Beckman, Millman & Sanders, LLP
116 John Street
New York, NY
10038
----------------------
Telephone (212) 406 4700
Telecopier (212) 406 3750
May 28, 1998
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D.C.
20549
Re: Eat at Joe's, Ltd
File no. 33-20111
Gentlemen:
We are filing herewith a registration statement on Form SB-2 on behalf of our
client, Eat at Joe's, Ltd.
We are aware that the audited financial statements contained therein are of a
date (December 31, 1997) 135 days prior to the date of this filing. The Company
has filed with the Commission Form 10-Q for the quarter ended March 31, 1998.
By amendment, the registration statement will be properly updated to comply with
Regulation S-X. Please be advised that the issuer plans no distribution of the
prospectus contained in the registration statement in its present form.
Cordially,
BECKMAN, MILLMAN & SANDERS,LLP
by:
James Eisberg
As filed with the Securities and Exchange Commission on May ____, 1998
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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EAT AT JOE'S, LTD
(Name of Small Business Issuer in its Charter)
DELAWARE 5812 75-2636283
(State or other jurisdiction (Primary standard industrial (I.R.S Employer
of incorporation) classification code number) (Identification no.)
670 WHITE PLAINS ROAD
SCARSDALE, NEW YORK 10583
(914) 725-2700
(Address and Telephone Number of Principal Executive Offices)
JOSEPH FIORE, CHIEF EXECUTIVE OFFICER
EAT AT JOE'S, LTD.
670 WHITE PLAINS ROAD
SCARSDALE, NEW YORK 10583
(914) 725-2700
(Name, Address, and Telephone Number of Agent For Service)
Copies to:
JAMES EISBERG, ESQ
BECKMAN, MILLMAN & SANDERS, LLP
116 JOHN STREET, 13TH FLOOR
NEW YORK, NEW YORK 10038
(212) 406 4700
FAX (212) 406 3750
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proposed Proposed Max.
Title of Each Class Maximum Offering Aggregate Amount of
of Securities Amount to be Price per Offering Registration
to be registered registered(1) Security Price(1) fee
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Warrants
188,000 $ .01 $ 1,880 $ 1
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Common Stock
$.0001 par value
underlying Warrants 256,000(2) $3.00 $ 768,000 $ 227
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Common Stock $.0001
par value issuable
upon conversion of
outstanding Convertible
Preferred Stock 2,500,000(3) $3.00 $7,500,000 $2,213
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Total $8,269,880 $2,441
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Pursuant to Rule 415 under the Securities Act of 1933, as amended, this
registration statement also covers such additional securities as may become
issuable upon exercise of warrants issued to J. P. Carey Securities, Inc.,
(and their designees) who served as agent for the placement of the
Company's securities in March and May, 1998
(3) Plus such indeterminate additional number of shares as may be issuable
pursuant to adjustment provisions of such securities.
------------------------
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.
(ii)
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<PAGE>
EAT AT JOE'S, LTD
CROSS REFERENCE SHEET
PURSUANT TO RULE 404
ITEM NUMBER IN
FORM SB-2 AND TITLE OF ITEM LOCATION IN PROSPECTUS
PROSPECTUS
- ---------------------------------------------------
Item 1. Front of Registration Statement and
Outside Front Cover of Prospectus....... Cover Page
Item 2. Inside Front and Outside Cover Pages
of Prospectus .......................... Inside Front and Outside
Cover Pages of Prospectus
Item 3. Summary Information and Risk Factors..... Prospectus Summary; The
Company; Risk Factors
Item 4. Use of Proceeds.......................... Not Applicable
Item 5. Determination of Offering Price.......... Outside Front Cover Page;
Price Range of Common
Stock
Item 6. Dilution................................. Not Applicable
Item 7. Selling Security Holders................. Principal and Selling
Shareholders
Item 8. Plan of Distribution..................... Principal and Selling
Shareholders
Item 9. Legal Proceedings........................ Business
Item 10. Directors, Executive Officers, Promoters
and Control Persons..................... Management
Item 11. Security Ownership of Certain Beneficial
Owners and Management................... Principal and Selling
Shareholders
Item 12. Description of Securities................ Description of Securities
Item 13. Interest of Named Experts and Counsel.... Legal Matters; Experts
Item 14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Management
Item 15. Organization Within Last Five Years...... Certain Transactions
Item 16. Description of Business.................. The Company; Business
(iii)
<PAGE>
Item 17. Management's Discussion and Analysis or
Plan of Operation....................... Management's Discussion
and Analysis of Financial
Condition and Results of
Operations
Item 18. Description of Property.................. Business
Item 19. Certain Relationships and Related
Transactions............................ Certain Transactions
Item 20. Market for Common Equity and Related
Stockholder Matters..................... Outside Front Cover Page
of Prospectus; Risk
Factors
Item 21. Executive Compensation................... Management
Item 22. Financial Statements..................... Financial Statements
Item 23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.............................. Not Applicable
(iv)
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION; DATED ____________, 1998
Eat at Joe's Logo
EAT AT JOE'S, LTD
_____________ Shares of Common Stock
__________________ shares of Common Stock of Eat at Joe's, Ltd. ("Company")
are being sold ("Offering") by certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any proceeds from the sale of the
shares by the Selling Shareholders. See "Principal and Selling Shareholders."
The Selling Shareholders may be deemed to be "underwriters" as defined in
the Securities Act of 1933, as amended ("Securities Act"). If any broker-dealers
are used by the Selling Shareholders, any commission paid to broker-dealers and,
if broker-dealers purchase any Selling Shareholders Common Stock as principals,
any profits received by such broker-dealers on the resale of the Selling
Shareholders Common Stock may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any profits realized by the
Selling Shareholders may be deemed to be underwriting commissions.
The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol JOES. The closing bid price for the Common Stock on __________ , 1998 as
reported by the OTC Bulletin Board was $__________ per share. See "Price Range
of Common Stock."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE ARE SPECULATIVE SECURITIES.
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Proceeds to Selling
Price to Public Underwriting Discount Stockholders
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Per Share $--------- Not Applicable $---------
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Total $--------- Not Applicable $---------
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The date of this Prospectus is_________________, 1998.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes no exercise of the Warrants referred to herein.
Investors should carefully consider the information set forth under the caption
"Risk Factors."
THE COMPANY
The business of Eat at Joe's, Ltd. (the "Company") is to develop, own and
operate theme restaurants called "Eat at Joe's(R)." The Company presently owns
and operates three restaurants located in Philadelphia, Pennsylvania, Cherry
Hill, New Jersey, and Vorhees, New Jersey ("Existing units"). The Company is
planning to open nine additional restaurants before the end of 1998. All these
restaurants will be located within two hours from the Company's operation's
center in Cherry Hill, New Jersey. All restaurants will be located in high
traffic locations. The restaurants will be modest priced restaurants catering to
the local working and residential population rather than as a tourist
destination.
The restaurants will be decorated in a 1950's diner style. Each restaurant
will offer three meals a day from an extensive 50's diner style menu including:
eggs and hot cakes for breakfast; soup, sandwiches and salads for lunch;
burgers, meat loaf and chicken entrees for dinner. All units will offer take out
service.
The Company opened its 550 square foot Philadelphia location ("Shops at
Penn") in November 1997, 600 square foot Cherry Hill location in December 1997
and 470 square foot location in Vorhees, New Jersey in May, 1998. All the
restaurants are located in food courts in malls with common seating provided by
the mall operator.
The Company was incorporated in January 1988 as a Delaware corporation.
Through December 1992 it engaged in businesses unrelated to the present
restaurant business. See Note 1 to Consolidated Financial Statements, page F-8.
The Company was inactive from December 1992 through January 1996 when its
shareholders adopted a plan of reorganization and merger with E.A.J. Holding
Co., Inc. and subsequently began development of its present business. The
Company's executive offices are located at 670 White Plains Road, Scarsdale, New
York 10583 and its telephone number is 914 725 2700. The Company's operation's
office is located at 1415 Route 70 East, Suite 412, Cherry Hill, New Jersey
08034
THE OFFERING
Common Stock Offered by the Selling Stockholders..........................shares
Common Stock to be outstanding after the Offering.........................shares
OTC Bulletin Board Symbol.................................................JOES
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
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Fiscal Years Ended December 31
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1993(1) 1994(1) 1995(1) 1996 1997
------- ------- ------- ---------- ------------
Income Statement Data:
Net sales $ -- $ -- $ -- $ -- $ 84,781
Gross profit -- -- -- -- 27,926
Operating loss -- -- -- (14,762) (207,218)
Other expense, net -- -- -- (3,938) (4,304)
---------- ------------
Loss before inc. taxes -- -- -- (18,700) (211,522)
Income taxes -- -- -- -- --
Net Loss $ -- $ -- $ -- $ (18,700) $ (211,522)
Per Share Data
Net loss $ -- $ -- $ -- $ -- $ (0.02)
Weighted average
shares outstanding 313,973 313,973 313,973 6,535,247 11,729,107
December 31, 1997
Actual As Adjusted(2)
Balance Sheet Data:
Working Capital $ (1,070,974) $(1,070,974)
Total Assets 2,314,972 2,314,972
long-term debt - -
Shareholders' equity 959,815 959,815
- -----------------------
(1) The Company was inactive during 1993, 1994 and 1995
(2) Reflects the consummation of the offering and the application of the
estimated net proceeds thereof as if the offering had occurred at December 31,
1997.
4
<PAGE>
RISK FACTORS
An investment in the Common Stock of the Company offered hereby is highly
speculative and involves a high degree of risk. Investors could lose their
entire investment. Prospective investors should carefully consider the following
factors, along with the other information set forth in this Prospectus, in
evaluating the Company, its business and prospects before purchasing the Common
Stock.
LACK OF PROFITABILITY; LACK OF OPERATING HISTORY
The Company opened its first restaurant in November 1997 and second in
December 1997. The Company had a loss of $211,522 for the year ended December
31, 1997. The Company had a working capital deficit of 1,070,974 and a retained
earnings deficit of $1,288,757 at December 31, 1997. Prior to the opening of its
Philadelphia location ("Shoppes at Penn'), the Company had no operations or
revenues. Accordingly, the Company's operations are subject to all of the risks
inherent in the establishment of a new business enterprise, including the lack
of operating history. The likelihood of success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the establishment of any
company. There can be no assurance that future operations of such restaurants,
or any future restaurants, will be profitable. Future revenues and profits, if
any, will depend upon various factors, including the market acceptance of the
Company's 50's diner decor concept, the quality of restaurant operations, and
general economic conditions. Frequently, restaurants, particularly
theme-oriented restaurants, experience a decline of revenue growth or of actual
revenues as the restaurant's "initial honeymoon" period expires and consumers
tire of the related theme. There is no assurance that the Company can operate
profitably or that it will successfully implement its expansion plans, in which
case the Company will continue to be dependent on the revenues of the Existing
Units. Furthermore, to the extent that the Company's expansion strategy is
successful, the Company must manage the transition to multiple site operations,
higher volume operations, the control of overhead expenses and the addition of
necessary personnel.
LIMITED MANAGEMENT EXPERIENCE/NEED FOR ADDITIONAL MANAGEMENT
The success of the Company will depend upon the Company's ability to
attract and retain a highly qualified management team. Joseph Fiore and Andrew
Cosenza, Jr., the Company's Chairman and President respectively, each have over
15 years experience in the multi-unit restaurant business. The Company will also
need to hire other corporate level and management employees to help implement
and operate its expansion plans, including a chief financial officer, retail
5
<PAGE>
leasing specialist and construction coordinator. The failure to obtain, or
delays in obtaining, key employees could have a material adverse effect on the
Company. See "Management."
LIMITED BASE OF OPERATIONS
The Company currently operates only 3 restaurants and plans to open 9
additional restaurants in 1998. The combination of the relatively small number
of locations and the significant investment associated with each new unit may
cause the operating results of the Company to fluctuate significantly and
adversely affect the profitability of the Company. Due to this relatively small
number of current and planned locations for the current year, poor operating
results at any one unit or a delay in the planned opening of a unit could
materially affect the profitability of the entire Company. Future growth in
revenues and profits will depend to a substantial extent on the Company's
ability to increase the number of its restaurants. Additionally, the Company's
history does not provide any basis for prediction as to whether individual units
will tend to show increases or decreases in comparable unit sales.
LIMITED FINANCIAL RESOURCES; NEED FOR ADDITIONAL FINANCING
The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain substantial equity capital to
finance the development of additional restaurants. During the remainder of this
year, the Company will seek to raise $10,000,000 by the sale of equity
securities or by borrowing. There is no assurance that the Company will be
successful in this financing effort. The proceeds("New Financings"), if obtained
will provide the Company with the financing required to develop and open 9
additional restaurants and for working capital purposes. The total cost of
developing the Shops at Penn unit was approximately $195,000, which included
$125,000 for the design and construction, $50,000 for equipment, furniture and
fixtures, and $20,000 for other costs. The total cost of developing the Cherry
Hill unit was approximately $215,000, which included $140,000 for the design and
construction, $55,000 for equipment, furniture and fixtures, and $20,000 for
other costs. The Company estimates that the costs of developing 9 additional
restaurants presently planned for the remainder of this calendar year will be
approximately $5,000,000. Although the Company estimates that the proceeds from
the New Financings and existing funds of the Company will be sufficient to
develop and open 9 additional units, there can be no assurance that such
facilities can be developed at such estimated costs. If the proceeds of the New
Financings are not sufficient to develop such units, the expansion strategy of
the Company will be adversely affected. If additional funds are required, there
can be no assurance that any additional funds will be available on terms
acceptable to the Company or its shareholders. New investors may seek and obtain
substantially better terms than were granted its present investors and the
issuance of such securities would result in dilution to the existing
shareholders. Furthermore, as the Company prepares to open additional units, it
will expend a relatively higher amount on administrative expenses than would a
mature Company with such operations.
6
<PAGE>
EXPANSION STRATEGY
The Company's ability to open and successfully operate additional units
will also depend upon the hiring and training of skilled restaurant management
personnel and the general ability to successfully manage growth, including
monitoring restaurants and controlling costs, food quality and customer service.
While the Company's present senior management has experience developing and
operating multi-unit facilities, the Company anticipates that the opening of
additional units will give rise to additional expenses associated with managing
operations located in multiple markets. Furthermore, the Company believes that
competition for unit-level management has become increasingly intense as
additional restaurant chains expand to new markets. Achieving consumer awareness
and market acceptance will require substantial efforts and expenditures by the
Company. An extraordinary amount of management's time may be drawn to such
matters and negatively impact operating results. There can be no assurance that
the Company will be able to enter into any other contracts for development of
additional units on terms satisfactory to the Company. Accordingly, there can be
no assurance that the Company will be able to open new units or that, if opened,
those units can be operated profitably. See "Business -- Expansion Strategy."
THE RESTAURANT INDUSTRY AND COMPETITION
The restaurant industry is highly competitive with respect to price,
service, quality and location and, as a result, has a high failure rate. There
are numerous well-established competitors, including national, regional and
local restaurant chains, possessing substantially greater financial, marketing,
personnel and other resources than the Company. There can be no assurance that
the Company will be able to respond to various competitive factors affecting the
restaurant industry. The restaurant industry is also generally affected by:
changes in consumer preferences, national, regional and local economic
conditions, and demographic trends. The performance of restaurant facilities may
also be affected by factors such as traffic patterns, demographic
considerations, and the type, number and location of competing facilities. In
addition, factors such as inflation, increased labor and employee benefit costs,
and a lack of availability of experienced management and hourly employees may
also adversely affect the restaurant industry in general and the Company's
restaurants in particular. Restaurant operating costs are further affected by
increases in the minimum hourly wage, unemployment tax rates and similar matters
over which the Company has no control. Finally, by the nature of its business,
the Company would be subject to potential liability from serving contaminated or
improperly prepared food.
CONCEPT EVOLUTION
The Company presently intends that most of its future restaurants will
feature the 50's diner decor similar to that in the Existing Units. The
restaurants will be positioned to offer an "every day" type of dining
opportunity, i.e. a place where individuals who live and work nearby can
comfortably enjoy a wide variety of high quality fresh food at affordable
prices. However, this concept is evolving and a number of factors could change
this theme as applied in different locations. These factors include demographic
7
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and regional differences, locations that have more or less traffic than the
areas in which those units are located, type of available floor space, and the
availability of specialty items such as antiques. Accordingly, future units
could be larger or smaller than those units, could vary in the mix of
retail/restaurant operations, and could have differences in the application of
the 50's diner theme.
LONG-TERM, NON-CANCELABLE LEASES
In carrying out its plan to develop, own and operate theme restaurants, the
Company will enter into leases which are non-cancelable and range in term from 8
to 15 years. Any right to sublet or assignment requires approval of the
landlord. If a restaurant unit does not perform at a profitable level, and the
decision is made to close the restaurant, the Company may nevertheless be
committed to perform its obligations under the applicable lease, which would
include, among other things, payment of the base rent for the balance of the
respective lease term. If such a restaurant closing were to occur at one of
these locations, and the Company was unable to sublet the premises, the Company
would lose a unit without necessarily receiving an adequate return on the its
investment. See "Business -- Property and Unit Locations" and "Certain
Transactions."
TRANSACTIONS WITH MANAGEMENT; CONFLICTS OF INTEREST
Anthony Cosenza, Jr., the Company's President is the owner of Cozco
Management Corp., a mall food court operating company in the Philadelphia area.
Cozco operates 24 food court restaurant units, none which carry out the concept
of the Company's operations. In the opinion of management, none of the Company's
existing or planned locations compete with the Cozco locations. The Company's
operations office consists of 3,000 square feet and shares space with Cozco in
Cherry Hill, New Jersey. The Company pays Cozco a monthly rent of $3,786 on a
month to month tenancy. See "Certain Transactions."
CONTROL OF THE COMPANY; DEPENDENCE ON KEY PERSONNEL
Following this Offering, Joseph Fiore and Andrew Cosenza Jr., will control
approximately 39 % of the Company's Common Stock. Therefore, Messrs. Fiore and
Cosenza will have the ability to direct its operations and financial affairs and
to substantially influence the election of members of the Board of Directors of
the Company. The loss of the services of Messrs. Fiore and/or Cosenza could have
a substantial adverse effect on the Company's ability to achieve its objectives.
The Company currently has no key man insurance on either Mr. Fiore or Mr.
Cosenza.
GOVERNMENT REGULATION
The restaurant business is subject to various federal, state and local
government regulations, including those relating to the sale of food and
alcoholic beverages. The failure to maintain food and liquor licenses would have
a material adverse effect on the Company's operating results. In addition,
8
<PAGE>
restaurant operating costs are affected by increases in the minimum hourly wage,
unemployment tax rates, sales taxes and similar costs over which the Company has
no control. Many of the Company's restaurant personnel will be paid at rates
based on the federal minimum wage. Recent increases in the minimum wage are not
expected to materially impact the Company's labor costs. The Company will be
subject to "dram shop" statutes in certain states, including New Jersey and
Pennsylvania which generally allow a person injured by an intoxicated person to
recover damages from an establishment that served alcoholic beverages to such
intoxicated person. The Company has obtained liability insurance against such
potential liability.
TRADEMARKS
The Company has been granted a servicemark registration for the name Eat at
Joe's. There can be no assurance that the Company can protect such mark and
design against prior users in areas where the Company conducts operations. There
is no assurance that the Company will be able to prevent competitors from using
the same or similar marks, concepts or appearance.
ABSENCE OF DIVIDENDS
At the present time, the Company intends to use any earnings which may be
generated to finance further growth of the Company's business. Accordingly,
investors should not purchase the shares with a view towards receipt of cash
dividends from any Shares.
RISK OF LOW-PRICED STOCKS
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of
1934 ("Exchange Act") impose sales practice and disclosure requirements on
certain brokers and dealers who engage in certain transactions involving " a
penny stock."
Currently the Company's Common Stock is considered a penny stock for
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed on certain brokers and dealers could impede the sale of the
Company's Common Stock in the secondary market. In addition, the market
liquidity for the Company's securities may be severely adversely affected, with
concomitant adverse effects on the price of the Company's securities.
Under the penny stock regulations, a broker or dealer selling penny stock
to anyone other than an established customer or "accredited investor"
(generally, an individual with net worth in excess of $1,000,000 or annual
incomes exceeding $200,000, or $300,000 together with his or her spouse) must
make a special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the broker
or dealer or the transaction is otherwise exempt. In addition, the penny stock
regulations require the broker or dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission ("SEC") relating to the penny stock market, unless the
broker or dealer or the transaction is otherwise exempt. A broker or dealer is
9
<PAGE>
also required to disclose commissions payable to the broker or dealer and the
registered representative and current quotation for the securities. In addition,
a broker or dealer is required to send monthly statements disclosing recent
price information with respect to the penny stock held in a customer's account
and information with respect to the limited market in penny stocks.
SHARES ELIGIBLE FOR FUTURE SALE
The sale, or availability for sale, of substantial amounts of Common Stock
in the public market subsequent to this offering may adversely affect the
prevailing market price of Common Stock and may impair the Company's ability to
raise additional capital by the sale of its equity securities. See "Description
of Securities -- Shares Eligible for Future Sale."
POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
The Company is subject to Delaware statutes regulating business
combinations ,tender offers and proxy contests, which may hinder or delay a
change in control of the Company. See "Description of Securities."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, as further adjusted to give effect to the sale of the Common
Stock offered hereby and the anticipated application by the Company of the
proceeds therefrom. See the Consolidated Financial Statements.
