As filed with the Securities and Exchange Commission on October ____, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM SB-2/A
AMENDMENT NOS. 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
<PAGE>
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. / /
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
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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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Common Stock
$.0001 par value
underlying Warrants 367,400 (2) $ 1.25 $ 459,250 $ 133
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Common Stock $.0001
par value issuable
upon conversion of
outstanding Convertible
Preferred Stock 7,500,000 (3) $ 1.25 $9,375,000 $ 2,719
and Debentures-----------------------------------------------------------------
Total $9,834,250 $ 2,842
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(ii)
<PAGE>
(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 Sovereign Capital Advisers (and their designees) who served as agents
for the placement of the Company's securities in 1998.
(3) Includes (a) the estimated number of shares that may be issued upon
conversion of the Series A, B, C and D Convertible Preferred Stock; (b) the
estimated number of shares that may be issued upon conversion of the 8%
Series 1 Secured Convertible Debenture, and (c) -----shares issuable upon
the exercise of certain outstanding purchase warrants. In the event of a
stock split, stock dividend or dilution, or in the event of an increase in
the number of shares issuable upon the conversion of the Series A, B, C or
D Convertible Preferred Stock or 8% Series 1 Secured Convertible Debenture
by reason of a discounted conversion price or delay in the effective date
of this Registration Statement, the number of shares registered shall be
automatically increased to cover additional shares in an indeterminate
amount in accordance with Rule 416(a) under the Securities Act of 1933, as
amended.
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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.
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(iii)
<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
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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
(iv)
<PAGE>
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
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
(v)
<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 October , 1998
EAT AT JOE'S, LTD
6,108,438 Shares of Common Stock
6,108,438 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 Prospectus covers all of the shares of Common Stock issuable upon
conversion of shares of Series A, B, C and D Convertible preferred Stock and 8%
Series 1 Secured Convertible Debenture which were sold in private placements
during the period March through September, 1998 as well as shares issuable upon
the exercise of certain outstanding purchase warrants which were issued in
connection with the private placements. Based upon the trading prices of the
Common Stock prior to September 21, 1998 the convertible securities would
convert into 5,741,038 shares of Common Stock. The foregoing estimate is for
illustrative purposes only. The actual number of shares of Common stock issuable
upon conversion of the convertible securities is subject to adjustment and could
be materially more or less than such estimated amount, depending upon factors
that cannot be predicted by the Company at this time, including, among others,
the future market price of the Common Stock. See "Risk Factors"-"Risk of Low
Priced Stocks."
Shares may be offered by Selling Shareholders 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. Such broker dealers may receive
compensation in the form of discounts, concessions or commission from the
Selling Shareholders and/or the purchasers of the Selling Shareholder shares for
whom they may sell as principals or both (which compensation as to a particular
broker dealer might be in excess of customary commissions).
<PAGE>
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 6.
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
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 eight restaurants; four restaurants located in Philadelphia,
Pennsylvania; one each in Cherry Hill, Moorestown and Vorhees, New Jersey and
one in Baltimore, Maryland ("Existing Units"). The Company is planning to open
three 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 Company's operations have generated losses since its inception.
Approximately $2,600,000 will be required to open the additional restaurants.
Management anticipates that sources of funds for the construction of the
additional units will come from funds on hand ($400,000); cash flow from
operations ($100,000); private placements of securities ($1,500,000); and
landlord contributions for build out alterations ($600,000).
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 a 550 square foot Philadelphia location ("Shops at
Penn") in November 1997, 600 square foot Cherry Hill location in December 1997
;470 square foot location in Vorhees, New Jersey in May, 1998; 845 square foot
location at the Philadelphia Airport in May 1998; 4,000 square foot University
City Diner location (Philadelphia) in July 1998; 2,000 square foot Market East
(Philadelphia) location in August 1998; 3,680 square foot Moorestown Mall
(Moorestown, New Jersey) location in October, 1998; and 2,530 square foot
Gallery at Harbor Place (Baltimore) location in September, 1998. Four of the
restaurants are located in food courts in malls with common seating provided by
the mall operator and four are sit down restaurants
3
<PAGE>
The Company's revenues are not yet sufficient to cover its expenses and it
is compelled to issue securities convertible into common stock at a significant
discount to market to finance itself. The Company projects it will be operating
on a break-even basis at the end of 1998.
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 1997 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............. 6,108,438 shares
Common Stock to be outstanding after the Offering............ 19,181,480 shares
OTC Bulletin Board Symbol.................................... JOES
4
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SUMMARY FINANCIAL INFORMATION
================================================================================
Fiscal Years Ended December 31
================================================================================
1993(1) 1994(1) 1995(1) 1996 1997
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Income Statement Data:
Net sales $ - $ - $ - $ - $ 84,781
Gross profit - - - - 27,926
Operating loss - - - (14,762) (294,718)
Other expense, net - - - (3,938) (4,304)
------- -------
Loss before inc. taxes - - - (18,700) (299,022)
Income taxes - - - - -
Net Loss $ - $ - $ - $(18,700) $(299,022)
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 $ (1,158,474) $(1,158,474)
Total Assets 2,314,972 2,314,972
long-term debt - -
Shareholders' equity 872,315 872,315
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(1) The Company was inactive during 1993, 1994 and 1995
(2) Reflects the consummation of the offering as if the offering had occurred at
December 31, 1997.
5
<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
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."
6
<PAGE>
LIMITED BASE OF OPERATIONS
The Company currently operates only 8 restaurants and plans to open 3
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. The Company
has not conducted extensive market surveys in determining restaurant locations
but has relied on the expertise of its management. Management anticipates that
sources of funds for the construction of the additional units will come from
cash flow from operations ($100,000); private placements of securities
($1,500,000); and landlord contributions for build out alterations ($600,000)
and funds on hand (400,000)An investor, Zakeni Limited, unrelated to the Company
or its affiliates has purchased $1,500,000 principal amount of the Company's
convertible debentures during 1998. While there is no assurance that the Company
will be able to continue raising funds from private sources, it believes it will
able to continue to do so.
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 expansion funds as needed 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 8 additional restaurants in 1999 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 3 additional restaurants presently planned for the remainder of this
calendar year will be approximately $2,600,,000. 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.
7
<PAGE>
SECURITY INTEREST
The Company's indebtedness to the holder of its convertible debenture in
the principal amount of $1,500,000 due July 2001, is collateralized by
substantially all of the assets of the Company. If this debt is not paid, the
secured party could foreclose on substantially all of the assets of the Company
which would materially adversely affect the Company's business plans and
financial condition.
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.
8
<PAGE>
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
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.
Management of the Company has a long relationship with owners of commercial
real estate and brokers acting on their behalf. Properties have been offered to
the Company on a regular basis and the Company usually has been able to obtain
the locations it was seeking.
CENTRALIZED FOOD COMMISSARY.
Soups, sauces, toppings and certain entrees are prepared in a central
commissary and delivered to individual restaurant units. The agreement with the
commissary is on a month to month basis. Management believes the individual
restaurant units can prepare all food in house without any material increase in
costs and may in the future do so.
Food prepared at the central commissary is generally transported in
air-tight cry-o-vac packaging and transported in refrigerated trucks. As the
Company's units are located only several hours from the commissary, all foods
are delivered on the same day as they are shipped. The foods prepared at the
commissary lend themselves to being cooked at the individual units. For
instance, meat loaf is prepared and put together at the commissary and shipped
to the units for baking.
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."
9
<PAGE>
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. To date the
Cozco locations, which do not carry out the 50s theme or offer a diner type menu
have been located in food courts and offer a limited service menu dictated by
the landlord. In the event of a conflict for a sit down location or a food court
location featuring a diner type menu, the Company shall have a right of first
refusal. 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."
To obviate any conflicts of interest between the Company and Cozco, certain
policies have been adopted by the Company. These policies include no vendor
doing business with both companies; a verification statement to be signed by
vendor and service provider and the requirement that the officer authorizing a
major expenditure, not be the officer signing checks for the payment of the
expenditure.
CONTROL OF THE COMPANY; DEPENDENCE ON KEY PERSONNEL
Following this Offering, Joseph Fiore and Andrew Cosenza Jr., will control
approximately 29 % 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,who
respectively devote 95% and 80% of their working time to the Company 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.
CURRENT REGISTRATION STATEMENT
The Company is required to maintain the effectiveness of the Registration
Statement until the earlier of September, 2000 or the date on which the holders
of the Company's Preferred Stock or Debentures shall have sold the Common Shares
into which said securities were convertible.
10
<PAGE>
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,
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.
11
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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
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 June
30,, 1998, as further adjusted to give effect to the sale of the Common Stock
offered hereby. See the Consolidated Financial Statements.
June 30, 1998
Actual As adjusted(1)
Short-term debt:
Notes payable and shareholder loans $2,467,395 $2,467,395
---------- ----------
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, 12,754,305 issued and outstanding; 1,275 1,275
Additional paid-in capital 4,673,160 4,673,160
Retained deficit (2,787,143) (2,787,143)
---------- ----------
Total shareholders' equity 1,887,292 1,887,292
---------- ----------
Total capitalization $4,354,687 $4,354,687
========== ==========
(1)Does not include 1,100,000 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; 135,000 shares
issuable issuable upon the exercise of Warrants at an exercise price of $1.79
per share and 130,400,000 shares issuable upon the exercise of Warrants at
exercise prices of between $1.01 and $1.65 per share.
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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 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
================================================================================
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.
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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 the Shoppes at Penn in November , 1997 and its second restaurant in the
Cherry Hill Mall, Cherry Hill, New Jersey in December 1997, and through October
1998, 6 additional restaurants.. Prior to opening these restaurants the Company
had no revenues and its activities were devoted solely to development. The
Company is developing 3 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.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 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 six months June 30, 1998 and the year ended December 31,
1997, the Company had total sales of approximately $464,000 and $85,000
respectively, compared with no sales for the previous year.
