<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
JAVA CENTRALE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 5800 68-0268780
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CA 95815
(916) 568-2310
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
JEFFREY W. DUDLEY
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1610 ARDEN WAY, SUITE 145
SACRAMENTO, CA 95815
(916) 568-2310
(Address, including zip code, and telephone number, including area code, of
agent for service of process)
--------------------------
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
PHILIP S. BOONE, JR., ESQ.
Rosenblum, Parish & Isaacs, PC
555 Montgomery Street, 15th Floor
San Francisco, CA 94111
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME, COMMENCING AS SOON AS POSSIBLE AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT.
--------------------------
If this form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 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. / /
If any of the securities registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING PRICE(1) AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) FEE REGISTRATION
<S> <C> <C> <C> <C>
Common Stock(2)(3)................... 2,885,000 $3.50 10,097,500 $3,059.85
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee, based,
in accordance with Rule 457(h), on the average of high and low prices at
which the Registrant's Common Stock was sold on December 19, 1997.
(2) Includes 3,2600,000 shares, which are issuable upon the exercise of certain
stock purchase warrants described herein.
(3) Pursuant to Rule 416, there are also being registered such additional shares
as may be required for issuance pursuant to the anti-dilution provisions of
the Warrants described herein.
--------------------------
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 SECTION 8(A) MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
JAVA CENTRALE, INC.
CROSS-REFERENCE SHEET PURSUANT TO
ITEM 501(B) OF REGULATION S-B
<TABLE>
<CAPTION>
ITEM CAPTION IN FORM SB-2 LOCATION IN PROSPECTUS BY CAPTION
- --------- ---------------------------------------------------- ----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Facing Page; Cross-Reference Sheet; and Outside
Front Cover Page of Prospectus Front Cover Page
2. Inside Front and Outside Back Cover Pages of Cover Page; Available Information; Incorporation of
Prospectus Certain Documents by Reference
3. Summary Information, Risk Factors, and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business--Legal Proceedings
10. Directors, Executive Officers, Promoters, and Management
Control Persons
11. Security Ownership of Certain Beneficial Owners and Management--Security Ownership of Certain Beneficial
Management Owners and Management
12. Description of Securities Description of the Common Stock
13. Interests of Named Experts and Counsel Not Applicable
14. Disclosure of Commission Position on Indemnification Indemnification
for Securities Act Liabilities
15. Organization Within Last Five Years Not Applicable
16. Description of Business Description of Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Results of
Operations Operations and Financial Condition
18. Description of Property Description of Property
19. Certain Relationships and Related Transactions Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Market for Common Equity and Related Stockholder
Matters Matters
21. Executive Compensation Management--Executive Compensation
22. Financial Statements Financial Statements
23. Changes in and Disagreements with Accountants on Not Applicable
Accounting and Financial Disclosure
24. Indemnification of Directors and Officers Management--Indemnification of Directors and
Officers
25. Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
26. Recent Sales of Unregistered Securities Recent Sales of Unregistered Securities
27. Exhibits Exhibits
</TABLE>
<PAGE>
JAVA CENTRALE, INC.
2,885,000 SHARES OF COMMON STOCK
------------------
This Prospectus relates to 625,000 currently outstanding shares of the no
par value common stock (the "Common Stock") of Java Centrale, Inc., a California
corporation (the "Company") held by seventeen of the Company's shareholders
(collectively, the Selling Stockholders") and up to 2,260,000 shares of Common
Stock which may be issued in the future pursuant to the exercise of certain
warrants held by the Selling Shareholders. All of the shares of Common Stock
offered hereby (the "Shares") have been or will be issued by the Company in
private transactions, and were originally issued as, or will be upon issuance,
"restricted securities" under Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus has been prepared, and the
Shares have been registered, so that future sales of the Shares by the Selling
Shareholders will not be restricted under the Securities Act. (See "Selling
Shareholders" and "Plan of Distribution" below.)
The Shares to which this Prospectus relates may be sold from time to time by
the Selling Shareholders, or by transferees, commencing on the date of this
Prospectus. The Company will not receive any of the proceeds from sales of the
Shares by the Selling Shareholders. The Shares may be offered from time to time
by the Selling Shareholders through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at prices arrived at through
negotiation. No underwriting arrangements with respect to the sale or resale of
the Shares by the Selling Shareholders have been entered into by the Company or,
to the Company's knowledge, by the Selling Shareholders. All costs, expenses,
and fees in connection with the registration of the Shares offered by the
Selling Shareholders will be borne by the Company. Brokerage commissions, if
any, attributable to the sale of the Shares will be borne by the Selling
Shareholders.
The Company's Common Stock is listed on The NASDAQ Stock Market SmallCap
List under the symbol "JAVC." On December 19, 1997, the last reported sale price
for the Common Stock on the NASDAQ SmallCap Market List was $3.50 per share.
THE SECURITIES OFFERED IN THIS PROSPECTUS ARE HIGHLY SPECULATIVE, AND AN
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 7.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December 24, 1997
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 3
PROSPECTUS SUMMARY........................................................ 4
SUMMARY FINANCIAL AND OPERATING DATA...................................... 6
RISK FACTORS.............................................................. 7
USE OF PROCEEDS........................................................... 13
DIVIDEND POLICY........................................................... 13
CAPITALIZATION............................................................ 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS.............. 15
BUSINESS.................................................................. 29
MANAGEMENT................................................................ 44
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................. 55
SELLING SHAREHOLDERS...................................................... 57
DESCRIPTION OF THE COMMON STOCK........................................... 58
GENERAL DESCRIPTION OF THE WARRANTS....................................... 59
Securities Available Upon Exercise of the Warrants...................... 59
Terms of the Warrants................................................... 60
Manner of Exercise...................................................... 60
Purchase Price.......................................................... 60
Rights as a Shareholder, Employee, or Consultant........................ 60
Transfer of the Warrants................................................ 60
Redemption Rights....................................................... 61
PLAN OF DISTRIBUTION...................................................... 61
INDEMNIFICATION OF OFFICERS AND DIRECTORS................................. 61
LEGAL MATTERS............................................................. 62
EXPERTS................................................................... 62
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
ANY OFFER OR SALE OF THE SHARES DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN MADE OR AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY STATE 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.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois and 75 Park Place, 14th Floor, New York, New York 10007. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains a Web site, the address of which is
http://www.sec.gov, which contains reports, proxy and information statements,
and other information regarding registrants that file electronically with the
Commission.
The Company's Common Stock is listed on the National Association of
Securities Dealers ("NASD") NASDAQ SmallCap Market List, and such reports and
other information concerning the Company can also be inspected at the offices of
the NASD at 1735 K Street, N.W., Washington, D.C. 20006-1500.
3
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
Java Centrale, Inc., a California corporation (the "Company"), was
incorporated in March of 1992 and began its principal operations in April of
1993. The Company is in the business of selling coffee and bakery products to
consumers through its system of Company-operated and franchised European style
gourmet coffee cafes, carts and kiosks operating under the Java Centrale name,
as well as through a chain of upscale bakery cafes operated or franchised
through its wholly-owned subsidiary Paradise Bakery, Inc.
In addition to selling numerous coffees and other specialty beverages, the
Company operated and franchised Java Centrale cafes offer consumers a wide
selection of gourmet sandwiches, salads, soups, pastries, and desserts, and also
sell coffee-making equipment and accessories such as brewers, espresso makers,
grinders, mugs, and carafes. The Company's Java Centrale carts and kiosks offer
the same selection of espresso based specialty beverages and Italian sodas as
are offered in its Java Centrale cafes, as well as brewed coffees and a
selection of morning pastries. As of November 30, 1997 there were 27 Java
Centrale cafes operating in seven states, comprised of one Company-owned and 21
franchised cafes, and five franchised carts. An additional four franchises have
been sold for new Java Centrale cafe locations, most of which are expected to
open their doors before the end of March 31, 1998.
The Company's Paradise Bakery subsidiary operates in high-end locations such
as upscale malls and airports. Featured menu items, depending upon the type of
location, include as assortment of bakery products, featuring cookies, muffins,
croissants and desserts, prepared and freshly baked daily at each location, as
well as, specialty soups, salads, and sandwiches. Paradise Bakery, Inc. has
operated a successful and growing business for 21 years. Most of the existing
locations are in high profile upscale areas in California, Arizona, Colorado,
Oregon, Washington, Texas, and Hawaii. As of November 30, 1997, a total of 51
Paradise Bakery and Cafes were operating in eight states, comprised of 16
Company-owned and 35 franchised cafes.
At the Company's 1997 Annual Meeting, held on November 25, 1997, the
shareholders of the Company approved, among other proposals, a one-for-ten
reverse split of its outstanding shares of Common Stock and a change in the
Company's state of incorporation from California to Delaware, including a change
in the Company's name to Paradise Bakery & Cafe, Inc. The reverse stock split
became effective on December 19, 1997; consequently all share and price per
share information in this Prospectus has been adjusted to take the reverse stock
split into account. The reincorporation to Delaware and consequent name change
have not yet been implemented, but the Company anticipates consummating that
transaction during the month of January, 1998.
The Company's principal executive offices are located at 1610 Arden Way,
Suite 145, Sacramento, California 95814, and its telephone number is (916)
568-2310.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered by
the Selling Shareholders........ 2,885,000
Shares of Stock Currently
Outstanding..................... 2,339,447
Shares of Stock Which Will Be
Outstanding Following Exercise
of the Warrants................. 5,224,447
Risk Factors...................... The Shares of Common Stock offered hereby involve a high
degree of risk and should be purchased only by persons
who can afford to sustain the loss of their entire
investment. See "RISK FACTORS."
Use of Proceeds................... The Company will not receive any of the proceeds from
the sale of the Shares offered hereby.
Plan of Distribution.............. The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Stockholders. The
Shares may be offered from time to time by or for the
account of the Selling Stockholders through dealers,
brokers or other agents, or directly to one or more
purchasers, at market prices prevailing at the time of
sale or prices otherwise negotiated.
NASDAQ Symbol..................... JAVC
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary historical financial data for the
Company for the fiscal years ended March 31, 1997 and 1996, as well as for the
six month periods ended September 30, 1997 and 1996. The historical financial
data are derived from the Consolidated Financial Statements included elsewhere
in this Prospectus. The summary historical financial data should be read in
conjunction with the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------- ----------------------
1997(1) 1996(2)(3) 1997 1996(4)
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................... $14,809,000 $9,555,000 $5,197,000 $8,481,000
Operating Expenses......................... 19,735,000 13,593,000 7,314,000 9,998,000
---------- ---------- ---------- ----------
Operating Loss............................. (4,926,000) (4,038,000) (2,117,000) (1,517,000)
Interest Income (expense), net............. (549,000) (19,000) (291,000) (130,000)
Other income (expense), net................ 149,000 91,000 14,000 136,000
---------- ---------- ---------- ----------
Net loss................................... $(5,326,000) $(3,966,000) $(2,394,000) $(1,511,000)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per equivalent common share(5).... $ (4.61) $ (6.08) $ (1.55) $ (1.51)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Common stock and equivalent common
shares(5)................................ 1,540,080 652,638 1,543,936 998,547
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
----------- --------------
(UNAUDITED)
<S> <C> <C>
Balance Sheet Data:
Working Capital............................................... ($2,856,000) $ (3,618,000)
Total Assets.................................................. 11,019,000 9,457,000
Notes and capital leases...................................... 3,516,000 3,194,000
Common Stock.................................................. 18,508,000 19,317,000
Accumulated deficit........................................... (13,438,000) (15,832,000)
</TABLE>
- ------------------------
(1) For the year ended March 31, 1997, the Company sold the Oh La La! Division
in December 1996.
(2) For the year ended March 31, 1996, the Company completed 12 months of
operation from the Oh La La! acquisition dated March 31, 1995.
(3) For the year ended March 31, 1996, the Company's results include three
months of operations from the Paradise Bakery acquisition dated December 31,
1995.
(4) For the six months ended September 30, 1996, the Company's results include
six months of operations from the Oh La La! Division sold in December 1996.
(5) Adjusted for the December 19, 1997, 1 for 10 reverse stock split.
6
<PAGE>
RISK FACTORS
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, IN EVALUATING AN INVESTMENT IN
THE COMPANY'S COMMON STOCK, THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER
INFORMATION AND FINANCIAL DATA INCLUDED HEREIN AND INCORPORATED HEREIN BY
REFERENCE.
HISTORICAL LOSSES
Since it's inception, the Company has never earned a profit and the
Company's operations have required, rather than provided, cash each year. In
order to meet these cash requirements, the Company has from time to time sold
common stock, borrowed short-term, sold Company assets and issued convertible
debt. The Company's net loss for the fiscal years ended March 31, 1997 and 1996
were $5,326,000 and $3,966,000, respectively. Since then, the Company has
suffered additional losses of $811,000 for the quarter ended June 30, 1997 and
$1,583,000 for the quarter ended September 30, 1997. There can be no assurance
that such losses will not continue or increase in the future, or that the
Company will become profitable in the future.
ACCUMULATED DEFICIT AND FUTURE LOSSES
As of September 30, 1997, the Company had an accumulated deficit of
$15,832,000. The Company anticipates that the size of its losses will decrease
due to anticipated development and acquisition of new Company-owned and
franchised Java Centrale and Paradise Bakery locations in the United States and
Canada. However, if such developments are delayed and the Company does not
realize such increased sales, its losses are likely to remain at or near
previous levels.
Effective December 13, 1996, the Company sold its Oh-La-La! Division,
consisting of 10 retail outlets and one bakery, mostly located in the San
Francisco Bay Area. The sale of the Oh-La-La! Division is expected to facilitate
the development of the Company's Java Cafe and Paradise Bakery operations by
simplifying the mix of the Company's cafe lines and freeing Company resources
for the development of its remaining cafes and potential cafe locations. In
particular, the Company anticipates opening 10 new Company-owned and 15
franchised Paradise Bakery cafes during calendar 1998. The Company may also
consider franchising some or all of its Company-owned Paradise Bakery cafes in
order to free the associated capital for further expansion of this line of
cafes, including the opening of both Company-owned and franchised cafe
locations.
Until the Company's network of Company-owned and franchised Java Centrale
cafes, carts, and kiosks and Paradise Bakery cafes is more fully developed,
however, the Company will be dependent upon other sources of income, such as
franchisee fees, which cannot be predicted as to timing or dollar amount. Delays
in the development of the Company's network of distribution centers for its
products, as well as any potential future acquisitions or strategic mergers,
could extend continuing losses and result in the need for additional financing.
RELIANCE ON GROWTH FOR PROFITABILITY
As of September 30, 1997, the Company had a total of 78 Company-owned and
franchised cafes open and operating. The Company currently intends to open,
either on its own or through franchisees, up to 28 cafes during fiscal 1999, and
approximately 50 cafes during fiscal 2000. By March 31, 1998 (the end of the
Company's 1998 fiscal year), the Company's plans call for the Company to have a
total of 86 cafes opened and operating. If the foregoing timetable is
maintained, and the Company's cost structure remains comparatively stable, the
Company should achieve profitability on or before March 31, 1999. There can be
no assurance, however, that the Company or its franchisees will be able to open
the planned new cafes, carts and kiosks or that they can be operated profitably.
The Company's ability to expand will depend upon a number of factors, including
selection and availability of suitable locations and franchisees; negotiation of
acceptable lease terms; the securing of required state and local permits and
approvals; adequate
7
<PAGE>
supervision of construction; hiring, training and retention of skilled
management and other personnel; availability of adequate financing; and other
factors, many of which are beyond the Company's control.
SUBSTANTIAL COMPETITION
Java Centrale's whole bean coffee products compete directly against
specialty coffees sold at retail outlets through supermarkets, specialty
retailers and a growing number of specialty coffee stores. The Company's coffee
beverages compete directly against all restaurant and beverage outlets that
serve coffee and a growing number of espresso stands, carts and stores in the
North American metropolitan markets. Both the Company's whole bean coffees and
coffee beverages compete indirectly against all other coffees on the market. The
specialty coffee segment of the market is becoming increasingly competitive. The
coffee industry is dominated by several large companies such as Kraft, General
Foods, Procter & Gamble and Nestle. Many of the Company's competitors have
greater financial and marketing resources and brand name recognition and a
larger customer base than the Company. Competitors with significant economic
resources in both existing nonspecialty and specialty coffee businesses and
companies in other retail food service businesses could at any time enter the
specialty coffee market with substantially equivalent coffee products. The
Company competes against both other specialty retailers and restaurants for
store sites, and there can be no assurance that management will be able to
continue to secure adequate sites at acceptable costs.
Java Centrale stores compete with fast food chains, major restaurant chains,
and other food service related franchisors for franchisees of its cafes, carts
and kiosks. Many franchisors have greater market recognition and greater
financial, marketing, and human resources than the Company does.
Paradise Bakery competes with a variety of restaurant concepts, many of
which are located in covered malls. Some competition comes from similar
concepts, such as, Au Bon Pain, which is a bakery/cafe concept, or
sandwich/salad concepts, such as Wall Street Deli. Other types of competitors
are strictly bakery product driven, such as, Cinnabon and Mrs. Fields. What sets
Paradise apart from most competitors is menu mix, positioning, and pricing.
FRANCHISE OPERATIONS
The Company believes that its acquisition and operation of Paradise
bakery/cafes will allow the Company to enhance the Company's expansion strategy
by franchising and developing Paradise Bakery. The Company plans to expand the
franchisee-owned system by allowing existing franchisees to expand and by
developing new franchise locations outside its current system.
The Company currently is in the process of renewing all of its Uniform
Franchise Offering Circulers for certain states that require registration. Under
the applicable state law of registration states, Paradise Bakery, Inc. is only
able to offer or sell a new franchise with an approved filing. There can be no
guarantee that these filings will be approved by all the relevant state
franchise regulators.
UNPREDICTABLE FRANCHISEE REVENUES
Historically, revenues from the Company's franchisees have been an important
part of the Company's revenues, cash flow and financing. The Company is actively
pursuing efforts to develop additional franchisee operations, as well as to
extend its network of Company-owned cafes. However, the development of the
Company's franchise system is unpredictable as to timing and the amount of
income, which may be produced by individual franchisees.
LIQUIDITY; LIMITED CAPITAL RESOURCES
At the Company's current level of development, it does not generate net cash
from operations. To fund its operations, the Company requires either additional
financing, sales of additional franchises, or a
8
<PAGE>
substantial increase in its network of Company-owned cafes and carts. For the
years ended March 31, 1997 and 1996, the Company incurred a net loss of
$5,326,000 and $3,966,000 and used net cash of $3,062,000 and $2,391,000 in
operating activities, respectively. For the six months ended September 30, 1997
and 1996,the Company incurred a net loss of $2,394,000 and $1,511,000 and used
net cash of $195,000 and $1,138,000, respectively. The Company has developed a
specific operating plan to meet the ongoing liquidity needs of the Company's
operations both for the year ended March 31, 1998, and thereafter. During the
six months ended September 30, 1997, the Company has reduced and marketing
expenses.
Management believes that the Company's operating and financing plan will, if
carried out successfully, be sufficient to meet the Company's liquidity needs
for the year ended March 31, 1998 and thereafter. Based on the Company's current
cost structure and other expense calculations, and the Company's current and
anticipated revenue streams, including sales of new franchises and the operating
income expected to be produced by the Company's Paradise Bakery chain, the
Company estimates that it will break even on cash flow for the quarter ended
September 30, 1998, assuming it succeeds in maintaining its schedule for the
opening of new Company and franchisee-owned cafes. The Company does not expect
to achieve profitability, however, until the quarter ended December 31, 1998,
and then only if the Company's growth projections can be met and its cost
structure remains stable, of which there can be no assurance (see "--Reliance on
Growth for Profitability" above). However, there can be no assurance that enough
new franchises will be sold to provide the necessary liquidity, or that the
Company's liquidity goals will be reached in the immediate future, if ever.
DEPENDENCE ON TWO PRODUCT-LINES
Prior to the Paradise Bakery acquisition, the Company's operations have
been, to a significant extent, limited to the sale of whole bean coffees, coffee
beverages and related products. These products are principally sold through its
Company-owned and franchised Java Centrale cafes, carts and kiosks. They
presently comprise about 5% of the Company's total revenue. Although retail
sales of specialty coffee increased from approximately $1.0 billion in 1990 to
$1.2 billion in 1992, during the period between 1962 and 1992, per capita coffee
consumption in the United States decreased significantly. Any significant health
concerns with respect to coffee could have an adverse effect on coffee
consumption and the Company's profitability. The Company is not presently aware
of any such significant health concerns.
By acquiring Paradise Bakery, the Company diversified its revenue base by
adding a new product line of convenience-based food products. Paradise Bakery's
quick service restaurant concept generates approximately 95% of the Company's
revenues. Paradise Bakery features menu items that include, depending upon the
type of location, specialty soups, salads and sandwiches, as well as an
assortment of bakery products, including cookies, muffins, croissants and
desserts that are freshly prepared and baked daily at each location.
FLUCTUATIONS IN AVAILABILITY AND COST OF GREEN COFFEE
The Company's revenues generated by sales at Java Centrale locations are
vulnerable to fluctuations in the cost and availability of green coffee. Java
Centrale locations currently obtain their coffees pursuant to a Producer
Agreement (the "Producer Agreement") between the Company and Coffee Bean
International ("CBI"), an independent roaster. Pursuant to the Producer
Agreement, the Company utilizes CBI, which, in turn, uses numerous outside
brokers, to source its primary raw material, green coffee. Coffee is the world's
second largest traded commodity and its supply and price are subject to
volatility. Although most coffee trades in the commodity market, coffee of the
quality sought by the Company tends to trade on a negotiated basis at a
substantial premium above commodity coffee pricing. Prices negotiated are
dependant on the market forces which create the aggregate supply and demand for
premium coffee beans at the time of purchase. Supply and price can be affected
by multiple factors, such as weather, politics and economics in the producing
countries.
9
<PAGE>
GEOGRAPHIC CONCENTRATION
A significant amount of the currently operating Company-owned or franchised
cafes are located in the States of California, Arizona, and Texas. Accordingly,
the Company is susceptible to fluctuations in its business caused by adverse
economic conditions in those regions. Although California's economy has been in
a long recession over the past several years, there recently have been
indications that it is in the midst of a recovery. Difficult economic conditions
in other geographic regions into which the Company may expand may also adversely
affect the Company's results of operations. In addition, consumer preferences
and tastes vary from region to region, and there can be no assurance that
consumers located in the regions in which the Company intends to expand will be
as receptive to specialty coffees as consumers in existing markets.
DEPENDENCE ON KEY PERSONNEL
Management of the Company is dependent to a large degree on the services of
Gary C. Nelson, Bradley B. Landin, Thomas A. Craig, and Jeffrey W. Dudley. Loss
of the services of any of these individuals could have a material adverse effect
on the Company's business. Although the Company has entered into employment
agreements with each of the officers named above, it does not maintain key man
life insurance for any of them. In addition, the Company believes that in order
to succeed in the future it will be required to continue to attract, retain and
motivate additional highly skilled executive, sales and other employees.
NO PROPRIETARY PROCESS
Because Java Centrale stores and kiosks do not have any patents for their
roasting specifications or the processes for preparing several of its coffee
related beverages, competitors may be able to copy such specifications or
processes. Moreover, there can be no assurance that competitors will not be able
to develop processes more advanced than those of the Company.
LIMITED REGISTRATION PERIOD
The Company does not intend to maintain indefinitely the effectiveness of
the Registration Statement of which this Prospectus forms a part. From and after
January 31, 2000, the Registration Statement will no longer be effective (unless
the Company has elected to extend its effectiveness), and once the Registration
Statement has been allowed to lapse, the shares described herein may no longer
be sold in reliance upon this Prospectus or the Registration Statement.
POSSIBLE FUTURE ISSUANCES OF COMMON STOCK AND OTHER SECURITIES
Additional Common Shares of the Company may be issued at any time by the
Board of Directors, without shareholder approval, although issuances during the
three years following the closing of this Offering will require the prior
approval of the Placement Agent. The issuance of any such additional Common
Shares may have an adverse effect on the market price of the Common Shares
offered hereby, and could cause dilution to the Company's then-existing
shareholders. As a matter of corporate policy, the Company intends to issue
shares of its Common Stock as part of the consideration for future acquisitions
and other transactions, where the use of such shares appears to be appropriate
and cost-effective, or as a means of compensating and providing incentives to
the Company's officers, directors, and consultants.
Shares of preferred stock or other securities of the Company may also be
issued by the Board of Directors, without shareholder approval, on such terms as
the Board may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Moreover, although the ability
to issue preferred stock may provide flexibility in connection with possible
acquisitions and other corporate purposes, such issuance may make it more
difficult for a third party to acquire, or may discourage a third party from
10
<PAGE>
acquiring a majority of the voting stock of the Company. The Company has no
current plans to issue any shares of preferred stock.
STOCK PRICE VOLATILITY
The price of the Company's Common Stock is subject to significant volatility
due to fluctuations in revenues, earnings, capitalization, liquidity, press
coverage, and financial market interest. Market perceptions of the Company's
recent or potential performance in its various local market areas, economic
trends generally, and the Company's relative degree of success with respect to
its competition, among other factors, could cause the price of its stock to vary
significantly in the short and middle term regardless of whether such
perceptions prove to be accurate in the long run.
The Company's Common Stock is currently traded on the NASDAQ SmallCap
Market. This market has, from time to time, experienced extreme price and volume
fluctuations which often have been unrelated to the operating performance of
particular companies. There can be no assurance that the NASDAQ SmallCap Market
will not in the future experience more severe fluctuations than are
contemporaneously experienced by other U.S. stock markets and exchanges, such as
the New York Stock Exchange or the American Stock Exchange, or the NASDAQ
National Market System. Regulatory developments and economic and other external
factors, as well as period-to-period fluctuations in financial results of the
Company may have a significant impact on the market price of the Common Stock.
The price of the Company's Common Stock is subject to significant volatility
due to fluctuations in revenues, earnings, capitalization, liquidity, press
coverage, financial market interest, and general market conditions. Some of
these factors may be exacerbated because the food service and coffee beverage
industries in which the Company operates are highly competitive and dominated by
a few exceptionally strong companies.
NO CASH DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any such dividends in the foreseeable future.
GENERAL LIABILITY AND COMMERCIAL INSURANCE; PRODUCT LIABILITY INSURANCE
Although the Company carries general liability and commercial insurance with
coverage up to $2,000,000 and product liability insurance with coverage up to
$1,000,000, there can be no assurance that this insurance will be adequate to
protect the Company against any general, commercial and/or product liability
claims. Any general, commercial and/or product liability claim, which is not
covered by such policy, or is in excess of the limits of liability of such
policy, could have a material adverse effect on the financial condition of the
Company. There is no assurance that the Company will be able to maintain this
insurance on reasonable financial terms.
GOVERNMENTAL REGULATION
The food service industry is subject to extensive federal, state and local
government regulations relating to the development and operation of food service
outlets, including laws and regulations relating to building and seating
requirements, the preparation and sale of food, cleanliness, safety in the work
place, accommodations for the disabled, and the Company's relationship with its
employees, such as minimum wage requirements, discriminatory practices, overtime
and working conditions and citizenship requirements. The Company-owned and
franchised cafes and carts are subject to various federal laws and regulations,
including without limitation, the Fair Labor Standards Act, the Americans With
Disabilities Act, the Department of Agriculture, the Food & Drug Administration,
and numerous State and local laws and regulatory agencies. The failure to obtain
or retain necessary food licenses or substantial increases in the minimum wage
could adversely affect the operation of the Company. Furthermore, federal
government
11
<PAGE>
proposals relating to health care may result in higher costs for the Company.
The Company is also subject to federal regulations and certain state laws which
regulate the offer and sale of franchises to its franchisees.
EFFECT OF RECENT CHANGES TO NASD SMALLCAP MARKET LISTING RULES
The NASD has recently adopted a number of changes to its listing and
maintenance criteria for companies quoted on the NASDAQ SmallCap Market. These
changes are scheduled to go into effect on February 23, 1998.
The NASD's new rules require, among other things, that the minimum bid price
for any stock quoted on that market is $1.00; if the minimum bid price for a
listed company's stock should drop below $1.00 for a material period of time, it
would become eligible for delisting from the NASDAQ SmallCap Market List.
Current NASD rules provide that one or the other (but not necessarily both) of
the following criteria must be met: either (a) the minimum bid price for the
Company's Common Stock must be at least $1.00 per share, or alternatively (b)
the aggregate market value of the Company's public float must be at least
$1,000,000 AND the Company must have at least $2,000,000 in combined capital and
surplus. Although the Company met the old listing criteria, it may not meet the
new standards in this respect. For the entire period between January 1 and
November 30, 1997, the daily low price bid per share for the Company's Common
Stock ranged from a low of approximately $0.50 to a high of approximately
$3.125. Under the NASD's revised rules if the daily minimum bids for the
Company's Common Stock do not exceed, and remain above a $1.00 per share, the
Company may need to consider effectuating another reverse stock split or taking
some other corporate action in order to be confident of its continuing ability
to meet the NASD's new minimum bid requirements in this respect.
Another of the new criteria adopted by the NASD, which will take effect
February, 23, 1998, is that companies having securities listed on the SmallCap
market maintain at least one of the following: either (a) net tangible assets of
$2,000,000, or (b) a market capitalization of $35,000,000, or (c) annual net
income for two of the previous three years of at least $500,000. The Company
currently does not meet any of the criteria described above. However as a result
of it's private equity placement efforts, as disclosed elsewhere in this
registration statement, the Company anticipates that it will meet the net
tangible assets criteria by February 23, 1998.
In the event the Company's minimum bid price for its Common Stock falls
below the $1.00 minimum for a material time or it is unable to effectuate a
reverse stock split, or if its net tangible assets drop below $2,000,000 for any
significant period of time, or if other criteria are adopted by the NASD which
are more restrictive than those currently approved, the Company's Common Stock
could ultimately be delisted from the NASDAQ SmallCap Market List. In such an
event, the trading market for its Common Stock would immediately become far less
liquid than it is at present.
USE OF PROCEEDS
The Company will not receive any proceeds from any sale or other transfer of
any of the Shares. All proceeds from such transactions will go to the holders of
the Shares. All proceeds derived from the exercise of the Warrants has been or
will be used for general corporate purposes, including the reduction of
corporate debt.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock. It is the
present policy of the Company to retain earnings to finance the growth and
development of its business, and therefore the Company does not anticipate
paying cash dividends on its Common Stock in the foreseeable future.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997 and (ii) as adjusted to reflect the sale of 625,000 Common
Shares and the exercise of 2,260,000 Warrants held by the Selling Shareholders.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
ACTUAL ADJUSTED
------------- -------------
<S> <C> <C>
Accounts Payable................................................................... $ 2,001,000 $ 1,000,000
Notes Payable...................................................................... 3,082,000 --
Capital Lease Obligations.......................................................... 112,000 112,000
Stockholders' equity:
Preferred Stock: 25,000,000 shares authorized; no shares outstanding, actual and
as adjusted.................................................................... -- --
Common Stock: 50,000,000 shares authorized; 2,300,504 shares issued and
outstanding; at September 30, 1997(1) 5,185,504 shares issued and outstanding
as adjusted(1)(2).............................................................. 19,317,000 27,492,000
Accumulated Deficit................................................................ (15,832,000) (16,319,000)
------------- -------------
Total stockholders' equity..................................................... 3,485,000 11,173,000
------------- -------------
Total capitalization........................................................... $ 8,680,000 $ 12,285,000
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) As adjusted to reflect a one-for-ten reverse stock split, approved at the
Company's 1997 Annual Meeting of Shareholders on November 25, 1997, which
became effective on December 19, 1997.
(2) As adjusted to reflect the potential exercise of all of the 2,260,000
outstanding Common Stock Purchase Warrants held by the Selling Shareholders.
See ("Selling Shareholders," below.)
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company began operations on March 5, 1992, and operated as a development
stage enterprise through the end of its fiscal year ended March 31, 1993. As a
development stage enterprise, the Company focused its efforts on financial
planning, raising capital, research and development, establishing sources of
supply, developing markets, organizing the corporation, acquiring assets, and
developing its business plan. During this time, the Company completed the filing
of its Uniform Franchise Offering Circulars.
Since inception, the Company has never earned a profit and the Company's
operations have required, rather than provided, cash every year. In order to
meet these cash requirements, the Company has from time to time sold common
stock, borrowed short-term money, sold company assets and issued convertible
debt. The net losses for the fiscal years ended March 31, 1997 and 1996 were
$5,326,000 and $3,966,000, respectively. The net losses for the six months ended
September 30, 1997 and 1996, were $2,394,000 and $1,511,000, respectively. The
Company has an accumulated deficit of $13,438,000 and $15,832,000 as of March
31, 1997 and September 30, 1997, respectively. There can be no assurance that
losses will not continue, or that the Company, as currently structured, will
become profitable in the future. In the fiscal year ended March 31, 1997, the
Company sold assets, raised debt and sold equity, and reduced expenses to meet
its ongoing liquidity needs. During the six months ended September 30, 1997, the
Company had warrants exercised, borrowed short-term funds and sold equity to
meet ongoing liquidity needs. Currently the Company has a material working
capital shortfall.
During fiscal 1997 and to date, the Company has been operating at a loss
primarily due to the under performance of the cafes in its Java Centrale system
and to its administrative overhead. The Company's Java Centrale system has, in
general, not grown as fast or proved to be as profitable as expected, and the
Company has experienced higher than anticipated expenses in pursuing the
development of these cafes, the closing of certain outlets in this system, and
settling disputes with franchisees. The Company has implemented a plan that has
resulted in a significant reduction of administrative overhead. The Company's
continuing operating losses have left it in a materially weak cash-flow
position, one effect of which has been that the Company has been unable to
develop its more profitable Paradise Bakery system, which accounts for 95% of
its revenues, as rapidly and extensively as it has planned to do.
Over the last year, the Company's financing plan to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
There can be no assurance that any similar financing, asset sales or equity
placements will continue to be available to the Company in the future.