March 31, 1998
--------------
Actual As adjusted(1)
------ --------------
Short-term debt:
Notes payable and shareholder loans $1,668,570 $1,668,570
---------- ----------
Long-term debt - -
Shareholder's equity:
Preferred Stock, $.0001 par value,
10,000,000 shares authorized, 115 shares
issued and outstanding - -
Common Stock, $.0001 par value,
50,000,000 shares authorized,
12,733,805 issued and outstanding; 1,273 1,273
Additional paid-in capital 3,041,929 3,041,929
Retained deficit (1,642,167) (1,642,167)
---------- ----------
Total shareholders' equity 1,401,035 1,041,035
--------- ---------
Total capitalization $3,069,605 $3,069,605
========== ==========
10
<PAGE>
(1) Does not include 1,060,000 shares of Common Stock issuable upon exercise of
Warrants at an exercise price of $1.00 per share; 102,000 shares issuable
upon the exercise of Warrants at an exercise price of $1.49 per share; and
154,000 shares issuable at an exercise price of $1.79 per share.
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of income date set forth below with respect to
the year ended December 31, 1996 and 1997, and the consolidated balance sheet
data at December 31, 1996 and 1997, are derived from, and are qualified by
reference to, the audited consolidated financial statements included elsewhere
in this prospectus. The consolidated statement of income data for the years
ended December 31, 1993, 1994 and 1995, and the consolidated balance sheet data
at December 31, 1993, 1994 and 1995 are derived from audited consolidated
financial statements of the Company and not included herein. The data presented
below are qualified bay reference to Consolidated Financial Statement included
elsewhere in this prospectus and should be read in conjunction with such
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
- --------------------------------------------------------------------------------
Fiscal Years Ended December 31
- --------------------------------------------------------------------------------
1993(1) 1994(1) 1995(1) 1996 1997
------- ------- ------- ---------- ------------
Income Statement Data:
Net sales $ -- $ -- $ -- $ -- $ 84,781
Gross profit -- -- -- -- 27,926
Operating loss -- -- -- (14,762) (207,218)
Other expense, net -- -- -- (3,938) (4,304)
---------- ------------
Loss before inc. taxes -- -- -- (18,700) (211,522)
Income taxes -- -- -- -- --
Net Loss $ -- $ -- $ -- $ (18,700) $ (211,522)
Per Share Data
Net loss $ -- $ -- $ -- $ -- $ (0.02)
Weighted average
shares outstanding 313,973 313,973 313,973 6,535,247 11,729,107
11
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- --------------------------------------------------------------------------------
Fiscal Years Ended December 31
- --------------------------------------------------------------------------------
1993(1) 1994(1) 1995(1) 1996 1997
------- ------- ------- ---------- ------------
Balance Sheet Data:
Working Capital $ - $ - $ - $ 100,247 $ (1,070,974)
Total Assets - - - 291,072 2,314,974
Long-term debt - - - - -
Shareholders' equity - - - 271,337 959,815
- ---------------
(1) The Company was inactive during 1993, 1994 and 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was re-activated in January 1997 to develop, own and operate
1950's style diner style restaurants featuring popular dishes at affordable
prices under the name "Eat at Joe's(R)." The Company opened its first restaurant
in Cherry Hills, New Jersey in November 1997, its second restaurant in
Philadelphia in December 1997 and third restaurant in Vorhees, New Jersey in
May, 1998. Prior to opening these restaurants the Company had no revenues and
its activities were devoted solely to development. The Company is developing 9
additional restaurants to open during the current calendar year.
Future revenues and profits, if any, will depend upon various factors,
including market acceptance of the 1950's diner style concept, the quality of
the restaurant operations, the ability to expand to multi-unit locations and
general economic conditions. The Company's present sources of revenue are
limited to its Existing Units. There can be no assurances the Company will
successfully implement its expansion plans, in which case it will continue to be
dependent on the revenues from the Existing Units. The Company also faces all of
the risks, expenses and difficulties frequently encountered in connection with
the expansion and development of a new and expanding business. Furthermore, to
the extent that the Company's expansion strategy is successful, it must manage
the transition to multiple site operations, higher volume operations, the
control of overhead expenses and the addition of necessary personnel.
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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996.
The Company had no revenues in 1996 except for receipt of $70,000 received
from the sale of securities and its activities were devoted solely to
development. Revenues from operations commenced in November 1997 with the
opening of the Shoppes at Penn restaurant. Accordingly, comparisons with periods
prior to November 1997 are not meaningful.
Total Revenues -For the year ended December 31, 1997, the Company had total
sales of $85,000 compared with no sales for the previous year.
Costs and Expenses - For the year ended December 31, 1997, the Company had a net
loss of $211,522 compared with a net loss of $18,700 for the prior year. The net
loss for 1997 is largely attributable to additional expenses incurred as the
Company increases its Corporate overhead structure for the development of
additional locations supported by revenues from primarily two operating units
which were open for business for 6 weeks and 3 weeks respectively. Given the
limited operations which took place in 1997, any discussion of operating
expenses as a percentage of sales would not be meaningful and might be
misleading.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its capital requirements through the sale of its Common
Stock and borrowings. In May of 1996, the Company sold 14,455 shares of its
Common Stock for $10,000. In November 1996, the Company completed the sale of
6,000,000 shares of its Common Stock and 2,000,000 warrants for $60,000 pursuant
to a Reg. D-504 offering. In 1997, $940,000 was raised through the exercise of
940,000 warrants. Also in 1997, $995,000 was borrowed including $690,000 from
officers. The net proceeds to the Company were used for additional unit
development and working capital.
For the year ended December 31, 1996, the Company used $35,000 in cash flow
for operating activities and during the year ended December 31, 1997, the
Company provided $98,000 in cash flow for operating activities.
Since the Company's re-activation in January, 1997 , the Company's
principal capital requirements have been the funding of (i) the development of
the Company and its 1950's diner style concept, (ii) the construction of its
Existing Units and the acquisition of the furniture, fixtures and equipment
therein and (iii) towards the development of additional units as described
below. Total capital expenditures for the Cherry Hill and Philadelphia Units
were approximately $210,000 and $195,000, respectively.
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The Company is developing additional restaurants in the Philadelphia/Cherry
Hill area and other areas. The Company had incurred approximately $1,000,000 in
the development of these units as of April 30, 1998. When completed, the Company
estimates that capital expenditures for these additional units will be
approximately $9,200,000. The units are expected to be opened by the end of
1998.
In addition to construction in progress, the Company has capitalized
approximately $104,000 of direct costs relating to the Cherry Hill and
Philadelphia units and under construction. It is the Company's policy to
amortize the direct costs of hiring and training the initial work force and
other direct costs associated with opening a new unit over a twelve-month
period, beginning when the facility is opened, if the recoverability of such
costs can be reasonably assured.
After the completion of these expansion plans, future development and
expansion will be financed through cash flow from operations and other forms of
financing such as the sale of additional equity and debt securities, capital
leases and other credit facilities. There are no assurances that such financing
will be available on terms acceptable or favorable to the Company.
BUSINESS
OVERVIEW
The business of Eat at Joe's, Ltd. (the "Company") is to develop, own and
operate theme restaurants called "Eat at Joe's(R)". The Company presently owns
and operates three restaurants located in Cherry Hill and Vorhees, New Jersey
and Philadelphia, Pennsylvania, respectively. The Company is planning to open 9
additional restaurants before the end of 1998. All these restaurants generally
will be located within a two hour drive of the Company's operation's center in
Cherry Hill, New Jersey. All restaurants will be located in high traffic
locations such as shopping malls, airports and densely populated settings. The
Company will utilize a cluster strategy- i.e. grouping sites geographically in
order to maximize both the chain's exposure, as well as management and marketing
efficiency. The restaurants will be modest priced restaurants catering to the
local working and residential population rather than as a tourist destination.
THE EAT AT JOE'S CONCEPT AND STRATEGY
Concept Development
The Company's theme is promoted with establishing restaurants which
are decorated with a 1950's style diner concept featuring a variety of popular
breakfast, lunch and dinner dishes. The restaurants will be three-meal a day
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operations, emphasize fresh ingredients, affordable prices, consistent quality
and a fun and visually appealing atmosphere. The restaurants will seek to
attract patrons who live and work nearby and on a repeat basis, can comfortably
enjoy a wide variety of fresh foods at affordable prices.
Mr. Fiore previously established nine restaurant locations featuring a
traditional American menu of full breakfasts, hamburgers, fries and hot dogs and
ice cream sundaes. The locations were subsequently closed by Mr. Fiore to
reformulate the concept to appeal to a wider market. Through Cozco, Mr. Consenza
has fifteen years experience in restaurant site selection, lease negotiation and
management.
In identifying a potential market niche, Messrs. Fiore and Cosenza have
studied the development of certain restaurants that have capitalized on the
growing trend of home replacement meals taking the place of home cooked meals.
The Company hopes to capitalize on this trend, both for dine-in and take-out
meals. The Company believes that the comfortable, appealing decor of its
restaurants and the universal appeal of home type cooking will be significant
advantages in its attempts to penetrate this niche market.
Competitive Differentiation
The Company seeks to establish a niche in between a fast food restaurant
and a traditional restaurant. The Company's restaurants provide a menu offering
fresh cooked food with rapid meal service at affordable prices. The Company
seeks to attract customers who are tired of standard fast food and desire a
quick, quality, modest priced meal not being served by existing casual
restaurants. While patrons will be served faster at a fast food franchise, Eat
at Joe's restaurants will serve a meal in a foodcourt in approximately 3 minutes
from the time of order. Further, the menu will not include items which requires
complicated preparation or lengthy cooking time.
Currently there is no chain of restaurants in the Philadelphia area
offering the atmosphere and food selection at that of Eat at Joe's. On an
individual basis, traditional diners do offer similar atmosphere. The Company
will seek to expand penetration by multiple restaurant openings in a certain
area rather than on a one restaurant at a time expansion. Should competitors
emerge, the Company's believes its proposed market penetration will provide it
with a competitive advantage. Many of the Company's planned restaurants are to
be located in malls and other venues where most of the competition are not theme
restaurants.
The Menu
The restaurants' decor notwithstanding, the Company's primary focus is its
food where it seeks to attract repeat business. Breakfasts will include eggs,
waffles and cereal; lunches, soups, salads, burgers and sandwiches and dinner,
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entrees including turkey, meat loaf and chicken. Most of the baked goods offered
for sale will have been baked on the premises. Generous portions will be
provided to diners. Lunch entrees range from $5.95 to $8.95 and dinner entrees
from $7.95 to $11.75. The average guest check for the Company's opened units is
approximately $6.00 at the present time
The Company intends to obtain a beer and wine license for some of its
restaurants, with the intention that such beverages will be served along with
meals. The Company does not intend to emphasize sales of beer and wine apart
from meals in most of its restaurants, primarily because the Company feels that
it reduces the number of table turns and therefore profitability.
Food Preparation and Delivery
The Company believes that ease of food preparation and delivery will be one
key to its success. While some restaurants require highly compensated and
extensively trained chefs, the food served at each restaurant is prepared in a
basic process that requires minimal training time and which allows each menu
item to be served with minimal preparation. The Company views this efficient and
effective process as critical for its planned expansion as a chain
PROPERTY AND UNIT LOCATIONS
The Eat at Joe's restaurant concept has been adapted for three versions
requiring difference space arrangements to allow flexibility in site selection
and maximum market penetration. These versions include mall food court units
requiring 350-500 square feet; sit down restaurant requiring 1,500-7,500 square
feet and sit down restaurant with a bar and liquor license requiring 2,500-7,500
square feet.
The following table sets forth certain information about the Company's
existing and planned restaurants:
Approx. Approx. nos. Date Opened or
Location Sq. Footage of seats Planned to Open
Shoppes at Penn 450 600(1) November 15, 1997
Philadelphia, PA (2)
Cherry Hill Mall 600 800(1) December 6, 1997
Cherry Hill, NJ (3)
Echelon Mall 470 600(1) May 9, 1997
Vorhees, NJ (4)
Philadelphia Airport 845 120(1) May, 1998
Philadelphia, PA (5)
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Eat at Joe's Univ. City 4000 160 June, 1998
Philadelphia, PA (6)
Gallery at Market East 2000 100 June, 1998
Philadelphia, PA (8)
Moorestown Mall 3680 150 July, 1998
Moorestown, NJ (7)
Gallery at Harbor Pl. 2530 160 July, 1998
Baltimore, BD (9)
Shoppingtown Mall 2450 600(1) 3rd quarter, 1998
DeWitt, NY (10)
Neshaminy Mall 4500 150 3rd quarter, 1998
Bensalom, PA (11)
Plymouth Meeting Mall 4540 160 3rd quarter, 1998
Plymouth Meeting, PA (12)
Danbury Fair Mall 3020 140 4th quarter, 1998
Danbury, CT (13)
(1) Food Court
(2) Monthly rent $ 1,710; lease expiration date-December, 2008
(3) Monthly rent $ 4,400; lease expiration date-September, 2007
(4) Monthly rent $ 1,950; lease expiration date-January, 2006
(5) Monthly rent $ 7,100; lease expiration date-April, 2007
(6) Monthly rent $ 6,667; lease expiration date-December, 2008
(7) Monthly rent $ 6,250; lease expiration date-June, 2012
(8) Monthly rent $ 4,166; lease expiration date-December, 2007
(9) Monthly rent $ 8,333; lease expiration date-March, 2008
(10) Monthly rent $ 4,166; lease expiration date-December, 2012
(11) Monthly rent $ 7,500; lease expiration date-July 2013
(12) Monthly rent $12,500; lease expiration date-March, 2008
(13) Monthly rent $11,080; lease expiration date-December, 2013
The Company's leases are generally subject to periodic increases in base rent as
well as a percentage of sales during the term of the lease.
The Company's executive offices are located at 670 White Plains Road, Scarsdale,
New York in space leased by the Company's Chairman. The lease expires in April,
2003. The Company pays no rent for its space. The Company's operations office is
located at 1415 Route 70, Cherry Hill, New Jersey in space provided by Cozco
Management Corp.
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EXPANSION STRATEGY
The Company intends to identify sites to locate its restaurants based on a
variety of factors including local market demographics, site viability,
competition and projected economics of each unit. In addition to site selection
criteria, the Company has primarily focused on sites where management has
operating experience through other entities as well as a previous relationship
with the developer/management organization. Initial plans are to continue to
identify and finalize future site opportunities in the Philadelphia/Cherry Hill
area via leases. The Company believes the area can support up to approximately
12 units, and expects to open at least 6 additional units in the
Philadelphia/Cherry Hill area in 1998.
The Company intends to target additional major metropolitan markets to
broaden and enhance the recognition value of the concept. Specific cities for
expansion will be identified and analyzed as to potential compatibility with the
concept. There is no assurance that the Company will be successful in targeting
new areas.
OPERATIONS, MANAGEMENT AND EMPLOYEES
The Company's ability to manage multi-location units will be central to its
overall success. See "Risk Factors -- Limited Management Experience/Need for
Additional Management." While the Company's Chairman and President have
extensive restaurant and multi-unit restaurant experience, the Company
acknowledges that its management must include skilled personnel at all levels.
The Company also intends to hire other corporate level and management employees
to help implement and operate its expansion plans, including a chief financial
officer, retail leasing specialist and construction coordinator. At the unit
level, the Company places specific emphasis on the position of general manager
("General Manager") and seeks employees with significant restaurant experience
and management expertise. The General Manager of each restaurant reports
directly to the President. The Company strives to maintain quality and
consistency in each of its units through the careful training and supervision of
personnel and the establishment of, and adherence to, high standards relating to
personnel performance, food and beverage preparation, and maintenance of
facilities. The Company believes that it will be able to attract high quality,
experienced restaurant and retail management personnel by paying competitive
compensation. Staffing levels vary according to the time of day and size of the
restaurant. In general, each unit has between 8 and 25 employees.
All managers must complete a training program, during which they are
instructed in areas such as food quality and preparation, customer service, and
employee relations. An "Opening Team" spends between 4 and 6 weeks at a new
location training personnel. Management strives to instill enthusiasm and
dedication in its employees, regularly solicits employee suggestions concerning
Company operations, and endeavors to be responsive to employees' concerns. In
addition, the Company has extensive and varied programs designed to recognize
and reward employees for superior performance. As of April 30, 1998, the Company
had approximately 30 employees, 12 of which were full-time. The Company believes
that its relationship with its employees is good.
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PURCHASING
As of the date of this prospectus, only 3 of the Company's units are in
operation. Currently, food is prepared a centralized food commissary. As more
units are opened, each unit's management team will determine the daily
quantities of food items needed and order such quantities from major suppliers
at prices often negotiated directly with the Company's corporate office.
Suppliers for the Eat at Joe's chain will generally be companies with which
management has an ongoing relationship and which has been judged over time to be
reliable. The Company strives to obtain consistent quality items at competitive
prices from reliable sources. Any discontinuance of such favorable pricing could
negatively impact the Company's purchasing abilities. In order to maximize
operating efficiencies and to provide the freshest ingredients for its food
products while obtaining the lowest possible prices for the required quality,
food and supplies will be shipped directly to the restaurants. Perishable food
products will be purchased locally.
MARKETING AND PROMOTION; RETAIL MERCHANDISING
The Company may utilize a variety of marketing materials to inform the
public about the Company's restaurants. These may include:
*radio advertisements describing the Eat at Joe's dining and take out
experience;
*newspaper and local magazine advertisements which will emphasize Eat at
Joe's restaurant openings or site-specific promotional programs;
*retail product catalog featuring a variety of merchandise bearing the Eat
Joe's logo-which can be considered to be a "mobile advertising for the
chain;
*direct mail promotional literature for mailing to households within
driving or walking distance of an Eat at Joe's site;
*trade show booth for shows, conferences and seminars relating to the food
service industry and shopping malls;
*Public relations to promote the Company's individual restaurant sites. In
addition to press releases, management intends to initiate efforts to
develop and have published articles showcasing Eat at Joe's and its theme,
decor, menu and merchandise offerings.
The Company may seek to capitalize on the nostalgia craze by offering 50s
style merchandise at its restaurants and through a catalog. Apparel such as
hats, jackets, T-shirts and sweatshirts bearing the Eat at Joe's logo; gifts and
collectibles, such as 50's music; printed matter and toys and games could be
offered for sale. As all retail merchandise to be sold by the Company would be
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out-sourced on an as-needed basis, the initial investment would no more than
$25,000.
TRADEMARKS
The Company's ability to successfully implement its Eat at Joe's concept
will depend in part upon its ability to protect its servicemark. The Company has
been granted a servicemark registration for the name Eat at Joe's. There is no
assurance that the Company will be able to prevent competitors from using the
same or similar marks, concepts or appearance.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business.
COMPETITION
The food service industry is intensely competitive with respect to food
quality, concept, location, service and price. In addition, there are many
well-established food service competitors with substantially greater financial
and other resources than the Company and with substantially longer operating
histories. The Company believes that it competes with other full-service dine-in
restaurants, take-out food service companies, fast-food restaurants,
delicatessens, cafeteria-style buffets, and prepared food stores, as well as
with supermarkets and convenience stores. Competitors include national,
regional, and local restaurants, purveyors of carry-out food, and convenience
dining establishments.
Competition in the food service business is often affected by changes in
consumer tastes, national, regional, and local economic and real estate
conditions, demographic trends, traffic patterns, the cost and availability of
labor, purchasing power, availability of product, and local competitive factors.
The Company attempts to manage or adapt to these factors, but it should be
recognized that some or all of these factors could cause the Company to be
adversely affected.
REGULATION
Restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire, and other authorities and are also subject to
state and local licensing and regulation of the sale of alcoholic beverages and
food. Difficulties in obtaining or failure to obtain required licenses and
approvals will result in delays in, or cancellation of, the opening of
restaurants. The food and alcoholic beverage licenses are also subject to
suspension or non-renewal if the granting authority determines that the conduct
of the holder does not meet the standards for initial grant or renewal. The
20
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Company believes that it is in compliance with all licensing and other
regulations.
The federal Americans With Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. The Company could
be required to expend funds to modify its restaurants in order to provide
service to or make reasonable accommodations for disabled persons. The Company's
restaurants are currently designed to be accessible to the disabled. The Company
believes it is in substantial compliance with all current applicable regulations
relating to accommodations for the disabled.
PRICE RANGE OF COMMON STOCK
Since October, 1996 the Common Stock of the Company has been traded on the
OTC Bulletin Board under the symbol JOES. The following table sets forth the
closing high and low sales prices, and trading volume for each of the periods
indicated below for the Company's Common Stock:
Year Quarter High Low Volume
(shares)
1996 Fourth (Oct.7 to Dec. 31.) $2.53 $2.00 7,400
1997 First 5.63 4.00 188,300
Second 4.50 2.00 1,037,700
Third 3.50 1.50 1,725,800
Fourth 2.75 0.82 3,864,900
1998 First 2.04 1.06 6,459,000
Second
On ____ 1998, the closing bid price of the Common Stock on the OTC Bulletin
Board was $_________. These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. As of April 30, 1998, there were approximately 358 shareholders of
record of the Common Stock. The Company has never paid or declared any dividends
on its Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings to
fund the development and growth of its business
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
the directors and executive officers of the Company.
NAME AGE POSITION(S) HELD
- ------------------------------- --- -------------------------------
Joseph Fiore................ 37 Chairman of the Board and Chief
Executive Officer, Secretary
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Andrew Cosenza, Jr.......... 29 President, Chief Operating Officer
Director
James Mylock................ 31 Director
Joseph Fiore has been Chairman and Chief Executive Officer since October,
1996. In 1982, Mr. Fiore formed East Coast Equipment and Supply Co., Inc., a
restaurant supply company that he still owns. Between 1982 and 1993, Mr. Fiore
established 9 restaurants (2 owned and 7 franchised) which featured a 1959's
theme restaurant concept offering a traditional American menu. Also in 1993 Mr.
Fiore acquired the Red Rooster Drive-In, a landmark 50's theme restaurant in
Brewster, New York.
Andrew Cosenza, Jr. Has been the President and Chief Operating Officer
since October, 1996. Since 1990 he has been the owner of Cozco Management Corp.,
an operator of 24 mall food court restaurants in the Philadelphia area.
James Mylock has worked with Joseph Fiore in marketing and business
development since graduating from the State University of New York at Buffalo in
1990
EXECUTIVE COMPENSATION
The following table sets forth all cash and non-cash compensation paid by
the Company during the fiscal year ended December 31, 1997 to all officers and
directors as a group.