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Costs and Expenses - For the six months ended June 30, 1998 and the year ended
December 31, 1997, the Company had a net loss of approximately $822,000 and
$299,000 respectively compared with a net loss of approximately $167,000
and$19,000 for the prior periods respectively.. The net loss for the six months
and the 1997 year 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 operating units two of which
were open for business during November and December 1997 and two of which opened
during May 1998.. 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, $900,000 was raised through the exercise of
900,000 warrants. The warrants are exerciseable at $1 per share and expire in
November, 1998. Also in 1997, $995,000 was borrowed including $690,000 from
Messrs. Fiore and Cosenza . As of June 30, 1998, $452,000 remained due to Mr.
Fiore and none due Mr. Cosenza. The net proceeds to the Company were used for
additional unit development and working capital.
For the six months ended June 30, 1997 the Company used $156,000 in cash
flow for operating activities and during the six months ended June 30, 1998, the
Company used $845,000 in cash flow for operating activities.
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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<PAGE>
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.
Subsequent to December 31, 1997, the Company has raised approximately
$4,000 ,000 through the sale of preferred stock and later, debentures, both of
which are convertible into Common Stock of the Company (See "Description of
Securities", page 29). These securities were issued pursuant to an exemption
under the Securities Act of 1933, as amended. To induce investors to make an
equity investment in the Company, it was necessary to offer a security which
paid a dividend and enjoyed a priority over common shareholders in the event of
a liquidation of the Company. At the time of the sale of the preferred stock,
officers were not prepared to lend additional sums to the Company nor were other
lenders prepared to make loans to the Company.
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 eight restaurants; four are located in Philadephia and one each in
Cherry Hill, Moorestown and Vorhees, New Jersey and one in Baltimore. The
Company is planning to open 3 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. The approximate
population of the target area is 5,000,000 people. In addition to the indigenous
population, the Company expects to benefit from tourists and other travelers
visiting the region. 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.
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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
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 9 restaurant locations ( 7 by franchise)
featuring a traditional American menu of full breakfasts, hamburgers, fries and
hot dogs and ice cream sundaes. In 1993 Mr. Fiore concluded that the Eat at
Joe's concept had potential for a regional or national chain. To regain control
of the name, concept and market territories, Mr. Firore negotiated the closing
of all franchise sites. At the time of the closings, all units were operating on
a profitable basis. Mr. Fiore also determined that the appeal of the Eat at
Joe's restaurants could be enhanced by expanding menu choices, refining the 50's
design theme and adding retail merchandising. The Eat at Joe's chain of
restaurants reflect the refinements to the concept inspired by the initial test
marketing and franchising expereince.
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.
Through Cozco, Mr. Consenza has fifteen years experience in restaurant site
selection, lease negotiation and management. 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 food court in approximately 3 minutes
from the time of order. Further, the menu will not include items which requires
complicated preparation or lengthy cooking time.
17
<PAGE>
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,
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 breakfast meal generates
approximately 20 % of the Company's revenues, the lunch meal 52% and the dinner
meal 25 %. Approximately 3% of revenues are generated through the sale of snacks
and beverages resulting in average checks of approximately $3.00
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.
The Company's units are supplied by major food distributors. The Company
has established a "national account" with these distributors which enables
pricing to be consistent regardless where the Company's units are located. In
the event the Company terminated a relationship with a distributor, other
distributors are available at comparable costs. In addition, soups, sauces,
toppings and certain entrees are prepared in a central commissary for delivery
to the units. The Company's agreement with the commissary, which is unaffiliated
with the Company, is on a month to month basis and could service up to 200
restaurant units. The units have the ability to prepare all food "in house"
without any meaningful increase in costs.
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<PAGE>
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 23 1998
Philadelphia, PA (5)
Eat at Joe's Univ. City 4000 160 July 14, 1998
Philadelphia, PA (6)
Gallery at Market East 2000 100 August 14, 1998
Philadelphia, PA (8)
Moorestown Mall 3680 150 October 7,1998
Moorestown, NJ (7)
Gallery at Harbor Pl. 2530 160 September 24, 1998
Baltimore, MD (9)
Shoppingtown Mall 2450 600(1) 1st quarter, 1999
DeWitt, NY (10)
Neshaminy Mall 4500 150 4th quarter, 1998
Bensalom, PA (11)
Plymouth Meeting Mall 4540 160 4th quarter, 1998
Plymouth Meeting, PA (12)
Danbury Fair Mall 3020 140 4th quarter, 1998
Danbury, CT (13)
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(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.
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 2 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.
20
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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.
PURCHASING
As of the date of this prospectus, only 8 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.
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<PAGE>
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's units are located in very high traffic locations, such as
airports, college campuses and regional shopping centers. In regional shopping
centers, the Company participates in co-op advertising in both print and radio
campaigns. On college campuses, the Company participates in local print and
media mediums, as well s paid radio advertising. In airports, co-op advertising
is utilized by the Company as well as directory advertising. For 1998, the
Company estimates that $_100,000 will be spent on marketing materials of which
$20,000 has been expended as of the date of this prospectus.
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
out-sourced on an as-needed basis, the initial investment would no more than
$25,000. As of the date of this prospectus, the Company has been offering 50's
style merchandise for sale at its 2 sit down restaurants. The contracts which
the Company has entered into with purveyors for the purchase and manufacture of
such merchandise are not material. The Company has no continuing obligation to
order merchandise from the purveyors.
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<PAGE>
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.
The pricing policy of the Company is to canvas the area of other related
diner-type operations and maintain a pricing structure that is competitive after
factoring in labor, food and the Company's operating cost for that location. The
Company believes that its distinctive diner concept, attractive price-value
relationship and quality of food and service will enable it to differentiate
itself for its competitors. While the Company believes that its restaurants are
distinctive in design and operating concept, it is aware of restaurants that
operate with similar concepts.
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<PAGE>
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
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.
YEAR 2000 Compliance
The Company utilizes software and related technologies which have been
programmed to recognize and properly process data fields containing a two digit
year and commonly referred to as a the Year 2000 Compliance issue. Management
has concluded that a material effect on the Company's financial condition is not
reasonably likely to occur as a result of Year 2000 issues. While the Company
has little communication with the systems of its vendors and suppliers, it
cannot measure the impact that the Year 2000 issue will have on such parties
with which it conducts business.
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 3.38 1.40 6,777,200
Third 1.78 .72 3,018,700
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 June 30, 1998, there were approximately 371 shareholders of
record and 1,500 beneficial owners 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
24
<PAGE>
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
Andrew Cosenza, Jr.......... 29 President, Chief Operating Officer
Director
James Mylock................ 31 Director
Tim Matula.................. 38 Director
Joseph E. Wolf.............. 56 President, Chief Operating Officer
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.
Tim Matula joined Shearson Lehman Brothers as a financial consultant in
1992. In 1994 he joined Prudential Securities and when he left Prudential in
1997, he was Associate Vice President, Investments, Quantum Portfolio
Manager.
Joseph Wolf has been President and Chief Operating Officer since August,
1998. In 1997, he founded the Corned Beef Academy chain of deli restaurants
which operated in the Philadelphia/Atlantic City area. In 1990, he sold his
interest in the chain. In 1992 he co-founded the Striped Bass restaurant in
Philadelphia, selling his interest in 1995. During 1996-98, he expanded the
Tony's Clark restaurant in Philadelphia.
25
<PAGE>
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 (4 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
$50,000 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
$75,000 for 1998 which may be paid in restricted Common Stock of the Company.
In 1997, Mr. Cosenza deferred $37,500 of his $50,000 salary. Mr. Cosenza is
to receive a salary of $75,000 for 1998. In addition, the Company will provide
Mr. Cosenza with the use of an automobile.
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 ten months of 1997 at a cost to the Company of $16,000.
The employment agreements of Messrs. Fiore and Cosenza are performance
based and are contingent on the opening of units and the profitability of the
Company
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.
26
<PAGE>
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
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. These advances were made on short notice and the shares to be issued to
the lenders do not require a commitment by the Company to register them for
sale.
27
<PAGE>
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. Mr. Donald Kirsch is the
owner of Wall Street and has no affiliation with the Company or its officers and
directors. 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.
To obviate any conflicts of interest between the Company and Cozco, certain
policies have been adopted by the Company. These policies include no vendor
doing business with both companies; a verification statement to e signed by
vendor and service provider and the requirement that the officer authorizing a
major expenditure, not be the officer signing checks for the payment of the
expenditure.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September _21_, 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 Firoe 2,879,384 15.0 0 2,879,384 15.0
Andrew Cosenza, Jr. 2,591,000(2) 13.5 0 2,591,000 13.5
Sandro Grimaldi 384,113 2.0 384,113 0 0
Holden Holdings, Ltd. 407,518 2.1 407,518 0 0
UnionKredit Anstalt 156,738 less than 1 156,738 0 0
Arab Commerce Bank 156,738 less than 1 156,738 0 0
Bonetti Enrico 156,738 less than 1 156,738 0 0
Ailouros, Ltd. 156,738 less than 1 156,738 0 0
Zooley Services Ltd. 156,738 less than 1 156,738 0 0
Primecap Management
Group Ltd. 156,738 less than 1 156,738 0 0
Fructose Ltd 256,188 1.3 256,188 0 0
GPS America Fund Ltd. 199,631 1.0 199,631 0 0
J.P. Carey Securities 130,000 less than 1 130,000 0 0
Jack Augsback & Assoc. 54,800 less than 1 54,800 0 0
LaRocque Trading Group
L.L.C 420,744 2.2 420,744 0 0
Aldo Nenzi 133,333 less than 1 133,333 0 0
Oscar Brito 114,872 less than 1 114,872 0 0
Excalibur Ltd. P'ship. 953,931 4.9 953,931 0 0
Zakeni Limited 2,000,000 10.5 2,000,000 0 0
Sovereign Capital Adv. 75,600 less than 1 75,600 0 0
Executive Officers
and Directors as a
group (5)persons) 5,970,384 28.7 0 5,970,384 28.7
- ---------------------------
28
<PAGE>
(1) The figures represented by this table assume full conversion and exercise
of Convertible Debentures, Convertible Preferred Stock and Warrants owned
by each individual or entity.
