As filed with the Securities and Exchange Commission on April 21, 1997
Registration No. 333-21575
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
Amendment No. 2
to
Form SB-2/A
Registration Statement Under The Securities Act of 1933
MIKE'S ORIGINAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 2024 11-3214529
(State or Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
Michael Rosen
Chief Executive Officer
Mike's Original, Inc.
131 Jericho Turnpike 131 Jericho Turnpike
Jericho, New York 11753 Jericho, New York 11753
(516) 334-8500 (516) 334-8500
(Address and telephone number of (Name, address and telephone number
principal executive offices and of agent for service)
and principal place of business)
Copies to:
Adam S. Rosenberg, Esq. Michael Beckman, Esq.
Blau, Kramer, Wactlar & Lieberman, P.C. Beckman & Millman, P.C.
100 Jericho Quadrangle, Suite 225 116 John Street
Jericho, New York 11753 New York, New York 10038
(516) 822-4820 (212) 227-6777
(516) 822-4824 Fax (212) 227-1486 Fax
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement for the same offering.
[ ]__________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]___________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [X].
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Proposed Proposed Maximum
Securities to be Amount to be Maximum Offering Aggregate Offering Amount of
Registered Registered (1) Price Per Security Price (1) Registration Fee
- ---------------------- -------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock,
$.001 par value(2) 776,250 $6.00 $4,657,500 $1,412
Class A Warrants(3) 1,006,250 $.20 $201,250 $61
Common Stock,
$.001 par value,
underlying
Class A Warrants(4)(9) 1,006,250 $6.00 $6,037,500 $1,830
Representative's
Securities 100,000 $.001 $250 --
Common Stock,
$.001 par value
contained in
Representative's
Securities (6)(9) 67,500 $7.20 $486,000 $147
Class A Warrants
contained in
Representative's
Securities(6)(9) 87,500 $.26 $22,750 $7 --
Common Stock,
$.001 par value
underlying Class A
Warrants
contained in
Representative's
Securities (7)(9) 87,500 $7.20 $630,000 $191
Common Stock,
$.001 par value,
owned by Selling
Securityholders (8)(9) 1,635,275 $6.00 $9,811,650 $2,973
Total - $21,846,400 $6,621
<FN>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended. $6,836 has been
previously paid.
(2) Includes up to 101,250 shares of Common Stock which may be purchased by the
Representative to cover over-allotments, if any.
(3) Includes up to 131, 250 redeemable Common Stock Class A Purchase Warrants
which may be purchased by the Representative to cover over-allotments,
if any.
(4) Reserved for issuance upon exercise of the Common Stock Purchase Warrants.
(5) Issued to the Representative entitling the Representative to purchase one
share of Common Stock ("Representative's Stock Warrants") and one Common
Stock Class A Purchase Warrant ("Representative's Warrants") for each ten
of such securities sold in the offering.
(6) Reserved for issuance upon exercise of Representative's Securities.
(7) Reserved for issuance upon exercise of the Warrants underlying the
Representative's Warrants.
(8) Represents shares of Common Stock offered by Selling Securityholders.
(9) Pursuant to Rule 416, there is also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Warrants.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
MIKE'S ORIGINAL, INC.
CROSS REFERENCE SHEET
Registration Statement
Item Number and Heading Location in Prospectus
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside Cover
Pages
3. Summary Information and Risk Factors Prospectus Summary; The Company;
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Risk Factors;
Underwriting
6. Dilution Dilution
7. Selling Security Holders Selling Securityholders
8. Plan of Distribution Underwriting; Risk Factors;
Selling Securityholders
9. Legal Proceedings Business - Legal Matters
10. Directors, Executive Officers, Promoters
and Control Persons Management
11. Security Ownership of Certain Beneficial
Owners and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interests of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Management
15. Organization within Last Five Years Business; Certain Transactions
16. Description of Business The Company; Business
17. Management's Discussion and Analysis
or Plan of Operation Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property Business - Property
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters Cover Page; Principal
Stockholders; Description of
Securities; Risk Factors
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure Change in Accountants
<PAGE>
Information contained herein is subjected to completion or amendment. A
registration sttement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solication or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 21, 1997
PRELIMINARY PROSPECTUS
MIKE'S ORIGINAL, INC.
675,000 Shares of Common Stock and
875,000 Redeemable Common Stock Purchase Warrants
Mike's Original, Inc. (the "Company"), a Delaware corporation, is offering
675,000 shares of Common Stock, $.001 par value (the "Common Stock") at a price
of $6.00 per share, and 875,000 Redeemable Common Stock Class A Purchase
Warrants (the "Warrants" or "Class A Warrants") at a price of $.20 per Warrant
each of which, upon exercise, entitles the owner thereof to purchase one share
of Common Stock during the three years following the date hereof at a price of
$6.00 per share. The Common Stock and the Warrants offered hereby (collectively
the "Securities") will be separately tradeable immediately upon issuance and may
be purchased separately. The Warrants are redeemable by the Company, for $.25
per Warrant, on not less than thirty (30) nor more than sixty (60) days' written
notice if the average closing price per share of Common Stock is at least $12.00
per share during a period of twenty (20) consecutive trading days ending not
earlier than three (3) days on the date theWarraants are called for redemption.
Any redemption of the Warrant of during the one year period commencing on the
date of this Prospectus shall require the consent of IAR Securities Corp. (the
"Representative"), as representative of the underwriters (the "Underwriters").
See "Description of Securities."
Prior to this offering, there has been no public market for the Common
Stock or Warrants. The price of the Common Stock and exercise price of the
Warrants have been determined by negotiations between the Company and IAR
Securities Corp. For additional information regarding the factors considered in
determining the initial public offering prices, see "Underwriting".
The Company has applied for quotation of the Common Stock and the Warrants
on the OTC Bulletin Board. There can be no assurance that these securities will
be approved for listing or, if approved, that an active trading market will
develop. See "Risk Factors".
The registration statement of which this Prospectus forms a part also
covers the offering of an aggregate of 461,250 shares of Common Stock (the
"Second Private Placement Shares") owned by certain private placement investors
(collectively referred to as the "Second Private Placement Lenders"), and an
aggregate of 1,174,025 shares of Common Stock which are owned by other selling
securityholders (the "Investors"; and together with the Second Private Placement
Lenders the "Selling Securityholders"). See "Selling Securityholders". The
shares of Common Stock owned by certain of the Selling Security Holders and
registered hereunder may not be sold or transferred for twenty-four (24) months
from the date of this Prospectus, subject to earlier release at the sole
discretion of the Representative. See "Selling Securityholders" and "Description
of Securities."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION IN THE SECURITIES OFFERED HEREBY.
SEE "RISK FACTORS" ON PAGE 8 AND "DILUTION" PAGE 14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public Underwriting Discounts and Commissions(1) Proceeds to Company (2)
--------------- ------------------------------------------ ------------------------
<S> <C> <C> <C>
Per Share (3) $6.00 $.60 $5.40
Per Warrant $.20 $.02 $.18
Total $4,225,000 $422,500 $3,802,500
<PAGE>
<FN>
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of
three percent of the gross proceeds of this Offering ($.18 per share of
Common Stock and $.006 per Warrant) and (b) a Security, purchasable at a
nominal price, giving it the right to acquire 67,500 shares of Common Stock
at an initial exercise price of $7.20 per share (the "Representative's
Stock") and 87,500 Warrants at an initial exercise price of $.26 per Warrant
to purchase shares of Common Stock at $7.20 per share (the "Representative's
Warrants," and collectively with the Representative's Stock, the
"Representative's Securities"). In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Act") See
"Underwriting."
(2) Before deducting other offering expenses payable by the Company estimated
at $450,000, including the Representative's non-accountable expense
allowance in the amount of $126,750. See "Use of Proceeds" and
"Underwriting".
(3) For the purpose of covering over-allotments, if any, the Company has
granted to the Representative an option, exercisable within forty-five
days of the date hereof, to purchase an additional 101,250 shares of
Common Stock and 131,250 Warrants upon the same terms and conditions as
the Securities offered hereby. If such over-allotment option is exercised
in full, the Total Price to Public will be $4,858,750, the Total
Underwriting Discount will be $485,875 and the Total Proceeds to the
Company will be $4,372,875. See "Underwriting."
</FN>
</TABLE>
The securities are offered, subject to prior sale, when, as and if accepted
by the Representative named herein and subject to approval of certain legal
matters by counsel for the Representative. It is expected that the delivery of
the certificates representing Common Stock and Class A Warrants will be made on
or about ______, 1997 at the offices of IAR Securities Corp.
IAR SECURITIES CORP. MILLENNIUM SECURITIES CORP.
The date of this Prospectus is , 1997
<PAGE>
[Photographs of the Company's products, packaging and advertising)
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN , OR OTHERWISE EFFECT THE PRICE OF THE COMMON STOCK
AND/OR THE CLASS A WARRANTS, INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
The Company holds the registered trademarks and service marks under the
names "Mike's Original ", "GRAMWICH ", and "Graham Cracker Delight ". The
Company has common law trademarks for "Strawberry Fantasy " and "Chocolate
Tidbits ". All trademarks and service marks appearing herein that do not relate
to the Company's products are the property of their respective holders.
The Company intends to furnish its shareholders and holders of Class A
Warrants with annual reports containing audited financial statements, examined
by an independent public accounting firm, and such interim reports as it may
determine to furnish or as may be required by law.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of the over-allotment
option described under "Underwriting" or the exercise of any other options,
warrants or other convertible securities. All references herein to the Company
include its predecessor unless the context otherwise requires. Except where
otherwise indicated, this Prospectus gives effect to the .153846-for-1 reverse
stock split of the Common Stock effective in June 1996 and the .667-for-1
reverse stock split of the Common Stock effective in February 1997. Except for
historical information contained in this Prospectus, the matters discussed are
forward looking statements that involve risks and uncertainties. Among the
factors that could cause actual results to differ materially are the following:
the effect of business and economic conditions; the impact of competitive
products and pricing; capacity and supply constraints or difficulties; product
development, commercialization or technological difficulties; and the regulatory
and trade environment.
The Company
Mike's Original, Inc. (the "Company") markets, sells and distributes Mike's
Original Cheesecake Ice Cream, an innovative all natural blend of super-premium
ice cream with cheesecake ingredients. This product line is offered in a variety
of flavors mainly to supermarkets and grocery stores and also, to a lesser
extent, to convenience stores, food service outlets and warehouse clubs. The
Company's products are presently sold in approximately fifteen (15) states,
including New York, California, Pennsylvania and New Jersey, with sales
generally concentrated on the East and West coasts of the United States. The
Company believes, based on an internal study, that it incentivizes retailers to
continue purchasing its products through a pricing strategy designed to provide
retailers with a higher retail profit per linear foot as compared to other
competitive products based on the suggested retail price.
In October 1995, the Company entered into an agreement with the Kraft Pizza
Company ("Kraft-Pizza"), formerly Tombstone Pizza Corporation, a division of
Philip Morris Corporation, for the exclusive distribution of the Company's
products for the Northeastern and Western regions of the United States (the
"Kraft-Pizza Agreement"). The Kraft-Pizza Agreement provides the Company's
products with the opportunity to gain access to the thousands of existing retail
outlets already buying Tombstone Pizza, together with the use of Kraft-Pizza's
commission sales force to oversee the sales and in-store presentation of the
Company's products.
In April 1996, the Company entered into an agreement with Kraft Foods, Inc.
("Kraft Military"), also a division of Philip Morris Corporation, to represent
the Company in the sale of its products to military facilities throughout the
world (the "Kraft Military Agreement"). Military contracts exist with DeCA
(Defense Commissary Agency) and sales to the military commenced in the third
quarter of 1996.
Since October 1996, the Company has restructured its management. In this
regard, Michael Rosen has replaced Daniel Kelly as President, Mr. Kelly having
resigned in September 1996. The Company also has hired a Vice President of Sales
and Marketing and a Vice President-Finance, and has retained two frozen food and
ice cream consultants with a combined fifty years of experience in the sales and
marketing of ice cream. These persons have redirected the Company's selling
efforts to substantially increase sales in the approximately 3,500 retail
outlets selling the Company's products and to expand market penetration on the
East and West coasts into the institutional and food service segments. By
concentrating on existing locations and segments requiring limited up-front
fees, the Company intends to substantially reduce one of the major costs
associated with its prior operations. The Company currently has six (6)
employees.
Net sales for the year ended December 31, 1996 were approximately
$2,392,000, an increase of 3% from the previous nine (9) month period ended
December 31, 1995 and a decrease of 8% from the twelve (12) month period ended
December 31, 1995. The increase as compared to the shorter period was
<PAGE>
significantly reduced, and the decrease as compared to the prior twelve (12)
month period was, in each case, because of an initial build-up of inventory by
Kraft-Pizza in the fourth quarter of calendar 1995 which reduced sales to
Kraft-Pizza in 1996, an unusually cool summer in the Northeast during 1996, a
temporary work stoppage at the primary facility which manufactures the Company's
products and the withdrawal by the Company from certain test markets which
proved to be unprofitable. The Company's limited operating resources to date
also has prevented the Company's participation in certain discount promotions
and in-store programs which has caused a reduction in reorders throughout its
distribution network. The proceeds from this offering should enable the Company
to substantially increase sales in its existing retail outlets through
participation in these programs. The Company's products are currently
manufactured by one independent facility located in Buffalo, New York, which has
exclusive East coast manufacturing rights for the Company's products. Upon
completion of this offering, the Company may use additional manufacturing
facilities as well as re-establish its relationships with former manufacturers
of its products on the West coast.
The Company was incorporated in New York in March 1993 and reincorporated
in Delaware in May 1994. It maintains its principal offices at 131 Jericho
Turnpike, Jericho, New York 11753 and its telephone number is (516) 334-8500.
See "Risk Factors", "Management" and "Certain Transactions" for a
discussion of certain factors that should be considered in evaluating the
Company and its business.
<PAGE>
THE OFFERING
Securities Offered by the Company(1)
Common Stock . . . . . . . . . . . 675,000 shares
Warrants . . . . . . . . . . . . . 875,000 warrants
Price Per Share of Common Stock . . $6.00
Price Per Warrant . . . . . . . . . $0.20
Shares of Common Stock Outstanding
After Offering (2)(3). . . . . . . 3,061,622 Shares
Use of Proceeds . . . . . . . . . . For repayment of notes issued in a private
placement and other indebtedness, marketing
expenses, and for working capital and
general corporate purposes.
See "Use of Proceeds".
Proposed OTC Bulletin Board Symbols (4)
Common Stock. . . . . . . . . . . MOIC
Warrants. . . . . . . . . . . . . MOICW
Risk Factors. . . . . . . . . . . . Purchase of securities being offered hereby
involves a significant degree of risk,
including intense competition, rapid
growth, and dependence on key personnel
and major distributors, among
others. See "Risk Factors".
- ------------
(1) Does not include (a) 461,250 Second Private Placement Shares offered
by Selling Securityholders, which securities were acquired in
connection with a private placement financing of the Company from June
through September 1996 and (b) 1,174,025 shares of Common Stock owned
by the Investors. See "Selling Securityholders".
(2) Assumes no exercise of: (i) the Representative's over-allotment option to
purchase up to 101,250 shares of Common Stock and 131,250 Class A Warrants;
(ii) the Class A Warrants offered hereby; (iii) the Representative's
Purchase Option to purchase up to 67,500 shares of Common Stock and 87,500
Class A Warrants; (iv) the Class A Warrants purchasable by the
Representative upon exercise of the Representative's Purchase Option;
(v) outstanding options under the Company's 1995 Long Term Incentive Plan;
and (vi) outstanding options under the Company's 1996 Non-Qualified Stock
Option Plan. Does not give effect to conversion of debt and accrued
interest into an aggregate of 306,981 shares of Common Stock, which
occurred in April 1997 and the issuance of 187,000 shares of Common
Stock in April 1997. See "Description of Securities", "Underwriting" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources."
(3) See "Dilution".
(4) Although the Company will be applying for initial quotation of the
Common Stock and Class A Warrants on the OTC Bulletin Board,
there can be no assurance that the Company will be approved for
listing these securities or, if approved, that it will be able to
continue to meet the requirements for continued quotation or that a
public trading market will develop or be sustained. See "Risk Factors
- Absence of Public Market; Negotiated Offering Price".
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial information concerning the Company, other than
the as adjusted balance sheet data, has been derived from the financial
statements included elsewhere in this Prospectus and should be read in
conjunction with such financial statements and the notes thereto. See "Financial
Statements".
<TABLE>
<CAPTION>
Balance Sheet Data:
December December March
31, 1996 31, 1995 31, 1995
-------- -------- --------
<S> <C> <C> <C>
Total assets 443,232 400,014 555,132
Current liabilities 2,897,727 1,901,644 704,978
Long-term liabilities net of
current portion (1) 541,916 255,722 288,333
Stockholders' equity (deficit) (2,996,411) (1,757,352) (438,179)
Statement of Operations Data:
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Nine Months Fiscal Year
Ended Ended Ended
December December March
31, 1996 31, 1995 31, 1995
------------- ----------- -------------
<S> <C> <C> <C>
Net sales $2,312,144 $1,086,106 $2,392,258
Net loss (4,050,547)(2) (1,614,858) (719,380)
Loss per Common Share (3) ($1.67) ($0.75) ($0.44)
Weighted Average Common
Shares Outstanding (3) 2,431,245 2,150,537 1,624,908
- -------
<FN>
(1) Includes long term portion of notes to related parties with the related
accrued interest, capital lease obligations and certain expense accruals
not currently due.
(2) Includes approximately $1,400,000 of non-cash compensation attributable to
the issuances of stock for professional services rendered to the Company
and consulting fees to related parties attributable to stock options and
contractual obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidityand Capital
Resources".
(3) As adjusted to give effect to a .153846-for-1 reverse stock split effected
in June 1996 and a .667-for-1 reverse stock split effected in February
1997.
</FN>
</TABLE>
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Only those persons able to lose their entire investment should purchase
these securities. Prospective investors, prior to making an investment decision,
should carefully read this prospectus and consider, along with other matters
referred to herein, the following risk factors:
Substantial Historical Operating Losses; No Assurance of Profitability. The
Company has incurred losses from operations since its inception in 1993 and at
December 31, 1996 had an accumulated deficit, stockholders' equity deficit and
working capital deficit of $6,639,003, $2,996,411 and $2,539,788, respectively.
A significant portion of these amounts were incurred during the fiscal year
ended December 31, 1996 as a result of intense marketing by the Company,
including payment for introductory programs to supermarket and other food chain
retailers incurred in connection with entering new markets and maintaining
existing markets of approximately $622,000, and product advertising, promotion
and marketing expenses aggregating approximately $1,526,000. Although the
Company believes that its business expansion will be successful, and that the
Company will become profitable, no assurance can be given in this regard.
Limited Operating History. The Company has a limited operating history. The
Company is subject to all the general risks inherent in, and the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with, establishing any new business and operations. The Company is
currently operating with inadequate working capital and is materially dependent
on the proceeds of this offering to maintain operations. There is still no
assurance that the Company, even with such funds, will successfully maintain
operations at a level sufficient for an investor to obtain a return on the
Common Stock or Class A Warrants.
Dependence on Kraft-Pizza Agreement. While the Company delivers products
through certain regional distributors in the Midwest and elsewhere, the major
portion of the Company's revenues are derived from the Kraft-Pizza Agreement.
Kraft-Pizza accounted for approximately 79% of the Company's sales for the year
ended December 31, 1996. The Kraft-Pizza Agreement is terminable by either party
on sixty (60) days' prior written notice. If the Kraft-Pizza Agreement is
terminated the Company may be unable to retain other comparable distributors
willing to distribute ice cream in the exclusive areas, and the operations of
the Company may be adversely affected. While the Company believes that the price
at which its ice cream is sold to Kraft-Pizza is competitive with the prices
generally paid by distributors for super-premium ice cream in the areas of
distribution, it cannot predict whether it will be able to secure and maintain
alternative satisfactory distribution in the marketplace. See "Business -
Distribution and Marketing".
Security Interest by a Former Manufacturer in the Company's Assets. The
Company is presently indebted to one of its former manufacturers in the sum of
approximately $700,000. Pursuant to agreements, as amended, with this
manufacturer, the indebtedness is collateralized by all of the assets of the
Company and is payable in quarterly installments of $200,000 as well as monthly
payments of $12,000 plus accrued interest. Approximately $575,000 of this
indebtedness is payable from the proceeds of this offering and the balance is
payable in December 1997. Without this offering, it is unlikely that cash
generated from operations will be sufficient to fully repay this indebtedness.
If this debt is not paid, this secured party could foreclose on all of the
assets of the Company which would materially adversely affect the Company's
business plans and financial condition. See Note H of Notes to the Financial
Statements and "Use of Proceeds".
Substantial Introductory Program Expenses Required to Enter New, and
Maintain Existing, Markets. The Company has been required to incur substantial
promotional and advertising expenses to gain access to shelf space to enter new
markets, sell to new retail stores and maintain existing stores or markets.
While the Company believes, based on an internal study, that its products
provide retailers with a substantial profit per linear foot as compared to its
competitors' products, there is no assurance that even after incurring these
expenses, retail stores will continue to sell the Company's products.
<PAGE>
Dependence on Single Ice Cream Manufacturer. The Company's products are
manufactured by one independent United States Food and Drug Administration
("FDA") approved facility located in Buffalo, New York, under an exclusive
manufacturing agreement through March 20, 1999 for distribution East of the
Mississippi River. Two facilities on the West coast have recently suspended
manufacturing the Company's products due to the financial position of the
Company; however, each such facility has informed the Company that it will
reconsider manufacturing the Company's products upon completion of this offering
and payment by the Company of all amounts owing to such manufacturer. Upon
completion of this offering, the Company may use additional facilities as well
as re-establish its relationships with former manufacturers located on the West
coast. See "Use of Proceeds". While the Company believes that other
manufacturers are available, the Company entered into an exclusive agreement
for, among other reasons, the fact that changing to a new facility would result
in manufacturing delays which could temporarily impair the Company's ability to
deliver products to its customers, and extended delivery delays could
substantially impair the Company's available shelf space in certain retail
establishments. See "Business - Distribution and Marketing".
Possible Need for Additional Financing. The Company believes that its
existing capital resources, together with the proceeds of this offering, will
enable it to maintain its operations and working capital requirements for at
least the next twelve (12) months, without taking into account any internally
generated funds from operations. However, the Company may require additional
funds thereafter to maintain or expand its operations. Adequate funds for this
purpose on terms favorable to the Company, whether through equity financing,
debt financing, or other sources, may not be available when needed. The
Company's inability to obtain adequate financing could have a material adverse
effect on the Company. Furthermore, the Company has granted a security interest
on its assets to a third party, which could adversely impact its ability to so
finance its operations.
Going Concern Issues in Independent Auditor's Report. As a result of the
Company incurring losses since inception and its deficiency in working capital
at December 31, 1996, the Company's independent certified public accountants
have included an explanatory paragraph in their report on the Company's
financial statements, regarding having substantial doubt about the Company's
ability to continue as a going concern. Management's plans in this regard are
described in Note B of Notes to the Financial Statements.
No Additional Credit Facility. The Company has no additional credit
facility or other access to debt financing. Accordingly, the Company's business
could be materially adversely affected in the event that it has a need for funds
that it may not be able to obtain through a debt or equity financing.
Uncertainties Regarding Marketing of the Company's Products. The Company
intends to market its cheesecake ice cream nationally and internationally. There
is no assurance that the Company's products will continue to be accepted by
consumers. Further, there is no assurance that the U.S. market will provide
sufficient revenue and earnings to permit on-going operations or that the
Company will be able to successfully penetrate existing non-U.S.
markets for these products.
Competition. The super-premium ice cream market is highly competitive and
the Company faces substantial competition in connection with the marketing and
sales of its products. Among its competitors are Haagen-Dazs, Inc.,
("Haagen-Dazs") owned by The Pillsbury Company, Ben & Jerry's Homemade, Inc.
("Ben & Jerry's") and other numerous regional ice cream companies. Many of these
competitors are well established and have substantially greater financial and
other resources than the Company. Additionally, Haagen-Dazs and Ben & Jerry's
manufacture their own ice cream. In the ice cream novelty segment, the Company
competes with several well-known brands including Haagen-Dazs and Dove Bars ,
manufactured by a division of Mars, Inc.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expenses of a national marketing program and the limitations on
available space in the freezer compartments of supermarkets and other retail
customers. The Company's products also may be considered to be in competition
with all ice cream and other frozen desserts for discretionary food dollars. The
ability of the Company to increase its market share will be dependent upon
several factors, among which are the quality and price of its products,
advertising and the availability of sufficient capital for product expansion.
<PAGE>
Possible Adverse Impact of Higher Prices for Raw Materials. The primary raw
materials used in the Company's operations are dairy products, including cream
cheese and milk. The Company believes that such products are readily available
from many sources, though the prices thereof may fluctuate. In this regard, the
Company's profit margins were reduced from May 1996 through November 1996
primarily as a result of an increase in the price for dairy products, although
at the end of 1996, these prices dropped significantly. The Company believes
that prices for dairy products are cyclical, and no assurance can be given that
prices for dairy products will not increase. In the event that prices of raw
materials increase and remain high indefinitely and if the Company is unable to
pass such prices on to its customers, the Company's business operations and
financial condition could be materially adversely affected.
Seasonality. The ice cream industry generally experiences its highest
volume during the spring and summer months and the lowest volume in the winter
months. See "Business - Seasonality."
Product Liability. The Company's business exposes it to potential liability
which is inherent in the marketing and distribution of food products. The
Company currently maintains $2,000,000 of product liability insurance. The
Company also maintains $1,000,000 of general and personal injury insurance per
occurrence and $5,000,000 in the aggregate. If any product liability claim is
made and sustained against the Company and is not covered by insurance, the
Company's business and prospects could be materially adversely affected. See
"Business-Product Liability".
Discretion In Application of Proceeds. Management of the Company has
certain discretion over the use and expenditure of a significant portion of the
proceeds of this offering. The Company intends to use the funds raised in this
offering for repayment of indebtedness, promotion of its products, and for
working capital and general corporate purposes. Although the Company does not
contemplate changes in the allocated use of proceeds, to the extent the Company
finds changes are necessary or appropriate in order to address changed
circumstances and/or opportunities, management may find it necessary to adjust
the use of the Company's capital, including the proceeds of this offering. As a
result of the foregoing, the success of the Company may be substantially
dependent upon the discretion and judgment of the management of the Company with
respect to the application and allocation of the net proceeds hereof.
See "Use of Proceeds".
Control by Present Stockholders. As of the date of this Prospectus, the
current officers and directors (the "Management Stockholders") and 5%
stockholders own 59.8% of the outstanding shares of Common Stock and, after
completion of this offering, will own 48.3% of the outstanding shares of Common
Stock. Accordingly, although there are no relationships or agreements between
the non-officer 5% stockholders and the Company, these stockholders will be able
to significantly influence the election of the Company's directors, any increase
in the Company's authorized and outstanding capital stock and the other policies
of the Company. See "Principal Stockholders".
