1989. In June
1997, the SEC entered an order against the underwriter for failure to supervise
the activities of certain registered persons at one of its branch offices, since
closed, failure to file certain reports and failure to comply with certain net
capital rules. The SEC order resulted in a censure of the underwriter, and
payment of fines. In August 1989, the National Association of Securities Dealers
and the underwriter settled an administrative action brought against the firm
and certain principals which alleged violations of NASD Rules regarding, among
other things, improper record keeping, failure to file proper reports, filing of
inaccurate reports and effecting sales of municipal securities at prices deemed
unfair.
5
<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.
6
<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 it in
connection with this offering to purchase additional shares of our stock to
cover over-allotments.
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 $1,115,000, or 18.58% 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 following table summarizes our intended use of these proceeds:
<TABLE>
<CAPTION>
PERCENT OF
APPLICATION OF PROCEEDS AMOUNT PROCEEDS
----------------------- ---------- ----------
<S> <C> <C>
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 Notes Payable.............................. 630,000 10.50
Repayment of Obligations to Former Manufacturer......... 230,000 3.83
New Inventory........................................... 175,000 2.92
Working Capital......................................... 1,115,000 18.58
---------- ------
Total................................................. $6,000,000 100.00%
========== ======
</TABLE>
Advertising and Promotions. We plan to engage in an aggressive marketing
campaign to establish the Jeremy's Microbatch(R) 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 Notes Payable. This amount includes the following:
o $300,000 owed to a bank
o $40,000 owed to our Chief Executive Officer
o $5,000 owed to our Chief Financial Officer
o $50,000 owed to Strive, Inc., one of our principal members
o approximately $235,000 owed to our former marketing agency
The bank debt is a line of credit from Norwest Bank. The borrowings on the
line of credit were used for working capital, including salaries and inventory.
This loan bears interest at 12.25% per annum.
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.
7
<PAGE>
The loan by Strive, Inc, was made in November, 1999 to fund the payment of
accounts payable. That note bears interest at 14% and is due in October, 2000
but we plan to repay it upon closing of the offering.
The debt to our former marketing agency consists of a note we issued to
that agency on November 19, 1999. That note represents amounts due for past
services and expenses of the marketing agency.
Repayment of Obligations to Former Manufacturer. Approximately $110,000 of
the amount owed to our former manufacturer is for finished product previously
delivered and approximately $90,000 is for ice cream ingredients and packaging
materials on hand at the time we terminated the manufacturer. The remaining
amounts represent interest and other costs. When we pay these amounts, we will
receive the packaging and ingredients. We expect to utilize a majority of those
materials and ingredients.
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 salaries and
benefits for employees and management, including three new marketing employees
we recently hired, and other customary overhead expenses. These costs also
include lease expenses for our offices, computer and other related office
expenses. 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 September 30, 1999 was
$(714,088) or $(0.40) 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 $1.78 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 $4.22 per share or over 70% of their investment.
The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.00
Pro forma net tangible book value per share as of September
30, 1999.................................................. $(0.40)
Increase in net tangible book value per share attributable
to new investors.......................................... 2.18
------
Pro forma net tangible book value per share after this
offering.................................................. 1.78
-----
Dilution per share to investors in this offering............ $4.22
=====
</TABLE>
The following table presents the following data as of September 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 (after giving
effect of the proposed plan of reorganization to effect a change from a
limited liability company to a corporation);
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 $ 3,009,857 30% $1.67
New Investors.............................. 1,200,000 7,200,000 70 $6.00
--------- ----------- ---
Totals................................... 3,000,000 $10,209,857 100% $3.40
========= =========== ===
</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 September 30, 1999.
The "Pro Forma" column in the table presents the capitalization as if the
following transactions had occurred on September 30, 1999:
o Events which occurred in the fourth quarter of 1999:
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 purchase of membership interest for $100,000 made by a member.
o borrowing of $50,000 from a related party at an interest rate of 14%.
o payment of $60,000 of the note payable, vendor.
o Our plan of reorganization whereby the Members' interests will be converted to
1,800,000 shares of common stock of Jeremy's Microbatch Ice Creams, Inc.
The "Pro Forma As Adjusted" column in the table presents the capitalization
taking into account the following as if they had occurred on September 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 $630,000.
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>
SEPTEMBER 30, 1999
---------------------------------------
(PRO FORMA
ACTUAL (PRO FORMA) AS ADJUSTED)
---------- ----------- ------------
<S> <C> <C> <C>
Short-term debt:
Note payable, bank....................................... $ 300,000 $ 300,000 $ --
Notes payable, officers.................................. -- 45,000 --
Note payable, related party.............................. -- 50,000 --
Note payable, vendor..................................... 294,467 234,467 --
Current portion of obligations under capital
leases................................................ 13,681 13,681 13,681
Current portion of long-term debt........................ 50,000 -- --
---------- ---------- ----------
Total short-term debt.................................... 658,148 643,148 13,681
---------- ---------- ----------
Long-term debt:
Obligations under capital leases......................... 24,367 24,367 24,367
---------- ---------- ----------
Members' (deficiency) and shareholders' equity (deficiency):
Members' (deficiency) ................................. (345,193) -- --
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 --
0, 1,800,000 and 3,000,000 shares,
respectively.......................................... -- 18,000 30,000
Additional paid-in capital............................... -- 2,991,857 8,979,857
Accumulated (deficit).................................... -- (3,255,050) (3,255,050)
---------- ---------- ----------
Total members' (deficiency) and shareholders' equity
(deficiency).......................................... (345,193) (245,193) 5,754,807
---------- ---------- ----------
Total capitalization..................................... $ 337,322 $ 422,322 $5,792,855
========== ========== ==========
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Summary Financial Data" and our financial statements and related notes that
are included in this prospectus.
OVERVIEW
In 1997, one of our principal members, Strive, Inc., developed, marketed
and sold super-premium ice cream under the Jeremy's Microbatch(R) Ice Creams
brand. Jeremy D. Kraus, our Chief Executive Officer and director, and Samuel V.
Cohen, our Chief Operating Officer and director, are shareholders, directors and
officers of Strive. In January 1998, Strive transferred the business to Jeremy's
Microbatch Ice Creams, LLC. This transfer of business has been treated as a
reverse merger for financial reporting purposes, and the operations of Strive
related to our business have been included for all periods presented.
Simultaneously with the closing of this offering, 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 nine 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.
All historical financial information in this prospectus is derived from the
financial statements of Jeremy's Microbatch Ice Creams, LLC. All financial
information in this prospectus labeled pro forma or pro forma as adjusted takes
into account Jeremy's Microbatch Ice Creams, LLC becoming a wholly owned
subsidiary of Jeremy's Microbatch Ice Creams, Inc. on the Closing date.
References to shares refer to shares of Jeremy's Microbatch Ice Creams, Inc.