(2) including 50,000 shares held in trust for Anthony Cosenza,III.
The actual number of shares of Common Stock beneficially owned is subject to
adjustment and could be materially less or more than the stated amount being
offered for sale depending of factors which cannot be predicted by the Company
at this time. These factors include the market price for the Common Stock
prevailing at the actual date of conversion of Preferred Stock and/or Debentures
and whether or to what extent dividends and/or interest due the holders of the
securities are paid in Common Stock. 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.
29
<PAGE>
DESCRIPTION OF SECURITIES
CONVERTIBLE DEBENTURE
The material terms of the Company' convertible debentures provide for the
payment of interest at 8% per annum payable quarterly, mandatory redemption
after 3 years from the date of issuance at 130% of the principal amount. Subject
to adjustment, the debentures are convertible into Common Stock at the lower of
a fixed conversion price ($1.82 per share for $900,000 principal amount of
debentures; $1.61 per share for $588,980 principal amount of debentures) or 75%
of the average closing bid price for the Company's Common Stock for the 5
trading days preceding the date of the conversion notice. o. Repayment of the
indebtedness is secured by a general lien on the assets of the Company and
guarantee by 5 of the Company's operating subsidiaries.
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 September 30, 1998
13,073,416 shares of Common Stock and 51 shares of Series A Convertible
Preferred Stock; 38shares of Series B Convertible Preferred Stock; 14 shares of
Series C Convertible Preferred Stock and 20 shares of Series D 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..
The material terms of the Company's Series A, B, C and D Convertible
Preferred Stock are identical except as to conversion price. The Preferred Stock
pays a dividend of 3% per annum payable quarterly in cash or Common Stock. The
Preferred Stock is convertible into Common Stock at the lower of a fixed
conversion price or 75% (80% for the Series D Preferred Stock) of the average
closing bid price for the Company's Common Stock for the 5 trading days
preceding the date of the conversion notice. The fixed conversion prices for the
Series A, B, C and D Preferred Stock are $2.19, $1.7928, $1.55 and $1.65
respectively. .
30
<PAGE>
Additional shares of Common Stock are to be issued to the holders of the Series
A, B, C and D Preferred Stock and Convertible Debentures in the event the
Registration Statement is not declared effective within 90 days from the
issuance of the Preferred Stock or Convertible Debentures ("Scheduled Effective
Date"). In the event of such late registration, the conversion percentage is
reduced by 3% for each month (prorated) the Registration Statement is declared
effective subsequent to the Schedule Effective Date. Further, the Fixed
Conversion Price for the Series A shares is reduced by an amount equal to the
product of (a) $.0657 and (b) the sum of (i) the number of months (prorated)
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) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective. The Fixed
Conversion Price for the Series B shares is reduced by an amount equal to the
product of (a) $.054 and (b) the sum of (i) the number of months (prorated)
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) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective. The Fixed
Conversion Price for the Series C shares is reduced by an amount equal to the
product of (a) $.062 and (b) the sum of (i) the number of months (prorated)
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) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective. The Fixed
Conversion Price for the Series D shares is reduced by an amount equal to the
product of (a) $1.65 and (b) the sum of (i) the number of months (prorated)
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) that sales cannot be made pursuant to the Registration Statement
after the Registration Statement has been declared effective The Fixed
Conversion Price for the Convertible Debentures is reduced by an amount equal to
the product of (a) $1,500,000 and (b) the sum of (i) the number of months
(prorated) 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) that sales cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared effective.
31
<PAGE>
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
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 exercisable 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 exercisable
at $1.79 per share; 120,000 warrants expire on May 5, 2003 and 34,000 on May 22,
2003. 19 shares of Series B Convertible Preferred Stock were subsequently
redeemed and 19,000 Warrants expiring On May 22, 2003 will be canceled.
In connection with the private placements by Sovereign Capital Advisers
("Sovereign") of 14 shares of the Company's Series C Convertible Preferred Stock
in September, 1998, Sovereign received warrants to purchase 19,600 shares of the
Company's Common Stock, and its designees, 2,800 warrants, subject to
adjustment. 16,000 of the warrants are exercisable at $1.15 per share and 6,400
at $1.01. The warrants expire 5 years after their issuance.
32
<PAGE>
In connection with the private placement by Sovereign of 20 shares of the
Company's Series D Convertible Preferred Stock in September, 1998, Excalibur
Limited Partnership received warrants to purchase 40,000 shares and Sovereign's
designee warrants to purchase 4,000 shares of the Company's Common Stock subject
to adjustment. 40,000 warrants are exercisable at $1.45 per share and 4,000 at
$1.65 per share. The Warrants expire 5 years after their issuance.
In connection with the private placements by Sovereign of $1,500,000
principal amount of the Company's convertible debentures on July 31 and
September 2, 1998, Sovereign received warrants to purchase 56,000 shares of the
Company's Common Stock, and its designees_8,000_warrants, subject to adjustment.
36,000 warrants are exercisable at $1.38 per share and 28,000 warrants are
exercisable at $1.05 per share. The warrants expire 5 years after their
issuance.
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 1,100,000 Warrants remain unexercised.
33
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1998 (assuming no exercise of options or warrants after
September 30, 1998 except for the underlying shares being registered on behalf
of the Selling Shareholders), there will be 19,181,480 shares of Common Stock
outstanding. Of these, including the shares sold in this Offering, 13,327,854
are freely tradable without restriction under the Securities Act. The remaining
5,853,626 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
September 21,, 1998, options to purchase 61,350 shares of Common Stock were
outstanding. In addition, holders of warrants (expiring in November 1998) to
purchase 1,100,000 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
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.
34
<PAGE>
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.
35
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets, 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 Changes in 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 PUBLIC ACCOUNTANTS
To Eat At Joe's, Ltd.:
We have audited the accompanying consolidated balance sheet of East At
Joe's, Ltd. and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholder's 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 consolidated 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 consolidated 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 their operations and their cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
Respectfully submitted
ROBISON, HILL & Co.
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
March 23, 1998
<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 ........................... 1,527,099 12,495
----------- --------
1,807,766 12,495
Less accumulated depreciation .................... (11,546) --
----------- --------
1,796,220 12,495
----------- --------
Other Assets:
Intangible and other assets net of $2,150
amortization in 1997 ............................ 234,569 158,595
----------- --------
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
Accrued Liabilities ............................ 127,500 --
Short-term notes payable ....................... 264,940 --
Shareholders loans ............................. 702,922 12,500
Total Liabilities ......................... 1,442,657 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 ............................... (1,373,257) (1,074,235)
----------- -----------
Total Stockholders' Equity ................ 872,315 271,337
----------- -----------
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 ................... 322,644 14,762
--------- --------
Net loss from continuing operations ............. (294,718) (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 .................... (299,022) (18,700)
Income tax expense (benefit) .................... -- --
--------- --------
Net Loss ........................................ $(299,022) $(18,700)
========= ========
Basic Loss Per Common Share: .................... $ (.02) $ --
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
<TABLE>
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
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Deficit
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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 restated ......... 5,819,350 581 1,274,991 (1,055,535)
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 ............................ -- -- -- (299,022)
----------- ---------- ----------- -----------
Balance at December 31, 1997 $12,733,805 $ 1,273 $ 2,244,295 $(1,373,257)
=========== ========== =========== ===========
</TABLE>
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
1997 1996
----------- --------
Cash Flows From Operating Activities
Net loss for the period ............................ $ (299,022) $(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 and
accrued liabilities ............................ 427,560 7,235
Increase in unearned revenue ..................... 40,000 --
----------- --------
Net Cash Provided by (Used in) Operating Activities ... 138,246 (34,989)
----------- --------
Cash Flows From Investing Activities
Purchase of property and equipment ................. (1,795,271) (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 ............. 264,940 --
----------- --------
Net Cash Provided by Financing Activities ............. 1,855,362 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 $ --
============= =========
Organization Costs Acquired with Issuance
Common stock ................................ $ 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-line method over
the estimated economic useful lives of the related assets as follows:
Office furniture 5-10 years
Equipment 5-7 years
Leasehold improvements 8-15 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 10 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>
For the Year Ended 1997 For the Year Ended 1996
------------------------------- ---------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $(299,022) 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 - SHORT-TERM NOTES PAYABLE
Short-Term Notes Payable consist of loans from unrelated entities as of
December 31, 1997. The notes are payable one year from the date of issuance
together with interest at 6.50% A.P.R.