Dependence on Key Personnel. The Company's business expansion plans are
dependent in part upon the abilities of Michael Rosen, its Chairman, President
and Chief Executive Officer, and Martin Weiss, its newly appointed Vice
President of Sales and Marketing. Although each of Mr. Rosen and Mr. Weiss have
entered into employment agreements with the Company, there can be no assurance
that they will remain in the employ of or continue to provide services to the
Company. The loss of the services of such persons could have an adverse effect
on the Company. The Company maintains a $1,000,000 life insurance policy with
respect to the life of Michael Rosen, the proceeds of which are payable to the
Company. See "Management - Employment Agreements".
Absence of Public Market; Negotiated Offering Price. Prior to the offering,
there has been no market for the Common Stock or Class A Warrants. Although the
Company anticipates that upon completion of this offering, the Common Stock and
Class A Warrants will be approved for quotation on the OTC Bulletin Board, there
can be no assurance that these securities will be approved for quotation or, if
approved, that an active market will develop for the Common Stock or the Class A
Warrants or, if developed, that it can be maintained. In addition, the Common
Stock and Class A Warrants will be separately traded immediately. The initial
public offering price of the Common Stock and the exercise price of the Class A
Warrants have been established by negotiations between the Company and the
Representative and will not necessarily bear any relationship to the Company's
book value, assets, past operating results, financial condition, or other
established criteria of value. See "Underwriting".
<PAGE>
Dependence of Warrant Holders on Maintenance of Current Registration
Statement; Possible Loss of Value of Warrants. In order for holders of the Class
A Warrants to exercise such warrants there must be a current registration
statement (or an exemption therefrom) in effect with the Securities and Exchange
Commission ("Commission") and with the various state securities authorities in
the States where warrant holders reside. The Company has undertaken to use its
best efforts to keep (and intends to keep) the registration statement effective
with respect to the Class A Warrants for as long as the Class A Warrants remain
exercisable. However, maintenance of an effective registration statement will
subject the Company to substantial continuing expenses for legal and accounting
fees, and there can be no assurance that the Company will be able to maintain a
current registration statement through the period during which the Class A
Warrants remain exercisable. The Class A Warrants may become unexercisable and
deprived of value by the Company's inability to maintain an effective
registration statement (or an exemption therefrom) with respect to the
underlying shares or by the non-qualification of the underlying shares in the
jurisdiction of such holder's residence. See "Description of Securities -- Class
A Warrants".
Potential Adverse Effect of Redemption of Class A Warrants. The Class A
Warrants may be redeemed by the Company at a price of $.01 per warrant, at any
time, on not less than thirty (30) days' nor more than sixty (60) days' prior
written notice provided that the closing bid price of the Common Stock for all
twenty (20) consecutive trading days ending within three (3) days of the notice
of redemption has equaled or exceeded $12.00 and further provided that any
redemption during the one year period commencing on the date of this Prospectus
shall require the consent of the Representative. Redemption of the Class A
Warrants could force the warrant holders to exercise the warrants at a time when
it may be disadvantageous for the holders to do so or to sell the Class A
Warrants at their then current market price when the holders might otherwise
wish to hold the Class A Warrants for possible appreciation. Any holders who do
not exercise warrants prior to their expiration or redemption, as the case may
be, will forfeit the right to purchase the shares of Common Stock underlying the
Class A Warrants. See "Description of Securities -- Class A Warrants".
Substantial and Immediate Dilution. Purchasers of the Common Stock offered
hereby will incur immediate substantial dilution in the net tangible book value
of approximately $5.87 per share. The present shareholders of the Company have
acquired their respective equity interests at a cost substantially below the
offering price. Accordingly, the public investors will bear a disproportionate
risk of loss per share. See "Dilution".
No Dividends on Common Stock. The Company has never declared or paid any
dividends on its shares of Common Stock. The Company intends to utilize its
earnings, if any, to facilitate the expansion of its business for the
foreseeable future. Accordingly, it has no intention of declaring or paying
dividends on its Common Stock for the foreseeable future. Further, pursuant to a
credit agreement with one of its manufacturers, the Company is prohibited from
paying dividends until the full repayment of its indebtedness thereunder. See
"Dividend Policy".
Possible Dilutive Effect of the Issuance of Substantial Amounts of
Additional Shares Without Stockholder Approval. After this offering, the Company
will have an aggregate of approximately 14,606,695 shares of Common Stock
authorized but unissued and not reserved for specific purposes including
2,331,683 shares of Common Stock unissued but reserved for issuance pursuant to
(i) exercise of the Class A Warrants, (ii) the Company's Long Term Incentive
Plan, (iii) the Company's 1996 Non-Qualified Stock Option Plan, (iv) exercise of
the Representative's Purchase Option, (v) exercise of the Representative's
over-allotment option and (vi) the possible issuance of up to 135,850 shares to
the Company's present and former product manufacturers. All of such shares may
be issued without any action or approval by the Company's shareholders. Any
shares issued would further dilute the percentage ownership of the Company held
by the investors in this offering. The terms on which the Company could obtain
additional capital during the life of these securities may be adversely affected
because of such potential dilution and because the holders thereof might be
expected to convert or exercise them if the market price of the Common Stock
exceeds their conversion or exercise price. See "Description of Securities",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Underwriting".
<PAGE>
Potential Anti-Takeover Effects of Delaware Law and Certificate of
Incorporation; Possible Issuances of Preferred Stock. Certain provisions of
Delaware law and the Company's Certificate of Incorporation and By-laws could
make more difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be beneficial to the interests of the
shareholders. These provisions include Section 203 of the Delaware General
Corporation Law, the classification of the Company's Board of Directors into
three classes and the requirement that 66 2/3% of the stockholders of the
Company entitled to vote thereon approve certain transactions, including mergers
and sales or transfers of all or substantially all the assets of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock or preferred stock.
In addition, the Company's Certificate of Incorporation allows for the issuance
of up to 500,000 shares of preferred stock by the Board of Directors without
shareholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock and preferred stock will be subject to, and may be
adversely affected by, the rights of the holders of additional or other classes
of preferred stock that may be issued in the future. Moreover, although the
ability to issue other classes of 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 acquiring, a majority of the voting stock of the
Company. The Company has not issued any shares of preferred stock and has no
current plans to issue any shares of any classes of capital stock other than as
described herein. See "Description of Capital Stock".
Limitations on Personal Liability of Directors. The Company's Certificate of
Incorporation and By-laws contain provisions which reduce the potential personal
liability of directors for certain monetary damages and provide for indemnity of
directors and other persons. The Company is unaware of any pending or threatened
litigation against the Company or its directors that would result in any
liability for which such director would seek indemnification or similar
protection. The Company has entered into Indemnification Agreements with certain
of its officers and directors. The Indemnification Agreements provide for
reimbursement for all direct and indirect costs of any type or nature whatsoever
(including attorneys' fees and related disbursements) actually and reasonably
incurred in connection with either the investigation, defense or appeal of a
Proceeding, (as defined) including amounts paid in settlement by or on behalf of
an indemnitee thereunder.
Governmental Regulation. As a marketer and distributor of ice cream, the
Company's products are subject to regulation by the FDA and other government
agencies relating to the safety of its product. While the Company believes that
its marketing and distributing operations comply with all existing applicable
laws and regulations, no assurance can be given that compliance with such laws,
regulations or other restrictions, as well as any new laws or regulations, will
not impose additional costs on the Company which could adversely affect its
financial performance and results of operations. See "Business-Government
Regulation".
Penny Stock Regulation. The Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
the NASDAQ system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Securities and Exchange Commission that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with other
information. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If the Company's Common Stock
becomes subject to the penny stock rules, investors in this offering may find it
more difficult to sell their Common Stock in the event it becomes otherwise
freely resalable.
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and Class
A Warrants offered hereby (after deducting underwriting discounts and estimated
offering expenses) are estimated to be $3,347,250 ($3,898,612 if the
Representative's over-allotment option is exercised in full). These proceeds,
excluding the exercise price of any Warrants, are intended to be utilized
substantially as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Application of Proceeds Amount Percentage
- ----------------------- ----------- ------------
<S> <C> <C>
Working capital and general
corporate purposes (2) $1,775,749 53.1%
Repayment of Indebtedness (1) $1,571,501 46.9%
---------- ------
$3,347,250 100.0%
========== ======
</TABLE>
The amounts set forth above, other than for repayment of Notes and repayment
of indebtedness, are estimates. The actual amount expended to finance any
category of expenses may be increased or decreased by the Company's Board of
Directors, in its discretion, if required by the operating experience of the
Company or if a reapportionment or redirection of funds, including acquisitions
consistent with the business strategy of the Company, is deemed to be in the
best interest of the Company. The Company has no specific plans, arrangements,
understandings or commitments with respect to any such acquisition at the
present time. See "Risk Factors -- Discretion in Application of Proceeds".
All proceeds of debt incurred by the Company during the one year period
prior to the date of this Prospectus, which debt is being paid from these
proceeds (approximately $530,000), were used for working capital purposes,
including payment of then existing trade payables.
If the Representative exercises the over-allotment option in full, the
Company will realize additional net proceeds of approximately $551,362,
approximately $349,000 of which will be utilized to repay recent loans to the
Company as follows: (i) Steven A. Cantor, $130,000; (ii) Michael Rosen,
$111,375; (iii) Louis P. Solferino, $53,750; and (iv) Michael Jones, $53,750.
The balance will be used for working capital and general corporate purposes.
The net proceeds to the Company from this offering are expected to be
adequate to fund the Company's working capital needs for at least the next
twelve (12) months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources". Pending
use of the proceeds from this offering as set forth above, the Company may
invest all or a portion of such proceeds in short-term, interest-bearing
securities, U.S. Government securities, money market investments and short-term,
interest-bearing deposits in major banks.
- ------------
(1) Includes the repayment of various promissory notes with interest
accrued to February 28, 1997 and certain accounts payable as follows: (i)
$508,235 for open accounts payable, including payments to present product
manufacturer; (ii) $133,112 to Steven A. Cantor, the Company's largest
stockholder including interest at 8% per annum; (iii) $132,413 to holders of
Second Private Placement Notes including interest at 12% per annum; (iv) $4,605
in payment of interest on the Convertible Notes; (v) $588,688 to a product
manufacturer including interest at 9.25% per annum; (vi) $138,830 to a product
manufacturer including interest at 10% per annum; (vii) $28,118 to a product
manufacturer including interest at 8% per annum; (viii) salaries to a prior
employee of $12,500 accrued through February 28, 1997; and (ix) $25,000 in
payment of a short-term loan received in March 1997. See "Certain Transactions".
(2) It is presently anticipated that the balance of the proceeds
attributable to working capital will be used to fund current operations through
a substantial portion of calendar 1997, when the Company anticipates being able
to generate positive cash flow from operations. See "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<PAGE>
DILUTION
As of December 31, 1996, the net negative tangible book value of the Company
was ($3,048,135) or ($1.61) per share of Common Stock. Net negative tangible
book value per share represents the amount the liabilities exceed the amount of
total tangible assets divided by 1,892,641, the number of shares of Common Stock
outstanding on December 31, 1996, (after giving effect to a .153846-for-1
reverse stock split in June 1996 and a .667-for-1 reverse stock split in
February 1997). See "Capitalization". Thus, as of December 31, 1996, the net
negative tangible book value per share of Common Stock owned by the Company's
current stockholders would have increased by $3,293,195 or $1.74 per share after
giving effect to this offering without any additional investment on their part
and the purchasers of the Units offered hereby would have incurred an immediate
dilution of $5.87 per share from the offering price. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Public Offering price per share of
Common Stock Offered hereby (1) $6.00
Net tangible book value per share before offering (1.61)
Increase per share attributable to new investors 1.74
-----
Adjusted net tangible book value per share
after this offering $ .13
------
Dilution per share to new investors $ 5.87
======
</TABLE>
The following table summarizes the relative investments of investors
pursuant to this offering and the current shareholders of the Company:
<TABLE>
<CAPTION>
Current Public
Stockholders Investors Total (2)
-------------- --------- ---------
<S> <C> <C> <C>
Number of Shares of Common Stock Purchased 1,892,641 675,000 2,567,641
Percentage of Outstanding Common Stock After
Offering 73.7% 26.3% 100%
Gross Consideration Paid 4,066,360 $4,225,000 $8,291,360
Percentage of Consideration Paid 49.0% 51.0% 100%
Average Consideration Per Share of
Common Stock $2.15 $6.26 $3.23
</TABLE>
If the over-allotment option is exercised in full, the new Common Stock
investors will have paid $4,858,750 and will hold 776,250 shares of Common
Stock, representing 54.4% of the total consideration and 29.1% of the total
number of outstanding shares of Common Stock. See "Description of Securities"
and "Underwriting".
- --------
(1) Assumes no exercise of (i) the Representative's over-allotment option
to purchase up to 101,250 shares of Common Stock; (ii) the Class A Warrants
offered hereby; (iii) the Representative's Purchase Option to purchase up to
67,500 shares of Common Stock; (iv) the Class A Warrants purchasable by the
Representative upon exercise of the Representative's Purchase Option; or (v) any
options to purchase shares of Common Stock granted under the Company's 1995
Incentive Plan or the 1996 Non-Qualified Plan. See "Description of Securities",
"Management" and "Underwriting". Does not give effect to conversion of debt and
accrued interest into an aggregate of 306,981 shares of Common Stock, which
occurred in April 1997 and the issuance of 187,000 shares of Common Stock in
April 1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources".
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of December 31, 1996 and the as adjusted capitalization which gives effect to
the consummation of this offering as if it occurred on December 31, 1996. This
table should be read in conjunction with the financial statements and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1996
Actual As Adjusted (1)
------ ---------------
<S> <C> <C>
Cash and cash equivalents
$32,523 2,031,312 (2)
---------------------------------
Short-term borrowings and current
portion of capitallease obligations
Accounts payable 1,104,336 731,101
Accrued Expenses 140,629 128,129
Convertible notes 225,000 225,000
Notes payable to related parties 407,500 160.000
Obligations under capital leases 9,957 9,957
Notes payable trade 980,821 263,855
Line of credit 23,506 23,506
Accrued interest on notes 24,760 1,500
---------------------------------
Total short-term borrowings and
current portion of capital
lease obligations 2,916,509 1,543,048
----------------------------------
Long term notes payable and capital
lease obligations
Notes payable to related parties 486,250 486,250
Accrued interest 52,055 52,055
Obligations under capital leases 3,611 3,611
---------------------------------
Total long term notes payable and
capital lease obligations 541,916 541,916
---------------------------------
Stockholders' deficit:
Preferred stock, $.01 par value;
500,000 shares authorized, no
shares issued or outstanding
(actual and as adjusted)
Common stock, $.001 par value;
20,000,000 shares authorized,
1,892,641 shares (actual) and
2,567,641 shares, as adjusted
(3)(4)(5)(6) 1,892 2,567
Additional paid-in capital 4,000,700 6,987,275
Deferred financing costs (360,000) 0
Accumulated deficit (6,639,003) (6,639,003)
-----------------------------------
Total stockholders' equity (deficit) (2,996,411) 350,839
-----------------------------------
Total capitalization 462,014 2,460,803
-----------------------------------
<PAGE>
<FN>
(1) Adjusted to give effect to the consummation of this offering as if it
occurred on December 31, 1996.
(2) Does not include $180,000 of costs and expenses incurred in 1997 and
$18,040 of interest accrued during January and February 1997 which have
been included under Use of Proceeds.
(3) Does not include (i) the receipt of a $100,000 Convertible Loan in January
1997 which was converted into 78,431 shares of Common Stock in April 1997,
and (ii) the receipt of a $50,000 short-term loan in March 1997, one-half
of which was converted into 12,500 shares of Common Stock in April 1997.
(4) Does not include the conversion during April 1997 of (i) a $225,000
Convertible Note into 200,000 shares of Common Stock and (ii) $31,500 of
notes payable and accrued interest owed as of December 31, 1996 into 15,750
shares of Common Stock.
(5) Adjusted to give effect to a .153846-for-1 reverse stock split effected in
June 1996 and a .667-for-1 reverse stock split effected in February 1997.
(6) Does not include the issuance in April 1997 of (i) 150,000 shares of Common
Stock to Steven A. Cantor as consideration for the termination of his
consulting agreement, (ii) 35,000 shares of Common Stock to the Company's
current product manufacturer in connection with the manufacturing agreement
and (iii) 2,000 shares of Common Stock to an investor.
</FN>
</TABLE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as and
if declared by the Board of Directors out of funds legally available therefor.
The Company has never declared or paid any cash dividends and currently does not
intend to pay cash dividends in the foreseeable future on the shares of Common
Stock. Further, pursuant to a credit agreement with one of its former
manufacturers, the Company is prohibited from paying dividends on any of its
capital stock until the indebtedness to such manufacturer is repaid. The Company
intends to retain earnings, if any, to finance the development and expansion of
its business. Payment of future dividends on the Common Stock will be subject to
the discretion of the Board of Directors and will be contingent upon future
earnings, if any, the Company's financial condition, capital requirements,
general business conditions and other factors. Therefore, there can be no
assurance that any dividends on the Common Stock will ever be paid.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial information concerning the Company, other
than the as adjusted balance sheet and statement of operations data, has been
derived from the financial statements included elsewhere in this Prospectus and
should be read in conjunction with such financial statements and the notes
thereto. See "Financial Statements".
The selected financial data should be read in conjunction with and is
qualified in its entirety by, the Company's financial statements, related notes
and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Balance Sheet Data:
December December March
31, 1996 31, 1995 31, 1995
-------- --------- ----------
<S> <C> <C> <C>
Total assets 443,232 400,014 555,132
Current liabilities 2,897,727 1,901,644 704,978
Long-term liabilities net of
current portion (1) 541,916 255,722 288,333
Stockholders' equity (deficit) (2,996,411) (1,757,352) (438,179)
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Data:
Fiscal Year Nine Months Fiscal Year
Ended Ended Ended
December December March
31, 1996 31, 1995 31, 1995
------------- ------------ -----------
<S> <C> <C> <C>
Net sales $2,392,258 $2,312,144 $1,086,106
Net loss (4,050,547)(2) (1,614,858) (719,380)
Loss per Common Share (3) ($1.67) ($0.75) ($0.44)
Supplemental net loss per
common share (4) ($1.29) -- --
Weighted Average Common
Shares Outstanding (3) 2,431,245 2,150,537 1,624,908
- -----
<FN>
(1) Includes long term portion of notes to related parties with the related
accrued interest, capital lease obligations and certain expense accruals
not currently due.
(2) Includes approximately $1,400,000 of non-cash compensation attributable to
the issuances of stock for professional services rendered to the Company
and consulting fees to related parties attributable to stock options and
contractual obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
(3) Gives effect to a .153846-for-1 reverse stock split effected in June 1996
and a .667-for-1 reverse stock split effected in February 1997.
(4) Supplemental net loss per common share is computed based on the weighted
average number of common and common equivalent shares outstanding during
the period, as if the shares issuable pursuant to this offering were
outstanding at the beginning of the period after giving retroactive effect
to the reduction of interest expense, net of income tax effect, applicable
to the reduction of the Company's indebtedness.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of the Company included elsewhere in this Prospectus.
Results of Operations
The Company has incurred losses from operations since its inception in 1993
and at December 31, 1996 had an accumulated deficit and working capital deficit
of $6,639,003 and $2,539,788, respectively. A significant portion of these
amounts were incurred during the year ended December 31, 1996 as a result of
intense marketing by the Company, including payment of introductory programs in
connection with the entry by the Company into new markets and expansion of
existing markets of approximately $622,000 to supermarket and other food chain
retailers and product advertising, promotion and marketing expenses of
approximately $1,526,000.
Effective December 31, 1995, the Company changed its fiscal year end from
March 31 to December 31. Consequently, set forth below is a table illustrating
the Company's results of operations for its fiscal year ended December 31, 1996
compared to its nine month "fiscal year" ended December 31, 1995, as well as
compared to the twelve (12) month calendar year ended December 31, 1995, which
twelve (12) month comparison the Company believes more accurately reflects the
trends in, and seasonality of, the Company's business.
Profit and Loss Analysis
Fiscal Year 1996 Compared With Calendar Year 1995
<TABLE>
<CAPTION>
As Percent of Sales
Fiscal Nine Twelve Fiscal Nine Twelve
Year Months Months Year Months Months
Ended Ended Ended Ended Ended Ended
December December December December December December
31, 1996 31, 1995 31, 1995 31, 1996 31, 1995 31, 1995
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $2,392,258 $2,312,144 $2,593,077 100.00% 100.00% 100.00%
Cost of Sales 1,439,635 1,312,792 1,498,411 60.18% 56.78% 57.79%
----------- ----------- ---------- ------- ------- -------
Gross Profit 952,623 999,352 1,094,666 39.82% 43.22% 42.21%
Operating Expenses
Selling and Shipping 2,596,500 1,864,890 2,175,619 108.54% 80.66% 83.90%
General and
Administrative 2,193,602 717,315 1,006,182 91.70% 31.02% 38.80%
Research and
Development 70,632 19,529 19,529 2.95% 0.84% 0.75%
----------- ----------- ---------- ------- ------- -------
Total Operating
Expenses 4,860,734 2,601,734 3,201,330 203.19% 112.52% 123.46%
Loss from
Operations (3,908,111) (1,602,382) (2,106,664) (163.36%) (69.30%) (81.24%)
Net Interest Expense 142,436 12,476 30,458 5.95% 0.54% 1.17%
----------- ----------- ---------- ------- ------- -------
Net Loss ($4,050,547) ($1,614,858) ($2,137,122) (169.32%) (69.84%) (82.42%)
=========== =========== ============ ======= ======== =======
</TABLE>
<PAGE>
Fiscal Year Ended December 31, 1996 Compared to Nine Months
Ended December 31, 1995.
Net sales for the year ended December 31, 1996 were approximately
$2,392,000, an increase of 3% from the nine month period ended December 31,
1995. This increase was significantly reduced due to an initial build-up of
inventory by Kraft-Pizza in the fourth quarter of calendar 1995 which reduced
sales to Kraft-Pizza in 1996, an unusually cool summer in the Northeast during
calendar 1996, a temporary work stoppage at one of the facilities which
manufactures the Company's products during calendar 1996 and the withdrawal by
the Company from certain test markets which proved to be unprofitable. The
Company's limited operating resources to date also has prevented the Company's
participation in certain discount promotions and in-store programs which has
caused a reduction in reorders throughout its distribution network. The proceeds
from this offering should enable the Company to substantially increase sales in
its existing retail outlets through participation in these programs. The
Company's products are currently manufactured by one independent facility.
Gross profit for the year ended December 31, 1996 declined 5% to $953,000
from $999,000 for the nine months ended December 31, 1995. Gross profit as a
percentage of net sales for the year ended December 31, 1996 declined to 40% of
net sales compared to 43% for the year ended December 31, 1995. The decrease in
gross profit dollars was primarily attributable to the decline in net sales and
gross profit percentage. Gross profit as a percentage of net sales declined as a
result of higher dairy raw material costs associated with the manufacture of the
Company's ice cream products. However, as of the end of 1996, these raw
materials prices have dropped significantly.
Selling, shipping, general and administrative expenses ("SG&A") for the
year ended December 31, 1996 increased 86% to $4,790,000 from $2,582,000 for the
nine months ended December 31, 1995. The increase was primarily as a result of
the following: increases in advertising programs with store chains from $91,000
to $346,000, increases in store and media price reduction coupons from $172,000
to $402,000, increases in the cost of product demonstrations and media events
from $163,000 to $299,000 and increase in professional fees from $95,000 to
$455,000 substantially from the issuance of Common Stock for services rendered
to the Company. Included in the 1996 SG&A are consulting fees of $1,013,000
representing non-cash compensation attributable to stock options, shares of
Common Stock issued to a consultant, and the release of shares previously held
in escrow to the Company's largest stockholder, Steven A. Cantor. The Company
continues to incur significant selling, general and administrative expenses in
support of its efforts to introduce its products in the retail marketplace and
to gain market share. See Notes K and L to Notes to the Financial Statements.
Interest expense, net of interest income, for the year ended December 31,
1996 increased to $142,000 from $12,500 for the nine months ended December 31,
1995. The increase was primarily attributed to an additional borrowing from
related parties, and the conversion of open accounts payables due to two
principal product manufacturers into interest bearing notes.
Net loss for the year ended December 31, 1996 increased to $4,051,000 as
compared to a net loss of $1,615,000 for the nine months ended December 30,
1995. The net loss is attributed to the aforementioned increases in selling,
shipping, general and administrative expenses, as well as lower gross profits
and net sales and higher interest expense.
Impact of New Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and earnings per share
together with disclosure of how the per share amounts were computed. The effect
of adopting this new standard has not been determined.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 129 ("SFAS No. 129"), Disclosure of Information About
Capital Structure. The Company does not anticipate that SFAS No. 129 will have a
material impact on the financial statements.
<PAGE>
Fiscal Year Ended December 31, 1996 Compared to Twelve Months
Ended December 31, 1995.
Net sales for the year ended December 31, 1996 were $2,392,000, a decrease
of 8% from the twelve month period ended December 31, 1995. This decrease was
due to an initial build-up of inventory by Kraft-Pizza in the fourth quarter of
calendar 1995 which reduced sales to Kraft-Pizza in 1996, an unusually cool
summer in the Northeast during calendar 1996, a temporary work stoppage at one
of the facilities which manufactures the Company's products during calendar 1996
and the withdrawal by the Company from certain test markets which proved to be
unprofitable. The Company's limited operating resources to date also has
prevented the Company's participation in certain discount promotions and
in-store programs which has caused a reduction in reorders throughout its
distribution network. The proceeds from this offering should enable the Company
to substantially increase sales in its existing retail outlets through
participation in these programs.
Gross profit for the year ended December 31, 1996 declined 13% to $953,000
from $1,095,000 for the twelve months ended December 31, 1995. Gross profit as a
percentage of net sales for the year ended December 31, 1996 declined to 40% of
net sales compared to 42% for the twelve months ended December 31, 1995. The
decrease in gross profit dollars was primarily attributable to the decline in
net sales and gross profit percentage. Gross profit as a percentage of net sales
declined as a result of higher dairy raw material costs associated with the
manufacture of the Company's ice cream products. However, as of the end of 1996,
these raw materials prices has dropped significantly.
Selling, shipping, general and administrative expenses for the year ended
December 31, 1996 increased 51% to $4,790,000 from $3,182,000 for the twelve
months ended December 31, 1995. The increase was primarily as a result of the
following (i) increases in advertising programs with store chains from $125,000
to $346,000, increases in store and media price reduction coupons from $172,000
to $402,000, increases in the cost of product demonstrations and media events
from $194,000 to $299,000 and increase in professional fees from $209,000 to
$455,000 substantially from the issuance of Common Stock for services rendered
to the Company. Consulting fees include charges of $1,013,000 representing
non-cash compensation attributable to stock options and contractual obligations
to related parties. The Company continues to incur significant selling, general
and administrative expenses in support of its efforts to introduce its products
in the retail marketplace and to gain market share.