11
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected financial data for the periods
indicated expressed as a percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales.............................. 100.0% 100.00% 100.00% 100.00%
Cost of sales.......................... 72.1 144.64 73.15 44.77
------ ------- ------- -------
Gross profit (loss).................... 27.9 (44.64) 26.85 55.23
------ ------- ------- -------
Selling................................ 139.8 39.83 89.61 151.45
Distribution........................... 15.8 3.92 12.84 6.68
General and administrative............. 99.7 41.82 77.18 87.09
Amortization of deferred charges....... -- -- 18.23 --
Depreciation........................... 1.4 5.21 0.52 0.09
------ ------- ------- -------
Total operating expenses............... 256.7 90.78 198.38 215.31
------ ------- ------- -------
Operating (loss)....................... (228.8) (135.42) (171.53) (190.08)
Other income........................... 0.5 3.27 0.42 0.76
Loss on sale of property and
equipment............................ -- (31.22) (1.57) --
Interest expense....................... (1.7) (0.45) (3.54) (2.34)
------ ------- ------- -------
Net (loss)............................. (230.0)% (163.82)% (176.22)% (191.66)%
====== ======= ======= =======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
We experienced a net loss of approximately $1,200,000 in the third quarter
of 1999. This was greater than the loss for the two previous quarters combined.
The net loss for the quarter resulted from the combined effects of reduced
sales, decreased margins and increased selling and general and administrative
expenses.
Sales in the third quarter were approximately $343,000, which was
approximately $175,000 less than sales for the second quarter. The reduction in
sales was primarily caused by our decision to reduce the stock of our old
flavors in the distribution chain due to the introduction of new flavors.
Our gross margin was greatly reduced in the third quarter of 1999. The
reduction in the gross margin was partly due to a $50,000 charge relating to the
termination of our relationship with our former manufacturer and $40,000 in new
package design costs.
Third quarter selling expenses were more than selling expenses for the
prior two quarters combined. This was due to increased promotional expenses as
we sought to keep pace with competitors' promotional schedules and made efforts
to move retail stock of discontinued flavors and speed stocking of new flavors.
General and administrative expenses also increased significantly in the
third quarter as compared to the prior two quarters. The primary reasons for
this included increased marketing staff and the start-up costs related to the
new hires. In addition, we incurred approximately $40,000 in costs related to
our prior years' audits in that quarter.
12
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND 1998
Net Sales. Our net sales increased by $944,908 to $1,197,698, or over 350%
in the first nine months of 1999 compared to sales in the first nine months of
1998 which were $252,790. 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 in the first nine months of 1999 was
$321,562, as compared to $139,620 for the similar period in 1998. Our gross
profit as a percentage of sales was 26.9% in the first nine months of 1999 as
compared to 55.2% in the similar 1998 period. The decrease in gross profit
percentage was partially a result of a $50,000 charge relating to the
termination of our relationship with our former manufacturer and costs
associated with significant changes in product and packaging in September 1999.
At that time we began discontinuing five flavors and introducing seven new
flavors. We also developed and implemented a new package design. The cost of the
new package design was approximately $40,000. Some of the increase was
attributable to increased costs of materials. In the future, we do not expect to
change as many flavors at the same time and do not expect more gradual changes
in flavors to significantly impact our margins. 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 $620,140 in
the first nine months of 1998 to $2,376,009 in the first nine 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 245% of sales to 198% 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 7% of sales to approximately 13% 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 distribution costs to
increase as we enter new geographic markets. 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
13
<PAGE>
in absolute dollar amounts from the first nine months of 1998 to the first nine
months of 1999 due to increases in volume in the first two quarters of 1999,
which caused additional fees to brokers and distributors, as well as an increase
in advertising and other promotional activities. Some of these advertising and
promotional activities resulted from efforts to move retail stock of
discontinued flavors and introduce new flavors. We expect that selling expenses
will continue to increase 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 $6,000 in 1998 to approximately $42,000 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.
YEARS ENDED DECEMBER 31, 1998 AND 1997
The year ended December 31, 1998 was our first full operating period. 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.
Our 1997 financial statements reflect the operation of our business for a
period of about 90 days at the end of that year. Because of the limited period
of operations in 1997, we do not believe that the operating results of 1997 and
1998 are comparable. During this period, net sales were approximately $79,000,
the business had a gross loss of approximately $35,000 and operating expenses of
approximately $72,000. As a result, the business suffered a loss from operations
of approximately $108,000 and a net loss of approximately $130,000.
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.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through capital
contributions of our members. Since inception through September 1999, we had
received $2,700,000 in cash capital contributions from two of our members, which
includes $650,000 received during the third quarter of 1999. One of these
members also converted a $50,000 note payable to equity during 1998. We received
an additional $100,000 from another member 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 $636,750 in the first nine months
of 1998, $928,835 in the year ended December 31, 1998, and $1,291,074 in the
first nine months of 1999. All of these negative cash flows were offset
primarily through additional investments by our existing members.
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 stopped using this
facility in September, 1999, as the factor no longer makes advances because of
the delinquency of our receivables. Since then, we have been collecting newly
generated receivables ourselves. We do not intend to utilize a receivable
factoring arrangement after the closing of this offering.
We increased 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 our 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 quarter ending March
31, 2000. Accordingly, we must obtain additional financing in order to maintain
our 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 18-24 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 18-24 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 18-24 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
15
<PAGE>
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.
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.
The significant risk of our distributors and retail customers having Year
2000 problems is that their ordering and stocking systems would stop
functioning. This would disrupt our order flow and delay our receipt of
revenues. Our competitors would be equally affected. Due to our current size, we
believe that we would quickly recognize any delay in orders form our major
customers, and would assist them in manual ordering and stocking.
Because we only buy finished goods from our manufacturer, any Year 2000
problem experienced by our manufacturer that caused spoilage of ingredients,
such as electric power or transportation problems, would not be an expense for
us. The significant risk is that we will experience production delays because
our manufacturer's systems are non-compliant, because of power problems, or
because the manufacturer's suppliers are delayed. We prepared for this
contingency by increasing our inventory of finished goods in the end of 1999 and
beginning of 2000.
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.
16
<PAGE>
OUR BUSINESS
BACKGROUND
We are a 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.
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.
Our business has been operated by Jeremy's Microbatch Ice Creams, LLC. At
closing of this offering, Jeremy's Microbatch Ice Creams, LLC will become a
wholly owned subsidiary of Jeremy's Microbatch Ice Creams, Inc. Jeremy's
Microbatch Ice Creams, Inc. was formed in October 1999 for the sole purpose of
becoming Jeremy's Microbatch Ice Creams, LLC's corporate parent. When we use the
term "we," "our" or "Jeremy's" in this prospectus for periods or events before
the closing of this offering, we are referring to Jeremy's Microbatch Ice
Creams, LLC. When we use those terms for periods or events on or after the
closing of this offering, we are generally referring to Jeremy's Microbatch Ice
Creams, Inc. after it has acquired the business at closing of the offering.
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(R) 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(R) image.
Jeremy's ice cream has a high level of butter fat and low level of air
incorporation 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
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made from the finest quality ingredients. To date, we have not 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 began gradually phasing 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(R) 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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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 nine months ended September 30, 1999, 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 21% of our sales. We expect the
three distributors to continue to account for significant sales in the near
future.
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 nine months ended
September 30, 1999, we paid approximately $633,000 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 member.
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. These two
distributors currently account for a small portion of our overall sales. We do
not have agreements with the distributors that account for most of our sales.
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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. Our 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(R),
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. We expect 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.
PRICING
Pricing for our products varies by geographic region of the intended retail
sale. Generally, we seek to maintain prices similar to our major competitors at
the wholesale levels, and our suggested retail prices are generally similar to
those of our major competitors. Our wholesale prices are usually within 10% of
the prices charged by our major competitors. Retailers are free to set their own
prices, but we find they generally also charge a price for our product within
10% of the price they charge for our major competitors' products.