Consequently, under current circumstances the Company does not anticipate that
it will be able to continue existing operations in the future unless it can
obtain new short-term or long-term financing, raise new equity or execute a
significant sale of assets. The Company's Board of Directors is currently
evaluating a number of options for the resolution of its immediate and long-term
financial needs, including among other potential alternatives, the sale of its
Java Centrale systems, obtaining a long-term loan secured by its Paradise Bakery
assets, a private and/or public sale of Company stock and/or other securities,
and a strategic merger. Some of the alternatives currently being studied by the
Company's Board of Directors might result in a change in the management and/or
control of the Company.
In August of 1997, the Company retained E.C. Capital Ltd. ("ECC"), a New
York based investment-banking firm, to raise equity capital in a two-stage
private offering (the "ECC Offering"). In both stages, the Company would issue
to investors units consisting of 250,000 shares of common stock, 250,000 "A" and
"B" Warrants. The "A" Warrants have a term of two years from the date of
issuance and may be exercised to purchase shares of common stock at a per share
exercise price of $1.60. The "B" Warrants have a three-year term and may be
exercised to purchase shares of common stock at a price per share of $2.00. The
offering price for each full unit in the first stage of the ECC Offering is
$25,000. ECC has undertaken to
14
<PAGE>
place 25 units in the first stage of the ECC Offering and 35 units in the second
and final stage. The issuance of the "A" and "B" Warrants were subject to
approval by the Company's Board of Directors and shareholders of (i) an
amendment to the Company's Articles of Incorporation increasing its authorized
number of shares of common stock from 25,000,000 to 50,000,000, (ii) effecting a
one for ten reverse stock split of the outstanding shares of common stock, and
(iii) moving the Company's state of incorporation from California to Delaware.
All of the above proposals were approved by the Company's shareholders at its
annual meeting held November 25, 1997. The Company has agreed to pay ECC a 10%
commission on all sales of units and a 3% non-accountable expense reimbursement.
Additionally the Company must issue to ECC 250,000 "A" and "B" Warrants as a
partial compensation for its efforts in completing the first stage of the ECC
Offering and a equal number of Warrants in connection with the second stage, for
a total of 1,000,000 warrants in all. The Company has also agreed to retain ECC
as an advisor for the next three years at a fee of $3,000 per month and to pay
ECC a 5% warrant solicitation fee for any of the investor warrants which are
exercised. The Company has also agreed not to raise debt or equity financing
during this three-year period other than with consent of ECC and to allow a ECC
designee to observe all meetings of the Company's Board of Directors. Further,
all of the Company's officers and directors have executed lock-up agreements
with ECC whereby they have agreed not to transfer, assign, sell or otherwise
dispose of any of their Company shares, except with the consent of ECC, until at
least one year after the effective date of the registration statement. As of
December 19, 1997 there have been 25 units placed totaling 625,000 common shares
and net proceeds of $544,000.
As of September 30, 1997, the Company operates under two brands, Java
Centrale and Paradise Bakery and Cafe as compared to September 30, 1996, which
the Company was operating under three brands, Java Centrale, Oh La La! and
Paradise Bakery and Cafe. The following table represents the Company's
operations at September 30, 1997, and September 30, 1996:
<TABLE>
<CAPTION>
OPERATING UNITS AS OF SEPTEMBER 30, 1997
----------------------------------------------------------
CAFE CARTS/ KIOSKS
---------------------------- ----------------------------
COMPANY FRANCHISED COMPANY FRANCHISED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Java Centrale.................................. 1 23 -- 8
Oh La La!...................................... -- -- -- --
Paradise Bakery................................ 16 32 -- --
--- --- --- ---
Total........................................ 17 55 -- 8
--- --- --- ---
--- --- --- ---
</TABLE>
<TABLE>
<CAPTION>
OPERATING UNITS AS OF SEPTEMBER 30, 1996
----------------------------------------------------------
CAFE CARTS/ KIOSKS
---------------------------- ----------------------------
COMPANY FRANCHISED COMPANY FRANCHISED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Java Centrale.................................. 2 20 -- 8
Oh La La!...................................... 10 -- 1 --
Paradise Bakery................................ 16 35 -- --
--- --- --- ---
Total........................................ 28 55 1 8
--- --- --- ---
--- --- --- ---
</TABLE>
The Company entered into agreements with franchisees to open three cafes
during the quarter ended September 30, 1997, as compared to entering into
agreements with franchisees to open five cafes during the quarter ended
September 30, 1996. The Company entered into agreements with franchisees to open
three cafes during the six months ended September 30, 1997, as compared to
entering into agreements to open 10 cafes during the six months ended September
30, 1996.
The Company opened one franchisee-owned cafe during the quarter ended
September 30, 1997, as compared to opening two franchisee-owned cafes during the
quarter ended September 30, 1996. The
15
<PAGE>
Company opened three franchisee-owned cafes during both the six months ended
September 30, 1997, and September 30, 1996.
No Company-owned cafes were closed in the quarter ended September 30, 1997,
as compared to closing one Company-owned cafe, which was operated under a
management agreement, in the quarter ended September 30, 1996. The Company
closed one Company-owned cafe and two franchisee-owned cafes in the six months
ended September 30, 1997, as compared to closing two Company-owned cafes and one
franchisee-owned cafe during the six months ended September 30, 1996. Cafe
closures are primarily a result of poor financial performance.
No Company-owned locations were sold to franchisees during the quarter ended
September 30, 1997, as compared to selling two Company-owned locations during
the quarter ended September 30, 1996. During the six months ended September 30,
1997, no Company-owned locations were sold as compared to selling five
Company-owned cafes to franchisee and three Company-owned carts to a licensee
for the six months ended September 30, 1996.
In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. for $1,250,000 in cash, 233,333 shares of preferred stock
and a $750,000 convertible note receivable due in 1999. The assets included ten
operating locations and a cart licensee. On March 31, 1997, the Company agreed
with GFF to exchange $250,000 of the convertible note receivable for the
assumption of certain liabilities of the Company, exchange 233,333 preferred
shares for 233,333 shares of common stock, accelerate a payment of $145,000 due
under the note receivable to May 1997 and convert the remaining $355,000 balance
of the note into 40,000 shares of GFF common stock. The common shares of GFF at
September 30, 1997 have been valued at $2.00 per share based on the estimated
fair value of such shares at the time they were acquired. As of September 30,
1997, the Company owned approximately 30% of the outstanding common shares of
GFF. The Company did not recognize any earnings from GFF under the equity method
of accounting due to immateriality.
In August 1997, Directors Lyle Edwards and Kevin Baker resigned from the
Board of Directors of Java Centrale, Inc. The board appointed Bradley B. Landin,
the Senior Vice President of Operations for the Company, as a director to fill
one vacancy. At the annual stockholder's meeting held on November 25, 1997,
Richard J. Crosby, Philip E. Pearce, Gary C. Nelson and Bradley B. Landin were
elected to the Board of Directors. Mr. Crosby was elected Chairman of the Board.
Richard D. Shannon, the former Chairman of the Board, announced prior to the
meeting that he would not be running for re-election.
RESULTS OF OPERATIONS
The Company's revenues are currently derived from Company-owned locations,
initial franchise fees, resulting from cafe openings, franchise royalties,
equipment sales, and product overrides on sales to its franchisees. Franchise
fees range from $15,000 to $35,000 per cafe. The Company is entitled to 4%-6% of
the gross receipts from each franchised cafe and 2%-10% of the gross receipts
from each franchised cart. Product overrides range from 3% to 10% of the total
purchase of coffee from the Company's contract roaster. The Company operates
under two brands, Java Centrale and Paradise Bakery and Cafe. Currently 95% of
the Company's revenues are results from the Paradise Bakery & Cafe brand.
FISCAL 1997 AS COMPARED TO FISCAL 1996
Total Company revenues for the fiscal year ended March 31, 1997 totaled
$14,809,000, as compared to $9,555,000 for the year ended March 31, 1996, an
increase of $5,254,000, or 55%. The principal components of this increase were:
The Company's revenues from Company-owned retail operations increased by
$5,229,000, or 69%, to $12,814,000 for the fiscal year ended March 31, 1997,
from $7,585,000 for the fiscal year ended March 31, 1996. This increase resulted
primarily from an increase of $6,682,000, in revenues from operating the
16
<PAGE>
acquired Paradise Bakery Company-owned locations for 12 months during the fiscal
year ended March 31, 1997 as compared to operating the acquired Paradise Bakery
Company-owned locations for three months during the fiscal year ended March 31,
1996. Additionally, revenues declined from prior years as a result of the sale
of the Oh La La! Division in December 1996 and for the sale and closure of
Company-owned cafes for approximately $1,450,000.
Revenues from the Company's franchising operations increased $144,000, or
36% to $539,000 for the fiscal year ended March 31, 1997, from $395,000 for the
fiscal year ended March 31, 1996. This increase is a result of the following
recognized franchise fees: $128,000 associated with the opening of five Java
Centrale franchisee-owned cafes and two Paradise Bakery franchisee-owned cafes,
$117,000 associated with the sale of two Company-owned Paradise Bakery cafes to
one franchisee and three Company-owned Java Centrale cafes to two franchisees,
$10,000 associated with the transfer of ownership of two Java Centrale
franchisee-owned locations, $45,000 forfeited fees associated with four Java
Centrale franchisees and one Paradise Bakery franchisee, $140,000 in forfeited
franchise fees directly related to the termination of the joint venture
agreement, and $83,000 associated with the licensing rights agreement to South
Korea for the fiscal year ended March 31, 1997, as compared to the recognition
franchise fees during the fiscal year ended March 31, 1997 of: $330,000
associated with opening 15 franchisee-owned Java Centrale cafes and $65,000 in
association with forfeited Java Centrale franchise fees.
Revenues from the Company's royalties increased $811,000 or 154%, to
$1,336,000 for the fiscal year ended March 31, 1997, from $525,000 for the
fiscal year ended March 31, 1996. This increase resulted primarily from the
royalties associated with the franchise operation of Paradise Bakery for the 12
months during the fiscal year ended March 31, 1997 as compared to three months
during the fiscal year ended March 31, 1996, amounting to $675,000 along with
the additional franchisee-owned locations operating during the 1997 fiscal year
as compared to 1996.
Revenues from the Company's equipment sales decreased $929,000, or 88%, to
$121,000 for the fiscal year ended March 31, 1997 from $1,050,000 for the fiscal
year ended March 31, 1996. This decrease resulted primarily from discontinuing
the sale of equipment directly to franchisees in May of 1996.
Total expenses for the year ended March 31, 1997 were $19,735,000, an
increase of $6,142,000, or 45%, over expenses of $13,593,000 for the year ended
March 31, 1996. The principal components of the increase in expenses resulted
from:
The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $5,015,000, for the year ended March 31, 1997, to
$12,518,000, as compared to $7,503,000 for the year ended March 31, 1996. The
increase resulted primarily from an increase in expenses of $6,108,000
associated with operating the Paradise Bakery locations for 12 months during the
fiscal year ended March 31, 1997 as compared to three months for the fiscal year
ended March 31, 1996, in addition to a decrease of $1,093,000 in operating costs
associated with the sale of three Company-owned Java Centrale cafes, two
Company-owned Paradise Bakery cafes and the sale of the Oh La La! locations in
December 1996.
The Company's cost of equipment decreased by $889,000, or 86%, in the year
ended March 31, 1997, to $149,000, as compared to $1,038,000 for the year ended
March 31, 1996. This increase resulted primarily from discontinuing the sale of
equipment directly to franchisees in May of 1996.
Selling, general, and administrative expenses increased $416,000, or 10%,
during the year ended March 31, 1997, to $4,603,000 from $4,187,000 during the
1996 fiscal year. This increase results from; increases in general and
administration expenses associated with the operation of the Paradise Bakery
locations for 12 months for the fiscal year 1997 as compared to three months for
the fiscal year 1996 totaling $739,000, the recognition of expense for the
re-design of the Paradise Bakery cafe concept totaling $76,000 and decreased
expenses in the fiscal year 1997 resulted from consulting expenses reduced by
$264,000, personnel costs reduced by $365,000, advertising and marketing
expenses reduced by $334,000
17
<PAGE>
and merger expenses decreased a total of $40,000. Additionally other increases
in general and administrative expenses are legal and accounting increased
$217,000, as a result of expenses associated with capital raising activities and
settlements, fees and expenses associated with the issuance of common stocks of
$39,000.
For the year ended March 31, 1997, the Company had an operating loss of
$4,926,405, a net loss of $5,326,192, and a loss per share of $4.62, as compared
to an operating loss of $4,038,000, a net loss of $3,966,000, and a loss per
share of $6.08 for the fiscal year ended March 31, 1996. The increased operating
loss of $888,000 is primarily a result of higher general and administrative
expenses as described above totaling $416,000, a loss of $275,000 relating to
the conversion of a note receivable into common shares, settlement expenses
relating to two franchisees and a former employee of Paradise Bakery amounting
to $336,000, increased bad debt expenses of $398,000 resulting from certain
franchisee related notes and royalties, a loss from the termination of the joint
venture in Florida totaling $257,000 virtually the same expense relating to the
closure of cafes at $413,000 for each fiscal year and higher depreciation and
amortization expenses associated with the acquisition of Paradise Bakery
totaling $205,000. The operating loss improved this fiscal year as compared to
last fiscal year as a result of higher operating margins associated with the
operations of Paradise Bakery for 12 months for the fiscal year ended 1997 as
compared to three months for the fiscal year ended 1996 amounting to $752,000
and lower losses for the operations of Java Centrale totaling $180,000.
The increased net loss of $1,360,000 for this fiscal year ended March 31,
1997 as compared to fiscal year 1996 is a result of the above increased
operating loss of $888,000, and an increase in interest expense and fees
associated with the Company's financings of $545,000.
FISCAL 1996 AS COMPARED TO FISCAL 1995
Total Company revenues for the fiscal year ended March 31, 1996 totaled
$9,555,000, as compared to $1,776,000 for the year ended March 31, 1995, an
increase of $7,779,000, or 438%. The principal components of this increase were
increased revenues amounting to $6,249,000 from the Oh La La! purchased
locations and the acquisition of the Paradise Bakery operations as of December
31, 1995.
The Company's revenues from Company-owned retail operations increased by
$7,108,000, to $7,585,000 for the fiscal year ended March 31, 1996 from $477,000
for the fiscal year ended March 31, 1995. This increase resulted primarily from
$3,424,000 in revenues recognized with the acquisition of the Oh La La!
locations and $2,826,000 in revenues recognized with the acquisition of the
Paradise Bakery locations. Additionally there was an increase of $858,000 or
180% in revenues from the addition of five Company-owned Java Centrale locations
during the 1996 fiscal year.
Revenues from the Company's franchising operations slightly decreased
$3,000, or 1% to $395,000 for the fiscal year ended March 31, 1996, from
$398,000 for the fiscal year ended March 31, 1995, resulting from a decrease in
forfeited franchise fees recognized by the Company during the 1996 fiscal year
of $49,000, as compared to $79,000 received during the 1995 fiscal year.
Revenues from the Company's royalties increased $327,000 or 165%, to
$525,000 for the fiscal year ended March 31, 1996, from $198,000 for the fiscal
year ended March 31, 1995. This increase resulted primarily from the royalties
associated with the acquisition of Paradise Bakery amounting to $196,000 and the
opening of 15 new franchisee-owned locations during the 1996 fiscal year.
Revenues from the Company's equipment sales increased $348,000, or 50%, to
$1,050,000 for the fiscal year ended March 31, 1996 from $702,000 for the fiscal
year ended March 31, 1995. This increase resulted primarily from an increase of
15 franchisee-owned cafe locations opened during the 1996 fiscal year, as
compared to the 11 franchisee-owned cafe locations opened during fiscal 1995.
The Company sells the equipment required to substantially all of its
franchisee-owned locations.
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Total expenses for the year ended March 31, 1996 were $13,593,000, an
increase of $9,782,000, or 257%, over expenses of $3,811,000 for the year ended
March 31, 1995. The principal components of the increase in expenses resulted
from $7,126,000 in operating expenses associated with the acquisition of the Oh
La La! locations and the acquisition of Paradise Bakery. Additionally, the
increase resulted from the Company recognizing during the fiscal year end 1996,
a one-time non-recurring expense of $453,000 relating to the issuance of shares
below market pursuant to a consulting agreement to develop acquisitions,
franchising opportunities and consult regarding investment relation matters for
the Company. Additionally, there was an increase in the cost of equipment,
selling, general and administrative expenses, depreciation and amortization and
other operating costs from the addition of Oh La La! and Paradise Bakery.
The cost of food and beverage, labor, and operating costs for the Company's
retail operations increased $6,862,000, for the year ended March 31, 1996, to
$7,503,000, as compared to $641,000, for the year ended March 31, 1995. The
increase resulted primarily from $5,197,000 in operating costs associated with
the acquisition of the Oh La La! locations and the acquisition of the Paradise
Bakery locations. Additionally, an increase of $1,288,000 in operating costs
associated with the addition of six Company-owned Java Centrale cafes during the
1996 fiscal year as compared to the 1995 fiscal year.
The Company's cost of equipment increased by $263,000, or 34%, in the year
ended March 31, 1996, to $1,038,000, as compared to $775,000 for the year ended
March 31, 1995. This increase resulted primarily from the growth in the
Company's opening seven additional franchisee-owned locations during the year.
Selling, general, and administrative expenses increased $1,910,000, or 81%,
during the year ended March 31, 1996, to $4,261,000 from $2,351,000 during the
1995 fiscal year, primarily because of higher expenses associated with legal,
accounting, consulting, investor relations, and higher expense relating to
franchise recruitment, training, and support, and overall administration
salaries relating to the acquisition of Oh La La! and Paradise Bakery.
Additionally, the increase resulted from the Company recognizing during the
fiscal year end 1996, a one-time non-recurring expense of $453,000 relating to
the issuance of shares below market pursuant to a consulting agreement to
develop acquisitions, franchising opportunities and consult regarding investment
relation matters for the Company.
For the year ended March 31, 1996, the Company had an operating loss of
$4,038,000, a net loss of $3,966,000, and a loss per share of $6.08, as compared
to an operating loss of $2,035,000, a net loss of $1,894,000, and a loss per
share of $4.22 for the fiscal year ended March 31, 1995. The increased operating
loss and net loss primarily resulted from higher expenses associated with the
Java Centrale system, increased administrative salaries, legal, accounting,
consulting and investor relations, depreciation and amortization, and increased
expenses associated with franchisee recruitment, support and training and the
recognition of $410,000 in losses associated with cafe and cart closures.
Additionally, the increase resulted from the Company recognizing during the
fiscal year end 1996, a one-time non-recurring expense of $453,000 relating to
the issuance of shares below market pursuant to a consulting agreement to
develop acquisitions, franchising opportunities and consult regarding investment
relation matters for the Company.
QUARTER ENDED SEPTEMBER 30, 1997 AS COMPARED TO 1996
Total Company revenues for the quarter ended September 30, 1997 totaled
$2,649,000, as compared to $3,992,000 for the quarter ended September 30, 1996,
a decrease of $1,343,000, or 34%. The principal components of this decrease
were:
The Company's revenues from Company-owned retail operations decreased by
$1,283,000 or 36%, to $2,259,000 for the quarter ended September 30, 1997, from
$3,542,000 for the quarter ended September 30, 1996. This decrease resulted
primarily from a decrease of $987,000 associated with revenues from the Oh La
La! Division, which was sold in December 1996, a decrease of $232,000 associated
with the revenues from the operations of Company-owned cafes which were closed
or sold, during fiscal year 1997, and a decrease in revenues from the
Company-owned Paradise Bakery locations of approximately $64,000.
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Revenues from the Company's franchising operations decreased $69,000, or 56%
to $54,000 for the quarter ended September 30, 1997, from $123,000 for the
quarter ended September 30, 1996. This decrease is a result of recognized
franchise fees of $25,000 associated with the transfer of one Java Centrale
franchisee-owned cafe and $29,000 associated with the opening of one Paradise
Bakery franchisee-owned cafe for the quarter ended September 30, 1997, as
compared to the recognition $108,000 in franchise fees associated with both the
opening of one Java Centrale franchise-owned cafe and the sale of two Java
Centrale Company-owned cafes to a franchisee in addition to $15,000 associated
with the opening of one franchisee-owned Paradise Bakery cafe during the quarter
ended September 30, 1996.
Revenues from the Company's royalties of $318,000 for the quarter ended
September 30, 1997 and $317,000 for the quarter ended September 30, 1996,
remained virtually the same. Royalties associated with Java Centrale decreased
$6,000 to $102,000 for the quarter ended September 30, 1997, as compared to
$108,000 for the quarter ended September 30, 1996, due to the closure of
franchisee-owned cafes. Additionally, royalties associated with Paradise Bakery
increased $7,000 to $216,000 for the quarter ended September 30, 1997, as
compared to $209,000 for the quarter ended September 30, 1996, due to increased
revenues from franchisee-owed cafes.
Revenues from the Company's equipment sales increased $8,000 to $18,000 for
the quarter ended September 30, 1997 from $10,000 for the quarter ended
September 30, 1996. This increase primarily resulted from the sale of surplus
equipment.
Total expenses for the quarter ended September 30, 1997, were $4,030,000 a
decrease of $691,000, or 15%, over expenses of $4,721,000 for the quarter ended
September 30, 1996. The principal components of the decrease in expenses
resulted from:
The cost of food and beverage, labor and operating costs for the Company's
retail operations decreased $1,109,000 for the quarter ended September 30, 1997,
to $2,081,000 as compared to $3,190,000 for the quarter ended September 30,
1996. This decrease results primarily from a decrease of $813,000 in expenses
associated with the operating Oh La La! Division, which was sold in December
1996, a decrease in expenses of $306,000 associated with the operations of
Company-owned cafes, which was sold or closed during the fiscal year ended March
31, 1997, and approximately $10,000 associated with increased operating costs
associated with the operation of the Paradise Bakery Company-owned locations.
The Company's cost of equipment increased by $5,000 in the quarter ended
September 30, 1997, to $6,000 as compared to $1,000 for the quarter ended
September 30, 1996. This increase primarily resulted from the sale of surplus
equipment.
Selling, general, and administrative expenses increased $113,000 or 11%,
during the quarter ended September 30, 1997, to $1,122,000 from $1,009,000
during the quarter ended September 30, 1996. This increase results from
decreased expenses associated with the operations of the Oh La La! Division,
which sold in December 1996, totaling $42,000, decreased personnel cost of
$52,000, decreased marketing costs of $14,000, decreased travel expense of
$20,000, increased legal and accounting fees of $120,000 and increased investor
relations of $30,000. Additionally, there were increased consulting fees of
$95,000, of which $29,000 was associated with the Companies capital raising
efforts.
For the quarter ended September 30, 1997, the Company had an operating loss
of $1,381,000, a net loss of $1,583,000, and a loss per share of $0.96, as
compared to an operating loss of $731,000, a net loss of $748,000, and a loss
per share of $0.68 for the quarter ended September 30, 1996.
The operating loss increased $650,000 to $1,381,000 during the quarter ended
September 30, 1997 as compared to $731,000 during the quarter ended September
30, 1996. The increase is a result of decreased revenues and cost of company
sales totaling $198,000, higher selling, general and administrative expenses
totaling $113,000, decreased depreciation and amortization of $57,000 from the
sale of the Oh La La! Division, increased losses associated with a cafe closure
of $345,000, increased settlement expense of $31,000, bad debt expense of
$50,000 associated with certain franchisees related notes and royalties, and
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no gain from the sale of assets during the quarter ended September 30, 1997, as
compared to a loss from the sale of assets of $30,000 during the quarter ended
September 30, 1996.
The net loss increased $835,000 to $1,583,000 during the quarter ended
September 30, 1997, as compared to $748,000 during the quarter ended September
30, 1996. The increased net loss of is primarily a result of the above increased
operating loss of $650,000, and an increase in interest expense and fees
associated with the Company's financing of $133,000, and associated with both
the sale of the Oh La La! Division and the sale and closure of cafes, interest
income decreased $13,000 and other income decreased $39,000.
SIX MONTHS ENDED SEPTEMBER 30, 1997 AS COMPARED 1996
Total Company revenues for the six months ended September 30, 1997, totaled
$5,197,000, as compared to $8,481,000 for the six months ended September 30,
1996, a decrease of $3,284,000, or 39%. The principal components of this
decrease were:
The Company's revenues from Company-owned retail operations decreased by
$3,112,000 or 41%, to $4,444,000 for the six months ended September 30, 1997,
from $7,556,000 for the six months ended September 30, 1996. This decrease
resulted primarily from a decrease of $1,939,000 associated with revenues from
the Oh La La! Division, which was sold in December 1996, a decrease of $931,000
associated with the revenues from the operations of Company-owned cafes which
were closed or sold, during the fiscal year 1997 and a decrease in revenues from
the Company-owned Paradise Bakery locations of approximately $242,000.
Revenues from the Company's franchising operations decreased $99,000, or 49%
to $104,000 for the six months ended September 30, 1997, from $203,000 for the
six months ended September 30, 1996. This decrease is a result of recognized
franchise fees totaling $75,000 associated with the opening of two Java Centrale
franchisee-owned cafes and the transfer of one Java Centrale franchisee-owned
cafe in addition to $29,000 associated with the opening of one Paradise Bakery
franchisee-owned cafe for the six months ended September 30, 1997, as compared
to the recognition $148,000 in franchise fees associated with the opening of one
Java Centrale franchise-owned cafe, the sale of two Java Centrale Company-owned
cafes to a franchisee and forfeited franchise fees, in addition to $55,000
associated with the sale of two Paradise Bakery Company-owned cafes to a single
franchisee and the opening of one Paradise Bakery franchisee-owned cafe during
the six months ended September 30, 1996.
Revenues from the Company's royalties of $616,000 for the six months ended
September 30, 1997, and $614,000 for the six months ended ended September 30,
1996, remained virtually the same. Royalties associated with Java Centrale
decreased $33,000 to $181,000 for the six months ended September 30, 1997, as
compared to $214,000 for the six months ended September 30, 1996, due to the
closure of franchisee-owned cafes. Additionally royalties associated with
Paradise Bakery increased $35,000 to $435,000 for the six months ended September
30, 1997, as compared to $400,000 for the six months ended September 30, 1996
due to the increases in revenues from franchisee-owed cafes.
Revenues from the Company's equipment sales decreased $75,000, or 69%, to
$33,000 for the six months ended September 30, 1997 from $108,000 for the six
months ended September 30, 1996. This decrease primarily resulted from
discontinuing the sale of equipment directly to franchisees in May of 1996.
Total expenses for the six months ended September 30, 1997, were $7,314,000,
an decrease of $2,684,000, or 27%, over expenses of $9,998,000 for the six
months ended September 30, 1996. The principal components of the decrease in
expenses resulted from:
The cost of food and beverage, labor and operating costs for the Company's
retail operations decreased $2,874,000, or 41% for the six months ended
September 30, 1997, to $4,087,000 as compared to $6,961,000 for the six months
ended September 30, 1996. This decrease results primarily from a decrease of
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$1,672,000 in expenses associated with operating the Oh La La! Division, which
was sold in December 1996, a decrease in expenses of $964,000 associated with
the operations of Company-owned cafes, which were sold or closed during the
fiscal year ended March 31, 1997, and approximately $238,000 associated with
decreased operating costs associated with the operation of the Paradise Bakery
Company-owned locations.
The Company's cost of equipment decreased by $78,000, or 76%, for the six
months ended September 30, 1997, to $24,000, as compared to $102,000 for the six
months ended September 30, 1996. This decrease primarily resulted from
discontinuing the sale of equipment directly to franchisees in May of 1996.
Selling, general, and administrative expenses decreased $51,000 or 2%,
during the six months ended September 30, 1997, to $2,061,000 from $2,112,000
during the six months ended September 30, 1996. This decrease results from
decreased expenses associated with the operations of the Oh La La! Division,
which sold in December 1996, totaling $99,000, decreased personnel cost of
$209,000, decreased travel expense of $52,000, decreased marketing costs of
$27,000, increased investor relations of $26,000 and increased legal and
accounting fees of $109,000. Additionally, there were increased consulting fees
of $201,000, of which $93,000 was associated with the Companies capital raising
efforts.
For the six months ended September 30, 1997, the Company had an operating
loss of $2,117,000, a net loss of $2,394,000, and a loss per share of $1.55, as
compared to an operating loss of $1,517,000, a net loss of $1,511,000, and a
loss per share of $1.51 for the six months ended September 30, 1996.
The operating loss increased $600,000 to $2,117,000 during the six months
ended September 30, 1997, as compared to $1,517,000 during the six months ended
September 30, 1996. The increase is a result of lower revenues and cost of
company sales of $203,000, and lower selling, general and administrative
expenses totaling $51,000, decreased depreciation and amortization of $112,000
from the sale of the Oh La La! Division, increased losses associated from cafe
closures of $346,000, bad debt expense and settlement expense of $178,000
associated with certain franchisees related notes and royalties, and no gain
from the sale of assets during the six months ended September 30, 1997, as
compared to a gain from the sale of assets of $36,000 during the six months
ended September 30, 1996.
The net loss increased $883,000 to $2,394,000 during the six months ended
September 30, 1997, as compared to $1,511,000 during the six months ended
September 30, 1996. The increased net loss is a result of the above increased
operating loss of $600,000, and an increase in interest expense and fees of
$154,000, associated with the Company's financing, and decreased other and
interest income of $129,000, associated with the with both the sale of the Oh La
La! Division and the sale and closure of cafes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has never earned a profit and the Company's
operations have required, rather than provided, cash each year. In order to meet
these cash requirements, the Company has from time to time sold Common Shares,
borrowed short-term, sold Company assets and issued convertible debt. The
Company's net loss for the fiscal years ended March 31, 1997 and 1996 were
$5,326,000 and $3,966,000, respectively. Since then the Company has suffered
additional losses of $811,000 for the quarter ended June 30, 1997 and $1,583,000
for the quarter ended September 30, 1997. The Company has an accumulated deficit
of $13,438,000 and $15,832,000 as of March 31, 1997 and September 30, 1997,
respectively. There can be no assurance that losses will not continue, or that
the Company, as currently structured, will become profitable in the future. In
the fiscal year ended March 31, 1997, the Company sold assets, raised debt and
sold equity, and reduced expenses to meet its ongoing liquidity needs. During
the six months ended September 30, 1997, the Company had warrants exercised,
borrowed short-term funds and sold equity to meet ongoing liquidity needs.
Currently the Company has a material working capital shortfall.
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In the 1996 fiscal year, the Company issued 1,604,692 common shares for
$3,541,000 in proceeds in a series of private placements. The Company also
issued convertible debt in three separate private transactions totaling
$3,500,000. As of March 31, 1997, $2,054,000 had been converted into 3,311,183
common shares. During the quarter ended September 30, 1997, an additional
$249,000 of convertible debt had been converted into 1,335,197 shares of the
Company's common stock. As of September 30, 1997, $2,303,000 of convertible debt
had been converted into 4,646,394 shares of the Company's common stock.
From July 1, 1997, to August 8, 1997, an additional $197,000 of convertible
debt was converted into 2,386,226 shares. Additionally, in July 1997, the
Company agreed to restructure the remaining portion of the unconverted note,
totaling $1,000,000, into a note due no later than January 1, 1998, pledging
shares of Paradise Bakery, Inc. as collateral and adding $250,000 to the balance
of the note to eliminate the conversion feature of the note. The Company will
recognize the $250,000 as additional interest expense over the remaining term of
the note.
In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of preferred
stock and a $750,000 convertible note receivable due in 1999. On March 31, 1997,
the Company agreed with GFF to exchange $250,000 of the convertible note
receivable for the assumption of certain liabilities of the Company, exchange
233,333 preferred shares for 233,333 shares of common stock, accelerate a
payment of $145,000 due under the note receivable to May 1997 and convert the
remaining $355,000 balance of the note into 40,000 shares of GFF common stock.
The common shares of GFF at September 30, 1997, have been valued at $2.00 per
share based on the estimated fair value of such shares at the time of the
acquisition. As of September 30, 1997, following the related conversions, the
Company owned approximately 30% of the outstanding common shares of GFF. The
Company did not recognize any earnings from GFF under the equity method of
accounting due to immateriality.
In July 1996, the Company borrowed $350,000 under a note due in April 1997.
This note was paid with the proceeds of the long-term debt in November 1996,
when the Company completed a financing of $779,000 in long-term debt, pledging
the assets of Paradise Bakery. Although the Company is currently in default of
certain financial covenants under this note, it is current with the required
monthly payments under the note. The Company also used proceeds of the $779,000
to pay a note due Chart House Enterprises in the amount of $330,000.
In May 1996, the Company completed the sale of two Company-owned Paradise
Bakery cafes to a franchisee for proceeds of $280,000, which were applied to the
note due Sanwa Bank from the merger of Founders Venture, Inc.
In April 1996, the Company completed a financing for $400,000, which pledged
the assets of Oh La La!. This note was paid from the proceeds of the cash
portion on the sale of Oh La La! in December 1996.
In July of 1996, Baycor, Gary C. Nelson, the Company's President and Chief
Executive Officer, and Steven J. Orlando, its then-Chief Financial Officer,
agreed to loan the Company an aggregate of $175,000 from time to time on an
as-needed basis until April of 1997, when this line of credit would be
terminated and the sums then borrowed and outstanding would become due and
payable. The interest rate on the funds so advanced was prime plus 2%. The line
of credit was terminated as of March 31, 1997. In replacement, in April 1997 Mr.
Nelson advanced the Company $50,000 in exchange for a note secured by the
Company's assets, Mr. Orlando advanced the Company $31,000 in the form of
deferred salary for the period from December 1996 through March 1997, and Baycor
deferred receipt of salary and expenses accrued during the 1997 fiscal year
amounting to $145,000, without interest. In September 1997 the amount owed to
Mr. Nelson was reduced to $35,000 and the amount owed to Mr. Orlando was reduced
to $15,000, additionally each is owed accrued interest at the rate of prime plus
2%. The amount owed to Baycor as of the date of September 30, 1997 is $165,000.