Interest expense, net of interest income, for the twelve months ended
December 31, 1996 increased to $142,000 from $30,000 for the twelve months ended
December 31, 1995. The increase was primarily attributed to an additional
borrowing from related parties, and the conversion of open accounts payables to
two principal product manufacturers into interest bearing notes.
Net loss for the year ended December 31, 1996 increased to $4,051,000 as
compared to a net loss of $2,137,000 for the twelve months ended December 30,
1995. The net loss is attributed to the aforementioned increases in selling,
general and administrative expenses, as well as lower gross profits and net
sales and higher interest expenses, reduced by an extraordinary credit to income
from the forgiveness by related parties of accrued salaries and consulting fees.
Nine Months Ended December 31, 1995 Compared to Year Ended March 31, 1995.
Net sales for the nine months ended December 31, 1995 increased 113% to
$2,312,000 as compared to $1,086,000 for the twelve months ended March 31, 1995.
The increase in net sales was primarily attributable to increased market
penetration and to a greater number of supermarket and food chain retailers
selling the Company's products as well as a material change in the way the
Company distributes is products. In October 1995, the Company entered into an
agreement with Kraft-Pizza for the exclusive distribution of the Company's
products for the northeastern and western regions of the United States. This
agreement provided the Company with access to thousands of existing retail
outlets already buying Tombstone Pizza, together with the use of Kraft-Pizza's
commissioned sales force to oversee the sales and store presentation of the
Company's products.
<PAGE>
Gross profit for the nine months ended December 31, 1995 increased 102% to
$999,000 from $494,000 for the twelve months ended March 31, 1995. Gross profit
as a percentage of net sales for the nine months ended December 31, 1995
decreased to 43% of net sales compared to 45% for the twelve months ended March
31, 1995. The increase in gross profit was primarily attributable to the
increase in net sales. The decline in gross profit as a percentage of net sales
was the result of increases in certain dairy raw materials utilized in the
Company's products as well as the redesign to a higher quality of the Company's
retail packaging material.
Selling, shipping, general and administrative expenses increased 116% to
$2,582,000 for the nine months ended December 31, 1995 as compared to $1,198,000
for the twelve months ended March 31, 1995. The increase in selling, general and
administrative expenses was primarily attributable to increased net sales an
increased expenses associated with the Company's sales and marketing efforts,
which management believes will facilitate future growth.
Interest expense net of interest income for the nine months ended December
31, 1995 decreased to $12,000 from $15,000 for the twelve months ended March 31,
1995. The decrease in interest expenses was primarily attributable to a decrease
in average principal loan balances outstanding during the nine months ended
December 31, 1995 as compared to the twelve months ended March 31, 1995.
Net loss for the nine months ended December 31, 1995 increased to
$1,615,000 from $719,000 for the twelve months ended March 31, 1995. The
increase in net loss was attributable to the aforementioned increase in selling,
general and administrative expenses, offset by an increase in net sales and
gross profits, coupled with a decrease in interest expense.
Seasonality
The Company typically experiences more demand for its products during the
summer than during the winter.
The ice cream industry generally experiences its highest volume during the
spring and summer months and the lowest volume in the winter months. In this
regard, according to statistics published by the International Ice Cream
Association, 35.5% of sales of novelty ice cream products and 29.5% of sales of
packaged ice cream products were made during the third quarter (July -
September) of calendar 1996 while only 18.0% of sales of novelty ice cream
products and 22.4% of sales of packaged ice cream were made during the first
quarter (January - March) of calendar 1996. Similarly, the Company's quarterly
sales for calendar year 1996 followed a seasonal pattern. Sales were stronger in
the second and third quarters of 1996 and weaker in the cooler months of the
first and fourth quarters.
Several factors negatively impacted sales on a quarterly basis. During the
first quarter of 1996 the Company's distribution was in transition to its new
distributor. In the second quarter, extensive marketing and initial product fill
at store level was occurring to boost sales. In third quarter the Company's East
coast manufacturer endured a work stoppage, limiting the quantities of product
available while simultaneously the Company halted much of its marketing efforts
due to its poor financial condition. In the fourth quarter the continued lack of
consumer marketing and the Company's decision to withdraw from certain test
markets caused a sharp decline in sales.
Liquidity and Capital Resources
The Company's cash requirements have been significantly exceeding its
resources due to the substantial promotional expenses incurred in connection
with the entry by the Company into new markets and expansion into new locations
in existing markets. As a result of the Company's limited operating resources,
the Company also has been unable to participate in certain programs which could
have increased sales. This offering is an integral part of the Company's plans
to meet its cash requirements. Until the Company completes this offering, the
Company will be dependent on short-term borrowings, to the extent available, and
other sales of securities to continue its operations. The Company assumes that
<PAGE>
based upon its current plans, its resources, including the proceeds of this
offering, will be sufficient to meet its cash requirements for at least the next
twelve (12) months. The Company also believes that certain long-term
indebtedness due on December 31, 1998 (approximately $315,000) will be payable
from internally generated funds, if any, or debt financing or from the sale of
additional debt or equity securities. Other than this offering, the Company has
no commitments or arrangements for any future financing and there can be no
assurance that financing can otherwise be obtained on satisfactory terms, if at
all. In the event that the offering is delayed, management recognizes that the
Company must generate additional resources to enable it to continue operations.
Management's plans include consideration of the additional sale of additional
equity securities to private investors under appropriate market conditions or
other similar capital raising transactions which would generate sufficient
resources to assure continuation of the Company's operations.
The Company has historically raised capital through the private equity
markets, and through debt financing and short-term loans, and will continue to
pursue these opportunities, if necessary. Prior transactions have involved
officers, directors, stockholders and affiliates of the Company, as may future
transactions.
In March 1997, the Company entered into a two-year exclusive manufacturing
agreement expiring in March 1999. The manufacturing agreement, dated as of March
20, 1997, provides that Fieldbrook shall be the exclusive supplier of all
products manufactured by Fieldbrook and distributed by the Company East of the
Mississippi River for a period of two years. As partial consideration for this
agreement, the Company has issued to Fieldbrook 35,000 shares of Common Stock.
While Fieldbrook is obligated to sell existing products to the Company, it is
not obligated to manufacture or sell new or different products. In the event
Fieldbrook declines to manufacture, sell or produce any new product, the Company
is free to obtain such product from another supplier. The manufacturing
agreement further provides for payment to Fieldbrook of $150,000 for open
accounts which, if not paid by April 30, 1997, shall cause the Company to issue
an additional 30,000 shares of Common Stock to Fieldbrook. The Company's present
credit line with Fieldbrook is $250,000, for which 21-day credit terms have been
provided. This amount shall be redetermined by the parties at the earlier of the
Company's initial public offering or April 30, 1997, based upon the Company's
creditworthiness.
In March 1997, the Company received a $50,000 short-term loan which was
evidenced by a promissory note in the principal amount of $50,000 and in
connection therewith, the Company issued 2,000 shares of Common Stock to the
noteholder. In April 1997, one-half of this loan was converted into 12,500
shares of Common Stock.
In December 1996 and January 1997, the Company issued two convertible
promissory notes to two investors bearing interest at the rate of 8% per annum
in the principal amount of $225,000 and $100,000, respectively, (individually,
"Convertible Note" or collectively, the "Convertible Notes"). The Convertible
Notes were payable in full the earlier of five days after the closing date of an
initial public offering or December 31, 1997 and January 31, 1998, respectively.
In lieu of receiving payment, the investors had the right to convert the
Convertible Notes within five (5) days of the closing of such initial public
offering into 200,000 and 78,431 shares of Common Stock, respectively. In April
1997, the Convertible Notes were converted into 278,431 shares of Common Stock.
In December 1996, the Company issued two additional promissory notes in the
amount of an aggregate $56,680 in exchange for certain trade accounts payable.
In October 1996, the Company issued 19,231 shares of Common Stock to two
consultants as payment for services rendered during the year ended December 31,
1996. These shares were valued at $3.00 per share, the estimated fair market
value of the Common Stock at the date of issuance.
On August 20, 1996, the Company issued a promissory note in the amount of
$289,482 in exchange for certain trade accounts payable and inventories. The
note, as amended, bears interest at the rate of 10% per annum and is $134,283
with accrued interest is payable on or before June 1, 1997 or from the proceeds
of this offering and the balance is payable in December 1998.
On August 28, 1996, the founder of the Company was issued a promissory note
in the principal amount of $206,250. The funds that the founder loaned the
Company were the proceeds of a sale by the founder to an investor of 183,333
shares of his Common Stock at a price of $1.12 per share. This loan bears
<PAGE>
interest at a rate of 8% and initially was payable the earlier of (i)
thirteen months from the date of the loan, or (ii) the date the Company
successfully consummates an initial public offering of securities of the
Company, but only to the extent that the over-allotment option is exercised in
such offering and only from the proceeds received by the Company from the
exercise of the over-allotment option. In September 1996, the maturity date of
this promissory note was revised to September 30, 1998. In addition, the revised
promissory note provides that one-half of the outstanding principal amount of
the note will be paid with accrued interest thereon in the event the Company
successfully consummates an initial public offering of securities of the
Company, but only to the extent that the over-allotment option is exercised in
such offering and only from the proceeds received by the Company from the
exercise of the over-allotment option.
In August, September and October 1996, the Company received three loans
from the Company's largest stockholder aggregating $253,750. A portion of the
funds that this stockholder loaned the Company was a result of the stockholder
selling shares of his Common Stock to an investor. In August 1996, this
shareholder sold 38,889 shares of his Common Stock at a price of $1.12 per
share. In September 1996, this shareholder sold 23,333 shares of his Common
Stock at a price of $1.50 per share. These loans, which were consolidated into
one note in September 1997, bear interest at a rate of 8% and are payable the
earlier of (i) June 1, 1997, or (ii) with respect to $130,000 of the principal
amount, the date the Company successfully consummates an initial public offering
of securities of the Company, but only to the extent that the over-allotment
option is either exercised in such offering, or ninety (90) days after the
underwriter elects not to exercise the over-allotment option.
In September 1996, the Company completed a private placement offering
pursuant to Rule 506 of the Securities Act of 1933, as amended (the "Securities
Act") consisting of the sale of 61.5 units (the "Second Private Placement
Units"), with each Second Private Placement Unit consisting of $2,500 principal
amount of 12% promissory notes due on the earlier of July 31, 1997 or the
closing date of an initial public offering of securities of the Company
(provided that in the event of a default as defined therein, the entire sum will
be accelerated), and 7,500 shares of the Company's Common Stock at an offering
price of $25,000 per Unit. As of September 30, 1996, the Company issued a total
of 461,250 shares of Common Stock and notes payable of $153,750, for which it
received proceeds of an aggregate $1,537,500. In April 1997, the holder of
$30,000 of such notes converted the principal and accrued interest into 16,050
shares of Common Stock.
On May 30, 1996, the Company received loans totaling $100,000 from two
shareholders. The loans bear interest at an annual rate of 10% and initially
were due on demand. In September 1996, the maturity date of these promissory
notes was revised to occur the earlier of (i) May 30, 1998 or (ii) the date the
Company successfully consummates an initial public offering of securities of the
Company, but only to the extent that the over-allotment option is exercised in
such offering and only from the proceeds received by the Company from the
exercise of the over-allotment option.
On May 30, 1996, the Company issued 50,000 shares of its Common Stock to
certain individuals for services rendered on behalf of the Company. These shares
were valued at $3.00 per share, the fair market value of the Common Stock at the
date of issuance.
In April 1996, the Company issued a promissory note (the "Penn Note") in
exchange for certain trade accounts payable of $830,275. As of March 1997, this
outstanding balance was $710,275. $575,000 together with accrued interest is
payable from this offering and the balance is payable in December 1997. The Penn
Note is payable in certain installments through 1997 and an additional amount is
payable in the event of an initial public offering of the Company's Common
Stock. If such initial public offering does not occur on or before June 1, 1997,
the Penn Note is due in full on that date. Interest on the Penn Note accrues at
the prime rate plus 1% per annum. The Penn Note is collateralized by all of the
assets of the Company.
In February 1996, the Company issued $325,000 of 12% convertible promissory
notes which were payable on the earlier of August 31, 1996 or upon the
consummation of an interim financing as contemplated by a Letter of Intent with
an investment banker for an initial public offering of the Company's securities.
In June 1996, in lieu of receiving payment in such event, the holders of the
notes exchanged the notes, based on a conversion price determined by the notes,
into Second Private Placement Units.
<PAGE>
During November 1994 through May 1995, the Company completed a private
placement offering of the Company's Common Stock pursuant to Rule 504 of the
Securities Act. During the nine month period ended December 31, 1995 and the
year ended March 31, 1995 the Company issued a total of 27,487 and 62,824 units,
respectively, at $9.75 per unit, each unit consisting of two shares of Common
Stock and one warrant. All such warrants expired on January 10, 1997.
In April 1995, the Company issued 5,128 shares of its Common Stock to a
consultant in consideration of his efforts in assisting in various matters for
the Company during the fiscal years ended March 31, 1994 and 1995. These shares
were valued at $2.45 per share, the estimated fair market value of the Common
Stock at the date the Company committed to issue the shares.
In September 1995, the Company issued 7,179 shares of its Common Stock to
certain individuals for services rendered on behalf of the Company during the
nine month period ending December 31, 1995. These shares were valued at $4.88
per share, the estimated fair market value of the Common Stock at the date of
issuance.
During the fiscal year ended March 31, 1995, the Company issued two
promissory notes of $25,000 each to an investor, who is related to the founder
of the Company, which were originally due in November and December 1998,
respectively. The Company repaid one of these notes in April 1995. In September
1995, the maturity date of the outstanding promissory note was revised to occur
the earlier of the date on which the Company receives proceeds from a securities
offering or June 1, 1996. In April 1996, the maturity date of the outstanding
promissory note was revised to occur subsequent to the repayment of the Penn
Note issued in April 1996. In September 1996, the maturity date of this
promissory note was revised to occur the earlier of: (i) February 1, 1998 or
(ii) upon the occurrence of events defined by the note as a "Change in Control."
Interest accrues at an annual rate of 6% and is payable at the maturity of the
note.
In May 1994, the Company issued 30,769 and 5,128 shares of its Common Stock
to its legal counsel and an independent consultant, respectively, for services
rendered. These shares are valued at $.001 per share, the estimated fair market
value of the Common Stock as determined by the Company's Board of Directors at
the date of issuance.
During the fiscal year ended March 31, 1994, the Company borrowed $100,000
from a relative of the Company's largest stockholder. The loan, which was
originally due on demand, was formalized in the form of a promissory note during
September 1995. In April 1996, the maturity date of the $100,000 obligation was
revised to occur subsequent to the repayment of the Penn Note issued in April
1996. The loan was non-interest bearing through April 1994. From May 1994
through maturity interest accrues at an annual rate of 6% and is payable upon
maturity. In September 1996, the maturity date of this promissory note was
revised to occur the earlier of (i) February 1, 1998 or (ii) upon the occurrence
of events defined by the note as a "Change in Control." During the fiscal year
ended March 31, 1995, the Company borrowed an additional $100,000 from the same
relative of the Company's largest stockholder. The loan was due on demand with
interest at an annual rate of 6%. The Company repaid $50,000 of this loan in
March 1995, and repaid the remaining $50,000 during April 1995.
During the fiscal year ended March 31, 1994, the Company obtained loans
from the founder and issued promissory notes of $40,000 and $15,000 which are
payable in May and June 1998, respectively. Interest accrues at an annual rate
of 8% and is payable at the maturity date of the notes.
The following schedule lists the principal and interest payments due during
the twelve month period immediately following the date of this Prospectus:
<PAGE>
<TABLE>
<CAPTION>
Due Date Interest Principal Balance at 3/31/97
of Note Rate Repayment Terms Next 12 Months
--------- --------- ---------------------------------
<S> <C> <C> <C>
<C> <C>
Penn Traffic Company See Terms Prime +1% $710,275 $575,000 principal balance with accrued
interest is payable on 6/1/97 or from proceeds
of offering; balance, including interest, is
payable in December 1997
Crystal Cream & Butter See Terms 10.00% $230,283 $134,283 principal balance with accrued
interest is payable on June 1, 1997 or from
proceeds of offering; balance, including
interest, is payable in December 1998.
DariGold, Inc. 5/1/97 8.00% $30,000 Payable $5,000 per month including interest,
balance due April 1, 1997 or from proceeds of
offering
PIA Merchandising See Terms 10.00% $10,997 Payable $1,000 per month including interest
until paid in full (assumed February 1998)
Demo Deluxe See Terms 10.00% $49,636 Payable $10,000 per month until paid in full
(assumed August 1997) from proceeds of
offering
Annette Cantor 2/1/98 6.00% $100,000 Payable at due date together with
accrued interest
Elizabeth Pilossoph 2/1/98 6.00% $25,000 Payable at due date together with accrued interest
Steven A. Cantor See Terms 8.00% $253,750 $123,750 is payable from proceeds of
offering. The balance is due from net
proceeds of over- allotment option, if any, or
if not exercised, ninety (90) days after offering
</TABLE>
BUSINESS
General
The Company markets, sells and distributes Mike's Original Cheesecake Ice
Cream, an innovative all natural blend of super-premium ice cream with
cheesecake ingredients. This product line is offered in a variety of flavors
mainly to supermarkets and grocery stores and also, to a lesser extent, to
convenience stores, food service outlets and warehouse clubs. The Company's
products are presently sold in approximately fifteen (15) states, including New
York, California, Pennsylvania and New Jersey, with sales generally concentrated
on the East and West coasts of the United States. The Company believes, based on
an internal study, that it incentivizes retailers to continue purchasing its
products through a pricing strategy designed to provide retailers with a higher
retail profit per linear foot as compared to other competitive products based on
the suggested retail price.
In October 1995, the Company entered into the Kraft-Pizza Agreement Kraft
Pizza for the exclusive distribution of the Company's products for the
Northeastern and Western regions of the United States. The Kraft-Pizza Agreement
provides the Company's products with the opportunity to gain access to the
thousands of existing retail outlets already buying Tombstone Pizza, together
with the use of Kraft-Pizza's commission sales force to oversee the sales and
in-store presentation of the Company's products.
<PAGE>
In April 1996, the Company entered into an agreement with Kraft Foods, Inc.
( "Kraft Military"), also a division of Philip Morris Corporation, to represent
the Company in the sale of its products to military facilities throughout the
world (the "Kraft Military Agreement"). Military contracts exist with DeCA
(Defense Commissary Agency) and sales to the military commenced in the third
quarter of 1996.
Since October 1996, the Company has restructured its management. In this
regard, Mr. Rosen has replaced Daniel Kelly as President, Mr. Kelly having
resigned in September 1996. The Company also has hired a Vice President of Sales
and Marketing and a Vice President-Finance, and has retained two frozen food and
ice cream consultants with a combined fifty years of experience in the sales and
marketing of ice cream. These persons have redirected the Company's selling
efforts to substantially increase sales in the approximately 3,500 retail
outlets selling the Company's products and to expand market penetration on the
East and West coasts into the institutional and food service segments. By
concentrating on existing locations and segments requiring limited up-front
fees, the Company intends to substantially reduce one of the major costs
associated with its prior operations.
Net sales for the year ended December 31, 1996 were approximately
$2,392,000, an increase of 3% from the previous nine (9) month period ended
December 31, 1995 and a decrease of 8% from the twelve month period ended
December 31, 1995. The increase as compared to the shorter period was
significantly reduced, and the decrease as compared to the prior twelve month
period was, in each case, because of an initial build-up of inventory by
Kraft-Pizza in the fourth quarter of calendar 1995 which reduced sales to
Kraft-Pizza in 1996, an unusually cool summer in the Northeast during 1996, a
temporary work stoppage at the primary facility which manufactures the Company's
products and the withdrawal by the Company from certain test markets which
proved to be unprofitable. The Company's limited operating resources to date
also has prevented the Company's participation in certain discount promotions
and in-store programs which has caused a reduction in reorders throughout its
distribution network. The proceeds from this offering should enable the Company
to substantially increase sales through participation in these programs. The
Company's products are currently manufactured by one independent facility
located in Buffalo, New York, which has exclusive East coast manufacturing
rights for the Company's products. Upon completion of this offering, the Company
may use additional manufacturing facilities as well as to re-establish its
relationships with former manufacturers of its products on the West coast.
The Company was incorporated in New York in March 1993 and reincorporated
in Delaware in May 1994. It maintains its principal offices at 131 Jericho
Turnpike, Jericho, New York 11753 and its telephone number is (516) 334-8500.
Present and Future Products
According to the International Ice Cream Association, ice cream was part of
a $10.5 billion nationwide frozen dessert industry in 1995 and has wide appeal,
with over 93% of households in the United States consuming these products. The
super-premium ice cream category in particular has grown dramatically in recent
years despite diet conscious consumers. This has been proven in the marketplace
by an increase in the market share of the super-premium ice cream segment of 94%
from 1985 to 1994. In 1995, sales of ice cream in pints increased by 4%, from
$282 million in 1994 to $293 million in 1995, in contrast to a 4% decrease in
the sales of frozen yogurt pints, which decreased from $115 million in 1994 to
$107 million in 1995. In the first six months of 1996, ice cream sales in pints
increased by 4.6% to $149 million, in contrast with sales of frozen yogurt sales
pints, which declined 7.1% to $51 million. With respect to novelty ice cream
products, premium ice cream bars represented the largest dollar market share
with sales approximating $270 million in 1995, of which 96% of these sales were
classified "regular" while only 4% were classified as reduced fat or diet
products. In the first six months of 1996, premium ice cream bars had sales of
$126 million of which 93.3% were classified as "regular" while only 6.7% were
classified as "reduced or nonfat." Premium ice cream bars were the second
largest dollar segment during this period. Ice cream sandwiches represented the
third largest market share of novelty products with sales of $210 million in
1995, of which 88.5% of these sales were classified "regular" compared to only
11.5% classified as reduced fat or diet. In the first six months of 1996, ice
cream sandwiches had sales of $121 million, an increase of 14%. 86.3% of these
sales remained classified as "regular" compared to 13.7% classified as "reduced
fat or nonfat."
<PAGE>
Super-premium ice cream is generally characterized by a greater richness
and density than other kinds of ice cream with a butter fat content of at least
14%. This category of ice cream was created in 1959 by Ruben Mattus, founder of
Haagen-Dazs, and expanded by Ben & Jerry's. According to available information,
Haagen-Dazs had annual sales in 1994 exceeding $900 million with Ben & Jerry's
reporting sales in 1995 in excess of $155 million.
The Company competes in the packaged ice cream category with three flavors
of pints. The three flavors of cheesecake ice cream offered in pints are Graham
Cracker Delight , Strawberry Fantasy and Chocolate Tidbits . The Company also
competes in the novelty category of premium ice cream bars and ice cream
sandwiches. Its premium ice cream bar products are all cheesecake ice cream with
either a graham cracker crunch coating or strawberry sorbet coating, using high
quality California strawberries. The Company's newest product is a sandwich
version trademarked GRAMWICH , which is cheesecake ice cream surrounded by two
specially made graham cracker wafers. The GRAMWICH is available in four-pack as
well as twenty-four count "bulk" pack for retail single serve sales. The Company
also produces an eighteen (18) count "bulk" pack of both the graham cracker
crunch and strawberry sorbet bars for warehouse club stores and single serve
sales. The Company has four-ounce Dixie cups and 1.5 gallon drum containers of
the three pint flavors for future expansion into food service and ice cream
parlor opportunities.
The Company plans to expand its product line to include additional
variations of its existing products, a variety of retail sizes and creative food
service applications. While the Company makes no representations that it will be
marketing and selling other products, the potential product types include:
- A deluxe line of pints featuring a broader variety of flavors
- "Lite" or reduced calorie extensions of existing products
- Additional fruit coatings for novelty sticks
- Additional GRAMWICH flavors
- Bon-bon style products
- Premium novelty cone products
In this regard, the Company has recently created a new line of pint
products which it intends to market under the tradename "Sorbet Blends." The
"Sorbet Blends" will consist of a nearly equal mixture of sorbet and cheesecake
ice cream and are planned to be introduced in two flavors, "Raspberry Romance"
and "Lemon Lace". These products will have approximately half the calories and
fat content of the Company's other pint varieties, and are intended to be test
marketed in California and Florida.
Manufacturing Agreement
The Company's products are presently manufactured by Fieldbrook Farms
("Fieldbrook"), an independent FDA approved facility located in Buffalo, New
York, under a two-year exclusive manufacturing agreement expiring in March 1999.
The manufacturing agreement, dated as of March 20, 1997, provides that
Fieldbrook shall be the exclusive supplier of all products manufactured by
Fieldbrook and distributed by the Company East of the Mississippi River for a
period of two years. As partial consideration for this agreement, the Company
has issued to Fieldbrook 35,000 shares of Common Stock. While Fieldbrook is
obligated to sell existing products to the Company, it is not obligated to
manufacture or sell new or different products. In the event Fieldbrook declines
to manufacture, sell or produce any new product, the Company is free to obtain
such product from another supplier. The manufacturing agreement further provides
for payment to Fieldbrook of $150,000 for open accounts which, if not paid by
April 30, 1997, shall cause the Company to issue an additional 30,000 shares of
Common Stock to Fieldbrook. The Company's present credit line with Fieldbrook is
$250,000, for which 21-day credit terms have been provided. This amount shall be
redetermined by the parties at the earlier of the Company's initial public
offering or April 30, 1997, based upon the Company's creditworthiness.
Two facilities on the West coast have recently suspended manufacturing the
Company's products due to the financial position of the Company, however, each
such facility has informed the Company that they will reconsider manufacturing
<PAGE>
the Company's products upon completion of this offering and payment by the
Company of all amounts owing to such manufacturer. Upon completion of this
offering, the Company may use additional facilities as well as re-establish its
relationships with its former manufacturers on the West coast. See "Use of
Proceeds". The Company's products have been certified as Kosher by the Kuf-K,
the Company having adhered to strict standards for both its ingredients and
processing procedures.
Distribution and Marketing
The Company, through its officers, consultants and other representatives,
currently markets the Company's products to supermarkets and grocery stores and
also, to a lesser extent, to convenience stores, food service outlets and
warehouse clubs in an effort to obtain authorization for sale in these various
retail outlets. The Company has incurred substantial promotional expenses for
freezer space in connection with entering new markets, maintaining existing
markets, entering new retailers and maintaining shelf space in existing
retailers. The Company receives no assurance that these retailers will continue
to allocate freezer space for the Company's products even after the payment of
these fees. Once the Company obtains authorization from retailers and satisfies
the substantial initial promotional expenses, the Company then directs
Kraft-Pizza to distribute the Company's products to the appropriate authorized
retailers.