GOVERNMENT REGULATION
We are subject to regulation by various governmental agencies, including
the U.S. Food and Drug Administration and the U.S. Department of Agriculture. We
must also obtain licenses from certain states where Jeremy's Microbatch(R) 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
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new products. Nevertheless, we do not believe that these legislative and
administrative rules and regulations will have a significant impact on our
operations.
Our 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.
The FDA and U.S. Department of Agriculture impose health and cleanliness
regulations on our manufacturer's facilities. Most of these regulations are
generally applicable to to all producers of food and beverages. The FDA also
regulates our finished product by requiring disclosure of ingredients and
nutritional information. The FDA can audit us or our manufacturer to determine
the accuracy of our disclosure.
Some state and local governments have various laws specifically applicable
to dairy products. For example, Colorado has specific taxes on dairy products.
New York regulates the size of containers in which our products may be sold.
State laws may also impose additional health and cleanliness regulations on our
manufacturers.
The use of outside sources to manufacture and distribute our product
results in our having less control over our product's compliance with
governmental regulations. For example, our manufacturer could incorrectly label
products. Liability for violation of rules relating to food quality could be
triggered because of the mistakes of our manufacturer or distributors. For
example, our distributors could mishandle product so that it becomes
adulterated. Our manufacturer's violation of FDA rules or local laws could delay
production of our products.
PROPRIETARY RIGHTS
We have registered the trademarks "Microbatch(R)" and "Jeremy's
Microbatch(R) 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(R)
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(R) 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(R)"
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 December 1, 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.
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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. We are 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.
LEGAL MATTERS
On January 31, 2000, Leonard F. Yablon and Yablon Enterprises sued us, our
shareholder Strive, Inc. and our President, Jeremy Kraus, in a state court in
Philadelphia, claiming compensation in connection with Bluestem Capital
Partners, II, L.P.'s investment in Jeremy's. The complaint alleges that Yablon
is entitled to 6 1/2% of the Common Stock of Jeremy's, a cash fee of $158,000
and a seat on Jeremy's Board of Directors. We believe that Yablon is not
entitled to any fee or compensation in connection with the Bluestem investment
because he did not introduce us to Bluestem. We were contacted directly by
Bluestem, and believe that the circumstances by which Bluestem became aware of
our interest in receiving investment were not the result of any activities which
entitles Yablon to any fee. Even if Mr. Yablon were successful in his claims, we
believe his stock entitlement would be at most 6 1/2% of our equity at the time
of the initial Bluestem investment, or 2.773% before this offering, or
approximately 49,914 shares.
In November, 1999, we were sued for payment of finder's fees by American
Maple Leaf Corporation, an entity with which we previously had a non-exclusive
finder's fee agreement. The complaint seeks a finders fee of $250,000 and shares
equal to 5% of our outstanding common stock. The complaint alleges that American
Maple Leaf would be entitled to this fee if we had received any financing during
the period of our agreement with American Maple Leaf, November 6, 1998 through
March 5, 1999. The Complaint alleges that we did receive financing during that
time period, but does not identify the alleged financing. The Complaint also
alleges that we rejected a financing source provided by American Maple Leaf and
used the services provided by American Maple Leaf to secure other financing
without paying a fee. We did not receive any financing during that time period,
or after that time period other than from existing principal shareholders, and,
therefore, have concluded the complaint is without merit and will seek to have
it dismissed.
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.
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On November 19, 1999, we gave Weightman our promissory note in the amount
of $294,467, representing amounts owed to them for services and expenditures
prior to the date of this prospectus. We have paid $60,000 to Weightman under
this note, reducing the principal balance to $234,467. The note is payable in
full on the earlier of March 15, 2000 or three days after closing of this
offering. We will pay this note in full with the proceeds of this offering at
closing of this offering.
During the term of our relationship with Weightman, Weightman and its
subcontractors created certain artwork, packaging and other materials for us.
Weightman and its subcontractors may have the copyright in such materials and
may have the ability to prevent us from continuing to use such materials if we
default in our payments under the promissory note. Any claims that prevent us
from using these materials would have a material adverse effect on our business.
When we repay the debt, Weightman will have no claim to prevent us from using
these materials.
On December 9, 1999, we received notice from the Union of Orthodox Jewish
Congregations of America that we infringed their registered trademark symbol,
indicating their certification that our product was kosher, by using this symbol
after our recent change of manufacturers. Our former manufacturer's plant was
certified by this organization. We mistakenly believed that our new manufacturer
was also certified by this organization, but it is certified by a different
organization. To rectify this problem, on December 13, 1999, we informed the
Union of Orthodox Jewish Congregations that we would cover their symbol on all
of our product still in our manufacturer's warehouse and that no new product
will be packaged in containers bearing the symbol. The Union of Orthodox Jewish
Congregations indicated that if we took those steps, we could keep any product
on retail shelves at that time without alteration to the packaging. Because of
this method of rectifying the problem, we do not believe our potential violation
of this trademark will have a material affect on our business.
In January, 2000 we were served with a complaint filed in Erie County, New
York in December, 1999 by Perry's Ice Cream Company, our former manufacturer,
for approximately $220,000 plus interest and attorneys fees. Perry's claimed
that we owed this money for finished product shipped on our behalf and raw
materials and unique inventory purchased on our behalf. Although we disputed a
portion of this amount, we have agreed with Perry's to pay approximately
$230,000 on or before February 15, 2000 and to take delivery of the inventory.
Our member, Bluestem Capital Partners, II, L.P. guaranteed our obligations under
our contract with Perry's. Bluestem was sued in a separate action but the
settlement agreement also includes Bluestem. If we do not pay the required
amounts under the settlement agreement, and Bluestem is forced to pay, we will
owe Bluestem the money and Bluestem will have the right to file a judgment
against us to recover the payment.
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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...................... 23 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 underwriter will have the right to have a non-voting observer at all
board meetings.
Our members prior to this offering (after giving effect of the plan of
reorganization), 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. Mr. Schock and Mr. Kirby will initially be
the nominees of Bluestem, but Bluestem will be entitled to change its nominees
at any election of directors.
We are required under the rules of the NASDAQ Stock Market to have two
independent directors. We have been granted a waiver by NASDAQ for a period of
90 days to obtain two independent directors. We anticipate expanding the Board
of Directors at such time as we obtain the independent directors.
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 the President and a director and shareholder of one of
our principal members, 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(R) 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
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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 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 the vice president and a director and shareholder of
our member, 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 officers for services rendered in all capacities to us in the
years ended December 31, 1998 and 1999.
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............................. 1999 70,000 0 0 3,600
Chief Executive Officer 1998 48,000 0 0 3,600
Samuel V. Cohen............................. 1999 70,000 0 0 3,600
Chief Operations Officer 1998 36,000 0 0 3,600
Jay Bern.................................... 1999 80,000 0 0 8,400
Vice President-Business Development 1998 40,000 0 0 4,200
Jeffrey S. Rosen............................ 1999 37,000 0 0 3,375
Chief Financial Officer
</TABLE>
Our Chief Financial Officer, Jeffrey Rosen, joined us in April 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. Mr. Rosen
receives a car allowance of $375 per month. From January 1, 1999 through the
date of this prospectus, Mr. Cohen and Mr. Kraus were each paid at a rate of
$70,000 per year. Mr. Cohen and Mr. Kraus will continue to receive compensation
at this rate through the closing of this offering. Mr. Kraus, Mr. Cohen, Mr.