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During the six months ended September 30, 1997 the Company borrowed an
additional $275,000 thereby increasing the balance on the note to Alta
Petroleum, Inc. to $575,000. Alta Petroleum extended the due date of the note to
September 30, 1997. The Company is currently negotiating with Alta Petroleum to
extend the term of this note to March 31, 1998. The Company currently has no
available credit lines. In November 1997, the Company borrowed $250,000 from The
Harmat Organization, a Delaware corporation, to meet working capital needs
through December, 1997. The loan is secured by common stock pledged by officers
of the Company. Principal and interest of 15% are due on December 31, 1997. As
additional consideration, 10,000 warrants were also issued at an exercise price
of $.050. These warrants expire in November 2000 and have been included in the
registration statement.
Over the last year, the Company's financing plan to meet its ongoing
liquidity needs has been to raise new equity through private placements,
refinance or obtain new debt funding and sell assets of the Company's operation.
There can be no assurance that any similar financing, asset sales or equity
placements will continue to be available to the Company in the future.
Consequently, under current circumstances the Company does not anticipate that
it will be able to continue existing operations in the future unless it can
obtain new short-term or long-term financing, raise new equity or execute a
significant sale of assets. The Company's Board of Directors is currently
evaluating a number of options for the resolution of its immediate and long-term
financial needs, including among other potential alternatives, the sale of its
Java Centrale systems, obtaining a long-term loan secured by its Paradise Bakery
assets, a private and/or public sale of Company stock and/or other securities,
and a strategic merger. Some of the alternatives currently being studied by the
Company's Board of Directors might result in a change in the management and/or
control of the Company.
In August of 1997, the Company retained E.C. Capital Ltd. ("ECC"), a New
York based investment-banking firm, to raise equity capital in a two-stage
private offering (the "ECC Offering"). In both stages, the Company would issue
to investors units consisting of 250,000 shares of common stock, 250,000 "A" and
"B" Warrants. The "A" Warrants have a term of two years from the date of
issuance and may be exercised to purchase shares of common stock at a per share
exercise price of $1.60. The "B" Warrants have a three-year term and may be
exercised to purchase shares of common stock at a price per share of $2.00. The
offering price for each full unit in the first stage of the ECC Offering is
$25,000. ECC has undertaken to place 25 units in the first stage of the ECC
Offering and 35 units in the second and final stage. The issuance of the "A" and
"B" Warrants were subject to approval by the Company's Board of Directors and
shareholders of (i) an amendment to the Company's Articles of Incorporation
increasing its authorized number of shares of common stock from 25,000,000 to
50,000,000, (ii) effecting a one for ten reverse stock split of the outstanding
shares of common stock, and (iii) moving the Company's state of incorporation
from California to Delaware. All of the above proposals were approved by the
Company's shareholders at its annual meeting held November 25, 1997. The Company
has agreed to pay ECC a 10% commission on all sales of units and a 3%
non-accountable expense reimbursement. Additionally the Company must issue to
ECC 250,000 "A" and "B" Warrants as a partial compensation for its efforts in
completing the first stage of the ECC Offering and a equal number of Warrants in
connection with the second stage, for a total of 1,000,000 warrants in all. The
Company has also agreed to retain ECC as an advisor for the next three years at
a fee of $3,000 per month and to pay ECC a 5% warrant solicitation fee for any
of the investor warrants which are exercised. The Company has also agreed not to
raise debt or equity financing during this three-year period other than with
consent of ECC and to allow a ECC designee to observe all meetings of the
Company's Board of Directors. Further, all of the Company's officers and
directors have executed lock-up agreements with ECC whereby they have agreed not
to transfer, assign, sell or otherwise dispose of any of their Company shares,
except with the consent of ECC, until at least one year after the effective date
of the registration statement. As of December 19, 1997 there have been 25 units
placed totaling 6,250,000 common shares and net proceeds of $544,000.
At the Company's current level of development, it does not generate net cash
from operations. To fund its operations, the Company requires either additional
financing, sales of additional franchises, or a
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substantial increase in its network of Company-owned cafes and carts. The
Company incurred a net loss of $5,326,000 and $3,966,000 and used net cash of
$3,062,000 and $2,391,000 in operating activities for the years ended March 31,
1997 and 1996, respectively. The Company incurred a net loss of $2,394,000 and
$1,511,000 and used net cash of $195,000 and $1,138,000 for the six months ended
September 30, 1997 and 1996, respectively. To fund its operations, the Company
requires either additional financing, significant sales of additional
franchises, or a substantial increase in its network of Company-owned cafes.
The Company has developed a specific operating plan to meet the ongoing
liquidity needs of the Company's operations. During the fiscal year ended March
31, 1997, the Company reduced administrative salaries, certain employee benefit
costs, and marketing expenses. The Company also sold 20 of its existing
Company-owned cafes and carts for proceeds of $1,321,000 in cash and is actively
pursuing the sale of additional assets. Despite the sale (and possible future
sales) of these assets, the Company does intend to operate Company-owned
locations. The Company also completed a number of debt financing transactions
totaling $1,729,000 and the sale of equity for $1,525,000 to meet its ongoing
liquidity needs in the fiscal year ended March 31, 1997. Additionally during the
six months ended September 30, 1997 the Company borrowed $275,000 in short-term
loans and had warrants exercised in the amount of $205,000 to meet its ongoing
liquidity needs.
Based on the Company's current cost structure and other expense
calculations, and the Company's current and anticipated revenue streams,
including sales of new Java Centrale franchises and the operating income
expected to be produced by the Company's Paradise Bakery system, the Company
cannot estimate that it will break even on cash flow in the current fiscal year.
The Company does not expect to achieve profitability until after March 31, 1998
and then only if the Company's growth projections can be met and its cost
structure remains stable. There can be no assurance that enough new franchises
will be sold to provide the necessary liquidity, or that the Company's liquidity
goals will be reached in the immediate future, if ever. The Company has certain
debt obligations that are in default for non-compliance with financial covenants
and non-payment to the scheduled required payments. These obligations have been
classified as currently due in the financial statements and the Company cannot
make any assurances as to the ultimate disposition of these debt obligations
which total approximately $3,256,000 as of November 1997. The Company's plan of
operation to provide ongoing liquidity continues to include the sale of certain
operating assets, the active pursuit of debt and equity and the restructure of
debt. The Company can not make any assurance that this plan will be achieved.
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BUSINESS
BUSINESS DEVELOPMENT
Java Centrale, Inc., a California corporation (the "Company"), began
operations on March 5, 1992, and operated as a development stage enterprise
through the end of its fiscal year ended March 31, 1993, and commenced principal
operations as of April 1, 1993, at which time it had operating two franchised
cafes. At September 30, 1997, the Company was operating 17 Company-owned cafes,
55 franchisee-owned cafes, eight franchisee-owned carts, and had an additional
signed agreements for as-yet-unopened franchisee-owned cafes.
ACQUISITIONS AND DISPOSITIONS
On March 30, 1995, the Company completed its acquisition of substantially
all of the assets of Oh La La!, Inc., a Delaware corporation headquartered in
Northern California. At the time of this transaction, Oh La La! was the
Debtor-in-Possession in a Chapter 11 bankruptcy proceeding. The assets purchased
included tenant improvements, equipment, and goodwill. The purchase price for
the acquired assets were $2,104,000 and liabilities in the amount of $113,000
were assumed as part of the transaction.
In December of 1996, the Company sold the assets of Oh La La! to Good Food
Fast Companies, Inc. "GFF" for $1,250,000 in cash, 233,333 shares of preferred
stock and $750,000 in notes receivable due in 1999. On March 31, 1997, the
Company agreed with GFF to exchange $250,000 of the convertible note receivable
for the assumption of certain liabilities of the Company, exchange 233,333
preferred shares for 233,333 shares of common stock, accelerate a payment of
$145,000 due under the note receivable to May 1997 and convert the remaining
$355,000 balance of the note into 40,000 shares of GFF common stock. The common
shares of GFF at March 31, 1997, have been valued at $2.00 per share based on
the fair value of such shares. The Company recognized an aggregate loss of
$305,000 from the sale of Oh La La! and the subsequent conversion of the note
receivable into common shares. As of September 30, 1997, the Company owned
approximately 30% of the outstanding common shares of GFF. Under current general
accepted accounting principles the Company periodically evaluates the fair value
of this investment and adjusts the carrying value for unrealized gain or losses.
On December 31, 1995, the Company acquired 100% of the outstanding shares of
Paradise Bakery, Inc., for $5,375,000 cash and $1,350,000 notes payable of which
$385,000 represented an amount due from Founders Venture, Inc. prior to the
Founders Venture merger. As of September 30, 1997, Paradise Bakery, Inc.,
operates 16 Company-owned bakery/cafes and 32 franchisee-owned bakery/cafes.
On January 17, 1996, the Company merged into Paradise Bakery, Inc., 100% of
the outstanding shares of Founder Ventures, Inc., for 431,853 common shares of
the Company. Founder Venture, Inc., operated eight franchisee-owned Paradise
bakery/cafes prior to the merger.
On January 17, 1996, the Company acquired certain assets of Venture 88,
Inc., for 74,073 shares of the Company and assumed $154,000 of liabilities and
issued $46,000 in notes payable. The assets acquired were for three
franchisee-owned Paradise bakery & cafes prior to the acquisition.
The Company's revenues are derived from Company-owned facilities, initial
franchise fees, franchise royalties and product overrides on sales to its
franchisees. Franchise fees range from $15,000 to $35,000 per cafe. The Company
is entitled to 4-6% of the gross receipts from each franchised cafe and 2-10% of
the gross receipts from each franchised cart. Product overrides amount to 10% of
the total purchases by its franchisees of coffee from the Company's contract
roaster.
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BUSINESS OF ISSUER
JAVA CENTRALE COFFEE CAFES
The Company has found it difficult to recruit franchisees for the Java
Centrale system. This difficulty is driven by the lack of sufficient quantities
of suitable sites to grow the system along with the historical performance of
the Java Centrale system. The lack of inventory of suitable sites is the result
of the demand for similar sites by other specialty coffee and other specialty
food operators. The Company intends to continue the selective franchising of the
Java Centrale system despite the highly competitive environment in which Java
Centrale cafes operate.
Each Java cafe offers over 40 different varieties of whole bean and fresh
ground coffees--made from carefully selected gourmet coffee beans, slowly
roasted and blended to Java's proprietary specifications, and containing 100%
class one Arabica mild high-grown hard beans. In addition to selling numerous
coffees and other specialty beverages, the cafes also sell coffee-making
equipment and accessories such as brewers, espresso makers, grinders, mugs and
carafes. The Company's coffee products appeal to the tastes of today's specialty
coffee consumers--who are better educated, more affluent, prefer high quality
and good value, consider gourmet coffee an affordable luxury.
The Company is one of many regional specialty coffee operators. Although the
concept has reached a level of recognition in the Los Angeles area the other
Java Centrale cafe locations have been developed on an individual basis in a
number of cities in five other states and are therefore recognized only in their
immediate area. The overall result is minimal recognition and market share
versus the larger regional and national operators.
Java Centrale cafes offer convenient and comfortable indoor and outdoor
seating which encourages the customers to relax and enjoy their visit to the
cafe during business hours, evenings, or on weekends. This attracts customers
into Java Centrale cafes during various parts of the day when they might not
otherwise frequent the cafe exclusively for coffee. Although this multi-use
philosophy does differentiate the Java Centrale concept, it is still in direct
competition with any outlet that serves specialty coffee and other operators, in
or out of the coffee segment, who offer similar food items.
Java Centrale's menu offers a wide selection of coffee beverages and gourmet
complementary food selections, along with take-home whole-bean coffees. The food
menu items are prepared fresh to order and are presented attractively. The
presence of complementary food items gives the consumer multiple reasons to
frequent the cafes. The availability of whole bean coffees, brewed coffees and
espresso based beverages, breakfast pastries, lunch time sandwiches and salads
along with late night dessert offerings brings the consumer back to the cafe
more often and at times of the day when they might not frequent the cafe if it
offered coffees exclusively.
PARADISE BAKERY/CAFES
On December 31, 1995, the Company acquired 100% of the outstanding stock of
Paradise Bakery, Inc., a Delaware corporation, which was operating seven
Company-owned and 44 franchisee-owned bakery/cafes at that time. On January 1,
1996, the Company acquired 10 Paradise Bakery franchisee-owned bakery/cafes in
two separate agreements. The Company believes that the acquisition of Paradise
Bakery will allow the Company to further enhance the Company's expansion
strategy by franchising and developing Paradise Bakery.
Paradise Bakery has cafes at 55 locations in Hawaii, California, Arizona,
Oregon, Washington, Colorado, Oklahoma and Texas. Of these, 16 are company-owned
and 39 are franchised. Highly visible sites in upscale markets include the
Phoenix Airport, Scottsdale Fashion Square, Ala Moana Center in Hawaii, and in
the ski resorts of Aspen and Snowmass. Both Company and Franchisee-owned cafes
seek to capture "prime" high-traffic locations such as shopping mall, airports,
and upscale recreational/tourist
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areas. The Paradise Bakery concept has limited competition in the upscale bakery
cafe market. The Paradise brand name is well established and synonymous with
quality baked fresh baked goods.
Freshly baked cookies, muffins and croissants have been the signature
products at Paradise Bakery cafes. Paradise Bakery also offers brownies,
cinnamon rolls and other pastry and bakery goods. Most bakery goods are made
from scratch, baked on the premises throughout the day to ensure freshness, and
are made from the highest quality ingredients. Paradise Bakery cafes also
feature freshly made specialty sandwiches, entree salads, pasta salads, and
soups. The Company is currently implementing a proprietary coffee program. The
products offered under this new banner are quality-brewed coffees and espresso
based specialty coffee beverages such as lattes, cappuccinos and espressos.
These products are an integral part of the overall positioning of the concept,
as they address the customer's desire to eat healthy food, which is served
quickly.
The Paradise Bakery cafe is a twenty-one year old proven concept with
limited competition in the upscale bakery cafe market. The Company believes that
concept is now properly positioned to take advantage of the significant growth
opportunities in both traditional as well as non-traditional sites nationwide.
To exploit those opportunities the "new generation" Paradise Bakery model was
developed with the objective of expanding the current site criteria and actively
target the over 766 shopping malls with Gross Leasing Area greater than or equal
to 800,000 sq. ft. in the United States. The Company will use its existing
developer relationships and a professional food court site selection company, to
continue to select future sites. The first two new generation Paradise Bakery
cafes were developed and opened, in cooperation with an existing franchisee of
Paradise Bakery, in Littleton, Colorado, and at the Southwest Airlines terminal
in the Phoenix Airport. Other new look bakery cafes began operating in both
Arizona, California and Texas during 1997 including both new cafe openings and
remodels of existing locations. Paradise Bakery's "new generation" Paradise
Bakery cafes have a new upscale design and an improved and expanded menu. In
addition to mall locations, the cafe's new design will work well in power
centers, office buildings, airports, as well as university and college campuses.
In December 1997, the Company and Host Marriott Services (Host) signed an
exclusive mast concession agreement. This five year agreement appoints Host as
the exclusive franchisee for single-operator food courts, airports and travel
plaza. Host currently operates two Paradise Bakery and Cafes in Texas and plans
to open a minimum of five new locations in regional malls in 1998. Host
currently controls approximately 70% of travel plazas and 65% of airport venues
in the United States. Host will be looking to add Paradise Bakery to these
venues in 1998 as well.
INDUSTRY OVERVIEW
JAVA CENTRALE COFFEE CAFES
Although the coffee market is huge and continues to grow at a strong rate,
the competition in the industry has increased significantly and has made it more
difficult for the smaller companies, such as Java Centrale, to obtain favorable
new locations and to operate profitably. Annual U.S. coffee sales have now
reached $8 billion. Specialty coffee consumption has increased 30% per year for
the last three years. Find/ SVP, a leading research organization, forecasts 20%
to 25% compounded annual growth rates in sales of specialty (gourmet) coffee for
many years to come. The Specialty Coffee Association trade group estimates that
"coffee bar" outlets like those in the Java Centrale system will more than
double from about 4,500 recently to over 10,000 by the year 2000. The growth of
specialty coffee sold for home consumption has continued in the 1990's, with
sales projected to double to an estimated $3 billion by 1999. In 1983, gourmet
coffee accounted for 10% of the total U.S. coffee market. Today, it accounts for
an approximate 30% share of the coffee market. It is projected that by the end
of the decade, it will account for 50% of all coffee sales.
The Company believes that the increasing popularity of specialty coffees
over the last several years can be attributed to five major factors which have
led to the transformation of specialty coffee from a
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highly specialized and small segment of the coffee industry in the United States
to an independent and growing sector of the market. These five major factors
are: (1) the trend toward healthy eating, including the reduced consumption of
alcoholic beverages, (2) the availability of automatic drip coffee makers for
the home, (3) the rising price of regular coffee, (4) the rise of the gourmet
foods market, and (5) several technological innovations, including improved
decaffeination methods and the introduction of the one-way valve for coffee
packaging, which allows carbon dioxide to escape but does not permit oxygen to
enter, thereby stretching the shelf life of coffee from just a few days to
nearly one year.
PARADISE BAKERY/CAFES
Independent experts and industry surveys predict that the Bakery and Cafe
segment in which Paradise Bakery has positioned its operations will experience
some of the highest growth rates in the food service industry. This provides an
underlying growth trend to stimulate interest among consumers, franchisees,
investors, and money managers. It was reported that:
- MODERN BAKING MAGAZINE reported in its February, 1997 issue which features
Paradise Bakery on the cover, that the BAKERY/CAFE segment will experience
30% growth within a year; and, over the next several years, growth should
accelerate to explosive levels.
- THE GALLUP ORGANIZATION, in a special report prepared for the
International Dairy-Deli-Bakery Association in 1995, confirms the strong
growth in the consumption of sweet goods, such as cookies, muffins, and
danish or pastries, between 1990 and 1995. For example:
- 31% of consumers eat sweet goods for breakfast
- 16% of households eat cookies every day and 35% eat cookies one to six
times a week
- 18% of consumers eat muffins once a week or more. That represents a 20%
increase in consumption
The Company believes that the increasing popularity of the bakery/cafe
segment results from the trend of eating healthier, customers seeking fresh
products, and the general growth in the gourmet food markets. The Company also
believes the bakery/cafe segment will continue to grow and that further
consolidation of regional operators will continue.
Paradise cafes experience great popularity because they appeal to the tastes
of today's specialty food consumers. These consumers are profiled as:
- Better educated: college educated consumers are 49% above average in
consumption, and with post-graduate education, 71% above average
- More affluent: majority earn over $35,000 a year; those over $50,000/year
are 64% above average in purchases
- High value orientation: prefer high quality and good value
- Affordable luxury: considers specialty food an affordable luxury and is
willing to spend more for better tasting food and beverage items
Segmented by eating patterns, specialty food consumers are most likely to
fall into groups called "Sophisticate" (27% above average consumption) and
"Sensible Appetites" (7% above average), as defined by the National Association
for the Specialty Food Trade (NASFT). These consumers eat out more often, and
are prone to food experimentation and specialty food purchases. Taste and health
are important to them. Dual income-no children households, with more disposal
income available, register the highest consumption at 45% above the national
average, while working-parent households are 28% above average. These groups
that characterize the "baby boom" generation are now reaching their "leisure"
years and Paradise Bakery is ideally positioned to capitalize on these trends.
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COMPANY STRATEGY
The Company's strategic objectives are to expand the Java Centrale system of
coffee cafes by opening new franchisee-owned operations in selected locations in
the Western United States, and to develop the Paradise Bakery system into the
leading North American bakery/cafe company serving fresh baked goods by opening
new Company-owned and franchised locations in the United States and Canada. The
Company plans to achieve this goal by selling only the highest quality products,
producing a superior level of customer service, and establishing a high degree
of customer loyalty and repeat business. Each of the above elements of the
Company's strategy is discussed below.
HIGHEST QUALITY COFFEE. The Company believes that its specifications for
the selection, roasting and delivery of its coffee beans and beverages are among
the highest in the coffee industry. However, due to the competitive nature of
this industry and the importance placed on this type of proprietary information
independent proof of this assertion is not available to the Company. The Company
believes that its roasting specifications for each variety of Arabica bean which
it offers provide for roasting of the bean to the degree that accentuates the
character of the individual coffee. Certain coffees have a tendency to have more
fragile characteristics that need to be roasted lighter in order to protect the
integrity of that particular variety, while other coffees having stronger
characteristics that overpower subtle nuances within that variety are enhanced
by a darker level of roasting. Since coffee beans are an agricultural product
that varies from season to season and from farm to farm, the Company reviews its
roasting specifications regularly and, if necessary, modifies those
specifications in order to bring each variety of coffee bean to its optimum
flavor potential.
PRODUCT IS THE CONCEPT. The foundation of Paradise's Bakery business is its
deliciously fresh products, which consist of bakery items, sandwiches and
salads. Paradise Bakery uses only the finest ingredients in preparing its food
products. In order to enhance a quality image, we use well-known brands as in
selected products. Each day our cookies, muffins, and brownies are prepared from
scratch. Our pastries, cinnamon rolls, pecan rolls, bagels and croissant
products are baked on premise daily. All Paradise Bakery fresh baked menu items
are preservative-free and many are approved by the American Heart Association.
Paradise Bakery features certain bakery products that are low in fat, yet rich
in nutrients with no artificial flavors or colors. Our sandwiches and salads are
made to order. Our customer easily understands the price value relationship,
since we serve generous portions at reasonable prices.
CUSTOMER SERVICE. A basic premise of the Company's business philosophy is
that it serves many customers on many different levels. The Company views its
vendors and suppliers as one level of customers, its franchises and Company
facility managers as another level of customers, and the end consumer/customer
as a third level customer who benefits from the relationships between the
Company and all of its levels of customers. Therefore, the Company provides the
same type of attention and service to each of these levels as would be expected
by the end consumer/customer of the Company's products.
MERCHANDISING AND MARKETING. The Company has a comprehensive merchandising,
marketing and image program featuring its logo and trademarks on its signs, cafe
interiors, cups, bags, packaging, promotional pieces and literature. The program
is designed to create a distinctive brand image and brand awareness as well as
provide the consumer with repeat customer incentives. The Company has wide range
of literature that gives the customer a source for information about the origins
and characteristics of coffees, as well as grinding, brewing and storing methods
and techniques that the Company believes will result in the best coffee
beverages.
SITE SELECTION. The Company's goal in cafe site selection is to locate its
cafes in high-traffic, high-visibility locations within areas that have
appropriate demographics, other retail business use and residential backup.
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EXPANSION/ACQUISITION. The Company's strategy is to expand the Paradise
Bakery/Cafe system through new franchised and/or Company owned locations both in
the eastern and western parts of the United States and also to continue the
development of the Java Centrale coffee cafes through only franchisee-owned
locations primarily in the Western United States. The Company does not intend to
complete any additional acquisitions.
SOURCING. The Company currently obtains its coffees pursuant to the
Producer Agreement between the Company and Coffee Bean International ("CBI"), an
independent roaster. Pursuant to the Producer Agreement, several different
varieties of green coffee beans are purchased, roasted, packaged and shipped by
CBI in accordance with the Company's specifications specifically detailed in the
Producer Agreement. All green beans purchased in accordance with the Producer
Agreement are of the Arabica species and the Company believes that the Arabica
beans, which are purchased pursuant to the Producer Agreement, are among the
best available from each producing region.
RETAIL SALES. The Company sells over 40 different varieties of whole bean
and fresh ground coffees together with rich flavorful brewed coffees, espresso
beverages, Italian sodas and other upscale beverages, through its system of
Company-operated and franchised European style gourmet coffee cafes, carts and
kiosks.
OPERATIONS OF CAFES AND KIOSKS
Distribution of the Company's products is done exclusively through a system
of Company-operated and franchised cafes and kiosks under the two brand names.
As of November 30, 1997, the Company had received an aggregate $1,900,000 in
cash representing initial fees under its franchise agreements, and is entitled
to receive an additional $170,000 in cash fees when it completes its obligations
under such agreements, which obligations are expected to be completed no later
than December of 1999. The Company's revenues are derived from Company-owned
facilities, initial franchise fees, franchise royalties, equipment sales, and
product overrides on sales to its franchisees.
DEVELOPMENT TIME. After the signing of a franchise agreement for a
particular location or locations, the amount of time necessary to develop that
location and eventually open and operate the cafe or kiosk varies depending on
several factors including site selection, preparation and approvals of plans,
acquisition of necessary permits, length of construction period and whether the
training of the employees will take place on-site or off-site. Based on the
Company's experience to date, the average development time of a single-unit cafe
franchise has been 4 to 8 months.
In addition to these development factors, multi-unit franchisees are
obligated under their franchise agreements to build cafes based on a three to
five year development schedule in which the majority of the locations are opened
in the first half of the development schedule. In the case of multi-unit
developments, it is necessary to develop real estate relationships that are
likely to provide more than one desirable location and, therefore, extra time
and care is devoted to contracting with the right firm for that purpose in the
market in question. This recruiting process could require an additional thirty
to sixty days. In the case of a single unit franchise where the territory is a
subset of the larger market, the Company typically selects the most experienced
commercial real estate firm that specializes in retail locations in that defined
area. All of these factors affect the Company's ability to open cafes within a
specific time frame. Although the development of a single franchised or
Company-owned cafe will always be subject to these timing factors, the number of
cafes opened in any given month or year will increase dramatically as additional
franchises are sold and leases for Company locations are signed.
PRODUCT MIX. The Company's Java Centrale cafes sell over 40 different
varieties of whole bean and fresh ground coffees together with rich flavorful
brewed coffees, espresso beverages, Italian sodas and other upscale beverages.
The Company's cafes offer six brewed coffees daily: one light and one dark
varietal, a Java Centrale House Blend, a varietal decaffeinated coffee, a
flavored coffee, and a flavored
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decaffeinated coffee. In addition, the Company has developed its own line of
contemporary espresso based beverages which are designed to appeal primarily to
younger customers and women. In addition to selling numerous coffees and other
specialty beverages, the cafes offer the consumer a wide selection of gourmet
sandwiches, salads, soups, pastries and desserts as well as coffee-making
equipment and accessories such as brewers, espresso makers, grinders, mugs and
carafes.
The Company's Java Centrale kiosks offer the full range of espresso based
specialty beverages and Italian sodas offered in the Company's cafes, as well as
brewed coffees and a selection of morning pastries.
Paradise Bakery has developed a brand identity of quality over its 21 years
of existence. It uses only the finest ingredients in preparing all food
products.
Freshly baked cookies, muffins and croissants have been, and will remain,
the signature products at Paradise's cafes.
Since its inception, Paradise has been offering its customers the highest
quality products at reasonable prices. Strategically, the concept appeals to an
audience that is seeking high quality, freshly prepared bakery
products--cookies, muffins, croissants, brownies, cinnamon rolls and other
bakery goods made from scratch on the premises. Most items are baked throughout
the day to reinforce our commitment to fresh baked products.
Our cafes also feature freshly made specialty sandwiches, entree salads,
pasta salads, and soups. These products are an integral part of the overall
positioning of the concept, as they address the customer's desire to eat healthy
food, which is served quickly.
The Paradise Bakery menu has evolved over the years in order to meet the
changing lifestyles of our customers. For example, to satisfy health-conscious
customers, Paradise offers many pastry and food items, which are low in fat.
Paradise's re-designed and expanded menu has been an overwhelming success with
both existing and new customers alike.
PRICING. The Company prices its coffees, menu items and retail goods at or
above the prevailing high-end prices for these items in each of its markets. The
products offered by the Company are of the highest quality and would command a
premium price based on value alone. Additionally, the Company's research on
specialty consumers has shown that they expect to pay a higher price for
specialty food and beverage products and look with suspicion on products, even
products of high quality, that are priced below the market. This strategy
differentiates the Company from many of its retail competitors that are required
to compete on a PRICE ONLY basis. The Company believes that this pricing
strategy assures that necessary margins are protected and thereby allows the
Company and its franchisees to focus primarily on product quality and service to
earn and retain customers.
DESIGN. The Company's Java Centrale cafes are designed to provide the
customer with a modern, comfortable and convenient cafe and meeting place with a
European flair. The design uses a combination of primary colors that give the
cafes a different and distinctive look when compared with the facilities of the
Company's competitors. The Company believes that the distinctive look of its
cafes will help the consumer to more readily remember its name and its products,
thereby resulting in a higher level of repeat customer business for its cafes.
The Company's Paradise Bakery cafe design has evolved over the years always
adapting to the ever-changing consumer needs. Presently, the majority of the
Paradise cafes have a design of a tropical theme utilizing the color palette of
light blue, pink and white. The attractive cafe designs and functional building
plans are an integral part of the Paradise success formula. These designs
provide an exciting environment that supports product display, encourages
impulse sales and provides color efficiency.
Paradise has upgraded its design to meet today's consumer demands for novel
food products and services to meet their constantly evolving needs and tastes.
The most recent design change reflects a more open, unique eating experience at
Paradise by enabling the customer to come into a tantalizing theater
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brimming with irresistible foods and beverages. The color palette is changing to
light, effervescent, bright fruit and vegetable colors, such as mango, lemon,
grape, tomato, and avocado. Other changes include extensive use of product
display, fresh food graphics, and enhanced graphic communication system. The
cafes with this new design have been well accepted by the customers.
To emphasize its baked from scratch method of product preparation, the ovens
are now located in the front of the house in full customer view allowing them to
observe the high quality baked items being prepared fresh throughout the day.
The sandwich making station has been redesigned into a "display kitchen" type of
preparation area where customers can see their sandwiches being made from
wholesome breads and other fresh ingredients. The internally lighted bakery
displays are made of a marble like material whose quality and beauty helps draw
the customers attention to the fresh baked products offered for sale.
SUPPLIES. The Company and its franchisees purchase their food, beverages
and supplies only from Company-approved suppliers. All products must meet the
standards and specifications set by the Company. Management of the Company
constantly monitors the quality of the coffee, food, beverages and other
supplies provided to the cafes, carts and kiosks. The Company has been
successful in negotiating national distribution and price concessions from
suppliers for bulk purchases of coffee, food and paper supplies used by the
Company's system of cafes, carts and kiosks. The Company believes that these
arrangements have achieved cost savings, improved quality and consistency and
helped decrease volatility of coffee, food and supply costs. The Company
believes that essential coffee, food and beverage products are available or,
upon short notice, could be made available from alternate qualified suppliers.
MANAGEMENT AND EMPLOYEES. Each Company-owned or franchised cafe employs an
average of approximately 15 hourly employees, most of whom work part-time. The
management staff of a typical cafe operated by the Company consists of a general
manger, an assistant manager and one crew leader. A typical franchised location
is managed directly by the franchisee and an assistant manager and one crew
leader. Company cafe managers report to a district manger, while franchised
locations work in conjunction with one of the Company's franchise field
representative. The district mangers or franchise field representatives are
responsible for assuring compliance with the Company's products and facilities'
standards and supervising and assisting in the implementation of the Company's
local cafe marketing programs.
TRAINING. The Company's Java Centrale cafe training program has two parts.
The first part is an intensive two-week program at the Company's headquarters in
Sacramento, California consisting of both classroom and on-the-job training. The
classroom training includes such topics as the origins of coffee, coffee
comparisons, food safety and sanitation, employment laws and regulations,
interviewing and hiring of employees, and systems to control both food and labor
costs. The on-the-job training concentrates on using the grinding, brewing and
espresso making equipment, preparing and serving the various brewed coffees and
espresso beverages, and preparing and serving the various menu items. In all
cases, the in-cafe training emphasizes the importance of fast and friendly
customer service.
The second part of the training takes place at the cafe prior to opening.
The Company's training team works with the franchisee or Company-owned cafe
manager over a thirteen-day period to prepare the facility for business and
train the opening crew. The schedule provides for one day of staging and
planning, eight days of crew orientation and training, one day working with
management to take the beginning inventory and prepare the cafe for business,
and the first three days of operations.
The Company's franchise field representatives generally visit each
franchised cafe on a quarterly basis. The franchise field representative acts as
a business consultant to franchisees in an effort to ensure that each cafe and
cart is providing the highest quality products and fast, friendly service. In
addition, the field representative assists in developing business and marketing
plans, as well as in the training and development of the franchisee's staff. In
effect, the franchise field representative acts as the communication link
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between the Company and each franchisee. The Company plans to have a ratio of
one field representative for each 15 to 20 franchised cafes and carts.
The Paradise training program currently consists of four weeks at a company
cafe in southern California and an additional two weeks of pre-opening and
opening training at the franchised cafe location.
Franchisees receive extensive training covering all aspects of cafe
operation at the training location in southern California. The training takes
place in a fully functional cafe where the franchisee receives operations
manuals and hands-on experience. Training continues with on-site assistance in
the cafe, including setup and planning for the grand opening. Training never
ends, as the Company always strives to deliver better products and service.
Paradise Bakery & Cafe field support representatives work with the franchisee on
a regular basis to help refine and improve their local operations.
ADVERTISING AND PROMOTION. The Company instills in each new franchisee's
mind that while quality baked goods and food is the heart and soul of the
system, marketing is the lifeblood of the business. Repetition, in fact, builds
reputation. The Company strives to teach them how to be 1% better than the
competition in 100 different ways. The goal is to increase the levels of
customer awareness and in turn the customer counts through a consistent
advertising campaign that promotes the location and the quality bakery and food
products offered by the Company. The Company has not collected any advertising
funds from the Java Centrale franchisees and is currently discussing with the
franchisees the establishment of a advertising fund.
Through a cooperative effort between the advertising department and the
outside advertising resources, Paradise Bakery & Cafe expands consumer awareness
of its products, enhances system-wide identity and increases sales.
The Company currently collects $164 per month from each Paradise Bakery
location. The advertising funds are being used to develop point of sale material
and local promotion.
FRANCHISE OPERATIONS
STRATEGY. The Company's growth strategy is to develop franchised cafes for
Paradise Bakery in key metropolitan markets and continue franchising the Java
Centrale coffee cafes primarily in the Western United States. Based upon the
Paradise Bakery's operating history to date, the Company believes that it can
continue to attract financially and personally qualified franchisees based on
the strength of its cafe and Paradise bakery/cafe concepts. The majority of the
Java Centrale locations have not had a profitable operating history and the
Company expects it to be difficult to attract franchisees.