Number in Group Capacities in Which Served Compensation
All officers and directors
as a group (3
persons)...........................................................$ 12,500
EMPLOYMENT AGREEMENTS
Effective January 1, 1997, both Joseph Fiore and Andrew Cosenza, Jr.
entered into employment agreements with the Company calling for a salary of
$100,000 per year. Given the limited cash available to the Company in 1997, Mr.
Fiore deferred his salary for the year. Mr. Fiore is to receive a salary of
$225,000 for 1998 which may be paid in restricted Common Stock of the Company.
In 1999 he is to receive a salary of $350,000 in cash conditioned on 10 of the
Company's units being operating at the end of the 1998.
In 1997, Mr. Cosenza deferred $87,500 of his $100,000 salary. Mr. Cosenza
is to receive a salary of $225,000 for 1998. In 1999 he is to receive a salary
of $350,000 in cash conditioned on 10 of the Company's units being operating at
the end of the 1998. In addition, the Company will provide Mr. Cosenza with the
use of an automobile.
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Messrs. Fiore and Cosenza were to receive family health insurance coverage
until age 70 and life insurance coverage until age 70 with a death benefit of
$1,000,000 and the use of an automobile with all expenses associated with its
maintenance and operation paid by the Company. Both gentlemen deferred these
benefits until after 1997 except Mr. Cosenza did receive the use of an
automobile for part of 1997 at a cost to the Company of $44,000.
The Company intends to retain other management employees pursuant to
employment and consulting agreements. The Company has no current plans to pay
cash compensation to its directors who are also officers of the Company.
For a one-year period following the Effective Date, the Company will not
grant options to promoters, employees or affiliates of the Company which,
together with options previously granted to such persons, would in the aggregate
exceed 15% of the then outstanding shares of Common Stock.
BOARD OF DIRECTORS
Each of the Company's directors has been elected to serve until the next
annual meeting of shareholders. The Company's executive officers are appointed
annually by the Company's directors. Each of the Company's directors continues
to serve until his or her successor has been designated and qualified. Directors
currently receive no fees.
PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Company's By-laws contain provisions which reduce the potential
personal liability of directors for certain monetary damages and provide for
indemnity of directors and other persons. The Company is unaware of any pending
or threatened litigation against the Company or its directors that would result
in any liability for which such director would seek indemnification or similar
protection.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify directors against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit, or proceeding arising out of the director's
status as a director of the Company, including actions brought by or on behalf
of the Company (stockholder derivative actions). The provisions do not provide
indemnification for liability in proceedings arising out of personal benefit
improperly received or where a person is found liable to the Company. The
Company does not presently provide insurance to its directors although the
Company will attempt to obtain such insurance in the future.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that such
indemnification , in the opinion of the Securities and Exchange Commission, is
against public policy as expressed in the Securities Act and is, therefor,
unenforceable
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CERTAIN TRANSACTIONS
During 1997, Cozco Management Corp., a corporation controlled by the
Company's President, received $546,574 as reimbursement of rent, telephone,
equipment, travel, automotive salaries and other shared expenses. During 1997,
Messrs. Fiore and Cosenza and/or companies controlled by them, paid expenses and
made advances to the Company aggregating $702,922. Repayment of these monies
will be in the form of cash with interest at 6% per annum and/or restricted
Common Stock valued at a 25% discount from market price at the time of the
advance.
On April 1 , 1998, the Company entered into a 12 month agreement with The Wall
Street Group, Inc. ("Wall Street") calling for Wall Street to act as financial
public relations counsel to the Company. The agreement calls for monthly
payments of $5,000 for services rendered and grants an five year option to Wall
Street to acquire 61,350 restricted shares of the Company's Common Stock at the
then market price of $1.63 per share.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 22, 1998, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company, (iv) by all executive officers and directors
of the Company as a group and (v) the Selling Shareholders. See "Description of
Securities". Unless otherwise indicated, each of the following persons has sole
voting and investment power with respect to the shares of Common Stock set forth
opposite their respective names.
Shares Beneficially Shares Shares Beneficially
Owned Before the Being Owned After the
Offering (1) Offered Offering
Beneficial Owner number percent number number percent
Joseph Fiore 2,909,384 20.5 0 2,909,384 20.5
Andrew Cosenza, Jr. 2,662,450 18.7 0 2,662,384 18.7
Sandro Grimaldi 76,336 less than 1 76,336 0 0
Holden Holdings, Ltd. 124,045 less than 1 124,045 0 0
UnionKredit Anstalt 47,710 less than 1 47,710 0 0
Arab Commerce Bank 47,710 less than 1 47,710 0 0
Bonetti Enrico 47,710 less than 1 47,710 0 0
Ailouros, Ltd. 47,710 less than 1 47,710 0 0
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Zooley Services Ltd. 47,710 less than 1 47,710 0 0
Primecap Management 47,710 less than 1 47,710 0 0
Group Ltd.
Fructose Ltd 111,832 less than 1 111,832 0 0
GPS America Fund Ltd. 78,281 less than 1 78,281 0 0
J.P. Carey Securities 136,000 less than 1 136,000 0 0
Jack Augsback & Assoc. 40,000 less than 1 40,000 0 0
LaRocque Trading Group 197,382 1.4 197,382 0 0
L.L.C
Silenus, Ltd. 182,745 1.3 182,745 0 0
Excalibur Ltd. P'ship. 231,477 1.6 231,477 0 0
Executive Officers
and Directors as a
group (3)persons) 5,571,834 39.2 0 5,571,834 39.2
- ---------------------------
(1) The figures represented by this table assume full conversion and exercise of
Convertible Preferred Stock and Warrants owned by each individual or entity.
The Selling Shareholders have advised the Company that sales of the Selling
Shareholder shares may be effected from time to time in transactions (which may
include block transactions) in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at a time of sale, or at negotiated
prices. The Selling Shareholders may effect such transactions by selling shares
directly to purchasers or through broker dealers who may act as agents or
principals. The Selling Shareholders have been advised that they may only effect
sales of the Selling Shareholder shares in certain jurisdictions through
broker-dealers registered in those states. Such broker-dealers may receive
compensation in the form of discounts, concession or commission from the Selling
Shareholders and/or the purchasers of Selling Shareholder shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Shareholders and any broker-dealers that act
in connection with the sale of the Selling Shareholder shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act and
any commission received by them and any profit on the resale of the Selling
Shareholder shares as principals might be deemed to be underwriting discounts
and commissions under the Securities Act. The Selling Shareholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Selling Shareholder shares against certain liabilities,
including liabilities arising under the Securities Act.
25
<PAGE>
DESCRIPTION OF SECURITIES
CAPITAL STOCK
The Company's authorized capital stock consists of 10,000,000 shares of
Preferred Stock, issuable in one or more series and 50,000,000 shares of Common
Stock. The par value of each of said shares is $.0001. As of May 22, 1998
12,752,805 shares of Common Stock and 51 shares of Series A Convertible
Preferred Stock and 64 shares of Series B Convertible Preferred Stock are
outstanding.
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue, without
further stockholder approval, up to 10,000,000 shares of Preferred Stock from
time to time in one or more series and to fix such designations, powers,
preferences and relative voting, distribution, dividend, liquidation, transfer,
redemption, conversion and other rights, preferences, qualifications,
limitations or restrictions thereon. Any such Preferred Stock could have
priority over Common Stock as to dividends and as to the distribution of the
Company's assets upon any liquidation, dissolution or winding up of the Company.
Subject to the adjustment provisions of the securities, the Series A Convertible
Preferred Stock is convertible into Common Stock at $2.19 per share and the
Series B Convertible Preferred Stock at $1.7928 per share.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of existing shareholders should additional shares of
Common Stock be issued. Holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of assets legally
available therefor, and to share ratably in the assets of the Company available
upon liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions such as
amendments to the articles of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present at the particular shareholders' meeting. The
Company's directors and officers as a group beneficially own approximately 39%
of the outstanding Common Stock of the Company. See "Principal and Selling
Shareholders." Accordingly, such persons will continue to be able to
26
<PAGE>
substantially control the Company's affairs, including, without limitation, the
sale of equity or debt securities of the Company, the appointment of officers,
the determination of officers' compensation and the determination whether to
cause a registration statement to be filed.
The rights of holders of the shares of Common Stock may become subject in
the future to prior and superior rights and preferences in the event the Board
of Directors establishes one or more additional classes of Common Stock, or one
or more additional series of Preferred Stock.
WARRANTS
In connection with the private placement by J.P. Carey Securities, Inc.
("Carey") of 51 shares of the Company's Series A Convertible Preferred Stock on
March 20, 1998, Carey received warrants to purchase 102,000 shares of the
Company's Common Stock, subject to adjustment. The warrants are exerciseable at
$1.49 per share and expire on March 20, 2003.
In connection with the private placements by Carey of 64 shares of the
Company's Series B Convertible Preferred Stock in May, 1998, Carey received
warrants to purchase 28,000 shares of the Company's Common Stock, and its
designees, 126,000 warrants, subject to adjustment The warrants are exerciseable
at $1.79 per share; 120,000 warrants expire on May 5, 2003 and 34,000 on May 22,
1998.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrant holders against dilution in certain events, including stock
dividends, stock splits, reclassification, and any combination of Common Stock,
or the merger, consolidation, or disposition of substantially all the assets of
the Company.
The Company has agreed to "piggy-back" registration rights for the
securities underlying the Warrants at the Company's expense during the during
the five years following the issuance of the Warrants. In addition, at any time
commencing 90 days after the issuance of the warrants, the Company has agreed to
register the securities underlying the Warrants at the Company's expense upon
notice from the holders.
Wall Street Management Group, Inc. holds 5 year options to acquire 61,350
restricted shares of the Company's Common Stock at a price of $1.63 per share.
See "Certain Transactions."
In connection with a Regulation D 504 offering completed in November, 1996,
the Company sold 6,000,000 shares of Common Stock and Warrants to purchase an
additional 2,000,000 shares at $1.00 per share. As of the date of this
Prospectus 1,060,000 Warrants remain unexercised.
27
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of April 30, 1998 (assuming no exercise of options or warrants after
April 30, 1998 except for the underlying shares being registered on behalf of
the Selling Shareholders), there will be 14,212,163 shares of Common Stock
outstanding. Of these, including the shares sold in this Offering, 8,511,324 are
freely tradable without restriction under the Securities Act. The remaining
5,665,839 shares of Common Stock will be "restricted securities" as that term is
defined in Rule 144 ("Restricted Shares") of the Securities Act. Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rule 144 of the Securities Act.
Beginning 90 days after the date of this Prospectus, approximately 275,000
shares will become eligible for sale in compliance with Rule 144. As of April
30, 1998, options warrants to purchase 61,350 shares of Common Stock were
outstanding. In addition, holders of warrants (expiring in November 1998) to
purchase 1,060,000 shares, should they exercise the warrants, would receive
shares which would be freely tradable without restriction. See "Warrants."
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least one year
from the later of the date of issuance by the Company or acquisition from an
affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three month period
may not exceed the greater of 1% of the then-outstanding shares of Common Stock
or the average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After two years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule.
Shares of substantial amount of Common Stock in the public amount, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities.
DELAWARE ANTI-TAKEOVER LAW
The Delaware General Corporation Law contains certain anti-takeover
provisions. Section 203 of the Delaware General Corporation Law provides, with
certain exceptions, that a Delaware corporation may not engage in any broad
range of business combinations with a person who owns 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
28
<PAGE>
outstanding voting stock of the corporation (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) the business combination is
approved by the corporation's board of directors of at least 66 2/3% of
corporation's outstanding voting stock at an annual meeting or special meeting,
excluding shares owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
Signature Transfer, Inc. Dallas, Texas, is the transfer agent and registrar
for the Common Stock of the Company.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Beckman, Millman and Sanders, L.L.P. a Professional Limited Liability
Partnership, New York, New York. Members of the firm of Beckman, Millman &
Sanders own 15,000 shares of the Common Stock of the Company.
EXPERTS
The financial statements for the periods ended December 31, 1996 and 1997
included herein have been audited by Robison, Hill & Co., Certified Public
Accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
ADDITIONAL INFORMATION
The Company is a reporting company under the Securities Exchange Act of
1934, as amended. The Company has filed with the Washington, D.C. Office of the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form SB-2 under the Act with respect to the Common Stock offered hereby. This
Prospectus filed as a part of the Registration Statement does not contain all of
the information contained in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement including the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents are not necessarily complete, and in each instance, reference is
made to such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and exhibits may be inspected without
charge and copied at the Washington office of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549, and copies of such material may be obtained at
prescribed rates from the Commission's Public Reference Section at the same
address.
29
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1997, and 1996 F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, and 1996 F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, and 1996 F-6
Notes to consolidated Financial Statements F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Eat At Joe's Ltd.
We have audited the accompanying consolidated balance sheets of Eat At Joe's
Ltd., and subsidiaries (a Delaware corporation and formerly a development stage
enterprise) as of December 31, 1997, and 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eat At Joe's Ltd.,
and subsidiaries (Formerly a development stage enterprise) as of December 31,
1997, and 1996, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
March 23, 1998
F - 1
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
(Formerly a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
---------- --------
ASSETS
Current Assets:
Cash and cash equivalents ............................. $ 232,601 $ 35,016
Receivables ........................................... -- 70,000
Inventory ............................................. 7,488 --
Other ................................................. 400 --
Prepaid expense ....................................... 30,993 3,975
Deposits .............................................. 12,701 10,991
----------- --------
Total Current Assets ............................. 284,183 119,982
----------- --------
Property and equipment:
Equipment ............................................. 279,667 --
Office furniture ...................................... 1,000 --
Leasehold improvements ................................ 665,643 12,495
----------- --------
946,310 12,495
Less accumulated depreciation ......................... (11,546) --
----------- --------
934,764 12,495
----------- --------
Other Assets:
Intangible and other assets net
of $2,150 amortization in 1997 ....................... 234,569 158,595
Deferred development costs ............................ 861,456 --
----------- --------
Total Other Assets ............................... 1,096,025 158,595
----------- --------
Total Assets ..................................... $ 2,314,972 $291,072
=========== ========
F - 2
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
(Formerly a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Continued)
1997 1996
---------- ----------
LIABILITIES
Current Liabilities:
Accounts payable ................................... $ 347,295 $ 7,235
Short-term notes payable ........................... 304,940 --
Shareholders loans ................................. 702,922 12,500
----------- -----------
Total Liabilities ............................. 1,355,157 19,735
----------- -----------
STOCKHOLDERS EQUITY
Preferred stock - $0.0001 par value
10,000,000 shares authorized;
none issued and outstanding ...................... -- --
Common Stock - $0.0001 par value
50,000,000 shares Authorized
12,733,805 and 11,833,805
issued and Outstanding, respectively ............ 1,273 1,183
Additional paid-in capital ......................... 2,244,299 1,344,389
Retained deficit ................................... (1,285,757) (1,074,235)
----------- -----------
Total Stockholders' Equity .................... 959,815 271,337
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 2,314,972 $ 291,072
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
(Formerly a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, AND 1996
1997 1996
--------- --------
Revenues .............................................. $ 84,781 $ --
Cost of revenues ...................................... 56,855 --
--------- --------
Gross Margin .......................................... 27,926 --
Expenses
General and administrative ......................... 235,144 14,762
--------- --------
Net loss from continuing operations ................... (207,218) (14,762)
--------- --------
Other Income (Expense)
Interest income .................................... 3,759 --
Interest expense ................................... (7,311) (3,938)
Loss on sale of assets ............................. (752) --
--------- --------
Net Other Income (Expense) ............................ (4,304) (3,938)
--------- --------
Net loss before income taxes .......................... (211,522) (18,700)
Income tax expense (benefit) .......................... -- --
--------- --------
Net Loss .............................................. $(211,522) $(18,700)
========= ========
Basic Loss Per Common Share: .......................... $ (.02) $ --
========= ========
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, AND 1996
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Deficit
------ ------ ------- -------
Balances at January 1, 1996 ... 314,350 $ 31 $1,055,504 $(1,055,535)
Adjustment in connection with
pooling of interests ....... 5,505,000 550 219,037 --
----------- ------ ---------- -----------
Balances at January 1, 1996, as 5,819,350 581 1,274,991 (1,055,535)
restated
May 1996, shares issued
to Company for cash ........ 14,455 2 9,998 --
November 1996, shares issued
in Reg D-504 offering ...... 6,000,000 600 59,400 --
Net loss for the year ......... -- -- -- (18,700)
----------- ------ ---------- -----------
Balances at December 31, 1996 . 11,833,805 1,183 1,344,389 (1,074,235)
March 1997, shares issued
on exercise of warrants .... 400,000 40 399,960 --
April 1997, shares issued on
exercise of warrants ....... 300,000 30 299,970 --
November 1997 shares issued
on exercise of warrants .... 200,000 20 199,980 --
Net loss for the year ......... -- -- -- (211,522)
----------- ------ ---------- -----------
Balance at December 31, 1997 .. $12,733,805 $1,273 $2,244,299 $(1,285,757)
=========== ====== ========== ===========
The accompanying notes are an integral part of these financial statements.
F - 5
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, AND 1996
1,997 1,996
----------- --------
Cash Flows From Operating Activities
Net loss for the period ........................ $ (211,522) $(18,700)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Loss from sale of marketable securities ...... 752 --
Depreciation ................................. 11,546 --
Payment of organization costs ................ (78,124) (8,558)
Amortization of organization costs ........... 2,150 --
Decrease (Increase) in Receivables ........... 70,000 --
Increase in inventory ........................ (7,488) --
Increase in other assets ..................... (400) --
Increase in prepaid expense .................. (27,018) (3,975)
Decrease (increase) in deposits .............. (1,710) (10,991)
Increase in accounts payable ................. 340,060 7,235
----------- --------
Net Cash Provided by (Used in) Operating Activities 98,246 (34,989)
----------- --------
Cash Flows From Investing Activities
Payment of deferred development costs .......... (861,456) --
Purchase of property and equipment ............. (933,815) (12,495)
Proceeds from sale of marketable securities .... 143,248 --
Purchase of marketable securities .............. (144,000) --
----------- --------
Net Cash Provided by Investing Activities ......... (1,796,023) (12,495)
----------- --------
Cash Flows From Financing Activities
Issuance of common stock ....................... 900,000 70,000
Advances from majority stockholders ............ 690,422 12,500
Proceeds from short-term notes payable ......... 304,940 --
----------- --------
Net Cash Provided by Financing Activities ......... 1,895,362 82,500
----------- --------
Increase in Cash .................................. 197,585 35,016
Cash at beginning of period ....................... 35,016 --
----------- --------
Cash at End of Period ............................. $ 232,601 $ 35,016
=========== ========
F - 6
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
1997 1996
----------- --------
Supplemental Disclosure of Interest and
Income Taxes Paid
Interest paid for the period ....................... $ -- $ 3,938
=========== ========
Income taxes paid for the period ................... $ -- $ --
=========== ========
Supplemental Disclosure of Non-cash Investing
and Financing Activities
Intangible Assets Acquired with Issuance of
Common stock .................................... $ 149,832 $149,832
=========== ========
Organization Costs Acquired with Issuance
Common stock .................................... $ 200 $ 200
=========== ========
The accompanying notes are an integral part of these financial statements.
F - 7
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Eat At Joe's, Ltd. And subsidiaries
is presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Organization and Basis of Presentation
Eat At Joe's Ltd. (Company) was incorporated on January 6, 1988, under the
laws of the State of Delaware, as a wholly-owned subsidiary of Debbie Reynolds
Hotel and Casino, Inc. (DRHC) (formerly Halter Venture Corporation or Halter
Racing Stables, Inc.) a publicly-owned corporation. DRHC caused the Company to
register 1,777,000 shares of its initial 12,450,000 issued and outstanding
shares of common stock with the Securities and Exchange Commission on Form S-18.
DRHC then distributed the registered shares to DRHC stockholders.
During the period September 30, 1988 to December 31, 1992, the Company
remained in the development stage while attempting to enter the mining industry.
The Company acquired certain unpatented mining claims and related equipment
necessary to mine, extract, process and otherwise explore for kaolin clay,
silica, feldspar, precious metals, antimony and other commercial minerals from
its majority stockholder and other unrelated third-parties. The Company was
unsuccessful in these start-up efforts and all activity was ceased during 1992
as a result of foreclosure on various loans in default and/or the abandonment of
all assets.
From 1992 until 1996 the Company has had no operations, assets or
liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of Eat At Joe's,
LTD. And its wholly-owned subsidiary, E.A.J. Holding Corporation, a Delaware
corporation ("Holding"). Holding includes the accounts of its wholly-owned
subsidiaries, E.A.J. PHL Airport, Inc. a Pennsylvania corporation, Eat At Joe's
U. of P., Inc. a Pennsylvania corporation, E.A.J. Cherry Hill, Inc., a New
Jersey corporation, Eat At Joe's Harborplace, Inc., a Maryland corporation, Eat
At Joe's Neshaminy, Inc. a Pennsylvania corporation, Eat At Joe's Plymouth,
Inc., a Pennsylvania corporation, E.A.J. Echelon Mall, Inc., a New Jersey
corporation, E.A.J. Gallery, Inc., a Pennsylvania corporation, E.A.J.
Moorestown, Inc., a New Jersey corporation, and E.A.J. Shoppingtown,Inc., a New
York corporation. All significant intercompany accounts and transactions have
been eliminated.
F - 8
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)
Nature of Business
The Company is developing, owns and operates theme restaurants styled in an
"American Diner" atmosphere.
Inventories
Inventories consist of food, paper items and related materials and are
stated at the lower of cost (first-in, first-out method) or market.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No.109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
Depreciation
Office furniture, equipment and leasehold improvements, are stated at cost.