Rosen and Mr. Bern will continue to receive their car allowances during 2000. As
discussed below, Mr. Kraus and Mr. Cohen will be receiving salary increases
after this offering closes. We anticipate that Mr. Bern will continue to receive
compensation at the rate of $80,000 per annum and Mr. Rosen will continue to
receive compensation at the rate of $55,000 per annum during 2000.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Jeremy D. Kraus and Samuel
V. Cohen which will become effective as of 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 beginning 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.
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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.
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.
POLICY ON ISSUANCE OF OPTIONS AND WARRANTS
We will not issue warrants or options at an exercise price of less than 85%
of fair market value of the common stock on the date the warrant or option is
issued.
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;
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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:
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
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, intends to purchase 200,000 shares in this offering. After
this offering, Bluestem will own over 51% of our common stock. This
concentration of ownership could prevent a change in control of Jeremy's
Microbatch(R), which could adversely affect our stock price.
The table presented below sets forth as of the date of the prospectus
(after giving effect of the plan of reorganization), 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).......................... 323,118 17.951% 323,118 10.77%
Samuel V. Cohen(1).......................... 323,118 17.951% 323,118 10.77%
Paul Schock(2).............................. 1,359,982 75.55% 1,559,982 51.99%
Stephen Kirby(2)............................ 1,359,982 75.55% 1,559,982 51.99%
All Officers and Directors as a Group....... 1,683,300 93.50% 1,883,100 62.77%
(II) OTHER BENEFICIAL OWNERS
Strive, Inc................................. 323,118 17.95% 323,118 10.77%
Bluestem Capital Partners, II, L.P.......... 1,359,982 75.55% 1,559,982 51.99%
</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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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONVERSION OF JEREMY'S MICROBATCH(R) ICE CREAMS TO CORPORATE FORM. In
October, 1997, Jeremy's Microbatch Ice Creams, LLC was formed as a Delaware
limited liability company. At closing of this Offering, Jeremy's Microbatch Ice
Creams, LLC will become a wholly owned subsidiary of Jeremy's Microbatch Ice
Creams, Inc. In connection with that transaction, each of the members of
Jeremy's Microbatch Ice Creams, LLC will receive a portion of the initial
1,800,000 shares of Jeremy's Microbatch Ice Creams, Inc. equal to their
percentage interests in the limited liability company.
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 January 31, 2000. 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 members, Strive, Inc. tested several ice cream marketing
concepts, including the Jeremy's Microbatch(R) concept. Strive operated the
Jeremy's Microbatch(R) business on a limited basis during 1997 and as of January
1, 1998 transferred the business to Jeremy's Microbatch(R) 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.
AGREEMENTS BETWEEN STRIVE, INC. AND OTHER SHAREHOLDERS. In connection with
the anticipated conversion of Jeremy's Microbatch(R) Ice Creams to corporate
form, we and our principal members 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.
This agreement provides:
o Strive has the right to purchase 33,235 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 $208,652 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 66,470 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 $417,304 through April 23,
2003 and thereafter will increase by 20% per year.
o Strive has the right to purchase up to 256,464 shares from Bluestem at
any time prior to July 14, 2003. The purchase price will be $5.849 per
share through July 14, 2001, $7.798 per share after July 14, 2001 and
before July 14, 2002 and $9.743 per share after July 14, 2002.
o Strive has the right to purchase up to 61,857 shares from Bluestem at any
time prior to August 11, 2003. The purchase price will be $7.27 per share
through August 11, 2001, $9.70 per share after August 11, 2001 and on or
before August 11, 2002 and $12.12 per share after August 11, 2002.
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<PAGE>
LOANS BY EXECUTIVE OFFICERS AND MEMBERS. 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. In November, 1999, Strive, Inc.,
one of our principal members, loaned us $50,000 to fund accounts payable. This
loan bears interest at 14% per annum and is due in November, 2000. We intend to
repay that loan with the proceeds of this offering. As the loans from our
President and Chief Financial Officer replaced a loan from an unaffiliated party
on which we paid a higher interest rate, we believe these loans were on terms as
favorable to us as those available from unaffiliated third parties.
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 approximately $2,000 directly to the landlord. As we
paid only the rent actually charged by the landlord, we believe this transaction
was on terms no less favorable to us than generally available from unaffiliated
third parties. At the time we entered into this lease, we did not have
sufficient disinterested directors to ratify this transaction.
All future affiliated material transactions and loans involving Jeremy's
will be made or entered into on terms that are no less favorable to us than
those that can be obtained from unaffiliated third parties. All future material
affiliated transactions and loans, and any forgiveness of loans, must be
approved by a majority of our independent directors who do not have an interest
in the transactions and who had access, at our expense, to our legal counsel or
independent legal counsel.
During the period in which we entered into the transactions described
above, we did not have independent directors, and therefore we lacked sufficient
disinterested directors to ratify or approve these transactions. Therefore, an
investor cannot be sure that any prior transactions between us and our officers,
directors or affiliates were favorable to us.
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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. There will be 1,800,000 shares of common stock
outstanding immediately prior to closing of this offering. We have agreed with
the underwriter that we 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(R) 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 certificate 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(R),
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 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 issue shares of preferred stock and set the
terms of any series of preferred stock 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. If we issue any preferred stock, the
issuance will be approved by a majority of our independent directors who do not
have an interest in the issuance or transactions related to the issuance, and
who have access, at our expense, to our legal counsel or independent legal
counsel.
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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(R) 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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<PAGE>
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.
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.
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. The underwriter's warrants will have an
exercise price of $_____ per share, 145% of the initial offering price. 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, as underwriter, 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 us an aggregate of 1,200,000 shares of common stock.
The underwriting agreement provides that the underwriter is obligated to
purchase all of the shares being offered, if any are purchased, subject to
approval of legal matters by counsel.
Bluestem Capital Partners, II, L.P., one of our principal shareholders,
intends to purchase 200,000 shares in the offering. The underwriter will be paid
the same commission and expense allowance for the sale to Bluestem as it is paid
for all other sales in the offering. The underwriting agreement provides that
the underwriter may terminate the offering if Bluestem does not purchase these
shares.
The underwriter has advised us 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 to selected dealers who are members of the National Association
of Securities Dealers, Inc. at such price less a concession not exceeding $.____
per share. The underwriter may allow, and such dealers may reallow, concessions,
not in excess of $.__ per share. The underwriter has reserved 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
reallowance may be changed by the underwriter. The underwriter has advised us
that it does not expect any sales to accounts for which it exercises discretion
as to such sale.
We have granted to the underwriter a 45 day option to purchase from us 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. The
underwriter may exercise these options only for the purpose of covering
over-allotments, if any.
The underwriting agreement provides for reciprocal indemnification between
us and the underwriter against certain liabilities that may occur in connection
with the registration statement, including liabilities under the Securities Act.
We have been advised that, in the opinion of the SEC, indemnification for
liabilities under the Securities Act is against public policy as expressed in
the Securities Act and is unenforceable.
In addition to the 10% selling commission, we have agreed to pay the
underwriter a non-accountable expense allowance equal to 3% of the gross
proceeds of the offering, including any shares purchased pursuant to the
exercise of the underwriter's over-allotment options, of which $20,000 has been
paid on account.