AGREEMENTS. The Company offers single unit Franchise Agreements and
multi-unit Area Development Agreements. The single unit Franchise Agreement
grants to the franchisee an exclusive license to operate a cafe at a specified
location in accordance with the Company's terms and conditions and to utilize
the Company's trademarks, service marks and other rights of the Company relating
to the sale of its items. The term of a Franchise Agreement for a cafe is ten
years, renewable at the option of the franchisee for successive five-year
periods, if certain conditions pertaining to such renewal are met. The Area
Development Agreement grants to the franchisee the right to develop and open a
specified number of cafes in a defined geographic area within a limited period
of time and thereafter to operate each cafe in accordance with the terms and
conditions of the Franchise Agreement executed for each cafe location.
Either party may terminate a Franchise Agreement, or an Area Development
Agreement by giving notice of default in the event the other party breaches or
fails to comply with any of the terms, covenants, conditions or restrictions
applicable to such party, or if such party breaches any warranty or
representation contained in the Franchise Agreement or the Area Development
Agreement. The Company may also terminate a Franchise Agreement or an Area
Development Agreement without notice for several reasons, including among
others, the franchisee's bankruptcy or insolvency, cessation of business,
committing a
34
<PAGE>
default within 12 months of curing the same default or committing repeated
defaults, whether or not such defaults are cured after notice. The franchisee
may also terminate a Franchise Agreement in the event there is a permanent and
incurable inability of the Company or an authorized supplier to supply the
products required to be furnished under the Franchise Agreement or in the event
there is a supply interruption that lasts more than 180 days.
Although franchise fees are payable to the Company upon the execution of a
single-unit Franchise Agreement or an Area Development Agreement, the Company
only recognizes such fees as revenue when all material services or conditions
relating to the sale of the franchise have been substantially performed or
satisfied by the Company. See "Note B of Notes to Financial Statements".
FRANCHISE FEES AND ROYALTIES
CAFES. Under the Company's current Franchise Agreement for cafes, each
franchisee is generally required to pay a franchise fee of $35,000. The
franchise fee is generally paid to the Company upon the execution of the
Franchise Agreement and is non-refundable. If the franchisee thereafter executes
another Franchise Agreement for an additional cafe at a different location, the
franchisee is generally required to pay a franchise fee of $15,000 for each such
additional cafe location, which franchise fee is non-refundable. If a franchisee
purchases an area pursuant to an Area Development Agreement, the franchisee must
pay an Area Development Fee of $5,000 for each cafe to be developed in
accordance with the Agreement's development schedule. The Area Development Fee
is paid to the Company in full upon the execution of the Area Development
Agreement and is not refundable. In addition to the Area Development Fee, the
Company is entitled to receive a Cafe Fee for each cafe location to be opened
under the terms of the Agreement. The first Cafe Fee of $20,000 is due upon
execution of the Area Development Agreement and is non-refundable. The
subsequent Cafe Fees of $10,000 per location are due when leases are signed and
are non-refundable.
The rights of each cafe, whether opened on an individual basis or by an area
franchise, include the right to operate satellite locations within the exclusive
territory of that cafe. Satellite locations are kiosk or counter operations
located in self-contained facilities where full cafe operation is not feasible.
Facilities occupied by one of franchisee's satellite locations are governed by
the existing Franchise Agreement, and once opened are considered a part of the
franchised business. The Company is generally entitled to a satellite location
opening fee of $3,500 which is paid to the Company upon approval of the
satellite location and is non-refundable.
Each cafe franchisee is generally required to pay the Company on a
weekly/monthly basis a 4%-6% royalty on cafe or satellite location gross
receipts (not including sales tax) and to pay on a weekly basis 2% of the cafe's
gross receipts (not including sales tax) to the Company's national advertising
fund after the Company has 25 cafes in operation, whether Company-owned or
franchised. Each cafe franchisee is also required to spend 2% of its gross
receipts (not including sales tax) on local cafe marketing.
FRANCHISEE SUPPORT SERVICES
SITE SELECTION. The Company assists the franchisee with site selection for
cafes. Through the Company's network of commercial real estate site selectors,
the Company often finds a site that meets its demographic criteria before the
franchisee. In any case, the franchisee and the Company must mutually approve
each site before a lease is signed.
CONSTRUCTION AND EQUIPMENT. The Company as of April 1996, discontinued
operation of the turn-key construction and equipment option to franchisees. The
Company will offer a selected national equipment supplier and assist in the
construction solutions. The Company believes that the change to an outside third
party will allow the franchisee to build the cafe at the best price and value.
35
<PAGE>
FIELD SUPPORT. The Company maintains a staff of well-trained and
experienced franchise field representatives who help to train franchisees and
assist them in opening new cafes and who monitor the operations of existing
locations. These services are provided as part of the Company's franchise
program.
MARKETING AND ADVERTISING SUPPORT. The Company provides franchisees with a
full range of marketing materials and consumer literature. The Company regularly
prepares and provides to franchisees feature promotions relating to a specific
coffee, beverage, food or retail item. These items, in conjunction with the
Company's Local Cafe Marketing Manual, provide the core of the marketing and
advertising support system. The franchise field representative and the Company's
marketing department work with the franchisee to implement and monitor the
effectiveness of the various promotions.
COMPETITION
JAVA CENTRALE CAFE
The Company's whole bean coffees compete directly against specialty coffees
sold at retail through supermarkets specialty retailers and a growing number of
specialty coffee stores. The Company's coffee beverages compete directly against
all restaurant and beverage outlets that serve coffee and a growing number of
espresso stands, carts, and stores. Both the Company's whole bean coffees and
coffee beverages compete indirectly against all other coffees on the market. The
Company believes that its customers choose among retailers primarily on the
basis of quality and convenience, and to a lesser extent, on price.
Management believes that supermarkets pose the greatest competitive
challenge in the whole bean coffee market, in part because supermarkets offer
customers the convenience of not having to make a separate trip to the Company's
stores. A number of nationwide coffee manufacturers, such as Kraft, General
Foods, Procter & Gamble and Nestle are distributing premium coffee products in
supermarkets and those products may serve as substitutes for the Company's
coffees. Regional specialty coffee companies, such as Green Mountain Coffee,
Inc., Hillside Coffee and Starks, also sell whole bean coffees in supermarkets.
In addition, the Company competes for whole bean coffee sales with other
franchise operators and locally owned specialty coffee stores. There are a
number of competing specialty coffee retailers with significantly more locations
than the Company, such as Starbucks Corporation, which has a total of 1100+
retail stores and licensed airport stores located in the United States and
Canada, Gloria Jean's Coffee Bean Corp., a franchisor of approximately 250+
specialty coffee stores located primarily in shopping malls throughout the
United States, Barnie's Coffee and Tea Co., a franchisor with approximately 90
locations in the United States, and The Coffee Beanery Ltd., a franchisor of
specialty coffee stores which operates approximately 165 locations in the United
States.
The Company's primary competitors for beverage sales are restaurants, shops,
and street carts. The competition in the beverage market is significant and
there are numerous competitors with substantially greater financial operating
and marketing resources than the Company.
The Company competes with fast food chains, major restaurant chains and
other food service related franchisors for franchisees of its cafes, carts and
kiosks. Many franchisors have greater market recognition and greater financial,
marketing and human resources than the Company.
PARADISE BAKERY/CAFE
The Paradise concept has limited competition in the upscale bakery cafe
segment. As noted by the Fessel International market study commissioned by the
Company, Paradise has no direct competition in its targeted niche. Paradise does
not directly compete with the other food court operators and usually does not
encounter those concepts that it does compete with in food court situations.
36
<PAGE>
Paradise indirectly competes with a variety of fast service food concepts,
some of which are located in covered malls. Some competition comes from
concepts, such as, Au Bon Pain, which is a bakery/cafe concept, or
sandwich/salad concepts, such as Wall Street Deli. Other types of competitors
are strictly bakery products driven, such as, Cinnabon and Mrs. Fields. What
sets Paradise apart from most competitors are menu mix, positioning, and value.
Paradise Bakery & Cafe is now the second largest operator in the Bakery/Cafe
segment, behind Au Bon Pain as shown in the table that follows.
<TABLE>
<CAPTION>
# OF
RANK UNITS OPERATOR CONCEPT
- ----------- ----- ------------------------------ ------------------------------------------------------------------
<C> <C> <S> <C>
1 287 Au Bon Pain/St. Louis Bread baked goods, breads, sandwiches, salads & soups
Co.
2 55 Paradise Bakery & Cafe fresh baked muffins, pastries, cookies & croissants, gourmet
sandwiches, salads & soups
3 35 Vie De France fresh baked goods, sandwiches, salads & soups
4 32 Mrs. Powell's Bakery/ Eatery fresh baked goods, sandwiches, salads & soups
5 19 Le Croissant Shop Croissants, desserts, breads, soup and salads
6 13 Corner Bakery Baked goods, foccaccia, cookies, panini sandwiches, soups and
salads.
</TABLE>
GOVERNMENT REGULATION
The Company is subject to Federal Trade Commission ("FTC") regulation and
state laws, which regulate the offer and sale of franchises. The Company is also
subject to a number of state laws which regulate substantive aspects of the
franchisor-franchisee relationship. The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires that the Company to furnish to prospective
franchisees a franchise offering circular containing information prescribed in
the FTC Rule.
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship presently exist in a substantial number of
states. Such laws generally require registration of the franchise offering with
state authorities and regulate the franchise relationship by, for example,
requiring the franchisor to deal with its franchisees in good faith, prohibiting
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisees and regulating
discrimination against franchisees in charges, royalties or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination provides an opportunity to
cure a default and a repurchase of inventory or other compensation, these
provisions have not had, and are not expected to have, a material effect on the
Company's franchise operations. The Company is not aware of any pending
franchise legislation, which in its view is likely to significantly affect the
operations of the Company. The Company believes that its operations comply in
all material respects with the FTC Rule and the applicable state franchise laws.
Each Company-owned and franchised cafe and kiosk is subject to licensing and
regulation by a number of governmental authorities, which may include health,
sanitation, safety, fire building and other agencies in the state and
municipality in which the cafe or kiosk is located. Additionally, the food
service industry in general is subject to extensive federal, state and local
government regulations relating to the development and operation of food service
outlets, including laws and regulations relating to building and seating
requirements, the preparation and sale of food, cleanliness, safety in the work
place and accommodations for the disabled. The Company-owned and franchised
cafes which are currently operating are
37
<PAGE>
subject to various federal, state and local laws and regulations, including,
without limitation, the Fair Labor Standards Act, the Americans With
Disabilities Act, the Department of Agriculture, the Food & Drug Administration,
and various state agencies. Difficulties in obtaining or failure to obtain the
required licenses or approvals could adversely affect currently operating cafes
and could delay or prevent the development of a new cafe or kiosk in a
particular area or location.
The Company is also subject to federal and state environmental regulations,
but, to date, these regulations have not had and are not expected to have in the
future, any material effect on the Company's operations. More stringent or
varied requirements of local governmental authorities with respect to zoning,
land use and environmental matters could delay or prevent the development of a
new cafe or kiosk in a particular area or location.
The Company is also subject to state and federal labor laws that govern its
relationship with its employees, such as minimum wage requirements, overtime and
working conditions, citizenship requirements and prohibitions against
discrimination. Significant numbers of the Company's food service and
preparation personnel are paid at rates governed by the federal minimum wage
laws. Accordingly, further increases in the minimum wage will increase the
Company's labor costs.
TRADEMARKS
The Company has registered the Java Centrale name and the Paradise Bakery
name and their logos with the United States Department of Commerce Patent and
Trademark Office. The Company currently uses a variety of other trademarks,
which it expects to file applications for registration beginning in December of
1996. These trademarks are "Centrale Royale", "The Daily Brews", "For the
Luv-a-Java", "Java Jive", "Nice 'n Iced", "Splendid Blended", "Cookie Muncher's
Paradise", "Paradise Bakery", "Paradise Bakery Unique Quality", "Cookie
Muncher's Paradise A Unique Bakery", "Paradise Bakery & Cafe", and "Chip
Munchers".
EMPLOYEES
As of November 30, 1997, the Company had nine full time salaried employees
and four hourly employees at its headquarters location in Sacramento,
California. Additionally as of such date, the Company also employed 34 salaried
employees and 264 hourly employees in its operations. None of the Company's
employees is represented by a labor union and the Company considers relations
with its employees to be generally good.
DESCRIPTION OF PROPERTY
The Company leases 7768 square feet of office space in Sacramento,
California, for its corporate headquarters. This lease expires in August of
2001.
The Company assumed leases for 29,999 square feet as part of the Paradise
Bakery Company operation in California and Texas. These leases expire from 1997
to 2005.
The minimum aggregate rental for all these properties is $1,383,000.
LEGAL PROCEEDINGS
On September 27, 1997 Mr. Peter Merganthaler, an individual resident of the
State of Florida, filed suit against the Company in the 15th Judicial Circuit
Court in Palm Beach County, Florida alleging breach of two 1995 financial
consulting agreements. The relief sought by Mr. Merganthaler includes payment of
approximately $30,000 in consulting fees, $20,000 in out of pocket expenses and
$500,000 in commissions on private placements of the Company's Common Stock. The
Company believes that the Company has substantial defenses to all of the claims
asserted by Mr. Merganthaler, and it intends to deny the allegation
38
<PAGE>
made in his complaint. On that basis, the Company believes that the ultimate
disposition of this lawsuit will not have a material adverse effect on the
Company's financial condition or operating results.
On March 30, 1995, the Company issued to Oh La La!, Inc.,
Debtor-in-Possession, a promissory note in principal amount of $932,342 (the
"Note"). The Note was convertible into shares of the Company's common stock, at
its option and under certain circumstances. In September of 1995 the Company
notified representatives of PSSS, Inc., successor in interest to Oh La La!,
Inc., that the required circumstances had been met and that it intended to
convert the note into shares of its common stock, and a number of shares
sufficient to convert the outstanding principal balance of the Note was
delivered to representatives of PSSS, Inc. In November of 1996, PSSS, Inc.
notified the Company that it rejected the September 1995 conversion because the
shares delivered to it were not sufficient to convert the then-outstanding
interest due on the Note, and on May 28, 1997, PSSS, Inc. sent Java a formal
demand letter for the immediate payment of the principal amount of the Note plus
$122,602.97 in accrued interest to date of such letter. In August, 1997 PSSS,
Inc. filed suit against the Company in the United States Bankruptcy Court,
Northern District of California, asserting the tender of the above stock was not
in compliance with the note agreement. The Company's management believes that
the Company has substantial defenses to this suit and, on that basis believes
that the ultimate disposition of the suit by PSSS, Inc. in this matter will not
have a material adverse effect on the Company's financial condition or operating
results.
39
<PAGE>
MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1997, the number and
percentage of shares of the Company's outstanding Common Stock beneficially
owned, directly or indirectly, by (a) any person (or "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) who
or which is known to the Company to be the beneficial owner of more than five
percent (5%) of the Company's Common Stock, based in part on information filed
by such persons with the Securities and Exchange Commission, (b) each of the
Company's directors and the executive officers identified in the chart below,
and (c) the Company's directors and executive officers as a group. The shares
listed as "beneficially owned" are determined under Securities and Exchange
Commission rules, and do not necessarily indicate ownership for any other
purpose. In general, beneficial ownership includes shares over which the
individuals listed below have sole or shared voting or investment power and
shares, which such persons have the right to acquire within 60 days of December
1, 1997. Unless otherwise indicated, the persons listed have sole voting and
investment power of the shares beneficially owned. Management is not aware of
any arrangements among those listed, which may, at a subsequent date, result in
a change of control of the Company.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED CLASS
- ----------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Arron, Inc. ..................................................... 225,000(1) 9.04%
C/o Neale Bringhurst
636 Red Fox Road
Strafford, PA 19087
Michael Ambroselli .............................................. 150,000(2) 9.08%
46 Pelonic Drive
Massapequa, NY 11758
Harvey Bibicoff ................................................. 150,000(3) 9.08%
4101 Clarinda Drive
Tarzana, CA 91356
Baycor Ventures, Inc. ........................................... 187,377 8.01%
1550, 3800 Howard Hughes Avenue,
Las Vegas, NV 89109
Thomas A. Craig ................................................. 18,403 *
Vice President
1610 Arden Way, Suite 145
Sacramento, CA 95819
Richard J. Crosby ............................................... -0- *
Chariman of the Board
C/o Stoneridge Capital, Ltd.
2424B Badajoz Place
La Costa, CA 92009
Jeffrey W. Dudley ............................................... -0- *
Chief Financial Officer
1610 Arden Way, Suite 145
Sacramento, CA 95819
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED CLASS
- ----------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Bradley B. Landin ............................................... 125,000
Director, Vice President, and Secretary
1610 Arden Way, Suite 145
Sacramento, CA 95819
Masada I Limited Partners ....................................... 150,000(4) 9.08%
P. O. Box 8017
Quoque, NY 11959
Gary C. Nelson .................................................. 70,900 %
Director and President
1610 Arden Way, Suite 145
Sacramento, CA 95819
Rozel International Holding Limited ............................. 450,000(5) 17.05%
Whitehill House
Newby Road Industrial Estate
Hazel Grove, Stockport
Cheshire SK7 5DA
England
Phillip E. Pearce ............................................... -0- *
Director
6624 Glenleaf Court
Charlotte, NC 28270
All Directors and Officers as a Group (six persons).............. 214,303 9.16%
</TABLE>
- ------------------------
* Indicates less than one percent.
(1) Includes 150,000 Shares, which Arron, Inc. may acquire through the exercise
of Warrants, which are exercisable within the sixty day period following
December 1, 1997.
(2) Includes 100,000 Shares, which Mr. Ambroselli may acquire through the
exercise of Warrants, which are exercisable within the sixty day period
following December 1, 1997.
(3) Includes 100,000 Shares, which Mr. Bibicoff may acquire through the exercise
of Warrants, which are exercisable within the sixty day period following
December 1, 1997.
(4) Includes 100,000 Shares, which Masada I Limited Partners may acquire through
the exercise of Warrants, which are exercisable within the sixty day period
following December 1, 1997.
(5) Includes 300,000 Shares which Rozel International Holding Limited may
acquire through the exercise of Warrants which are exercisable within the
sixty day period following December 1, 1997.
41
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company named below. Information about officers who are also
directors of the Company can be found above under the caption "Proposal No. 1:
Election of Directors--Nominees."
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- -------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Richard J. Crosby..................... 63 Director, Chairman of the Board
Gary C. Nelson........................ 54 Director, President and Chief Executive Officer
Bradley B. Landin..................... 46 Director, Vice President--Operations, and
Secretary
Philip E. Pearce...................... 68 Director
Thomas A. Craig....................... 63 Vice President--Marketing and Real Estate
Jeffrey W. Dudley..................... 40 Vice President and Chief Financial Officer
</TABLE>
Thomas A Craig, a founding shareholder, has been Vice-President--Marketing
and Real Estate of the Company since its incorporation in March 1992. Mr. Craig
has 29 years of experience in advertising, design, marketing and real estate.
From November 1987 until the incorporation of the Company in March 1992, he was
associated with Century 21, a real estate brokerage firm, in Carmichael,
California specializing in the sale and leasing of new and existing commercial
properties. From May 1962 through July 1987 Mr. Craig served as president of two
advertising and marketing firms located in Sacramento, California. Mr. Craig is
a graduate of the Hollywood Center of Art and Design in Hollywood, California.
Richard J. Crosby has been a Director and the Company's Chairman of the
Board since November 25, 1997. Previous to that time he held no offices with,
and had not been employed by, the Company. Since 1995 he been the Managing
Partner of Stoneridge Capital, Ltd., a professional services firm based in La
Costa, California which provides financial advisory and investment banking
services to public and private organizations. From 1994 to 1995, Mr. Crosby was
a Partner with Fredericks, Shields & Crosby, an investment banking firm based in
San Diego, California. From 1992 to 1994, Mr. Crosby was Senior Vice President
and Chief Financial Officer of Medtrans, Inc., a San Diego-based company which
provides emergency and non-emergency medical transportation. Medtrans, Inc. was
acquired by Laidlaw, Inc. in June of 1993. From 1990 to 1992, Mr. Crosby was a
Director, Executive Vice President, Chief Administrative Officer, and Chief
Financial Officer of CNY International, Inc., which acquired certain assets of
The House of Almonds, Morrow's Nut House, and the J. Higby's Yogurt and Treat
Shop franchise system, as well as the Morrow's Nut House catalogue business. Mr.
Crosby was the Chief Administrative Officer of American Confectionery
Corporation from 1989 to 1990, and the Executive Vice President of J. Higby's,
Inc., from 1987 to 1989. He has served on the Boards of Directors of a number of
companies, and is a California Certified Public Accountant. Mr. Crosby holds a
B.S degree in accounting from the University of California, Los Angeles, and is
a member of the California and American Societies of Certified Public
Accountants, the American Management Association, the Financial Executives
Institute, and the Directors Round Table.
Jeffrey W. Dudley, became the Company's Vice President and Chief Financial
Officer on October 1, 1997. Prior to joining the Company, Mr. Dudley was the
Chief Financial Officer of Greenhorn Creek Associates, LP, a California limited
partnership engaged in residential real estate and golf course development, from
January to October of 1997. From July through December of 1996, Mr. Dudley acted
as an independent consultant, reporting to the Controller, for A. Teichert &
Sons, Inc., a California-based construction company, where he was responsible
for financial reporting and management of the budgeting process, among other
duties. In May and June of 1996, Mr. Dudley was a consultant for HiTec Sports
42
<PAGE>
USA, Inc., a California-based distributor of outdoor footwear. From November of
1994 through April of 1996, Mr. Dudley was the Chief Financial Officer for Jason
& Son, Inc., a manufacturer and distributor of snack foods. Mr. Dudley was with
KPMG Peat Marwick from January of 1991 through November of 1994, first as an
assistant accountant and beginning in January of 1993 as a Supervising Senior
Accountant. Mr. Dudley is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants. He
received a Master of Science degree in Accountancy from California State
University, Sacramento, in 1991.
Gary C. Nelson, a founding shareholder of the Company, has been President
and Chief Executive Officer of the Company since its incorporation in March
1992. From September 1990 through October 1991 Mr. Nelson was both Senior Vice
President and President, International Division, and a founding shareholder of
CNY International, a company which was formed to acquire and operate the retail
businesses of American Confectionery Corporation. From March 1990 until August
1990, Mr. Nelson was Senior Vice President of American Confectionery
Corporation, a company which both owned and franchised over two hundred candy
and yogurt outlets. From February 1983 until February 1990, Mr. Nelson was a
founding shareholder and served as President and Chief Executive Officer of
publicly traded J. Higby's, Inc. and its privately held predecessor, Gamma
Industries, whose business was franchising J. Higby's Yogurt and Treat Shoppes
in the United States and internationally.
Bradley B. Landin, a founding shareholder, has been Vice President
Operations of the Company since its incorporation in March 1992. He served as a
member of the Board of Directors from its incorporation until his resignation in
March of 1996. In August of 1997, he was reappointed to the Board to fill a
vacancy created by the resignation of one of the then-current directors. From
September 1990 until February 1992, Mr. Landin was Vice President, International
Division, of CNY International. From March 1990 through August 1990, Mr. Landin
was Vice President, International Development, of American Confectionery
Corporation, which both owned and franchised over two hundred candy and yogurt
outlets. From September 1986 until February 1990, Mr. Landin held various
positions with publicly traded J. Higby's Inc., where he was responsible for
franchised and company-owned operations, product development, store planning and
turn-key construction and equipment programs.
Phillip E. Pearce has been Director of the Company since November 25, 1997.
Previous to that time he held no offices with, and had not been employed by, the
Company. Since 1984, Mr. Pearce has been an independent investment banker and
consultant, working through his company Phil Pearce & Associates of Charlotte,
North Carolina. Prior to that, Mr. Pearce was a Senior Vice President of E.F.
Hutton Company from 1969 to 1987, and a director of E. F. Hutton from 1969 until
1982. He was the Chairman of the Board of Governors of the National Association
of Securities Dealers, Inc. from 1968 to 1969, and a member of the Board of
Governors of the New York Stock Exchange from 1970 to 1971, and has been a
member of the Advisory Council to the United States Securities and Exchange
Commission on the Institutional Study of the Stock Markets. Mr. Pearce is also a
director of three publicly-traded corporations: Xybernaut Corporation, Starbase
Corporation, and Rx Medical Services Corporation, and has been nominated by
management for election to the Board of Directors of United Digital Network,
Inc. Mr. Pearce is a graduate of the University of South Carolina and graduated
from the Wharton School of the University of Pennsylvania.
The term of office of each director of the Company is one year, and all of
the Directors described above were elected to the Board most recently at the
Annual Meeting of Shareholders held on November 25, 1997. The term of office of
every officer of the Company is normally one year, but every Company officer
serves at the pleasure of the Board of Directors. The Company is not aware of
any family relationships between any of the directors and executive officers of
the Company. There are no understandings or arrangements between any of the
Company's officers or Directors and any other person pursuant to which they were
or are to be elected as Directors or selected as officers of the Company.
43
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company to,
as well as any other compensation paid to or earned by, the Company's Chief
Executive Officer and the three most highly compensated executive officers other
than the Chief Executive Officer during each of the fiscal years ended March 31,
1995 1996 and 1997. Directors of the Company have never been compensated
separately for their service on the Board. The Company's President and Chief
Executive Officer, Mr. Gary C. Nelson, was the only officer of the Company whose
total annual salary and bonus exceeded $100,000 during the 1995 and 1997 fiscal
years. Mr. Nelson, Steven J. Orlando, the Company's former Chief Financial
Officer, and Richard D. Shannon, the Company's former Chairman of the Board,
were the only officers of the Company whose total annual salary and bonus
exceeded $100,000 during the 1996 fiscal year. Mr. Orlando resigned from the
Company effective as of September 30, 1997, and Mr. Shannon resigned effective
as of November 25, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
------------------------
ANNUAL COMPENSATION SECURITIES
----------------------------------- RESTRICTED UNDERLYING
NAME OF INDIVIDUAL AND OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION AWARDS SARS(#) COMPENSATION
- -------------------------------------- ----------- --------- --------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary C. Nelson, President ............ 1997 $ 121,634 $ -0- $-0- None -0- $-0-
(Chief Executive Officer) 1996 $ 158,065 $ 35,000 $-0- None 167,000 $-0-
1995 $ 147,538 $ -0- $-0- None -0- $-0-
Steven J. Orlando, ................... 1997 $ 89,900 $ -0- $-0- None -0- $-0-
Chief Financial Officer(2) 1996 $ 97,050 $ 35,000 $-0- None 175,000 $-0-
1995 $ 78,431 $ -0- $-0- None -0- $-0-
Richard Shannon, ..................... 1997 $ 99,603 $ -0- $-0- None -0- $-0-
Chairman of the Board(1) 1996 $ 94,328 $ 35,000 $-0- None 174,250 $-0-
1995 $ 75,000 $ -0- $-0- None -0- $-0-
</TABLE>
- --------------------------
(1) Mr. Shannon resigned from the Board, and as an officer of the Company,
effective as of November 25, 1997.
(2) Mr. Orlando resigned as an officer of the Company effective September 30,
1997.
COMPENSATION PURSUANT TO PLANS
THE JAVA CENTRALE, INC. 1993 STOCK OPTION PLAN
GENERAL INFORMATION ABOUT THE PLAN. The Board of Directors of the Company
adopted the Java Centrale, Inc. Stock Option Plan (the "Option Plan") in 1993,
and it was subsequently amended by the Company's Board of Directors and
shareholders in September of 1995. Under the terms of the Option Plan as it
currently exists, options to purchase up to 1,250,000 Common Shares may be
granted to officers, key employees and non-employee directors of the Company.
Such options, once granted, are not generally transferable.
The purpose of the Option Plan is to provide incentives to key employees and
directors of the Company to continue and increase their efforts to improve
operating results, to remain in the employ or service of the Company, and to
have a greater financial interest in the Company through ownership of its Common
Stock.
Under the Option Plan, the Board, or a committee appointed by the Board, is
authorized to grant options which are intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code (the "Code") to employees
(including employee-directors) of the Company, and to grant options not intended
to qualify as incentive stock options ("nonstatutory stock options") to
employees and non-
44
<PAGE>
employee directors of the Company, and to determine the participants, the number
of options to be granted and other terms and provisions of each option. The
members of the stock option committee are: Richard Crosby, Gary Nelson, Bradley
Landin, and Jeffery Dudley. The Board has delegated to the Committee all of its
administrative functions under the Option Plan.
TERMS AND EXERCISE OF OPTIONS. The exercise price of any stock option
granted under the Stock Option Plan may not be less than 100% of the fair market
value of the Common Shares of the Company at the time of the grant. In the case
of incentive stock options granted to holders of more than ten percent of the
voting power of the Company, the exercise price may not be less than 110% of the
fair market value of the Common Stock, nor may any such option be exercisable by
its terms more than five years after the date the option is granted.
Under the terms of the Option Plan, no incentive stock option may be granted
to an optionee if the fair market value at the date of grant of shares with
respect to which such options would first become exercisable in any calendar
year, when added to the fair market value at the date of grant of any other
shares with respect to which an incentive option granted to such optionee under
the Option Plan (or any other incentive stock option plan maintained by the
Company or any of its subsidiaries) first becomes exercisable in such calendar
year, would exceed $100,000. Options granted under the Option Plan become
exercisable in whole or in part from time to time as determined by the Board or
the stock option committee; provided, however, that in no event may any option
become exercisable earlier than the date six months following the date on which
the option is granted. Options granted under the Option Plan may have a maximum
term of ten years from the date of grant. The option price must be paid in full
on the date of exercise, and is payable in cash or in Common Shares of the
Company having a fair market value on the date the option is exercised equal to
the option price.
OUTSTANDING OPTIONS UNDER THE OPTION PLAN. As of December 19, 1997, the
Company had no outstanding options to purchase shares of Common Stock pursuant
to the Plan No options issued under the Option Plan have ever been exercised.
FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the material
anticipated Federal income tax consequences associated with the granting and
exercise of options under the Option Plan to shareholders of the Company. This
summary is based on the Federal income tax laws now in effect and as currently
interpreted. It does not take into account possible changes in such laws or
interpretations, including amendments to applicable statutes, regulations, and
proposed regulations or changes in judicial or administrative rulings, some of
which may have retroactive effect. This summary is provided for general
information only and does not purport to address all aspects of the possible
Federal income tax consequences of the granting or exercise of options under the
Option Plan, and it is not intended as tax advice to any person. In particular,
and without limiting the foregoing, this summary does not consider the Federal
income tax consequences to option holders in light of their individual
investment circumstances or to holders subject to special treatment under the
Federal income tax laws. The summary does not discuss any consequence of the
granting or exercise of options under any state, local or foreign tax laws.
Options which do not qualify as incentive stock options are considered to be
"nonstatutory," and will not qualify for the special tax treatment available to
incentive stock options, as discussed below. Optionees who receive nonstatutory
stock options will not recognize any taxable income at the time the options are
granted or when they become vested; however they will normally recognize
ordinary income for federal tax purposes at the time an option is exercised. The
amount of the income recognized will be measured by the excess, if any, of the
fair market value of the Common Stock as of the exercise date over the exercise
price.
The Code provides favorable federal income tax treatment for options which
qualify as incentive stock options. As is the case with nonstatutory stock
options, the optionee will not recognize any income at the time an incentive
stock option is granted, but in addition the optionee will generally not
recognize income for federal tax purposes when the options are exercised,
either--it is only when the underlying shares are
45
<PAGE>
sold that the optionee will normally recognize such income. If a sale of the
Common Stock obtained through the exercise of an incentive stock option takes
place at least two years after the option was granted, and one year after the
incentive stock option was exercised, the difference between the exercise price
and the sales price will normally be treated as long-term capital gain (or loss)
for federal income tax purposes in the tax year in which the sale of the shares
takes place. If, however, Common Stock acquired upon exercise of an incentive
stock option are sold or otherwise disposed of less than two years after the
option was granted, or one year after it was exercised, then the sale or other
disposition will be treated as a "disqualifying disposition" for federal tax
purposes, and the optionee will generally recognize ordinary income in the tax
year in which such disposition occurs.
The Federal income tax consequences of payment of the exercise price of an
option with shares of outstanding Company stock ("Payment Shares") are identical
to those described above for payment by means of cash, except as follows. The
holding period for that number of newly issued option shares which is equal to
the number of Payment Shares being used to purchase them (the "Exchange Shares")
is the same as the holding period of the Payment Shares. In the case of an
incentive stock option, the tax basis of the Exchange shares is the tax basis of
the Exchange Shares, while the tax basis of any additional option shares being
issued in exchange for the Exchange Shares is zero. In the case of a
nonstatutory stock option, the tax basis of the Exchange Shares is the tax basis
of the Payment Shares, while the tax basis of any additional option shares being
issued is their fair market value as of the date of exercise.
TAX BENEFITS TO THE COMPANY. The Company will be entitled to a deduction
for federal tax purposes in the amount and at the time that any optionee
recognizes ordinary income with respect to the exercise of an nonstatutory stock
option, or with respect to a disqualifying disposition of shares acquired upon
exercise of an incentive stock option. The Company will not be allowed a tax
deduction in connection with exercises of incentive stock options in which there
has not been a disqualifying disposition.
OUTSTANDING OPTIONS HELD BY CERTAIN EXECUTIVE OFFICERS. As of the date of
this Prospectus there were no options outstanding under the Plan, and no such
options were held by any of the named executive officers of the Company. The
Company has never granted stock appreciation rights to its directors or
executive officers. No options were granted to any director or executive officer
of the Company during the fiscal year ended March 31, 1997, or between that date
and the date of this Prospectus.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Richard D. Shannon,
the Company's former Chairman of the Board; Gary C. Nelson, its President and
Chief Executive Officer; Bradley B. Landin, its Senior Vice
President--Operations and Secretary; Thomas A. Craig, its Vice President--
Marketing and Real Estate; and Steven J. Orlando, its former Chief Financial
Officer and Secretary. Mr. Shannon declined to stand for re-election at the 1997
Annual Meting held on November 25, 1997, and Mr. Orlando resigned from his
positions with the Company in September of 1997; consequently neither of their
employment agreements remain in effect.