Depreciation and amortization are computed using the straight-lin method over
the estimated economic useful lives of the related assets as follows:
Office furniture 5-10 years
Equipment 5-7 years
Leasehold improvements 20-39 years
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Amortization
Organization costs are amortized over a sixty month period. Intangible
assets are amortized over useful life of 15 years.
F - 9
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The Company has adopted the Financial Accounting Standards Board SFAS No.,
121, "Accounting for the Impairment of Long-lived Assets." SFAS No. 121
addresses the accounting for (i) impairment of long-lived assets, certain
identified intangibles and goodwill related to assets to be held and used, and
(ii) long-live lived assets and certain identifiable intangibles to be disposed
of. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows from the
used of the asset and its eventual disposition (undiscounted and without
interest charges) is less than the carrying amount of the asset, an impairment
loss is recognized.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required 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.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash balances
with one financial institution, in the form of demand deposits.
Reverse Stock Split
Effective May 3, 1997 the Stockholders approved a 50 to 1 reverse split of
the common stock and effective October 7, 1997 the Stockholders approved a 4 to
1 reverse split. The financial statements have been retroactively restated to
reflect the reverse stock split as if it had been effective prior to the
earliest date presented.
F - 10
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" (EPS). SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share. The
application of SFAS No. 128 had no effect of the earnings per share for 1996 as
previously reported.
Diluted net income per common share was calculated based on an increased
number of shares that would be outstanding assuming that the 1,100,000 warrants
are converted to 1,100,000 common shares. The effect of outstanding common stock
equivalents are antidilutive for 1997 and 1996 and are thus not considered.
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
<TABLE>
<CAPTION>
For the Year Ended 1997 For the Year Ended 1996
------------------------ -----------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $ (211,522) 11,729,107 $ (.02) $ (18,700) 6,535,247 $ --
========== ========== ========= ========= ========= ========
</TABLE>
F - 11
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Reclassifications
Certain reclassifications have been made in the 1996 financial statements
to conform with the 1997 presentation.
NOTE 2 - INCOME TAXES
Deferred taxes result from temporary differences in the recognition of
income and expenses for income tax reporting and financial statement reporting
purposes. Deferred benefits of $71,000 and $4,000 for the years ended December
31, 1997 and 1996 respectively, are the result of net operating losses and the
gaming license rights reserve.
The Company has recorded net deferred income taxes in the accompany
consolidated balance sheets as follows:
As at December 31,
1997 1996
-------- ---------
Future deductible temporary differences related to
Reserves, accruals, and net operating losses $ 387,000 $ 341,000
Valuation allowance (387,000) (341,000)
--------- --------
Net Deferred Income Tax $ - $ -
========= =========
As of December 31, 1997, the Company had a net operating loss ("NOL") carry
forward for income tax reporting purposes of approximately $1,141,000 available
to offset future taxable income. This net operating loss carry forward expires
at various dates between December 31, 2003 and 2012. A loss generated in a
particular year will expire for federal tax purposes if not utilized within 15
years. Additionally, the Internal Revenue Code contains provisions which could
reduce or limit the availability and utilization of these NOLs if certain
ownership changes have taken place or will take place. In accordance with SFAS
No. 109, a valuation allowance is provided when it is more likely than not that
all or some portion of the deferred tax asset will not be realized. Due to the
uncertainty with respect to the ultimate realization of the NOLs, the Company
established a valuation allowance for the entire net deferred income tax asset
of $387,000 as of December 31, 1997. Also consistent with SFAS No. 109, an
allocation of the income (provision) benefit has been made to the loss from
continuing operations.
The difference between the effective income tax rate and the federal
statutory income tax rate on the loss from continuing operations are presented
below:
F - 12
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 2 - INCOME TAXES (Continued)
As at December 31,
1997 1996
------- ------
Benefit at the federal statutory rate of 34% $ 71,000 $ 4,000
Nondeductible expenses (1,000) --
Utilization of net operating loss carryforward (70,000) (4,000)
-------- -------
$ - $ -
======== =======
NOTE 3 - PURCHASE OF SUBSIDIARIES
On February 14, 1997 the shareholders of the Company approved an agreement
whereby 5,505,000 shares of the Company's common stock was exchanged for a 100%
interest in E.A.J. Holding Corporation, Inc. ("Holding"), a Delaware
corporation. Holding, which was organized on February 14, 1997, had total assets
with a historical cost value of $150,037, consisting of the Eat at Joe's trade
mark, business plan, graphics, illustrations/renderings, corporate brochure and
website with a historical value of $149,837, organization costs of $200 and no
liabilities on the date of the exchange.
During March, 1997 Holding acquired 100% of the issued and outstanding
stock of E.A.J.: PHL, Airport Inc. ("PHL Airport"), a Pennsylvania corporation
organized August 19, 1996 for $25,000. At the time of the acquisition PHL
Airport had assets with a historical cost value of $37,500, consisting of
developmental costs and organizational costs and liabilities of $12,500.
These transactions have been accounted for as a reorganization of ownership
interests between related parties as if it were a "Pooling of Interest."
Accordingly, assets and liabilities are reflected at their historical values.
The accompanying financial statements for 1997 are based on the assumption that
the companies were combined for the full year, and the financial statements of
1996 have been restated to give effect to the combination.
Following is a reconciliation of the amounts of net sales and net income
previously reported for 1996 with restated amounts:
F - 13
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 3 - PURCHASE OF SUBSIDIARIES (continued)
Year Ended
December 31, 1996
Revenues:
As previously reported ........................................ $ --
Acquired companies ............................................ --
-------
As restated ................................................... $ --
=======
Net Loss:
As previously reported ........................................ $13,288
Acquired companies ............................................ 5,412
-------
As restated ................................................... $18,700
=======
NOTE 4 - RENT AND LEASE EXPENSE
The Company occupies various retail restaurant space under operating leases
beginning October 1997 and expiring at various dates through 2012.
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31, Real Property Equipment
----------------------- ------------- ---------
1998 $ 298,320 $ -
1999 298,320 -
2000 298,320 -
2001 298,320 -
2002 298,320 -
------------ ---------
Total minimum future lease payments $1,491,600 $ -
========== =========
The leases generally provides that insurance, maintenance and tax expenses
are obligations of the Company. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties.
F - 14
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company utilized office space that is shared with companies controlled
by two officers of the Company. During 1997 Cozco Management received $546,574
as reimbursement for rent, telephone, equipment, travel, automotive salaries and
other shared expenses. During 1997 the two officers and/or companies controlled
by the two officers paid expenses and made advances to the Company totaling
$702,922.
NOTE 6 - PRIVATE PLACEMENT OF COMMON STOCK
On November 11, 1996 the Company completed a Regulation D section 504
private placement whereby the Company issued 600,000 common shares for $60,000.
Each share included detachable warrants to purchase one common share at $1.00
per share.
NOTE 7 - SELECTED FINANCIAL DATA (Unaudited)
The following table set forth certain unaudited quarterly financial
information:
1997 Quarters Ended
-----------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
-------- --------- -------- --------
Income statement data:
Net sales $ -- $ -- $ -- $ 84,781
Gross profit -- -- -- 27,926
-------- --------- -------- --------
Income (loss) from operations (38,858) (130,171) (47,096) 8,907
Other income 6 1,926 1,075 (7,311)
-------- --------- -------- --------
Income (loss) before tax (38,852) (128,245) (46,021) 1,596
Income tax (provision) benefit -- -- -- --
-------- --------- -------- --------
Net Income (Loss) $(38,852) $(128,245) $(46,021) $ 1,596
======== ========= ======== ========
F - 15
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
(Formerly a development stage company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, AND 1996
(Continued)
NOTE 7 - SELECTED FINANCIAL DATA (Unaudited) (continued)
1996 Quarters Ended
--------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
-------- ---------- ---------- ---------
Income statement data:
Net sales $ -- $ -- $ -- $ --
Gross profit -- -- -- --
-------- ---------- ---------- ---------
Income (loss) from operations (10,000) -- -- (4,762)
Other income -- -- -- (3,938)
-------- ---------- ---------- ---------
Income (loss) before tax (10,000) -- -- (8,700)
Income tax (provision) benefit -- -- -- --
-------- ---------- ---------- ---------
Net Income (Loss) $(10,000) $ -- $ -- $ (8,700)
======== ========== ========== =========
F - 16
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary.....................
Risk Factors...........................
Use of Proceeds........................
Dilution...............................
Dividend Policy........................
Capitalization.........................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................
Business...............................
Management.............................
Certain Transactions...................
Principal Shareholders.................
Description of Securities..............
Underwriting...........................
Legal Matters..........................
Experts................................
Additional Information.................
Index to Consolidated Financial
Statements...........................
----------------------------
<PAGE>
UNTIL ____________, 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
EAT AT JOE'S, LTD.
EAT AT JOE'S LOGO
________________ SHARES
------------------------------
PROSPECTUS
------------------------------
_______________, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
See "Management - Personal Liability and Indemnification of Directors."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the distribution of the shares
registered hereby, are set forth in the following table:
SEC registration fee........................................ $ 2,500
Legal fees and expenses..................................... 50,000
Accounting fees and expenses................................ 17,500
Blue Sky fees and expenses.................................. 7,500
Transfer agent fees and expenses............................ 1,000
Printing and engraving expenses............................. 2,000
Miscellaneous............................................... 2,000
-----
Total..................................................... $82,500
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1996, the Company raised $60,000 through the issuance 600,000
shares of its Common Stock and warrants to acquire 2,000,000 shares at an excise
price of $1.00 per share. The offering was exempt from registration pursuant to
Regulation D Section 504. In 1997, 940,000 warrants were exercised against
payment of $940,000.
In January, 1997 the shareholders of the Company adopted an agreement
whereby 5,505,000 shares of the Company's Common Stock was exchanged for a 100%
interest in E.A.J. Holding Corporation, Inc. Messrs. Joseph Fiore and Andrew
II-1
<PAGE>
Cosenza, Jr., the Company's Chairman and President, were the owners of all the
outstanding shares of E.A.J. Holding Corporation, Inc. The Company issued its
shares upon an exemption from registration under Section 4(2) of the Securities
Act.
In March, 1998, the Company sold 51 shares of its Series A Convertible
Preferred Stock to a total of 8 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D or as an
alternative, Regulation S of the Act. The Company received proceeds of
approximately $797,000 from the sale of the securities. As of the date of this
prospectus the shares are convertible into ________________ shares of Common
Stock of the Company.
On May 5 1998, the Company sold 30 shares of its Series B Convertible
Preferred Stock to a total of 3 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D. The Company
received proceeds of approximately $484,,000 from the sale of the securities. As
of the date of this prospectus the shares are convertible into ________________
shares of Common Stock of the Company.
On May 21, 1998, the Company sold 34 shares of its Series B Convertible
Preferred Stock to a total of 2 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D. The Company
received proceeds of approximately $549,,000 from the sale of the securities. As
of the date of this prospectus the shares are convertible into ________________
shares of Common Stock of the Company.
INDEX TO EXHIBITS
ITEM 27. EXHIBITS.
PAGE
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- -------------------------------------------------------------------------------
3.1 Articles of Incorporation(1)
3.2 By-laws(1)
4.1 Certificate of Designations-Series A Convertible Preferred Stock
4.2 Certificate of Designations-Series B Convertible Preferred Stock
4.3 Form of Warrant Agreement
5.1 Opinion of Beckman, Millman & Sanders, L.L.P. *
10.1 Consulting Agreement-Wall Street Group, Ltd. *
10.2 Indenture of Lease between University of Pennsylvania and Eat at
Joe's U. of P., Inc. *
10.3 Lease Abstract between Cherry Hill Center, Inc. and Eat at Joe's
Cherry Hill, Inc. *
10.4 Lease Abstract between Echelon Mall, Inc. and E.A.J. Eachelon
Mall, Inc. *
10.5 Lease Information Form between E.A.J. PHL, Airport, Inc. and
Marketplace Redwood Limited Partnership *
10.6 Lease Abstract between Eat at Joe's U. of P., Inc. and UCA
Realty Group, Inc. *
II-2
<PAGE>
10.7 Lease Abstract between Rouse Philadelphia, Inc. and Eat at Joe's
Gallery, Inc. *
10.8 Lease Information Form between E.A.J. Enterprises, Inc. and
First Fidelity Bank, N.A.*
10.9 Lease Abstract between Eat at Joe's Harbor Place, Inc. and
Baltimore Center, Inc. *
10.10 Lease Abstract between E.A.J. Shoppington, Inc. and Wilmorite,
Inc. *
10.11 Lease Abstract between Eat at Joe's Neshaminy, Inc. and General
Growth Properties, Inc. *
10.12 Lease Abstract between Eat at Joe's Plymouth Incorporate and
Plymouth Meeting, Inc. *
10.13 Lease Abstract between E.A.J. Danbury, Inc. and Wilmorite, Inc.*
10.14 Registration of trade name for Eat at Joe's *
21 Subsidiaries of the Company.
23.1 Consent of Robison, Hill & Co. *
24.2 Consent of Beckman, Millman & Sanders, L.L.P. (included in
Exhibit 5).*
27.1 Financial Data Schedule
(1) Previously filed.
* To be filed by Amendment
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned small business issuer hereby undertakes that it will:
(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 events 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.
(2) For determining any liability under the Securities Act, treat the
II-3
<PAGE>
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 small business issuer under Rule 424(b)(1) or
(4) or Rule 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(3) 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.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the Town of Scarsdale, State of New York, on May 22, 1998.
EAT AT JOE'S, LTD
By /s/ Joseph Fiore
-----------------------------------
Joseph Fiore
Chairman of the Board and
Chief Executive Officer
In accordance with 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 stated.
SIGNATURE TITLE DATE
/s/ JOSEPH FIORE Chairman of the Board and May 22,1998
Chief Executive Officer
- ---------------------------
Joseph Fiore
/s/ ANDREW COSENZA, JR. President May 22,1998
- ---------------------------
Andrew Cosenza, Jr.
/s/ JAMES MYLOCK Director May 22, 1998
- ---------------------------
James Mylock
II-4
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
EAT AT JOE'S LTD.
Eat at Joe's Ltd. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation of the Company, and pursuant to Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of the Company at a meeting duly held, adopted resolutions (i) authorizing a
series of the Company's authorized preferred stock, $.0001 par value per share,
and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of 150 shares of Series A Convertible Preferred Stock of
the Company, as follows:
RESOLVED, that the Company is authorized to issue 150 shares of Series
A Convertible Preferred Stock (the "Series A Preferred Shares"), $.0001 par
value per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The Series A Preferred Shares shall not bear any
dividends.
(2) Holder's Conversion of Series A Preferred Shares. A holder of
Series A Preferred Shares shall have the right, at such holder's option, to
convert the Series A Preferred Shares into shares of the Company's common
stock, $.0001 par value per share (the "Common Stock"), on the following
terms and conditions:
(a) Conversion Right. Subject to the provisions of Sections 2(g)
and 3(a) below, at any time or times on or after the earlier of (i) 90
days after the Issuance Date (as defined herein), (ii) 5 days after
receiving a "no-review" status from the U.S. Securities and Exchange
Commission in connection with a registration statement ("Registration
Statement") covering the resale of Common Stock issued upon conversion
of the Series A Preferred Shares and required to be filed by the
Company pursuant to the Registration Rights Agreement between the
Company and its initial holders of Series A Preferred Shares (the
"Registration Rights Agreement"), (iii)
-1-
<PAGE>
the date that the Registration Statement is declared effective by the
U.S. Securities and Exchange Commission (the "SEC") any holder of
Series A Preferred Shares shall be entitled to convert any Series A
Preferred Shares into fully paid and nonassessable shares (rounded to
the nearest whole share in accordance with Section 2(h) below) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event other than upon a Mandatory Conversion
pursuant to Section 2(g) hereof, shall any holder be entitled to
convert Series A Preferred Shares in excess of that number of Series A
Preferred Shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially
owned by the holder and its affiliates to exceed 4.9% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion
of the Series A Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Series A Preferred Shares
beneficially owned by the holder and its affiliates beneficially owned
by the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Series A Preferred Shares
pursuant to Section (2)(a) shall be determined according to the
following formula (the "Conversion Rate");
(.03)(N/365)(20,000) + 20,000
-----------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "Conversion Price" means as, of any Conversion Date (as
defined below), the lower of the Fixed Conversion Price and the
Floating Conversion Price, each in effect as of such date, if
applicable, and subject to adjustment as provided herein;
(ii) "Fixed Conversion Price" means $ 2.19, subject to
adjustment, as provided herein.
(iii) "Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion
Percentage in effect as of such date by the Average Market Price
for the
-2-
<PAGE>
Common Stock for the five (5) consecutive trading days
immediately preceding such date;
(iv) "Conversion Percentage" means 75% and shall be reduced
by an additional 2% for every 30 days (pro-rated for partial
months) beyond 45 days from the Issuance Date (the "Scheduled
Filing Date") that the Registration Statement is not filed by the
Company;
(v) "Average Market Price" means, with respect to any
security for any period, that price which shall be computed as
the arithmetic average of the Closing Bid Prices (as defined
below) for such security for each trading day in such period;
(vi) "Closing Bid Price" means, for any security as of any
date, the last closing bid price on the Nasdaq National Market
(the "Nasdaq-NM") as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Nasdaq-NM is not the principal trading
market for such security, the last closing bid price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of
such security in the over-the-counter market on the pink sheets
or bulletin board for such security as reported by Bloomberg, or,
if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as
reported by Bloomberg. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall
be the fair market value as reasonably determined in good faith
by the Board of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock split or other similar
transaction during such period); and
(vii) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date for the
Series A Preferred Shares for which conversion is being elected.
(viii) "Issuance Date" means the date of issuance of the
Series A Preferred Shares.
(c) Adjustment to Conversion Price - Registration Statement. If
the Registration Statement is not declared effective by the SEC on or
before the ninetieth (90th) day following the Issuance Date (the
"Scheduled Effective Date"), or if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant
to the Registration Statement (whether because of a failure to keep
the registration Statement effective, to disclose such information as
is necessary for sales
-3-
<PAGE>
to be made pursuant to the Registration Statement, to register
sufficient shares of Common Stock or otherwise), then, as partial
relief for the damages to any holder by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock
(which remedy shall not be exclusive of any other remedies at law or
in equity), the Conversion Percentage and the Fixed Conversion Price
shall be adjusted as follows:
(i) Conversion Percentage. The Conversion Percentage in
effect, at such time for each time period set forth in Section
2(b)(iv) with respect to the Series A Preferred Shares which may
be converted as permitted by Section 2(a) hereof during the
period that sales cannot be made pursuant to the Registration
Statement, shall be reduced by a number of percentage points
equal to the product of (A) three (3) and (B) the sum of (I) the
number of months (prorated for partial months) after the
Scheduled Effective Date and prior to the date that the relevant
Registration Statement is declared effective by the SEC and (II)
the number of months (prorated for partial months) that sales
cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective. (For example,
if the Registration Statement becomes effective one and one-half
(1 1/2) months after the Scheduled Effective Date, the Conversion
Percentage with respect to the Series A Preferred Shares would
decrease by four and one-half percent (4.5% to 70.5%) until any
subsequent adjustment; if thereafter sales could not be made
pursuant to the Registration Statement for a period of two (2)
additional months, the Conversion Percentage with respect to the
Series A Preferred Shares would decrease by an additional six
percent (6%), for an aggregate decrease of ten and one-half
percent (10.5% to 64.5%); and
(ii) Fixed Conversion Price. The Fixed Conversion Price in
effect from time to time with respect to the Series A Preferred
Shares shall be reduced by an amount equal to the product of (A)
($.0657) and (B) the sum of (I) the number of months (prorated
for partial months) after the Scheduled Effective Date and prior
to the date that the Registration Statement is declared effective
by the SEC and (II) the number of months (prorated for partial
months) that sales cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes
effective one and one-half (1 1/2) months after the Scheduled
Effective Date, the Fixed Conversion Price with respect to the
Series A Preferred Shares would be $2.09 until any subsequent
adjustment; if thereafter sales could not be made pursuant to the
Registration Statement for a period of two (2) additional months,
the Fixed Conversion Price with respect to the Series A Preferred
Shares would then be $2.06).
-4-
<PAGE>
(d) Adjustment to Conversion Price - Dilution and Other Events.
In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Fixed
Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately
increased.
(ii) Reorganization, Reclassification, Consolidation,
Merger, or Sale. Any recapitalization, reorganization
reclassification, consolidation. merger, sale of a or
substantially all of the Company's assets to another Person (as
defined below) or other similar transaction which is effected in
such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock,
securities or assess with respect to or in exchange for Common
Stock is referred to herein as in "Organic Change." Prior to the
consummation of any Organic Change, the Company will make
appropriate provision (in form and substance satisfactory to the
holders of a majority of the Series A Preferred Shares then
outstanding) to insure that each of the holders of the Series A
Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series B
Preferred Shares, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's
Series A Preferred Shares had such Organic Change not taken
place. In any such case, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a
majority of the Series A Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that the
provisions of this Section 2(d) and Section 2(e) below will
thereafter be applicable to the Series A Preferred Shares. The
Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor entity (if
other than the Company) resulting from consolidation or merger or
the entity purchasing such assets assumes, by written instrument
(in form and
-5-
<PAGE>
substance satisfactory to the holders of a majority of the Series
B Preferred Shares then outstanding), the obligation to deliver
to each holder of Series A Preferred Shares such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. For purposes
of this Agreement, "Person" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization and a government or any
department or agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each
holder of Series B Preferred Shares, setting forth in
reasonable detail and certifying the calculation of such
adjustment.
(B) The Company will give written notice to each holder
of Series A Preferred Shares at least twenty (20) days prior
to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(C) The Company will also give written notice to each
holder of Series A Preferred Shares at least twenty (20)
days prior to the date on which any Organic Change, Major
Transaction (as defined below), dissolution or liquidation
will take place.