NOTE 3 - 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
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 3 - INCOME TAXES (Continued)
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:
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 4 - PURCHASE OF SUBSIDIARIES
On January 1, 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 4 - 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 5 - 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 6 - 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 7 - 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 8 - 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 .. (60,733) (152,046) (68,971) (12,968)
Other income ...................... 6 1,926 1,075 (7,311)
-------- --------- -------- --------
Income (loss) before tax .......... (60,727) (150,120) (67,896) (20,279)
Income tax (provision) benefit .... -- -- -- --
-------- --------- -------- --------
Net Income (Loss) ................. $(60,727) $(150,120) $(67,896) $(20,279)
======== ========= ======== ========
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 8 - 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>
Interim Financial Reporting
The following unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with Form 10-QSB
requirements. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1998, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
----------- -----------
ASSETS:
Current Assets:
Cash and Cash Equivalents ................. $ 429,538 $ 232,601
Inventory ................................. 8,757 7,488
Other ..................................... 400 400
Prepaid Expense ........................... -- 30,993
Deposits .................................. 39,284 12,701
----------- -----------
Total Current Assets ................... 477,979 284,183
----------- -----------
Property and Equipment:
Equipment ................................. 942,929 279,667
Office Furniture .......................... 8,626 1,000
Leasehold Improvements .................... 3,129,368 1,527,099
----------- -----------
4,080,923 1,807,766
Less Accumulated Depreciation ............. (65,556) (11,546)
----------- -----------
4,015,367 1,796,220
----------- -----------
Other Assets:
Intangible and Other Assets, Net .......... 142,337 234,569
----------- -----------
Total Assets ........................... $ 4,635,683 $ 2,314,972
=========== ===========
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(Unaudited)
June 30, December 31,
1998 1997
----------- -----------
LIABILITIES:
Current Liabilities:
Accounts Payable and Accrued Liabilities ........ $ 280,996 $ 474,795
Short-Term Notes Payable ........................ 2,014,940 264,940
Shareholder Loans ............................... 452,455 702,922
----------- -----------
Total Liabilities ............................ 2,748,391 1,442,657
----------- -----------
Stockholders' Equity:
Preferred Stock - $.0001 par value,
10,000,000 shares authorized; Series A
Convertible, 51 issued and outstanding
June 30, 1998, Series B Convertible,
64 shares issued and outstanding
June 30, 1998, none issued and
outstanding December 31, 1997 ................ -- --
Common Stock - $.0001 par value,
50,000,000 shares authorized,
12,754,305 issued and outstanding ............. 1,275 1,273
Additional Paid-In Capital ...................... 4,673,160 2,244,299
Retained Deficit ................................ (2,787,143) (1,373,257)
----------- -----------
Total Stockholders' Equity ................... 1,887,292 872,315
----------- -----------
Total Liabilities and Stockholders' Equity ... $ 4,635,683 $ 2,314,972
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues .......................... $ 316,397 $ -- $ 463,744 $ --
Cost of Revenues .................. 210,355 -- 331,102 --
------------ ------------ ------------ -----------
Gross Margin ...................... 106,042 -- 132,642 --
Expenses
General and Administrative ..... 435,080 130,171 856,269 169,029
------------ ------------ ------------ -----------
Net loss from Continuing Operations (329,038) (130,171) (723,627) (169,029)
Other Income (Expense) Net ..... (4,941) 1,926 (13,872) 1,932
------------ ------------ ------------ -----------
Net Loss Before Income Taxes ...... (333,979) (128,245) (737,499) (167,097)
Income Tax Expense (Benefit) ...... -- -- -- --
------------ ------------ ------------ -----------
Net Loss Before Cumulative effects
of Accounting Change .............. (333,979) (128,245) (737,499) (167,097)
Cumulative effect of Accounting
Change on Years Prior to
1998, Net of Taxes ................ -- -- (84,732) --
Net Loss .......................... $ (333,979) $ 128,245) $ (822,231) $ (167,097)
============ ============ ============ ===========
Basic Net Loss Per Common Share:
Net Loss Before Cumulative effects
of Accounting Change .............. (0.07) -- (0.11) (0.02)
Cumulative effect of Accounting
Change ............................ -- -- -- --
------------ ------------ ------------ -----------
Net Loss Per Common Share- Basic
and Diluted ....................... $ (0.07) $ -- $ (0.11) $ (0.02)
Weighted Average Number of
Common Shares ..................... 12,747,656 12,478,977 12,740,769 9,466,549
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss for the period before cumulative $ (333,979) $(128,245) $ (737,499) $(167,097)
effects of accounting change
Adjustments to Reconcile net loss to net cash
provided by operating activities
Depreciation and amortization ........ 39,559 -- 61,510 --
Stock issued for services ............ 21,750 -- 21,750 --
Payment of organization costs ........ -- -- -- (8,657)
(Increase) decrease in:
Inventory ......................... (2,127) -- (1,269) --
Prepaid expense ................... 8,333 (12,750) 30,993 (11,825)
Deposits .......................... (8,683) -- (26,583) 14,009
Increase (decrease) in:
Accounts payable .................. (132,167) 4,734 (257,281) 16,399
Accrued expenses .................. 29,440 (7,235) 63,482 1,210
----------- --------- ----------- ---------
Net Cash Used in Operating Activities: ....... (377,874) (143,496) (844,897) (155,961)
----------- --------- ----------- ---------
Cash Flows From Investing Activities:
Payment of deferred development costs ...... -- (54,892) -- (101,269)
Purchase of property and equipment ........ (1,867,265) -- (2,264,076) (13,495)
----------- --------- ----------- ---------
Net Cash Used by Investing Activities: ....... (1,867,265) (54,892) (2,264,076) (114,764)
----------- --------- ----------- ---------
Cash Flows From Financing Activities:
Issuance of convertible preferred stock .... 1,008,747 -- 1,806,377 --
Issuance of common stock ................... -- 300,000 -- 700,000
Proceeds from short-term notes payable ..... 795,000 -- 1,750,000 --
Advances to (from) majority stockholder .... 43,825 -- (250,467) 14,000
----------- --------- ----------- ---------
Net Cash Provided by Financing Activities .... 1,847,572 300,000 3,305,910 714,000
----------- --------- ----------- ---------
Increase in Cash ............................. (397,567) 101,612 196,937 443,275
Cash at Beginning of Period .................. 827,105 376,635 232,601 34,972
----------- --------- ----------- ---------
Cash at End of Period ........................ $ 429,538 $ 478,247 $ 429,538 $ 478,247
=========== ========= =========== =========
</TABLE>
<PAGE>
<TABLE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Continued)
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Supplemental Disclosure of
Interest and Income Taxes Paid
Interest paid for the period ....... $ (4,459) $ -- $ -- $ --
Income taxes paid for the period ... $ 1,271 $ -- $ 3,871 $ --
Supplemental Disclosure of
Non-cash Investing and
Financing Activities
Intangible Assets
acquired with issuance of
common stock ..................... $ -- $ -- $ -- $ 149,837
Leasehold Improvements
acquired with issuance of
common stock ..................... $ 9,081 $ -- $ 9,081 $ 149,837
Organization costs acquired
with issuance of common
Stock ............................ $ -- $ -- $ -- $ 200
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
1. Interim Reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with Form 10-QSB
requirements. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
six month period ended June 30, 1998, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1997.
2. Adoption of New Accounting Principle
During 1998, the Company changed its method of accounting for costs of
start up activities to conform with new requirements of Statement of Position
98-5 "Reporting on the Costs of Start-Up Activities" (SOP 98-5). The effect of
this change was to increase net loss for the three months ended March 31, 1998
by $84,732 ($0.01 per share). Financial Statements for 1997 have not been
restated in accordance with the provisions of SOP 98-5.
<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.
.
________________ 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, 900,000 warrants were exercised against
payment of $900,000.
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
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.
<PAGE>
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 and warrants (issued in connection with
the offering) exercisable into 1,700,725 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 and warrants (issued
in connection with the offering) exercisable into 990,064 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 and warrants (issued
in connection with the offering) excersisable into 433,916 shares of Common
Stock of the Company.
In September, 1998, the Company sold 14 shares of its Series C. Convertible
Preferred Stock to 2 accredited investors pursuant to an exemption from
registration under the Section 4(2) and/or Regulation D. The Company received
proceeds of approximately $239,000 from the sale of the securities. As of the
date of this prospectus the shares are convertible and warrants (issued in
connection with the offering) into 395,733 shares of Common Stock of the
Company.
On July 31, and September 2, 1998, the Company sold its 8% convertible
debenture in the aggregate principal amount of $1,500,000 to an accredited
investor pursuant to an exemption from registration under Section 4(2) and/or
Regulation D. The Company retained proceeds of approximately $933,000 from the
sale of the securities and $450,000 was applied to the repurchase of 19 shares
of Series B Convertible Preferred Stock sold to an investor on May 21, 1998. As
of the date of this prospectus, the debentures are convertible and warrants
(issued in connection with the offering) exercisable into 2,064,000 shares of
Common Stock of the Company.
In September, 1998, the Company sold 20 shares of its Series D. Convertible
Preferred Stock to an accredited investors pursuant to an exemption from
registration under the Section 4(2) and/or Regulation D. The Company received
proceeds of approximately $350,000 from the sale of the securities. As of the
date of this prospectus the shares are convertible and warrants (issued in
connection with the issuance of the shares) into 539,000 shares of Common Stock
of the Company.
<PAGE>
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
4.4 Certificate of Designations-Series C Convertible Preferred Stock
4.5 Certificate of Designations-Series D Convertible Preferred Stock
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.
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
10.15 Registration Rights Agreement
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
<PAGE>
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
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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the Town of Scarsdale, State of New York, on October 14, 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, October 14, 1998
Chief Executive Officer
and Principal Financial
- -------------------------------- Officer
Joseph Fiore
/s/ JAMES MYLOCK Director October 14, 1998
- --------------------------------
James Mylock
/s/ TIM MATULA Director October 14, 1998
- --------------------------------
Tim Matula
Exhibit 4.4
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES C 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 of fifteen (15) shares of Series C Convertible Preferred Stock
of the Company, as follows:
RESOLVED, that the Company is authorized to issue fifteen (15) shares of
Series C Convertible Preferred Stock (the "Series C Preferred Shares"), $.0001
par value per share, which shall have the following powers, designations,
preferences, and other special rights:
Section Dividends. The Series C Preferred Shares shall not bear any
dividends.
Section Holder's Conversion of Series C Preferred Shares. A holder of
Series C Preferred Shares shall have the right, at such holder's option, to
convert the Series C 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) 30 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 C Preferred Shares and required to be filed and amended
by the Company pursuant to the Registration Rights Agreement between
the Company and its initial holders of Series C Preferred Shares (the
"Registration Rights Agreement"), or (iii) the date that the
Registration Statement is declared effective by the U.S. Securities
and Exchange Commission (the "SEC"), any holder of Series C Preferred
Shares shall be entitled to convert any Series C 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)
hereto, shall any holder be entitled to convert Series C Preferred
Shares in excess of that number of Series C 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 C
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 C 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 C 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 $ 1.545, 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 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 two percentage points for every 30 days (pro-rated for
partial months) beyond 20 days from the Issuance Date (the
"Scheduled Filing Date") that the Registration Statement No.