Mr. Shannon's employment agreement was originally entered into in February
of 1994, but was amended in January and again in May of 1996. As so amended, Mr.
Shannon's agreement would have run through January 31, 1999. Pursuant to his
employment agreement, Mr. Shannon acted as the Company's Chairman of the Board,
served on the Board of Directors and was entitled to receive, among other
things, (a) a base annual salary of $96,172 (subject to a potential increase to
$137,388 upon the earlier to occur of (i) one quarter of Company profitability
or (ii) significant improvement in the working capital condition of the Company,
as approved by the Compensation Committee, (b) beginning in February of 1997, an
annual increase in base salary in an amount equal to the amount of the
then-current salary plus the greater of (i) 7% of the base salary in effect for
the previous 12 month period and (ii) the percentage increase in the Consumer
Price Index for the prior 12-month period as reported by the United States
Department of Labor (the "Department of Labor"), (c) an annual bonus, in an
amount to be determined by the Board of
46
<PAGE>
Directors, under such incentive compensation plan as shall be adopted by the
Board of Directors of the Company, and (d) such options to purchase Common Stock
of the Company as may be granted pursuant to the terms of the Stock Option Plan.
The employment agreement between the Company and Mr. Shannon did not require him
to spend more than 80% of his time on Company business. Mr. Shannon declined to
accept nomination to serve as a Director of the Company, or as its Chairman of
the Board, following the date of the 1997 Annual Meeting; consequently,
effective as of November 25, 1997 the employment agreement between Mr. Shannon
and the Company was terminated.
Mr. Nelson's employment agreement was originally entered into in February of
1994, but was amended in January and again in May of 1996. As so amended, Mr.
Nelson's employment agreement runs through January 31, 1999. Pursuant to his
employment agreement, Mr. Nelson will act as President and Chief Executive
Officer of the Company, will serve on the Board of Directors, and will be
entitled to receive, among other things, (a) a base salary of $116,207 (subject
to a potential increase to $166,010 upon the earlier to occur of (i) one quarter
of Company profitability or (ii) significant improvement in the working capital
condition of the Company, as approved by the Compensation Committee if certain
Company performance standards are met), (b) beginning in February of 1997, a
base salary in an amount equal to the amount of the then current base salary
plus the greater of (i) 7% of the base salary in effect for the previous 12
month period and (ii) the percentage increase in the Consumer Price Index for
the prior 12-month period as reported by the Department of Labor, (c) an annual
bonus in an amount to be determined by the Board of Directors of the Company
under such incentive compensation plan as shall be adopted by the Board of
Directors of the Company, and (d) such options to purchase Common shares of the
Company as may be granted pursuant to the terms of the Stock Option Plan.
Mr. Landin's employment agreement was originally entered into in February of
1994, but was amended in January and May of 1996. As so amended, Mr. Landin's
employment agreement runs through January 31, 1999. Pursuant to his employment
agreement, Mr. Landin will act as Senior Vice President Operations of the
Company and will be entitled to receive among other things, (a) a base salary of
$73,274 (subject to a potential increase to $91,592 upon the earlier to occur of
(i) one quarter of Company profitability or (ii) significant improvement in the
working capital condition of the Company, as approved by the Compensation
Committee), (b) beginning in February 1997, a base salary in an amount equal to
the amount of the then current base salary plus the greater of (i) 7% of the
base salary in effect for the previous 12 month period and (ii) the percentage
increase in the Consumer Price Index for the prior 12-month period as reported
by the Department of Labor, (c) during each year thereof, an annual bonus in an
amount to be determined by the Board of Directors of the Company under such
incentive compensation plan as shall be adopted by the Board of Directors of the
Company, and (d) such options to purchase Common Shares of the Company as may be
granted pursuant to the terms of the Stock Option Plan.
Mr. Craig's employment agreement was originally entered into in February of
1994, but was amended in May of 1996. As so amended, Mr. Craig's employment
agreement runs through January 1999. Pursuant to his employment agreement, Mr.
Craig will act as Vice President--Marketing and Real Estate of the Company, and
will be entitled to receive, among other things, (a) during the first year
thereof, a base salary of $73,274 (subject to a potential increase to $91,592
upon the earlier to occur of (i) one quarter of Company profitability or (ii)
significant improvement in the working capital condition of the Company, as
approved by the Compensation Committee), (b) beginning in February 1997, a base
salary in an amount equal to the amount of the then current base salary plus the
greater of (i) 7% of the base salary in effect for the previous 12 month period
and (ii) the percentage increase in the Consumer Price Index for the prior
12-month period as reported by the Department of Labor, (c) an annual bonus in
an amount to be determined by the Board of Directors of the Company under such
incentive compensation plan as shall be adopted by the Board of Directors of the
Company, and (d) such options to purchase Common Stock of the Company as may be
granted pursuant to the terms of the Stock Option Plan.
Mr. Orlando's employment agreement was originally entered into in July of
1994, but was amended in January and again in May of 1996. As so amended, Mr.
Orlando's employment agreement ran through
47
<PAGE>
January 31, 1999. Pursuant to his employment, he acted as Vice President--Chief
Financial Officer of the Company, and was entitled to receive, among other
things, (a) during the first year thereof, a base salary of $81,900 (subject to
a potential increase to $117,000 upon the earlier to occur of (i) one quarter of
Company profitability or (ii) significant improvement in the working capital
condition of the Company, as approved by the Compensation Committee if certain
Company performance standards are met), (b) beginning in February of 1997, a
base salary in an amount equal to the amount of the then current base salary
plus the greater of (i) 7% of the base salary in effect for the previous 12
month period and (ii) the percentage increase in the Consumer Price Index for
the prior 12-month period as reported by the Department of Labor, (c) an annual
bonus in an amount to be determined by the Board of Directors of the Company
under such incentive compensation plan as shall be adopted by the Board of
Directors of the Company, and (d) such options to purchase Common Stock of the
Company as may be granted pursuant to the terms of the Stock Option Plan.
Effective September 30, 1997, Mr. Orlando formally resigned as the Company's
Vice President, Chief Financial Officer, and Secretary, and consequently his
employment agreement was terminated as of that date. He has agreed to continue
with the Company as a consultant on specific projects, as may be requested from
time to time by the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Between February 1994 and November 25, 1997, when he resigned from the Board
and from all offices with the Company, Richard D. Shannon, the Company's former
Chairman of the Board and the President and Chairman of the Board of Baycor
Ventures, Inc., had an employment agreement with the Company which called upon
him to employ 50% of his time and efforts on Company business (see "Employment
Agreements," above). In fact, however, between January of 1994 and September of
1995 Mr. Shannon spent an average of 90% of his time on Company-related
business, and thereafter he continued to commit well in excess of the originally
anticipated amount of his time to the Company's affairs, with a resultant cost
to Baycor. Between October 1, 1995 and September 30, 1997 Baycor agreed from
time to time to defer receipt of certain fees and expenses owed to it by the
Company, without interest, at various times when the Company was suffering
temporary cash shortages. The maximum amount so deferred was $145,000, and as of
September 30, 1997 the amount so deferred was $122,000. In September of 1995,
the Company advanced to Baycor a loan in the amount of $185,000, at a rate of
prime plus 2%. The purpose of the loan was to induce Baycor to continue to
provide Mr. Shannon's consulting and other services to the Company at levels in
excess of those originally agreed to. This loan is due to be paid off on or
before September 30, 1998.
In May 1995, the Company advanced to Bradley Landin, while he was Vice
President Operations and Director, a loan in the amount of $59,000, as a
personal accommodation in order to allow him to consolidate his financial
position and maintain his focus on the Company's affairs without the severe
distraction of unsettled financial affairs. The loan is fully secured and has a
term of five years at a rate of prime plus 1% in interest.
Lyle P. Edwards, who was a Director of the Company from October of 1996 to
August of 1997, also serves as a Vice President of Alta Petroleum, Inc., which
provided the Company a $200,000 short-term loan in April 1996. That loan was
paid off in December of 1996. During 1997, Alta Petroleum, Inc. has loaned the
Company a total of $575,000 in three separate installments, all of which are
secured by 100% of the Company's stock in its wholly owned subsidiary Paradise
Bakery, Inc. and by the assets of Paradise Bakery, Inc. as well. The purpose of
these loans was to meet the Company's short-term liquidity needs. The Alta
Petroleum, Inc. loans, which currently bear an interest rate of 16% and was due
on September 30, 1997, and the Company is in discussions with Alta Petroleum,
Inc., with respect to the timing and terms of repayment. The Company has agreed
to pay off these loans in the event that it successfully completes a financing
or asset sale in excess of $500,000. Baycor was paid a fee of $40,000 in
association with the placement of this financing.
48
<PAGE>
In July of 1996, Baycor, Gary C. Nelson, the Company's President and Chief
Executive Officer, and Steven J. Orlando, its then-Chief Financial Officer,
agreed to loan the Company an aggregate of $175,000 from time to time on an
as-needed basis until April of 1997, when this line of credit would be
terminated and the sums then borrowed and outstanding would become due and
payable. The interest rate on the funds so advanced was prime plus 2%. The line
of credit was terminated as of March 31, 1997. In replacement, in April 1997 Mr.
Nelson advanced the Company $50,000 in exchange for a note secured by the
Company's assets, Mr. Orlando advanced the Company $31,000 in the form of
deferred salary for the period from December 1996 through March 1997, and Baycor
deferred receipt of salary and expenses accrued during the 1997 fiscal year
amounting to $145,000, without interest. In September 1997 the amounts owed to
Mr. Nelson was reduced to $35,000 and the amount owed to Mr. Orlando was reduced
to $15,000, in each case plus accrued interest at the rate of prime plus 2%. The
amount owed to Baycor as of the date of this Prospectus was $135,000, plus
accrued interest from April of 1997.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is its only outstanding class of equity
securities. The Common Stock is listed for trading on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") Small Cap List,
under the symbol "JAVC." The following table sets forth, for the calendar
quarterly periods indicated, the range of high and low sale prices for the
Common Stock as reported by NASDAQ since January 1, 1995. All the per share
prices set forth below have been adjusted to give effect to the one-for-ten
reverse stock split of the Company's Common Stock which became effective as of
December 19, 1997.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter.............................................................. $ 26.25 $ 16.25
Second Quarter............................................................. $ 31.25 $ 10.00
Third Quarter.............................................................. $ 87.50 $ 25.00
Fourth Quarter............................................................. $ 54.40 $ 20.00
1996
First Quarter.............................................................. $ 32.50 $ 15.60
Second Quarter............................................................. $ 16.25 $ 7.50
Third Quarter.............................................................. $ 16.25 $ 5.00
Fourth Quarter............................................................. $ 10.00 $ 5.00
1997
First Quarter.............................................................. $ 6.88 $ 4.38
Second Quarter............................................................. $ 4.69 $ 2.50
Third Quarter.............................................................. $ 6.88 $ 3.44
Fourth Quarter (through November 30, 1997)................................. $ 6.56 $ 4.06
</TABLE>
At December 1, 1997, there were 180 holders of record of the Company's
Common Stock. The Company has never paid a cash dividend on its Common Stock,
and does not anticipate paying any dividends in the immediately foreseeable
future. As a California corporation, the payment of dividends by the Company is
limited by California law and subject to the discretion of its Board of
Directors. With certain exceptions, a California corporation may not pay a
dividend to its shareholders unless its retained earnings equal at least the
amount of the proposed dividend. California law further provides that, in the
event that sufficient retained earnings are not available for the proposed
distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets the following two generally stated conditions: (a) the
corporation's assets equal at least 1.25 times its liabilities, and (b) the
corporation's current assets equal at least its current liabilities, or if the
average of the corporation's earnings before taxes on income and before interest
expense for the two preceding fiscal years was less than the average of the
corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 1.25 times its current liabilities
49
<PAGE>
SELLING SHAREHOLDERS
The Shares registered hereunder are being offered for the accounts of the
shareholders of the Company listed below (the "Selling Shareholders"). None of
the Selling Shareholders has any position with, the Company or any of its
predecessors or affiliates, or has had any such position within the past three
years.
<TABLE>
<CAPTION>
SHARES OWNED AFTER
SHARES OWNED OFFERING(2)
PRIOR TO SHARES TO BE --------------------------
SHAREHOLDER OFFERING(1) OFFERED(1) NUMBER PERCENT
- ----------------------------------------------------------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Allen Adler...................................................... 75,000 75,000 -0- -0-
Bruce Adler...................................................... 75,000 75,000 -0- -0-
Michael Ambroselli............................................... 150,000 150,000 -0- -0-
Arron, Inc....................................................... 225,000 225,000 -0- -0-
Harvey Bibicoff.................................................. 150,000 150,000 -0- -0-
Centre Trustees, CI Limited...................................... 37,500 37,500 -0- -0-
Malcom and Julia Coster.......................................... 37,500 37,500 -0- -0-
E. C. Capital, Ltd............................................... 1,000,000 1,000,000 -0- -0-
Howard J. Green.................................................. 37,500 37,500 -0- -0-
Nancy J. Litman.................................................. 75,000 75,000 -0- -0-
Masada I Limited Partners........................................ 150,000 150,000 -0- -0-
Riviera Holding LLC.............................................. 112,500 112,500 -0- -0-
Amy Robinson..................................................... 75,000 75,000 -0- -0-
Rozel International Holding Limited.............................. 450,000 450,000 -0- -0-
Dennis Saleeby................................................... 75,000 75,000 -0- -0-
Stit Consulting Limited.......................................... 75,000 75,000 -0- -0-
Sunset Capital, Inc.............................................. 75,000 75,000 -0- -0-
TOTALS......................................................... 2,875,000 2,875,000 -0- -0-
</TABLE>
- ------------------------
(1) Includes all shares which may be acquired upon the exercise of certain Stock
Purchase Warrants held by the Selling Shareholders (See "TERMS OF THE
WARRANTS" below for more information on these shares.) Except in the case of
E. C. Capital, Ltd., two-thirds of the number of shares indicated for each
of the Selling Shareholders consists of shares which may be obtained upon
the exercise of Warrants held by such Selling Shareholder, and the remaining
third consists of Shares currently held by the Selling Shareholder. With
respect to E. C. Capital, Ltd., however, all of the Shares indicated
represent Shares which may be obtained upon the exercise of Warrants.
(2) Assumes all shares to be offered will be sold.
ORIGIN OF THE SHARES OFFERED
All of the Shares covered by this Prospectus have been or will be acquired
by the Selling Shareholders through one or both of the private offerings of
Common Stock and Common Stock Purchase Warrants described below.
In August of 1997, the Company retained E. C. Capital Ltd. ("ECC"), a New
York based investment banking firm, to raise equity capital in a two-stage
private offering (the "ECC Offering"). In both stages, the Company would issue
to investors Units consisting of 25,000 shares of Company Common Stock, 25,000
"A" Warrants, and 25,000 "B" Warrants. The "A" Warrants have a term of two years
from the date of issuance and may be exercised to purchase shares of Company
Common Stock at a per share exercise price of $1.60, while the "B" Warrants have
a three-year term and may be exercised to purchase shares of Company Common
Stock at a price per share of $2.00. (See "DESCRIPTION OF THE WARRANTS", below.)
The offering price for each full Unit, in both stages of the ECC Offering, was
$25,000. ECC
50
<PAGE>
undertook to place 25 Units in the first stage of the ECC Offering, and 35 Units
in the second and final stage.
In connection with the ECC Offering, the Company agreed to pay ECC a 10%
commission on all sales of Units and a 3% non-accountable expense reimbursement,
and to issue to ECC 250,000 "A" Warrants and 250,000 "B" Warrants (on a
post-Reverse Stock Split basis) as partial compensation for its efforts in
completing the first stage of the ECC Offering, and an equal number of Warrants
in connection with the second stage, for a total of 1,000,000 Warrants in all.
The Company has also agreed to retain ECC as an advisor for the next three years
at a fee of $3,000 per month, and to pay ECC a 5% warrant solicitation fee for
any of the investor warrants which are exercised. The Company also agreed not to
raise debt or equity financing during this three-year period other than with
consent of ECC, to allow an ECC designee, upon request, to observe all meetings
of the Company's Board of Directors. Finally, all of the Company's officers and
directors have executed lock-up agreements with ECC whereby they have agreed not
to transfer, assign, sell, or otherwise dispose of any of their Company shares,
except with the consent of ECC, until at least one year after the effective date
of the registration statement referred to above.
In the second stage of the ECC Offering ECC will attempt to place an
additional 35 Units, each Unit including the same numbers of shares of Common
Stock and "A" and "B" Warrants as were sold in the first stage. Although the
Company has no reason to believe ECC will not be successful in conducting the
second stage of the ECC Offering, there can be no assurance that it will be able
to locate investors to fully subscribe the second stage.
DESCRIPTION OF THE COMMON STOCK
The Company is authorized to issue up to 50,000,000 shares of no par value
Common Stock, and 25,000,000 shares of preferred stock. As of December 1, 1997,
2,339,447 shares of the Company's Common Stock were issued and outstanding, and
no shares of the preferred stock, were issued and outstanding. The Company's
Common Stock has been registered, as a class, under Section 12 of the Exchange
Act.
Subject to preferential rights of the holders of preferred stock and senior
debt securities (if any) and the applicable provisions of the California General
Corporation Law, the holders of the Company's Common Stock will be entitled, on
liquidation, dissolution, or winding up of the Company, to receive pro rata its
net assets remaining after the payment of all creditors.
The holders of the Common Stock are entitled to one vote for each share on
all matters submitted to a vote of the shareholders. In any election of
directors each shareholder has the right to cumulate votes. Shareholders have no
preemptive rights or other rights to subscribe for additional shares. There are
no conversion rights, redemption rights, or sinking fund provisions with respect
to shares of the Common Stock. The outstanding shares of Common Stock are
fully-paid and nonassessable.
LIMITATIONS ON DIVIDENDS
Under California law, shareholders of Java may receive dividends when and as
declared by its Board of Directors out of funds legally available. With certain
exceptions, a California corporation may not pay a dividend to its shareholders
unless its retained earnings equal at least the amount of the proposed dividend.
California law further provides that, in the event that sufficient retained
earnings are not available for the proposed distribution, a corporation may
nevertheless make a distribution to its shareholders if it meets the following
two generally stated conditions: (i) the corporation's assets equal at least
1 1/4 times its liabilities, and (ii) the corporation's current assets equal at
least its current liabilities or, if the average of the corporation's earnings
before taxes on income and before interest expense for the two preceding fiscal
years was less than the average of the corporation's interest expense for such
fiscal years, then the corporation's current assets must equal at least 1 1/4
times its current liabilities.
51
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GENERAL DESCRIPTION OF THE WARRANTS
All questions about the issuance, exercise, and terms of the Warrants and
the rights of the Warrant Holders will be decided by the Company's Board of
Directors. For a full description of the Warrants, please refer to the forms of
Warrants themselves, copies of which are attached hereto as Exhibits A and B,
respectively, and are by this reference incorporated herein. The descriptions of
the Warrants contained in this Prospectus are qualified in their entirety by
reference to the complete text of such documents. Any conflict between the
summary provided in this Prospectus and the actual terms of such documents must
be resolved in favor of the terms as expressed in the documents themselves.
Copies of the Warrants may also be obtained from the Company by persons entitled
thereto upon request, free of charge.
SECURITIES AVAILABLE UPON EXERCISE OF THE WARRANTS
Each of the Warrants provides for the issuance, upon exercise and payment of
the exercise price, as described below, of that number of shares of the
Company's Common Stock which is specified therein; however both the number of
Shares which may be obtained upon exercise of the Warrants and the exercise
price for the Warrants are subject to adjustment in certain circumstances, as
more fully described below.
TERM OF THE WARRANTS
The term of the A Warrants runs through November 29, 1999; the term of the B
Warrants runs through November 29, 2000 (the date of termination of the Warrants
is in each case referred to herein as the "Expiration Time"). Following the
expiration Time for any given Warrant, the holder(s) thereof will have no
further right to subscribe for or purchase any security of or issued by the
Company; and the Warrants and all rights thereunder will be valueless,
unexercisable, and void.
MANNER OF EXERCISE
The holder of each of the Warrants may exercise them to purchase all or any
whole number of the Shares covered by the respective Warrants by (a) providing
the Company with a signed written notice of its intent to exercise the Warrant
Certificate, specifying the number of Warrant Shares to be so purchased
completing in the manner indicated; (b) surrendering its current Warrant to the
Company at the Company's principal place of business in Sacramento, California;
and (c) paying the appropriate purchase price for the Shares, by cash, money
order, bank draft, or certified check, payable to the Company at its principal
place of business in Sacramento, California.
PURCHASE PRICE
The exercise price of the A Warrants is $1.60 per share of Common Stock; for
the B Warrants the exercise price is $2.00 per share. In both cases the exercise
price is subject to adjustment as described in the following sentence. If, prior
to the Expiration Time, the outstanding shares of the Company's common stock
shall be increased or decreased through a stock split, stock dividend, reverse
stock split, stock consolidation, or otherwise, without consideration to the
Company (including without limitation the reverse stock split described in
Section 9, below), an appropriate and proportionate adjustment shall be made in
the number and kind of shares as to which the Warrants may be exercised. The
effect of such adjustment shall be that the Purchaser shall obtain upon exercise
of the Warrants after such event the same number of Warrant Shares for the same
aggregate consideration as had Purchaser exercised the Warrants in full prior to
such event and had the Warrant Shares then been subjected to the effects of such
event.
RIGHTS AS A SHAREHOLDER, EMPLOYEE, OR CONSULTANT
No person who holds a Warrant will have any rights as a Company shareholder
with respect to the Shares represented thereby until such Warrant is exercised
and the Shares are actually issued. The grant or possession of a Warrant does
not impose any obligation whatsoever on the Company to employ or continue
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to employ the recipient of the Warrant, and does not interfere with the
Company's right to terminate any position he or she may have with the Company,
as a consultant or otherwise, at any time.
TRANSFER OF THE WARRANTS
Except as described below, the Warrants may not be transferred without the
express written consent of the Company, which consent may be granted or withheld
for any reason in the Company's sole and absolute discretion. Unless the Company
has previously granted its written consent thereto, the Warrant may be exercised
only by the authorized holder of the Warrant, or by his, her, or its permitted
transferees, as described below. More particularly, the Warrants may not be
sold, assigned, transferred (except as provided above), pledged, hypothecated,
or otherwise conveyed, encumbered, or disposed of in any way, are not normally
assignable by operation of law, and are generally not subject to execution,
attachment, or similar process. Any attempted sale, assignment, transfer,
pledge, hypothecation, conveyance, encumbrance, or other disposition of the
Warrants or the Warrant Certificate contrary to the provisions of the Warrants,
and the levy of any execution, attachment, or similar process thereupon would
generally be void and without effect, and the Company had no obligation to
recognize any such purported transaction or event or to reflect such a purported
transaction or event on its official records or to issue Warrants or shares of
its Common Stock to any party. If the authorized holder of a Warrant is an
individual, however, the Company will normally consent to the transfer of the
Warrant to his or her heirs, executors, personal representatives, or
administrators upon the death of the Warrant holder. If the authorized holder is
an entity (such as a corporation or a Trust), the Company will consent to the
transfer of the Warrant to the owners of the entity upon its formal dissolution.
REDEMPTION RIGHTS
The Warrants do not provide the Company with any redemption rights with
respect to either the Warrants themselves or the underlying shares of Common
Stock.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholders. The Shares may be offered from time to time by or
for the account of the Selling Stockholders through dealers, brokers or other
agents, or directly to one or more purchasers, at market prices prevailing at
the time of sale or prices otherwise negotiated.
The Registration Statement covering the Shares offered hereby will be
maintained in effect, and the Shares may be sold thereunder by the Selling
Stockholders, until January 31, 2000 (the "Offering Period"). At the end of the
Offering Period, Shares not sold by the Selling Stockholders during the Offering
Period will return to the status of restricted stock which may be sold pursuant
to the provisions of Rule 144 under the Securities Act of 1933 (the "Act").
Several of the Selling Stockholders have advised the Company that they may
sell the Shares, directly or through brokers or dealers, from time to time
during the Offering Period. Such sales may be made at the market price in one or
more transactions on the NASD Automated Quotation System, SmallCap Market, on
any other local or national exchange or quotation system on which the Company's
Common Stock may then be listed; or at privately negotiated prices in negotiated
transactions; or otherwise at prices and terms prevailing at the time of sale.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation and bylaws provide for
indemnification of directors and officers to the full extent permitted or
authorized under California Law, for expenses, liabilities and losses actually
and reasonably incurred as a result of any such director's or officer's status
as such, provided that the indemnitee acted in good faith and in a manner he or
she believed to be in or not to be opposed to the
53
<PAGE>
best interest of the corporation. In addition, the Company has entered into an
Indemnification Agreement with each of its directors and executive officers,
which agreement provides, among other things, for contractual rights of the
indemnitee to advancement of expenses prior to final disposition of an action
provided that, if required by California law, the indemnitee agrees to repay
such advance upon the Company's request if it is ultimately determined that the
indemnitee is not entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other matters
will be passed upon for the Company and the Selling Shareholders by Rosenblum,
Parish & Isaacs, PC, San Francisco, California.
EXPERTS
The audited consolidated financial statements and schedules incorporated by
reference in this Prospectus and elsewhere in this Registration Statement have
been audited by Grant Thornton LLP, independent certified public accountants, as
indicated in their reports with respect thereto; and are included therein and
incorporated herein by reference in reliance upon the authority of such firm as
experts in providing such reports.
No person has been authorized in connection with this offering to give any
information, or to make any representation not contained in this Prospectus, and
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer of any securities other than those to which it relates or an offer to any
person in any jurisdiction where such an offer would be unlawful, or in which
the person making such offer or solicitation is not qualified to do so. Neither
the delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that the information herein is correct as
of any time subsequent to its date.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of the Registrant's Amended and Restated Articles of Incorporation
(the "Articles") provides that the liability of directors of the Registrant for
monetary damages is eliminated to the fullest extent permissible under
California law.
Article VI of the Articles provides that the Registrant is authorized to
indemnify its directors and officers to the fullest extend permissible under
California law.
Article VI of the Registrant's Amended and Restated Bylaws (the "Bylaws")
provides, with certain qualifications, that the Registrant shall have the power
to indemnify any person, who is or is threatened to be made a party to
proceeding by reason of the fact that he or she is or was an officer, director,
employee, or agent of the Registrant, for all costs, expenses and other amounts
actually and reasonably incurred in connection with such proceeding. The
foregoing indemnification is conditioned upon a finding, by either (i) the
uninterested members of the Registrant's Board of Directors, (ii) its
shareholders, (iii) independent legal counsel in a written opinion, or (iv) the
court in which the proceeding is or was pending, that the person seeking
indemnification was acting in good faith and in a manner reasonably believed to
be in the best interests of the Registrant, or in the case of a criminal
proceeding that he or she had no reasonable cause to believe that his or her
conduct was unlawful.
As authorized by the foregoing Article and Bylaw provisions, the Registrant
and each of its Directors and executive officers individually have entered into
indemnification agreements whereby the Registrant agreed to indemnify such
individuals against any claims or expenses they may incur as a result of serving
the Registrant in those or other capacities, provided that the person seeking
indemnification was acting in good faith and in a manner reasonably believed to
be in or not opposed to the best interests of the Registrant, or in the case of
a criminal proceeding that he or she had no reasonable cause to believe that his
or her conduct was unlawful. Additionally, the Registrant has entered into
separate Indemnification Agreements, with the Registrant's principal corporate
shareholder and the corporation which holds all of that company's stock, which
provide similar indemnification against claims and expenses arising out of those
relationships and certain consulting arrangements between those entities and the
Registrant.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the Shares being registered, other than underwriting
discounts and commissions, if any, incurred by the Selling Stockholders in sales
of Shares effected through intermediaries. All of the amounts shown are
estimates except the Securities and Exchange Commission registration fee. The
Registrant will bear all of the expenses listed below.
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration Fee.................................................... $
Accounting Fees.....................................................
Legal Fees..........................................................
Miscellaneous.......................................................
TOTAL......................................................... $
</TABLE>
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1 1995, the Registrant has sold the following securities
without registration under the Securities Act. Unless otherwise indicated, no
underwriters participated in the transactions listed below.
1. On March 31, 1995, the Registrant issued 600,000 shares of its Common Stock
to Oh La La!, Inc., in a privately negotiated transaction, as part of the
consideration for the purchase of certain assets.
2. On August 30, 1995, the Registrant issued 100,000 shares of its Common Stock
to Samual Investors International, LDC, for proceeds of $562,100 in cash, in
a privately negotiated transaction. Associated with this transaction there
were underwriter fees of $86,126. On the basis of certain disclosures made
and agreements entered into by Samual Investors International LDC, the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.
3. On August 11, 1995, the Registrant issued 83,594 shares of its Common Stock
to Java Southeast Partners, L.P., a Delaware Limited Partnership, in a
privately negotiated transaction, as partial consideration for a
stock-for-stock exchange in a newly formed Delaware corporation Java
Southeast, Inc. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
4. On September 8, 1995, the Registrant issued 124,567 shares of its Common
Stock to Graham Pacific, Inc., a Washington corporation, one of its former
franchisees, in a privately negotiated transaction as part of the
consideration for certain assets pursuant to an Agreement of Purchase and
Sale of Assets dated June 30, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
5. On September 11, 1995, the Registrant issued 45,000 share of its Common
Stock to Java State Street, Inc., a Massachusetts corporation, one of its
former franchisees, in a privately negotiated transaction as part of the
consideration for certain assets pursuant to an Agreement of Purchase and
Sale of Assets dated August 4, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
6. On September 11, 1995, the Registrant issued 3,000 shares of its Common
Stock to Alcott Simpson & Company, Inc. as compensation for certain
financial and other consulting services which had been and were expected to
be rendered to the Registrant by Alcott Simpson & Company, Inc. pursuant to
a Consulting Agreement dated July 2, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
7. September 11, 1995, the Registrant issued 200,000 shares of its Common Stock
to Franchise Development Corporation as compensation for certain financial
and other consulting services, which had been and were expected to be
rendered to the Registrant by Franchise Development Corporation pursuant to
a Consulting Agreement dated July 2, 1997. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
8. September 11, 1995, the Registrant issued 100,000 shares of its Common Stock
to Moore Emerging Markets Fund, Ltd., a British Virgin Islands corporation,
for an aggregate of $497,000 in cash, in a privately negotiated transaction.
Associated with this transaction, the Registrant paid underwriter fees of
$80,176. On the basis of certain disclosures made and agreements entered
into by Moore Emerging Markets Fund, Ltd., the Registrant believes that this
transaction was exempt from registration under the Securities Act by virtue
of Regulation S.
9. September 11, 1995, the Registrant issued 100,000 shares of its Common Stock
to Moore Global Investments Fund, Ltd., a British Virgin Islands
corporation, for $497,000 in cash, in a privately negotiated transaction.
Associated with this transaction, the Registrant paid underwriter fees of
$80,176. On the basis of certain disclosures made and agreements entered
into by Moore Emerging
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<PAGE>
Markets Fund, Ltd., the Registrant believes that this transaction was exempt
from registration under the Securities Act by virtue of Regulation S.
10. September 12, 1995, the Registrant issued 250,000 shares of its Common Stock
to Kew Capital, Ltd., a British Virgin Islands corporation, for $1,656,250
in cash, in a privately negotiated transaction. Associated with this
transaction, the Registrant paid underwriter fees of $185,585. On the basis
of certain disclosures made and agreements entered into by Kew Capital,
Ltd., the Registrant believes that this transaction was exempt from
registration under the Securities Act by virtue of Regulation S.
11. September 20, 1995, the Registrant issued 280,000 shares of its Common Stock
to Banque Franck, a Swiss corporation, for $1,495,200 in cash, in a
privately negotiated transaction. Associated with this transaction, the
Registrant paid underwriter fees of $302,767. On the basis of certain
disclosures made and agreements entered into by Banque Franck., the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.
12. September 20, 1995, the Registrant issued 46,000 shares of its Common Stock
Mr. David Jones, an individual resident and citizen of Switzerland, for
$245,640 in cash, in a privately negotiated transaction. Associated with
this transaction, the Registrant paid underwriter fees of $49,740. On the
basis of certain disclosures made and agreements entered into by David
Jones, the Registrant believes that this transaction was exempt from
registration under the Securities Act by virtue of Regulation S.
13. On September 27, 1995, the Registrant issued 50,000 shares of its Common
Stock to GEM Ventures Inc., a Nevada corporation, one of its former
franchisees, in a privately negotiated transaction as part of the
consideration for certain assets pursuant to an Agreement of Purchase and
Sale of Assets dated August 18, 1995. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
14. On October 19, 1995, the Registrant issued 5,834 shares of its Common Stock
to Java Southeast Partners, L.P., a Delaware Limited Partnership, in a
privately negotiated transaction, as partial consideration for a
stock-for-stock exchange in a newly formed Delaware corporation Java
Southeast, Inc. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
15. On October 25, 1995, the Registrant issued 20,000 shares of its Common Stock
to Lone Star Java, Inc., a Texas corporation, one of its former franchisees,
in a privately negotiated transaction as part of the consideration for
certain assets pursuant to an Agreement of Purchase and Sale of Assets dated
October 2, 1995. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
16. On November 8, 1995, the Registrant sold 300,000 shares of its Common Stock
to Baycor Ventures, Inc. for an aggregate of $120,166, pursuant to the
exercise of certain stock purchase options originally issued to Baycor
Ventures, Inc. on September 16, 1992. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof.