(e) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders
of any class of Common Stock (the "Purchase Rights"), then the holders
of Series A Preferred Shares will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete
conversion of the Series A Preferred Shares immediately before the
date an which a record is taken for the grant issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which
the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
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(f) Mechanics of Conversion. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 5 below:
(i) Holder's Delivery Requirements. To convert Series A
Preferred Shares into full shares of Common Stock on any date
(the "Conversion Date"), the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 11:59 p.m.,
Eastern Standard Time, on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company or its designated
transfer agent (the "Transfer Agent"), and (B) surrender to a
common carrier for delivery to the Company or the Transfer Agent
as soon as practicable following such date, the original
certificates representing the Series A Preferred Shares being
converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction) (the
"Preferred Stock Certificates") and the originally executed
Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall
immediately send, via Facsimile, a confirmation of receipt of
such Conversion Notice to such holder. Upon receipt by the
Company or the Transfer Agent of the Preferred Stock Certificates
to be converted pursuant to a Conversion Notice, together with
the originally executed Conversion Notice, the Company or the
Transfer Agent (as applicable) shall, within five (5) business
days following the date of receipt, (A) issue and surrender to a
common carrier for overnight delivery to the address as specified
in the Conversion Notice, a certificate, registered in the name
of the holder or its designee, for the number of shares of Common
Stock to which the holder shall be entitled or (B) credit the
aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance
account at The Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Average Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall promptly
issue to the holder the number of shares of Common Stock that is
not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within three
(3) business days of receipt of such holder's Conversion Notice.
If such holder and the Company are unable to agree upon the
determination of the Average Market Price or arithmetic
calculation of the Conversion Rate within two (2) business days
of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall within one
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(1) business day submit via facsimile (A) the disputed
determination of the Average Market Price to an independent,
reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate to its independent, outside
accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results
no later than forty-eight (48) hours from the time it receives
the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Series A Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on
the Conversion Date.
(v) Company's Failure to Timely Convert. If the Company
shall fail to issue to a holder within five (5) business days
following the date of receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, a certificate for the number of
shares of Common Stock to which such holder is entitled upon such
holder's conversion of Series A Preferred Shares, in addition to
all other available remedies which such holder may pursue
hereunder and under the Securities Purchase Agreement between the
Company and the initial holders of the Series A Preferred Shares
(the "Securities Purchase Agreement") (including indemnification
pursuant to Section 8 thereof), the Company shall pay additional
damages to such holder on each day after the fifth (5th) business
day following the date of receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted
pursuant to the Conversion Notice, for which such conversion is
not timely effected, an amount equal to 1.0% of the product of
(A) the number of shares of Common Stock not issued to the holder
and to which such holder is entitled and (B) the Closing Bid
Price of the Common Stock on the business day following the date
of receipt by the Company or the Transfer Agent of the Preferred
Stock Certificates to be converted pursuant to the Conversion
Notice.
(g) Mandatory Conversion. If any Series A Preferred Shares remain
outstanding on March 20, 2000, then all such Series A Preferred Shares
shall be converted as of such date in accordance with this Section 2
as if the holders of such Series A Preferred Shares had given the
Conversion Notice on March 20, 2000, and the Conversion Date had been
fixed as of March 20, 2000, for all purposes of this Section 2, and
all holders of Series A Preferred Shares shall thereupon and with two
(2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for
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cancellation, to the Company or the Transfer Agent. No person shall
thereafter have any rights in respect of Series A Preferred Shares,
except the right to receive shares of Common Stock on conversion
thereof as provided in this Section 2.
(h) Fractional Shares. The Company shall not issue any fraction
of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more
than one share of the Series A Preferred Shares by a holder thereof
shall be aggregated for purposes of determining whether the conversion
would result in the issuance of a fraction of a share of Common Stock.
lf, after the aforementioned aggregation, the issuance would result in
the issuance of a fraction of it share of Common Stock, the Company
shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series A Preferred Shares.
(3) Company's Right to Redeem at its Election.
(a) At any time, commencing 110 days after the Issuance Date, as
long as the Company has not breached any of the representations,
warrants, and covenants contained herein or in any related agreements,
the Company shall have the right, in it sole discretion, to redeem
("Redemption at Company's Election"), from time to time, any or all of
the Series A Preferred Stock: provided (i) Company shall first provide
thirty (30) days advance written notice as provided in subparagraph
3(a)(ii) below (which can be given any time on or after 80 days after
the Issuance Date, and (ii) that the Company shall only be entitled to
redeem Series A Preferred Stock having an aggregate Stated Value (as
defined below) of at least Five Hundred Thousand Dollars ($500,000).
If the Company elects to redeem some, but not all, of the Series A
Preferred Stock, the Company shall redeem a pro-rata amount from each
Holder of the Series A Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption
Price at Company's Election" shall be calculated as 125% of
Stated Value, as that term is defined below, of the Series A
Preferred Stock. For purposes hereof, "Stated Value" shall mean
the original principal amount of Preferred Stock being redeemed,
plus the unpaid 3% per annum premium being redeemed pursuant to
this Section 3(a).
(ii) Mechanics of Redemption at Company's Election. The
Company shall effect each such redemption by giving at least
thirty (30) days prior written notice ("Notice of Redemption at
Company's Election") to
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(A) the Holders of the Series A Preferred Stock selected for
redemption at the address and facsimile number of such Holder
appearing in the Company's Series A Preferred Stock register and
(B) the Transfer Agent, which Notice of Redemption At Company's
Election shall be deemed to have been delivered three (3)
business days after the Company's mailing (by overnight or two
(2) day courier, with a copy by facsimile) of such Notice of
Redemption at Company's Election. Such Notice of Redemption At
Company's Election shall indicate (i) the number of shares of
Series A Preferred Stock that have been selected for redemption,
(ii) the date which such redemption is to become effective (the
"Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in
subsection (a)(i) above. Notwithstanding the above, Holder may
convert into Common Stock, prior to the close of business on the
Date of Redemption at Company's Election, any Series A Preferred
Stock which it is otherwise entitled to convert, including Series
B Preferred Stock that has been selected for redemption at
Company's election pursuant to this subsection 3(b).
(b) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption
Notice and begin the redemption procedure under Sections 3(a) unless
it has:
(i) the full amount of the redemption price to cash,
available in a demand or other immediately available account in a
bank or similar financial institution; or
(ii) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial
institution, or
(iii) an agreement with a standby underwriter willing to
purchase from the Company a sufficient number of shares of stock
to provide proceeds necessary to redeem any stock that is not
converted prior to redemptions; or
(iv) a combination of the items set forth in (i), (ii), and
(iii) above, aggregating the full amount of the redemption price.
(c) Payment of Redemption Price. Each Holder submitting Preferred
Stock being redeemed under this Section 3 shall send their Series A
Preferred Stock Certificates to redeemed to the Company or its
Transfer Agent, and the Company shall pay the applicable redemption
price to that Holder within five (5) business days of the Date of
Redemption at Company's Election.
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(4) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all
other rights of the holders of Series A Preferred Shares contained
herein, after a Major Transaction (as defined below), the holders of
Series A Preferred Shares shall have the right in accordance with
Section 4(f), at the option of the holders of at least two-thirds
(2/3) of the Series A Preferred Shares then outstanding, to require
the Company to redeem all of the Series A Preferred Shares then
outstanding at a price per Series A Preferred Share equal to the
greater of (i) 100% of the Liquidation Value (as defined below) of
such share and (ii) the price calculated in accordance with the
Redemption Rate (as defined below) calculated as of the date of the
public announcement of such Major Transaction or the next date on
which the exchange or market on which the Common Stock is traded in
open if such public announcement is made (A) after 1:00 p.m. Eastern
Standard Time on such date or (B) on a date on which the exchange or
market on which the Common Stock is traded is closed.
(b) Redemption Option Upon Triggering Event. In addition to all
other rights of the holders of Series A Preferred Shares contained
herein, after a Triggering Event (as defined below), the holders of
Series A Preferred Shares shall have the right in accordance with
Section 4(g), at the option of the holders of at least two-thirds
(2/3) of the Series A Preferred Shares then outstanding, to require
the Company to redeem all of the Series A Preferred Shares then
outstanding at a price per Series A Preferred Shares equal to the
greater of (i) 120% of the Liquidation Value of such share and (ii)
the price calculated in accordance with the Redemption Rate as of the
date immediately preceding such Triggering Event on which the exchange
or market on which the Common Stock is traded is open.
(c) "Redemption Rate." The "Redemption Rate" shall, as of any
date of determination, be equal to (i) the Conversion Rate in effect
as of such date as calculated pursuant to Section 2(b) multiplied by
(ii) the Closing Bid Price of the Common Stock on such date.
(d) "Major Transaction." A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:
(i) the consummation of any merger, reorganization,
restructuring, consolidation, or similar transaction by or
involving the Company except (A) a merger or consolidation where
the Company is the survivor or (B) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company;
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(ii) sale of all or substantially all of the assets of the
Company or all of its material subsidiaries or any similar
transaction or related transactions which effectively results in
a sale of all or substantially all of the assets of the Company
and/or its subsidiaries;
(iii) the occurrence, after the date hereof, of the
acquisition, by any person (including any entity or association)
or persons (other than any existing stockholder of the Company or
two or more existing stockholders of the Company, acting in
concert, of securities of the Company (or the power to vote such
securities) representing 50% or more of the total voting power of
all outstanding Common Stock or other voting securities of the
Company; or
(iv) the failure of the Company to continue to own, directly
or indirectly, all of the capital stock of all of its material
subsidiaries (other than due to a merger or consolidation of any
subsidiary into the Company or a wholly-owned subsidiary of the
Company).
(e) "Triggering Event." A "Triggering Event" shall be deemed to
have occurred at such time as any of the following events:
(i) either (A) the failure of the Registration Statement to
be effective or to cover the resale of all of the shares of
Common Stock issued or issuable upon conversion of the Series A
Preferred Shares at any time after sixty (60) days after the
Scheduled Effective Date (provided that for purposes of
determining the Closing Bid Price under Section 4(c) above, the
Triggering Event shall be deemed to have occurred on the first
day of such 60-day period)or (B) for any period of sixty (60)
consecutive days after the date that is sixty (60) days after the
Scheduled Effective Date that Common Stock issued or issuable
upon conversion of the Series A Preferred Shares cannot be sold
under the Registration Statement for any reason (provided that
for purposes of determining the Closing Bid Price under Section
4(c) above, the Triggering Event shall be deemed to have occurred
on the first day of such 60-day period);
(ii) if for any reason the Company fails to perform or
observe any covenant, agreement, or other provision contained in
Section 9 or 10 hereof or in Section 4(g) of the Securities
Purchase Agreement;
(iii) Joe Fiore ceases to be the Chief Executive Officer of
the Company prior to March 20, 2000, other than in connection
with a Major Transaction;
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<PAGE>
(iv) the Company's notice to any holder of Series B
Preferred Shares, including by way of public announcement, at any
time, of its intention for any reason not to comply with requests
for conversion of any Series A Preferred Shares for shares of
Common Stock;
(v) if for any reason the Company fails to perform or
observe any covenant, agreement, or other provision contained
herein or in the Securities Purchase Agreement or the
Registration Rights Agreement, and such failure is not cured
within 30 days after the Company knows, or should have known with
the exercise of reasonable diligence, of the occurrence thereof,
and such failure has had, or could reasonably be expected to
have, a material adverse effect on (A) the financial condition,
operating results, business, properties, or operations of the
Company and its subsidiaries taken as a whole taking into account
any proceeds reasonably expected to be received by the Company or
its subsidiaries in the foreseeable future from insurance
policies or rights of indemnification or (B) the Series B
Preferred Shares; or
(vi) any representation or warranty contained in the
Securities Purchase Agreement or the Registration Rights
Agreement is false or misleading on or as of the date made and
which either reflects or has had a material adverse effect on (A)
the financial condition, operating results, business, properties,
or operations of the Company and its subsidiaries taken as a
whole taking into account any proceeds reasonably expected to be
received by the Company or its subsidiaries in the foreseeable
future from insurance policies or rights of indemnification or
(B) the Series A Preferred Shares.
(f) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10)
days prior to the consummation of a Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company
shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Major Transaction") to each holder of Series A
Preferred Shares. At any time after receipt of a Notice of Major
Transaction, the holders of at least two-thirds (2/3) of the Series A
Preferred Shares then outstanding may require the Company to redeem
all of the holders' Series A Preferred Shares then outstanding in
accordance with Section 4(a) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Major Transaction") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of Series A Preferred Shares that such holders are
voting in favor of redemption and (ii) the applicable redemption
price, as calculated pursuant to Section 4(a) above.
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(g) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Series A Preferred Shares. At any time after receipt of a Notice of
Triggering Event, the holders of at least two-thirds (2/3) of the
Series A Preferred Shares then outstanding may require the Company to
redeem all of the Series A Preferred Shares then outstanding in
accordance with Section 4(b) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of
Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of Series A Preferred Shares that such holders are voting
in favor of redemption and (ii) the applicable redemption price, as
calculated pursuant to Section 4(b) above.
(h) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as
the case may be, from the holders of at least two-thirds (2/3) of the
Series B Preferred Shares then outstanding, the Company shall
immediately notify each holder by facsimile of the Company's receipt
of such requisite notices necessary to affect a redemption and each
holder of Series A Preferred Shares shall thereafter promptly send
such holder's Preferred Stock Certificates to be redeemed to the
Company or its Transfer Agent. The Company shall pay the applicable
redemption price, as calculated pursuant to Section 4(a) or 4(b)
above, in cash to such holder within thirty (30) days after the
Company' receipt of the requisite notices required to affect a
redemption; provided that a holder's Preferred Stock Certificates
shall have been so delivered to the Company or its Transfer Agent;
provided further that if the Company is unable to redeem all of the
Series A Preferred Shares, the Company shall redeem an amount from
each holder of Series A Preferred Shares equal to such holder's
pro-rata amount (based on the number of Series A Preferred Shares held
by such holder relative to the number of Series A Preferred Shares
outstanding) of all Series A Preferred Shares being redeemed. If the
Company shall fail to redeem all of the Series A Preferred Shares
submitted for redemption (other than pursuant to a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate), the applicable redemption price payable in
respect of such unredeemed Series A Preferred Shares shall bear
interest at the rate of 2.5% per month (prorated for partial months)
until paid in full. Until the Company pays such unpaid applicable
redemption price in full to each holder, holders of at least
two-thirds (2/3) of the Series A Preferred Shares then outstanding,
including shares of Series A Preferred Shares submitted for redemption
pursuant to this Section 4 and for which the applicable redemption
price has not been paid, shall have the option (the "Void Optional
Redemption Option") to, in lieu of redemption, require the Company to
promptly return to each holder all of the Series A Preferred Shares
that
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were submitted for redemption by such holder under this Section 4 and
for which the applicable redemption price has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void
Optional Redemption Notice"). Upon the Company's receipt of such Void
Optional Redemption Notice(s) and prior to payment of the full
applicable redemption price to each holder, (i) the Notice(s) of
Redemption at Option of Buyer Upon Triggering Event or the Notice(s)
of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Series A
Preferred Shares submitted for redemption and for which the applicable
redemption price has not been paid, (ii) the Company shall immediately
return any Series A Preferred Shares submitted to the Company by each
holder for redemption under this Section 4(i) and for which the
applicable redemption price had not been paid, (iii) the Fixed
Conversion Price of such returned Series A Preferred Shares shall be
adjusted to the lesser of (A) the Fixed Conversion Price as in effect
on the date on which the Void Option Redemption Notice(s) is delivered
to the Company and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option
of Buyer Upon Major Transaction or the Notice(s) of Redemption at
Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided
that no adjustment shall be made if such adjustment would result in an
increase of the Fixed Conversion Price then in effect, and (iv) the
Conversion Percentage in effect at such time and thereafter shall be
reduced by a number of percentage points equal to the product of (A)
two and one-half (2.5) and (B) the number of months (prorated for
partial months) in the period beginning on the date on which the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or
the Notice(s) of Redemption at Option of Buyer Upon Triggering Event,
as the case may be, is delivered to the Company and ending on the date
on which the Void Optional Redemption Notice(s) is delivered to the
Company. Notwithstanding the foregoing, in the event of a dispute as
to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate, such dispute shall be resolved
pursuant to Section 2(f)(iii) above with the term "Closing Bid Price"
being substituted for the term "Average Market Price" and the term
"Redemption Rate" being substituted for the term "Conversion Rate."
(5) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If at any
time after the earlier to occur of (i) effectiveness of the
Registration Statement or (ii) sixty (60) days after the Scheduled
Effective Date, upon the Company's receipt of a Conversion Notice, the
Company does not issue shares of Common Stock which are registered for
resale under the Registration Statement within five (5) business days
of the time required in accordance with Section 2(f) hereof, for any
reason or for no reason,
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including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available,
(y) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company
or its Securities, including without limitation the Nasdaq-Small Cap,
from issuing all of the Common Stock which is to be issued to a holder
of Series A Preferred Shares pursuant to a Conversion Notice or (z)
fails to have a sufficient number of shares of Common Stock registered
and eligible for resale under the Registration Statement, then the
Company shall issue as many shares of Common Stock as it is able to
issue in accordance with such holder's Conversion Notice and pursuant
to Section 2(f) above and, with respect to the unconverted Series A
Preferred Shares, the holder, solely at such holder's option, can, in
addition to any other remedies such holder may have hereunder, under
the Securities Purchase Agreement (including indemnification under
Section 8 thereof), under the Registration Rights Agreement, at law or
in equity, elect to:
(i) require the Company to redeem from such holder those
Series A Preferred Shares for which the Company is unable to
issue Common Stock in accordance with such holder's Conversion
Notice ("Mandatory Redemption") at a price per Series A Preferred
Share (the "Mandatory Redemption Price") equal to the greater of
(x) 120% of the Liquidation Value of such share and (y) the
Redemption Rate as of such Conversion Date;
(ii) if the Company's inability to fully convert Series A
Preferred Shares is pursuant to Section 5(a)(z) above, require
the Company to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to
Section 2(f) above; or
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Series A Preferred
Shares that were to be converted pursuant to such holder's
Conversion Notice.
(b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Series A Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
5(a) above, a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "Inability to Fully Convert Notice").
Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Series A Preferred Shares which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such
holder must within five (5) business days of receipt of such Inability
to Fully Convert Notice deliver written notice via facsimile
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to the Company ("Notice in Response to Inability to Convert") of its
election pursuant to Section 5(a) above.
(c) Payment of Redemption Price. If such holder shall elect to
have its shares redeemed pursuant to Section 5(a) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder within
thirty (30) days of the Company's receipt of the holder's Notice in
Response to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis
as described in this Section 5(c) (other than pursuant to a dispute as
to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate), such unpaid amount shall bear
interest at the rate of 2.5% per month (prorated for partial months)
until paid in full. Until the full Mandatory Redemption Price is paid
in full to such holder, such holder may void the Mandatory Redemption
with respect to those Series A Preferred Shares for which the full
Mandatory Redemption Price has not been paid and receive back such
Series A Preferred Shares. Notwithstanding the foregoing, if the
Company fails to pay the applicable Mandatory Redemption Price within
such thirty (30) days time period due to a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Closing Bid Price" being
substituted for the term "Average Market Price" and the term,
"Redemption Rate" being substituted for the term "Conversion Rate."
(d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice from more than one holder of Series A
Preferred Shares on the same day and the Company can convert and
redeem some, but not all, of the Series A Preferred Shares pursuant to
this Section 5, the Company shall convert and redeem from each holder
of Series A Preferred Shares electing to have Series A Preferred
Shares converted and redeemed at such time an amount equal to such
holder's pro-rata amount (based on the number of Series A Preferred
Shares held by such holder relative to the number of Series B
Preferred Shares outstanding) of all Series A Preferred Shares being
converted and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of
the Series A Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to
the holder of such Series A Preferred Shares a Preferred stock certificate
representing the remaining Series A Preferred Shares which have not been so
converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of the
Series A Preferred Shares are outstanding reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series A
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Preferred Shares, such number of shares of Common Stock as shall from time
to time be sufficient to affect the conversion of all of the Series A
Preferred Shares then outstanding; provided that the number of shares of
Common Stock so reserved shall at no time be less than 200% of the number
of shares of Common Stock for which the Series A Preferred Shares are at
any time convertible,
(7) Voting Rights. Holders of Series A Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware and as expressly provided
in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
Company, the holders of the Series A Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital or
from earnings available for distribution to its stockholders (the
"Preferred Funds"), before any amount shall be paid to the holders of any
of the capital stock of the Company of any class junior in rank to the
Series B Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up
of the Company, an amount per Series A Preferred Share equal to the sum of
(i) $20,000 and (ii) an amount equal to the product of (.03) (N/365)
($20,000) (such sum being referred to as the "Liquidation Value"); provided
that, if the Preferred Funds are insufficient to pay the full amount due to
the holders of Series A Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal rank
with the Series A Preferred Shares as to payments of Preferred Funds (the
"Pari Passu Shares"), then each holder of Series A Preferred Shares and
Pari Passu Shares shall receive a percentage of the Preferred Funds equal
to the full amount of Preferred Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights as a percentage or the full amount of
Preferred Funds payable to all holders of Series A Preferred Shares and
Pari Passu Shares. The purchase or redemption by the Company of stock of
any class in any manner permitted by law, shall not for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed
to be a liquidation, dissolution or winding up of the Company. No holder of
Series A Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein.
(9) Preferred Rate. All shares of Common Stock shall be of junior rank
to all Series A Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding
up of the Company. The rights of the shares of Common Stock shall be
subject to the Preferences and relative rights of the Series A Preferred
Shares. The Series A Preferred Shares shall be of greater than any Series
of Common or Preferred Stock hereinafter issued by the Company. Without the
prior express
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written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Series A Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior or
equal rank to the Series A Preferred Shares in respect of the preferences
as to distributions and payments upon the liquidation, dissolution and
winding up of the Company. Without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding Series A
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or make
any resolution of the board of directors with the Delaware Secretary of
State containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Series A
Preferred Shares relative to the holders of the Common Stock or the holders
of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation, the Series A
Preferred Shares shall maintain their relative powers, designations, and
preferences provided for herein and no merger shall result inconsistent
therewith.