333-55679 filed by the Company is not amended to include the
Series C Preferred Shares;
(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);
(vii)"N" means the number of days between, but excluding, the
Issuance Date through and including the Conversion Date for the
Series C Preferred Shares for which conversion is being elected;
and
(viii) "Issuance Date" means the date of issuance of the Series C
Preferred Shares.
(c) Adjustment to Conversion Price - Registration Statement. If the
Registration Statement which identifies the Series C Preferred Shares
is not declared effective by the SEC on or before the thirtieth (30th)
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 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 C 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
pro-rated 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
pro-rated 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 C Preferred Shares would decrease by four
and one-half percentage points 75% 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 C Preferred
Shares would decrease by an additional six percent (6%), for an
aggregate decrease of ten and one-half percentage points (75% to
64.5%); and
(ii) Fixed Conversion Price. The Fixed Conversion Price in effect from
time to time with respect to the Series C Preferred Shares shall
be reduced by an amount equal to the product of (A) $.062
multiplied by (B) the sum of (I) the number of months (pro-rated
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 pro-rated 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 C Preferred Shares would be $1.43 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 C Preferred
Shares would then be $1.329.
(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 all 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 assets 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
C Preferred Shares then outstanding) to insure that each of the
holders of the Series C 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 C 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 C 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 C
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 C 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 substance satisfactory to the holders of a majority of the
Series C Preferred Shares then outstanding), the obligation to
deliver to each holder of Series C 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 C 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 C 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 C 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 C 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 C 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.
(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 C 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 1
(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 C 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 (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 C
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 C Preferred Shares, in addition to all other
available remedies which such holder may pursue hereunder and
under the Series C Convertible Preferred Stock Purchase Agreement
between the Company and the initial holders of the Series C
Preferred Shares (the "Securities Purchase Agreement") (including
indemnification pursuant to Section 8 thereto, 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 C Preferred Shares remain
outstanding on the second (2nd) anniversary of the Issuance Date, then
all such Series C Preferred Shares shall be converted as of such date
in accordance with this Section 2 as if the holders of such Series C
Preferred Shares had given the Conversion Notice on the second (2nd)
anniversary of the Issuance Date, and the Conversion Date had been
fixed as of the second (2nd) anniversary of the Issuance Date, for all
purposes of this Section 2, and all holders of Series C Preferred
Shares shall thereupon and with two (2) business days thereafter
surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or the Transfer Agent. No person shall
thereafter have any rights in respect of Series C 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 C 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. If,
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 C Preferred Shares.
Section Company's Right to Redeem at its Election.
(a) At any time, commencing One Hundred Ten (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 C 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 C 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 C Preferred Stock, the Company shall redeem a
pro-rata amount from each Holder of the Series C 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 C Preferred Stock.
For purposes hereto, "Stated Value" shall mean the original
consideration paid by a Holder for the number of shares of
Preferred Stock being redeemed, plus a premium of 3% per annum
from the original Issue Date through and including the redemption
date.
(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 (A) the Holders of the Series C Preferred Stock
selected for redemption at the address and facsimile number of
such Holder appearing in the Company's Series C 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 C 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 C Preferred
Stock which it is otherwise entitled to convert, including Series
C 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 redemption; 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 the Series C 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.
Section Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the holders of Series C Preferred Shares contained herein,
after a Major Transaction (as defined below), the holders of Series C
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 C Preferred Shares then outstanding, to require the Company to
redeem all of the Series C Preferred Shares then outstanding at a
price per Series C 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 C Preferred Shares contained herein,
after a Triggering Event (as defined below), the holders of Series C
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 C Preferred Shares then outstanding, to require the Company to
redeem all of the Series C Preferred Shares then outstanding at a
price per Series C 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 in which the Company is the
survivor or (B) pursuant to a migratory (change of domicile)
merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company;
(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 C
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 C 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 the second (2nd) anniversary of the Issuance Date, other
than in connection with a Major Transaction;
(iii)the Company's notice to any holder of Series C 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 C Preferred Shares into shares of Common
Stock;
(iv) 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 C Preferred Shares;
or
(v) 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
C 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 C 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 C Preferred Shares then
outstanding may require the Company to redeem all of the holders'
Series C Preferred Shares then outstanding in accordance with Section
4(a) hereof 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 C
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.
(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 C 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 C Preferred Shares then outstanding may require the Company to
redeem all of the Series C Preferred Shares then outstanding in
accordance with Section 4(b) hereof 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 C 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 C
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 C 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's receipt of the
requisite notices required to affect a redemption; provided that a
holder's Series C 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 C Preferred
Shares, the Company shall redeem an amount from each holder of Series
C Preferred Shares equal to such holder's pro-rata amount (based on
the number of Series C Preferred Shares held by such holder relative
to the number of Series C Preferred Shares outstanding) of all Series
C Preferred Shares being redeemed. If the Company shall fail to redeem
all of the Series C 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 C Preferred Shares shall bear interest at the rate of 2.5% per
month pro-rated for partial months but in no event more than the
maximum rate permitted by applicable law) 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 C
Preferred Shares then outstanding, including shares of Series C
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 C Preferred Shares that 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 C Preferred Shares submitted for
redemption and for which the applicable redemption price has not been
paid, (ii) the Company shall immediately return any Series C 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 C 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 pro-rated 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."
Section 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, including, without limitation, because the Company (A) does
not have a sufficient number of shares of Common Stock authorized and
available, (B) 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 C Preferred Shares pursuant to a
Conversion Notice, or (C) 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 C 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, or at law or in equity, elect to: (i)
require the Company to redeem from such holder those Series C
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 C 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 C
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 C 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 C 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 C 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 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 pro-rated for partial months
(but not more than the maximum interest rate permitted by law) 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 C Preferred Shares for which the full
Mandatory Redemption Price has not been paid and receive back such
Series C 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 C Preferred
Shares on the same day and the Company can convert and redeem some,
but not all, of the Series C Preferred Shares pursuant to this Section
5, the Company shall convert and redeem from each holder of Series C
Preferred Shares electing to have Series C Preferred Shares converted
and redeemed at such time an amount equal to such holder's pro-rata
amount (based on the number of Series C Preferred Shares held by such
holder relative to the number of Series C Preferred Shares
outstanding) of all Series C Preferred Shares being converted and
redeemed at such time.
Section Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Series C 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 C Preferred Shares a Preferred stock certificate
representing the remaining Series C Preferred Shares which have not been so
converted or redeemed.
Section Reservation of Shares. The Company shall, so long as any of the
Series C 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 C 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 C Preferred Shares then outstanding; pro vided 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 C Preferred Shares are at
any time convertible.
Section Voting Rights. Holders of Series C 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.
Section Liquidation, Dissolution, or Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the Company,
the holders of the Series C 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 C 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 C Preferred
Share equal to the sum of (i) per share consideration paid to the Company by a
Holder on the Issuance Date in respect of one Series C Preferred Share (the
"Original Purchase Price") and (ii) an amount equal to the product of (.03)
multiplied by (N/365) multiplied by the Original Purchase Price (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 C 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 C Preferred Shares as to
payments of Preferred Funds (the "Pari Passu Shares"), then each holder of
Series C 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 C 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 C 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.
Section Preferred Rate. All shares of Common Stock shall be of junior rank
to all Series C 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 C Preferred Shares. The Series C
Preferred Shares shall be of greater than any Series of Common or Preferred
Stock hereinafter issued by the Company. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Series C 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
C 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 C 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 C 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 C Preferred Shares shall maintain their relative powers, designations,
and preferences provided for herein and no merger shall result inconsistent
therewith.
Section Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series C 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 C
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 C 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 11(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 C
Preferred Shares an amount in cash equal to the amount such holder
would have received had all of such holder's Series C 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 C Preferred Shares under Section 11 (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 C 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 C
Preferred Shares, the Company shall 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).
Section Vote to Change the Terms of Series C 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 C 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 C Preferred Shares.
Section 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 C
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 C Preferred Shares
into Common Stock.
Section 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 C 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 C
Preferred Share on the holder of such Series C 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 C 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 C
Preferred Share on the holder of such Series C 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 C Preferred Share on the holder of such
Series C Preferred Shares executing and delivering to the Company, at the
election of the holder, either: (a) if applicable, a property completed Internal
Revenue Service Form 4224, or (b) 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 __ day of
September, 1998.
EAT AT JOE'S LTD.
By:
Joseph Fiore, Chief Executive Officer
<PAGE>
EXHIBIT 1
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 C Convertible Preferred Stock,
$.0001 par value per share (the "Series C 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 C
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 C 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 C Preferred Shares to be converted
Stock certificate no(s). of Series C Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Series C Preferred Shares are
being converted in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
ACKNOWLEDGED AND AGREED:
EAT AT JOE'S LTD.
By:
Title:
Dated:
Exhibit 4.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES D 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 of twenty (20) shares of Series D Convertible Preferred Stock of
the Company, as follows: RESOLVED, that the Company is authorized to issue
twenty (20) shares of Series D Convertible Preferred Stock (the "Series D
Preferred Shares"), $.0001 par value per share, which shall have the following
powers, designations, preferences, and other special rights:
Section Dividends. The Series D Preferred Shares shall not bear any
dividends.
Section Holder's Conversion of Series D Preferred Shares. A holder of
Series D Preferred Shares shall have the right, at such holder's option, to
convert the Series D 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) 30 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 D Preferred Shares and required to be filed and amended
by the Company pursuant to the Registration Rights Agreement between
the Company and its initial holders of Series D Preferred Shares (the
"Registration Rights Agreement"), or (iii) the date that the
Registration Statement is declared effective by the U.S. Securities
and Exchange Commission (the "SEC"), any holder of Series D Preferred
Shares shall be entitled to convert any Series D 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)
hereto, shall any holder be entitled to convert Series D Preferred
Shares in excess of that number of Series D 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 D
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 D 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 D 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 $ 1.65, 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 Common Stock for the five (5) consecutive trading days
immediately preceding such date;
(iv) "Conversion Percentage" means 80% and shall be reduced by an
additional two percentage points for every 30 days (pro-rated for
partial months) beyond 20 days from the Issuance Date (the
"Scheduled Filing Date") that the Registration Statement No.