17. On December 17, 1995, the Registrant issued additional 302,083 shares of its
Common Stock to Kew Capital, Ltd., a British Virgin Island corporation, as
an adjustment to the number of shares originally delivered pursuant to the
September 12, 1995 sale described above. The Company in connection with this
issuance received no additional compensation. On the basis of certain
disclosures made and agreements entered into by Kew Capital, Ltd., the
Registrant believes that this transaction was exempt from registration under
the Securities Act by virtue of Regulation S.
18. On January 4, 1996, the Registrant issued additional 336,491 shares of its
Common Stock to Banque Franck, a Swiss corporation, as an adjustment to the
number of shares originally delivered pursuant to the September 12, 1995
sale described above. The Company in connection with this issuance received
no additional compensation. On the basis of certain disclosures made and
agreements entered into by
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<PAGE>
Banque Franck., the Registrant believes that this transaction was exempt
from registration under the Securities Act by virtue of Regulation S.
19. On January 4, 1996, the Registrant issued additional 90,118 shares of its
Common Stock to Mr. David Jones, an individual resident and citizen of
Switzerland, as an adjustment to the number of shares originally delivered
pursuant to the September 20, 1995 sale described above. The Company in
connection with this issuance received no additional compensation. On the
basis of certain disclosures made and agreements entered into by Mr. David
Jones., the Registrant believes that this transaction was exempt from
registration under the Securities Act by virtue of Regulation S.
20. On January 17, 1996, the Registrant issued 431,853 shares of its Common
Stock to Founders Venture, Inc., in a privately negotiated transaction, as
partial consideration for the purchase of certain Paradise Bakery, Inc.
franchises owned by the seller and valued in the aggregate at $383,038.
21. On January 17, 1996, the Registrant issued 74,073 shares of its Common Stock
to Venture 88, Inc., in a privately negotiated transaction, as partial
consideration for the purchase of certain Paradise Bakery, Inc. franchises
owned by the seller and valued in the aggregate at $84,439. The shares so
issued were subsequently registered on a Registration Statement on Form S-3
which became effective on , 1996.
22. On January 18, 1996, the Registrant exercised a conversion option under a
promissory Note held by PSSS, Inc. to convert the principal balance of the
Note into 23,400 shares of the Registrant's Common Stock. The Note had been
issued in 1995 as part of the consideration for the purchase of certain
assets of Oh-La-La!, Inc., the corporate predecessor of PSSS, Inc., in a
transaction approved by the Bankruptcy Court supervising the estate of
Oh-La-La!, Inc. The principal balance of the Note at the time of conversion
was $748,800. This transaction was exempt from registration under the
Securities Act pursuant to Section thereof. The shares so issued were
subsequently registered on a Registration Statement on Form S-3 which became
effective on , 1996.
23. On March 31, 1996, the Registrant issued 154 shares of its Common Stock to
various purchasers pursuant to warrants issued in 1992 for proceeds of $396.
24. On April 26, 1996, the Registrant issued 40,000 shares of its Common Stock
to Out and Back Enterprises, Inc., a Illinois corporation, one of its former
franchisees, in a privately negotiated transaction, as part of the
consideration for certain of its assets pursuant to an Agreement of Purchase
and Sale of Assets. This transaction was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.
25. September 9, 1996, the Registrant sold 250,000 shares of its Common Stock to
Growth Science Ventures, Inc., a Nevada corporation, for an aggregate of
$62,500, pursuant to the exercise of certain stock purchase options
originally issued to Growth Science Ventures, Inc. on June 12, 1997 pursuant
a Consulting Agreement.
26. On September 25, 1996, the Registrant sold 769,231 shares to Alana Group,
Ltd., a British Virgin Islands corporation, for $485,000 in cash, in a
privately negotiated transaction. Underwriter fees associated with this
transaction totaled $42,000. On the basis of certain disclosures made and
agreements entered into by Alana Group, Ltd., the Registrant believes that
this transaction was exempt from registration under the Securities Act by
virtue of Regulation S.
27. On September 25, 1996, the Registrant sold 769,231 shares to H.I.G.
Securities Investment, Ltd., a British Virgin Islands corporation, for
$485,000 in cash, in a privately negotiated transaction Underwriter fees
associated with this transaction totaled $42,000. On the basis of certain
disclosures made and agreements entered into by to H.I.G. Securities
Investment, Ltd., the Registrant believes that this transaction was exempt
from registration under the Securities Act by virtue of Regulation S.
II-4
<PAGE>
28. On February 27, 1997 the Registrant issued to One Capital Corporation
200,000 shares of Common Stock as partial compensation for certain financial
and other consulting services, which had been and were expected to be
rendered to the Registrant by One Capital Corporation. This transaction was
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.
26. On April 22, 1997 the Registrant sold 300,000 share of Common Stock to One
Capital Corporation for an aggregate of $73,125, pursuant to the exercise of
certain stock purchase options originally issued to One Capital Corporation.
27. On April 28, 1997 the Registrant issued to One Capital Corporation for an
aggregate of $45,703, pursuant to the exercise of certain stock purchase
options originally issued to One Capital Corporation.
28. On May 13, 1997 the Registrant issued to One Capital Corporation for an
aggregate of $22,852, pursuant to the exercise of certain stock purchase
options originally issued to One Capital Corporation.
29. On August 26, 1997 the Registrant issued to One Capital Corporation 100,000
shares of Common Stock as partial compensation for certain financial and
other consulting services, which had been and were expected to be rendered
to the Registrant by One Capital Corporation. This transaction was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.
II-5
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ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation (filed as Exhibit 3.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994, and by this reference incorporated
herein).
3.2 Bylaws, as amended January 10, 1995 (filed as Exhibit 3.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended December 31, 1994, and by this reference incorporated
herein).
3.3 Certificate of Amendment of Articles of Incorporation dated December 19, 1997.
4.1 Form of A Stock Purchase Warrant.
4.2 Form of B Stock Purchase Warrant.
4.3 Warrants issued by the Registrant to Richard M.H. Thompson & Associates (filed as Exhibit No. 4.1 to
the Registrant's Registration Statement on Form S-1 dated March 17, 1994 (Commission File No.
33-76528), and by this reference incorporated herein).
4.4 Warrants issued by the Registrant to The Manry Company (filed as Exhibit No. 4.2 to the Registrant's
Registration Statement on Form S-1 dated March 17, 1994 (Commission File No. 33-76528), and by this
reference incorporated herein).
4.5 Warrants issued by the Registrant to Argent Securities, Inc. (filed as Exhibit No. 4.5 to the
Registrant's Registration Statement on Form S-1 dated March 17, 1994 (Commission File No.
33-76528), and by this reference incorporated herein).
4.6 Amended and Restated Security Escrow Agreement by and between the Registrant and each of Baycor
Ventures, Inc., Gary C. Nelson, Thomas A. Craig, Bradley B. Landin, Richard D. Shannon, Richard
M.H. Thompson & Associates, Inc., The Manry Company, American Stock Transfer & Trust Company, and
Argent Securities, Inc. (filed as Exhibit No. 4.6 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 dated March 17, 1994 (Commission File No. 33-76528), and by this
reference incorporated herein).
4.7 Java Centrale, Inc. 1993 Stock Option Plan (filed as Exhibit No. 10.33 to the Registrant's
Registration Statement on Form S-1 dated March 17, 1994 (Commission File No. 33-76528), and by this
reference incorporated herein).
4.8 Note Purchase Agreement, dated January 22, 1996, between the Registrant and Santina Holding, Inc.
(filed as Exhibit No. 4.4 to the Registrant's Registration Statement on Form S-3 dated February 21,
1996, [Commission File No. 333-1526], and by this reference incorporated herein.).
4.9 Form of Convertible Note, dated January 29, 1996, issued to Santina Holding, Inc., (filed as Exhibit
No. 4.5 to the Registrant's Registration Statement on Form S-3 dated February 21, 1996, [Commission
File No.333-1526], and by this reference incorporated herein.).
4.10 Note Purchase Agreement, dated December 15, 1995, between the Registrant and Legong Investments,
N.V., (filed as Exhibit No. 4.1 to the Registrant's Registration Statement on Form S-3 dated
January 2, 1996, [Commission File No.333-42], and by this reference incorporated herein.).
4.11 Registration Rights Agreement, dated January 22, 1996, between the Registrant and Santina Holding,
Inc. (filed as Exhibit No. 4.6 to the Registrant's Registration Statement on Form S-3 dated
February 21, 1996, [Commission File No.333-1526], and by this reference incorporated herein.).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.12 Form of Convertible Note, dated December 15, 1995, between Registrant and Legong Investments, N.V.,
(filed as Exhibit No. 4.2 to the Registrant's Registration Statement on Form S-3 dated January 2,
1996, [Commission File No.333-42], and by this reference incorporated herein.).
4.13 Amendment to Note Agreement with Legong Investment, N.V., dated July 10, 1997 (filed as Exhibit No.
30 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1997 and by
this reference incorporated herein).
4.14 Stock Purchase Warrant, dated June 24, 1997, issued by the Registrant to Legong Investment, N.V.
(filed as Exhibit No. 31 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997 and by this reference incorporated herein).
4.15 Registration Rights Agreement, dated December 15, 1995, between the Registrant and Legong Investment,
N.V., (filed as Exhibit No. 4.3 to the Registrant's Registration Statement on Form S-3 dated
January 2, 1996, [Commission File No.333-42], and by this reference incorporated herein.).
4.16 Stock Purchase Warrant, dated as June 12, 1996, issued by the Registrant to Growth Science Venture,
Inc., (filed as Exhibit No. 4.2 to the Registrant's Registration Statement on Form S-8 dated June
28, 1996, [Commission File No.333-07261], and by this reference incorporated herein.).
4.17 Note agreement dated as November 19, 1997 between the Registrant and The Harmat Organization.
4.18 Escrow agreement dated as November 19, 1997 between the Registrant and the Harmat Organization.
4.19 Stock Purchase Warrant, dated as November 19, 1997, issued by the Registrant to The Harmat
Organization.
5. Opinion of Rosenblum, Parish & Isaacs, PC.
10.1 Employment Agreement dated February 1, 1994, between the Registrant and Gary C. Nelson (filed as
Exhibit No. 10.29 to the Registrant's Registration Statement on Form S-1 dated March 17, 1994
(Commission File No. 33-76528), and by this reference incorporated herein).
10.2 Employment Agreement, dated February 1, 1994, between the Registrant and Bradley B. Landin (filed as
Exhibit No. 10.30 to the Registrant's Registration Statement on Form S-1 dated March 17, 1994
(Commission No. 33-76528), and by this reference incorporated herein).
10.3 Employment Agreement, dated February 1, 1994, between the Registrant and Thomas A Craig (filed as
Exhibit No. 10.31 to the Registrant's Registration Statement on Form S-1 dated March 17, 1994
(Commission File No. 33-76528), and by this reference incorporated herein).
10.4 Authorized Producer Agreement, dated as of May 1, 1995, between the Registrant and Coffee Bean
International, (filed as Exhibit No. 10.10 to the Registrant Annual Report on form 10-K for the
year ended March 31, 1995, and by this reference incorporated herein).
10.5 Lease effective September 1, 1995 between the Registrant and California Birch Associates (filed as
Exhibit No. 10(1) to the Registrant's Registration Statement on Form 10-Q dated September 30, 1995,
and by this reference incorporated herein.).
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.6 Lease effective August 15, 1995 between the Registrant and Palmdale SISOS G.P. (filed as Exhibit No.
10(2) to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1995, and by this
reference incorporated herein.).
10.7 Indemnification Agreements, dated October 16, 1995, between the Registrant and Richard Shannon,
Chairman of the Board; Gary C. Nelson, President; Steven J. Orlando, Chief Financial Officer;
Bradley B. Landin, Vice President; Thomas A. Craig, Vice President; Kevin Baker, Director, and
Baycor Venture, Inc., the single largest shareholder.
10.8 Additional Bridge Loan Agreement, amended April 4, 1997, between the Registrant and Alta Petroleum,
Inc.
10.9 Additional Bridge Loan Agreement, amended April 7, 1997, between the Registrant and Alta Petroleum,
Inc.
10.10 Addendum No. 1 to Employment Agreement between the Registrant and Bradley B. Landin, dated January 1,
1997 (filed as Exhibit No. 10.24 to the Registrant Annual Report on form 10-K for the year ended
March 31, 1995, and by this reference incorporated herein).
10.11 Addendum No. 1 to Employment Agreement between the Registrant and Thomas A. Craig, dated January 1,
1997 (filed as Exhibit No. 10.25 to the Registrant Annual Report on form 10-K for the year ended
March 31, 1995, and by this reference incorporated herein).
10.12 Exchange Agreement with Good Food Fast Companies, Inc. and the Registrant dated March 31, 1997 (filed
as Exhibit No. 10.28 to the Registrant Annual Report on form 10-K for the year ended March 31,
1995, and by this reference incorporated herein).
10.13 Letter of Intent, dated -, 1997, between E. C. Capital, Ltd. and the Registrant (filed as Exhibit No.
4.56 to the Registrant's Quarterly Report on Form 10-Q dated September 30, 1995, and by this
reference incorporated herein.).
10.14 Licensor Agreement dated December 12, 1997, between Host International, Inc. and Java Centrale, Inc.
15. Letter from Grant Thornton LLC regarding unaudited interim financial information.
21. Subsidiaries of the Registrant.
23.1 Consent of Rosenblum, Parish & Isaacs, PC. (See Exhibit 5)
23.2 Consent of Grant Thornton LLP.
24. Power of Attorney.
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made,
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 Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be
II-8
<PAGE>
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" section of the effective registration statement;
(iii) Include any additional or changed material information on
the plan of distribution;
(2) For determining any liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933 the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Sacramento, California, this 24th day of December 1997.
<TABLE>
<S> <C> <C>
JAVA CENTRALE, INC.
By:
-------------------------------------
Gary C. Nelson
ITS PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE OFFICER)
And By:
-------------------------------------
Jeffrey W. Dudley
ITS VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
</TABLE>
II-10
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose name appears
below constitutes Gary C. Nelson and Jeffrey W. Dudley, and each of them
individually, as his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place, and stead,
in any and all capacities to sign any and all amendments (including without
limitation post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, thereby ratifying and confirming all that said attorney-in-fact
and agent, or either of them, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Pre-Effective / Amendment No. 2 has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
- ------------------------------ Director and Chairman of December 24, 1997
Richard J. Crosby the Board
- ------------------------------ Director and Secretary December 24, 1997
Bradley B. Landin
- ------------------------------ Director, President, and December 24, 1997
Gary C. Nelson Chief Executive Officer
- ------------------------------ Director December 24, 1997
Philip E. Pearce
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
3.3 Certificate of Amendment of Articles of Incorporation dated December 19, 1997
4.1 Form of A Stock Purchase Warrant
4.2 Form of B Stock Purchase Warrant
4.17 Note agreement dated as November 19, 1997 between the Registrant and The Harmat Organization.
4.18 Escrow agreement dated as November 19, 1997 between the Registrant and the Harmat Organization.
4.19 Stock Purchase Warrant, dated as November 19, 1997, issued by the Registrant to The Harmat
Organization.
5. Opinion of Rosenblum, Parish & Isaacs, PC
10.14 Licensor Agreement dated December 12, 1997, between Host International, Inc. and Java Centrale,
Inc.
15. Letter from Grant Thornton LLC regarding unaudited interim financial information. (See Exhibit
23.2)
21. Subsidiaries of the Registrant
23.1 Consent of Rosenblum, Parish & Isaacs, PC (See Exhibit 5)
23.2 Consent of Grant Thornton, LLP
24. Power of Attorney (See signature page)
</TABLE>
II-12
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
JAVA CENTRALE, INC.
The undersigned hereby certify that
1. They are the President and the Secretary, respectively, of Java Centrale,
Inc., a California corporation.
2. Article III of the Articles of Incorporation of this corporation is
amended, to read in its entirety as follows.
III
(a) The corporation is authorized to issue two classes of stock,
which shall be designated respectively "Common Stock" and "Preferred
Stock."
(b) The number of shares of Common Stock which the corporation is
authorized to issue is 50,000,000.
(c) The number of shares of Preferred Stock which the corporation is
authorized to issue is 25,000,000. The Preferred Stock may be issued in
one or more series. The Board of Directors is authorized to fix the number
of any such series of Preferred Stock and to determine the designation of
any such series. The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges, and restrictions granted to
or imposed upon any wholly unissued series of Preferred Stock and, within
the limits and restrictions stated in any resolution or resolutions of the
Board of Directors originally fixing the number of shares constituting any
series, to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any such series subsequent
to the issuance of shares of that series.
3. Article IV of the Articles of Incorporation of this corporation is stricken
from the corporation's Articles of Incorporation in its entirety.
4. On the amendment of the foregoing Articles, each outstanding share of the
corporation's Common Stock shall be subjected to a reverse stock split and
converted into one-tenth of one share of Common Stock.
5. The foregoing amendments of the Articles of Incorporation have been duly
approved by the Board of Directors.
Page 1 of 2 pages
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF JAVA CENTRALE, INC.
(CONTINUED)
6. The foregoing amendments of the Articles have been duly approved by the
required vote of the shareholders in accordance with Section 903 of the
California Corporations Code. The total number of outstanding shares of the
corporation is 23,005,044. The number of shares voting in favor of the
amendments equaled or exceeded the vote required. The percentage vote
required was more than 50%. No shares of Preferred Stock were outstanding.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Date: November 25, 1997
/s/ GARY C. NELSON
---------------------------
Gary C. Nelson, President
/s/ BRADLEY B. LANDIN
---------------------------
Bradley B. Landin, Secretary
Page 2 of 2 pages
<PAGE>
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933 ("ACT") OR QUALIFIED UNDER THE
CALIFORNIA CORPORATE SECURITIES LAW OF 1968 OR THE SECURITIES LAWS OF ANY OTHER
STATE ("LAWS"). THE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE
RESTRICTED SECURITIES FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE ACT.
NEITHER SAID WARRANTS NOR ANY INTEREST THEREIN MAY BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANTS UNDER THE
ACT AND QUALIFICATION UNDER THE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO
SAID SALE OR OFFER. THE WARRANTS ARE SUBJECT TO TRANSFER RESTRICTIONS NOTED IN
THE WARRANT CERTIFICATE AND ACCOMPANYING AGREEMENT
STOCK PURCHASE WARRANT CERTIFICATE
CLASS A WARRANTS TO PURCHASE COMMON STOCK OF
JAVA CENTRALE, INC.
This Stock Purchase Warrant Certificate (this "Warrant Certificate"), dated
and issued as of the date set forth below (the "Issue Date"), has been adopted
and executed by JAVA CENTRALE, INC., a California corporation (the "Company"),
to certify that the Company hereby grants to ____________________ (the
"Purchaser") _____________________ (________) warrants (the "Warrants") to
purchase Company common stock. Each Warrant initially entitles the Purchaser to
acquire one share of the Company's no par value common stock (a "Warrant Share")
for each Warrant, on payment of $0.16 per Warrant Share (the "Exercise Price")
until 5:00 p.m. Sacramento California time on the date which is two (2) years
from the Issue Date (the "Expiration Time"), subject to earlier termination upon
certain mergers. The Warrants are subject to the Terms and Conditions Governing
this Warrant Certificate which follow (the "Agreement").
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by the undersigned, duly authorized thereunto.
DATED as of , 1997. JAVA CENTRALE, INC.
------------
By:
---------------------
Gary C. Nelson
Its President
<PAGE>
TERMS AND CONDITIONS GOVERNING
WARRANTS TO PURCHASE COMMON STOCK
These Terms and Conditions Governing Warrants to Purchase Common Stock
(this "Agreement") relate to those Warrants which are the subject of the Stock
Purchase Warrant Certificate dated _____________, 1997, (the "Warrant
Certificate") to which this Agreement is attached. All capitalized terms not
defined in this Agreement as defined in the Warrant Certificate.
1. NUMBER OF SHARES ACQUIRABLE UPON EXERCISE; CERTAIN ADJUSTMENTS.
(a) The Purchaser shall be initially entitled to receive, upon
exercise hereof as provided herein, up to the number of Warrant Shares specified
in the Warrant Certificate, subject, however, to adjustment as provided below.
(b) If, following the date hereof and prior to the Expiration Time,
the outstanding shares of the Company's common stock shall be increased or
decreased through a stock split, stock dividend, reverse stock split, stock
consolidation, or otherwise, without consideration to the Company (including
without limitation the reverse stock split described in Section 9, below), an
appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which the Warrants may be exercised. The effect of such adjustment
shall be that the Purchaser shall obtain upon exercise of the Warrants after
such event the same number of Warrant Shares for the same aggregate
consideration as had Purchaser exercised the Warrants in full prior to such
event and had the Warrant Shares then been subjected to the effects of such
event.
(c) Any increase or decrease in the number of shares obtainable
through the exercise of the Warrants shall become effective immediately
following the effective time of the stock split or consolidation causing such
increase or decrease, or in the case of an increase required by a stock
dividend, shall become effective as of the payment or distribution date of such
dividend.
(d) No fractional shares of stock shall be issued or made available
under the Warrant on account of any such adjustment, and fractional share
interests shall be disregarded.
(e) If, following the Issue Date of these Warrants and prior to the
Expiration Time (as defined in the Warrant Certificate, above), there shall be a
merger of the Company such that the shareholders of the Company prior to such
merger do not own, after such merger, based on the shares resulting from their
Company shares, a majority of the outstanding shares of the surviving
corporation (a "Merger"), then (i) the Company shall provide notice (the
"Triggering Notice") to the Purchaser, at least 14 days prior to the
effectiveness of the Merger, that the Company intends to effect a Merger and
shall specify the terms and conditions of the Merger, and (ii) the Warrants
shall become void, and terminate and lapse, at 5:00 P.M. (Sacramento, California
time) on the date which is one day prior to the effective date of such Merger.
The Company shall have no duty to conduct the Merger by virtue of giving the
Triggering Notice. A Triggering Notice need not specify the date of the Merger;
PROVIDED, HOWEVER, that if no date is specified then the Merger must occur
within sixty (60) days of the Triggering Notice or else a new Triggering Notice
-2-
<PAGE>
must be given. The Purchaser may exercise the Warrants up to their new
termination date conditional on the Merger occurring; PROVIDED, HOWEVER, that if
the Merger does not occur and the Warrants were exercised conditional on its
occurring, then the Company shall return the exercise price and the Warrants
shall be reinstated as though the Triggering Notice had not been given. If no
Triggering Notice is given and the Merger occurs, or a merger occurs which is
not a Merger, then the Warrant shall remain exercisable until the Expiration
Date.
(f) If the shares of Company Common Stock issuable upon exercise of
the Warrants shall change into shares of any other class or classes of security,
or into any other property, for any reason other than a subdivision or
combination of shares provided for in paragraph (b), above, or a Merger provided
for in paragraph (e), above, including without limitation any reorganization,
reclassification, or other combination, then the Company shall take all steps
necessary to give the Purchaser the right, by exercising the Warrants, to
purchase the kind and amount of securities or other property receivable upon any
such change by an owner of the number of shares of Company Common Stock
represented by unexercised portion of the Warrant Certificate immediately prior
to the change.
2. EXERCISE PRICE; ADJUSTMENT IN CERTAIN EVENTS.
The Warrants shall be initially exercisable for the per Share Exercise
Price specified in the Warrant Certificate, subject to the adjustments set forth
in Section 1, above. The Exercise Price shall remain unchanged until the
occurrence of one of the events described in Section 1, above, at which time a
corresponding adjustment changing the exercise price per Warrant Share
attributable to any unexercised Warrants shall likewise be made. The Warrants
may not be exercised prior to the Effective Date specified in Section 9.
3. METHOD OF EXERCISE.
(a) The Purchaser may purchase Warrant Shares pursuant to the Warrant
Certificate at any time prior to the Expiration Time, by (i) providing the
Company with a signed written notice of its intent to exercise the Warrant
Certificate, specifying the number of Warrant Shares to be so purchased, (ii)
surrendering the Warrant Certificate to the Company, and (iii) paying to the
Company the appropriate purchase price for such Warrant Shares (rounded to the
nearest whole cent), by cash, money order, bank draft, or certified check, in
each case at its principal place of business in Sacramento, California.
(b) Within thirty (30) days after such surrender and payment, the
Company shall issue to the Purchaser the number of Warrant Shares so subscribed
for. In the event the Warrant shall be exercised by a person other than
Purchaser, such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise the Warrant. Until the Warrant Shares are
registered under the Act and qualified or registered under the Laws, the
aforesaid notice shall be in form satisfactory to the Company in order to
establish exemptions from registration and/or qualification under the Act and
any applicable Laws, and shall affirm that the Purchaser is acquiring the
Warrant Shares for the Purchaser's own account for investment and not with a
view to, or for sale in connection with, any distribution thereof.
-3-
<PAGE>
(c) The Company shall pay all issue and other taxes that may be
payable in respect of any issue or delivery to the Purchaser of Warrant Shares
upon exercise of the Warrants.
(d) The Company covenants and agrees that (i) all Warrant Shares
which may be issued upon exercise of the Warrants will, upon issuance, be fully
paid and non-assessable, (ii) commencing as soon as practicable after the
Effective Date (as defined in Section 9(c), below), and continuously thereafter
until the Expiration Time (as defined in the Warrant Certificate, above), the
Company shall have authorized and reserved for issuance enough shares of its
Common Stock to permit the full exercise of the rights represented by this
Warrant.
4. EFFECT OF EXERCISE.
The Purchaser will be a shareholder of the Company in respect of such
Warrant Shares as of the date on which the certificate or certificates
representing such Warrant Shares are issued by the Company's transfer agent and
registrar.
5. NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE.
No person or entity shall be considered to be a shareholder of the Company
for any purpose until the exercise of the Warrant as provided herein and the due
and formal issuance of Warrant Shares by the Company's transfer agent and
registrar thereupon.
6. NO RIGHTS AFTER THE EXPIRATION TIME.
Nothing contained in this Agreement, in the Warrant Certificate or in any
other instrument evidencing the Warrant, shall confer on any person or entity
any right to subscribe for or purchase, after the Expiration Time, any security
of or issued by the Company. From and after the Expiration Time, this Warrant
and all rights hereunder shall be valueless, unexercisable, and void.
7. LIMITS ON TRANSFERABILITY OF THE WARRANTS AND THE WARRANT CERTIFICATE.
(a) Except as described in paragraph (c), below, neither the Warrants
nor the Warrant Certificate shall be transferable without the express written
consent of the Company, which consent may be granted or withheld for any reason
in the Company's sole and absolute discretion.
(b) Unless the Company has previously granted its written consent
thereto, the Warrant may be exercised only by the Purchaser or by the
Purchaser's permitted transferees, as described in paragraph (c), below. More
particularly (but without limiting the generality of the foregoing), neither the
Warrants nor the Warrant Certificate may be sold, assigned, transferred (except
as provided above), pledged, hypothecated, or otherwise conveyed, encumbered, or
disposed of in any way, shall not be assignable by operation of law, and shall
not be subject to execution, attachment, or similar process. Any attempted sale,
assignment, transfer, pledge, hypothecation, conveyance, encumbrance, or other
disposition of the Warrants or the Warrant Certificate contrary to the
provisions hereof, and the levy of any execution, attachment, or similar process
thereupon shall be null and void and without effect, and the Company shall have
no
-4-
<PAGE>
obligation to recognize any such purported transaction or event or to reflect
such a purported transaction or event on the official records of the Company or
to issue Warrants or shares of its Common Stock to any party in violation of
this provision.
(c) If the Purchaser is an individual, then the Company hereby
consents to the transfer of the Warrant to Purchaser's heirs, executors,
personal representatives, or administrators upon Purchaser's death. If the
Purchaser is an entity, then the Company hereby consents to the transfer of the
Warrant to the owners of the entity upon its formal dissolution.
8. SUBDIVISION; LOSS OF THE WARRANT CERTIFICATE.
(a) Upon written demand therefor delivered to the Company by the
Purchaser or a permitted transferee thereof, the Warrant Certificate may be
divided and subdivided into two or more certificates, evidencing in the
aggregate the total number of outstanding Warrants provided in the Warrant
Certificate at the time of such division or subdivision.
(b) The Warrant Certificate (or Certificates) may be exercised for
all or any part of the Warrant Shares, and in such event the Company shall issue
a new warrant certificate, evidencing the balance of the Warrant Shares not
previously subscribed for. Notwithstanding the foregoing sentences, however, no
warrant certificate shall be issued, and no exercise of a Warrant shall be
permitted, involving any fraction of one Warrant Share.
(c) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of any Warrant Certificate, and
(i) in the case of any such loss, theft or destruction upon delivery of
indemnity reasonably satisfactory to the Company or (ii) in the case of any such
mutilation upon surrender of such mutilated Warrant Certificate for cancellation
at the Company's principal executive office, the Company at its expense shall
execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.
9. LEGENDS.
The Warrant Shares shall be subject to the following restrictions and all
certificates representing said shares shall bear a conspicuous legend on the
front containing said restrictions:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933 (THE "ACT") OR QUALIFIED
UNDER THE SECURITIES LAWS OF ANY STATE (THE "LAWS"). THE SHARES HAVE
BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE RESTRICTED SECURITIES FOR
PURPOSES OF RULE 144 PROMULGATED UNDER THE ACT. NEITHER SAID SHARES
NOR ANY INTEREST THEREIN MAY BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
THE ACT AND QUALIFICATION UNDER THE LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION
ARE NOT REQUIRED. UNTIL ONE YEAR AFTER THE ISSUE DATE, THE WARRANT
SHARES MAY BE SOLD IN THE PUBLIC MARKET ONLY WITH THE PRIOR WRITTEN
CONSENT OF E. C. CAPITAL LIMITED.
-5-
<PAGE>
In addition, the Shares shall bear any legend and be subject to transfer
restrictions imposed by these and any other securities laws.
10. MISCELLANEOUS.
(a) This Agreement, and the Warrant Certificate, shall be governed by
and construed in accordance with the internal laws of the State of California,
without reference to the choice of laws provisions thereof. If any lawsuit is
brought to enforce this Warrant Agreement, such lawsuit shall be brought in
Sacramento, California, the parties hereby consenting and submitting to courts
there located for such limited purposes, and the prevailing party shall be
entitled to reasonable attorneys' fees.
(b) Except as may be agreed, in writing by the Purchaser, the Company
shall possess no right to redeem any unexercised portion of the Warrants.
(c) If this Agreement, the Warrant Certificate, or any paragraph,
sentence, term, or provision hereof or thereof, is invalidated on any ground by
any court of competent jurisdiction, the remainder hereof or thereof shall,
notwithstanding such invalidation, remain in full force in effect, and each
other provision of this Agreement and/or the Warrant Certificate shall
thereafter be construed and enforced in such a manner as to give the fullest
possible effect to the intention and purposes expressed herein and therein.
(d) Any notice required or permitted by this Agreement shall be in
writing and shall be deemed given to the parties or any permitted transferee
when delivered personally or five days after it is deposited in the U.S. mail,
postage prepaid, addressed to the Company at its principal executive office and
to the Purchaser at the address provided to the Company upon acquisition of the
Warrant or to such subsequent address of which notice is given.
(e) Any amendment to this Agreement or the Warrant Certificate must
be in writing and signed by both the Company and the Purchaser. This Agreement
and the Warrant Certificate together constitute the full and complete
understanding of the Company and Purchaser concerning its subject matter, and
supersede all previous written or oral agreements and understandings on such
subject matter.
(f) Except as provided in Section 7 above, the rights of the
Purchaser may not be assigned without the prior express written consent of the
Company, and any attempted assignment without such consent shall be void. This
Agreement, and the Warrant Certificate, shall inure to the benefit of, and be
binding upon, the successors or assigns of the Company and the permitted assigns
of the Purchaser.
(g) The captions set forth in this Agreement, and the Warrant
Certificate, are for convenience only, and shall not be used in the construction
hereof.
END
-6-
<PAGE>
JAVA CENTRALE, INC.
A WARRANT SUBSCRIPTION FORM
Stock Purchase Warrants dated as of ___________, 1997
TO: Java Centrale, Inc.
ATTENTION: Chief Financial Officer
1610 Arden Way, Suite 145
Sacramento, CA 95815
RE: EXERCISE OF A STOCK PURCHASE WARRANTS
Pursuant to the terms of that certain Stock Purchase Warrant, dated as of
___________, 1997 (the "A Warrant"), which A Warrant is attached to this
Subscription Form, the undersigned hereby subscribes for __________ whole shares
of the Company's no par value Common Stock, at a price of $______ per share or
at such other price as may be applicable in accordance with the terms of the A
Warrant.
TOTAL SUBSCRIPTION PRICE: $______________
The undersigned hereby directs and requires that the shares of Common Stock
being subscribed for hereby be issued and delivered as follows:
Full Name of Shareholder: ________________________________
Full Address: _______________________________________________
_______________________________________________
_______________________________________________
Number of Shares for Which Subscribed: ___________________________
SIGNATURE(S): [If ownership is in joint tenancy or tenancy in common, ALL
signatures are required. Legal representatives must indicate
titles.]
----------------------------- ----------------------------
(Full Name of Warrant Holder) (Full Name of Warrant Holder)
X X
------------------------ -------------------------
Signature Date Signature Date
------------------------ -------------------------
Title (if applicable) Title (if applicable)
Executed at Executed at
------------- --------------
SEE REVERSE FOR IMPORTANT INFORMATION
-7-
<PAGE>
NOTE: This Subscription Form must be signed and accompanied by payment to
Java Centrale, Inc., in full, of the appropriate Warrant exercise price via
cashier's check or wire transfer, payable to the Company at its principal place
of business in Sacramento, California, and must be received by the Company prior
to 5:00 PM, California time, on the date specified in Section 2 of the Stock
Purchase Warrant (the "Expiration Time"), after which time all rights
represented by the attached Stock Purchase A Warrant will expire.
JAVA CENTRALE, INC. ACCEPTS NO RESPONSIBILITY FOR THE DUE DELIVERY TO IT OF
THIS SUBSCRIPTION FORM OR THE ACCOMPANYING STOCK PURCHASE WARRANT. SUFFICIENT
TIME SHOULD BE ALLOWED FOR THE DELIVERY OF THESE DOCUMENTS PRIOR TO THE
EXPIRATION TIME.