In October 1995, the Company entered into the Kraft-Pizza Agreement
pursuant to which Kraft-Pizza serves as the Company's exclusive distributor in
nine northeastern states, including New York, New Jersey and Pennsylvania, in
California, Oregon and in parts of Washington and Nevada. The Kraft-Pizza
Agreement commenced on October 1, 1995, automatically renews, and is terminable
by either party on sixty (60) days' prior written notice. Under the terms of the
Kraft-Pizza Agreement, the Company will pay Kraft-Pizza 25% of a previously
agreed upon suggested wholesale price for all sales of the Company's products
sold by Kraft-Pizza. The Company believes that the Kraft-Pizza Agreement has
provided an opportunity for the Company to sell its products in thousands of
retail locations presently serviced by Kraft-Pizza as well as "hands on"
servicing of these locations by Kraft-Pizza employees. Additional distributors
may be retained as the Company continues to expand its market penetration.
In April 1996, the Company entered into the Kraft-Military Agreement with
Kraft Military pursuant to which Kraft Military acts as a broker with respect to
the Company's products for sales to the United States military facilities
throughout the world. Kraft Military is presently the largest worldwide supplier
of food products to military facilities. The Kraft Military Agreement commenced
on April 1, 1996, continues for a period of one year, and is renewable for
consecutive one year periods unless terminated by either party on thirty days
prior written notice. The Company pays a commission of 5% of net sales, as
defined in the Kraft Military Agreement, for sales made by Kraft Military to
military customers.
The Company promotes its products through trade and consumer advertising,
trade show participation, in-store demonstrations, circular advertisements and
special event sampling/couponing. Print advertising is the primary vehicle used
by the Company with its initial approach being to target regional areas of
distribution. The Company's products have also been promoted on the radio
through means such as the sponsorship of Shadow Traffic reports on various
stations in the New York metropolitan area, Southern California and
Philadelphia.
In December 1996, Mike's Original Cheesecake Ice Cream was featured in New
York magazine. In 1994, the Company's products were mentioned on CBS-TV's "This
Morning" show and America's Talking, a nationally syndicated show, featured
Mike's Original products in their daily morning show called "What's New?". The
TV Food Network also invited the Company's founder, Mr. Rosen to introduce the
Company's product line on TVFN's "Food, News & Views" show. In 1995, Mr. Rosen
was chosen by Dairy Field Magazine as one of the year's top twenty "movers and
shakers" in the industry. Mr. Rosen was also featured in the November 1996 issue
of Entrepreneur Magazine.
Competition
The super-premium ice cream market is highly competitive and the Company
faces substantial competition in connection with the marketing and sales of its
products. Among its competitors are Haagen-Dazs, owned by The Pillsbury Company,
Ben & Jerry's and numerous other regional ice cream companies. Many of these
<PAGE>
competitors are well established and have substantially greater financial
and other resources than the Company. Additionally, Haagen-Dazs and Ben &
Jerry's manufacture their own ice cream. In the ice cream novelty segment, the
Company competes with several well-known brands including Haagen-Dazs and Dove
Bars , manufactured by a division of Mars, Inc.
Achieving wide distribution in the ice cream business is difficult due to
the substantial expense of a national marketing program and the limitations on
available space in the freezer compartments of retailers. The Company's products
also may be considered in competition with all ice cream and other frozen
desserts for discretionary food dollars.
The ability of the Company to increase its market share will be dependent
upon several factors, among which are consumer acceptance of the products, the
quality and price of its products, advertising and the availability of
sufficient capital for product expansion.
Government Regulation
The Company is subject to regulation by various governmental agencies
regarding the distribution and sale of food products, including the FDA and
various state agencies. The Company believes that its marketing and distributing
operations comply with all existing applicable laws and regulations.
The Company cannot predict the impact of possible changes that may be
required in response to future legislation, rules or inquiries made from time to
time by governmental agencies. FDA regulations may, in certain circumstances,
affect the ability of the Company, as well as others in the industry, to develop
and market new products. However, the Company does not presently believe that
existing applicable legislative and administrative rules and regulations will
have a significant impact on its operations.
Trademarks and Patents
The Company owns registered trademarks and service marks under the names
"Mike's Original ", "GRAMWICH " and "Graham Cracker Delight ". The Company has
common law trademarks for "Strawberry Fantasy " and "Chocolate Tidbits ". It
also has filed a patent application on its formulated process to manufacture
cheesecake ice cream.
Employees
The Company employs six people, all of whom are located in the Company's
Jericho, New York headquarters and serve in selling and administrative
capacities. None of the Company's employees are represented by a labor union.
The Company considers its relationships with its employees to be satisfactory.
Seasonality
The ice cream industry generally experiences its highest volume during the
spring and summer months and the lowest volume in the winter months. In this
regard, according to statistics published by the International Ice Cream
Association, 35.5% of sales of novelty ice cream products and 29.5% of sales of
packaged ice cream products were made during the third quarter (July -
September) of calendar 1996 while only 18.0% of sales of novelty ice cream
products and 22.4% of sales of packaged ice cream were made during the first
quarter (January - March) of calendar 1996. Similarly, the Company's quarterly
sales for calendar year 1996 followed a seasonal pattern. Sales were stronger in
the second and third quarters of 1996 and weaker in the cooler months of the
first and fourth quarters.
Several factors negatively impacted sales on a quarterly basis. During the
first quarter of 1996 the Company's distribution was in transition to its new
distributor. In the second quarter, extensive marketing and initial product fill
<PAGE>
at store level was occurring to boost sales. In third quarter the Company's East
coast manufacturer endured a work stoppage, limiting the quantities of product
available while simultaneously the Company halted much of its marketing efforts
due to its poor financial condition. In the fourth quarter the continued lack of
consumer marketing and the Company's decision to withdraw from certain test
markets caused a sharp decline in sales.
Legal Matters
In December 1996, the Company entered a Stipulation of Entry of Judgment
with Crystal Cream & Butter Co. ("Crystal Cream"), whereby the Company
acknowledged an obligation in the amount of $539,482 to Crystal Cream. Entry of
the judgment, however, has been stayed as long as the Company continues to make
payments with respect to this obligation. Based on payments made to date, this
obligation has been reduced to $230,283 of which $134,283 is due and payable
from the proceeds of this offering and the balance is due December 1998.
In September 1996, J. W. Messner, Inc. ("Messner") commenced an action
against the Company in the United States District Court for the Eastern District
of New York. Messner seeks damages of $125,935, plus interest, arising from
advertising and marketing services that Messner claims to have performed for the
Company. The Company has filed an answer asserting a number of affirmative
defenses to the claims asserted by Messner and the matter has been scheduled for
arbitration in June 1997.
In December 1996, Suiza Dairy Corp. ("Suiza") commenced an action in the
United States District Court for the District of Puerto Rico. Suiza seeks
damages in the amount of $61,510.07 plus interest accrued, costs and attorneys
fees. The Company has not been formally served with a summons and complaint.
When, and if, the Company is served, the Company intends to file an answer
denying the allegations of the complaint.
Except as set forth above, the Company is not involved in any material
pending legal proceedings.
MANAGEMENT
Directors and Executive Officers
The By-Laws of the Company provide for a Board of Directors of between
three and nine members classified into three classes as nearly equal in number
as possible, whose terms expire in successive years.
The directors and executive officers of the Company are as follows:
Name Age Position(s) with the Company
---- --- -----------------------------
Michael Rosen 39 Chairman of the Board, Chief
Executive Officer, President and Director
Martin Weiss 43 Vice-President of Sales and Marketing
Frederic D. Heller 59 Vice President-Finance,
Chief Financial Officer and Director
Rachelle Rosen 37 Secretary and Treasurer
Martin Pilossoph 66 Director
Arthur G. Rosenberg 57 Director
Myron Levy 56 Director nominee
Michael Rosen has been the Chief Executive Officer of the Company and a
director since its inception in March 1993 and President since September 1996.
For six years prior to the formation of the Company, Mr. Rosen was President and
sole shareholder of Progressive Personnel, Inc., a career search firm in New
York City. Mr. Rosen graduated from the State University of New York, Brockport
with a Bachelor of Science degree in Business and Sports Administration. Mr.
Rosen is the husband of Rachelle Rosen and the son-in-law of Martin Pilossoph.
<PAGE>
Martin Weiss has been Vice-President of Sales and Marketing of the Company
since October 1996. Prior to joining the Company, from September 1994 to October
1996, Mr. Weiss was the Eastern Regional Sales Manager for Old Fashioned
Kitchens, Inc., a specialty frozen foods company. From October 1990 to October
1993, Mr. Weiss was District Sales Manager of Kraft General Foods, Dairy
Division and became Regional Sales Manager of the Thomas J. Lipton Company, Good
Humor/Breyers Division, upon such Company's acquisition of the Kraft Dairy
Division in October 1993. Mr. Weiss has over 15 years experience in the food
industry, having been employed by Ferolie Corporation from January 1980 to
October 1990 in such positions as Vice President of Sales and Vice President
Dairy Sales. Mr. Weiss received a Bachelor of Arts Degree in Marketing from
Montclair State College and was a member of the Board of Directors of the
Eastern Frosted Foods Association from 1990 to 1994.
Frederic D. Heller has been Vice President of Finance and director of the
Company since January 1997. Mr. Heller is a CPA licensed in the State of New
York for over the last ten years. Prior to joining the Company, from November
1994 through January 1997, he practiced as an independent financial consultant
including rendering such services to the Company in that capacity from August
1996 to January 1997. From September 1992 through October 1994, Mr. Heller was
Vice President of Finance and director of Vasomedical, Inc., formerly Future
Medical Products, Inc., a publicly owned business involved in the merchandising
of certain medical technology. From October 1990 through September 1992, Mr.
Heller was president and chief operating officer of FDH Enterprises, Inc., a
company rendering financial consulting services to business clients.
Martin Pilossoph has been a director of the Company since September 1995.
For the past five years, Mr. Pilossoph has been a Senior Sales Executive of the
Ingram Companies, a national video wholesaler. Mr. Pilossoph is the father of
Rachelle Rosen and the father-in-law of Michael Rosen.
Arthur G. Rosenberg has been a director of the Company since September
1995. Mr. Rosenberg has been a practicing attorney for more than the past ten
years. Since June 1, 1987, he has been Vice President of Acquisitions of The
Associated Companies, a residential land and commercial developer located in
Bethesda, Maryland. Mr. Rosenberg also is a director of EcoTyre Technologies,
Inc., a publicly owned manufacturer of remolded tires.
Myron Levy has been elected a director of the Company to take office upon
the closing of this offering. Since June 1993, Mr. Levy has been President of
Herley Industries, Inc., a publicly owned designer and manufacturer of flight
instrumentation products. From May 1991 to June 1993, Mr. Levy served as
Executive Vice President and Treasurer of Herley Industries, Inc. Mr. Levy also
has been a director of Herley since 1992.
Rachelle Rosen has been Secretary and Treasurer of the Company since its
formation in 1993. Ms. Rosen served as a director of the Company from 1993 until
January 1997. It was Ms. Rosen's cheesecake that gave her husband, Mike, the
idea and concept for Mike's Original Cheesecake Ice Cream. She received a
Bachelor of Science degree from Queens College. Ms. Rosen is the daughter of
Martin Pilossoph and the wife of Michael Rosen.
The Company's Board of Directors is classified into three classes. The
directors in each class serve for three-year terms. Arthur Rosenberg is a member
of Class I which serves until the Company's 1997 Annual Meeting of Stockholders.
Martin Pilossoph is a member of Class II which serves until the Company's 1998
Annual Meeting of Stockholders and Myron Levy has been elected to serve as a
member of Class II upon completion of this offering. Michael Rosen and Frederic
D. Heller are members of Class III which serves until the Company's 1999 Annual
Meeting of Stockholders. Directors who are not employees of the Company, of
which there are presently two, and upon consummation of this offering will be
three, receive no cash compensation for their services to the Company as
directors, but are reimbursed for expenses actually incurred in connection with
attending meetings of the Board of Directors. All members of the Board of
Directors are eligible to participate in the Company's stock option plans. Each
director attended or participated in at least 75% of the meetings of the Board
of Directors during his or her tenure in fiscal 1996.
Pursuant to the terms of the Underwriting Agreement relating to this
offering, the Representative has the right to nominate either one member of the
Board of Directors or a non-voting observer for the year after the Closing Date
of this offering while the Representative intends to exercise this right in the
near future, no designee yet has been chosen. See "Underwriting."
<PAGE>
Executive Compensation
The following table sets forth the cash and other compensation paid or
accrued by the Company during the year ended December 31, 1996, the nine months
ended December 31, 1995 and the fiscal year ended March 31, 1995 to the
Company's Chief Executive Officer and former president. No other executive
officer earned over $100,000 in any fiscal year.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(2) Options Compensation
- ------------------ ---- ------ ----- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael Rosen 1996 112,250(1) - - 200,000(3) -
Chairman of the Board, 9/30/95(4) 81,000(1) - - - -
President, Chief 3/31/95(5) 9,000(1) - - - -
Executive Officer
Daniel B. Kelly(6) 1996 104,166 - - 29,530(6) -
Former President 9/30/95(4) 93,750 - - - -
3/31/95(5) 25,833 - - - -
<FN>
(1) Does not include an aggregate of $62,648 of salary which was accrued and
not paid to Mr. Rosen during the period from inception through September
30, 1996, to which Mr. Rosen has waived all rights.
(2) The value of all perquisites provided to the Company's officers did not
exceed the lesser of $50,000 or 10% of the officer's salary and bonus.
(3) Represents ten-year options granted in May 1996 and September 1996
pursuant to the Company's 1995 Long Term Incentive Plan.
(4) Represents the nine month period ended December 31,1995.
(5) Represents the fiscal year ended March 31, 1995.
(6) Mr. Kelly resigned as an officer and director of the Company on September
16, 1996. His long-term compensation represents ten year options granted
in February 1995 which were terminated due to his resignation.
</FN>
</TABLE>
Option/SAR Grants in Last Fiscal Year
The following table sets forth all stock options granted to the executive
officers named in the Executive Compensation table during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ------------- -------------- --------------- ----------
<S> <C> <C> <C> <C>
Michael Rosen 33,333 12.5% $3.00 May 31, 2006 (1)
166,667 62.5% $1.50 September 11, 2006 (2)
- ------
<FN>
(1) Represents ten year options granted in May 1996, pursuant to the Company's
1995 Long Term Incentive Plan. Options became fully vested on November 30,
1996.
(2) Represents ten year options granted in September 1996, pursuant to the
Company's 1995 Long Term Incentive Plan. Options vest on March 12, 1997.
</FN>
</TABLE>
<PAGE>
Employment Agreements
Michael Rosen
The Company has entered into an employment agreement with Michael Rosen
pursuant to which Mr. Rosen has agreed to serve as Chairman of the Board and
Chief Executive Officer of the Company, at an annual base salary of $100,000 for
the first year of the agreement and an annual base salary of $125,000 for each
of the remaining five years of the agreement. Mr. Rosen is also entitled to a
$50,000 bonus for each of the third through sixth years of the Agreement in the
event the Company's pretax income for such year exceeds $1,000,000. Mr. Rosen's
employment agreement is for six years, which commenced on June 1, 1995. The
employment agreement provides that Mr. Rosen may be terminated only for a
material breach of the terms of the agreement which is not cured after he
receives five (5) days written notice.
Mr. Rosen's employment agreement restricts him from engaging in competition
with the Company for the term thereof and contains provisions protecting the
Company's proprietary rights and information, including the use of the name
"Mike's Original ". The agreement also provides for the payment to Mr. Rosen of
three times his previous year's total compensation, less $1.00, upon the
termination of his employment in the event of a change in control of the
Company. For those purposes, a change in control is defined to mean (a) change
in control as such term is defined on Regulation 240.12b-2 of the Securities
Exchange Act of 1934, as amended or (b) if during the term of the agreement,
individuals who at the beginning of such agreement constitute the board of
directors of the Company cease for any reason to constitute at least a majority
thereof, unless the election of each director who is not a director at the
beginning of such period has been approved in advance by the directors
representing at least two-thirds (2/3) of the directors then in office who were
directors at the beginning of the term of the agreement.
Martin Weiss
The Company also has entered into an employment agreement with Martin
Weiss. This agreement provides that Mr. Weiss will serve as Vice President of
Sales and Marketing of the Company, and will receive as compensation therefor an
annual base salary of $100,000 per year, plus an incentive bonus equal to 3% of
the Company's pre-tax income, as defined. This agreement is for an initial term
which terminates on the earlier of one year from the effective date of this
offering or February 28, 1998, and provides that if Mr. Weiss is terminated
after the initial term other than for "cause" (as defined), or dies or becomes
permanently disabled, the Company will pay to him certain severance. This
agreement contains the same change of control provision as set forth in Mr.
Rosen's employment agreement and also restricts Mr. Weiss from engaging in
competition with the Company for the term thereof and for one year thereafter
and contains provisions protecting the Company's proprietary rights and
information.
Frederic D. Heller
The Company has entered into an employment agreement with Frederic D.
Heller pursuant to which Mr. Heller has agreed to serve as Vice
President-Finance of the Company, at an annual base salary of $95,000 for the
first year of the agreement and an annual base salary of $105,000 for the
remaining year of the agreement. In addition, pursuant to this agreement, Mr.
Heller received options to purchase 25,000 shares of Common Stock with an
exercise price of $1.50 per share. Mr. Heller's employment agreement is for two
years, which commenced on March 1, 1997. The employment agreement provides that
Mr. Heller may be terminated only for a material breach of the terms of the
agreement which is not cured after he receives thirty (30) days written notice.
Mr. Heller's employment agreement restricts him from engaging in
competition with the Company for the term thereof and contains provisions
protecting the Company's proprietary rights and information. The agreement also
provides for the payment to Mr. Heller of three times his previous year's total
compensation, less $1.00, upon the termination of his employment in the event of
a change in control of the Company. For those purposes, a change in control is
defined to mean (a) change in control as such term is defined on Regulation
<PAGE>
240.12b-2 of the Securities Exchange Act of 1934, as amended or (b) if during
the term of the agreement, individuals who at the beginning of such agreement
constitute the board of directors of the Company cease for any reason to
constitute at least a majority thereof, unless the election of each director who
is not a director at the beginning of such period has been approved in advance
by the directors representing at least two-thirds (2/3) of the directors then in
office who were directors at the beginning of the term of the agreement.
Consulting Agreements
The Company has entered into a consulting agreement with Alma Management
Corp. ("Alma"), as of November 1, 1996. Under this agreement, which is for an
initial term of one year, Alma has agreed to cause its two principals (the
"Principals"), to provide sales and marketing advisory and consulting services
to the Company. Alma receives an annual consulting fee of $50,000 payable in
equal installments over the term of the agreement. In addition, Alma has
received options to purchase 133,333 shares of Common Stock at an exercise price
of $1.00 per share. One-third of the options vest on May 1, 1997, one-third six
months thereafter and the balance vest on May 1, 1998. The Company may terminate
the services of either Principal under the consulting agreement with Alma if
such Principal cannot adequately perform his duties thereunder because of mental
or physical disability, death or for "Just Cause" (as defined). The consulting
agreement provides that if one of the Principals is terminated by the Company,
the consulting fee paid to Alma will be reduced by one half and if both
Principals are terminated by the Company, no further compensation will be paid
to Alma. The consulting agreement with Alma expires in May 1998 and restricts
Alma and the Principals from engaging in competition with the Company for the
term thereof and for one year thereafter and contains provisions protecting the
Company's trade secrets and proprietary rights and information.
1995 Long Term Incentive Plan
In August 1995, the Company adopted The Mike's Original, Inc. 1995 Long
Term Incentive Plan (the "1995 Incentive Plan") in order to motivate qualified
employees of the Company, to assist the Company in attracting employees and to
align the interests of such persons with those of the Company's stockholders.
The 1995 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of the Company and its affiliates.
The 1995 Incentive Plan, which is administered by the Board of Directors,
authorizes the issuance of a maximum of 433,333 shares of Common Stock. If any
award under the 1995 Incentive Plan terminates, expires unexercised, or is
canceled, the Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance pursuant to the grant of new awards. To
date, the Company has granted an aggregate of 256,667 options to purchase Common
Stock under the 1995 Incentive Plan, of which 200,000 options have been granted
to Michael Rosen, the Company's Chairman of the Board and Chief Executive
Officer. 33,333 of these options are exercisable for ten years from the date of
grant at a price of $3.00 per share and 166,667 of these options are exercisable
for ten years from the date of grant at a price of $1.50 per share. Another
56,667 options have been granted to Steven A. Cantor. Each of the options
granted to Mr. Cantor are exercisable for a ten year term at a price of $1.50
per share. As of the date of this Prospectus, none of these options had been
exercised.
1996 Non-Qualified Stock Option Plan
In October 1996, the Company's Board of Directors approved a 1996
Non-Qualified Stock Option Plan (the "Non-Qualified Plan") which covers 500,000
shares of the Company's Common Stock. The options become exercisable in
installments as determined at the time of grant by the Board of Directors. As of
the date of this Prospectus, the Company had granted 478,333 options to purchase
shares of Common Stock under the Non-Qualified Plan at an exercise price of
<PAGE>
$1.50 per share. Arthur G. Rosenberg, Martin Pilossoph and Myron Levy have
been granted options to purchase 58,333 shares of Common Stock each at the
exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Frederic
D. Heller has been granted options to purchase 33,333 shares of Common Stock at
the exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Martin
Weiss has been granted options to purchase 66,667 shares of Common Stock at an
exercise price of $1.50 per share pursuant to the Non-Qualified Plan. Alma has
been granted options to purchase 133,333 shares of Common Stock at an exercise
price of $1.50 per share pursuant to the Non-Qualified Plan. Steven A. Cantor
has been granted options to purchase 76,667 shares of Common Stock at an
exercise price of $1.50 per share. As of the date of this Prospectus, none of
these options had been exercised.
Personal Liability and Indemnification of Directors
The Company's Certificate of Incorporation and By-laws contain provisions
which reduce the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The Company is
unaware of any pending or threatened litigation against the Company or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase the Company's ability to attract and
retain qualified persons to serve as directors. Because directors liability
insurance is only available at considerable cost and with low dollar limits of
coverage and broad policy exclusions, the Company does not currently maintain a
liability insurance policy for the benefit of its directors, although the
Company may attempt to acquire such insurance in the future. The Company
believes that the substantial increase in the number of lawsuits being
threatened or filed against corporations and their directors and the general
unavailability of directors liability insurance to provide protection against
the increased risk of personal liability resulting from such lawsuits have
combined to result in a growing reluctance on the part of capable persons to
serve as members of boards of directors of companies, particularly of companies
which intend to become public companies. The Company also believes that the
increased risk of personal liability without adequate insurance or other
indemnity protection for its directors could result in overcautious and less
effective direction and management of the Company. Although no directors have
resigned or have threatened to resign as a result of the Company's failure to
provide insurance or other indemnity protection from liability, it is uncertain
whether the Company's directors would continue to serve in such capacities if
improved protection from liability were not provided.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its stockholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interests of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance. However, as mentioned above, the Company does not currently
provide such insurance to its directors, and there is no guarantee that the
Company will provide such insurance to its directors in the near future,
although the Company may attempt to obtain such insurance.
<PAGE>
These provisions diminish the potential rights of action which might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholders derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Also, because the Company does
not presently have directors liability insurance and because there is no
assurance that the Company will procure such insurance or that if such insurance
is procured it will provide coverage to the extent directors would be
indemnified under the provisions, the Company may be forced to bear a portion or
all of the cost of the director's claims for indemnification under such
provisions. If the Company is forced to bear the costs for indemnification, the
value of the Company's stock may be adversely affected.
The Company has entered into Indemnification Agreements with certain of its
officers and directors. The Indemnification Agreements provide for reimbursement
for all direct and indirect costs of any type or nature whatsoever (including
attorneys' fees and related disbursements) actually and reasonably incurred in
connection with either the investigation, defense or appeal of a Proceeding, (as
defined) including amounts paid in settlement by or on behalf of an indemnitee
thereunder.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that such indemnification, in the opinion of the Commission, is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of April 15, 1997 (taking into effect a .153846-for-1 reverse
stock split effected in June 1996 and a .667-for-1 reverse stock split effected
in February 1997) of (i) each person known by the Company to beneficially own 5%
or more of the Company's outstanding Common Stock, (ii) each of the Company's
executive officers, directors and director nominees, and (iii) all of the
Company's executive officers and directors as a group. Except as otherwise
indicated, all shares of Common Stock are beneficially owned, and investment and
voting power is held, by the persons named as owners.
<TABLE>
<CAPTION>
Amount and Nature Percentage Ownership (9)
Name and Address of of Shares Before After
Beneficial Owner Beneficially Owned* Offering Offering
- --------------------- -------------------- -------- --------
<S> <C> <C> <C>
Michael Rosen (1) 283,333 (2) 11.0% 8.7%
Rachelle Rosen (1) 283,333 (3) 11.0% 8.7%
Steven A. Cantor (1) 432,295 (4) 17.1% 13.5%
Annette Cantor 298,650 12.3% 9.8%
Martin Weiss (1) 66,667 (5) 2.7% 2.1%
Frederic D. Heller (1) 16,667 * *
Arthur G. Rosenberg (1) 23,333 (6) 1.0% *
Martin Pilossoph (1) 23,333 (6) 1.0% *
Myron Levy (1) 24,167 1.1% *
Louis P. Solferino (9) 180,034 7.5% 5.9%
Michael Jones (10) 146,342 6.1% 4.8%
The Moshe Isaac Foundation(11) 200,000 8.4% 6.5%
Food Commodities Limited (12) 266,667 11.2% 8.7%
All officers and directors
as a group (7 persons) 437,500(7) 16.2% 13.0%
_________
* less than one percent (1%) unless otherwise indicated.
<PAGE>
<FN>
(1) The address for each of these persons is 131 Jericho Turnpike, Jericho,
New York 11753.
(2) Includes options to purchase 33,333 shares of Common Stock granted under
the Long-Term Incentive Plan in May 1996 and options to purchase 166,667
shares of Common Stock granted under the Long-Term Incentive Plan in
October 1996.
(3) Includes Common Stock and options to purchase Common Stock owned by
Michael Rosen, Ms. Rosen's husband.
(4) Includes options to purchase 56,667 shares of Common Stock granted under
the Long-Term Incentive Plan and options to purchase 76,666 shares of
Common Stock granted under the Non-Qualified Plan.
(5) Includes options to purchase 66,667 shares of Common Stock granted under
the Non-Qualified Plan.
(6) Includes options to purchase 23,333 shares of Common Stock granted under
the Non-Qualified Plan.
(7) Includes 313,333 shares issuable upon the exercise of options granted
pursuant to the Company's stock option plans.
(8) Assumes no exercise of the over-allotment option.
(9) The address for Mr. Solferino is 115 Blue Spruce Road, Levittown, New York
11756.
(10) The address for Mr. Jones is 86 West Main Street, East Islip, New York
11730.