333-55679 filed by the Company is not amended to include the
Series D Preferred Shares;
(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);
(vii)"N" means the number of days between, but excluding, the
Issuance Date through and including the Conversion Date for the
Series D Preferred Shares for which conversion is being elected;
and
(viii) "Issuance Date" means the date of issuance of the Series D
Preferred Shares.
(c) Adjustment to Conversion Price - Registration Statement. If the
Registration Statement which identifies the Series D Preferred Shares
is not declared effective by the SEC on or before the thirtieth (30th)
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 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 D 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
pro-rated 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
pro-rated 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 D Preferred Shares would decrease by four
and one-half percentage points 80% to 76.5%) 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 D Preferred
Shares would decrease by an additional six percent (6%), for an
aggregate decrease of ten and one-half percentage points (80% to
69.5%); and
(ii) Fixed Conversion Price. The Fixed Conversion Price in effect from
time to time with respect to the Series D Preferred Shares shall
be reduced by an amount equal to the product of (A) $.066
multiplied by (B) the sum of (I) the number of months (pro-rated
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 pro-rated 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 D Preferred Shares would be $1.55 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 D Preferred
Shares would then be $1.42.
(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 all 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 assets 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
D Preferred Shares then outstanding) to insure that each of the
holders of the Series D 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 D 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 D 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 D
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 D 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 substance satisfactory to the holders of a majority of the
Series D Preferred Shares then outstanding), the obligation to
deliver to each holder of Series D 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 D 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 D 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 D 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 D 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 D 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.
(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 D 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 1
(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 D 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 (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 D
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 D Preferred Shares, in addition to all other
available remedies which such holder may pursue hereunder and
under the Series D Convertible Preferred Stock Purchase Agreement
between the Company and the initial holders of the Series D
Preferred Shares (the "Securities Purchase Agreement") (including
indemnification pursuant to Section 8 thereto, 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 D Preferred Shares remain
outstanding on the second (2nd) anniversary of the Issuance Date, then
all such Series D Preferred Shares shall be converted as of such date
in accordance with this Section 2 as if the holders of such Series D
Preferred Shares had given the Conversion Notice on the second (2nd)
anniversary of the Issuance Date, and the Conversion Date had been
fixed as of the second (2nd) anniversary of the Issuance Date, for all
purposes of this Section 2, and all holders of Series D Preferred
Shares shall thereupon and with two (2) business days thereafter
surrender all Preferred Stock Certificates, duly endorsed for
cancellation, to the Company or the Transfer Agent. No person shall
thereafter have any rights in respect of Series D 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 D 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. If,
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 D Preferred Shares.
Section Company's Right to Redeem at its Election.
(a) At any time, commencing One Hundred Ten (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 D 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 D 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 D Preferred Stock, the Company shall redeem a
pro-rata amount from each Holder of the Series D 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 D Preferred Stock.
For purposes hereto, "Stated Value" shall mean the original
consideration paid by a Holder for the number of shares of
Preferred Stock being redeemed, plus a premium of 3% per annum
from the original Issue Date through and including the redemption
date.
(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 (A) the Holders of the Series D Preferred Stock
selected for redemption at the address and facsimile number of
such Holder appearing in the Company's Series D 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 D 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 D Preferred
Stock which it is otherwise entitled to convert, including Series
D 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 redemption; 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 the Series D 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.
Section Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the holders of Series D Preferred Shares contained herein,
after a Major Transaction (as defined below), the holders of Series D
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 D Preferred Shares then outstanding, to require the Company to
redeem all of the Series D Preferred Shares then outstanding at a
price per Series D 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 D Preferred Shares contained herein,
after a Triggering Event (as defined below), the holders of Series D
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 D Preferred Shares then outstanding, to require the Company to
redeem all of the Series D Preferred Shares then outstanding at a
price per Series D 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 in which the Company is the
survivor or (B) pursuant to a migratory (change of domicile)
merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company;
(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 D
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 D 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 the second (2nd) anniversary of the Issuance Date, other
than in connection with a Major Transaction;
(iii)the Company's notice to any holder of Series D 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 D Preferred Shares into shares of Common
Stock;
(iv) 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 D Preferred Shares;
or
(v) 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
D 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 D 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 D Preferred Shares then
outstanding may require the Company to redeem all of the holders'
Series D Preferred Shares then outstanding in accordance with Section
4(a) hereof 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 D
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.
(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 D 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 D Preferred Shares then outstanding may require the Company to
redeem all of the Series D Preferred Shares then outstanding in
accordance with Section 4(b) hereof 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 D 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 D
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 D 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's receipt of the
requisite notices required to affect a redemption; provided that a
holder's Series D 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 D Preferred
Shares, the Company shall redeem an amount from each holder of Series
D Preferred Shares equal to such holder's pro-rata amount (based on
the number of Series D Preferred Shares held by such holder relative
to the number of Series D Preferred Shares outstanding) of all Series
D Preferred Shares being redeemed. If the Company shall fail to redeem
all of the Series D 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 D Preferred Shares shall bear interest at the rate of 2.5% per
month pro-rated for partial months but in no event more than the
maximum rate permitted by applicable law) 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 D
Preferred Shares then outstanding, including shares of Series D
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 D Preferred Shares that 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 D Preferred Shares submitted for
redemption and for which the applicable redemption price has not been
paid, (ii) the Company shall immediately return any Series D 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 D 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 pro-rated 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."
Section 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, including, without limitation, because the Company (A) does
not have a sufficient number of shares of Common Stock authorized and
available, (B) 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 D Preferred Shares pursuant to a
Conversion Notice, or (C) 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 D 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, or at law or in equity, elect to: (i)
require the Company to redeem from such holder those Series D
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 D 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 D
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 D 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 D 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 D 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 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 pro-rated for partial months
(but not more than the maximum interest rate permitted by law) 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 D Preferred Shares for which the full
Mandatory Redemption Price has not been paid and receive back such
Series D 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 D Preferred
Shares on the same day and the Company can convert and redeem some,
but not all, of the Series D Preferred Shares pursuant to this Section
5, the Company shall convert and redeem from each holder of Series D
Preferred Shares electing to have Series D Preferred Shares converted
and redeemed at such time an amount equal to such holder's pro-rata
amount (based on the number of Series D Preferred Shares held by such
holder relative to the number of Series D Preferred Shares
outstanding) of all Series D Preferred Shares being converted and
redeemed at such time.
Section Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Series D 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 D Preferred Shares a Preferred stock certificate
representing the remaining Series D Preferred Shares which have not been so
converted or redeemed.
Section Reservation of Shares. The Company shall, so long as any of the
Series D 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 D 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 D Preferred Shares then outstanding; pro vided 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 D Preferred Shares are at
any time convertible.
Section Voting Rights. Holders of Series D 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.
Section Liquidation, Dissolution, or Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the Company,
the holders of the Series D 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 D 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 D Preferred
Share equal to the sum of (i) per share consideration paid to the Company by a
Holder on the Issuance Date in respect of one Series D Preferred Share (the
"Original Purchase Price") and (ii) an amount equal to the product of (.03)
multiplied by (N/365) multiplied by the Original Purchase Price (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 D 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 D Preferred Shares as to
payments of Preferred Funds (the "Pari Passu Shares"), then each holder of
Series D 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 D 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 D 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.
Section Preferred Rate. All shares of Common Stock shall be of junior rank
to all Series D 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 D Preferred Shares. The Series D
Preferred Shares shall be of greater than any Series of Common or Preferred
Stock hereinafter issued by the Company. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Series D 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
D 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 D 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 D 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 D Preferred Shares shall maintain their relative powers, designations,
and preferences provided for herein and no merger shall result inconsistent
therewith.
Section Restriction on Redemption and Dividends.
(a) Restriction on Dividend. If any Series D 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 D
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 D 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 11(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 D
Preferred Shares an amount in cash equal to the amount such holder
would have received had all of such holder's Series D 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 D Preferred Shares under Section 11 (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 D 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 D
Preferred Shares, the Company shall 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).
Section Vote to Change the Terms of Series D 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 D 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 D Preferred Shares.
Section 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 D
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 D Preferred Shares
into Common Stock.
Section 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 D 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 D
Preferred Share on the holder of such Series D 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 D 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 D
Preferred Share on the holder of such Series D 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 D Preferred Share on the holder of such
Series D Preferred Shares executing and delivering to the Company, at the
election of the holder, either: (a) if applicable, a property completed Internal
Revenue Service Form 4224, or (b) 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 __ day of
September, 1998.
EAT AT JOE'S LTD.
By:
Joseph Fiore, Chief Executive Officer
<PAGE>
EXHIBIT 1
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 D Convertible Preferred Stock,
$.0001 par value per share (the "Series D 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 D
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 D 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 D Preferred Shares to be converted
Stock certificate no(s). of Series D Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Series D Preferred Shares are
being converted in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
ACKNOWLEDGED AND AGREED:
EAT AT JOE'S LTD.
By:
Title:
Dated:
Exhibit 5.1
BECKMAN, MILLMAN & SANDERS, LLP
116 John Street
New York, New York 10038
August , 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: East at Joe's, Ltd. Registration Statement on Form SB-2
(File nos. 333-55679)
Gentlemen:
We have acted as counsel to Eat at Joe's, Ltd. a Delaware corporation (the
"Company"), in connection with the registration by the Company under the
Securities Act of 1933 (the "Act") pursuant to the Company's Registration
Statement on Form SB-2 (File nos. 333-55679) to be filed with the Securities and
Exchange Commission (the "Commission") on or about the date of this letter (the
"Registration Statement") of up to ______________ shares of the Company's common
stock, par value $.0001 to be issued under certain circumstances (the "Issuable
Shares") pursuant to certain Securities Purchase Agreements dated March 20, May
5, and May 20 1998 and Debenture and Warrant Purchase Agreement dated July 31,
1998.