(10) Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series A Preferred Shares are
outstanding, without the prior express written consent of the holders
of not less than two-thirds (2/3) of the then outstanding Series A
Preferred Shares, the Company shall not directly or indirectly
declare, pay or make any dividends or other distributions upon any of
the Common Stock so long as written notice thereof has been given to
holders of the Series A Preferred Shares at least 30 days prior to the
earlier of (a) the record date taken for or (b) the payment of any
such dividend or other distribution. Notwithstanding the foregoing,
this Section 10(a) shall not prohibit the Company from declaring and
paying a dividend in cash with respect to the Common Stock so long as
the Company: (i) pays simultaneously to each holder of Series A
Preferred Shares an amount in cash equal to the amount such holder
would have received had all of such holder's Series A Preferred Shares
been converted to Common Stock pursuant to Section 2 hereof one
business day prior to the record date for any such dividend, and (ii)
after giving effect to the payment of any dividend and any other
payments required in connection therewith including to the holders of
the Series A Preferred Shares under clause 10(a)(i) hereof, the
Company has in cash or cash equivalents an amount equal to the
aggregate of: (A) all of its liabilities reflected on its most
recently available balance sheet, (B) the amount of any indebtedness
incurred by the Company or any of its subsidiaries since its most
recent balance sheet and (C) 125% of the amount payable to all holders
of any shares of any class of preferred stock of the Company assuming
a liquidation of the Company as the date of its most recently
available balance sheet.
(b) Restriction on Redemption. If any Series A Preferred Shares
are outstanding, without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Series A Preferred Shares, the Company shall
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<PAGE>
not directly or indirectly redeem, purchase or otherwise acquire from
any person or entity other than from a direct or indirect wholly-owned
subsidiary of the Company, or permit any subsidiary of the Company to
redeem, purchase or otherwise acquire from any person or entity other
than from the Company or another direct or indirect wholly-owned
subsidiary of the Company, any of the Company's or any subsidiary's
capital stock or other equity securities (including, without
limitation, warrants, options and other rights to acquire such capital
stock or other equity securities).
(11) Vote to Change the Terms of Series A Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3)
of the then outstanding Series A Preferred Shares, shall be required for
any change to this Certificate of Designations or the Company's Certificate
of Incorporation which would amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Series A Preferred
Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series A
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall
not be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Series A Preferred
Shares into Common Stock.
(13) Withholding Tax Obligations. Notwithstanding anything herein to
the contrary, to the extent that the Company receives advice in writing
from its counsel that there is a reasonable basis to believe that the
Company is required by applicable federal laws or regulations and delivers
a copy of such written advice to the holders of the Series A Preferred
Shares so effected, the Company may reasonably condition the making of any
distribution (as such term is defined under applicable federal tax law and
regulations) in respect of any Series A Preferred Share on the holder of
such Series A Preferred Shares depositing with the Company an amount of
cash sufficient to enable the Company to satisfy its withholding tax
obligations (the "Withholding Tax") with respect to such distribution.
Notwithstanding the foregoing or anything to the contrary, if any holder of
the Series A Preferred Shares so effected receives advice in writing from
its counsel that there is a reasonable basis to believe that the Company is
not so required by applicable federal laws or regulations and delivers a
copy of such written advice to the Company, the Company shall not be
permitted to condition the making of any such distribution in respect of
any Series A Preferred Share on the holder of such Series A Preferred
Shares depositing with the Company any Withholding Tax with respect to such
distribution, provided, however, the Company may reasonably condition the
making of any such distribution in respect of any Series A Preferred Share
on the holder of such Series A Preferred Shares executing and delivering to
the Company, at the
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<PAGE>
election of the holder, either: (i) if applicable, a property completed
Internal Revenue Service Form 4224, or (a) an indemnification agreement in
reasonably acceptable form, with respect to any federal tax liability,
penalties and interest that may be imposed upon the Company by the Internal
Revenue Service as a result of the Company's failure to withhold in
connection with such distribution to such holder. If the conditions in the
preceding two sentences are fully satisfied, the Company shall not be
required to pay any additional damages set forth in Section 2(f)(v) of this
Certificate of Designations if its failure to timely deliver any Conversion
Shares results solely from the holder's failure to deposit any withholding
tax hereunder or provide to the Company an executed indemnification
agreement in the form reasonably satisfactory to the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Joseph Fiore, its Chief Executive Officer, as of the 20th day of
March, 1998.
EAT AT JOE'S LTD.
By: /S/ Joseph Fiore
--------------------
Joseph Fiore
Chief Executive Officer
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<PAGE>
EXHIBIT I
EAT AT JOE'S LTD.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of Eat At Joe's Ltd. (the "Certificate of Designations"). In accordance
with and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of Series A Convertible Preferred Stock,
$.0001 par value per share (the "Series A Preferred Shares"), of Eat At Joe's
Ltd., a Delaware corporation (the "Company"), indicated below into shares of
Common Stock, $.0001 par value per share (the "Common Stock"), of the Company,
by tendering the stock certificate(s) representing the share(s) of Series A
Preferred Shares specified below as of the date specified below.
THE FOLLOWING PARAGRAPH SET FORTH BELOW IS ONLY APPLICABLE IN THE EVENT OF
A "REGULAR ELECTION".
The undersigned represents that it is and each person or entity on whose
behalf it holds Series A Preferred Shares to be converted into Common Stock
(each and "Investor"); (i) is familiar with and understands the terms,
conditions and requirements contained in Regulation S ("Regulation S")
promulgated under the Securities Act of 1933, as amended (the "Act"); (ii) is
not a "U.S. Person" or "Distributor" as defined in Regulation S; (iii) purchased
the Series A Preferred Shares for which conversion is being elected, and is
purchasing the Common Stock referenced herein, for its own account and for the
account of each Investor and not for the account or benefit of any U.S. Person;
(iv) will comply with the transfer restrictions contained in Section 4(1) of the
Act to the extent applicable; (v) during the Regulation S Restricted Period (as
defined in the Securities Purchase Agreement), has not had a "short" position in
the Company's securities (including any short call position or any long put
position or any contract or arrangement that had the effect of eliminating or
substantially diminishing the risk of ownership of the Series A Preferred
Shares): (vi) has no prior understanding with respect to the sale of the Common
Stock to any third party: (vii) has not engaged in any "directed selling
efforts" (as such term is defined in Regulation S) with respect to the Series a
Preferred Shares of the Common Stock issuable upon conversion of the Series A
Preferred Shares; (viii) purchased the Series A Preferred Shares with investment
intent and will dispose of the Common Stock only in compliance with Regulation S
and all other applicable provisions of the federal securities laws; (ix) will
make any sale, transfer or other disposition of the Common Stock in full
compliance with the Act, the Securities and Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder; and (x) received the offer to purchase the Series A
Preferred Shares outside the United States and, at the time the Securities
Purchase Agreement was executed, was and, upon execution of this Conversion
Notice, is outside the United States. The undersigned has obtained
representations from each Investor with respect to compliance with paragraphs
(i) - (x) of this notice.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series A Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "Act"), or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Act.
Date of Conversion:
---------------------------------------------
Number of Series A
Preferred Shares to be converted
---------------------------------------------
Stock certificate no(s). of Series A
Preferred Shares to be converted:
---------------------------------------------
Please confirm the following information:
Conversion Price:
---------------------------------------------
Number of shares of Common Stock
to be issued:
---------------------------------------------
<PAGE>
please issue the Common Stock into which the Series A Preferred Shares are being
converted in the following name and to the following address:
Issue to:1
---------------------------------------------
---------------------------------------------
Facsimile Number:
---------------------------------------------
Authorization:
---------------------------------------------
By:__________________________________________
Title:_______________________________________
Dated:
---------------------------------------------
ACKNOWLEDGED AND AGREED:
EAT AT JOE'S LTD.
By: _____________________________
Name:___________________________
Title:____________________________
Date:____________________________
- --------
1 If other than to the record holder of the Series A Preferred Shares, any
applicable transfer tax must be paid by the undersigned.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
EAT AT JOE'S LTD.
Eat at Joe's Ltd. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation of the Company, and pursuant to Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of the Company at a meeting duly held, adopted resolutions (i) authorizing a
series of the Company's authorized preferred stock, $.0001 par value per share,
and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of 150 shares of Series B Convertible Preferred Stock of
the Company, as follows:
RESOLVED, that the Company is authorized to issue 150 shares of Series
B Convertible Preferred Stock (the "Series B Preferred Shares"), $.0001 par
value per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The Series B Preferred Shares shall not bear any
dividends.
(2) Holder's Conversion of Series B Preferred Shares. A holder of
Series B Preferred Shares shall have the right, at such holder's option, to
convert the Series B Preferred Shares into shares of the Company's common
stock, $. 0001 par value per share (the "Common Stock"), on the following
terms and conditions:
(a) Conversion Right. Subject to the provisions of Sections 2(g)
and 3(a) below, at any time or times on or after the earlier of (i) 90
days after the Issuance Date (as defined herein), (ii) 5 days after
receiving a "no-review" status from the U.S. Securities and Exchange
Commission in connection with a registration statement ("Registration
Statement") covering the resale of Common Stock issued upon conversion
of the Series B Preferred Shares and required to be filed by the
Company pursuant to the Registration Rights Agreement between the
Company and its initial holders of Series B Preferred Shares (the
"Registration Rights Agreement"), (iii)
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<PAGE>
the date that the Registration Statement is declared effective by the
U.S. Securities and Exchange Commission (the "SEC") any holder of
Series B Preferred Shares shall be entitled to convert any Series B
Preferred Shares into fully paid and nonassessable shares (rounded to
the nearest whole share in accordance with Section 2(h) below) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event other than upon a Mandatory Conversion
pursuant to Section 2(g) hereof, shall any holder be entitled to
convert Series B Preferred Shares in excess of that number of Series B
Preferred Shares which, upon giving effect to such conversion, would
cause the aggregate number of shares of Common Stock beneficially
owned by the holder and its affiliates to exceed 4.9% of the
outstanding shares of the Common Stock following such conversion. For
purposes of the foregoing proviso, the aggregate number of shares of
Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon conversion
of the Series B Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Series B Preferred Shares
beneficially owned by the holder and its affiliates beneficially owned
by the holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Series B Preferred Shares
pursuant to Section (2)(a) shall be determined according to the
following formula (the "Conversion Rate");
(.03)(N/365)(20,000) + 20,000
-----------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "Conversion Price" means as, of any Conversion Date (as
defined below), the lower of the Fixed Conversion Price and the
Floating Conversion Price, each in effect as of such date, if
applicable, and subject to adjustment as provided herein;
(ii) "Fixed Conversion Price" means $1.7928, subject to
adjustment, as provided herein.
(iii) "Floating Conversion Price" means, as of any date of
determination, the amount obtained by multiplying the Conversion
Percentage in effect as of such date by the Average Market Price
for the
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<PAGE>
Common Stock for the five (5) consecutive trading days
immediately preceding such date;
(iv) "Conversion Percentage" means 75% and shall be reduced
by an additional 2% for every 30 days (pro-rated for partial
months) beyond 45 days from the Issuance Date (the "Scheduled
Filing Date") that the Registration Statement is not filed by the
Company;
(v) "Average Market Price" means, with respect to any
security for any period, that price which shall be computed as
the arithmetic average of the Closing Bid Prices (as defined
below) for such security for each trading day in such period;
(vi) "Closing Bid Price" means, for any security as of any
date, the last closing bid price on the Nasdaq National Market
(the "Nasdaq-NM") as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Nasdaq-NM is not the principal trading
market for such security, the last closing bid price of such
security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing bid price of
such security in the over-the-counter market on the pink sheets
or bulletin board for such security as reported by Bloomberg, or,
if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as
reported by Bloomberg. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall
be the fair market value as reasonably determined in good faith
by the Board of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock split or other similar
transaction during such period); and
(vii) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date for the
Series B Preferred Shares for which conversion is being elected.
(viii) "Issuance Date" means the date of issuance of the
Series B Preferred Shares.
(c) Adjustment to Conversion Price - Registration Statement. If
the Registration Statement is not declared effective by the SEC on or
before the ninetieth (90th) day following the Issuance Date (the
"Scheduled Effective Date"), or if after the Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant
to the Registration Statement (whether because of a failure to keep
the registration Statement effective, to disclose such information as
is necessary for sales
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<PAGE>
to be made pursuant to the Registration Statement, to register
sufficient shares of Common Stock or otherwise), then, as partial
relief for the damages to any holder by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock
(which remedy shall not be exclusive of any other remedies at law or
in equity), the Conversion Percentage and the Fixed Conversion Price
shall be adjusted as follows:
(i) Conversion Percentage. The Conversion Percentage in
effect, at such time for each time period set forth in Section
2(b)(iv) with respect to the Series B Preferred Shares which may
be converted as permitted by Section 2(a) hereof during the
period that sales cannot be made pursuant to the Registration
Statement, shall be reduced by a number of percentage points
equal to the product of (A) three (3) and (B) the sum of (I) the
number of months (prorated for partial months) after the
Scheduled Effective Date and prior to the date that the relevant
Registration Statement is declared effective by the SEC and (II)
the number of months (prorated for partial months) that sales
cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective. (For example,
if the Registration Statement becomes effective one and one-half
(1 1/2) months after the Scheduled Effective Date, the Conversion
Percentage with respect to the Series B Preferred Shares would
decrease by four and one-half percent (4.5% to 70.5%) until any
subsequent adjustment; if thereafter sales could not be made
pursuant to the Registration Statement for a period of two (2)
additional months, the Conversion Percentage with respect to the
Series B Preferred Shares would decrease by an additional six
percent (6%), for an aggregate decrease of ten and one-half
percent (10.5% to 64.5%); and
(ii) Fixed Conversion Price. The Fixed Conversion Price in
effect from time to time with respect to the Series B Preferred
Shares shall be reduced by an amount equal to the product of (A)
($.054) and (B) the sum of (I) the number of months (prorated for
partial months) after the Scheduled Effective Date and prior to
the date that the Registration Statement is declared effective by
the SEC and (II) the number of months (prorated for partial
months) that sales cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes
effective one and one-half (1 1/2) months after the Scheduled
Effective Date, the Fixed Conversion Price with respect to the
Series B Preferred Shares would be $1.712 until any subsequent
adjustment; if thereafter sales could not be made pursuant to the
Registration Statement for a period of two (2) additional months,
the Fixed Conversion Price with respect to the Series B Preferred
Shares would then be $1.605).
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<PAGE>
(d) Adjustment to Conversion Price - Dilution and Other Events.
In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization
or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Fixed
Conversion Price in effect immediately prior to such subdivision
will be proportionately reduced. If the Company at any time
combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately
increased.
(ii) Reorganization, Reclassification, Consolidation,
Merger, or Sale. Any recapitalization, reorganization
reclassification, consolidation. merger, sale of a or
substantially all of the Company's assets to another Person (as
defined below) or other similar transaction which is effected in
such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock,
securities or assess with respect to or in exchange for Common
Stock is referred to herein as in "Organic Change." Prior to the
consummation of any Organic Change, the Company will make
appropriate provision (in form and substance satisfactory to the
holders of a majority of the Series B Preferred Shares then
outstanding) to insure that each of the holders of the Series B
Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series B
Preferred Shares, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's
Series B Preferred Shares had such Organic Change not taken
place. In any such case, the Company will make appropriate
provision (in form and substance satisfactory to the holders of a
majority of the Series B Preferred Shares then outstanding) with
respect to such holders' rights and interests to insure that the
provisions of this Section 2(d) and Section 2(e) below will
thereafter be applicable to the Series B Preferred Shares. The
Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor entity (if
other than the Company) resulting from consolidation or merger or
the entity purchasing such assets assumes, by written instrument
(in form and
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<PAGE>
substance satisfactory to the holders of a majority of the Series
B Preferred Shares then outstanding), the obligation to deliver
to each holder of Series B Preferred Shares such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire. For purposes
of this Agreement, "Person" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation,
a trust, an unincorporated organization and a government or any
department or agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each
holder of Series B Preferred Shares, setting forth in
reasonable detail and certifying the calculation of such
adjustment.
(B) The Company will give written notice to each holder
of Series B Preferred Shares at least twenty (20) days prior
to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon
the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for
determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(C) The Company will also give written notice to each
holder of Series B Preferred Shares at least twenty (20)
days prior to the date on which any Organic Change, Major
Transaction (as defined below), dissolution or liquidation
will take place.
(e) Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders
of any class of Common Stock (the "Purchase Rights"), then the holders
of Series B Preferred Shares will be entitled to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete
conversion of the Series B Preferred Shares immediately before the
date an which a record is taken for the grant issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which
the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
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<PAGE>
(f) Mechanics of Conversion. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 5 below:
(i) Holder's Delivery Requirements. To convert Series B
Preferred Shares into full shares of Common Stock on any date
(the "Conversion Date"), the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 11:59 p.m.,
Eastern Standard Time, on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I
(the "Conversion Notice") to the Company or its designated
transfer agent (the "Transfer Agent"), and (B) surrender to a
common carrier for delivery to the Company or the Transfer Agent
as soon as practicable following such date, the original
certificates representing the Series B Preferred Shares being
converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction) (the
"Preferred Stock Certificates") and the originally executed
Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall
immediately send, via Facsimile, a confirmation of receipt of
such Conversion Notice to such holder. Upon receipt by the
Company or the Transfer Agent of the Preferred Stock Certificates
to be converted pursuant to a Conversion Notice, together with
the originally executed Conversion Notice, the Company or the
Transfer Agent (as applicable) shall, within five (5) business
days following the date of receipt, (A) issue and surrender to a
common carrier for overnight delivery to the address as specified
in the Conversion Notice, a certificate, registered in the name
of the holder or its designee, for the number of shares of Common
Stock to which the holder shall be entitled or (B) credit the
aggregate number of shares of Common Stock to which the holder
shall be entitled to the holder's or its designee's balance
account at The Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Average Market Price or the arithmetic
calculation of the Conversion Rate, the Company shall promptly
issue to the holder the number of shares of Common Stock that is
not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within three
(3) business days of receipt of such holder's Conversion Notice.
If such holder and the Company are unable to agree upon the
determination of the Average Market Price or arithmetic
calculation of the Conversion Rate within two (2) business days
of such disputed determination or arithmetic calculation being
submitted to the holder, then the Company shall within one
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(1) business day submit via facsimile (A) the disputed
determination of the Average Market Price to an independent,
reputable investment bank or (B) the disputed arithmetic
calculation of the Conversion Rate to its independent, outside
accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results
no later than forty-eight (48) hours from the time it receives
the disputed determinations or calculations. Such investment
bank's or accountant's determination or calculation, as the case
may be, shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Series B Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on
the Conversion Date.
(v) Company's Failure to Timely Convert. If the Company
shall fail to issue to a holder within five (5) business days
following the date of receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, a certificate for the number of
shares of Common Stock to which such holder is entitled upon such
holder's conversion of Series B Preferred Shares, in addition to
all other available remedies which such holder may pursue
hereunder and under the Securities Purchase Agreement between the
Company and the initial holders of the Series B Preferred Shares
(the "Securities Purchase Agreement") (including indemnification
pursuant to Section 8 thereof), the Company shall pay additional
damages to such holder on each day after the fifth (5th) business
day following the date of receipt by the Company or the Transfer
Agent of the Preferred Stock Certificates to be converted
pursuant to the Conversion Notice, for which such conversion is
not timely effected, an amount equal to 1.0% of the product of
(A) the number of shares of Common Stock not issued to the holder
and to which such holder is entitled and (B) the Closing Bid
Price of the Common Stock on the business day following the date
of receipt by the Company or the Transfer Agent of the Preferred
Stock Certificates to be converted pursuant to the Conversion
Notice.
(g) Mandatory Conversion. If any Series B Preferred Shares remain
outstanding on May 5, 2000, then all such Series B Preferred Shares
shall be converted as of such date in accordance with this Section 2
as if the holders of such Series B Preferred Shares had given the
Conversion Notice on May 5, 2000, and the Conversion Date had been
fixed as of May 5, 2000, for all purposes of this Section 2, and all
holders of Series B Preferred Shares shall thereupon and with two (2)
business days thereafter surrender all Preferred Stock Certificates,
duly endorsed for
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cancellation, to the Company or the Transfer Agent. No person shall
thereafter have any rights in respect of Series B Preferred Shares,
except the right to receive shares of Common Stock on conversion
thereof as provided in this Section 2.
(h) Fractional Shares. The Company shall not issue any fraction
of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more
than one share of the Series B Preferred Shares by a holder thereof
shall be aggregated for purposes of determining whether the conversion
would result in the issuance of a fraction of a share of Common Stock.
lf, after the aforementioned aggregation, the issuance would result in
the issuance of a fraction of it share of Common Stock, the Company
shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series B Preferred Shares.
(3) Company's Right to Redeem at its Election.
(a) At any time, commencing 110 days after the Issuance Date, as
long as the Company has not breached any of the representations,
warrants, and covenants contained herein or in any related agreements,
the Company shall have the right, in it sole discretion, to redeem
("Redemption at Company's Election"), from time to time, any or all of
the Series B Preferred Stock: provided (i) Company shall first provide
thirty (30) days advance written notice as provided in subparagraph
3(a)(ii) below (which can be given any time on or after 80 days after
the Issuance Date, and (ii) that the Company shall only be entitled to
redeem Series B Preferred Stock having an aggregate Stated Value (as
defined below) of at least Five Hundred Thousand Dollars ($500,000).
If the Company elects to redeem some, but not all, of the Series B
Preferred Stock, the Company shall redeem a pro-rata amount from each
Holder of the Series B Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption
Price at Company's Election" shall be calculated as 125% of
Stated Value, as that term is defined below, of the Series B
Preferred Stock. For purposes hereof, "Stated Value" shall mean
the original principal amount of Preferred Stock being redeemed,
plus the unpaid 3% per annum premium being redeemed pursuant to
this Section 3(a).