(11) The address for The Moshe Isaac Foundation is c/o Teaneck Nursing Center,
1104 Teaneck Road, Teaneck, New Jersey 07666. The principal of this
entity is Michael Koenig.
(12) The address for Food Commodities Limited is Bel Royal House, Hilgrove
Street, St. Helier, Jersey JE24WG, British Isles. The principal of this
entity is Robert S. Fraley.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
In April 1997, the Company issued 150,000 shares of Common Stock to Steven
A. Cantor, the Company's largest stockholder as consideration for the
termination of this three year consulting agreement providing for payments of
$125,000 annually, which would have commenced on the closing of this offering.
In December 1996, the Company issued a convertible promissory note to The
Moshe Isaac Foundation bearing interest at the rate of 8% per annum in the
principal amount of $225,000 (the "Convertible Note"). The Convertible Note was
to paid in full the earlier of five days after the closing date of an initial
public offering or December 31, 1997. In lieu of receiving payment, the holder
of the Convertible Note has the right to convert within five (5) days of the
closing of such initial public offering into 200,000 shares of Common Stock. In
April 1997, such note was converted into 200,000 shares of Common Stock.
In October 1996, the Company issued 16,667 shares of Common Stock to
Frederic D. Heller, the Company's Vice President-Finance, Treasurer and a
director, as payment for services rendered during the year ended December 31,
1996. These shares were valued at $3.00 per share, the estimated fair market
value of the Common Stock at the date of issuance.
On August 28, 1996, Michael Rosen, the Company's Chairman of the Board,
President and Chief Executive Officer was issued a promissory note in the
principal amount of $206,250. The funds that Mr. Rosen loaned the Company were
the proceeds of a sale by Mr. Rosen to investors of 183,333 shares of his Common
Stock at a price of $1.12 per share. This loan bears interest at a rate of 8%
and initially was payable the earlier of (i) thirteen months from the date of
the loan, or (ii) the date the Company successfully consummates an initial
public offering of securities of the Company, but only to the extent that the
over-allotment option is exercised in such offering and only from the proceeds
received by the Company from the exercise of the over-allotment option. In
September 1996, the maturity date of this promissory note was revised to
September 30, 1998. In addition, the revised promissory note provides that
one-half of the outstanding principal amount of the note will be paid with
accrued interest thereon in the event the Company successfully consummates an
initial public offering of securities of the Company, but only to the extent
that the over-allotment option is exercised in such offering and only from the
proceeds received by the Company from the exercise of the over-allotment option.
<PAGE>
In August, September and October 1996, the Company received three loans
from Steven A. Cantor, aggregating $253,750. A portion of the funds that this
stockholder loaned the Company was a result of the stockholder selling shares of
his Common Stock to an investor. In August 1996, this shareholder sold 38,889
shares of his Common Stock at a price of $1.12 per share. In September 1996,
this shareholder sold 23,333 shares of his Common Stock at a price of $1.50 per
share. These loans, which were consolidated into one note in September 1997,
bear interest at a rate of 8% and are payable the earlier of (i) June 1, 1997,
or (ii) with respect to $123,750 of the principal amount, the date the Company
successfully consummates an initial public offering of securities of the
Company, but only to the extent that either the over-allotment option is
exercised in such offering or within ninety (90) days after the underwriter
elects not to exercise the over-allotment option.
On May 30, 1996, the Company received loans of $50,000 each from Louis P.
Solferino and Michael P. Jones. The loans bear interest at an annual rate of 10%
and initially were due on demand. In September 1996, the maturity date of these
promissory notes was revised to occur the earlier of (i) May 30, 1998 or (ii)
the date the Company successfully consummates an initial public offering of
securities of the Company, but only to the extent that the over-allotment option
is exercised in such offering and only from the proceeds received by the Company
from the exercise of the over-allotment option. In addition, the Company issued
6,667 shares of its Common Stock to each of Mr. Solferino and Mr. Jones. These
shares were valued at $3.00 per share, the fair market value of the Common Stock
at the date of issuance.
In February 1996, the Company issued $150,000 and $75,000 of 12%
convertible promissory notes to Mr. Solferino and Mr. Jones, respectively, which
were payable on the earlier of August 31, 1996 or upon the consummation of an
interim financing as contemplated by a letter of intent with an investment
banker for an initial public offering of the Company's securities. In June 1996,
in lieu of receiving payment in such event, the holders of the notes exchanged
the notes, based on a conversion price determined by the notes, into Second
Private Placement Units. In April 1997, Mr. Solferino and Mr. Jones converted
$16,050 and $8,025 of the principal and accrued interest into 8,025 and 4,013
shares of Common Stock, respectively.
During the fiscal year ended March 31, 1995, the Company issued two
promissory notes of $25,000 each to Elizabeth Pilossoph, who is the mother of
Rachelle Rosen, the mother-in-law of Michael Rosen, and the wife of Martin
Pilossoph. See "Management". These notes were originally due in November and
December 1998, respectively. The Company repaid one of these notes in April
1995. In September 1995, the maturity date of the outstanding promissory note
was revised to occur the earlier of the Company receiving proceeds from a
securities offering or June 1, 1996. In April 1996, the maturity date of the
outstanding promissory note was revised to occur subsequent to the repayment of
the Penn Note issued in April 1996. In September 1996, the maturity date of this
promissory note was revised to occur the earlier of (i) February 1, 1998 or (ii)
upon the occurrence of events defined by the note as a "Change in Control."
Interest accrues at an annual rate of 6% and is payable at the maturity of the
note.
During the fiscal year ended March 31, 1994, the Company borrowed $100,000
from the mother of Steven A. Cantor. See "Principal Stockholders". The loan,
which was originally due on demand, was formalized in the form a promissory note
during September 1995. In April 1996, the maturity date of the $100,000
obligation was revised to occur subsequent to the repayment of the Penn Note
issued in April 1996. The loan was non-interest bearing through April 1994. From
May 1994 through maturity interest accrues at an annual rate of 6% and is
payable upon maturity. In September 1996, the maturity date of this promissory
note was revised to occur the earlier of: (i) February 1, 1998 or (ii) upon the
occurrence of events defined by the note as a "Change in Control." During the
fiscal year ended March 31, 1995, the Company borrowed an additional $100,000
from Ms. Cantor. The loan was due on demand with interest at an annual rate of
6%. The Company repaid $50,000 of this loan in March 1995, and repaid the
remaining $50,000 during April 1995.
During the fiscal year ended March 31, 1994, the Company obtained loans
from Rachelle Rosen and issued promissory notes of $40,000 and $15,000 which are
payable in May and June 1998, respectively. Interest accrues at an annual rate
of 8% and is payable at the maturity date of the notes.
<PAGE>
SELLING SECURITYHOLDERS
This Prospectus may also be used for the possible offering of additional
shares of Common Stock owned by the Selling Securityholders. Certain other
Selling Securityholders have agreed that the shares of Common Stock owned by
such persons registered for resale hereunder under may not be sold for
twenty-four (24) months from the date of this Prospectus without the prior
written consent of the Representative. The Company will not receive any proceeds
from such sales. The Representative may release such restriction at any time
after completion of this offering. although there are no understandings or
arrangements in this regard. The resale of the securities by the Selling
Securityholders is subject to Prospectus delivery and other requirements of the
Securities Act.
The Shares are being offered by the following persons in the amounts set
forth below:
<TABLE>
<CAPTION>
Beneficial Ownership Number of Shares Beneficial Ownership
Stockholder Prior to Offering Offered After Offering
----------- -------------------- ----------------- --------------------
<S> <C> <C> <C>
Dental Investment Study Group 52,500 52,500 --
James C. LaVigne 30,000 30,000 --
Paul Greenstein 30,000 30,000 --
Ashok Chaudhari 15,000 15,000 --
Paul A. Kaye, Family Trust 15,000 15,000 --
Gregory J. and Toni Marie Shottenkirk 15,000 15,000 --
Achyut Sahasra 15,000 15,000 --
Bruce Evanter 7,500 7,500 --
Steven Watson 7,500 7,500 --
Marvin and Ellen Ochs 7,500 7,500 --
Lawrence A. Rosenstadt 7,500 7,500 --
Richard Rubenstein 7,500 7,500 --
Marvin and Linda Watsky 7,500 7,500 --
Michael Ring 7,500 7,500 --
Grahm de la Garza Grahm Limited
Family Partnership 7,500 7,500 --
Robert G. Morris, DDS, Inc. Pension 7,500 7,500 --
Marque of Distinction, Inc. Retirement
Trust 7,500 7,500 --
Gulfstream Asset Management Corp.
Retirement Trust 7,500 7,500 --
Ted Cohen 7,500 7,500 --
Paul E. Gavin 7,500 7,500 --
Michael Jones 146,342 137,624 8,718
Louis Solferino 180,034 164,136 15,898
Four L Realty Corp. 43,564 41,513 2,051
Richard Satin 23,333 23,333 --
Alan Bush 33,333 33,333 --
Sally Miglio 15,000 15,000 --
David H. Lieberman, (including
profit sharing plan) (1) 69,577 43,167 26,410
Paul Rubin 7,500 7,500 --
Barry Weintraub 7,500 7,500 --
Myron Levy (2) 24,167 24,167 --
Gerald Klein 6,667 6,667 --
Vosavu Pty. Ltd. 91,059 91,059 --
J. Scott Murphy 7,500 7,500 --
Raymond Hancock 7,500 7,500 --
<PAGE>
Jane Kirschner 3,750 3,750 --
David and Elaine Johnson 3,750 3,750 --
Donald and Alice Elstein 3,750 3,750 --
Glenn Koebel 3,750 3,750 --
Irving Wagner 3,750 3,750 --
Edward I. Kramer (1) 8,718 8,718 --
Edward S. Wactlar (1) 8,718 8,718 --
Lonnie Coleman (1) 3,333 3,333 --
Adam S. Rosenberg (1) 1,333 1,333 --
Melinda O'Donnell (1) 1,590 1,590 --
Frederic D. Heller (2) 16,667 16,667 --
Steven A. Cantor 432,295 150,000 432,295 (13.5%)
Food Commodities Limited 266,667 266,667 --
The Moshe Isaac Foundation(3) 200,000 200,000 --
Fieldbrook Farms(4) 65,000 65,000 --
Suzanne Frank 14,500 14,500 --
- -------
*less than 1% unless otherwise indicated
<FN>
(1) See "Legal Matters".
(2) See "Management" and "Principal Stockholders".
(3) See "Principal Stockholders" and "Certain Transactions".
(4) Includes 30,000 shares which may be issuable under an agreement with
Fieldbrook Farms, Inc., the Company's product manufacturer.
See "Business - Manufacturing Agreement."
</FN>
</TABLE>
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
distribution of securities by the Selling Securityholders may be effected in one
or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The Selling
Securityholders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Securities Act with respect to
the securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. The Company is not aware of any present
intentions of any Selling Stockholders to engage in any transactions with either
of the Representatives of this offering.
At the time a particular offer of securities is made by or on behalf of a
Selling Securityholder, to the extent required, a prospectus will be distributed
which will set forth the number of shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents, if
any, the purchase price paid by any underwriter for shares purchased from the
Selling Securityholder and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, and the proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereunder, any person participating in a
distribution of the securities of the Company offered by this Prospectus may not
simultaneously engage in market-making activities with respect to such
securities of the Company during the applicable restricted period (one or five
<PAGE>
business days) before the day of pricing of this offering, and until the
distribution is over. In addition, and without limiting the foregoing, the
Selling Securityholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including without limitation,
Regulation M, and Rules 100 through 105 thereunder, in connection with
transactions in such securities, which provisions may limit the time of
purchases and sales of such securities by the Selling Securityholders.
Sales of securities by the Selling Securityholders or even the potential
of such sales would likely have an adverse effect on the market prices of the
securities offered hereby. As of the date of this Prospectus, the freely
tradeable securities of the Company (the "public float") will be (i) 675,000
shares of Common Stock, and (ii) 675,000 Class A Warrants.
DESCRIPTION OF SECURITIES
Capital Stock
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.001 par value per share and 500,000 shares of Preferred Stock,
$.01 par value per share.
Common Stock
General. The Company has 20,000,000 authorized shares of Common Stock,
2,386,622 of which were issued and outstanding prior to the offering. All shares
of Common Stock currently outstanding are validly issued, fully paid and
non-assessable, and all shares which are the subject of this Prospectus, when
issued and paid for pursuant to this offering, will be validly issued, fully
paid and non-assessable.
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of shareholders. The
Company's Board consists of three classes each of which serves for a term of
three years. At each annual meeting of the stockholders the directors in only
one class will be elected. The holders are not permitted to vote their shares
cumulatively. Accordingly, the holders of more than fifty percent (50%) of the
issued and outstanding shares of Common Stock can elect all of the Directors of
the Company. See "Principal Stockholders".
Dividend Policy. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The Company has not paid
any dividends since its inception and presently anticipates that all earnings,
if any, will be retained for development of the Company's business and that no
dividends on the shares of Common Stock will be declared in the foreseeable
future. Further, pursuant to a credit agreement with one of its manufacturers,
the Company is prohibited from paying dividends on any of its capital stock
until the repayment of the indebtedness thereunder. Payment of future dividends
will be subject to the discretion of the Company's Board of Directors and will
depend upon, among other things, future earnings, the operating and financial
condition of the Company, its capital requirements, general business conditions
and other pertinent facts. Therefore there can be no assurance that any
dividends on the Common Stock will be paid in the future. See "Dividend Policy".
Miscellaneous Rights and Provisions. Holders of Common Stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of the Company, each share of Common Stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of the Company after satisfaction of all liabilities, subject to the
rights of holders of Preferred Stock.
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have 3,061,622 shares of Common Stock outstanding (3,162,872 shares
if the Representative's over-allotment option is exercised in full). Of these
<PAGE>
shares, the 675,000 shares sold in this offering (776,250 shares if the
Representative's over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate" of the Company (in general, a
person who has a control relationship with the Company) which will be subject to
the limitations of Rule 144 adopted under the Securities Act. Another 1,635,275
shares are registered under the registration statement of which this Prospectus
forms a part and are freely saleable under the Securities Act, but may not be
transferred for twenty-four (24) months from the date of this prospectus or at
such earlier date as may be permitted by the Representative. All of the
remaining shares are deemed to be "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act.
In general, under Rule 144 as effective on April 29, 1997, subject to the
satisfaction of certain other conditions, commencing ninety (90) days after the
effective date of the registration statement of which this prospectus is a part,
a person, including an affiliate of the Company (or persons whose shares are
aggregated), who has owned restricted shares of Common Stock beneficially for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of outstanding
shares of the same class or the average weekly trading volume of the Company's
Common Stock on all exchanges and/or reported through the automated quotation
system of a registered securities association during the four calendar weeks
preceding the date on which notice of the sale is filed with the Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A person who has not been an affiliate of the Company for at least the
three months immediately preceding the sale and who has beneficially owned
shares of Common Stock for at least two years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
629,666 of the shares of restricted stock presently outstanding have been
held at least two years. Accordingly, commencing following the completion of the
offering these shares would be eligible for resale pursuant to Rule 144.
However, pursuant to the terms of the Underwriting Agreement, certain Selling
Securityholders owning an aggregate of 1,635,275 shares of Common Stock have
agreed not to sell any of their shares for a period of twenty-four (24) months
following the date of this prospectus without the prior written consent of the
Representative. The sale of any substantial number of these shares in the public
market could adversely affect prevailing market prices following the offering.
No predictions can be made as to the effect, if any, that sales of shares
under Rule 144 or otherwise or the availability of shares for sale will have on
the market, if any, prevailing from time to time. Sales of substantial amounts
of the Common Stock pursuant to Rule 144 or otherwise may adversely affect the
market price of the Common Stock or the Warrants offered hereby.
Class A Warrants
The Class A Warrants offered hereby will be issued in registered form under
a warrant agreement (the "Warrant Agreement") between the Company and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent"). The
following summary of the provisions of the Warrants is qualified in its entirety
by reference to the Warrant Agreement, a copy of which is filed as an exhibit to
the registration statement of which this Prospectus is a part.
Rights to Purchase Common Stock. Each Class A Warrant will be separately
tradeable and will entitle the registered holder thereof to purchase one
share of Common Stock (subject to adjustment as described below) for a period of
three years commencing on the effective date of this Prospectus at a price of
$6.00 per share of Common Stock. A holder of Class A Warrants may exercise such
warrants by surrendering the certificate evidencing such warrants to the Warrant
Agent, together with the form of election to purchase on the reverse side of
<PAGE>
such certificate properly completed and executed and the payment of the exercise
price and any transfer tax. If less than all of the warrants evidenced by a
warrant certificate are exercised, a new certificate will be issued for the
remaining number of warrants. Holders of the Class A Warrants may sell the Class
A Warrants if a market exists rather than exercise them. However, there can be
no assurance that a market will develop or continue as to such Class A Warrants.
For a holder of a warrant to exercise the Class A Warrants, there must be
a current registration statement on file with the Commission and various state
securities commissions. The Company will be required to file post-effective
amendments to the registration statement when events require such amendments.
While it is the Company's intention to file post-effective amendments when
necessary, there is no assurance that the registration statement will be kept
effective. If the registration statement is not kept current for any reason, the
Class A Warrants will not be exercisable, and holders thereof may be deprived of
value. Moreover, if the shares of Common Stock underlying the Class A Warrants
are not registered or qualified for sale in the state in which a Class A Warrant
holder resides, such holder might not be permitted to exercise the Class A
Warrants. If the Company is unable to qualify the Common Stock underlying such
Class A Warrants for sale in certain states, holders of the Company's Class A
Warrants in those states will have no choice but to either sell such Class A
Warrants or allow them to expire.
The Company has authorized and reserved for issuance a number of
underlying shares of Common Stock sufficient to provide for the exercise of the
Class A Warrants. When issued, each share of Common Stock will be fully paid and
nonassessable.
Class A Warrant holders will not have any voting or other rights as
shareholders of the Company unless and until Class A Warrants are exercised and
shares issued pursuant thereto.
Redemption Rights. Any or all of the Class A Warrants may be redeemed by
the Company at a price of $.01 per warrant, upon the giving of not less than 30
days' nor more than 60 days' written notice at any time after the date of this
Prospectus, provided that the closing bid price of the Common Stock for all
twenty (20) consecutive trading days ending three (3) days of the notice of
redemption has equaled or exceeded $12.00 per share. The right to purchase the
Common Stock represented by the Class A Warrants so called for redemption will
be forfeited unless the Class A Warrants are exercised prior to the date
specified in the foregoing notice of redemption. Any redemption of the Class A
Warrants during the one year period commencing on the date of this Prospectus
shall require the consent of the Representative.
Adjustments. The exercise price and the number of shares of Common Stock
issuable upon the exercise of each Class A Warrant are subject to adjustment in
the event of a stock dividend, recapitalization, merger, consolidation or
certain other events.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock of the Company. The exercise of the Class A Warrants will result in
the dilution of the then book value of the Common Stock of the Company held by
the public investors and would result in a dilution of their percentage
ownership of the Company. The terms upon which the Company may obtain additional
capital may be adversely affected through the period that the Class A Warrants
remain exercisable. The holders of these Class A Warrants may be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital on terms more favorable than those provided for by the
Class A Warrants.
Second Private Placement
From June through September 1996, the Company issued an aggregate of 61.5
Second Private Placement Units, each Second Private Placement Unit consisting of
a $2,500 principal amount of Second Private Placement Notes and 7,500 Second
Private Placement Shares. The proceeds from the sale of the Second Private
Placement Units were used to pay promotional expenses incurred in connection
with entering new markets and maintaining existing markets and to fund working
capital. The Company has registered under the registration statement of which
this prospectus forms a part all of the 461,250 Second Private Placement Shares
included in the Second Private Placement Units. The Second Private Placement
Shares are not transferable until the earlier of twenty-four (24) months
following the date of this prospectus or at such earlier date as may be
permitted by the Representative. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting".
<PAGE>
The Second Private Placement Notes bear interest at a rate equal to 12%
per annum, payable one year after the issuance of the Second Private Placement
Notes and monthly in arrears thereafter. The Second Private Placement Notes
mature on the earlier of (i) July 31, 1997, or (ii) the closing date of this
offering; provided, that the maturity of the Second Private Placement Notes will
be accelerated upon an Event of Default (as defined therein).
The purchasers of the Second Private Placement Units also received 7,500
shares of Common Stock for each $2,500 principal amount of Second Private
Placement Units purchased. These shares of Common Stock are registered for
resale hereunder and also have piggyback registration rights with respect to all
other registration statements filed by the Company with the SEC (other than on
forms S-4 or S-8), subject to customary underwriter's or board of director's
rights to limit such participation. However, all holders of Second Private
Placement Shares are prohibited from selling these Second Private Placement
Shares for twenty four (24) months after the date of this prospectus, subject to
the prior consent of the Representative.
Preferred Stock
The Company's Certificate of Incorporation, as amended, authorizes the
issuance of up to 500,000 shares of preferred stock, par value $.01 per share.
Currently there are no shares of preferred stock issued or outstanding.
The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of shares of Common Stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of Preferred Stock could be used to discourage or prevent efforts to
acquire control of the Company through the acquisition of shares of Common
Stock.
Certain Provisions of the Certificate of Incorporation
The Company's Certificate of Incorporation contains certain provisions
which may be deemed to be "anti-takeover" in nature in that such provisions may
deter, discourage or make more difficult the assumption of control of the
Company by another entity or person. In addition to the ability to issue
Preferred Stock, these provisions are as follows:
A vote of 66-2/3% of the stockholders is required by the Certificate of
Incorporation in order to approve certain transactions including mergers and
sales or transfers of all or substantially all of the assets of the Company.
The Company's By-laws provide that the members of the Board of Directors
of the Company be classified into three classes: Class I (which consists of
Arthur G. Rosenberg) will serve until the Company's 1997 Annual Meeting of
Stockholders. Class II (which consists of Martin Pilossoph) will serve until the
Company's 1998 Annual Meeting of Stockholders. Class III (which consists of
Michael Rosen and Frederic D. Heller) will serve until the Company's 1999 Annual
Meeting of Stockholders. After their initial staggered terms, the term of each
class will run for three years and expire at successive annual meetings of
stockholders. Accordingly, it is expected that it would take a minimum of two
annual meetings of stockholders to change a majority of the Board of Directors.
Further, directors may only be removed for cause prior to the expiration of
their term of office. Upon completion of this offering, Myron Levy will be a
director in Class II, to serve until the Company's 1998 Annual Meeting of
Stockholders.
The Delaware General Corporation Law further contains certain
anti-takeover provisions. Section 203 of the Delaware General Corporation Law
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations with a person who owns 15% or more
of the corporation's outstanding voting stock (an "interested stockholder") for
a period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans); or (iii) the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder.
<PAGE>
Transfer Agent
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer and Trust Company, 6201 15th Avenue, Brooklyn, New York
11219.
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement between the Company and the Underwriters named below, for which IAR
Securities Corp. is acting as Representative (a copy of which agreement is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part), the Company has agreed to sell to each of the Underwriters named below,
and each of such Underwriters has severally agreed to purchase the number of
shares of Common Stock and Warrants set forth opposite its name. All 675,000
shares of Common Stock and 875,000 Warrants offered must be purchased by the
several Underwriters if any are purchased. The shares of Common Stock and
Warrants are being offered by the Underwriters subject to prior sale, when, as
and if delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and to certain other conditions.
<TABLE>
<CAPTION>
Number
Underwriter of Shares of Warrants
<S> <C> <C>
IAR Securities Corp.
Millennium Securities Corp. ------- -------
Total 675,000 875,000
</TABLE>
The Representative has advised the Company that the Underwriters propose
to offer the shares of Common Stock and the Warrants to the public at the
offering prices set forth on the cover page of this Prospectus. The
Representative has further advised the Company that the Underwriters propose to
offer the Securities through members of the National Association of Securities
Dealers, Inc. ("NASD"), and may allow a concession, in their discretion to
certain dealers who are members of the NASD and who agree to sell the Securities
in conformity with the NASD Conduct Rules. Such concessions shall not exceed the
amount of the underwriting discount that the Underwriters are to receive.
The Company has granted the Underwriters an option, exercisable for
forty-five (45) days from the date of this Prospectus, to purchase up to 101,250
shares of Common Stock and 131,250 Warrants, at the public offering prices less
the underwriting discounts set forth on the cover page of this Prospectus. The
Underwriters may exercise this option solely to cover over-allotments in the
sale of the shares of Common Stock and Warrants offered hereby.
The Company has agreed to indemnify the Representative against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments it may be required to make in respect thereof. It is the position of
the Commission that indemnification for liabilities under the Securities Act is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
<PAGE>
The Company has agreed to pay the Representative a non-accountable expense
allowance of 3% of the aggregate offering price (of which $50,000 has already
been received) with respect to the Common Stock and Class A Warrants offered
hereby (and any securities purchased pursuant to the Representative's
over-allotment option). Under certain circumstances, the expenses previously
paid by the Company are nonrefundable if the offering is terminated or otherwise
does not proceed.
The Company has also agreed to pay the Representative a consulting fee of
$50,000 for financial consulting services to be performed over a period of two
years.
Upon the exercise after one year following the date of this offering of
any Warrant included in the Units, the Company has agreed to pay the
Representative a fee of ____% of the aggregate exercise price of such warrant if
(i) the market price of the Company's Common Stock is greater than the exercise
price of such Warrant on the date of exercise; (ii) the exercise of such Warrant
was solicited by the Representative and the holder of such Warrant so states in
writing and designates in writing that the Representative is entitled to receive
such compensation, (iii) such Warrant is not held in a discretionary account;
and (iv) the solicitation of such Warrant was not in violation of Regulation M,
and Rules 100 through 105 thereunder promulgated under the Exchange Act.
The Company has agreed to sell to the Representative or its designees, at a
price of $250, warrants (the "Representative's Warrants") to purchase 67,500
shares of Common Stock of the Company at an exercise price of $7.20 per share
and 87,500 Warrants at an exercise price of $.26 per warrant. Other than a
higher exercise price and the redemption feature, the Warrants underlying the
Representative's Warrants are identical in all respects to the Warrants offered
to the public hereby, as to which they will be treated pari passu with the
public Warrants. The Warrants issuable upon exercise of the Representative's
Warrants will entitle the holder to purchase shares of Common Stock at a price
of $7.20 per share or 120% of the then exercise price of the Warrants offered to
the pubic hereby, for a period of three years commencing on the date hereof. The
Representative's Warrants will not be transferable for one year from the date
hereof except to officers and partners of the Underwriters or members of the
selling group and are exercisable during the four year period commencing one
year from the date of this Prospectus. Any profit realized upon any resale of
the Representative's Warrants or upon the sale of the underlying securities
thereof may be deemed to be an additional underwriter's compensation. The
Company has agreed to register (or file a post-effective registration amendment
with respect to any registration statement registering) the Representative's
Warrant and the underlying securities under the Securities Act at its expense on
one occasion during the five (5) years following the date of this Prospectus and
at the expense of the holders thereof. The Company has also agreed to
"piggy-back" registration rights for the holders of the Representative's Stock
Warrants and the Representative's Warrants and the underlying securities at the
Company's expense during the six (6) years following the date of this
Prospectus.