In connection with this opinion, we have examined originals or copies,
certified or otherwise to our satisfaction, of the Certificate of Incorporation
of the Company, as amended to date, Certificates of Designations, Preferences
and Rights, Certificates of Good Standing of a recent date, and certificates of
certain officers of the Company, and such other documents, instruments and
records; and have made such other investigations, as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
We have assumed the legal capacity of all natural persons, the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
latter documents. In making our examination of documents executed by parties
other than the Company, we have assumed that such parties had the power,
corporate or otherwise to enter into and perform their respective obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or otherwise, and the execution and delivery by such parties of such
documents and the validity and binding effect thereof. As to any facts material
to the opinions expressed herein, we have relied upon oral or written statements
and representations of officers and other representatives of the Company and
others.
Based upon and subject to the foregoing, we are of the opinion that the
Issuable Shares, when issued, sold and delivered in the manner and or the
consideration stated in the Prospectus included in the Registration Statement,
will be duly authorized and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Prospectus included in the
Registration Statement.
Very truly yours,
BECKMAN, MILLMAN & SANDERS, LLP
by: /s/ Steven A. Sanders
Steven A. Sanders
Exhibit 10.15
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March ____,
1998, by and among Eat At Joe's Ltd., a Delaware corporation, with headquarters
at Suite 118, 670 White Plains Road, Scarsdale, New York 10583 (the "Company"),
and the undersigned buyer (the "Buyer" ).
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties of even date herewith (the "Securities Purchase Agreement"), the Company
has agreed, upon the terms and subject to the conditions of the Securities
Purchase Agreement, (i) to issue and sell to the Buyer's shares of the Company's
Series A Preferred Stock (the "Preferred Stock"), which will be convertible into
shares of the Company's common stock, $.001 par value per share (the "Common
Stock") (as converted, the "Conversion Shares") in accordance with the terms of
the Preferred Stock; and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "Investor" means the Buyer and any transferee or assignee thereof
to whom the Buyer assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in
accordance with Section 9.
b. "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
c. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more
Registration Statements in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous basis ("Rule
415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and
Exchange Commission (the "SEC").
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d. Registrable Securities" means the Conversion Shares issued or
issuable upon conversion of the Preferred Stock and any shares of
capital stock issued or issuable with respect to the Conversion
Shares or the Preferred Stock as a result of any stock split,
stock dividend, recapitalization, exchange or similar event.
e."Registration Statement" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set for-the in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
prior to forty-five (45) days after the date of issuance of any
Preferred Stock (the "Filing Deadline"), file with the SEC a
Registration Statement or Registration Statements (as is
necessary) on Form S-3 (or, if such form is unavailable for such
a registration, on such other form as is available for such a
registration, subject to the consent of each Buyer and the
provisions of Section 2(e), which consent will not be
unreasonably withheld), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall
state that, in accordance with Rule 416 promulgated under the
1933 Act, such Registration Statement(s) also covers such
indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Stock (i) to
prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) by reason of changes in the
Conversion Price or Conversion Rate of the Preferred Stock in
accordance with the terms thereof Such Registration Statement
shall initially register for resale at least _________ shares of
Common Stock, subject to adjustment as provided in Section 3(b),
and such registered shares of Common Stock shall be allocated
among the Investors pro rata based on the total number of
Registrable Securities issued or issuable as of each date that a
Registration Statement, as amended, relating to the resale of the
Registrable Securities is declared effective by the SEC. The
Company shall use its best efforts to have the Registration
Statement declared effective by the SEC within ninety (90) days
after the issuance of the Preferred Stock (the "Registration
Deadline"). The Company shall permit the registration statement
to become effective within five (5) business days after receipt
of a "no review" notice from the SEC. In the event that the
Registration Statement is not filed by the Company with the SEC
by the Filing Deadline, then the Applicable Discount (as defined
in the Certificate of Designations) shall be reduced by (i) an
additional 2% for each 30 days from the Filing Deadline for which
the Registration is not filed by the Company with the SEC. In the
event that the Registration Statement is not declared effective
by the SEC by the Registration Deadline then the Conversion
Percentage to be used in determining the Conversion Price (as
defined in the Certificate of Designations, Preferences, and
Rights filed by the Company on or before the date hereof in
connection herewith ("Certificate of Designations")shall be
reduced by (i) an
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additional 3% if the Registration Statement is not declared
effective by the SEC within thirty (30) days following the
Registration Deadline, or (ii) an additional 6% if the
Registration Statement is not declared effective by the SEC
within sixty (60) days of the Registration Deadline.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) involves an underwritten
offering, the Buyers shall have the right to select one legal
counsel and an investment banker or bankers and manager or
managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
c. Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under
the 1933 Act of any of its securities (other than on Form S-4 or
Form S-8 or their then equivalents relating to securities to be
issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock
option or other employee benefit plans) the Company shall
promptly send to each Investor who is entitled to registration
rights under this Section 2(c) written notice of the Company's
intention to file a Registration Statement and of such Investor's
rights under this Section 2(c) and, if within twenty (20) days
after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement
all or any part of the Registrable Securities such Investor
requests to be registered, subject to the priorities set forth in
Section 2(d) below. No right to registration of Registrable
Securities under this Section 2(c) shall be construed to limit
any registration required under Section 2(a). The obligations of
the Company under this Section 2(c) may be waived by Investors
holding a majority of the Registrable Securities. If an offering
in connection with which an Investor is entitled to registration
under this Section 2(c) is an underwritten offering, then each
Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an
underwritten offering using the same underwriter or underwriters
and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in
such underwritten offering.
d. Priority in Piggy-Back Registration Rights in connection with
Registrations or Company Account. If the registration referred to
in Section 2(c) is to be an underwritten public offering for the
account of the Company and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion,
marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the
Registration Statement is necessary to facilitate and not
adversely affect the proposed offering, then the Company shall
include in such registration: (1) first, all securities the
Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the
account of the holders of securities entitled to inclusion of
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<PAGE>
their securities in the Registration Statement by reason of
demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, drawn
from them pro rata based on the number each has requested to be
included in such registration.
e. Eligibility for Form S-3. The Company represents, warrants
covenants that it has filed and shall file all reports required
to be filed by the Company with the SEC in a timely manner so as
to obtain and maintain such eligibility for the use of Form S-3.
In the event that Form S-3 is not available for sale by the
Investors of the Registrable Securities, then (i) the Company,
with the consent of each Investor pursuant to Section 2(a), shall
register the sale of the Registrable Securities on another
appropriate form, such as Form SB-2 and (ii) the Company shall
undertake to register the Registrable Securities on Form S-3 as
soon as such form is available.
f. Regulation S Option. If the Registration Statement is not
declared effective by the Registration Deadline, the Investor at
its sole election may elect and the Company will consent to treat
the issuance by the Company to the Buyers of the Preferred Stock
as made in reliance upon an exemption from registration afforded
by Regulation S promulgated under the 1933 Act (the "Regulation S
Election"). In such case, any Applicable Penalty discount then in
effect shall apply.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(c) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities
(on or prior to the forty-fifth (45th) day following the date of
issuance of any Preferred Stock, for the registration of
Registrable Securities pursuant to Section 2(a)) and use its best
efforts to cause such Registration Statement(s) relating to
Registrable Securities to become effective as soon as possible
after such filing (by the ninetieth (90th) day following the
issuance of the relevant Preferred Stock for the registration of
Registrable Securities pursuant to Section 2(a), and keep the
Registration Statement(s) effective pursuant to Rule 415 at all
times until the earlier of (i) the date as of which the Investors
may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors
shall have sold all the Registrable Securities and (B) none of
the Preferred Stock is outstanding (the "Registration Period"),
which Registration Statement(s) (including any amendments or
supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state
a material
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<PAGE>
fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they
were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in
connection with the Registration Statement(s), which
prospectus(es) are to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration
Period, and, during such period, comply with the provisions of
the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration
Statement(s) until such time as all of such Registrable
Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof
as set forth in the Registration Statement(s). In the event the
number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the
Registrable Securities, the Company shall amend the Registration
Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover
all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the
necessity therefor arises (based on the market price of the
Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement
to become effective as soon as practicable following the filing
thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at
any time the number of Registrable Securities issued or issuable
upon conversion of the Preferred Stock is greater than the
quotient determined by dividing (i) the number of shares of
Common Stock available for resale under such Registration
Statement by (ii) 1.5; provided that in the case of the initial
registration of the Registrable Securities pursuant to Section
2(a), the Company shall be required to register at least _______
shares of Common Stock for resale. For purposes of the
calculation set forth in the foregoing sentence, any restrictions
on the convertibility of the Preferred Stock shall be disregarded
and such calculation shall assume that the Preferred Stock are
then convertible into shares of Common Stock at the then
prevailing Conversion Rate (as defined in the Preferred Stock).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement(s) and its
legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC at least one copy of the
Registration Statement and any amendment thereto, including
financial statements and schedules, all documents incorporated
therein by reference and all exhibits, the prospectus(es)
included in such Registration Statement(s) (including each
preliminary prospectus ) and, with regards to the Registration
Statement, any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the
SEC or the staff of the SEC to the Company or its
representatives, (ii) upon the effectiveness of any Registration
Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and
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supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents,
including any preliminary prospectus, as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration
Statement(s) under such other securities or "blue sky" laws of
such jurisdictions in the United States as any Investor
reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness
thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration
Period, and (iv) take all other actions reasonably necessary or
advisable to quality the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a)
qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b)
subject itself to general taxation in any such jurisdiction, or
(c) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify each Investor who
holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration
or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in
the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
e. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for
the offering, the Company shall enter into and perform its
obligations under an underwriting agreement, in usual and
customary form, including, without limitation, customary
indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the
happening of any event, of which the Company has knowledge, as a
result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, and promptly prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or
amendment to each Investor (or such other number of copies as
such Investor may reasonably request). The Company shall also
promptly notify each Investor in writing (i) when a prospectus or
any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such
effectiveness shall be delivered to each Investor by facsimile on
the same day of such effectiveness and by
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overnight mail) (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or
related information, (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration
Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the
withdrawal of such order or suspension at the earliest possible
moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten
offering, the managing underwriters) of the issuance of such
order and the resolution thereof or its receipt of actual notice
of the initiation or threat of any proceeding for such purpose.