We have agreed to retain the underwriter, 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, an aggregate of
$60,000, payable at the closing of this offering. In the event the underwriter
originates a financing or a merger, acquisition, joint venture or other
transaction to which we are a party, the underwriter will be entitled to receive
a finder's fee in consideration for origination of such transaction. The
Underwriter has advised us that it does not presently have any such transaction
contemplated or arranged at this time. We have no current plan, understanding,
agreement or arrangement for any such transaction.
We have also agreed to sell to the underwriter warrants to purchase up to
120,000 shares of common stock at an exercise price of $________ per share, 145%
of the public offering price per share. The holders of the underwriter's
warrants will not have voting, dividend or other rights as our stockholders
until such warrants are exercised. The underwriter's warrants may be exercised
commencing one-year from the effective date of this prospectus to a date which
is five years from the effective date. The underwriter's warrants may not be
sold, transferred, assigned or hypothecated except to bona fide officers of the
underwriter and to dealers who are part of the selling group and/or their
officers or partners. The underwriter's warrants also have registration rights.
In summary, the underwriter will receive the following compensation from us:
o the 10% discount from the public offering price;
o the 3% expense allowance; and
o the underwriter's warrants.
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 our common stock,
with a resulting dilution in the
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<PAGE>
interests of the other stockholders. The holders of the underwriter's warrants
can be expected to exercise them at a time when we would, in all likelihood, be
able to obtain any needed capital from an offering of our common stock on terms
more favorable to us than those provided for in the underwriter's warrants. This
may adversely affect the terms on which we might be able to obtain additional
financing. To the extent that the underwriter 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.
Our executive officers and directors and our existing stockholders holding
at least 1,683,000 prior to the offering, have entered into an agreement with
the underwriter 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 underwriter's consent, 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. Additionally, commencing 12
months from the date of this prospectus, such persons have agreed to sell only
an amount as they might be allowed to sell under Rule 144. The shares subject
to this agreement include shares our principal shareholder, Bluestem Capital
Partners, II, L.P. intends to purchase in this offering.
We have agreed with the underwriter not to 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 the underwriter's consent, for
a two year period following the closing of this offering, except that we may
issue:
o options under our option plan, provided that the exercise price of any
such options shall not be less that the market price per share of common
stock on the date of grant and recipients of such options shall enter
into a lock-up agreement with the underwriter. and
o 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.
We have also agreed that, for the 24-month period following the closing of
this offering, it will not, without the prior written consent of the
underwriter, 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.
The underwriting agreement provides that we are required to maintain, for a
period of three years following the offering a policy of life insurance on the
life of Samuel Cohen and Jeremy Kraus, our founders and principal executives.
The face amount of such policy must be at least $1,000,000 and we must be the
beneficiary.
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 us and the underwriter. Among
the factors considered in determining these prices were:
our financial condition and its prospects,
market prices of, and demand for, similar securities of comparable
publicly-traded companies
the abilities of our management
the prospects for future growth and earnings; and
the general condition of the securities market.
In order to facilitate this offering, the underwriter 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, the underwriter may over-allot in connection with
this offering, creating a short position in the common ctock for its own
account. In addition, to cover over-allotments or to stabilize the price of the
common ctock, the underwriter may bid for, and repurchase, shares in the open
market. Penalty bids allow the underwriter to reclaim selling concessions
allowed to a dealer for distributing the shares in this offering, if the
36
<PAGE>
underwriter repurchases previously distributed shares 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. The underwriter is not required to engage in these
activities, and if undertaken, may end any of these activities at any time. The
underwriter has advised us that it cannot predict the effect that the
transactions as described above may have on the price of the common stock. It is
anticipated that the underwriter will make a market in the common stock after
completion of the offering but the underwriter is not obligated to make a market
in the common stock and it may discontinue such activities at any time.
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, 1,683,300 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:
APPROXIMATE
DATE NUMBER OF SHARES
---- ----------------
Currently available........................... 889,000
March - September 2000........................ 889,000
October 2000.................................. 24,000
LOCK-UP AGREEMENTS
The holders who hold at least 1,683,000 shares before the offering who
will hold 1,883,000 shares after the offering 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. Our shareholders who hold 1,683,000 shares before the
offering and will hold 1,883,000 shares after the offering, have entered into
agreements further restricting the sale of their shares, required by state
securities agencies in connection with this offering. Under those agreements,
the shareholders may not sell any shares for two years and are subject to
limitations for the subsequent two years. The shares subject to these lock-up
agreements include the 200,000 shares to be purchased by Bluestem Capital
Partners, II, L.P., in the offering. Therefore, those shares will not
immediately be available for resale in the public market immediately after the
offering.
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.
37
<PAGE>
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 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 report, 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 report 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.
38
<PAGE>
INDEX
TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants..................... F-2
Financial Statements
Balance Sheets....................................................... F-3
Statements of Operations............................................. F-4
Statements of Member's Capital (Deficiency).......................... F-5
Statements of Cash Flows............................................. F-6
Notes to Financial Statements.......................................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jeremy's Microbatch Ice Creams, LLC
Philadelphia, Pennsylvania
We have audited the accompanying balance sheet of Jeremy's Microbatch Ice
Creams, LLC as of December 31, 1998 and the related statements of operations,
changes in members' capital, and cash flows for each of the two years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jeremy's Microbatch Ice Creams,
LLC as of December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
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 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Philadelphia, Pennsylvania
September 16, 1999,
F-2
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash.............................................................................. $179,730 $ 124,129
Accounts receivable............................................................... 22,550 76,721
Inventories....................................................................... 175,224 111,945
Prepaid expenses.................................................................. -- 25,632
-------- ----------
Total current assets................................................................ 377,504 338,427
-------- ----------
Property and equipment, net (Note 4)................................................ 36,032 76,280
-------- ----------
Other assets
Deferred charges, net of accumulated amortization of $218,395..................... -- 414,195
Deferred offering costs........................................................... -- 54,700
Other............................................................................. 8,358 10,250
-------- ----------
Total other assets.................................................................. 8,358 479,145
-------- ----------
Total assets........................................................................ $421,894 $ 893,852
======== ==========
LIABILITIES AND MEMBERS' CAPITAL (DEFICIENCY)
Current liabilities
Note payable, bank (Note 5)....................................................... $ -- $ 300,000
Note payable, vendor (Note 7)..................................................... -- 294,467
Accounts payable and accrued expenses............................................. 256,476 430,014
Current maturities of long-term debt (Note 6)..................................... 50,000 63,681
Due to factor (Note 1)............................................................ -- 126,516
-------- ----------
Total current liabilities........................................................... 306,476 1,214,678
Long-term debt, net of current maturities (Note 6).................................. 50,000 24,367
-------- ----------
Total liabilities................................................................... 356,476 1,239,045
-------- ----------
Commitments and contingencies (Notes 3 and 7)
Members' capital (deficiency) (Note 9).............................................. 65,418 (345,193)
-------- ----------
Total liabilities and members' capital (deficiency)................................. $421,894 $ 893,852
======== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------------------
1998 1997 1999 1998
------------ ------------ -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales (Note 3)................................... $ 415,671 $ 79,421 $ 1,197,698 $ 252,790