Upon surrender of this Subscription Form and the Stock Purchase Warrant,
and payment of the subscription price as provided therein, the Company will
issue the number of shares of Common Stock subscribed for, and such persons or
entities will thereupon become shareholders of the Company. If a lesser number
of shares is subscribed for than the number of shares described in the Stock
Purchase Warrant, the Company shall issue a further Stock Purchase Warrant in
respect of the unsubscribed shares of Common Stock not subscribed for hereby.
-8-
<PAGE>
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933 ("ACT") OR QUALIFIED UNDER THE
CALIFORNIA CORPORATE SECURITIES LAW OF 1968 OR THE SECURITIES LAWS OF ANY OTHER
STATE ("LAWS"). THE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE
RESTRICTED SECURITIES FOR PURPOSES OF RULE 144 PROMULGATED UNDER THE ACT.
NEITHER SAID WARRANTS NOR ANY INTEREST THEREIN MAY BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANTS UNDER THE
ACT AND QUALIFICATION UNDER THE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO
SAID SALE OR OFFER. THE WARRANTS ARE SUBJECT TO TRANSFER RESTRICTIONS NOTED IN
THE WARRANT CERTIFICATE AND ACCOMPANYING AGREEMENT
STOCK PURCHASE WARRANT CERTIFICATE
CLASS B WARRANTS TO PURCHASE COMMON STOCK OF
JAVA CENTRALE, INC.
This Stock Purchase Warrant Certificate (this "Warrant Certificate"), dated
and issued as of the date set forth below (the "Issue Date"), has been adopted
and executed by JAVA CENTRALE, INC., a California corporation (the "Company"),
to certify that the Company hereby grants to ___________________ (the
"Purchaser") ______________________ (________) warrants (the "Warrants") to
purchase Company common stock. Each Warrant initially entitles the Purchaser to
acquire one share of the Company's no par value common stock (a "Warrant Share")
for each Warrant, on payment of $0.20 per Warrant Share (the "Exercise Price")
until 5:00 p.m. Sacramento California time on the date which is three (3) years
from the Issue Date (the "Expiration Time"), subject to earlier termination upon
certain mergers. The Warrants are subject to the Terms and Conditions Governing
this Warrant Certificate which follow (the "Agreement").
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by the undersigned, duly authorized thereunto.
DATED as of , 1997. JAVA CENTRALE, INC.
----------
By:
---------------------
Gary C. Nelson
Its President
<PAGE>
TERMS AND CONDITIONS GOVERNING
WARRANTS TO PURCHASE COMMON STOCK
These Terms and Conditions Governing Warrants to Purchase Common Stock
(this "Agreement") relate to those Warrants which are the subject of the Stock
Purchase Warrant Certificate dated ____________, 1997, (the "Warrant
Certificate") to which this Agreement is attached. All capitalized terms not
defined in this Agreement as defined in the Warrant Certificate.
1. NUMBER OF SHARES ACQUIRABLE UPON EXERCISE; CERTAIN ADJUSTMENTS.
(a) The Purchaser shall be initially entitled to receive, upon
exercise hereof as provided herein, up to the number of Warrant Shares specified
in the Warrant Certificate, subject, however, to adjustment as provided below.
(b) If, following the date hereof and prior to the Expiration Time,
the outstanding shares of the Company's common stock shall be increased or
decreased through a stock split, stock dividend, reverse stock split, stock
consolidation, or otherwise, without consideration to the Company (including
without limitation the reverse stock split described in Section 9, below), an
appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which the Warrants may be exercised. The effect of such adjustment
shall be that the Purchaser shall obtain upon exercise of the Warrants after
such event the same number of Warrant Shares for the same aggregate
consideration as had Purchaser exercised the Warrants in full prior to such
event and had the Warrant Shares then been subjected to the effects of such
event.
(c) Any increase or decrease in the number of shares obtainable
through the exercise of the Warrants shall become effective immediately
following the effective time of the stock split or consolidation causing such
increase or decrease, or in the case of an increase required by a stock
dividend, shall become effective as of the payment or distribution date of such
dividend.
(d) No fractional shares of stock shall be issued or made available
under the Warrant on account of any such adjustment, and fractional share
interests shall be disregarded.
(e) If, following the Issue Date of these Warrants and prior to the
Expiration Time (as defined in the Warrant Certificate, above), there shall be a
merger of the Company such that the shareholders of the Company prior to such
merger do not own, after such merger, based on the shares resulting from their
Company shares, a majority of the outstanding shares of the surviving
corporation (a "Merger"), then (i) the Company shall provide notice (the
"Triggering Notice") to the Purchaser, at least 14 days prior to the
effectiveness of the Merger, that the Company intends to effect a Merger and
shall specify the terms and conditions of the Merger, and (ii) the Warrants
shall become void, and terminate and lapse, at 5:00 P.M. (Sacramento, California
time) on the date which is one day prior to the effective date of such Merger.
The Company shall have no duty to conduct the Merger by virtue of giving the
Triggering Notice. A Triggering Notice need not specify the date of the Merger;
PROVIDED, HOWEVER, that if no date is specified then the Merger must occur
within sixty (60) days of the Triggering Notice or else a new Triggering Notice
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<PAGE>
must be given. The Purchaser may exercise the Warrants up to their new
termination date conditional on the Merger occurring; PROVIDED, HOWEVER, that if
the Merger does not occur and the Warrants were exercised conditional on its
occurring, then the Company shall return the exercise price and the Warrants
shall be reinstated as though the Triggering Notice had not been given. If no
Triggering Notice is given and the Merger occurs, or a merger occurs which is
not a Merger, then the Warrant shall remain exercisable until the Expiration
Date.
(f) If the shares of Company Common Stock issuable upon exercise of
the Warrants shall change into shares of any other class or classes of security,
or into any other property, for any reason other than a subdivision or
combination of shares provided for in paragraph (b), above, or a Merger provided
for in paragraph (e), above, including without limitation any reorganization,
reclassification, or other combination, then the Company shall take all steps
necessary to give the Purchaser the right, by exercising the Warrants, to
purchase the kind and amount of securities or other property receivable upon any
such change by an owner of the number of shares of Company Common Stock
represented by unexercised portion of the Warrant Certificate immediately prior
to the change.
2. EXERCISE PRICE; ADJUSTMENT IN CERTAIN EVENTS.
The Warrants shall be initially exercisable for the per Share Exercise
Price specified in the Warrant Certificate, subject to the adjustments set forth
in Section 1, above. The Exercise Price shall remain unchanged until the
occurrence of one of the events described in Section 1, above, at which time a
corresponding adjustment changing the exercise price per Warrant Share
attributable to any unexercised Warrants shall likewise be made. The Warrants
may not be exercised prior to the Effective Date specified in Section 9.
3. METHOD OF EXERCISE.
(a) The Purchaser may purchase Warrant Shares pursuant to the Warrant
Certificate at any time prior to the Expiration Time, by (i) providing the
Company with a signed written notice of its intent to exercise the Warrant
Certificate, specifying the number of Warrant Shares to be so purchased, (ii)
surrendering the Warrant Certificate to the Company, and (iii) paying to the
Company the appropriate purchase price for such Warrant Shares (rounded to the
nearest whole cent), by cash, money order, bank draft, or certified check, in
each case at its principal place of business in Sacramento, California.
(b) Within thirty (30) days after such surrender and payment, the
Company shall issue to the Purchaser the number of Warrant Shares so subscribed
for. In the event the Warrant shall be exercised by a person other than
Purchaser, such notice shall be accompanied by appropriate proof of the right of
such person or persons to exercise the Warrant. Until the Warrant Shares are
registered under the Act and qualified or registered under the Laws, the
aforesaid notice shall be in form satisfactory to the Company in order to
establish exemptions from registration and/or qualification under the Act and
any applicable Laws, and shall affirm that the Purchaser is acquiring the
Warrant Shares for the Purchaser's own account for investment and not with a
view to, or for sale in connection with, any distribution thereof.
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<PAGE>
(c) The Company shall pay all issue and other taxes that may be
payable in respect of any issue or delivery to the Purchaser of Warrant Shares
upon exercise of the Warrants.
(d) The Company covenants and agrees that (i) all Warrant Shares
which may be issued upon exercise of the Warrants will, upon issuance, be fully
paid and non-assessable, (ii) commencing as soon as practicable after the
Effective Date (as defined in Section 9(c), below), and continuously thereafter
until the Expiration Time (as defined in the Warrant Certificate, above), the
Company shall have authorized and reserved for issuance enough shares of its
Common Stock to permit the full exercise of the rights represented by this
Warrant.
4. EFFECT OF EXERCISE.
The Purchaser will be a shareholder of the Company in respect of such
Warrant Shares as of the date on which the certificate or certificates
representing such Warrant Shares are issued by the Company's transfer agent and
registrar.
5. NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE.
No person or entity shall be considered to be a shareholder of the Company
for any purpose until the exercise of the Warrant as provided herein and the due
and formal issuance of Warrant Shares by the Company's transfer agent and
registrar thereupon.
6. NO RIGHTS AFTER THE EXPIRATION TIME.
Nothing contained in this Agreement, in the Warrant Certificate or in any
other instrument evidencing the Warrant, shall confer on any person or entity
any right to subscribe for or purchase, after the Expiration Time, any security
of or issued by the Company. From and after the Expiration Time, this Warrant
and all rights hereunder shall be valueless, unexercisable, and void.
7. LIMITS ON TRANSFERABILITY OF THE WARRANTS AND THE WARRANT CERTIFICATE.
(a) Except as described in paragraph (c), below, neither the Warrants
nor the Warrant Certificate shall be transferable without the express written
consent of the Company, which consent may be granted or withheld for any reason
in the Company's sole and absolute discretion.
(b) Unless the Company has previously granted its written consent
thereto, the Warrant may be exercised only by the Purchaser or by the
Purchaser's permitted transferees, as described in paragraph (c), below. More
particularly (but without limiting the generality of the foregoing), neither the
Warrants nor the Warrant Certificate may be sold, assigned, transferred (except
as provided above), pledged, hypothecated, or otherwise conveyed, encumbered, or
disposed of in any way, shall not be assignable by operation of law, and shall
not be subject to execution, attachment, or similar process. Any attempted sale,
assignment, transfer, pledge, hypothecation, conveyance, encumbrance, or other
disposition of the Warrants or the Warrant Certificate contrary to the
provisions hereof, and the levy of any execution, attachment, or similar process
thereupon shall be null and void and without effect, and the Company shall have
no
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<PAGE>
obligation to recognize any such purported transaction or event or to reflect
such a purported transaction or event on the official records of the Company or
to issue Warrants or shares of its Common Stock to any party in violation of
this provision.
(c) If the Purchaser is an individual, then the Company hereby
consents to the transfer of the Warrant to Purchaser's heirs, executors,
personal representatives, or administrators upon Purchaser's death. If the
Purchaser is an entity, then the Company hereby consents to the transfer of the
Warrant to the owners of the entity upon its formal dissolution.
8. SUBDIVISION; LOSS OF THE WARRANT CERTIFICATE.
(a) Upon written demand therefor delivered to the Company by the
Purchaser or a permitted transferee thereof, the Warrant Certificate may be
divided and subdivided into two or more certificates, evidencing in the
aggregate the total number of outstanding Warrants provided in the Warrant
Certificate at the time of such division or subdivision.
(b) The Warrant Certificate (or Certificates) may be exercised for
all or any part of the Warrant Shares, and in such event the Company shall issue
a new warrant certificate, evidencing the balance of the Warrant Shares not
previously subscribed for. Notwithstanding the foregoing sentences, however, no
warrant certificate shall be issued, and no exercise of a Warrant shall be
permitted, involving any fraction of one Warrant Share.
(c) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of any Warrant Certificate, and
(i) in the case of any such loss, theft or destruction upon delivery of
indemnity reasonably satisfactory to the Company or (ii) in the case of any such
mutilation upon surrender of such mutilated Warrant Certificate for cancellation
at the Company's principal executive office, the Company at its expense shall
execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.
9. LEGENDS.
The Warrant Shares shall be subject to the following restrictions and all
certificates representing said shares shall bear a conspicuous legend on the
front containing said restrictions:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE FEDERAL SECURITIES ACT OF 1933 (THE "ACT") OR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE (THE "LAWS"). THE SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND CONSTITUTE RESTRICTED SECURITIES FOR PURPOSES OF RULE
144 PROMULGATED UNDER THE ACT. NEITHER SAID SHARES NOR ANY INTEREST THEREIN
MAY BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT AND QUALIFICATION UNDER THE LAWS, OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED. UNTIL ONE YEAR AFTER THE ISSUE DATE,
THE WARRANT SHARES MAY BE SOLD IN THE PUBLIC MARKET ONLY WITH THE PRIOR
WRITTEN CONSENT OF E. C. CAPITAL LIMITED.
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<PAGE>
In addition, the Shares shall bear any legend and be subject to transfer
restrictions imposed by these and any other securities laws.
10. MISCELLANEOUS.
(a) This Agreement, and the Warrant Certificate, shall be governed by
and construed in accordance with the internal laws of the State of California,
without reference to the choice of laws provisions thereof. If any lawsuit is
brought to enforce this Warrant Agreement, such lawsuit shall be brought in
Sacramento, California, the parties hereby consenting and submitting to courts
there located for such limited purposes, and the prevailing party shall be
entitled to reasonable attorneys' fees.
(b) Except as may be agreed, in writing by the Purchaser, the Company
shall possess no right to redeem any unexercised portion of the Warrants.
(c) If this Agreement, the Warrant Certificate, or any paragraph,
sentence, term, or provision hereof or thereof, is invalidated on any ground by
any court of competent jurisdiction, the remainder hereof or thereof shall,
notwithstanding such invalidation, remain in full force in effect, and each
other provision of this Agreement and/or the Warrant Certificate shall
thereafter be construed and enforced in such a manner as to give the fullest
possible effect to the intention and purposes expressed herein and therein.
(d) Any notice required or permitted by this Agreement shall be in
writing and shall be deemed given to the parties or any permitted transferee
when delivered personally or five days after it is deposited in the U.S. mail,
postage prepaid, addressed to the Company at its principal executive office and
to the Purchaser at the address provided to the Company upon acquisition of the
Warrant or to such subsequent address of which notice is given.
(e) Any amendment to this Agreement or the Warrant Certificate must
be in writing and signed by both the Company and the Purchaser. This Agreement
and the Warrant Certificate together constitute the full and complete
understanding of the Company and Purchaser concerning its subject matter, and
supersede all previous written or oral agreements and understandings on such
subject matter.
(f) Except as provided in Section 7 above, the rights of the
Purchaser may not be assigned without the prior express written consent of the
Company, and any attempted assignment without such consent shall be void. This
Agreement, and the Warrant Certificate, shall inure to the benefit of, and be
binding upon, the successors or assigns of the Company and the permitted assigns
of the Purchaser.
(g) The captions set forth in this Agreement, and the Warrant
Certificate, are for convenience only, and shall not be used in the construction
hereof.
END
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<PAGE>
JAVA CENTRALE, INC.
B WARRANT SUBSCRIPTION FORM
Stock Purchase Warrants dated as of ___________, 1997
TO: Java Centrale, Inc.
ATTENTION: Chief Financial Officer
1610 Arden Way, Suite 145
Sacramento, CA 95815
RE: EXERCISE OF B STOCK PURCHASE WARRANTS
Pursuant to the terms of that certain Stock Purchase Warrant, dated as of
___________, 1997 (the "B Warrant"), which B Warrant is attached to this
Subscription Form, the undersigned hereby subscribes for __________ whole shares
of the Company's no par value Common Stock, at a price of $______ per share or
at such other price as may be applicable in accordance with the terms of the B
Warrant.
TOTAL SUBSCRIPTION PRICE: $_______________
The undersigned hereby directs and requires that the shares of Common Stock
being subscribed for hereby be issued and delivered as follows:
Full Name of Shareholder:
--------------------------------
Full Address:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Number of Shares for Which Subscribed:
------------------------
SIGNATURE(S): [If ownership is in joint tenancy or tenancy in common, ALL
signatures are required. Legal representatives must indicate
titles.]
----------------------------- -----------------------------
(Full Name of Warrant Holder) (Full Name of Warrant Holder)
X X
----------------------------- -----------------------------
Signature Date Signature Date
----------------------------- -----------------------------
Title (if applicable) Title (if applicable)
Executed at Executed at
------------------ ------------------
SEE REVERSE FOR IMPORTANT INFORMATION
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<PAGE>
NOTE: This Subscription Form must be signed and accompanied by payment to
Java Centrale, Inc., in full, of the appropriate Warrant exercise price via
cashier's check or wire transfer, payable to the Company at its principal place
of business in Sacramento, California, and must be received by the Company prior
to 5:00 PM, California time, on the date specified in Section 2 of the Stock
Purchase Warrant (the "Expiration Time"), after which time all rights
represented by the attached Stock Purchase B Warrant will expire.
JAVA CENTRALE, INC. ACCEPTS NO RESPONSIBILITY FOR THE DUE DELIVERY TO IT OF
THIS SUBSCRIPTION FORM OR THE ACCOMPANYING STOCK PURCHASE WARRANT. SUFFICIENT
TIME SHOULD BE ALLOWED FOR THE DELIVERY OF THESE DOCUMENTS PRIOR TO THE
EXPIRATION TIME.
Upon surrender of this Subscription Form and the Stock Purchase Warrant,
and payment of the subscription price as provided therein, the Company will
issue the number of shares of Common Stock subscribed for, and such persons or
entities will thereupon become shareholders of the Company. If a lesser number
of shares is subscribed for than the number of shares described in the Stock
Purchase Warrant, the Company shall issue a further Stock Purchase Warrant in
respect of the unsubscribed shares of Common Stock not subscribed for hereby.
-8-
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is entered into between and
among JAVA CENTRALE, INC., a California corporation (the "Company"), GARY C.
NELSON, BRADLEY B. LANDIN, AND THOMAS A. CRAIG (together, the "Shareholders"),
THE HARMAT ORGANIZATION, a Delaware corporation (the "Lender"), and ROSENBLUM,
PARISH & ISAACS, PROFESSIONAL CORPORATION (the "Escrow Agent"), to be effective
as of November 21, 1997,.
R E C I T A L S
A. The Lender has agreed to lend to the Company the sum of Two Hundred
Fifty Thousand Dollars (250,000) pursuant to a promissory note (the "Note) of
even date herewith, and the Company has agreed to borrow such funds on the terms
and under the conditions specified herein and in the Note
B. In order to secure the benefits of the Note for the Company, the
Shareholders have agreed to pledge certain shares of stock in the Company which
they own as security for the repayment of the Note, and to place such shares in
escrow hereunder.
C. The Escrow Agent has agreed to act as the escrow agent for the purpose
of holding in escrow the shares of Company stock pledged by the Shareholders
pursuant to the Note, and if necessary to distribute some or all of such shares
as provided in this Escrow Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency is by all parties hereto acknowledged, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW.
(a) The Shareholders agree to deposit with the Escrow Agent
certificates representing not less than the following numbers of shares of the
Company's Common Stock: (collectively, the "Escrowed Shares"):
(i) Gary C. Nelson, Three Hundred Fifty Thousand (350,000)
shares
(ii) Bradley B. Landin, seventy-five Thousand (75,000) shares;
and
(iii) Thomas A. Craig, seventy-five Thousand (75,000) shares.
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<PAGE>
(b) By execution of this Escrow Agreement the Company, the Lender,
and the Shareholders, and each of them individually, agree to constitute the
Escrow Agent as their escrow agent for the purpose of holding and distributing
the shares in accordance with the terms hereof.
(c) The Escrow Agent shall likewise be bound by the terms hereof upon
the later to occur of (i) its receipt and acceptance of the Escrowed Shares and
(ii) its execution of this Escrow Agreement.
(d) All parties to this Escrow Agreement recognize and agree that the
Shareholders may, at their option and in order to facilitate the prompt
establishment of the escrow described herein, deposit with the Escrow Agent
certificates representing more than the number of shares which they may
individually have pledged to secure the Note, as described in paragraph (a),
above. In such event, it is by all parties recognized and agreed that the escrow
herein created, and the rights of the Lender hereunder and under the Note,
extend only to those shares specified in paragraph (a) above (the "Escrowed
Shares"), and not to any additional shares of stock in the Company which may be
represented by the stock certificates placed with the Escrow Agent pursuant
hereto. The Lender expressly waives and disclaims any rights it might otherwise
have, or might obtain by virtue of any default under the Note or this Escrow
Agreement, in or to any shares other than the Escrowed Shares.
2. DEPOSIT OF NOTE PROCEEDS. The Company will receive the funds
represented by the Note directly from the Lender, and none of the funds to be
loaned to the Company under the Note shall pass through the Escrow Agent. The
Company shall have complete discretion as to how such funds are to be used.
3. REPAYMENT OF THE NOTE. The Company shall repay the principal of the
Note and any interest earned thereon directly to the Lender, and none of such
funds shall pass through the Escrow Agent unless at the specific written request
of both the Company and the Lender.
4. DUTIES OF THE ESCROW AGENT.
(a) The Escrow Agent acts as a depositary only and is not responsible
or liable in any manner whatsoever for the sufficiency, correctness,
genuineness, or validity of any instrument (including without limitation the
Certificates representing the Escrowed Shares) deposited under this Escrow
Agreement. The Escrow Agent makes no representation whatsoever as to the
validity or enforceability of the Note or of this Escrow Agreement, or the
compliance of the Note or the loan it represents with any applicable state or
federal laws, regulations, or rulings. Further, the Escrow Agent shall not be
responsible for any representation or warranties made by the parties hereto, or
any of them, concerning the said loan, the Note, or any asserted repayment
thereof or for the application or use of any funds provided under the Note.
(b) Except as expressly provided in this Escrow Agreement, the Escrow
Agent shall be entitled to act entirely on the basis of written instructions
received from the Company and/or the Lender, and shall have no independent duty
of inquiry regarding the basis for such instructions.
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<PAGE>
(c) The Escrow Agent shall not be liable for any error of judgment or
for any act taken or omitted by it in good faith or for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection with
this Escrow Agreement except for its own willful misconduct, and the Escrow
Agent shall have no duties to anyone except the Company and the Lender.
(d) The Escrow Agent may consult with legal counsel in the event of
any dispute or question as to the construction of this Escrow Agreement or the
Escrow Agent's duties under this Escrow Agreement, and the Escrow Agent shall
incur no liability and shall be fully protected in acting in accordance with the
opinion and instructions of counsel. Notwithstanding the Escrow Agent's
consultation with counsel, the Escrow Agent is not obligated to institute,
defend or participate in any litigation regarding a dispute arising from the
Escrow Account or this Escrow Agreement.
(e) In the event of any controversy or disagreement concerning this
Escrow Agreement, the Escrow Account, or any matter related thereto, resulting
in diverse claims and demands being made in connection with any papers, stock
certificates, Escrowed Shares, money, or other thing of value deposited under
this Escrow Agreement, the Escrow Agent shall be entitled, at its option, to
refuse to comply with any such claims or demands, so long as such disagreement
shall continue. The Escrow Agent shall not be or become liable for damages or
interest to any party hereto, or to any other person, for the Escrow Agent's
failure or refusal to comply with any such claims or demands, and the Escrow
Agent shall be entitled to continue to refrain and refuse to act until
(i) the rights of the adverse claimants have been finally adjudicated
or arbitrated in a court assuming and having jurisdiction of the parties
and the money, paper, and property deposited under this Escrow Agreement;
or
(ii) all differences shall have been adjudicated by agreement, and the
Escrow Agent shall have been notified thereof in writing by all of the
persons interested; or
(iii) in the event of such disagreement, the Escrow Agent may, at its
option, file a suit in interpleader for the purpose of having the
respective rights of the claimants adjudicated and deposit with the court
all documents and property held by the Escrow Agent.
5. RESIGNATION OF ESCROW AGENT. The Escrow Agent reserves the right to
resign as escrow holder at any time by giving thirty (30) days prior written
notice of such resignation to the Company, the Lender, and the Shareholders. In
the event of such resignation by the Escrow Agent, the Escrow Agent shall
deliver the funds then held in the Escrow Account and all related records to any
replacement escrow holder appointed by the Lender; provided that such
replacement Escrow Agent shall be subject to all of the terms of this Escrow
Agreement. If the Lender fails to notify the Escrow Agent in writing as of the
identity of such replacement escrow holder within thirty (30) days after
receiving the notice of the Escrow Agent's resignation, the Escrow Agent will be
entitled
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<PAGE>
to return to each of the Shareholders his Escrowed Shares, all other shares of
Company stock, belonging to such Shareholder then in its possession, the
certificates representing such shares, and to the Company any other money or
thing of value then in its possession.
6. INDEMNIFICATION OF ESCROW AGENT. Except with respect to any willful
misconduct of the Escrow Agent, the Company and the Lender shall each separately
indemnify and hold the Escrow Agent and its directors, officers, and employees,
harmless from and against any and all liability, demands, claims, actions,
losses, interest, costs of defense, and expenses (including reasonable
attorney's fees) which arise out of the Escrow Agent's acts or omissions to act
in accordance with this Escrow Agreement.
7. NOTICES. Notice required to be given pursuant to the terms of this
Escrow Agreement shall be personally delivered or sent by registered or
certified mail, return receipt requested:
IF TO THE COMPANY
Java Centrale, Inc.
1610 Arden Way, Suite 145
Sacramento, CA 95814
IF TO THE SHAREHOLDERS, OR ANY OF THEM:
C/0 Java Centrale, Inc.
1610 Arden Way, Suite 145
Sacramento, CA 95814
IF TO THE LENDER:
The Harmat Organization
P. O. Box 539
Quogue, NY 11959
IF TO THE ESCROW AGENT:
Rosenblum, Parish & Isaacs, PC
555 Montgomery Street, 15th Floor
San Francisco, CA 94111
Attn: Philip S. Boone, Jr.
8. MISCELLANEOUS.
(a) The provisions of this Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors, or assigns.
(b) This Escrow Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute on and the same instrument.
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<PAGE>
(c) This Escrow Agreement shall be governed by, and constructed in
accordance with, the laws of the State of New York..
(d) All captions contained in this Escrow Agreement are for convenience
only and are not to be deemed part of the agreement or to be referred to in
connection with the interpretation of this Escrow Agreement.
(e) Whenever required by the context of this Escrow Agreement, the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
(f) This Escrow Agreement shall not be subject to rescission or
modification except on receipt by the Escrow Agent of the written instruction of
the Company or its successor in interest, and no such modification shall be
effective unless and until consented to in writing by the Lender and the Escrow
Agent.
(g) The failure of any party hereto to insist upon strict adherence to any
term of this Escrow Agreement on one or more occasions shall not be considered a
waiver or deprive such party of the right thereafter to insist upon strict
adherence to such term or any other term of this Escrow Agreement. Any waiver
must be in writing.
(h) Any controversy or legal dispute between the parties hereto, or any of
them, arising out of this Agreement or the Note or the performance or
non-performance of any party to either of them, will be settled by binding
arbitration in San Francisco, California before the Judicial Arbitration and
Mediation Services Inc. ("JAMS"), following the JAMS Rules of Practice and
Procedure. IEACH PARTY HERETO UNDERSTANDS THAT BY AGREEING TO ARBITRATE SUCH
DISPUTES HE OR IT IS WAIVING ANY RIGHT HE OR IT MIGHT OTHERWISE HAVE TO A JURY
TRIAL. A copy of the JAMS rules may be obtained by calling JAMS at
1 800 352-5267.
IN WITNESS WHEREOF, the undersigned, being all the parties hereto, have
executed this Escrow Agreement, intending to be bound hereby, effective as of
the day and year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By:
---------------------------
Gary C. Nelson
Its President and
Chief Executive Officer
SIGNATURES CONTINUE ON THE FOLLOWING PAGE
-5-
<PAGE>
SIGNATURES CONTINUE FROM PREVIOUS PAGE
THE SHAREHOLDERS:
-----------------------------
Gary C. Nelson
-----------------------------
Thomas A. Craig
-----------------------------
Bradley B. Landin
THE LENDER: THE HARMAT ORGANIZATION
By:
---------------------------
-----------------------
Its
----------------------
THE ESCROW AGENT: ROSENBLUM, PARISH & ISAACS, PC
By:
---------------------------
Philip S. Boone, Jr.
A Member of the Firm
-6-
<PAGE>
Exhibit 4.17
PROMISSORY NOTE
$250,000.00 SACRAMENTO, CALIFORNIA NOVEMBER 19, 1997
On or before December 31, 1997, for value received, the undersigned ("Borrower")
promises to pay to The Harmat Organization at New York, NY or order ("Lender"),
or any other place designated in writing submitted by Lender to Borrower, the
principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00), plus interest
on the unpaid principal balance according to the terms contained in this Note.
This promissory note shall be secured by 500,000 shares of the Company's common
stock, to be held in an escrow account C/O Philip S. Boone, Jr., Esq.,
Rosenblum, Parish & Isaacs, A Law Corporation. Such security shall be released
upon full payment of principal and interest according to the terms of this
promissory note.
Interest on the principal sum of this Note, from time to time outstanding, will
be computed on the basis of a 360-day year and actual days elapsed from date of
disbursement until paid, at the per annum rate of fifteen percent (15.0%). Upon
receipt of proceeds from the Lender's second stage private placement offering on
behalf of the Borrower or on the maturity date, whichever occurs first, the
unpaid balance of principal and interest shall be due and payable.
As additional consideration for this Note, Lender or its assignees will receive
One Hundred Thousand (100,000) Warrants to purchase One Hundred Thousand
(100,000) common shares of the Borrower's no par value Common Stock at an
exercise price of Five Cents ($.05) per underlying share.
Lender expressly agrees that this Note, or any payment under this Note, may be
extended from time to time without any way affecting the liability of the
Borrower. Borrower waives the rights of presentment to require the Lender to
demand payment of amounts due.
JAVA Centrale, Inc.
By: /s/ Gary Nelson
---------------------
Gary Nelson
Its: President
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is entered into between and
among JAVA CENTRALE, INC., a California corporation (the "Company"), GARY C.
NELSON, BRADLEY B. LANDIN, AND THOMAS A. CRAIG (together, the "Shareholders"),
THE HARMAT ORGANIZATION, a Delaware corporation (the "Lender"), and ROSENBLUM,
PARISH & ISAACS, PROFESSIONAL CORPORATION (the "Escrow Agent"), to be effective
as of November 21, 1997,.
R E C I T A L S
A. The Lender has agreed to lend to the Company the sum of Two Hundred
Fifty Thousand Dollars (250,000) pursuant to a promissory note (the "Note) of
even date herewith, and the Company has agreed to borrow such funds on the terms
and under the conditions specified herein and in the Note
B. In order to secure the benefits of the Note for the Company, the
Shareholders have agreed to pledge certain shares of stock in the Company which
they own as security for the repayment of the Note, and to place such shares in
escrow hereunder.
C. The Escrow Agent has agreed to act as the escrow agent for the purpose
of holding in escrow the shares of Company stock pledged by the Shareholders
pursuant to the Note, and if necessary to distribute some or all of such shares
as provided in this Escrow Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency is by all parties hereto acknowledged, the parties agree as follows:
1. ESTABLISHMENT OF ESCROW.
(a) The Shareholders agree to deposit with the Escrow Agent
certificates representing not less than the following numbers of shares of the
Company's Common Stock: (collectively, the "Escrowed Shares"):
(i) Gary C. Nelson, Three Hundred Fifty Thousand (350,000)
shares
(ii) Bradley B. Landin, seventy-five Thousand (75,000) shares;
and
(iii) Thomas A. Craig, seventy-five Thousand (75,000) shares.
-1-
<PAGE>
(b) By execution of this Escrow Agreement the Company, the Lender,
and the Shareholders, and each of them individually, agree to constitute the
Escrow Agent as their escrow agent for the purpose of holding and distributing
the shares in accordance with the terms hereof.
(c) The Escrow Agent shall likewise be bound by the terms hereof upon
the later to occur of (i) its receipt and acceptance of the Escrowed Shares and
(ii) its execution of this Escrow Agreement.
(d) All parties to this Escrow Agreement recognize and agree that the
Shareholders may, at their option and in order to facilitate the prompt
establishment of the escrow described herein, deposit with the Escrow Agent
certificates representing more than the number of shares which they may
individually have pledged to secure the Note, as described in paragraph (a),
above. In such event, it is by all parties recognized and agreed that the escrow
herein created, and the rights of the Lender hereunder and under the Note,
extend only to those shares specified in paragraph (a) above (the "Escrowed
Shares"), and not to any additional shares of stock in the Company which may be
represented by the stock certificates placed with the Escrow Agent pursuant
hereto. The Lender expressly waives and disclaims any rights it might otherwise
have, or might obtain by virtue of any default under the Note or this Escrow
Agreement, in or to any shares other than the Escrowed Shares.
2. DEPOSIT OF NOTE PROCEEDS. The Company will receive the funds
represented by the Note directly from the Lender, and none of the funds to be
loaned to the Company under the Note shall pass through the Escrow Agent. The
Company shall have complete discretion as to how such funds are to be used.
3. REPAYMENT OF THE NOTE. The Company shall repay the principal of the
Note and any interest earned thereon directly to the Lender, and none of such
funds shall pass through the Escrow Agent unless at the specific written request
of both the Company and the Lender.
4. DUTIES OF THE ESCROW AGENT.
(a) The Escrow Agent acts as a depositary only and is not responsible
or liable in any manner whatsoever for the sufficiency, correctness,
genuineness, or validity of any instrument (including without limitation the
Certificates representing the Escrowed Shares) deposited under this Escrow
Agreement. The Escrow Agent makes no representation whatsoever as to the
validity or enforceability of the Note or of this Escrow Agreement, or the
compliance of the Note or the loan it represents with any applicable state or
federal laws, regulations, or rulings. Further, the Escrow Agent shall not be
responsible for any representation or warranties made by the parties hereto, or
any of them, concerning the said loan, the Note, or any asserted repayment
thereof or for the application or use of any funds provided under the Note.