(ii) Mechanics of Redemption at Company's Election. The
Company shall effect each such redemption by giving at least
thirty (30) days prior written notice ("Notice of Redemption at
Company's Election") to
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(A) the Holders of the Series B Preferred Stock selected for
redemption at the address and facsimile number of such Holder
appearing in the Company's Series B Preferred Stock register and
(B) the Transfer Agent, which Notice of Redemption At Company's
Election shall be deemed to have been delivered three (3)
business days after the Company's mailing (by overnight or two
(2) day courier, with a copy by facsimile) of such Notice of
Redemption at Company's Election. Such Notice of Redemption At
Company's Election shall indicate (i) the number of shares of
Series B Preferred Stock that have been selected for redemption,
(ii) the date which such redemption is to become effective (the
"Date of Redemption At Company's Election") and (iii) the
applicable Redemption Price At Company's Election, as defined in
subsection (a)(i) above. Notwithstanding the above, Holder may
convert into Common Stock, prior to the close of business on the
Date of Redemption at Company's Election, any Series B Preferred
Stock which it is otherwise entitled to convert, including Series
B Preferred Stock that has been selected for redemption at
Company's election pursuant to this subsection 3(b).
(b) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Redemption
Notice and begin the redemption procedure under Sections 3(a) unless
it has:
(i) the full amount of the redemption price to cash,
available in a demand or other immediately available account in a
bank or similar financial institution; or
(ii) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial
institution, or
(iii) an agreement with a standby underwriter willing to
purchase from the Company a sufficient number of shares of stock
to provide proceeds necessary to redeem any stock that is not
converted prior to redemptions; or
(iv) a combination of the items set forth in (i), (ii), and
(iii) above, aggregating the full amount of the redemption price.
(c) Payment of Redemption Price. Each Holder submitting Preferred
Stock being redeemed under this Section 3 shall send their Series B
Preferred Stock Certificates to redeemed to the Company or its
Transfer Agent, and the Company shall pay the applicable redemption
price to that Holder within five (5) business days of the Date of
Redemption at Company's Election.
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(4) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all
other rights of the holders of Series B Preferred Shares contained
herein, after a Major Transaction (as defined below), the holders of
Series B Preferred Shares shall have the right in accordance with
Section 4(f), at the option of the holders of at least two-thirds
(2/3) of the Series B Preferred Shares then outstanding, to require
the Company to redeem all of the Series B Preferred Shares then
outstanding at a price per Series B Preferred Share equal to the
greater of (i) 100% of the Liquidation Value (as defined below) of
such share and (ii) the price calculated in accordance with the
Redemption Rate (as defined below) calculated as of the date of the
public announcement of such Major Transaction or the next date on
which the exchange or market on which the Common Stock is traded in
open if such public announcement is made (A) after 1:00 p.m. Eastern
Standard Time on such date or (B) on a date on which the exchange or
market on which the Common Stock is traded is closed.
(b) Redemption Option Upon Triggering Event. In addition to all
other rights of the holders of Series B Preferred Shares contained
herein, after a Triggering Event (as defined below), the holders of
Series B Preferred Shares shall have the right in accordance with
Section 4(g), at the option of the holders of at least two-thirds
(2/3) of the Series B Preferred Shares then outstanding, to require
the Company to redeem all of the Series B Preferred Shares then
outstanding at a price per Series B Preferred Shares equal to the
greater of (i) 120% of the Liquidation Value of such share and (ii)
the price calculated in accordance with the Redemption Rate as of the
date immediately preceding such Triggering Event on which the exchange
or market on which the Common Stock is traded is open.
(c) "Redemption Rate." The "Redemption Rate" shall, as of any
date of determination, be equal to (i) the Conversion Rate in effect
as of such date as calculated pursuant to Section 2(b) multiplied by
(ii) the Closing Bid Price of the Common Stock on such date.
(d) "Major Transaction." A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:
(i) the consummation of any merger, reorganization,
restructuring, consolidation, or similar transaction by or
involving the Company except (A) a merger or consolidation where
the Company is the survivor or (B) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company;
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<PAGE>
(ii) sale of all or substantially all of the assets of the
Company or all of its material subsidiaries or any similar
transaction or related transactions which effectively results in
a sale of all or substantially all of the assets of the Company
and/or its subsidiaries;
(iii) the occurrence, after the date hereof, of the
acquisition, by any person (including any entity or association)
or persons (other than any existing stockholder of the Company or
two or more existing stockholders of the Company, acting in
concert, of securities of the Company (or the power to vote such
securities) representing 50% or more of the total voting power of
all outstanding Common Stock or other voting securities of the
Company; or
(iv) the failure of the Company to continue to own, directly
or indirectly, all of the capital stock of all of its material
subsidiaries (other than due to a merger or consolidation of any
subsidiary into the Company or a wholly-owned subsidiary of the
Company).
(e) "Triggering Event." A "Triggering Event" shall be deemed to
have occurred at such time as any of the following events:
(i) either (A) the failure of the Registration Statement to
be effective or to cover the resale of all of the shares of
Common Stock issued or issuable upon conversion of the Series B
Preferred Shares at any time after sixty (60) days after the
Scheduled Effective Date (provided that for purposes of
determining the Closing Bid Price under Section 4(c) above, the
Triggering Event shall be deemed to have occurred on the first
day of such 60-day period)or (B) for any period of sixty (60)
consecutive days after the date that is sixty (60) days after the
Scheduled Effective Date that Common Stock issued or issuable
upon conversion of the Series B Preferred Shares cannot be sold
under the Registration Statement for any reason (provided that
for purposes of determining the Closing Bid Price under Section
4(c) above, the Triggering Event shall be deemed to have occurred
on the first day of such 60-day period);
(ii) if for any reason the Company fails to perform or
observe any covenant, agreement, or other provision contained in
Section 9 or 10 hereof or in Section 4(g) of the Securities
Purchase Agreement;
(iii) Joe Fiore ceases to be the Chief Executive Officer of
the Company prior to May 5, 2000, other than in connection with a
Major Transaction;
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<PAGE>
(iv) the Company's notice to any holder of Series B
Preferred Shares, including by way of public announcement, at any
time, of its intention for any reason not to comply with requests
for conversion of any Series B Preferred Shares for shares of
Common Stock;
(v) if for any reason the Company fails to perform or
observe any covenant, agreement, or other provision contained
herein or in the Securities Purchase Agreement or the
Registration Rights Agreement, and such failure is not cured
within 30 days after the Company knows, or should have known with
the exercise of reasonable diligence, of the occurrence thereof,
and such failure has had, or could reasonably be expected to
have, a material adverse effect on (A) the financial condition,
operating results, business, properties, or operations of the
Company and its subsidiaries taken as a whole taking into account
any proceeds reasonably expected to be received by the Company or
its subsidiaries in the foreseeable future from insurance
policies or rights of indemnification or (B) the Series B
Preferred Shares; or
(vi) any representation or warranty contained in the
Securities Purchase Agreement or the Registration Rights
Agreement is false or misleading on or as of the date made and
which either reflects or has had a material adverse effect on (A)
the financial condition, operating results, business, properties,
or operations of the Company and its subsidiaries taken as a
whole taking into account any proceeds reasonably expected to be
received by the Company or its subsidiaries in the foreseeable
future from insurance policies or rights of indemnification or
(B) the Series B Preferred Shares.
(f) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10)
days prior to the consummation of a Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company
shall deliver written notice thereof via facsimile and overnight
courier ("Notice of Major Transaction") to each holder of Series B
Preferred Shares. At any time after receipt of a Notice of Major
Transaction, the holders of at least two-thirds (2/3) of the Series B
Preferred Shares then outstanding may require the Company to redeem
all of the holders' Series B Preferred Shares then outstanding in
accordance with Section 4(a) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Major Transaction") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of Series B Preferred Shares that such holders are
voting in favor of redemption and (ii) the applicable redemption
price, as calculated pursuant to Section 4(a) above.
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(g) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of
Series B Preferred Shares. At any time after receipt of a Notice of
Triggering Event, the holders of at least two-thirds (2/3) of the
Series B Preferred Shares then outstanding may require the Company to
redeem all of the Series B Preferred Shares then outstanding in
accordance with Section 4(b) by delivering written notice thereof via
facsimile and overnight courier ("Notice of Redemption at Option of
Buyer Upon Triggering Event") to the Company, which Notice of
Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of Series B Preferred Shares that such holders are voting
in favor of redemption and (ii) the applicable redemption price, as
calculated pursuant to Section 4(b) above.
(h) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as
the case may be, from the holders of at least two-thirds (2/3) of the
Series B Preferred Shares then outstanding, the Company shall
immediately notify each holder by facsimile of the Company's receipt
of such requisite notices necessary to affect a redemption and each
holder of Series B Preferred Shares shall thereafter promptly send
such holder's Preferred Stock Certificates to be redeemed to the
Company or its Transfer Agent. The Company shall pay the applicable
redemption price, as calculated pursuant to Section 4(a) or 4(b)
above, in cash to such holder within thirty (30) days after the
Company' receipt of the requisite notices required to affect a
redemption; provided that a holder's Preferred Stock Certificates
shall have been so delivered to the Company or its Transfer Agent;
provided further that if the Company is unable to redeem all of the
Series B Preferred Shares, the Company shall redeem an amount from
each holder of Series B Preferred Shares equal to such holder's
pro-rata amount (based on the number of Series B Preferred Shares held
by such holder relative to the number of Series B Preferred Shares
outstanding) of all Series B Preferred Shares being redeemed. If the
Company shall fail to redeem all of the Series B Preferred Shares
submitted for redemption (other than pursuant to a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate), the applicable redemption price payable in
respect of such unredeemed Series B Preferred Shares shall bear
interest at the rate of 2.5% per month (prorated for partial months)
until paid in full. Until the Company pays such unpaid applicable
redemption price in full to each holder, holders of at least
two-thirds (2/3) of the Series B Preferred Shares then outstanding,
including shares of Series B Preferred Shares submitted for redemption
pursuant to this Section 4 and for which the applicable redemption
price has not been paid, shall have the option (the "Void Optional
Redemption Option") to, in lieu of redemption, require the Company to
promptly return to each holder all of the Series B Preferred Shares
that
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were submitted for redemption by such holder under this Section 4 and
for which the applicable redemption price has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void
Optional Redemption Notice"). Upon the Company's receipt of such Void
Optional Redemption Notice(s) and prior to payment of the full
applicable redemption price to each holder, (i) the Notice(s) of
Redemption at Option of Buyer Upon Triggering Event or the Notice(s)
of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Series B
Preferred Shares submitted for redemption and for which the applicable
redemption price has not been paid, (ii) the Company shall immediately
return any Series B Preferred Shares submitted to the Company by each
holder for redemption under this Section 4(i) and for which the
applicable redemption price had not been paid, (iii) the Fixed
Conversion Price of such returned Series B Preferred Shares shall be
adjusted to the lesser of (A) the Fixed Conversion Price as in effect
on the date on which the Void Option Redemption Notice(s) is delivered
to the Company and (B) the lowest Closing Bid Price during the period
beginning on the date on which the Notice(s) of Redemption of Option
of Buyer Upon Major Transaction or the Notice(s) of Redemption at
Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided
that no adjustment shall be made if such adjustment would result in an
increase of the Fixed Conversion Price then in effect, and (iv) the
Conversion Percentage in effect at such time and thereafter shall be
reduced by a number of percentage points equal to the product of (A)
two and one-half (2.5) and (B) the number of months (prorated for
partial months) in the period beginning on the date on which the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or
the Notice(s) of Redemption at Option of Buyer Upon Triggering Event,
as the case may be, is delivered to the Company and ending on the date
on which the Void Optional Redemption Notice(s) is delivered to the
Company. Notwithstanding the foregoing, in the event of a dispute as
to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate, such dispute shall be resolved
pursuant to Section 2(f)(iii) above with the term "Closing Bid Price"
being substituted for the term "Average Market Price" and the term
"Redemption Rate" being substituted for the term "Conversion Rate."
(5) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If at any
time after the earlier to occur of (i) effectiveness of the
Registration Statement or (ii) sixty (60) days after the Scheduled
Effective Date, upon the Company's receipt of a Conversion Notice, the
Company does not issue shares of Common Stock which are registered for
resale under the Registration Statement within five (5) business days
of the time required in accordance with Section 2(f) hereof, for any
reason or for no reason,
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including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available,
(y) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Company
or its Securities, including without limitation the Nasdaq-Small Cap,
from issuing all of the Common Stock which is to be issued to a holder
of Series B Preferred Shares pursuant to a Conversion Notice or (z)
fails to have a sufficient number of shares of Common Stock registered
and eligible for resale under the Registration Statement, then the
Company shall issue as many shares of Common Stock as it is able to
issue in accordance with such holder's Conversion Notice and pursuant
to Section 2(f) above and, with respect to the unconverted Series B
Preferred Shares, the holder, solely at such holder's option, can, in
addition to any other remedies such holder may have hereunder, under
the Securities Purchase Agreement (including indemnification under
Section 8 thereof), under the Registration Rights Agreement, at law or
in equity, elect to:
(i) require the Company to redeem from such holder those
Series B Preferred Shares for which the Company is unable to
issue Common Stock in accordance with such holder's Conversion
Notice ("Mandatory Redemption") at a price per Series B Preferred
Share (the "Mandatory Redemption Price") equal to the greater of
(x) 120% of the Liquidation Value of such share and (y) the
Redemption Rate as of such Conversion Date;
(ii) if the Company's inability to fully convert Series B
Preferred Shares is pursuant to Section 5(a)(z) above, require
the Company to issue restricted shares of Common Stock in
accordance with such holder's Conversion Notice and pursuant to
Section 2(f) above; or
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Series B Preferred
Shares that were to be converted pursuant to such holder's
Conversion Notice.
(b) Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to a holder of Series B Preferred
Shares, upon receipt of a facsimile copy of a Conversion Notice from
such holder which cannot be fully satisfied as described in Section
5(a) above, a notice of the Company's inability to fully satisfy such
holder's Conversion Notice (the "Inability to Fully Convert Notice").
Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion
Notice, (ii) the number of Series B Preferred Shares which cannot be
converted and (iii) the applicable Mandatory Redemption Price. Such
holder must within five (5) business days of receipt of such Inability
to Fully Convert Notice deliver written notice via facsimile
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to the Company ("Notice in Response to Inability to Convert") of its
election pursuant to Section 5(a) above.
(c) Payment of Redemption Price. If such holder shall elect to
have its shares redeemed pursuant to Section 5(a) above, the Company
shall pay the Mandatory Redemption Price in cash to such holder within
thirty (30) days of the Company's receipt of the holder's Notice in
Response to Inability to Convert. If the Company shall fail to pay the
applicable Mandatory Redemption Price to such holder on a timely basis
as described in this Section 5(c) (other than pursuant to a dispute as
to the determination of the Closing Bid Price or the arithmetic
calculation of the Redemption Rate), such unpaid amount shall bear
interest at the rate of 2.5% per month (prorated for partial months)
until paid in full. Until the full Mandatory Redemption Price is paid
in full to such holder, such holder may void the Mandatory Redemption
with respect to those Series B Preferred Shares for which the full
Mandatory Redemption Price has not been paid and receive back such
Series B Preferred Shares. Notwithstanding the foregoing, if the
Company fails to pay the applicable Mandatory Redemption Price within
such thirty (30) days time period due to a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Closing Bid Price" being
substituted for the term "Average Market Price" and the term,
"Redemption Rate" being substituted for the term "Conversion Rate."
(d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice from more than one holder of Series B
Preferred Shares on the same day and the Company can convert and
redeem some, but not all, of the Series B Preferred Shares pursuant to
this Section 5, the Company shall convert and redeem from each holder
of Series B Preferred Shares electing to have Series B Preferred
Shares converted and redeemed at such time an amount equal to such
holder's pro-rata amount (based on the number of Series B Preferred
Shares held by such holder relative to the number of Series B
Preferred Shares outstanding) of all Series B Preferred Shares being
converted and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of
the Series B Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to
the holder of such Series B Preferred Shares a Preferred stock certificate
representing the remaining Series B Preferred Shares which have not been so
converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of the
Series B Preferred Shares are outstanding reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Series B
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Preferred Shares, such number of shares of Common Stock as shall from time
to time be sufficient to affect the conversion of all of the Series B
Preferred Shares then outstanding; provided that the number of shares of
Common Stock so reserved shall at no time be less than 200% of the number
of shares of Common Stock for which the Series B Preferred Shares are at
any time convertible,
(7) Voting Rights. Holders of Series B Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware and as expressly provided
in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
Company, the holders of the Series B Preferred Shares shall be entitled to
receive in cash out of the assets of the Company, whether from capital or
from earnings available for distribution to its stockholders (the
"Preferred Funds"), before any amount shall be paid to the holders of any
of the capital stock of the Company of any class junior in rank to the
Series B Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up
of the Company, an amount per Series B Preferred Share equal to the sum of
(i) $20,000 and (ii) an amount equal to the product of (.03) (N/365)
($20,000) (such sum being referred to as the "Liquidation Value"); provided
that, if the Preferred Funds are insufficient to pay the full amount due to
the holders of Series B Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal rank
with the Series B Preferred Shares as to payments of Preferred Funds (the
"Pari Passu Shares"), then each holder of Series B Preferred Shares and
Pari Passu Shares shall receive a percentage of the Preferred Funds equal
to the full amount of Preferred Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights as a percentage or the full amount of
Preferred Funds payable to all holders of Series B Preferred Shares and
Pari Passu Shares. The purchase or redemption by the Company of stock of
any class in any manner permitted by law, shall not for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company of less than
substantially all of its assets, shall, for the purposes hereof, be deemed
to be a liquidation, dissolution or winding up of the Company. No holder of
Series B Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein.
(9) Preferred Rate. All shares of Common Stock shall be of junior rank
to all Series B Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution, and winding
up of the Company. The rights of the shares of Common Stock shall be
subject to the Preferences and relative rights of the Series B Preferred
Shares. The Series B Preferred Shares shall be of greater than any Series
of Common or Preferred Stock hereinafter issued by the Company. Without the
prior express
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written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Series B Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior or
equal rank to the Series B Preferred Shares in respect of the preferences
as to distributions and payments upon the liquidation, dissolution and
winding up of the Company. Without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding Series B
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or make
any resolution of the board of directors with the Delaware Secretary of
State containing any provisions, which would adversely affect or otherwise
impair the rights or relative priority of the holders of the Series B
Preferred Shares relative to the holders of the Common Stock or the holders
of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation, the Series B
Preferred Shares shall maintain their relative powers, designations, and
preferences provided for herein and no merger shall result inconsistent
therewith.
(10) Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series B Preferred Shares are
outstanding, without the prior express written consent of the holders
of not less than two-thirds (2/3) of the then outstanding Series B
Preferred Shares, the Company shall not directly or indirectly
declare, pay or make any dividends or other distributions upon any of
the Common Stock so long as written notice thereof has been given to
holders of the Series B Preferred Shares at least 30 days prior to the
earlier of (a) the record date taken for or (b) the payment of any
such dividend or other distribution. Notwithstanding the foregoing,
this Section 10(a) shall not prohibit the Company from declaring and
paying a dividend in cash with respect to the Common Stock so long as
the Company: (i) pays simultaneously to each holder of Series B
Preferred Shares an amount in cash equal to the amount such holder
would have received had all of such holder's Series B Preferred Shares
been converted to Common Stock pursuant to Section 2 hereof one
business day prior to the record date for any such dividend, and (ii)
after giving effect to the payment of any dividend and any other
payments required in connection therewith including to the holders of
the Series B Preferred Shares under clause 10(a)(i) hereof, the
Company has in cash or cash equivalents an amount equal to the
aggregate of: (A) all of its liabilities reflected on its most
recently available balance sheet, (B) the amount of any indebtedness
incurred by the Company or any of its subsidiaries since its most
recent balance sheet and (C) 125% of the amount payable to all holders
of any shares of any class of preferred stock of the Company assuming
a liquidation of the Company as the date of its most recently
available balance sheet.
(b) Restriction on Redemption. If any Series B Preferred Shares
are outstanding, without the prior express written consent of the
holders of not less than two-thirds (2/3) of the then outstanding
Series B Preferred Shares, the Company shall
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not directly or indirectly redeem, purchase or otherwise acquire from
any person or entity other than from a direct or indirect wholly-owned
subsidiary of the Company, or permit any subsidiary of the Company to
redeem, purchase or otherwise acquire from any person or entity other
than from the Company or another direct or indirect wholly-owned
subsidiary of the Company, any of the Company's or any subsidiary's
capital stock or other equity securities (including, without
limitation, warrants, options and other rights to acquire such capital
stock or other equity securities).
(11) Vote to Change the Terms of Series B Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3)
of the then outstanding Series B Preferred Shares, shall be required for
any change to this Certificate of Designations or the Company's Certificate
of Incorporation which would amend, alter, change or repeal any of the
powers, designations, preferences and rights of the Series B Preferred
Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series B
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall
not be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Series B Preferred
Shares into Common Stock.
(13) Withholding Tax Obligations. Notwithstanding anything herein to
the contrary, to the extent that the Company receives advice in writing
from its counsel that there is a reasonable basis to believe that the
Company is required by applicable federal laws or regulations and delivers
a copy of such written advice to the holders of the Series B Preferred
Shares so effected, the Company may reasonably condition the making of any
distribution (as such term is defined under applicable federal tax law and
regulations) in respect of any Series B Preferred Share on the holder of
such Series B Preferred Shares depositing with the Company an amount of
cash sufficient to enable the Company to satisfy its withholding tax
obligations (the "Withholding Tax") with respect to such distribution.