Cost of sales (Note 3)............................... 299,868 114,873 876,136 113,170
------------ ------------ -------------- ------------
Gross profit (loss).................................. 115,803 (35,452) 321,562 139,620
------------ ------------ -------------- ------------
Operating expenses
Selling............................................ 581,086 31,630 1,073,300 382,853
Distribution....................................... 65,584 3,110 153,742 16,899
General and administrative......................... 414,418 33,217 924,351 220,154
Amortization of deferred charges................... -- -- 218,395 --
Depreciation....................................... 5,659 4,134 6,221 234
------------ ------------ -------------- ------------
Total operating expenses............................. 1,066,747 72,091 2,376,009 620,140
------------ ------------ -------------- ------------
(Loss) from operations............................... (950,944) (107,543) (2,054,447) (480,520)
------------ ------------ -------------- ------------
Other income (expense)
Other income....................................... 1,914 2,595 5,000 1,913
Loss on sale of property and equipment............. -- (24,795) (18,816) --
Interest expense................................... (7,171) (360) (42,348) (5,921)
------------ ------------ -------------- ------------
Total other (expense)................................ (5,257) (22,560) (56,164) (4,008)
------------ ------------ -------------- ------------
Net (loss)........................................... $ (956,201) $ (130,103) $ (2,110,611) $ (484,528)
============ ============ ============== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
STATEMENTS OF MEMBERS CAPITAL (DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
-------------
<S> <C>
Balance, January 1, 1997......................................................... $ 69,553
Members' contributions........................................................... 32,169
Net loss......................................................................... (130,103)
-----------
Balance, December 31, 1997....................................................... 351,345
Member contribution for conversion of note payable (Note 6)...................... 50,000
Members' contributions........................................................... 1,000,000
Net loss......................................................................... (956,201)
-----------
Balance, December 31, 1998....................................................... 65,418
Members' contributions (unaudited)............................................... 1,700,000
Net loss (unaudited)............................................................. (2,110,611)
-----------
Balance, September 30, 1999 (unaudited).......................................... $ (345,193)
===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1998 1997 1999 1998
----------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss)................................................... $ (956,201) $ (130,103) $(2,110,611) $ (484,528)
Adjustments to reconcile net (loss) to net cash (used in)
provided by operating activities
Loss on sale of property and equipment..................... -- 24,795 18,816 --
Depreciation............................................... 5,659 4,134 6,221 234
Amortization of deferred charges........................... -- -- 218,395 --
Changes in assets and liabilities
(Increase) in assets
Accounts receivable................................... (6,713) (15,668) (54,171) (42,465)
Inventories........................................... (175,224) -- 63,279 (106,191)
Prepaid expenses...................................... -- -- (25,632) (26,442)
Other................................................. (8,535) 15,771 (1,892) (1,366)
Increase in liabilities
Accounts payable and accrued expenses................. 212,179 44,201 468,005 24,008
Due to factor......................................... -- -- 126,516 --
----------- ---------- ----------- ----------
Net cash (used in) operating activities........................ (928,835) (56,870) (1,291,074) (636,750)
----------- ---------- ----------- ----------
Cash flows from investing activities
Deferred charges............................................. -- -- (632,590) --
Proceeds from sale of property and equipment................. -- -- 9,500 --
Purchase of property and equipment........................... (41,514) (2,000) (31,785) (41,280)
----------- ---------- ----------- ----------
Net cash (used in) investing activities........................ (41,514) (2,000) (654,875) (41,280)
----------- ---------- ----------- ----------
Cash flows from financing activities
Members' contribution........................................ 1,000,000 32,169 1,700,000 771,900
Deferred offering costs...................................... -- -- (54,700) --
Proceeds from note payable, bank............................. -- -- 400,000 --
Repayments of note payable, bank............................. -- -- (100,000) --
Proceeds from long-term debt................................. 50,000 100,000 -- --
Repayments of long-term debt................................. -- -- (54,952) --
----------- ---------- ----------- ----------
Net cash provided by financing activities...................... 1,050,000 132,169 1,890,348 771,900
----------- ---------- ----------- ----------
Net increase (decrease) in cash................................ 79,651 73,299 (55,601) 93,870
Cash at beginning of period.................................... 100,079 26,780 179,730 100,079
----------- ---------- ----------- ----------
Cash at end of period.......................................... $ 179,730 $ 100,079 $ 124,129 $ 193,949
=========== ========== =========== ==========
Supplemental disclosure of cash flow information
Cash paid during the period for interest..................... $ 7,531 $ -- $ 42,348 $ 5,921
=========== ========== =========== ==========
Noncash financing activities
Member's contributions for net liabilities assumed........... $ (28,100) $ -- $ -- $ (28,100)
=========== ========== =========== ==========
Property and equipment purchases through capital lease....... $ -- $ -- $ 43,000 $ --
=========== ========== =========== ==========
Member's contributions for conversion of note payable........ $ 50,000 $ -- $ -- $ 50,000
=========== ========== =========== ==========
Issuance of note payable for conversion of account payable... $ -- $ -- $ 294,467 $ --
=========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Jeremy's Microbatch Ice Creams, LLC ("Jeremy's" or the "Company") develops,
markets and sells super-premium ice cream using high-quality ingredients. 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. ("Strive"), 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 Company in exchange for a 96.25%
membership interest in the Company. Such amounts were recorded by the Company at
Strive's historic cost. The above transaction was accounted for as a reverse
merger and the operations of Strive related to Jeremy's are included for all
periods presented.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared as if Strive's operations
related to Jeremy's, and the Company had operated as a single company since
inception. Any intercompany balances and transactions have been eliminated (see
Note 8).
INTERIM FINANCIAL INFORMATION
The interim financial statements as of September 30, 1999 and for the nine
months ended September 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 nine months ended September
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 using the straight-line method generally
over a 12-month period. Whenever events or changes in circumstances indicate
F-7
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
that the carrying amount of the deferred charge may not be recoverable, the
Company will recognize an impairment charge.
INCOME TAXES
The Company has 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 Company'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. During September 1999, the Company ceased utilizing the
facility. The Company is also in violation of the factoring and security
agreement as of September 30, 1999.
ADVERTISING
Advertising costs are expensed as incurred and are included in selling
expenses. Advertising expense for the years ended December 31, 1998 and 1997
approximated $301,000 and $27,000, respectively. Advertising expense for the
nine months ended September 30, 1999 and 1998 approximated $680,000 and
$220,000, 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 September 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.
F-8
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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 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 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").
Subject to the Company's plan of reorganization (see Note 8), the proposed
Initial Public Offering ("IPO") provides for the 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
from inception through September 1999. For the years ended December 31, 1998 and
1997, the Company had purchases from this vendor of approximately $475,000 and
$46,000, respectively. For the nine months ended September 30, 1999 and 1998,
total purchases from this vendor approximated $726,000 and $198,000,
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 supplier. 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
F-9
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
3. TRANSACTIONS WITH MAJOR SUPPLIERS AND CUSTOMERS -- (CONTINUED)
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 a member of the Company.
The following table shows the percentage of net sales to major customers:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Customer A......................... 15% --% 1% 12%
Customer B......................... 22 -- 21 34
Customer C......................... 11 -- -- 14
Customer D......................... 13 -- -- 14
Customer E......................... -- -- 15 --
Customer F......................... -- -- 13 --
Customer G......................... -- 37 -- --
Customer H......................... -- 25 -- --
Customer I......................... 5 24 -- 14
-- -- -- --
66% 86% 50% 88%
== == == ==
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1998 1999
----------- ------------ -------------
<S> <C> <C> <C>
Automobile................................... 5 Years $33,284 $18,215
Equipment.................................... 5 Years 8,230 56,370
Furniture.................................... 7 Years -- 8,430
------- -------
41,514 83,015
Less accumulated depreciation................ 5,482 6,735
------- -------
$36,032 $76,280
======= =======
</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 January 31, 2000. Interest accrues on outstanding
balances at a rate of 12.25%. The line of credit is guaranteed by the Company's
majority member.