The Company has also agreed, for a period of not less than two years
commencing on the date of this offering, at the request of the Representative,
to nominate and use its best efforts to elect a designee of the Representative
to the Board of Directors of the Company or to appoint a designee of the
Representative as a non-voting observer of the Board of Directors. The
Representative has not yet exercised its right to designate such person.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement and related documents, copies of which
are on file at the offices of the Representative, the Company and the
Commission, and forms of which have been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
<PAGE>
The Representative has informed the Company that the Representative does
not intend to confirm sales to any accounts over which it exercises
discretionary authority.
The Company, and its officers and directors, have agreed not to offer,
pledge, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any securities of the Company for a period
of twenty-four (24) months after the date of this Prospectus, without the prior
written consent of the Representative, except pursuant to the exercise of the
Representative's over-allotment option, or the exercise of the Warrants or
currently outstanding stock options.
Prior to this offering, there has been no market for the Common Stock or
the Warrants. Although the Company will apply to list the Common Stock and the
Warrants on the OTC Bulletin Board, there can be no assurance that an active
trading market will develop for the Common Stock or the Warrants, or, if
developed, that it will be maintained. In addition, the Common Stock and the
Warrants will be separately transferable immediately.
The initial public offering price has been arbitrarily determined by
negotiations between the Company and the Representative. Among the factors
contained in determining the initial public offering price, in addition to
prevailing market conditions, were the Company's capital structure, estimates of
its business potential and earnings prospects, an assessment of its management,
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
In connection with the Second Private Placement, the Company paid
Millennium Securities Corp., one of the underwriters, as Placement Agent, 3% of
the gross proceeds of the entire offering as a non-accountable expense allowance
and a 10% commission on the sales of the Second Private Placement Units.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., Jericho, New York. The law firm of Beckman & Millman, P.C., New
York, New York will pass on certain aspects of this offering on behalf of the
Representative. Employees of Blau, Kramer, Wactlar & Lieberman, P. C. own an
aggregate of 93,269 shares of Common Stock, 66,859 of which are registered for
resale hereunder, and options to purchase 73,334 shares of Common Stock issued
under the 1996 Non-Qualified Plan Stock Option.
EXPERTS
The audited financial statements of the Company for the fiscal year ended
December 31, 1996 and the nine month period ended December 31, 1995, are
included herein and in the registration statement in reliance upon the report,
which report includes an emphasis paragraph regarding the ability of the Company
to continue as a going concern, of Grant Thornton LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
<PAGE>
CHANGE IN ACCOUNTANTS
Price Waterhouse LLP served as the Company's independent auditors for the
fiscal years ended March 31, 1994 and March 31, 1995 and the nine month period
ended December 31, 1995. On September 23, 1996, Price Waterhouse LLP advised the
Company that they had resigned as the Company's independent auditors.
Subsequently, the Company's Board of Directors replaced Price Waterhouse LLP in
favor of Grant Thornton LLP as its independent certified public accountants.
Price Waterhouse LLP's report on the Company's financial statements for the
fiscal years ended March 31, 1994 and March 31, 1995 and the nine-month period
ended December 31, 1995, did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles, except that the opinion included an explanatory paragraph
that there were conditions that raise substantial doubt about the Company's
ability to continue as a going concern. During this period there was no
disagreement with Price Waterhouse LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to Price Waterhouse's LLP's satisfaction, would
have caused Price Waterhouse LLP to make reference to the subject matter of the
disagreement in connection with its report.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
SB-2, pursuant to the Securities Act, with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in said registration statement, and the exhibits thereto. For further
information with respect to the Company and the securities offered hereby,
reference is made to said registration statement and exhibits which may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
<PAGE>
As of the date of this Prospectus, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, shall file reports and other information with the
Commission. Such reports and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at its following regional
offices: Suite 788, 1375 Peachtree St. N.E., Atlanta, Georgia 30367,
Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois
60621-2511 and 7 World Trade Center, 13th Floor, New York, New York 10048. Also,
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at the Commission's Web site located at
http:\\www.sec.gov.
<PAGE>
C O N T E N T S
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3
Statements of Operations F-5
Statement of Changes in Stockholders' Deficit F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8 - F-27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Mike's Original, Inc.
We have audited the accompanying balance sheets of Mike's Original, Inc. as of
December 31, 1996 and 1995 and the related statements of operations, changes in
stockholders' deficit and cash flows for the year ended December 31, 1996 and
for the nine-month period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mike's Original, Inc. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the year ended December 31, 1996 and for the nine-month period ended
December 31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $4,050,547 during the year ended December 31,
1996, and, as of that date, the Company's current liabilities exceeded its
current assets by $2,539,788 and the Company's stockholders' deficit was
$2,996,411. These factors, among others, as discussed in Note B to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note B. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
GRANT THORNTON LLP
Melville, New York
April 17, 1997
F-2
<PAGE>
Mike's Original, Inc.
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash $ 32,523 $ 15,716
Accounts receivable, less allowance for
doubtful accounts of $20,751 and
$6,888, respectively 61,219 153,402
Inventories 247,608 176,885
Other receivables 16,589 -
--------- ---------
Total current assets 357,939 346,003
FIXED ASSETS, NET 14,478 25,494
OTHER ASSETS
Deferred offering costs 45,000 -
Trademarks and organizational costs, net of
accumulated amortization of $11,787 and
$8,085, respectively 6,724 10,426
Security deposits 18,091 18,091
Other 1,000
--------- ---------
$443,232 $400,014
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
<PAGE>
Mike's Original, Inc.
BALANCE SHEETS (continued)
December 31,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1996 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,104,336 $ 1,468,610
Accrued expenses and other liabilities 140,629 249,772
Notes payable to related parties 253,750 125,000
Subordinated notes payable - stockholders 153,750 -
Note payable - convertible 225,000 -
Notes payable 980,821 49,114
Accrued interest payable to related parties 5,978 -
Line of credit 23,506 -
Obligations under capital lease 9,957 9,148
--------- ---------
Total current liabilities 2,897,727 1,901,644
ACCRUED COMPENSATION EXPENSE - 158,333
OBLIGATIONS UNDER CAPITAL LEASE 3,611 13,567
NOTES PAYABLE TO RELATED PARTIES 486,250 55,000
ACCRUED INTEREST PAYABLE TO
RELATED PARTIES 52,055 28,822
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.01 par value; 500,000
shares authorized; no shares issued or
outstanding - -
Common stock, $.001 par value; 20,000,000
shares authorized; 1,892,641 shares and
1,362,160 shares issued and outstanding at
December 31, 1996 and 1995, respectively 1,892 1,362
Additional paid-in capital 4,000,700 829,742
Deferred financing costs (360,000) -
Accumulated deficit (6,639,003) (2,588,456)
---------- ----------
(2,996,411) (1,757,352)
---------- ----------
$ 443,232 $ 400,014
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
Mike's Original, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Sales, net 2,392,258 2,312,144
Cost of sales 1,439,635 1,312,792
----------- -----------
Gross profit 952,623 999,352
Operating expenses
Selling and shipping 2,596,500 1,864,890
General and administrative 2,193,602 717,315
Research and development 70,632 19,529
----------- -----------
4,860,734 2,601,734
----------- -----------
Loss from operations (3,908,111) (1,602,382)
Interest expense, net of interest income of
$547 and $478, respectively 142,436 12,476
----------- -----------
NET LOSS $(4,050,547) $(1,614,858)
----------- -----------
Net loss per share $(1.67) $(.75)
----------- -----------
Weighted average common shares outstanding 2,431,245 2,150,537
----------- -----------
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
Mike's Original, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
Year ended December 31, 1996 and
nine months ended December 31, 1995
<TABLE>
<CAPTION>
Total
Number Additional Deferred stock-
of paid-in financing Accumulated holders'
shares Amount capital costs deficit deficit
------- ------- ----------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1995 1,294,878 $1,295 $ 534,124 $ (973,598) $ (438,179)
Issuance of common stock for
services rendered 12,307 12 47,488 47,500
Sale of common stock to
investors, net of issuance
costs of $19,815 54,975 55 248,130 248,185
Net loss (1,614,858) (1,614,858)
----------- ------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 1,362,160 1,362 829,742 (2,588,456) (1,757,352)
Issuance of common stock for
services rendered 69,231 69 207,623 207,692
Sale of common stock to
investors, net of issuance
costs of $330,437 461,250 461 1,052,853 1,053,314
Compensation attributable to
the issuance of stock
options 812,000 812,000
Compensation attributable to
the release of shares
held in escrow 265,000 265,000
Compensation attributable to
the transfer of common
stock owned by the founder
for services rendered 100,000 100,000
Waiver of compensation
payable to stockholders
and founders 358,482 358,482
Imputed interest -
convertible debt 375,000 $(375,000)
Amortization of imputed
interest - convertible
debt 15,000 15,000
Net loss (4,050,547) (4,050,547)
----------- ------- ---------- ---------- ----------- ------------
Balance at December 31, 1996 1,892,641 $1,892 $4,000,700 $ (360,000)$(6,639,003) $(2,996,411)
=========== ======= ========== ========== =========== ===========
The accompanying notes are an integral part of this statement.
</TABLE>
F-6
<PAGE>
Mike's Original, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,050,547) $(1,614,858)
Adjustments to reconcile net
loss to net cash used in
operating activities
Imputed interest 15,000
Depreciation and amortization 14,718 10,114
Provision for doubtful accounts 13,863 21,378
Compensation expense attributable
to the issuance of common
stock for services rendered 207,692 47,500
Compensation expense attributable
to the release of
common stock from escrow account 265,000 -
Compensation expense attributable
to the issuance of stock options 812,000 -
Compensation expense attributable
to the transfer of common stock
by the founder for services
rendered 100,000 -
Changes in operating assets
and liabilities
Accounts receivable 78,320 (33,513)
Inventories (70,723) 10,043
Prepaid expenses (4,500) 22,941
Other current assets (16,589) -
Accounts payable 812,163 975,711
Accrued expenses and
other liabilities 79,717 240,629
---------- ----------
Net cash used in operating
activities (1,743,886) (320,055)
---------- ----------
Cash flows from investing activities
Intangible assets - (916)
Security deposit - (14,023)
Other assets (1,000) -
---------- ----------
Net cash used in investing
activities (1,000) (14,939)
---------- ----------
Cash flows from financing activities
Proceeds from convertible note
payable 225,000 -
Proceeds from 12% subordinated
notes payable - stockholders 153,750 -
Net proceeds from issuance of
common stock 1,053,314 248,185
Proceeds from notes payable to
related parties 560,000 -
Payment of notes payable to
related parties - (75,000)
Payment of capital lease
obligations (9,147) (5,682)
Payment of notes payable (244,730) -
Proceeds from line of credit 24,134 -
Payment of line of credit (628) -
---------- ----------
Net cash provided by financing
activities 1,761,693 167,503
---------- ----------
NET INCREASE (DECREASE) IN CASH 16,807 (167,491)
Cash at beginning of period 15,716 183,207
---------- ----------
Cash at end of period $ 32,523 $ 15,716
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
F-7
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - ORGANIZATION OF BUSINESS
Mike's Original, Inc. (the "Company") was incorporated in Delaware in May 1994
as successor to Melanie Lane Farms, Inc. ("Melanie Farms"), a New York
corporation formed in 1993. In June 1994, Melanie Farms was merged into the
Company. As both entities were under common control, the merger has been
accounted for in a manner similar to a pooling of interests.
Effective December 31, 1995, the Company changed its fiscal year-end from
March 31 to December 31.
Since April 1, 1993, the Company has been engaged in the marketing and
distribution of super-premium ice cream products. The Company markets, sells
and distributes Mike's Original Cheesecake Ice Cream, a blend of ice cream and
cheesecake ingredients. This product line is offered in a variety of flavors
mainly to supermarkets and grocery stores and also, to a lesser extent, to
convenience stores, food service outlets and warehouse clubs. The Company's
products are sold in approximately fifteen states, including New York,
California, Pennsylvania and New Jersey with sales generally concentrated on
the East and West Coasts of the United States. (See Note M.)
NOTE B - BASIS OF PRESENTATION
The Company has incurred losses from operations since its inception in 1993
and at December 31, 1996 has a stockholders' deficit and a working capital
deficit of $2,996,411 and $2,539,788, respectively. A significant portion of
these amounts was incurred during the year ended December 31, 1996 as a result
of intense marketing by the Company, including the payment for introductory
programs with supermarkets and other food chain retailers of approximately
$622,000 and product advertising, promotion and marketing of approximately
$1,526,000.
In addition, the Company has incurred both short- and long-term debt in order
to finance its continuing operations. A substantial portion of these
borrowings is currently due or is past due. The Company is currently
negotiating with its creditors in order to defer payment of these obligations
to future periods.
F-8
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE B (continued)
In the event these creditors do not continue to extend credit to the Company,
the Company's ability to operate would be further hampered.
As described further in Note H, a creditor of the Company amended the terms of
a loan agreement to permit the Company to be in compliance with the agreement
at December 31, 1996. At December 31, 1996, the balance of this obligation to
this creditor was $710,275.
As described in Note N, the Company maintains an unsecured line of credit
aggregating $25,000, of which $23,506 was outstanding at December 31, 1996.
The Company has no additional credit facility.
The Company has signed a letter of intent with an investment
banker for a proposed public offering (the "Offering") by the
Company of $4,225,000. It is the underwriters' intent, immediately
prior to the effective date of the Offering to enter into a "firm
commitment" Underwriting Agreement with the Company and, upon execution
thereof, to immediately commence a bona fide public offering of shares. It
is anticipated that the net proceeds of this Offering of $3,347,250 will
be used for the repayment of certain debt and working capital needs,
including marketing and product line expansions. The net proceeds to the
Company from this Offering are expected to be adequate to fund the
Company's working capital needs for the twelve months following the
Offering.
In the event that the Offering is delayed, management recognizes that the
Company must generate additional resources to enable it to continue
operations. Management's plans include consideration of the sale of additional
equity securities to private investors under appropriate market conditions or
other business transactions which would generate sufficient resources to
assure continuation of the Company's operations. On January 25, 1997, the
Company obtained additional debt financing in the amount of $100,000. (See
Note H.) On March 13, 1997 the Company obtained additional debt financing in
the amount of $50,000 and in connection therewith issued 2,000 shares of the
Company's Common Stock. On April 3, 1997 the holder of such note converted
$25,000 of principal into 12,500 shares of the Company's common stock.
F-9
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Use of Estimates in Financial Statement Preparation
The preparation of these financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in these financial statements
and related notes. Actual results could differ from these estimates.
2. Revenue Recognition
Revenue from the sale of ice cream products is recognized upon shipment.
Effective October 1, 1995, a significant portion of the Company's sales are
made to one distributor pursuant to a distribution agreement which provides
for the payment of distribution fee based upon a percent of sales, price
protection and certain rights of return on product unsold by third
parties. Net sales are presented net of distribution fees of $527,540
and $129,373 for the year ended December 31, 1996 and the nine months
ended December 31, 1995, respectively. A provision for such costs is made
as revenue is recognized, however, costs relating to price protection and
returned product have not been material to date.
3. Inventories
Inventories are stated at the lower of cost or market value, with cost
determined on a first-in, first-out basis.
4. Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation
of fixed assets is recorded on a straight-line basis over their estimated
useful lives ranging from three to five years. Certain leased computer
equipment with future rental payments for periods through 1998 has been
capitalized. These amounts are included in fixed assets within the
accompanying balance sheets and are being depreciated over the estimated
useful life of the equipment or the term of the lease, whichever is
shorter.
5. Trademarks and Organizational Costs
Costs relating to trademark and organizational expenditures have been
deferred and are being amortized on a straight-line basis over five years.
F-10
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE C (continued)
6. Research and Development
Research and development expenditures primarily for product development are
expensed as incurred.
7. Introductory Programs
Payments for introductory programs are made to certain customers
(supermarkets and other food chain retailers) in exchange for the Company
obtaining retail shelf space and are charged to operations when the Company
initially ships products to customers under such agreement. No costs of
introductory programs are deferred as of December 31, 1996 and 1995.
8. Advertising
Advertising costs are charged to operations when incurred. Advertising
expense of $346,000 was recorded for the year ended December 31, 1996 and
$92,000 was recorded for the nine months ended December 31, 1995.
9. Income Taxes
Deferred income taxes are recognized for temporary differences between the
financial statement and income tax bases of assets and liabilities and loss
carryforwards for which income tax benefits are expected to be realized in
future years. A valuation allowance has been established to offset the
deferred tax assets as it is more likely than not that such deferred tax
assets will not be realized. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date.
10. Per Share Information
In May 1996, the Company approved a 1-for-6.5 reverse stock split and,
in February 1997, the Company approved a 2-for-3 reverse split.Accordingly,
all share and per share amounts have been retroactively
restated for these transactions.
Net loss per common share is based on the weighted average number of common
shares outstanding during the periods. Considered in the calculation of
F-11
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE C (continued)
earnings per share are options to purchase 735,000 shares of the Company's
common stock with an average exercise price of $1.57 issued within a
one-year period preceding the Company's planned initial public offering
and 306,981 shares issuable upon the conversion of notes payable (Note H).
The incremental common equivalent shares of 839,139 considered
outstanding for all periods presented have been determined using the
treasury stock method and an estimated initial public offering price of
$6.00. All other options and warrants have been excluded as their inclusion
would be antidilutive. Further, certain shares previously held in escrow
(Note K) have been excluded from the calculation of earnings per share
during such period.
As described more fully in Note B, the Company signed a letter of intent
with an investment banker for a proposed public offering by the Company of
675,000 units (the "Units"). Each Unit consists of one share of common
stock, $.001 par value and one redeemable common stock purchase warrant.
Had the proposed public offering occurred on January 1, 1996, the reported
net loss per common share for the year ended December 31, 1996, would have
decreased $.38 to $1.29, after giving effect to the issuance of additional
shares of common stock and the application of $964,466 of proceeds to
reduce outstanding indebtedness.
11. New Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of
the new standard is not permitted. The new standard eliminates primary
and fully diluted earnings per share and requires presentation of basic
and earnings per share together with disclosure of how the per share
amounts were computed. The effect of adopting this new standard has not
been determined.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 129 ("SFAS No. 129"), Disclosure of Information
About Capital Structure. The Company does not anticipate that SFAS No.
129 will have a material impact on the financial statements.
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
During the period ended December 31, 1995, the Company purchased fixed
assets of $28,397 pursuant to a lease which has been accounted for
as a capital lease.
Cash paid for interest was $64,685 and $1,468 during the year ended
December 31, 1996 and the nine-month period ended December 31, 1995,
respectively. Noncash financing and investing activity included the
conversion of trade accounts payable to notes payable of $1,176,437 and
$53,114 during the year ended December 31, 1996 and the nine-month
period ended December 31, 1995, respectively. In addition, during the
year ended December 31, 1996, $45,000 of accrued costs associated with the
initial public offering were capitalized and will be deducted from the
proceeds of the offering.
F-12
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE E - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Finished goods $ 97,536 $176,885
Raw materials 150,072 -
--------- --------
$247,608 $176,885
========= ========
NOTE F - FIXED ASSETS
Fixed assets consist of the following:
December 31, December 31,
1996 1995
------------ ------------
Computer equipment $29,447 $29,447
Office equipment 6,000 6,000
--------- --------
35,447 35,447
Less accumulated depreciation 20,969 9,953
--------- --------
$14,478 $25,494
========= ========
</TABLE>
NOTE G - NOTES PAYABLE TO RELATED PARTIES
During the fiscal year ended March 31, 1994, the Company obtained loans from
the founder and issued promissory notes of $40,000 and $15,000 which are
payable in May and June 1998, respectively. Interest accrues at an annual rate
of 8% and is payable at the maturity date of the notes. Accrued interest
payable related to these notes amounts to $14,557 and $10,157 at December 31,
1996 and 1995, respectively.
F-13
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE G (continued)
During the fiscal year ended March 31, 1994, the Company borrowed $100,000
from a stockholder of the Company. The loan, which was originally due on
demand, was formalized in the form of a promissory note during September 1995.
In April 1996, the maturity date of the $100,000 obligation was revised to
occur subsequent to the repayment of the promissory note issued in April 1996
as further described in Note H. The loan was noninterest bearing through April
1994. From May 1994 through maturity, interest accrues at an annual rate of 6%
and is payable upon maturity. In September 1996, the maturity date of this
promissory note was revised to occur the earlier of: (i) February 1, 1998 or
(ii) upon the occurrence of events defined by the note as a "Change in
Control." Accrued interest payable related to this note amounts to $21,491 and
$15,491 at December 31, 1996 and 1995, respectively. During the fiscal year
ended March 31, 1995, the Company borrowed an additional $100,000 from the
same stockholder. The loan was due on demand with interest at an annual rate
of 6%. The Company repaid $50,000 of this loan in March 1995, and repaid the
remaining $50,000 during April 1995.
During the fiscal year ended March 31, 1995, the Company issued two promissory
notes of $25,000 each to an investor, who is related to the founder of the
Company, which were originally due in November and December 1998,
respectively. The Company repaid $25,000 of these notes in April 1995. In
September 1995, the maturity date of the outstanding promissory note was
revised to occur the earlier of the Company receiving proceeds from a
securities offering or June 1, 1996. In April 1996, the maturity date of the
outstanding promissory note was revised to occur subsequent to the repayment
of the promissory note issued in April 1996 as further described in Note H. In
September 1996, the maturity date of this promissory note was revised to occur
the earlier of: (i) February 1, 1998 or (ii) upon the occurrence of events
defined by the note as a "Change in Control." Interest accrues at an annual
rate of 6% and is payable at the maturity date of the note. Accrued interest
payable related to this note amounts to $4,674 and $3,174 at December 31, 1996
and 1995, respectively.
In February 1996, the Company issued $325,000 of 12% promissory notes which
were payable on August 31, 1996 or convertible into units upon the
consummation of the Company's Second Private Placement. Such notes were
converted into thirteen units pursuant to the terms of the Company's Second
Private Placement. (See Note K.)
F-14
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE G (continued)
On May 30, 1996, the Company received loans aggregating $100,000 from two
stockholders. The loans were originally due on demand and bear interest at a
rate of 10%. In September 1996, the maturity date of these promissory notes
was revised to occur the earlier of: (i) twenty-four months from the date of
the loans, or (ii) the date the Company successfully consummates an initial
public offering of securities of the Company, but only to the extent that the
overallotment option is exercised in such offering and only from the proceeds
received by the Company from the exercise of the overallotment option. Accrued
interest payable related to these notes amounts to $5,833 at December 31,
1996.
In August and September 1996, the Company received three loans from a
stockholder aggregating $253,750. A portion of the funds that this
shareholder loaned the Company was a result of the shareholder selling
shares of his stock to investors. In August 1996, this shareholder sold
38,889 shares of his stock at a price of $1.12 per share. In September 1996,
this shareholder sold 23,333 shares of his stock at a price of $1.50 per
share. These loans each bear interest at a rate of 8% per annum and were
originally payable the earlier of: (i) thirteen months from the date of
the loans, or (ii) the date the Company successfully consummates an initial
public offering, but only to the extent that the overallotment option is
exercised in such offering and only from the proceeds received by the
Company from the exercise of the overallotment option. In September 1996,
the maturity date of these promissory notes was revised to June 1, 1997.
In the event that the Company successfully consummates an initial public
offering prior to June 1, 1997, $123,750 will be payable from such proceeds
and $130,000 will be payable 90 days therefrom. In the event the underwriter
exercises the over-allotment option, the balance otherwise payable in 90
days will be payable from such proceeds. Accrued interest payable related to
these borrowings amounts to $5,978 at December 31, 1996.
On August 28, 1996, the founder of the Company issued an additional
promissory note of $206,250. The funds that the founder loaned the
Company were a result of the founder selling 183,333 shares of his stock to
an investor at a price of $1.12 per share. This loan bears interest at a rate
of 8% and was originally payable the earlier of (i) thirteen months from the
date of the loan, or (ii) the date the Company successfully consummates an
initial public offering of securities of the Company, but only to the
extent that the overallotment option is exercised in such offering and
only from the proceeds received by the Company from the exercise of the
F-15
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE G (continued)
overallotment option. In September 1996, the maturity date of this
promissory note was revised to occur twenty-four months
from September 30, 1996. In addition, the revised promissory note provides
that one-half of the note will be paid with accrued interest in the event the
Company successfully consummates an initial public offering of securities of
the Company, but only to the extent that the overallotment option is exercised
in such offering and only from the proceeds received by the Company from the
exercise of the overallotment option. Accrued interest related to this
borrowing amounts to $5,500 at December 31, 1996.
Required principal payments on notes payable to related parties are $253,750
in 1997 and $486,250 in 1998.
NOTE H - NOTES PAYABLE
In 1995, the Company issued several promissory notes due in monthly
installments through October 1996 in exchange for certain trade accounts
payable aggregating $53,114. Interest on these notes accrues at annual rates
ranging from prime to 10% and is payable monthly. The balance of these notes
was $4,583 and $49,114 at December 31, 1996 and 1995, respectively. Accrued
interest payable related to these borrowings amounts to $445 at December 31,
1996, and is included in accrued expenses. These notes were due to be paid in
full by November 1, 1996. The Company has not, to date, renegotiated the terms
of these loans with the lenders.
In April 1996, the Company issued a promissory note in the amount of $830,275
in exchange for certain trade accounts payable. The Company was required to
make payments in monthly installments beginning May 1996 consisting of: (i)
accrued interest, and (ii) principal in the amount of $12,000. In addition to
these monthly installments, the Company was required to pay additional amounts
upon the occurrence of certain events.
F-16
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE H (continued)
In the event the Company did not complete an initial public offering, the note
was due in full on December 31, 1996. Interest on the promissory note accrues
at the prime rate plus 1% per annum. This note is collateralized by
substantially all of the assets of the Company. The balance of this note was
$710,275 at December 31, 1996. Accrued interest payable related to this note
amounts to $2,738 at December 31, 1996, and is included in accrued expenses.
As the Company has not completed an initial public offering, the note was
payable on December 31, 1996. However, the lenders involved have amended the
terms of the original loan agreement to permit the Company to be in compliance
with the agreement at December 31, 1996. The amended terms, as of April
1997, provide for: payments to the lender from the proceeds of the
Company's initial public offering in the amount of $575,000 and $135,575
payable December 31, 1997. In the event that the initial public offering is
not completed by June 1, 1997, all amounts outstanding will then become
immediately due and payable in full. Further, the Company issued a $221,550
convertible note due December 31, 1998 in exchange for a like amount of trade
payables. The convertible note bears interest at 10% per annnum, payable at
maturity, and is convertible by the holder into 73,850 shares of the
Company's common stock at the option of the holder at any time prior to
maturity.