Notwithstanding the foregoing or anything to the contrary, if any holder of
the Series B Preferred Shares so effected receives advice in writing from
its counsel that there is a reasonable basis to believe that the Company is
not so required by applicable federal laws or regulations and delivers a
copy of such written advice to the Company, the Company shall not be
permitted to condition the making of any such distribution in respect of
any Series B Preferred Share on the holder of such Series B Preferred
Shares depositing with the Company any Withholding Tax with respect to such
distribution, provided, however, the Company may reasonably condition the
making of any such distribution in respect of any Series B Preferred Share
on the holder of such Series B Preferred Shares executing and delivering to
the Company, at the
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election of the holder, either: (i) if applicable, a property completed
Internal Revenue Service Form 4224, or (a) an indemnification agreement in
reasonably acceptable form, with respect to any federal tax liability,
penalties and interest that may be imposed upon the Company by the Internal
Revenue Service as a result of the Company's failure to withhold in
connection with such distribution to such holder. If the conditions in the
preceding two sentences are fully satisfied, the Company shall not be
required to pay any additional damages set forth in Section 2(f)(v) of this
Certificate of Designations if its failure to timely deliver any Conversion
Shares results solely from the holder's failure to deposit any withholding
tax hereunder or provide to the Company an executed indemnification
agreement in the form reasonably satisfactory to the Company.
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations
to be signed by Joseph Fiore, its Chief Executive Officer, as of the 5th day of
May, 1998.
EAT AT JOE'S LTD.
By: /S/ Joseph Fiore
--------------------
Joseph Fiore
Chief Executive Officer
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EXHIBIT I
EAT AT JOE'S LTD.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of Eat At Joe's Ltd. (the "Certificate of Designations"). In accordance
with and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of Series B Convertible Preferred Stock,
$.0001 par value per share (the "Series B Preferred Shares"), of Eat At Joe's
Ltd., a Delaware corporation (the "Company"), indicated below into shares of
Common Stock, $.0001 par value per share (the "Common Stock"), of the Company,
by tendering the stock certificate(s) representing the share(s) of Series B
Preferred Shares specified below as of the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series B Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "Act"), or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Act.
Date of Conversion:
---------------------------------------------
Number of Series B
Preferred Shares to be converted
---------------------------------------------
Stock certificate no(s). of Series B
Preferred Shares to be converted:
---------------------------------------------
Please confirm the following information:
Conversion Price:
---------------------------------------------
Number of shares of Common Stock
to be issued:
---------------------------------------------
<PAGE>
please issue the Common Stock into which the Series B Preferred Shares are being
converted in the following name and to the following address:
Issue to:1
---------------------------------------------
---------------------------------------------
Facsimile Number:
---------------------------------------------
Authorization:
---------------------------------------------
By:__________________________________________
Title:_______________________________________
Dated:
---------------------------------------------
ACKNOWLEDGED AND AGREED:
EAT AT JOE'S LTD.
By: _____________________________
Name:___________________________
Title:____________________________
Date:____________________________
- --------
1 If other than to the record holder of the Series B Preferred Shares, any
applicable transfer tax must be paid by the undersigned.
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of May ____, 1998, between Eat At Joe's, Ltd., a
Delaware corporation (the "Company"), and J.P. Carey Securities, Inc., a Georgia
corporation (hereinafter referred to as "J.P. Carey").
W I T N E S S E T H:
WHEREAS, J.P. Carey has assisted the Company in connection with the
Company's offering (the "Offering") of up to $3,000,000 in principal amount of
Series A and Series B Preferred Stock (the "Preferred Stock") for an aggregate
purchase price $3,000,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to J.P. Carey and/or its designees, in consideration for, and as
part of the compensation to be paid in connection with, the services of J.P.
Carey in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
J.P. Carey and/or its designees are hereby granted the right to purchase,
at any time from the date of issuance of the aforementioned Preferred Stock
until 5:00 P.M., Eastern Standard Time, on May ____, 2003 (the "Warrant Exercise
Term"), ______________ Shares at an exercise price (subject to adjustment as
provided in Article 7 hereof) of 100% of the Closing Bid Price (as defined in
the Company's Certificate of Designations, Preferences and Rights filed by the
Company in connection with the Offering) of the Company's Common Stock, par
value $0.001 per share on the last business day immediately prior to the date of
closing of the Offering, which is equal to $____________ per share (the "Initial
Exercise Price").
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates) delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as 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 Warrants.
3.1 Cash Exercise. The Exercise Price may be paid in cash or by check to
the order of ------------- the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's executive offices currently located at 670
White Plains Road, Suite 118, Scarsdale, New York 10583, the registered holder
of a 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 Warrant Certificate are exercisable at the option of the
Holder hereof, in whole or in part (but not as to fractional shares of the
Common Stock). In the case of the purchase of less than all the Shares
purchasable under any Warrant
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<PAGE>
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise Term, the
Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant 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 this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) business days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing Exercise
Price by (B) the current market value of a share of Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five 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 be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder 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 satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors, Chief
Executive officer or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective registration statement
under the Act, (ii) to the extent applicable, pursuant to Rule 144 under
the Act (or any similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the Company of an
opinion of counsel, reasonably
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<PAGE>
satisfactory to counsel to the issuer, stating that an exemption from
registration under such Act is available.
5. Price.
5.1 Adjusted Exercise Price. The adjusted Exercise Price shall be the price
which shall result from time to time from any and all adjustments of the Initial
Exercise Price in accordance with the provisions of Article 7 hereof.
5.2 Exercise Price. The term "Exercise Price" herein shall mean the Initial
Exercise Price or the adjusted Exercise Price, depending upon the context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1993.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended ("the Act").
6.2 Registrable Securities. As used herein the term "Registrable Security"
means each of the Warrants, the Shares and any shares of Common Stock issued
upon any stock split or stock dividend in respect of such Shares; provided,
however, that with respect to any particular Registrable Security, such security
shall cease to be a Registrable Security when, as of the date of determination,
(i) it has been effectively registered under the Securities Act and disposed of
pursuant thereto, (ii) registration under the Securities Act is no longer
required for the immediate public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 6.
6.3 Piggyback Registration. If, at any time during the five years following
the date of this Agreement, the Company proposes to prepare and file any
registration statement or post-effective amendments thereto covering equity or
debt securities of the Company, or any such securities of the Company held by
its shareholders (in any such case, other than in connection with a merger,
acquisition or pursuant to Form S-8 or successor form), (for purposes of this
Article 6, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at ten (10)
business days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a holder
(a "Requesting Holder"), made within ten (10) business days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("Piggyback Registration"), at the Company's sole cost and expense
and at no cost or expense to the Requesting Holders; Notwithstanding the
provisions of this Section 6.3, the Company shall have the right at any time
after it shall have given written notice pursuant to this Section 6.3
(irrespective of whether any written request for inclusion of such securities
shall have already 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.
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<PAGE>
6.4 Demand Registration.
(a) At any time, commencing ninety (90) days from the date of this
Agreement and during the Warrant Exercise Term, any "Majority Holder" (as such
term is defined in Section 6.4(d) below) of the Registrable Securities shall
have the right (which right is in addition to the piggyback registration rights
provided for under Section 6.3 hereof), exercisable by written notice to the
Company (the "Demand Registration Request"), to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, at the sole expense of the Company, 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 such Majority Holder), in order to
comply with the provisions of the Act, so as to permit a public offering and
sale of the Registrable Securities by the holders thereof, for nine (9)
consecutive months.
(b) The Company covenants and agrees to give written notice of any Demand
Registration Request to all holders of the Registrable Securities within ten
(10) days from the date of the Company's receipt of any such Demand Registration
Request. After receiving notice from the Company as provided in this Section
6.4(b), holders of Registrable Securities may request the Company to include
their Registrable Securities in the Registration Statement to be filed pursuant
to Section 6.4(a) hereof by notifying the Company of their decision to include
such securities within twenty (20) days of their receipt of the Company's
notice.
(c) In addition to the registration rights provided for under Section 6.3
and subsection (a) of this Section 6.4, at any time during the Warrant Exercise
Term, any Majority Holder (as defined below in Section 6.4(d)) of Registrable
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file with the Commission, on one occasion in
respect of all holders of Registrable Securities, a Registration Statement so as
to permit a public offering and sale of such Registrable Securities for nine (9)
consecutive months, provided, however, that all costs incident thereto shall be
at the expense of the holders of the Registrable Securities included in such
Registration Statement. If a Majority Holder shall give notice to the Company at
any time of its or their desire to exercise the registration right granted
pursuant to this Section 6.4(c), then within ten (10) days after the Company's
receipt of such notice, the Company shall give notice to the other holders of
Registrable Securities, advising them that the Company is proceeding with such
registration and offering to include therein the Registrable Securities of such
holders, provided they furnish the Company with such appropriate information in
connection therewith as the Company shall reasonably request in writing.
(d) The term "Majority Holder" as used in this Section 6.4 shall mean any
holder or any combination of holders of Registrable Securities, if included in
such holders, Registrable Securities are that aggregate number of Shares
(including Shares already issued and Shares issuable pursuant to the exercise of
outstanding Warrants) as would constitute a majority of the aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) included in all of the Registrable Securities.
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<PAGE>
6.5 Covenants of the Company With Respect to Registration. The Company
covenants and agrees as follows:
(a) In connection with any registration under Section 6.4 hereof, the
Company shall file the Registration Statement as expeditiously as possible, but
in no event later than twenty (20) business days following receipt of any demand
therefor, shall use its best efforts to have any such Registration Statements
declared effective at the earliest possible time, and shall furnish each holder
of Registrable Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs, fees and expenses (excluding fees of
holders for their counsel, transfer taxes and underwriting discounts or
commissions) in connection with all Registration Statements filed pursuant to
Sections 6.3 and 6.4(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and blue sky fees and expenses.
The holders of Registrable Securities included in any Registration Statement
filed pursuant to Section 6.4(c) hereof will pay all costs, fees and expenses in
connection with such registration.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in a Registration
Statement for offering and sale under the securities or blue sky laws of such
states as are requested by the holders of such securities.
(d) The Company shall indemnify any holder of the Registrable Securities to
be sold pursuant to any Registration Statement and any underwriter or person
deemed to be an underwriter under the Act and each person, if any, who controls
such holder or underwriter or person deemed to be an underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended ("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 to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the purchasers
of the Company's Preferred Stock contained in the Registration Rights Agreement
dated of even date herewith.
(e) Any holder of Registrable Securities to be sold pursuant to a
Registration Statement, and its 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 in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions pursuant to which purchasers
of the Company's Preferred Stock have agreed to indemnify the Company contained
in the Registration Rights Agreement dated of even date herewith.
(f) Nothing contained in this Agreement shall be construed as requiring any
Holder to exercise his Warrants prior to the initial filing of any Registration
Statement or the effectiveness thereof.
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<PAGE>
(g) If the Company shall fail to comply with the provisions of this Article
6, the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their Registrable Securities.
(h) Except as otherwise provided to the contrary herein, the Company shall
not permit the inclusion of any securities other than the Registrable Securities
to be included in any Registration Statement filed pursuant to Section 6.4
hereof, or permit any other registration statement to be or remain effective
during the effectiveness of a Registration Statement filed pursuant to Section
6.4 hereof, without the prior written consent of the Majority Holders, which
consent shall not be unreasonably withheld.
(i) The Company shall deliver promptly to each holder of Registrable
Securities participating in the offering requesting the correspondence and
memoranda described in this Section 6.5(i) and to the managing underwriter, if
any, 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 of Registrable Securities and underwriters 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. 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 of Registrable Securities
or underwriter shall reasonably request.
(j) If the Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting, such agreement shall be
satisfactory in form and substance to the Company, each holder of Registrable
Securities and such managing underwriter, 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. The holders of Registrable Securities shall be parties to any
underwriting agreement relating to an underwritten sale of their Registrable
Securities 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 shall also be made to and for the benefit of such holders of
Registrable Securities. Such holders of Registrable Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriter except as they may relate to such holders of
Registrable Securities and their intended methods of distribution.
7. Adjustments of Exercise Price and Number of Shares.
7.1 Computation of Adjusted Price. Except as hereinafter provided, in case
the Company shall at any time after the date hereof issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 7.6
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed to all the
shareholders of the Company and Holders of Warrants pursuant to Section 7.6
hereof) and shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock, for a consideration per
share less than the lesser of either the Exercise Price in effect immediately
prior to the issuance or sale of such shares or the "Market Price" (as defined
in Section 7.1(vi) hereof) per share of Common Stock or without consideration,
then forthwith upon
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such issuance or sale, the Exercise Price shall (until another such issuance or
sale) be reduced to the price (calculated to the nearest full cent) equal to the
price determined by multiplying the Exercise Price in effect immediately prior
to such issuance or sale by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
issuance or sale and the number of shares of Common Stock which the amount of
all consideration, if any, received by the Company upon such issuance or sale
would purchase at the Market Price, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such issuance or
sale.
For the purposes of any computation to be made in accordance with this
Section 7.1, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than shares of
Common Stock into securities including shares of Common Stock shall be deemed to
involve the issuance of such shares of Common Stock for a consideration other
than cash immediately prior to the close of business on the date fixed for the
determination of security holders entitled to receive such shares, and the value
of the consideration allocable to such shares of Common Stock shall be
determined as provided in subsection (ii) of this Section 7.1.
(v) The number of shares of Common Stock at any one time outstanding shall
include the aggregate number of shares issued or issuable upon the exercise of
options, rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
(vi) As used herein, the phrase "Market Price, at any date shall be deemed
to be the last reported sale price, or, in case no such reported sale takes
place on such day, the average of the last reported sale prices 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,
if the Common Stock is not listed or admitted to trading on any national
securities exchange, the closing bid price as furnished by the National
Association of Securities Dealers, Inc. through NASDAQ or similar
-7-
<PAGE>
organization if NASDAQ is no longer reporting such information, or if the Common
Stock is not quoted on NASDAQ, as determined in good faith by resolution of the
Board of Directors of the Company, based on the best information available to it
for the two (2) days immediately preceding such issuance or sale and the day of
such issuance or sale.
7.2 Options, Rights, Warrants and Convertible and Exchangeable Securities.
Except in the case of the Company issuing rights to subscribe for shares of
Common Stock distributed to all the shareholders of the Company and Holders of
Warrants pursuant to Section 7.8 hereof, if the Company shall at any time after
the date hereof issue options, rights or warrants to subscribe for shares of
Common Stock, or issue any securities convertible into or exchangeable for
shares of Common Stock, (i) for a consideration per share less than (a) the
Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or (b) the
Market Price, or (ii) without consideration, the Exercise Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 7.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under all the outstanding options, rights or warrants shall be
deemed to be issued and outstanding at the time all the outstanding options,
rights or warrants were issued, and for a consideration equal to the minimum
purchase price per share provided for in the options, rights or warrants at the
time of issuance, plus the consideration (determined in the same manner as
consideration received on the issue or sale of shares in accordance with the
terms of the Warrants), if any, received by the Company for the options, rights
or warrants, and if no minimum price is provided in the options, rights or
warrants, then the consideration shall be equal to zero; provided, however, that
upon the expiration or other termination of the options, rights or warrants, if
any thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 7.1 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Exercise Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 7.1 hereof) shall be reduced by such number
of shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Exercise Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
-8-
<PAGE>
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised.
(c) If any change shall occur in the price per share provided for in any of
the options, rights or warrants referred to in subsection (a) of this Section
7.2, or in the price per share at which the securities referred to in subsection
(b) of this Section 7.2 are convertible or exchangeable, the options, rights or
warrants or conversion or exchange rights, as the case may be, shall be deemed
to have expired or terminated on the date when such price change became
effective in respect of shares not theretofore issued pursuant to the exercise
or conversion or exchange thereof, and the Company shall be deemed to have
issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
7.3 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
7.4 Adjustment in Number of Shares. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Article 7, the number of Shares
issuable upon the exercise of each Warrant shall be adjusted to the nearest full
Share by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Shares issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
7.5 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holders shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants immediately prior to any such events at a price equal to
the product of (x) the number of shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date for
such reclassification, change, consolidation, merger, sale or conveyance as if
such Holders had exercised the Warrants.
7.6 No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common Stock upon the
exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the Company's
employee stock option plan in effect on the date hereof or the issuance or
sale by the Company of any shares of Common Stock pursuant to the exercise
of any such options, or (ii) the issuance or sale
-9-
<PAGE>
by the Company of any shares of Common Stock pursuant to the exercise of
any options or warrants previously issued and outstanding on the date
hereof; or
(c) Upon the issuance of shares of Common Stock pursuant to
contractual obligations existing on the date hereof; or
(d) If the amount of said adjustment shall be less than 2 cents
(2(cent)) per Share, 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 2 cents (2(cent)) per Share.
7.7 Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or any other thing of value, the Holder or Holders of the unexercised
Warrants shall thereafter be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights, evidences
of indebtedness, securities or any other thing of value that they would have
been entitled to receive at the time of such dividend or distribution. At the
time of any such dividend or distribution, the Company shall make appropriate
reserves to ensure the timely performance of the provisions of this Subsection
7.7.
7.8 Subscription Rights for Shares of Common Stock or Other Securities. In
the case the Company or an affiliate of the Company shall at any time after the
date hereof and prior to the exercise of all the Warrants issue any rights to
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all the shareholders of the Company, the Holders of the
unexercised Warrants shall be entitled, in addition to the shares of Common
Stock or other securities receivable upon the exercise of the Warrants, to
receive such rights at the time such rights are distributed to the other
shareholders of the Company.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares 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 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 Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
-10-
<PAGE>
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. 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 Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted on the electronic bulletin board, by
NASDAQ or listed on such national securities exchanges as requested by the
Placement Agent.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into 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 said events, the Company shall give written notice
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
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, 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
-11-
<PAGE>
any action taken in connection with the declaration or payment of any such
dividend or distribution, or the issuance of any convertible or exchangeable
securities or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
12. 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 a registered Holder of the 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 of this
Agreement or to such other address as the Company may designate by notice
to the Holders.
13. Supplements and Amendments.
The Company and the Placement Agent may from time to time supplement or
amend this Agreement without the approval of any Holders of Warrant Certificates
in order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Placement Agent may deem necessary or desirable and
which the Company and the Placement Agent deem not to adversely affect the
interests of the Holders of Warrant Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the benefit of
the Company and the Holders inure to the benefit of their respective successors
and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on May _____, 2003.
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants have been exercised and all the Shares issuable upon exercise
of the Warrants have been resold to the public; provided, however, that the
provisions of Article 6 shall survive such termination until the close of
business on May _____, 2003.
16. Governing Law.
This Agreement and each Warrant Certificate hereunder shall be governed by
and interpreted in accordance with the laws of the State of Delaware without
regard to the principles of conflict of laws. Any dispute or controversy between
the parties arising in connection with this Agreement or the subject matter
contemplated by this Agreement shall be resolved by arbitration before a
three-member panel of the American Arbitration Association in accordance with
the commercial arbitration rules of said forum and the Federal Arbitration Act,
9 U.S.C. 1 et seq., with the resulting award being final and conclusive. Said
arbitrators shall be empowered to award all forms of relief and damages claimed,
including, but not limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest. The
-12-
<PAGE>
parties further agree that any arbitration action between them shall be heard in
Atlanta, Georgia, and expressly consent to the jurisdiction and venue of the
Superior Court of Fulton County, Georgia, and the United States District Court
for the Northern District of Georgia, Atlanta Division for the adjudication of
any civil action asserted pursuant to this Paragraph.
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Placement Agent and any other
registered holder or holders of the Warrant Certificates, Warrants or the Shares
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
Placement Agent and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
18. 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
EAT AT JOE'S LTD.
By:______________________________________
Name: Joseph Fiore
Title: Chairman of the Board, Chief
Executive Officer, and Chief
Financial Officer
Attest: ___________________________
Name: ___________________________
Title: ___________________________
J.P. CAREY SECURITIES, INC.
By:______________________________________
Name:
Title:
Attest: ___________________________
Name: ___________________________
Title: ___________________________
-13-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, May ____, 2003
No. __ _________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that J.P. Carey Securities, Inc. ("J.P.
Carey") or registered assigns, is the registered holder of _______________
Warrants to purchase, at any time from May ____, 1998, until 5:00 P.M. Eastern
Standard Time on May ____, 2003 ("Expiration Date"), up to ____________ shares
("Shares") of fully-paid and non-assessable common stock, no par value ("Common
Stock"), of Eat At Joe's Ltd., a Delaware corporation (the "Company"), at the
Initial Exercise Price, subject to adjustment in certain events (the "Exercise
Price"), of $_______ per Share upon surrender of this 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 May
____, 1998, between the Company and J.P. Carey (the "Warrant Agreement").
Payment of the Exercise Price may be made in cash, or by certified or official
bank check in New York Clearing House funds payable to the order of the Company,
or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in 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 Warrants.
The 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 Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates
<PAGE>
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certi ficate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this 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 Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: _______________, 1998 EAT AT JOE'S LTD.
By:___________________________________________
Name:_________________________________________
Title:________________________________________
Attest:_____________________
Name: _____________________
Title: _____________________
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or 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 Shares 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 Warrant Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: Signature:_________________________________
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate)
- -------------------------------------
- -------------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Eat Joe's U of P., Inc.
A. J. Phl, Airport, Inc.
Eat at Joe's Gallery, Inc.
A. J. Enterprises, Inc.
Eat at Joe's Harborplace, Inc.
A. J. Shoppington, Inc.
Eat at Joe's Neshaminy, Inc.
Eat at Joe's Plymouth Incorporated
E. A. J. Danbury, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE OF EAT AT JOE'S LTD. AS OF DECEMBER 31, 1997 AND THE RELATED STATEMENTS
OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 233
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 284
<PP&E> 946
<DEPRECIATION> 12
<TOTAL-ASSETS> 2315
<CURRENT-LIABILITIES> 1355
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 959
<TOTAL-LIABILITY-AND-EQUITY> 2315
<SALES> 85
<TOTAL-REVENUES> 85
<CGS> 57
<TOTAL-COSTS> 57
<OTHER-EXPENSES> 235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (212)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