(b) Except as expressly provided in this Escrow Agreement, the Escrow
Agent shall be entitled to act entirely on the basis of written instructions
received from the Company and/or the Lender, and shall have no independent duty
of inquiry regarding the basis for such instructions.
-2-
<PAGE>
(c) The Escrow Agent shall not be liable for any error of judgment or
for any act taken or omitted by it in good faith or for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection with
this Escrow Agreement except for its own willful misconduct, and the Escrow
Agent shall have no duties to anyone except the Company and the Lender.
(d) The Escrow Agent may consult with legal counsel in the event of
any dispute or question as to the construction of this Escrow Agreement or the
Escrow Agent's duties under this Escrow Agreement, and the Escrow Agent shall
incur no liability and shall be fully protected in acting in accordance with the
opinion and instructions of counsel. Notwithstanding the Escrow Agent's
consultation with counsel, the Escrow Agent is not obligated to institute,
defend or participate in any litigation regarding a dispute arising from the
Escrow Account or this Escrow Agreement.
(e) In the event of any controversy or disagreement concerning this
Escrow Agreement, the Escrow Account, or any matter related thereto, resulting
in diverse claims and demands being made in connection with any papers, stock
certificates, Escrowed Shares, money, or other thing of value deposited under
this Escrow Agreement, the Escrow Agent shall be entitled, at its option, to
refuse to comply with any such claims or demands, so long as such disagreement
shall continue. The Escrow Agent shall not be or become liable for damages or
interest to any party hereto, or to any other person, for the Escrow Agent's
failure or refusal to comply with any such claims or demands, and the Escrow
Agent shall be entitled to continue to refrain and refuse to act until
(i) the rights of the adverse claimants have been finally adjudicated
or arbitrated in a court assuming and having jurisdiction of the parties
and the money, paper, and property deposited under this Escrow Agreement;
or
(ii) all differences shall have been adjudicated by agreement, and the
Escrow Agent shall have been notified thereof in writing by all of the
persons interested; or
(iii) in the event of such disagreement, the Escrow Agent may, at its
option, file a suit in interpleader for the purpose of having the
respective rights of the claimants adjudicated and deposit with the court
all documents and property held by the Escrow Agent.
5. RESIGNATION OF ESCROW AGENT. The Escrow Agent reserves the right to
resign as escrow holder at any time by giving thirty (30) days prior written
notice of such resignation to the Company, the Lender, and the Shareholders. In
the event of such resignation by the Escrow Agent, the Escrow Agent shall
deliver the funds then held in the Escrow Account and all related records to any
replacement escrow holder appointed by the Lender; provided that such
replacement Escrow Agent shall be subject to all of the terms of this Escrow
Agreement. If the Lender fails to notify the Escrow Agent in writing as of the
identity of such replacement escrow holder within thirty (30) days after
receiving the notice of the Escrow Agent's resignation, the Escrow Agent will be
entitled
-3-
<PAGE>
to return to each of the Shareholders his Escrowed Shares, all other shares of
Company stock, belonging to such Shareholder then in its possession, the
certificates representing such shares, and to the Company any other money or
thing of value then in its possession.
6. INDEMNIFICATION OF ESCROW AGENT. Except with respect to any willful
misconduct of the Escrow Agent, the Company and the Lender shall each separately
indemnify and hold the Escrow Agent and its directors, officers, and employees,
harmless from and against any and all liability, demands, claims, actions,
losses, interest, costs of defense, and expenses (including reasonable
attorney's fees) which arise out of the Escrow Agent's acts or omissions to act
in accordance with this Escrow Agreement.
7. NOTICES. Notice required to be given pursuant to the terms of this
Escrow Agreement shall be personally delivered or sent by registered or
certified mail, return receipt requested:
IF TO THE COMPANY
Java Centrale, Inc.
1610 Arden Way, Suite 145
Sacramento, CA 95814
IF TO THE SHAREHOLDERS, OR ANY OF THEM:
C/0 Java Centrale, Inc.
1610 Arden Way, Suite 145
Sacramento, CA 95814
IF TO THE LENDER:
The Harmat Organization
P. O. Box 539
Quogue, NY 11959
IF TO THE ESCROW AGENT:
Rosenblum, Parish & Isaacs, PC
555 Montgomery Street, 15th Floor
San Francisco, CA 94111
Attn: Philip S. Boone, Jr.
8. MISCELLANEOUS.
(a) The provisions of this Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors, or assigns.
(b) This Escrow Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute on and the same instrument.
-4-
<PAGE>
(c) This Escrow Agreement shall be governed by, and constructed in
accordance with, the laws of the State of New York..
(d) All captions contained in this Escrow Agreement are for convenience
only and are not to be deemed part of the agreement or to be referred to in
connection with the interpretation of this Escrow Agreement.
(e) Whenever required by the context of this Escrow Agreement, the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
(f) This Escrow Agreement shall not be subject to rescission or
modification except on receipt by the Escrow Agent of the written instruction of
the Company or its successor in interest, and no such modification shall be
effective unless and until consented to in writing by the Lender and the Escrow
Agent.
(g) The failure of any party hereto to insist upon strict adherence to any
term of this Escrow Agreement on one or more occasions shall not be considered a
waiver or deprive such party of the right thereafter to insist upon strict
adherence to such term or any other term of this Escrow Agreement. Any waiver
must be in writing.
(h) Any controversy or legal dispute between the parties hereto, or any of
them, arising out of this Agreement or the Note or the performance or
non-performance of any party to either of them, will be settled by binding
arbitration in San Francisco, California before the Judicial Arbitration and
Mediation Services Inc. ("JAMS"), following the JAMS Rules of Practice and
Procedure. IEACH PARTY HERETO UNDERSTANDS THAT BY AGREEING TO ARBITRATE SUCH
DISPUTES HE OR IT IS WAIVING ANY RIGHT HE OR IT MIGHT OTHERWISE HAVE TO A JURY
TRIAL. A copy of the JAMS rules may be obtained by calling JAMS at
1 800 352-5267.
IN WITNESS WHEREOF, the undersigned, being all the parties hereto, have
executed this Escrow Agreement, intending to be bound hereby, effective as of
the day and year first above written.
THE COMPANY: JAVA CENTRALE, INC.
By:
----------------------
Gary C. Nelson
Its President and
Chief Executive Officer
SIGNATURES CONTINUE ON THE FOLLOWING PAGE
-5-
<PAGE>
SIGNATURES CONTINUE FROM PREVIOUS PAGE
THE SHAREHOLDERS:
-----------------------------
Gary C. Nelson
-----------------------------
Thomas A. Craig
-----------------------------
Bradley B. Landin
THE LENDER: THE HARMAT ORGANIZATION
By:
-------------------------
-----------------------
Its
--------------------
THE ESCROW AGENT: ROSENBLUM, PARISH & ISAACS, PC
By:
-------------------------
Philip S. Boone, Jr.
A Member of the Firm
-6-
<PAGE>
Exhibit 4.19
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933 ("ACT") OR QUALIFIED UNDER THE
CALIFORNIA CORPORATE SECURITIES LAW OF 1968 OR THE SECURTIES LAWS OF ANY OTHER
STATE ("LAWS"). THE WARRANTS HAVE BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE
RESTRICTED SECURITIES FOR PURPOSES OF RULE 194 PROMULGATED UNDER THE ACT.
NEITHER SAID WARRANTS NOR ANY INTEREST THEREIN MAY BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANTS UNDER THE
ACT AND QUALIFIACTION UNDER THE LAWS, OR AN OPINIION OF COUNSEL SATISFACTORY TO
THE CORPORATION THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED AS TO
SAID SALE OR OFFER. THE WARRANTS ARE SUBJECT TO TRANSFER RESTRICTIONS NOTED IN
THE WARRANT CERTIFICATE AND ACCOMPANYING AGREEMENT.
STOCK PURCHASE WARRANT
ONE HUNDRED THOUSAND (100,000) WARRANTS TO
PURCHASE COMMON STOCK OF
JAVA CENTRALE, INC.
This Stock Purchase Warrant Certificate (this "Warrant Certificate"), dated and
issued as of the date set forth below (the "Issue Date"), has been adopted and
executed by JAVA Centrale, Inc., a California corporation (the "Company"), to
CERTIFY that the Company hereby grants The Harmat Organization, a Delaware
corporation, (the "Purchaser"), One Hundred Thousand (100,000) warrants (the
"Warrants") to purchase Company common stock. Each Warrant initially entitles
the Purchaser to acquire one share of the Company's no par value common stock (a
"Warrant Share") for each Warrant, on payment of $.05 per Warrant Share (the
"Exercise Price") until 5:00 p.m. Sacramento, California time on the date which
is two (2) years from the Issue Date (the "Expiration Time"), subject to earlier
termination upon certain mergers. The Warrants are subject to the Terms and
Conditions Governing this Warrant Certificate, which follow (the "Agreement").
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by the undersigned, duly authorized thereunto.
DATED as of November 19, 1997 JAVA CENTRALE, INC.
By: /s/ Gary Nelson
---------------------
Gary C. Nelson
Its: President
<PAGE>
Exhibit 4.19
WARRANT AGREEMENT
BETWEEN
THE HARMAT ORGANIZATION & JAVA CENTRALE, INC.
The terms and conditions with respect to the holding and exercise of the
Warrants are as follows.
1. NUMBER OF SHARES ACQUIRABLE UPON EXERCISE, CERTAIN ADJUSTMENTS.
(a) The Harmat Organization shall be entitled to receive, upon
exercise hereof, up to One Hundred Thousand (100,000) shares of JAVA CENTRALE,
INC., Common Stock, subject, however, to adjustment as provided below.
(b) If, following the date hereof and prior to the Expiration Time
(as defined below), the outstanding shares of the Company's Common Stock shall
be increased or decreased through a stock split, stock dividend, stock
consolidation, or otherwise, without consideration to the Company, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which Warrants may be exercised. By way of example only, if the
Company should undergo a one-for-ten reverse stock split of its outstanding
shares of Common Stock, the number shares for which the Warrants may be
exercised would thereupon decrease to 10,000 shares.
(c) Any increase or decrease in the number of shares obtainable
through the exercise of the Warrants shall become effective immediately
following the effective time of the stock split or consolidation causing such
increase or decrease, or in the case of an increase required by the stock
dividend, shall become effective as of the payment or distribution date of such
dividend.
(d) No fractional shares of stock shall be issued or made available
under the Plan on account of any such adjustment, and fractional share interests
shall be disregarded.
2. EXERCISE PRICE, ADJUSTMENT IN CERTAIN EVENTS.
(a) The Warrants shall be initially exercisable for a purchase price
of $.05 per Share, subject to the adjustments set forth below (the "Exercise
Price"). The Exercise Price shall remain unchanged until the occurrence of one
of the events described in Section 1(b), above.
(b) In the event of a change in the number of shares of Common Stock
which may be caused by any event described in Section 1(b), above, a
corresponding adjustment changing the exercise price per share of Common Stock
attributable to any unexercised Warrants shall likewise be made. By way of
example, only, if the Company should undergo a one-for-ten reverse stock split
of its outstanding shares of Common Stock as described in Section 1(b), above,
then in addition to the change in number of shares for which the Warrants may be
exercised as described in Section 1(b), the exercise price for each share of
Common Stock for which the Warrants may thereafter be exercised thereafter would
be increased from $.05 to $.50 per share.
<PAGE>
Exhibit 4.19
3. METHOD OF EXERCISE. The Harmat Organization may exercise its right to
purchase Shares pursuant to this Warrant Agreement at any time prior to the
Expiration Time, by (a) completing in the manner indicated, and executing, the
attached Subscription Form for that number of Shares which it is entitled, and
desires, to purchase; (b) surrendering the Warrant to the Company, at their
offices in Sacramento, California; and (c) paying the appropriate purchase price
for the Shares, by cash, money order, bank draft, or business in Sacramento,
California. Upon such surrender and payment, the Company shall cause to be
transferred to The Harmat Organization the number of Shares so subscribed for.
4. EFFECT OF EXERCISE. Upon surrender of the Warrants and due payment of
the exercise price, the Company will transfer to The Harmat Organization the
number of shares of Common Stock subscribed for, and The Harmat Organization
will be a shareholder of the Company in respect of such Common Stock as of the
date on which the shares representing such Common Stock are issued by the
Company's Transfer Agent and Registrar.
5. NO RIGHTS AS SHAREHOLDER PRIOR TO EXERCISE. No person or entity shall
be considered to be shareholder of the Company for any purpose until the
exercise of the Warrants as provided herein Agent and Registrar thereupon.
6. NO RIGHTS AFTER THE EXPIRATION TIME. Nothing contained in the
Warrants, or in any instrument evidencing the Warrant, shall confer on any
person or entity any right to subscribe for or purchase, after the Expiration
Time, any security of or issued by the Company. From and after the Expiration
Time, the Warrant and all rights hereunder shall be valueless, unexercisable,
void, and of no further force or effect.
7. NONTRANSFERABILITY. This Warrant shall not be transferable, and any
attempt to sell, assign, transfer, hypothecate, or otherwise convey or encumber
any interest herein or therein shall be void. The Company shall have no
obligation to recognize any such sale, assignment, transfer, hypothecation, or
other conveyance or encumbrance, to reflect such transaction on the official
records of the Company, or to issue Warrants to any party in violation of this.
8. SUBDIVISION. The Warrant may be divided and subdivided into two or
more certificates, evidencing the total number of Warrants provided herein, upon
written demand therefore delivered to the Company. The Warrants may be
exercised for all or any part of the Shares, and in such event the Company shall
issue new Warrants, evidencing the balance of the Shares not previously
subscribed for. Notwithstanding the foregoing sentences, however, no Warrant
shall be issued, and no exercise of the Warrants shall be permitted, involving
any fraction of one Share.
<PAGE>
Exhibit 4.19
9. MISCELLANEOUS.
(a) The Warrant Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York,
without reference to the choice of laws provisions thereof.
(b) The captions set forth in this Warrant Agreement are for
convenience only, and shall not be used in the construction
hereof.
(c) If the Warrant Agreement, or any paragraph, sentence, term, or
provision hereof, is invalidated on any ground by any court of
competent jurisdiction, the remainder hereof shall,
notwithstanding such invalidation, remain in full force in
effect, and each other provision of this Warrant Agreement shall
thereafter be construed and enforced in such a manner as to give
the fullest possible effect to the intention and purposes
expressed herein.
10. REGISTRATION RIGHTS
(a) The Company shall be required in the next appropriate
registration statement to register all underlying shares of these
warrants herein and the Company will use its best efforts to
comply with "Blue Sky" registration of various jurisdictions as
requested by the holder.
(b) All expenses shall be borne by the Company.
(c) In the event any shares owned by the warrant holder are included
in a registration statement, to the extent provided by law, the
Company and selling shareholders hold each other harmless against
any loss, claims, damages, expenses or liabilities to which any
of them may become subject under any securities act based upon
any untrue statement or omission (or alleged) contained in a
registration statement.
IN WITNESS WHEREOF, JAVA CENTRALE, INC. HAS EXECUTED THIS WARRANT AGREEMENT
WITH THE HARMAT ORGANIZATION TO PURCHASE COMMON STOCK DATED AS OF NOVEMBER 19,
1997.
JAVA CENTRALE, INC.
/s/ Gary Nelson
---------------------------
BY: GARY NELSON
ITS: PRESIDENT
<PAGE>
Exhibit 4.19
WARRANT SUBSCRIPTION FORM
WARRANT TO PURCHASE STOCK DATED AS OF THE __________19__
TO: GARY NELSON, President
JAVA CENTRALE, INC.
1610 Arden Way Suite 195
Sacramento, California 95815
RE: Exercise of WARRANT to Purchase Stock of JAVA CENTRALE, INC.
Pursuant to the terms of the certain Warrants, dated as of the 19th of
November 1997, (the "Warrants"), the WARRANT is attached to this Subscription
Form, the undersigned hereby subscribes for ___________ whole shares of Java
Centrale Inc., no par value Common Stock, at a price of $.05 per share or at
such other price as may be applicable in accordance with the terms of the
Warrants.
TOTAL SUBSCRIPTION PRICE: $___________________
The undersigned hereby directs and requires that the shares of the Common
Stock being subscribed for hereby be issued and delivered as follows:
Full Name of Shareholder:
Full Address:
Number of Shares for Which Subscribed:
DATED: ______________________
THE HARMAT ORGANIZATION
By:
Its:
<PAGE>
Exhibit 4.19
NOTE: The Subscription Form must be signed and accompanied by payment to The
Holder, in full, of the appropriate subscription price, in cash or by money
order, bank draft, or certified check, payable to JAVA CENTRALE, INC. at their
place of business in Sacramento, California, and must be received by the Company
prior to 5:00 PM, New York time, on November 18, 1999 (the "Expiration Time"),
after which time all rights represented by the attached Warrant will expire.
The Holder accepts no responsibility for the delivery to it of this Subscription
Form or the accompanying Warrant. Sufficient time should be allowed for the
delivery of these documents prior to the Expiration Time.
Upon surrender of this Subscription Form and the Warrant, and payment of the
subscription price as provided therein, The Holder will transfer the number of
shares of Common Stock subscribed for, and such persons or entities will
thereupon is subscribed for than the number of shares described in the Warrant,
The Holder shall issue a further Warrant in respect of the unsubscribed shares
of Common Stock not subscribed for hereby.
<PAGE>
[LETTERHEAD]
EXHIBIT 5
December 23, 1997
Board of Directors
Java Centrale, Inc.
1610 Arden Way, Suite 299
Sacramento, CA 95815
Dear Sirs:
We refer to Pre the Form SB-2 Registration Statement filed on even date
herewith by Java Centrale, Inc. (the "Company") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to 2,875,000
shares of the Company's no par value Common Stock (the "Common Stock") and
certain associated Common Stock Purchase Warrants (the "Warrants").
As counsel to the Company, we have examined such corporate records, other
documents, and such questions of law as we have considered necessary or
appropriate for purposes of rendering this opinion and, on the basis of such
examination, advise you that, in our opinion:
1. The Common Stock and the Warrants have been duly and validly
authorized,
2. The Warrant described in the Registration Statement as currently
outstanding have been duly and validly issued and are outstanding,
3. The 625,000 shares of Common Stock described in the Registration
Statement as being currently outstanding have been duly and validly issued and
are non-assessable; and
4. The remaining 2, 250,000 shares of Common Stock which are described in
the Registration Statement will be, when issued and sold in the manner
contemplated in the Registration Statement, validly issued, fully paid, and
non-assessable.
<PAGE>
Board of Directors
Jaa Centrale, Inc.
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to this firm under the caption "Legal Matters"
in the Prospectus contained therein. This consent is not to be construed as an
admission that we are a person whose consent is required to be filed with the
Registration Statement under the provisions of Section 7 of the Securities Act
of 1933, as amended.
Very truly yours,
ROSENBLUM, PARISH & ISAACS, PC
By:
---------------------------
A Member of the Firm
<PAGE>
Exhibit 10.14
December 12, 1997
Mr. Karl Thompson
paradise Bakery & Cafe
1610 Arden Way (Suite 145)
Sacramento, California 95815
Subject: Agreement between Host International, Inc. ("Host") and
Java Centrale, Inc. ("Licensor")
Dear Karl:
This letter, when executed on behalf of Licensor will constitute the agreement
(the "Letter Agreement") with Host as of the date above. Assuming that the
terms are agreeable, please execute both originals and return one original to
me.
Background. Licensor has the right and authority to license the use of the
trade name, trademarks and system of the concept listed at Exhibit A (referred
to herein as the "Concept" or "Paradise Bakery"), and the other licensed marks
of Licensor, service marks, copyrights, interior and exterior designs and
specifications ("Marks"). Host is in the business of conducting food and
beverage and merchandise concessions at domestic and international airports,
tollroads, malls (but only those instances when a mall owner or developer is
seeking either a master concessionaire for operation of a food court, or a
master concessionaire for another multiple concept area in such mall), stadiums
& arenas, and other off-airport locations )the "Locations"). The parties desire
to enter into this Letter Agreement for the purpose of creating a binding
obligation on each party with respect to future development opportunities for
the Concept.
1. FORM AGREEMENT. Host and Licensor will consider development of
licensed sites for the Concept in Host's Locations, including but not
limited to domestic and international airport concessions ("Airport
Locations"), tollroad concessions ("Tollroad Locations"), malls ("Mall
Locations"). Within the next sixty (60) days the parties will agree
upon a form of license or franchise agreement for each Location (the
"Form Agreement") to document the agreement of the parties for each
Location developed during the term of this Letter Agreement. Host
may, in its sole discretion, designate an affiliate of Host to hold or
be transferred the site-specific Form Agreement, so that the entity
which operates the Concept at the Location will be the same entity
which holds the rights to concession space under the ground lease or
master concession agreement for the Location. By way of example, host
and Licensor acknowledge that the Form Agreement for mall Locations
would ordinarily be entered into in the name of Host Marriott Services
USA, Inc., while Host Marriott Tollroads, Inc. may be the entity which
holds or is transferred the rights to operate a Paradise Bakery
facility at certain Tollroad Locations.
<PAGE>
Exhibit 10.14
2. INCLUSION IN PORTFOLIO; RENEWAL RIGHTS; EXCLUSIVITY. The parties
hereby agree and acknowledge that the following shall apply to Host
and Licensor regarding the Concept (or other later version of the
Concept) and the parties' relationship for all Locations (except that
Mall Locations are subject to the additional provisions of Subsection
2(c) below):
a. New Locations. New Locations (i.e. those where Licensor has
not previously granted Host a Form Agreement) are governed by
this Subsection 2(a). For terms applicable to Locations where
Licensor has granted Host a Form Agreement, see Subsection 2(b).
i. Consideration for this Letter Agreement. Licensor
recognizes that Host is a developer of real estate at
Locations pursuant to master concession agreements which
frequently provide Host the exclusive right to offer for
sale food and beverages. The Licensor and Host now desire
that some of the available square footage at one or more of
the Locations be operated by Host, subleased by Host to an
entity authorized to operate the Concept at the
Locations(s). Host has agreed to include Licensor in its
portfolio of available brands for development of the Concept
at its Locations, in return for this Letter Agreement, which
provides certain assurances to Host, in the form of a
legally binding commitment from the Licensor and its
affiliates as provided in this Section 2.
ii. Right to First Offer. The Locations include but are
not limited to Airport Locations which are typically put out
to bid or for a request for proposals ("RFP") by the City,
County or other entity controlling the Airport; Tollroad
Locations which are typically put out to bid or RFP by an
agency of the applicable state; or mall Locations which seek
a master concessionaire for operation of multiple locations
in the mall food court or other areas subject to a master
concession agreement (collectively a "Mall Location master
Concessionaire"). Host is willing to open these
opportunities to Licensor for consideration on a
case-by-case evaluation of opportunities by Host, in
consideration of which Licensor agrees:
A. If there is a bid or RFP pending at a
location, Licensor agrees that it shall not
directly or indirectly permit the Concept to be
included in the proposal of any other entity than
host, unless Host has failed to notify the
Licensor that the Concept has been included in
such bid or RFP. Host's deadline for notice is
the lesser of two (2) months prior to the
submission date, or a date which is one-half the
number of days between the public release of the
request for proposals and the bid/RFP submission
date (the Deadline").
<PAGE>
Exhibit 10.14
If Host fails to provide such notice by the
deadline, Licensor is free to submit a bid or
proposal in response to the RFP.
B. Rejection by the Licensor. If Host provides
notice to the Licensor that the Concept will be
included in Host's proposal, the Licensor will
have five (5) days to reject Host's notice. In
the event that Licensor has declined the option to
have the Concept included in Host's bid or
proposal, Licensor will not pursue such Location
with another party or on its own, or otherwise
permit the Concept in any other bid or proposal
for concessions at such Location.
C. Acceptance of Option. If Licensor accepts the
option to become part of the bid or proposal for a
Location by Host or its affiliates, host shall
promptly notify Licensor of whether or not the
proposal was awarded to host. If the bid or
proposal was not awarded to host, Licensor shall
not thereafter, directly or indirectly, enter into
an agreement, or otherwise permit, the use of the
Licensor's marks at the Location or Locations
which were the subject of the bid or proposal.
D. Bids and Proposals for which Host is
Ineligible. The Licensor recognizes that the
entities announcing an opportunity at one of the
Locations (i.e. at a commercial airport or
Tollroad in North America, or at a proposal for a
Mall Location operated by mall Master
Concessionaire) may announce opportunities for
which Host is ineligible. For example, an airport
authority may release an RFP which has a master
concessionaire component and a component which has
been set aside for minority business enterprises
("MBE's"), or it may release two or more separate
RFPs. Licensor hereby agrees that (unless Host
has previously indicated that Licensor's Concept
will not be in Host's proposal) is will cause
irreparable harm to Host for Licensor to be a part
of a proposal other than Host's for a Location,
and it will reduce Host's likelihood of winning
the award of such RFP to have the Concept in
multiple bids/proposals.
E. Opportunities Not Awarded in a Bid or Proposal
Process. If Licensor has an opportunity to
develop a Concept at a Location where host (and
its affiliates) have no Form Agreement, and if
such opportunity is not offered pursuant by public
bid or award process, Licensor shall
<PAGE>
Exhibit 10.14
notify Host of the opportunity and shall offer
Host a right of first refusal to act as Licensor's
licensee/franchisee for such Location. Host shall
have thirty (30) days following receipt of all
relevant information regarding such potential
site, to accept or reject development of such site
under the same terms and conditions as the Form
Agreement. If, after Host declines such
opportunity, Licensor desires to grant a
license/franchise to a party other that Host or
its affiliates under terms more favorable than
those in the Form Agreement, Licensor shall first
offer such improved terms to Host, and Host shall
have thirty (30) days to accept or reject such
Location. Notwithstanding the foregoing, Host
agrees that this paragraph does not apply to all
malls; it applies only to those instances when a
mall owner or developer is seeking either a master
concessionaire for operation of a food court, or a
master concessionaire for another multiple concept
area in such mall.
b. Locations Where Host (or one of its affiliates or
subcontractors) has a Form Agreement from Licensor. Each of the
Form Agreements will include: a provision allowing host (or the
affiliate or subcontractor of Host) to extend the term of the
license/franchise agreement for any renewal or extension of the
underlying concession agreement; and a provision allowing Host a
radius restriction precluding a Licensor form authorizing use of
the Marks by a party other than Host within the Location.
c. Additional Mall Provisions. With regard to Mall Locations,
in addition to other restrictions contained herein, the parties
agree that if Licensor becomes aware of an opportunity for a
master lease to develop food and beverage facilities for a food
court or similar multi-concept areas, Licensor shall notify Host
of such opportunity pursuant to the notice provision of this
Agreement. Licensor continues to have the right to operate a
Paradise Bakery restaurant in a mall, so long as the site is not
then being developed or leased by a master concessionaire/master
lessee of a mall food court/mall. In malls where there is a
master concessionaire/master lessee of a mall food court/mall,
Host shall have the same limited exclusivity for Paradise Bakery
as it has in Airport Locations or Tollroad Locations pursuant to
this subsection 2(b), above, subject to any territorial rights
granted by Licensor prior to the effective date of this
Agreement, as set forth in a letter provided to Host at the time
of execution of this Letter Agreement.
3. TERM. The term of the Letter Agreement shall commence effective as of
the date first above written and shall terminate December 31, 2002;
except that Host shall have the option to extend this Letter Agreement
for three (3) additional terms of
<PAGE>
Exhibit 10.14
five (5) years each upon written notice not less than thirty (30) days
prior to the expiration of the then-current term. The Form Agreements
shall continue in full force and effect for their individual terms,
notwithstanding any termination of this Letter Agreement.
4. OTHER TERMS. Notwithstanding any other provision of this Letter
Agreement, or any provision of the For Agreement, the parties agree
that:
a. Host and its subsidiaries and affiliates are experienced
Hosts of food and beverage concessions, and Host is the holder of
numerous competing licenses (e.g., for pizza, Host operates both
Pizza Hut and Sbarro concepts). Licensor acknowledges and agrees
that Host shall not be prohibited from developing its own
concept, operating other such concepts, or granting others the
right to operate competing concepts.
b. At Host's option. Host may designate a minority business
enterprise ("MBE") to operate a Location, and in such event,
Licensor shall, subject to compliance with applicable law and the
conditions described below, take all steps necessary to assure
that such MBE is provided a Paradise Bakery Form Agreement, as
attached hereto. In the alternative, Host may assign any such
Form Agreement, subject to compliance with applicable law and the
conditions described below, to any of Host's MBE to Licensor and
Licensor shall have the opportunity to perform Licensor's normal
approval and due diligence investigation with regard to such MBE,
in accordance with Licensor's standard policies and practices.
Licensor shall not be required to enter into the Form Agreement
with a proposed MBE unless the MBE meets Licensor's then-current
criteria for new owners of Paradise Bakery restaurants, as
determined by Licensor in its discretion. Notwithstanding the
foregoing, Host may assign or transfer any Form Agreement to
joint venture or other entity, such as a joint venture with a
DBE, so long as Host retains at least fifty and one-tenth percent
(50.1%) ownership of assignee or transferee.
c. There shall be no press releases without the mutual written
agreement of the parties.
d. Notices issued hereunder shall be by certified or registered
mail, return receipt requested, to the addresses first listed
above. Notices sent in accordance with this Section shall be
deemed effective on the date of dispatch, and an affidavit of
mailing or dispatch, executed under penalty of perjury, shall be
deemed presumptive evidence of the date of dispatch.
e. The parties agree that the interpretation of this Agreement
and the rights and liabilities of the parties hereto shall be
governed by the laws of the state of Delaware. The prevailing
party in any litigation, arbitration or other
<PAGE>
Exhibit 10.14
proceedings shall be ensiled to payment of its reasonable costs,
including attorney's fees.
f. The rights and remedies of either party hereunder shall not
be mutually exclusive (i.e., the exercise of one or more of the
provisions hereof shall not preclude the exercise of any other
provisions hereof). Each party confirms that damages at law will
be an inadequate remedy for a breach or threatened breach of any
provision hereof, the respective rights and obligations hereunder
shall be enforceable by specific performance, injunction or other
equitable remedy, but nothing herein contained is intended to,
nor shall it, limit or affect any rights of law or by stature or
otherwise of any party aggrieved as against the other for a
breach or threatened breach of any provision hereof, it being the
intent of the parties that the respective rights and obligations
of the parties be enforceable in equity as well as at law.
5. ENTIRE AGREEMENT. This Letter Agreement and the Addendum to this
Letter Agreement, the Existing License Agreement, and the Form
Agreement (with form addendum) attached hereto, constitute the entire
agreement between the parties, superseding any other written and oral
agreements between the parties. If any article, section, provision,
term or condition of the Agreement is held to be invalid by a court of
competent jurisdiction, such article, section, provision term or
condition shall be reformed to the extent necessary to be held valid,
and the parties agree that the remainder of this Agreement shall not
be affected thereby.
Assuming that you agree with the terms of this Letter Agreement, please
have both originals executed and returned to the following notice address
for Host:
Host International, Inc.
Third Floor, Mail Stop 17
6600 Rockledge Road
Bethesda, Maryland 20817
Attn: Vice President and
Chief Counsel, Development/Brands
Dept. 72/928.83
Sincerely,
James A. Boragno
Senior Vice President
Concept Portfolio
<PAGE>
Exhibit 10.14
THE FORGOING TERMS OF THIS LETTER AGREEMENT, AND THE ATTACHED FORM AGREEMENT ARE
HEREBY AGREED TO, AS OF THE DATE FIRST ABOVE WRITTEN, BY:
JAVA CENTRALE, INC.
Attest: /s/ Jeffery Dudley By: /s/ Bradley B. Landin
---------------------- ------------------------
Title: Vice President
---------------------
<PAGE>
Exhibit 10.14
EXHIBIT A
The Trade Name and Trademarks
Under the Franchise Agreement, Paradise authorizes you to operate a
Bakery & Cafe utilizing the mark "Paradise Bakery & Cafe" and such
other trade names, service marks and trademarks designated for use by
you as are now designated and may be designated and/or changed in the
future by Paradise. You may only use the marks of Paradise as
instructed by paradise. The marks under the Franchise Agreement may
be changed, deleted, or replaced.
United States Patent Office Trademark Registrations. No "Paradise
Bakery & Cafe" marks have been registered as of the date of this
Offering Circular. The following marks of Paradise have been
registered with the United States Patent and Trademark office, all
required affidavits have been filed as of the date of this offering
circular.
1. The mark "Paradise Bakery" registration number 1,466,754, issued
November 24, 1987 on the principal register for restaurant
services and food carry out services in Class 42. It is not yet
subject to renewal.
2. The mark "Paradise Bakery" registration number 1,543,798, issued
June 13, 1989 on the principal register for carbonated drinks for
consumption and off the premises in Class 32. It is not yet
subject to renewal.
3. The mark "Paradise Bakery Unique Quality" and design,
registration number 1,482,003, issued March 22, 1988 on the
principal register for restaurant services and food carry out
services in Class 42. It is not yet subject to renewal.
4. The mark "Paradise Bakery & Cafe" registration number 1,971,471,
issued April 30, 1996 on the principal register for restaurant
services, retail bakery store services, and food carry out
services in Class 42. It is not yet subject to renewal.
Trademark Filings. Paradise has filed for the following additional
marks:
1. The mark "Paradise Bakery Unique Quality" and design, serial
number 74/692634, filed 06/23/95, for restaurant services, retail
bakery store services, and food carry out services in Class 42.
This mark has been approved for publication.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Java Centrale, Inc. has only one subsidiary, Paradise Bakery, Inc., a
Delaware corporation.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement of Java Centrale,
Inc. on Form SB-2 of our report dated July 8, 1997 accompanying the
consolidated financial statements of Java Centrale, Inc. and Subsidiary as of
and for the three years ending March 31, 1997, and to the use of our name as
it appears under the caption "Experts" in the Prospectus which is part of the
Registration Statement.
GRANT THORNTON LLP
Sacramento, California
December 23, 1997