On August 20, 1996, the Company issued a promissory note in the amount of
$289,482 in exchange for certain trade accounts payable and inventories. The
note bears interest at a rate of 10% per annum and was payable on or before
November 15, 1996. The balance of this note was $210,283 at December 31, 1996.
Accrued interest payable related to this note amounts to $876 at December 31,
1996, and is included in accrued expenses. On December 31, 1996, the Company
was not in compliance with the terms of the subject loan agreement. However,
the lender involved has amended the agreement to permit the Company to be in
compliance with such terms at December 31, 1996. In February 1997, the
Company issued a promissory note in the amount of $20,000 in exchange for a
like amount of trade payables. In April 1997, the lender has agreed to
extend the due date of such notes to the earlier of June 1, 1997 or the
closing of the Company's initial public offering. In the event the Company
completes its initial public offering by June 1, 1997, the lender has agreed
to extend the due date of $96,000 of principal to December 31, 1997. If
such amount is extended, the lender has the right to convert such amount into
32,000 shares of the Company's common stock at any time prior to maturity.
In December 1996, the Company issued a $225,000 promissory note to an investor
bearing interest at the rate of 8% per annum. This note is payable in full the
earlier of (i) December 31, 1997 or (ii) five days after the closing date of
an initial public offering. In lieu of receiving payment, the investor has the
right to convert this promissory note within five days of the closing of
such initial public offering into 200,000 shares of common stock of
the Company, par value $.001 per share. Accrued interest payable related to
this note amounts to $938 at December 31, 1996. These costs are being
amortized over the life of the note. Imputed interest resulting from the
difference between the estimated fair value of the Company's common stock and
the conversion price has been provided for and will be charged to operations
over the life of the note. During April 1997, the investor elected to convert
such note.
F-17
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE H (continued)
In January 1997, the Company issued a convertible promissory note to an
investor bearing interest at the rate of 8% per annum in the principal amount
of $100,000. This convertible note will be paid in full the earlier of five
days after the closing of an initial public offering or January 31, 1998. In
April 1997, the investor has converted the note into 78,431 shares of the
Company's common stock.
In December 1996, the Company issued two additional short-term promissory
notes in exchange for certain trade accounts payable aggregating $56,680. One
promissory note bears interest at the rate of 10% per annum. Principal and
interest are payable in installments as follows: the sum of $500, or more,
semimonthly beginning on December 5, 1996, and payable thereafter on the 20th
and 5th day of each month, until principal and interest have been paid in
full. The second promissory note bears interest at the rate of 8% per annum.
Payment of principal will be made at the rate of $5,000 per month commencing
on January 1, 1997 and monthly thereafter until the earlier of: (i) May 1,
1997 or (ii) the date the Company successfully consummates an initial public
offering of securities of the Company, at which time this note will be paid in
full with interest. The balance of these notes was $55,680 at December 31,
1996. Accrued interest payable related to these borrowings amounts to $285 at
December 31, 1996, and is included in accrued expenses.
NOTE I - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities include the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Accrued payroll $ 28,000 $ 95,399
Accrued distribution fee 7,921 129,373
Distributors' deposits 46,739 -
Accrued interest payable - other 12,969 -
Professional fees payable 45,000 25,000
--------- ---------
$140,629 $249,772
========= =========
</TABLE>
F-18
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE J - INCOME TAXES
A reconciliation between actual income tax (benefit) and the amount computed
by applying the statutory Federal income tax rate to the loss before taxes is
as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Tax expense (benefit) at statutory Federal
income tax rates $(1,377,000) $ (669,000)
Nondeductible compensation 128,000 -
Net operating loss not currently utilizable 1,249,000 669,000
----------- -----------
$ - $ -
=========== ===========
</TABLE>
The tax effects of temporary differences and loss carryforwards giving rise to
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Net operating loss and other carryforwards $ 1,814,000 $ 835,000
Bad debts 7,000 2,000
Depreciation/amortization 2,000 1,000
Deferred compensation 276,000 32,000
Other deferred assets 20,000 -
----------- -----------
Gross deferred tax asset 2,119,000 870,000
Deferred tax asset valuation allowance (2,119,000) (870,000)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
</TABLE>
The Company anticipates that for the foreseeable future it will continue to be
required to provide a 100% valuation allowance for the tax benefit of its net
operating loss carryforward and temporary differences as the Company cannot
presently predict when it will generate sufficient taxable income to utilize
such deferred tax assets.
F-19
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE J (continued)
At December 31, 1996, the Company had net operating losses available to carry
forward of approximately $5,320,000 for tax purposes. Such net operating loss
carryforwards expire through the year ending 2011. No benefit has been
recorded for such loss carryforwards since realization cannot be assured. The
Company's use of its net operating loss carryforwards is limited as the
Company is deemed to have undergone an ownership change as defined in Internal
Revenue Code Section 382.
NOTE K - STOCKHOLDERS' EQUITY
In May 1994, the Company issued 30,769 and 5,128 shares of its common stock
to its legal counsel and an independent consultant, respectively, for
services rendered. These shares are valued at $.0015 per share, the fair
market value as determined by the Company's Board of Directors at the
date of issuance.
During November 1994 through May 1995, the Company completed the First Private
Placement. During the nine-month period ended December 31, 1995 and the year
ended March 31, 1995, the Company issued a total of 27,487 and 62,824 units,
respectively, at $9.75 per unit, each unit consisting of two shares of common
stock and one warrant. Each warrant, which is antidilutive, entitled the
holder to purchase one share of the Company's common stock on or after August
1, 1995 through January 1997. At December 31, 1996, 151,159 of these warrants
are outstanding and are exercisable at $29.13 per share and none have been
exercised. These warrants expired on January 10, 1997.
In April 1995, the Company issued 5,128 shares of its common stock to a
consultant in consideration of his efforts in assisting in various matters for
the Company during the fiscal years ended March 31, 1994 and 1995. These
shares were valued at $2.45 per share, the estimated fair market value of the
stock at the date the commitment to issue the shares was made and,
accordingly, $12,500 was charged to operations.
F-20
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE K (continued)
In September 1995, the Company issued 7,179 shares of its common stock to
certain individuals for services rendered on behalf of the Company during the
nine-month period ended December 31, 1995. These shares were valued at $4.88
per share, the estimated fair market value of the stock at the date of
issuance and, accordingly, $35,000 was charged to operations.
In September 1995, pursuant to a Shareholders' Agreement and associated Escrow
Agreement, a shareholder of the Company placed 88,513 shares of his common
stock in an escrow account. The Escrow Agreement was terminated in February
1996 and the subject shares were returned to the shareholder. Compensation
expense of $265,000 was recognized based upon the estimated fair value of the
shares by the Company upon the release of the shares from escrow.
On May 30, 1996, the Board of Directors authorized a reverse stock split in
the ratio of one common share for every six and one-half common shares
outstanding as of that date. In addition, on such date, the Board of Directors
approved an amendment to the Company's Certificate of Incorporation increasing
the number of authorized shares of the Company's common stock from 3,076,923
to 20,000,000 shares. The reverse stock split and changes in authorized
capital have been retroactively reflected for all periods presented.
In May 1996, the Company issued 50,000 shares of its common stock to certain
individuals for services rendered on behalf of the Company. These shares were
valued at $3.00 per share, the estimated fair value of the stock at the date
of issuance and, accordingly, $150,000 was charged to operations.
During June 1996 through September 1996, the Company completed a Private
Placement Offering pursuant to Rule 506 of the Securities Act of 1933
consisting of the sale of 61.5 units (the "Second Private Placement"). Each
unit consisted of a $2,500, 12% subordinated promissory note and 7,500 shares
of common stock at an offering price of $25,000 per unit. The note balance at
December 31, 1996 which resulted from this Second Private Placement was
$153,750. These notes mature on the earlier of (i) July 31, 1997, or (ii) the
closing date of the initial public offering, provided that the maturity of the
notes will be accelerated upon an Event of Default. Accrued interest payable
related to these notes amounts to $7,688 at December 31, 1996. Subsequent to
December 31, 1996, $30,000 of such notes, as well as $2,100 of accrued
interest, were converted to 16,050 shares of the Company's common stock.
F-21
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE K (continued)
In September 1996, the founder of the Company transferred 33,333 shares of his
common stock to certain individuals for services rendered on behalf of the
Company. These shares were valued at $3.00 per share, the estimated fair value
of the stock at the date of the transfer. As the Company implicitly benefited
from this transaction, the value of the shares transferred was reflected as an
expense in the accompanying financial statements with a corresponding credit
to additional paid-in capital.
In October 1996, the Company issued 19,231 shares of its common stock to
certain individuals for services rendered during the year ended December 31,
1996. These shares were valued at $3.00 per share, the estimated fair market
value of the stock at the date of issuance.
On February 6, 1997, the Board of Directors authorized a reverse stock split
in the ratio of two common shares for every three common shares outstanding
as of February 7, 1997. The reverse stock split has been retroactively
reflected for all periods presented.
In March 1997, the Company, in connection with entering into a two year
exclusive East coast manufacturing agreement, issued 35,000 shares of its
common stock. Pursuant to the agreement, the manufacturer has agreed to
provide $250,000 of twenty-one (21) day trade credit terms. Further, the
Company is obigated to pay the manufacturer $150,000 against existing amounts
owed. In the event such amount is not paid by April 30, 1997, the Company
will be obligated to issue an additional 35,000 shares of its common stock
to the manufacturer.
NOTE L - STOCK OPTION PLANS
At December 31, 1996, the Company has two stock-based compensation plans,
which are described below. The Company applies APB Opinion 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for stock
options issued to employees. The Company applies SFAS No. 123, Accounting for
Stock-Based Compensation, in accounting for stock options issued to
nonemployees. The compensation cost that has been charged against income for
stock options issued to nonemployees was $812,000 for the year ended December
31, 1996.
Had compensation cost for employees been determined based on the fair value at
the grant dates consistent with the method of SFAS No. 123, the Company's net
loss and earnings per share would have been increased to the pro forma amounts
indicated below for 1996:
<TABLE>
<CAPTION>
<S> <C>
Net loss As reported $(4,050,547)
Pro forma (4,581,047)
Net loss per share As reported $(1.67)
Pro forma (1.88)
</TABLE>
The Company's net loss and earnings per share for the nine-month period ended
December 31, 1995 would not have been impacted as no stock options were issued
by the Company during the period.
F-22
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE L (continued)
In August 1995, the Company formally adopted a Long-term Incentive Plan (the
"1995 Plan"), which provides that the Company may grant certain key employees
or consultants either stock options, stock appreciation rights, restricted
stock, performance grants or other types of awards to acquire shares of the
Company's common stock or other company securities (the "Awards"). The 1995
Plan, as amended, authorizes the issuance of a maximum of 433,333 shares of
common stock. As of December 31, 1996, the Company has granted an aggregate of
256,667 options to purchase common stock with exercise prices ranging from
$1.50 to $3.00 under the 1995 Plan. At December 31, 1996, 33,333 options to
purchase common stock at an exercise price of $3.00 were exercisable. None of
these options have been exercised to date. During the year ended December 31,
1996, compensation cost recognized in income for the issuance of options under
the 1995 Plan to nonemployees totaled $119,000.
On October 15, 1996, the Company's Board of Directors approved a 1996
Nonqualified Stock Option Plan ("Nonqualified Plan") for officers, directors,
employees and consultants of the Company. The Plan, as amended, authorizes the
issuance of up to 500,000 shares of common stock. To date, the Company has
granted 396,667 options to purchase shares of common stock under the
Nonqualified Plan at an exercise price of $1.50 per share. None of the stock
options granted in 1996 were exercisable at December 31, 1996. During the year
ended December 31, 1996, compensation cost recognized in income for the
issuance of options under the Nonqualified Plan to nonemployees totaled
$693,000.
On January 24, 1997, the Company granted an outside director nominee and its
Vice President-Finance stock options of 23,333 and 33,333, respectively, under
the 1996 Nonqualified Stock Option Plan. These options have an exercise price
of $1.50 per share, the estimated fair market value at the date of the grant.
These options are exercisable six months from the date of grant and expire ten
years from the date of grant.
In March 1997, the Company granted options to purchase 25,000 shares of its
common stock at an exercise price of $1.50 to its Vice President-Finance.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS AND
CONCENTRATION OF CREDIT RISK
The carrying amounts of cash, accounts receivable, accounts payable and other
accrued liabilities are estimated to approximate their fair value. The Company
believes that it is not practicable to estimate the fair value of its debt
obligations due to its current financial condition.
F-23
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE M (continued)
Concentrations of credit risk with respect to trade accounts receivable exist
as the Company sells products primarily to one distributor. The Company
performs periodic credit evaluations of its customers' financial condition and
does not require collateral or other security. The distributor referred to in
Note C accounted for approximately 79% of the Company's sales for the year
ended December 31, 1996 and 57% of the Company's net accounts receivable at
December 31, 1996. This distributor accounted for approximately 22% of the
Company's sales for the nine months ended December 31, 1995 and 94% of the
Company's net accounts receivable at December 31, 1995. A second customer
accounted for approximately 10% of the Company's sales for the nine months
ended December 31, 1995.
The Company's products have historically been manufactured by independent
facilities. Certain of these facilities have ceased manufacturing on behalf of
the Company due to the fact that these facilities are owed substantial sums of
money by the Company and the Company's products are currently manufactured at
only one facility. If this manufacturer elects to suspend the manufacturing of
the Company's products, the Company's operating results may be adversely
affected.
NOTE N - COMMITMENTS AND CONTINGENCIES
Lease Commitments
Future minimum payments under a capital lease and noncancellable operating
leases for office space, equipment and vehicles, with initial terms of one or
more years, consist of the following at December 31, 1996:
F-24
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE N (continued)
<TABLE>
<CAPTION>
Capital Operating
lease leases
------- ----------
<S> <C> <C>
Twelve months ending December 31,
1997 $10,728 $29,912
1998 3,676 15,836
1999 11,025
2000 2,023
2001
-------- --------
Total minimum lease payments 14,404 $58,796
Less amounts representing interest 836
-------- --------
Present value of net minimum lease payments $13,568
========
</TABLE>
Employment Contracts
During the year ended December 31, 1996, the Company hired a Vice President of
Sales and Marketing. The Company has entered into an employment agreement with
this individual. The agreement provides for an annual base salary of $100,000,
plus an incentive bonus. This agreement is for an initial term of one year
from the earlier of the effective date of an initial public offering of the
Company's securities or March 1, 1997.
In addition, the Company has employment agreements with the founder and
another employee which provide for annual base salaries of $125,000 and
$40,000, respectively, and expire, as amended, in June 2001 and June 1998,
respectively. During the year ended December 31, 1996, these individuals
voluntarily waived all rights to receive the accrued salaries payable to them
aggregating $110,565 and, accordingly, such amount has been presented as a
contribution to the Company's additional paid-in capital. Further, in April
1997, the founder agreed to waive an additional 27,333 of accrued salary
through February 28, 1997.
In March 1997, the Company entered into a two-year employment agreement with
its Vice President-Finance which provides for an annual base salary of
$95,000 for the first year and $105,000 for the second year.
F-25
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE N (continued)
Consulting Agreements
On March 1, 1994, the Company entered into a consulting agreement with an
investor (the "Investor"), whereby the Company shall pay the Investor $75,000
for the first year ended on March 31, 1995, $100,000 for the second year and
$125,000 for the third year. The Company recorded accrued consulting expense
of $89,585 during the year ended December 31, 1996 and $75,000 for the nine
months ended December 31, 1995. In September 1996, this investor voluntarily
waived all rights to receive the consulting fee payable to him and,
accordingly, the aggregate amount waived, $247,917, has been reflected as a
contribution to additional paid-in capital.
In November 1996, this consulting agreement was superceded by a new agreement.
The new agreement provides that beginning January 1, 1997, the Company will
pay the Investor an annual salary at the rate of $125,000 per annum for a
three-year period. However, no monies will be paid to this Investor
until such time as the Company shall consummate a private or public
offering of its securities for not less than $2,000,000 in gross proceeds.
In April 1997, the November 1996 Consulting Agreement was terminated and in
consideration for such termination, the Company issued 150,000 shares of its
common stock to the consultant.
During the year ended December 31, 1996, the Company entered into a consulting
agreement with an entity that will provide sales and marketing advisory and
consulting services to the Company. This entity will receive an annual
consulting fee of $50,000 and has received options to purchase 133,333 shares
of the Company's common stock at $1.50 per share expiring October 15, 2006.
One third of such options become exercisable at the end of each successive
six month period.
Line of Credit
In December 1995, the Company obtained an unsecured line of credit for
$25,000. Borrowings under this line bear interest at 15% per annum. Borrowings
made under this line during the year ended December 31, 1996 totaled $23,506.
Legal Proceedings
The Company is subject to various legal proceedings, claims and liabilities
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not have a material adverse effect on the Company's results of
operations, cash flow or financial position.
F-26
<PAGE>
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE N (continued)
In addition, the Company is subject to two proceedings that arose due to the
Company's present financial condition and its delinquent payments to certain
creditors. Specifically, in December 1996, the Company entered a Stipulation
of Entry of Judgment with a former manufacturer, whereby the Company
acknowledged an obligation in the amount of $539,482 to this manufacturer.
Entry of the judgment, however, has been stayed as long as the Company
continues to make payments with respect to this obligation. Pursuant to this
judgment with this manufacturer, the Company is continuing to make payments to
reduce this obligation, the balance of which was $276,283 at December 31,
1996.
Furthermore, in September 1996, an action was commenced against the Company in
the United States District Court for the Eastern District of New York. This
plaintiff in this case seeks damages of $125,936, plus interest, arising from
advertising and marketing services that it claims to have performed for the
Company for which the Company has allegedly failed to pay. The Company has
filed an answer asserting a number of affirmative defenses to the claims
asserted by the plaintiff.
In the opinion of management, the amount of any additional liability in
connection with the aforementioned matters, in excess of amounts provided for
in the normal course of business, will not materially affect the Company.
Termination of Employment Contract and Associated Stock Options
The Company had an employment agreement with its President which provided for
an annual base salary and bonuses. The agreement also provided for the
granting of 5,101 of immediately exercisable and fully vested options to
purchase shares of the Company's common stock at an exercise price of $3.00.
This agreement expires in February 1999. In addition, the President was
granted an incentive stock option to purchase 73,205 shares of the Company's
common stock at an exercise price of $3.00, which vested ratably over three
years beginning February 1995.
On September 15, 1996, the President resigned his employment with the Company.
At the time of the resignation, 29,530 options to purchase shares of the
Company's common stock at an option price of $3.00 per share were exercisable
and the balance was cancelled. The exercisable options expired on December 15,
1996, three months from the date of the President's resignation.
F-27
<PAGE>
No dealer, salesperson or any other person has been
authorized to give any information or to make any
representations in connection with this offering
other than those contained in this Prospectus. Any
information or presentations not herein contained,
if given or made, must not be relied upon as having
been authorized by the Company. This Prospectus
does not constitute an offer to sell or a solicitation of
an offer to buy any security other than the securities
offered by this Prospectus, nor does it constitute an
offer to sell or a solicitation of an offer to buy the
securities by any person in any jurisdiction where
such offer or solicitation is not authorized, or in
which the person making such offer is not qualified
to do so, or to any person to whom it is unlawful to
make such offer or solicitation. The delivery of this
Prospectus shall not, under any circumstances
create any implication that there has been no
change in the affairs of the Company since the date
hereof.
- ---------------
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . 4
Risk Factors . . . . . . . . . . . 8
Use of Proceeds. . . . . . . . . . 13
Dilution . . . . . . . . . . . . . 14
Capitalization . . . . . . . . . . 15
Dividend Policy. . . . . . . . . . 16
Selected Financial Data. . . . . . 17
Management's Discussion and Analysis and
of Financial Condition and Results of
Operations . . . . . . . . . . . 18
Business . . . . . . . . . . . . . 25
Management . . . . . . . . . . . . 30
Principal Stockholders . . . . . . 36
Certain Transactions . . . . . . . 37
Selling Securityholders. . . . . . 39
Description of Securities. . . . . 41
Underwriting . . . . . . . . . . . 45
Legal Matters. . . . . . . . . . . 47
Experts. . . . . . . . . . . . . . 47
Change in Accountants. . . . . . . 48
Available Information. . . . . . . 48
Index to Financial Statements. . . F-2
Independent Auditor's Report . . . F-3
Until , 1997 (25 days after the commencement of the offering), all dealers
effecting transactions in the Units, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as Representatives and with respect to their unsold allotments or subscriptions.
<PAGE>
675,000 Shares of Common Stock
875,000 Redeemable Common Stock
Purchase Warrants
MIKE'S ORIGINAL, INC.
---------------
PROSPECTUS
---------------
IAR SECURITIES CORP.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Offices
See "Management -- Personal Liability and Indemnification of Directors".
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of the distribution, all of which are to be borne by
the Company, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee. . . . . . . . . . . . . . . . . $ 6,837
NASD Filing Fee . . . . . . . . . . . . . . . . . . . 2,756
Blue Sky Fees and Expenses. . . . . . . . . . . . . . 35,000
Transfer Agent Fees . . . . . . . . . . . . . . . . . 5,000
Accounting Fees and Expenses. . . . . . . . . . . . . 70,000
Legal Fees and Expenses . . . . . . . . . . . . . . . 165,000
Printing and Engraving. . . . . . . . . . . . . . . . 60,000
Representative's Non-Accountable
Expense Allowance. . . . . . . . . . . . . . . . . 76,750
Miscellaneous . . . . . . . . . . . . . . . . . . . . 28,657
Total. . . . . . . . . . . . . . . . . . . . . . . $ 450,000
</TABLE>
Item 26. Recent Sales of Unregistered Securities
1. In May 1994, the Company issued an aggregate of 1,133,333 shares of
Common Stock to its two founding stockholders. This was a transaction by the
issuer not involving any public offering which was exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof.
2. From November 1994 to May 1995, the Company issued an aggregate of
approximately 180,667 shares of Common Stock to 206 purchasers. These
transactions by the Company did not involve any public offering and were exempt
from the registration requirements under the Securities Act pursuant to Section
3(b) thereof and Rule 504 of Regulation D promulgated pursuant thereto.
3. In April 1995, the Company issued 5,128 shares of its Common Stock to a
consultant in consideration of his efforts in assisting in various matters for
the Company during the fiscal year ended March 31, 1994 and 1995. This
transaction by the Company did not involve any public offering and were exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof.
4 In September 1995, the Company issued 7,179 shares of its common stock to
two individuals for services rendered on behalf of the Company during the nine
month period ending December 31, 1995. These transactions by the Company did not
involve any public offering and was exempt from the registration requirements
under the Securities Act pursuant to Section 4(2) thereof.
5. In February 1996, the Company issued $325,000 principal amount of 12%
convertible notes payable in August 1996 to four purchasers thereof. These
transactions by the Company did not involve any public offering and were exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof.
<PAGE>
6. In October 1996, the Company issued 19,231 shares of Common Stock to two
consultants as payment for services rendered during the year ended December 31,
1996. These transactions by the Company did not involve any public offering and
were exempt from the registration requirements under the Securities Act pursuant
to Section 4(2) thereof.
7. In May 1996, the Company issued two 10% notes each in the amount of
$50,000 to two purchasers. These transactions by the Company did not involve any
public offering and were exempt from the registration requirements under the
Securities Act pursuant to Section 4(2) thereof.
8. In May 1996, the Company issued 20,000 shares of Common Stock to two
persons for services rendered. These transactions by the Company did not involve
any public offering and were exempt from the registration requirements under the
Securities Act pursuant to Section 4(2) thereof.
9. In June through September 1996, the Company sold $1,537,500 principal
amount of Second Private Placement Units, each Second Private Placement Unit
consisted of one $2,500 principal amount of 12% promissory notes and 7,500
shares of Common Stock, to 36 persons, all of whom are deemed accredited
pursuant to Rule 501 of Regulation D, including the exchange of the notes
referred to in paragraph 3, in private transactions by the issuer not involving
any public offering which were exempt from registration requirements under the
Securities Act pursuant to Section 4(2) thereof and Rule 506 of Regulation D
promulgated pursuant thereto.
10. In December 1996, the Company issued an 8% convertible promissory note
in the amount of $225,000 to one purchaser, which was convertible into 200,000
shares of Common Stock in April 1997. This transaction by the Company did not
involve any public offering and was exempt from the registration requirements
under the Securities Act pursuant to Section 4(2) thereof.
11. In January 1997, the Company issued an 8% convertible promissory note
in the amount of $100,000 to one purchaser, which was convertible into 78,431
shares of Common Stock in April 1997. These transactions by the Company did not
involve any public offering and was exempt from the registration requirements
under the Securities Act pursuant to Section 4(2) thereof.
12. In March 1997, the Company issued 35,000 shares of Common Stock to its
East coast product manufacturer pursuant to the terms of a credit agreement by
and among the Company, the product manufacturer and Michael Rosen. This
transaction by the Company did not involve any public offering and was exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof.
13. In March 1997, the Company issued a 10% promissory note in the amount
of $50,000 together with 2,000 shares of Common Stock, to one purchaser. In
April 1997, this person exchanged $25,000 of such note into 12,500 shares of
Common Stock. This transaction by the Company did not involve any public
offering and was exempt from the registration requirements under the Securities
Act pursuant to Section 4(2) thereof.
14. In April 1997, the Company issued 150,000 shares of Common Stock in
payment of obligations under a consulting agreement. This transaction by the
Company did not involve any public offering and was exempt from the registration
requirements under the Securities Act pursuant to Section 4(2) thereof.
Item 27. Exhibits.
1.1 Form of Underwriting Agreement.
1.2 Form of Agreement Among Underwriters.
1.3 Form of Selling Agreement.
3.1 Restated Certificate of Incorporation of the Registrant (**).
3.2 By-laws of the Registrant (**).
4.1 Specimen Common Stock Certificate.
4.2 Form of Warrant Agreement (including Warrant Certificate).
<PAGE>
4.3 Form of Representative's Purchase Option.
5.1 Form of Opinion and Consent of Blau, Kramer, Wactlar & Lieberman, P.C.
regarding the legality of the securities being registered.
10.1 Lease Agreement dated March 24, 1994 between the Registrant and
Donald E. Axinn, as amended (**).
10.2 1995 Long Term Incentive Plan (**).
10.3 1996 Non-Qualified Stock Option Plan (**).
10.4 Employment Agreement dated June 1, 1995 between the Registrant and
Michael Rosen, as amended (**).
10.5 Employment Agreement dated November 1, 1996 between the Registrant and
Martin Weiss (**).
10.6 Employment Agreement dated March 1, 1997 between the Registrant and
Frederic D. Heller.
10.7 Consulting Agreement dated November 4, 1996 the Registrant and
Steven A. Cantor (**).
10.8 Consulting Agreement dated November 1, 1996 between the Registrant and
Alma Management Corp. (**)
10.9 Form of Second Private Placement Note (**).
10.10 Form of Second Private Placement Unit Subscription Agreement (**).
10.11 Form of Indemnification Agreement between the Company and its officers
and directors (**).