h. The Company shall permit each Investor a single firm of counsel
or such other counsel as thereafter designated as selling
stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements
thereto at least seven (7) days prior to their filing with the
SEC, and not file any document in a form to which such counsel
reasonably objects. The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement(s)
or any amendment or supplement thereto without the prior approval
of such counsel, which consent shall not be unreasonably
withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on
the date that Registrable Securities are delivered to an
underwriter, if any, for sale in connection with the Registration
Statement (i) if required by an underwriter, a letter, dated such
date, from the Company's independent certified public accountants
in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the
Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten
public offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys
and one firm of accountants or other agents retained by the
Investors, and (iv) one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the "Records"), as
shall be reasonably deemed necessary by each Inspector to enable
each Inspector to exercise its due diligence responsibility, and
cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request for
purposes of such due diligence provided, however, that each
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Inspector shall hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary
to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or
government body of competent jurisdiction, or (c) the information
in such Records has been made generally available to the public
other than by disclosure in violation of this or any other
agreement. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company,
at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records
deemed confidential.
k. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of
such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other
final, non-appealable order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made
generally available to the public other than by disclosure in
violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental
body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor,
at the Investor's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.
l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to
be listed on each national securities exchange on which
securities of the same class or series issued by the Company are
then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange,
(ii) to secure designation and quotation of all the Registrable
Securities covered by the Registration Statement on the Nasdaq
National Market System, (iii) if, despite the Company's best
efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii) to
secure the inclusion for quotation on the Nasdaq SmallCap Market
for such Registrable Securities or, (iv) if, despite the
Company's best efforts to satisfy the preceding clause (iii), the
Company is unsuccessful in satisfying the preceding clause (iii),
to secure the inclusion for quotation on the over-the-counter
market for such Registrable Securities, and, without limiting the
generality of the foregoing, in the case of clause (iii) or (iv),
to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such
with
8
<PAGE>
respect to such Registrable Securities. The Company shall pay all
fees and expenses in connection with satisfying its obligation
under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent
applicable, any managing underwriter or underwriters, to
facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the Registrable
Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts,
as the case may be, as the managing underwriter or underwriters,
if any, or, if there is no managing underwriter or underwriters,
the Investors may reasonably request and registered in such names
as the managing underwriter or underwriters, if any, or the
Investors may request. Not later than the date on which any
Registration Statement registering the resale of Registrable
Securities is declared effective, the Company shall deliver to
its transfer agent instructions, accompanied by any reasonably
required opinion of counsel, that permit sales of unlegended
securities in a timely fashion that complies with then mandated
securities settlement procedures for regular way market
transactions.
n. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of
such Registration Statement.
p. If requested by the managing underwriters or an Investor, the
Company shall immediately incorporate in a prospectus supplement
or post-effective amendment such information as the managing
underwriters and the Investors agree should be included therein
relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Securities to
be sold in such offering; make all required filings of such
prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by a
shareholder or any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition
of such Registrable Securities.
9
<PAGE>
r. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection
with any registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from
each such Investor if such Investor elects to have any of such
Investor's Registrable Securities included in the Registration
Statement. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of
the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable
Securities and shall execute such documents in connection with
such registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and
filing of the Registration Statement(s) hereunder, unless such
Investor has notified the Company in writing of such Investor's
election to exclude all of such Investor's Registrable Securities
from the Registration Statement.
c. In the event Investors holding a majority of the Registrable
Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform
such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions
as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor
notifies the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the
Registration Statement(s).
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement(s) covering such
Registrable Securities until such Investor's receipt of the
copies of the supplemented or amended prospectus contemplated by
Section 3(g) or the first sentence of 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy all copies in such Investor's
possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
10
<PAGE>
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investors entitled hereunder to
approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the
terms of such underwriting arrangements, and (iii) agrees to pay
its pro rata share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, and fees and disbursements of
counsel for the Company and fees and disbursements of one counsel for the
Investors, shall be borne by the Company.
6. INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor
who holds such Registrable Securities, the directors, officers,
partners, employees, agents and each Person, if any, who controls
any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and any
underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act
or the 1934 Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities, judgments, fines,
penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental,
administrative or other regulatory agency, body or the SEC,
whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to
which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or
in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any
jurisdiction in which Registrable Securities are offered ("Blue
Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
the statements therein were made, not misleading, (ii) any untrue
statement or alleged untrue statement of
11
<PAGE>
a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading, or (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act,
any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to
the offer or sale of the Registrable Securities pursuant to a
Registration Statement (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(d) with respect to the number
of legal counsel, the Company shall reimburse the Investors and
each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees
or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in
writing to the Company by any Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(c);
(ii) with respect to any preliminary prospectus, shall not inure
to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or mission of material fact
contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus
was timely made available by the Company pursuant to Section
3(c), and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise
to a violation and such Indemnified Person, notwithstanding such
advice, used it; (iii) shall not be available to the extent such
Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the
Company (i) and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not
be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by the Investors pursuant to
Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally
and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a),
the Company, each of its directors, each of its officers who
signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the
1934 Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim or Indemnified Damages
to which any of them may become subject, under the 1933
12
<PAGE>
Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation,
in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly
for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal
or other expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and
Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or
Indemnified Damages as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in any
distribution, to the same extent as provided above, with respect
to information such persons so furnished in writing expressly for
inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or
proceeding) involving a Claim such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver
to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the
Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the
fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The
Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be
selected by the
13
<PAGE>
Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with
any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party
all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or
Indemnified Person fully apprised at all times as to the status
of the defense or any settlement negotiations with respect
thereto. No indemnifying party shall be liable for any settlement
of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not
unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party or Indemnified
Person of a release from all liability in respect to such claim
or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all
rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to
the matter for which indemnification has been made. The failure
to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in
its ability to defend such action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others,
and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable
14
<PAGE>
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934
Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities
Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144;
and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a
copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant to
this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment; (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such transferee shall be an "accredited investor" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
in the event the
15
<PAGE>
assignment occurs subsequent to the date of effectiveness of the Registration
Statement required to be filed pursuant to Section 2(a), the transferee agrees
to pay all reasonable expenses of amending or supplementing such Registration
Statement to reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and Investors
who hold two-thirds of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon each Investor
and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable
Securities.
b. Any notices consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile, provided a copy is mailed by U.S. certified mail,
return receipt requested; (iii) three (3) days after being sent
by U.S. certified mail, return receipt requested, or (d) one (1)
day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive
the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company: Eat At Joe's Ltd.
Suite 118
670 White Plains Road
Scarsdale, New York 105883
Facsimile: (914) 725-8663
With a copy to: Larry Pareds, Esq.
James Isberg, Esq.
Beckman, Millman & Sanders
116 John Street, Suite 1313
New York, New York 10038
Facsimile: (212) 406-3750
16
<PAGE>
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set
forth on the Schedule of Buyers. Each party shall provide five
(5) days' prior written notice to the other party of any change
in address or facsimile number.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. This Agreement 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. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision
of this Agreement in any other jurisdiction.
e. This Agreement and the Securities Purchase Agreement constitute
the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit and of and be binding upon the permitted
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all
of which shall constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments
and documents, as the other party may reasonably request in order
to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
EAT AT JOE'S LTD. ___________________________________
By: _____________________________ By: _______________________________
Name: Joseph Fiore Name: _____________________________
Its: Chairman of the Board, Chief Its:
Executive Officer, and Chief
Financial Officer
18
<PAGE>
SCHEDULE OF BUYERS
Buyer Address
Buyer Name and Facsimile Number
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Eat Joe's U of P., Inc.
E. A. J. Phl, Airport, Inc.
Eat at Joe's Gallery, Inc.
E. A. J. Enterprises, Inc.
Eat at Joe's Harborplace, Inc.
E. A. J. Shoppington, Inc.
Eat at Joe's Neshaminy, Inc.
Eat at Joe's Plymouth Incorporated
E. A. J. Danbury, Inc.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Eat at Joe's, Ltd. on Form SB-2 of our reports dated March 23, 1998, and to
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ ROBISON, HILL & CO.
Salt Lake City, Utah
October 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE OF EAT AT JOE'S LTD. AS OF JUNE 30, 1998 AND DECEMBER 31, 1997 AND THE
RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS AND THE YEAR
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1998 DEC-31-1997
<CASH> 430 233
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 9 7
<CURRENT-ASSETS> 478 284
<PP&E> 4081 1808
<DEPRECIATION> 66 12
<TOTAL-ASSETS> 4636 2315
<CURRENT-LIABILITIES> 2748 1443
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 1886 871
<TOTAL-LIABILITY-AND-EQUITY> 4636 2315
<SALES> 464 85
<TOTAL-REVENUES> 464 85
<CGS> 331 57
<TOTAL-COSTS> 331 57
<OTHER-EXPENSES> 856 323
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14 7
<INCOME-PRETAX> (737) (299)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (85) 0
<NET-INCOME> (822) (299)
<EPS-PRIMARY> (0.11) (0.02)
<EPS-DILUTED> (0.11) (0.02)
</TABLE>