F-10
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 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 member of the
Company................................................................ $ 50,000 $ --
$50,000 note payable to an individual, due September 11, 2000, including
interest at 12% (increased to 14% on September 11, 1999). The note is
guaranteed by a member 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%................................................................. -- 38,048
-------- -------
100,000 88,048
Less current maturities.................................................. 50,000 63,681
-------- -------
$ 50,000 $24,367
======== =======
</TABLE>
In connection with the note payable to a related party above, the Company
gave a minimal percentage ownership interest to the note holder. This interest
was deemed to have a diminimus value, and, therefore, no amounts were assigned
to it.
In connection with a note payable of $50,000 issued in December 1997 to
another related party, the Company gave a minimal percentage ownership interest
to the note holder. This interest was deemed to have a diminimus value, and,
therefore, no amounts were assigned to it. 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.
In November 1999, the Company issued a note payable to a related party in
the amount of $50,000. The proceeds of these notes were used to repay
outstanding accounts payable. The note is due in November 2000 and accrues
interest at 14% per annum.
The total minimum capitalized lease commitments at September 30, 1999 is as
follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ---------
1999 (three months)..................................... $ 4,704
2000.................................................... 18,816
2001.................................................... 18,816
2002.................................................... 9,408
---------
51,744
Less interest........................................... (13,696)
---------
$ 38,048
=========
F-11
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
6. LONG-TERM DEBT -- (CONTINUED)
Property and equipment of approximately $43,000 at September 30, 1999 is
covered by capitalized lease commitments.
7. COMMITMENTS AND CONTINGENCIES
Through April 1999, a member 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 and $6,900 for the years ended December 31, 1998 and 1997, respectively.
Rent expense for the nine months ended September 30, 1999 and 1998 approximated
$27,000 and $16,000, respectively.
During the term of the Company's relationship with its former marketing
agency, the agency and its subcontractors created certain artwork, packaging and
other materials for the Company. The agency and its subcontractors may have the
copyright in such materials and may have the ability to prevent the Company from
continuing to use such materials if the Company defaults in its obligations to
the marketing agency.
The Company is a party to various legal proceedings in the ordinary course
of its business. The Company believes that none of the outcomes from 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 closing date of the
proposed offering, Jeremy's Microbatch Ice Creams, Inc., JMIC, Inc. ("Merger
Sub"), the Company (the "LLC"), and the members of the LLC will undertake a
reorganization transaction, pursuant to the Plan of Merger and Formation, dated
as of December 1, 1999, among the members of the LLC, the LLC and Jeremy's
Microbatch Ice Creams, Inc. At the effective time of the merger, the Merger Sub
will merge with and into the LLC, the separate corporate existence of the Merger
Sub will cease and the LLC will be the surviving entity in the merger. At that
time, all of the membership interests in the LLC will be converted automatically
into 1,800,000 shares of Jeremy's Microbatch Ice Creams, Inc. common stock. As a
result of the Reorganization, Jeremy's Microbatch Ice Creams, Inc. will own all
of the members' respective LLC interests and the LLC will become a wholly owned
subsidiary of Jeremy's Microbatch Ice Creams, Inc. (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 another stockholder. Some of these rights will vest
only 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 Jeremy's Microbatch Ice Creams, Inc. shares in
one transaction or a series of related transactions or (3) the sale of all or
substantially all of Jeremy's Microbatch Ice Creams, Inc. 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
Jeremy's Microbatch Ice Creams, Inc. and/or its stockholders.
F-12
<PAGE>
JEREMY'S MICROBATCH ICE CREAMS, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 IS UNAUDITED)
9. SUBSEQUENT EVENTS
In contemplation of the IPO, the Company entered 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
agreements provide for the granting to each officer employee stock options to
purchase 10,000 shares of Jeremy's Microbatch Ice Creams, Inc. common stock in
each of January 2000, 2001 and 2002. The stock options will have an exercise
price equal to the market price of Jeremy's Microbatch Ice Creams, Inc. common
stock as of the date of issuance. The employee stock options will be exercisable
for five years after the date of issue and will be vested upon issuance.
During October 1999, the Company sold a membership interest for $100,000 to
an existing member.
F-13
<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
PAGE
----
Prospectus Summary...................... 1
Summary Financial Data.................. 2
Risk Factors............................ 3
Forward Looking Statements.............. 6
Use of Proceeds......................... 7
Dilution................................ 9
Dividend Policy......................... 9
Capitalization.......................... 10
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 11
Our Business............................ 17
Management.............................. 24
Executive Compensation.................. 26
Principal Shareholders.................. 29
Certain Relationships and Related
Transactions.......................... 30
Description of Securities............... 32
Underwriting............................ 35
Shares Eligible for Future Sale......... 37
Legal Matters........................... 38
Experts................................. 38
Where You Can Get More Information...... 38
Index to Financial Statements........... F-1
------------------
UNTIL _________, 2000 (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 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
[LOGO]
-------------------
PROSPECTUS
-------------------
[LOGO]
Parkway 109 Office Center
328 Newman Springs Road
Red Bank, NJ 07701
, 2000
================================================================================
<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:
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
========
- ------------------
*Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Contemporaneously with closing of this offering, all of the membership
interests in Jeremy's Microbatch(R) Ice Creams, LLC (the "LLC"), will be
converted into 1,800,000 shares of Jeremy's Microbatch(R) Ice Creams, Inc. This
transaction will be 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. In November, 1999, we issued a $50,000 Promissory Note to our
major member, Strive, Inc. These transactions were exempt from registration
under Section 4(2) of the Securities Act because the investors were our
executive officers and significant shareholders 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.
With respect to each of the transactions described above, the issuer
determined that each purchaser had sufficient sophistication as to not require
the protection of registration under the Securities Act, and each purchaser had
access to the type of information which would be found in a registration
statement.
ITEM 27. EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Underwriting Agreement between Jeremy Microbatch Ice
Creams, Inc. and First Montauk Securities Corp.
1.2 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*
3.4 Proposed form of 1999 Stock Option Plan*
5.0 Form of Opinion of Eckert Seamans Cherin & Mellott, LLP*
10.1 Form of Employment Agreement between Jeremy's Microbatch(R)
Ice Creams, Inc. and Jeremy D. Kraus*
10.2 Form of Employment Agreement between Jeremy's Microbatch(R)
Ice Creams, Inc. and Samuel V. Cohen*
10.3 Plan of Merger and Formation among Jeremy's Microbatch(R)
Ice Creams, LLC, Jeremy's Microbatch(R) Ice Creams, Inc,
Strive, Inc. and Bluestem Capital Partners II, L.P.*
10.4 Co-Packing Agreement between Jeremy's Microbatch(R) Ice
Creams, Inc. and Roney Oatman, Inc.*
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.5 Promissory Notes from the Company to Jeremy D. Kraus and
Jeffrey Rosen.*
10.6 Promissory Note from Jeremy's to Weightman Group, Inc.*
24.1 Consent of BDO Seidman, LLP
24.2 Consent of Eckert Seamans Cherin & Mellott, LLC (contained
in Exhibit 5.0).*
27 Financial Data Schedule
- ------------------
*Previously Filed
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)(1) For purposes of determining any liability under the Securities
Act, the Registrant will treat the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be a part of this Registration Statement as of the time the
Commission declarerd it effective.
(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 Amendment
No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, in Philadelphia, Pennsylvania, on February 10, 2000.
JEREMY'S MICROBATCH 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 February 10, 2000
- ------------------------------------- and Director
Jeremy D. Kraus
/s SAMUEL V. COHEN Chief Operating Officer, Secretary February 10, 2000
- ------------------------------------- and Director
Samuel V. Cohen
/s/ JEFFREY S. ROSEN Chief Financial Officer and February 10, 2000
- ------------------------------------- Principal Accounting Officer
Jeffrey S. Rosen
/s/ PAUL SCHOCK Director February 10, 2000
- -------------------------------------
Paul Schock
/s/ STEVEN KIRBY Director February 10, 2000
- -------------------------------------
Steven Kirby
</TABLE>
II-4
1,200,000 SHARES OF COMMON STOCK
OF
JEREMY'S MICROBATCH ICE CREAM, INC.
UNDERWRITING AGREEMENT
Red Bank, New Jersey
_________, 2000
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 $.01
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, 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. 333-89625) including any related preliminary prospectus (each
a "Preliminary
<PAGE>
Prospectus"), for the registration of the Securities, the Underwriters Warrant
and the Underwriters Warrant Shares 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
2
<PAGE>
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 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.
3
<PAGE>
(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 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.
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(g) BDO Seidman LLP 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 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
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<PAGE>
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 or ByLaws 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
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<PAGE>
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, 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
7
<PAGE>
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 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. and the Boston Stock
Exchange, subject to official notice of issuance.
8
<PAGE>
(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
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.
9
<PAGE>
(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.
(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 $5.40 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
February ___, 2000 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
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<PAGE>
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 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 forty-five percent (145%) 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. The Underwriter's Warrants shall not
be sold, transferred, hypothecated or pledged except to members of the
Selling Group, if any, and the bona fide officers of the Underwriter or the
Selling Group members.
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
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<PAGE>
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.
(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
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<PAGE>
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 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
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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;
(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
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<PAGE>
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 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 , 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
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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 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.
(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 and the Boston
Stock Exchange.
(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
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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.
(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
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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.
(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
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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 and Boston Stock Exchange. 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 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 $20,000 has been paid prior
to the date hereof. To the extent that the actual expenses incurred by the
Underwriter are less than $20,000, any excess shall be repaid to the Company.
(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, $20,000 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
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<PAGE>
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 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 Eckert, Seamans,
Cherin & Mellot LLC, counsel to the Company, dated the Closing Date, or Over
allotment Closing Date,
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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;
(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
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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 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
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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
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; and
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(xiv) Jeremy's Microbatch Ice Creams LLC has become a wholly owned
subsidairy of the Company upon the terms described in the Prospectus and the
former members of Jeremy's Microbatch Ice creams LLC has received not more
than 1,800,000 shares of Common Stock of the Company in exchange for all the
membership interests.
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 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.
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(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 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;
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<PAGE>
(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.
(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 BDO Seidman LLP.
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<PAGE>
(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 September 30, 1999 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 September 30, 1999 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;
(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
27
<PAGE>
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 BDO Seidman LLP, 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).
(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.
28
<PAGE>
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 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.
29
<PAGE>
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 (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
30
<PAGE>
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 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
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<PAGE>
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 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
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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.
(c) In addition to the foregoing, in the event that BlueStem Capital
Partners II L.P. (or its affiliates) fail to purchase 200,000 shares in the
Offering at the initial public offering price, then the Underwriter shall
have the right to terminate the Offering and this Agreement.
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.
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
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<PAGE>
exclusively in ______________, or in the United States District Court
for the District of Philadelphia PA , (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 District of
Philadelphia PA 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
United States District Court for the District of Philadelphia PA, 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
Delaware 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.
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<PAGE>
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.
[remainder of page intentionally left blank]
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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
36
JEREMY'S MICROBATCH ICE CREAMS, INC.
UNDERWRITER'S WARRANT AGREEMENT
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of __________, 2000 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 $.01 par
value (the "Common Stock") of the Company at a public offering price of $6.00
per share (the "Shares"); and
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 $8.70 per share (145% 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
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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 , 2001 [one year after effective date] until 5:30 P.M., New York time,
on , 2004 [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 $8.70 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.
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
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(but not as to fractional shares of Common Stock underlying the Underwriter's
Warrants). In the case of 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
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.
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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 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 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
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issuance and delivery of any such certificates in a name other than that of the
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.
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, at any
time, except to members of the Selling Group, if any, and bona fide officers of
the Underwriter and the Selling Group (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 $8.70 per Share. The exercise price shall be adjusted from time
to time in accordance with the provisions of Section 8 hereof.
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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.
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
__________, 2001 (one (1) year from the Effective Date), through and including
__________, 2005 (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, 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
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(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.
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 , 2001 (one (1) year from the
Effective Date) through and including , 2005 (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, 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
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registered Holders of the Underwriter's Warrants and Shares within ten (10) days
from the date of the receipt of any such registration request.
(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 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
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the Company on the expiration of each 90-day and 30-day period by mailing
certificates for 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 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
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registration statement filed pursuant to Section 7.3 hereof is effective, the
Company shall have the 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 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 blue sky fees and expenses.
The Holder(s) will pay all
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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 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
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same extent and with 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
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.
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(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 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 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
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Underwriter's Warrants and may, at their option, require that any or all the
representations, warranties 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 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
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Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Prices.
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 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:
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(a) Upon the issuance or sale of the Underwriter's Warrants or Shares
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 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
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interests shall be 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 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
18
<PAGE>
(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
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 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
holders of Underwriter's Warrant Certificates (other than the Underwriter) in
order
19
<PAGE>
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
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 shall be legal and
binding upon the party so
20
<PAGE>
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.
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 or 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.
21
<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:
22
<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, _____________, 2005
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
________________, 2001 [one year from the effective date of the offering] until
5:30 p.m. New York time on _____________, 2005 [five years from the effective
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
1
<PAGE>
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
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.
2
<PAGE>
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.
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
3
<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)
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 16, 1999 relating to the
financial statements of Jeremy's Microbatch Ice Creams, LLC, 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.
/s/ BDO SEIDMAN, LLP
--------------------
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
January 28, 2000
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 124,129
<SECURITIES> 0
<RECEIVABLES> 76,721
<ALLOWANCES> 0
<INVENTORY> 111,945
<CURRENT-ASSETS> 338,427
<PP&E> 83,015
<DEPRECIATION> 6,735
<TOTAL-ASSETS> 893,852
<CURRENT-LIABILITIES> 1,214,678
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (345,193)
<TOTAL-LIABILITY-AND-EQUITY> 893,852
<SALES> 1,197,698
<TOTAL-REVENUES> 1,197,698
<CGS> 876,136
<TOTAL-COSTS> 3,252,145
<OTHER-EXPENSES> 18,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,348
<INCOME-PRETAX> (2,110,611)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,110,611)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (2,110,611)
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