10.12 Credit Agreement dated April 10, 1996, as amended, between the
Registrant and The Penn Traffic Company (**).
10.13 Manufacturing, Delivery & Pricing Agreement dated as of September 11,
1996 between the Registrant and Fieldbrook Farms (**).
10.14 Distribution Agreement between the Registrant and Kraft Pizza
Company (**).
10.15 Distribution Agreement between the Registrant and Kraft Foods, Inc. (**)
10.16 Credit Agreement with Fieldbrook Farms dated March 20, 1997.
10.17 Modification Agreement with The Penn Traffic Company dated April 15, 1997.
11 Earnings Per Share.
16 Letter re: Change of Accountant.
23.1 Consent of Blau, Kramer, Wactlar & Lieberman, P.C. (included in
Exhibit 5.1).
23.2 Consent of Grant Thornton LLP
25.1 Powers of Attorney.
- -------
(**) Previously filed
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer under Rule 424(b)(1), or
(4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(5) Provide to the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names
as required by the underwriter to permit prompt delivery to each
purchaser.
Certain Selling Securityholders have agreed not to sell or transfer the
shares of Common Stock owned by them and registered hereunder for twenty-four
(24) months from the date of this Prospectus. The Representative and the
Underwriters have indicated that in the event they enter into transactions with
any of the Selling Securityholders, or waive the lock-ups applicable to such
Selling Securityholders' securities under the following circumstances,
disclosure will be provided in the following manners: (i) if such transactions
involve from five (5) percent up to ten (10) percent of the registered Selling
Securityholders securities, to file "Sticker" supplements pursuant to Rule
242(c) of the Securities Act and (ii) if such transactions involve over ten (10)
percent of the registered Selling Securityholders securities, to file a
post-effective amendment to the registration statement of which this Prospectus
forms a part.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorized Amendment No. 2 to this
registration statement to be signed on its behalf by the undersigned, in
Jericho, New York on the 16th day of April, 1997.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
Michael Rosen, Chairman of the Board,
Chief Executive Officer
In accordance with the requirements of the Securities Act, this
registration statement was signed by the following persons in the capacities
indicated on April 16, 1997.
Signatures Title
/s/ Michael Rosen
_______________________ Chairman of the Board, Chief Executive
Michael Rosen Officer, President
*
_______________________ Vice President-Finance,
Frederic D. Heller Chief Financial Officer and Director
*
_______________________ Director
Martin Pilossoph
*
_______________________ Director
Arthur G. Rosenberg
Exhibit 1.1
675,000 Shares of Common Stock and
875,000 Class A Common Stock Purchase Warrants
MIKE'S ORIGINAL, INC.
UNDERWRITING AGREEMENT
New York, New York
________ __, 1997
IAR Securities Corp.
99 Wall Street
New York, New York 10005
Attn: Mr. Isaac Rabinowitz
President
Ladies and Gentlemen:
Mike's Original, Inc., a Delaware corporation (the "Company"), confirms its
agreement with IAR Securities Corp. ("IAR") and each of the underwriters named
in Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 14), for
whom IAR is acting as representative (in such capacity, IAR shall hereinafter be
referred to as "you" or the "Representative"), with respect to the sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares (the "Shares") of the Company's common
stock, $0.001 par value per share (the "Common Stock"), and Redeemable Common
Stock Class A Purchase Warrants (the "Warrants") set forth in said Schedule A.
The 675,000 Shares together with the 875,000 Warrants and 875,000 Shares of
Common Stock underlying the Warrants (the "Warrant Shares") are hereinafter
collectively referred to as the "Firm Securities". The Shares and the Warrants
will be separately tradeable upon issuance. Each Warrant is exercisable
commencing the date of this Agreement until three years after the date of this
Agreement, unless previously redeemed by the Company, at an initial exercise
price of $6.00 for one share of Common Stock. The Warrants may be redeemed by
the Company upon ten (10) business days' prior written notice to IAR, if the
Company shall have given not less than thirty (30) days' and not more than sixty
(60) days' prior written notice to the holders thereof at a redemption price of
$0.01 per Warrant at any time, provided, the reported closing bid quotation of
the Common Stock equals or exceeds $12.00 per share (subject to adjustment as
<PAGE>
provided in the Warrant Agreement dated ___________ 1997 between the Company and
American Stock Transfer & Trust Company) for a period of twenty (20) consecutive
trading days ending on the third trading day prior to the date of the notice of
redemption. In addition, solely for the purpose of covering over-allotments, the
Company proposes to grant to the Representative the option to purchase from the
Company up to an additional 101,250 Shares and 131,250 Warrants identical to the
Firm Securities (the "Additional Securities"). The Firm Securities and the
Additional Securities are sometimes collectively referred to herein as the
"Securities"). The Company also proposes to issue and to sell to you for the sum
of $250.00 an Option (the "RPO") for the purchase of up to an additional 67,500
Shares and 87,500 Warrants. The Shares, Warrants and Warrant Shares issuable
upon exercise of the RPO are hereinafter referred to as the "Representative's
Securities." Neither the Representative's Securities nor any of the securities
underlying the Representative's Securities shall be redeemable by the Company
but the Representative's Securities and the securities underlying the
Representative's Securities shall otherwise be identical to the Firm Securities.
The RPO will be exercisable between the first and fifth anniversary dates of the
Effective Date as below defined (the "RPO Exercise Term"). You agree that during
the one year period from the Effective Date, IAR will not transfer the
Representative's Securities except to IAR's officers or partners or to any
underwriters or selected dealers or their officers or partners. The RPO shall be
exercisable at a price per Share equal to 130% of the public offering price of
the Shares and for the Warrants, at a price per Warrant equal to 130% of the
public offering price of the Warrants and shall be exercisable at any time and
from time to time, in whole or in part, during the RPO Exercise Term. The RPO
contains the terms and conditions substantially as set forth in Exhibit 4.4 to
the Registration Statement. The shares of the Common Stock issuable upon
exercise of the Warrants (including the Warrants issuable upon exercise of the
RPO) are hereinafter referred to as the "Warrant Shares." The Firm Securities,
the Shares, the Warrants, the Representative's Securities and the Warrant Shares
are more fully described in the Registration Statement and the Prospectus
referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and the Closing Date as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission"), a registration statement, and an
amendment or amendments thereto, on Form SB-2, including any related preliminary
prospectus (the "Preliminary Prospectus"), for the registration of the Firm
Securities, Representative Securities as well as the Shares more fully described
in the Prospectus under the heading "Selling Securityholders", under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity with the
requirements of the Act, and the Rules and Regulations, as defined below. The
Company will promptly file a further amendment to the registration statement in
the form heretofore delivered to the Underwriters but will not file any other
amendment thereto to which the Underwriters shall have objected in writing after
<PAGE>
having been furnished with a copy thereof. Except as the context may otherwise
require, the registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations) and as further amended by any post effective
amendment declared effective prior to the Closing Date, is hereinafter called
the "Registration Statement", and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" shall mean
the rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
The Preliminary Prospectus, Registration Statement and Prospectus are sometimes
referred to herein as the "Offering Documents".
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and the Prospectus at the time of filing thereof conformed with the requirements
of the Act and the Rules and Regulations, and none of the Preliminary
Prospectus, the Registration Statement or the Prospectus at the time of filing
thereof contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto until the Closing Date and any Additional Closing Date (as
defined in Section 5 hereof) and during such longer period as the Prospectus may
be required to be delivered in connection with sales by the Underwriters or a
dealer, the Registration Statement and the Prospectus contained, and as amended
by any amendment or supplement thereto, will contain, all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; neither the Registration Statement nor the Prospectus, as amended
or supplemented by any amendment or supplement thereto, nor any such amendment
or supplement thereto, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
The Company does not own an interest in any firm, association, corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified and licensed for the transaction of business and in good standing as a
foreign corporation in each jurisdiction in which its ownership or leasing of
<PAGE>
any properties or the conduct of its business ("Business") requires such
qualification or licensing, except for jurisdictions where the failure to be so
registered or qualified would not have a material adverse effect on the
Company's Business, assets, prospects, earnings, properties, condition
(financial or otherwise) or results of operation of the Company (herein referred
to as a "Material Adverse Effect"). The Company has all requisite power and
authority (corporate and other), and has obtained any and all necessary and
material authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all government or regulatory officials and bodies
(including, without limitation, those having jurisdiction over building,
factory, environmental or similar matters) to own or lease its properties and
conduct its Business (collectively, the "Approvals"); the Company is and has
been doing business in, and on each Closing Date will be in, compliance with all
such Approvals, and all Federal, state, local and foreign laws, rules and
regulations; and the Company has not received any notice of proceedings relating
to the revocation or modification of any such Approval, which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, which
would have a Material Adverse Effect.
(e) The Company has a fully authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the capitalization set forth therein
on the Closing Date after giving effect to the Closing, and the Company is not a
party to or bound by any instrument, agreement or other arrangement providing
for the issuance of any capital stock, rights, warrants, options or other
securities, except for this Agreement and as described in the Prospectus. The
offers and sales of all securities of the Company outstanding on the date hereof
and/or immediately prior to the Closing Date were at all relevant times either
registered under the Securities Act and the applicable state securities or Blue
Sky laws, or exempt from such registration. No holder of any of the Company's
securities has any rights, "demand," "piggyback" or otherwise, to have such
securities registered (including without limitation on the Registration
Statement) or to demand the filing of a registration statement except as
specifically described in the Prospectus. No holder of any outstanding
securities of the Company has any rights of rescission with respect to the
offering and sale of such securities. The Firm Securities and the
Representative's Securities (collectively, hereinafter sometimes referred to as
the "Securities") and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform, in all respects to all
statements with respect thereto contained in the Offering Documents. All issued
and outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable, and the holders thereof are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company. The Securities are not and will not be subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable; the holders thereof will not be
subject to any personal liability solely by reason of being such holders; all
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken, and the certificates
representing the Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities to be sold by the
Company hereunder, the Underwriters or the Representative, as the case may be,
will acquire good and marketable title to such securities free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or right of equity of any kind whatsoever.
<PAGE>
(f) The financial statements of the Company are true and complete and
fairly present the financial position of the Company at the respective dates and
for the respective periods to which they apply and such financial statements
have been prepared in conformity with generally accepted accounting principles
and the Rules and Regulations, consistently applied throughout the periods
involved and are in accordance with the books and records of the Company. No
other financial statements are required by Form SB-2 or otherwise to be included
in the Registration Statement or the Prospectus. The outstanding debt, the
property, both tangible and intangible, and the business of the Company conform
in all respects to the descriptions thereof contained in the Registration
Statement and the Prospectus. Financial information set forth in the Prospectus
under the headings "Selected Financial Data," "Capitalization," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," fairly present, on the basis stated in the Prospectus, the
information set forth therein and have been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus. Except as otherwise stated in the Offering Documents, since December
31, 1996, (i) the Company has not incurred any liabilities or obligations,
direct or contingent, not in the ordinary course of business, or entered into
any transaction not in the ordinary course of business, which is material to the
business of the Company, and there has not been any change in the capital stock
of, or any incurrence of long-term debt by, the Company, or any issuance of
options, warrants or other rights to purchase the capital stock of the Company,
or any security or other instrument which by its terms is convertible into,
exercisable for or exchangeable for capital stock of the Company and (ii) there
has not occurred any Material Adverse Effect or any development involving a
prospective Material Adverse Effect. The Company has not become a party to, and
neither the business nor the property of the Company has become the subject of,
any litigation which, if adversely determined, would have a Material Adverse
Effect whether or not in the ordinary course of business.
(g) The Company has filed all federal tax returns and all state and
municipal and local tax returns (whether relating to income, sales, franchise,
real or personal property or other types of taxes) required to be filed under
the laws of the United States and applicable states, and has paid in full all
taxes which have become due pursuant to such returns or claimed to be due by any
taxing authority or otherwise due and owing; provided, however, that the Company
has not paid any tax, assessment, charge, levy or license fee that it contests
in good faith and by proper proceedings, which it has disclosed in writing to
the Representative and for which adequate reserves for the accrual of same are
maintained if required by generally accepted accounting principles. Each of the
tax returns heretofore filed by the Company correctly and accurately reflects
the amounts of its tax liability thereunder. The Company has withheld, collected
and paid all other levies, assessments, license fees and taxes (including,
without limitation, employment withholding taxes, FICA/social security and
similar employee taxes) to the extent required and, with respect to payments, to
the extent that the same have become due and payable.
<PAGE>
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities; (ii) the purchase by the Underwriters of the Securities from
the Company and the purchase by the Representative of the Representative's
Securities from the Company; (iii) the consummation by the Company of any of its
obligations under this Agreement, or (iv) resales of the Securities in
connection with the distribution contemplated hereby.
(i) The Company has, and at the Closing will have, good and marketable
title to, or valid and enforceable leasehold estates in, all items of real
property owned or leased by it, and good and marketable title to, or valid and
enforceable leases with respect to, all items of personal property (tangible and
intangible), free and clear of all liens, encumbrances, claims, security
interests, defects of title, and restrictions of any nature whatsoever, other
than those referred to in the Offering Documents and liens for taxes not yet due
and payable. The Company has adequately insured its tangible and/or real
properties, other than its intellectual properties, against loss or damage by
fire or other casualty (other than earthquake and flood) and maintains such
insurance in adequate amounts (such adequacy being measured by such types and
levels of insurance as are carried by companies conducting comparable volumes of
business of the nature carried on and proposed to be carried on by the Company),
on terms generally offered by reputable insurance carriers in New York State.
The Company (i) has not failed to give notice or present any insurance claims
with respect to any matter, including but not limited to the Company's business
and property under any such insurance policy in a due and timely manner; (ii)
does not have any disputes or claims against any underwriter of such insurance
policies or has not failed to pay any premiums due and payable thereunder, or
(iii) has not failed to comply with all conditions contained in such insurance
policies. To the best of the Company's knowledge, there are no facts or
circumstances under any such insurance policy which would relieve any insurer of
its obligation to satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, injury, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the best knowledge of the Company,
threatened against, or involving the properties or business of, the Company in
or before any court, agency, tribunal, arbitrator, governmental authority or
other person with jurisdiction over the Company and/or its properties
(including, without limitation, those having jurisdiction over environmental or
similar matters) which (i) questions the validity of the capital stock of the
Company, this Agreement, the RPO, or the Warrant Agreement (as defined herein)
or of any action taken or to be taken by the Company pursuant to or in
connection with this Agreement or the Warrant Agreement, or (ii) is required
under the Act or the Rules and Regulations to be disclosed in the Registration
Statement and/or the Prospectus which is not so disclosed (and such proceedings
as are summarized in the Registration Statement and/or the Prospectus are
accurately summarized in all material respects).
<PAGE>
(k) The Company is not in violation of its Certificate of
Incorporation or By-Laws. The Company has full legal right, power and authority
to issue, deliver and sell the Securities, to execute and deliver this
Agreement, the Warrant Agreement, and the RPO and to consummate the transactions
provided for in each such agreement; and this Agreement, the Warrant Agreement,
and the RPO have each been duly and properly authorized, executed and delivered
by the Company. Each of this Agreement, the Warrant Agreement, and the RPO
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its respective terms, and none of the
Company's issue and sale of the RPO, the Securities or the execution, delivery
or performance of this Agreement, the Warrant Agreement or the RPO, the
consummation of the transactions contemplated herein and therein or the conduct
of its current or proposed business as described in the Offering Documents and
any amendments or supplements thereto, conflicts with or with the lapse of time
will conflict with, or results or with the lapse of time will result in, any
breach or violation of any of the terms or provisions of, or constitutes a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest defect or other restriction or
right of equity of any kind whatsoever upon , any property or assets (tangible
or intangible) of the Company pursuant to or under the terms of, (i) the
certificate of incorporation or By-Laws of the Company; (ii) any license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement or
instrument to which the Company is a party or by which it is or may be bound or
to which its properties or assets (tangible or intangible) is or may be subject,
or any indebtedness; (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties; or (iv) any permit, certification, registration,
approval, consent, license or franchise necessary for the Company to own or
lease and operate any of its properties and to conduct its business or the
ability of the Company to make use thereof.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities or the RPO as described
in the Prospectus and the Registration Statement, the performance of this
Agreement, the Warrant Agreement or the RPO and the transactions contemplated
hereby and thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have for the issue
and/or sale of any of the Securities, except such as (i) have been made or
obtained prior to the date hereof or (ii) may be obtained under the Act or may
be required under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Securities or the clearance of
such purchase, distribution and sale by the National Association of Securities
Dealers, Inc. (the "NASD").
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company and
<PAGE>
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms. There are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies. The descriptions in the Registration Statement of such agreements,
contracts and other documents are accurate and fairly present the information
required to be disclosed in conformity with the Act and the Rules and
Regulations. The contracts so described are in full force and effect and the
Company is not in breach of any such agreement.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution in respect of its capital stock of any class, and there
has not been any change in the capital stock or any change in the debt (long or
short term) or liabilities or material change in or affecting the general
affairs, management, financial operations, stockholders' equity or results of
the operations of the Company.
(o) No default by the Company (or to the Company's knowledge by any
other party) exists in the due performance of any term, covenant or condition of
any license, contract, indenture, mortgage, installment sale agreement, license,
permit, franchise, lease, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement, purchase agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which the property or assets (tangible or intangible)
of the Company is subject or affected.
(p) The Company is in compliance with all Federal, state, local, and
foreign laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. To the best of the
Company's knowledge, there are no pending investigations involving the Company
by the United States Department of Labor or any other governmental agency
responsible for the enforcement of such Federal, state, local, or foreign laws
and regulations. There is no unfair labor practice charge or complaint against
the Company pending before the National Labor Regulations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or, to the best of the
Company's knowledge, threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or, to the best of the Company's knowledge, is
imminent.
<PAGE>
(q) The Company does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan," or a "multiemployer plan" as such terms are defined in
sections 32(2) and 3(1) and 3(37), respectively, of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") ("ERISA" Plans") The Company
does not maintain or contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA. The Company has never
completely or partially withdrawn from a "multiemployer plan."
(r) None of the Company, any of its employees, directors,
shareholders, or affiliates (within the meaning of the Rules and Regulations) of
any of the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act, stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Securities
or otherwise.
(s) The Company owns or possesses the requisite licenses and/or
enforceable rights to use, free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions of any
kind whatsoever, all trademarks, trademark applications, service marks, service
names, trade names, patents and patent applications, copyrights and other rights
(collectively, "Intangibles") described as owned or used by it in the Offering
Documents and/or which are necessary for the conduct of its current business and
the business it proposes to conduct as described in the Offering Documents.
There is no proceeding or action by any person pertaining to, or proceeding or
claim pending or, to the best knowledge of the Company, threatened, and the
Company has not received any claim alleging, infringement directly or indirectly
attributable to the Company's use of its Intangibles with the rights of any
third party or any notice of conflict with the asserted rights of others which
challenges the exclusive right of the Company with respect to, any Intangibles
used in the conduct of the Company's present or proposed business. The Company's
current products, services and processes do not and to the best knowledge of the
Company its proposed products, services and processes do not, infringe on any
Intangibles of any third party. The Company has direct ownership and title, free
and clear of any liens, security interests, encumbrances or claims of others, to
all intellectual property (including all United States patents and United States
and foreign patent applications) and other proprietary rights, confidential
information and know-how. Except as set forth in the Offering Documents, the
Company is not obligated or under any liability whatsoever to make any payments
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of the Company's business as now (or currently
proposed to be) conducted or otherwise. No unresolved claims or notices have
been asserted or given during the past three years by any person challenging the
use by the Company of any Intangible or challenging or questioning the validity,
enforceability or effectiveness of or the title to any Intangible or agreement
relating thereto nor to the Company's knowledge is there any action, suit,
investigation or proceeding by or before any court or other governmental entity
reasonably likely to have a Material Adverse Effect on the validity or
enforceability of, or the title or right of the Company to use, any Intangible.
<PAGE>
(t) Grant Thornton LLP, whose report is filed with the Commission as a
part of the Registration Statement, are independent certified public accountants
as required by the Act and the Rules and Regulations.
(u) The Company is not obligated to pay a finder's or broker's fee to
anyone in connection with the introduction of the Company to the Representative
or the consummation of the offering contemplated hereunder, other than payments
to the Representative. The Company has not paid or issued any monies, securities
or other compensation to any member of the National Association of Securities
Dealers, Inc. ("NASD"), or to any affiliate of such a member during the previous
twelve (12) months, except payments made to Millennium Securities Corp. in
connection with the Second Private Placement Financing.
(v) The Securities have been approved for quotation on the OTC
Bulletin Board.
(w) Neither the Company nor any of its officers, employees, agents or
any other person acting on behalf of the Company, has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the current or proposed business of the Company (or
assist the Company in connection with any actual or proposed transaction) which
(a) might subject the Company, or any other such person to any damage or penalty
in any civil, criminal or governmental litigation or proceeding (domestic or
foreign); (b) if not given in the past, might have had a Material Adverse
Effect, or (c) if not continued in the future, might cause a Material Adverse
Effect. The Company's internal accounting controls are sufficient to cause the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(x) Except as disclosed in the Prospectus, no officer, director or
shareholder of the Company, or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or indirectly,
(i) an interest in any person or entity which (A) currently furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected, which in any such case is required to be so disclosed. Except as set
forth in the offering documents, there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company on the one hand,
and any officer, director or shareholder owning in excess of 5% of the Common
Stock of the Company, or any affiliate or associate of any of the foregoing
persons or entities, on the other hand.
(y) The minute books of the Company contain a complete summary of all
meetings and actions of the directors and shareholders of the Company, since the
time of its incorporation, and reflect all transactions referred to in such
minutes accurately in all respects.
<PAGE>
(z) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company has any
anti-dilution rights with respect to any securities of the Company except as
described in the Prospectus.
(aa) The Company has entered into an agreement substantially in the
form filed as Exhibit 4.3 to the Registration Statement (the "Warrant
Agreement") with American Stock Transfer & Trust Company in form and substance
satisfactory to the Representative, with respect to the Warrants. The Warrant
Agreement has been duly and validly authorized by the Company and, assuming due
execution by the parties thereto other than the Company, constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (ii) as enforceability of any indemnification provision may be
limited under the Federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(bb) The Company (i) has not filed a registration statement which is
the subject of any pending proceeding or examination under Section 8 of the
Securities Act, or is the subject of any refusal order or stop order thereunder;
(ii) is not subject to any pending proceeding under Rule 261 of the Securities
Act or any similar rule adopted under Section 3(b) of the Securities Act, or to
an order entered thereunder; (iii) has not been convicted of any felony or
misdemeanor in connection with the purchase or sale of any security or involving
the making of any false filing with the Commission; (iv) is not subject to any
order, judgment, or decree of any court of competent jurisdiction temporarily,
preliminarily or permanently restraining or enjoining, the Company from engaging
in or continuing any conduct or practice in connection with the purchase or sale
of any security or involving the making of any false filing with the Commission;
or (v) is not subject to a United States Postal Service false representation
order entered under Section 3005 of Title 39, United States Code; or a temporary
restraining order or preliminary injunction entered under Section 3007 of Title
39, United States Code, with respect to conduct alleged to have violated Section
3005 of Title 39, United States Code. None of the Company's directors, officers,
or beneficial owners of five percent (5%) or more of any class of its equity
securities (i) has been convicted of any felony or misdemeanor in connection
with the purchase or sale of any security involving the making of a false filing
with the Commission, or arising out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer, or investment advisor;
(ii) is subject to any order, judgment, or decree of any court of competent
jurisdiction temporarily, preliminarily or permanently enjoining or restraining,
such person from engaging in or continuing any conduct or practice in connection
with the purchase or sale of any security, or involving the making of a false
filing with the Commission, or arising out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer, or investment adviser;
(iii) is subject to an order of the Commission entered pursuant to section
15(b), 15B(a) or 15B(c) of the Securities Exchange Act of 1934 (the "1934 Act"),
<PAGE>
or is subject to an order of the Commission entered pursuant to Section 203(e)
or (f) of the Investment Advisers Act of 1940; (iv) is suspended or expelled
from membership in, or suspended or barred from association with a member of, an
exchange registered as a national securities exchange pursuant to Section 6 of
the 1934 Act, an association registered as a national securities association
under Section 15A of the 1934 Act, or a Canadian securities exchange or
association for any act or omission to act constituting conduct inconsistent
with just and equitable principles of trade; or (v) is subject to a United
States Postal Service false representation order entered under Section 3005 of
Title 39, United States Code; or is subject to a restraining order or
preliminary injunction entered under Section 3007 of Title 39, United States
Code, with respect to conduct alleged to have violated Section 3005 of Title 39,
United States Code.
(cc) The Company is not, and the Closing will not be, in violation of
any law, rule, regulation, judgment or decree of any governmental agency or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or Business other than any violation which individually or in the
aggregate would not have a Material Adverse Effect.
(dd) None of the Company's obligations to any third party are secured
by any of the Company's outstanding securities.
(ee) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or the Underwriters's Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly agrees to purchase from the Company, at a price of
$5.40 per Share and $.18 per Warrant, that number of Firm Securities set forth
in Schedule A opposite the name of such Underwriter, subject to such adjustment
as the Representative in its discretion shall make to eliminate any sales or
purchases of fractional shares, plus any additional numbers of Firm Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 14 hereof. The initial public offering price per Share
shall be $6.00 and the initial public offering price per Warrant shall be $.20.
(b) Payment of the purchase price and delivery of certificates for the
Firm Securities shall be made at the offices Beckman & Millman, P.C., 116 John
Street, New York, New York 10004, or at such other place as shall be agreed upon
by the Representative and the Company. Such delivery and payment shall be made
at 10:00 a.m. (New York City time) on the third business day following the date
on which the Registration Statement has been declared effective (the "Effective
Date") or at such earlier time and date or other time and date as shall be
agreed upon by the Representative and the Company not later than third business
days after such third business day (such time and date of payment and delivery
being herein called the "Closing Date"). Delivery of the certificates for the
<PAGE>
Firm Securities shall be made to you, for the respective accounts of the
Underwriters, against payment by you, for the respective accounts of the
Underwriters, of the purchase price for the Firm Securities by certified or
official bank checks payable in same day funds or by wire transfer of
immediately available funds, to the order of the Company. Certificates for the
Firm Securities shall be in definitive, fully registered form, shall bear no
restrictive legends (except with respect to Blue Sky resale restrictions) and
shall be in such denominations and registered in such names as the Underwriters
may request in writing at least two business days prior to the Closing Date. The
certificates for the Firm Securities shall be made available to the
Representative at such office or such other place as the Representative may
designate for inspection, checking and packaging no later than 9:30 a.m. on the
last business day prior to the Closing Date.
(c) The Additional Securities shall be purchased by the Underwriter
from the Company as provided herein. This option may be exercised only to cover
over-allotments in the sale of Shares and Warrants by the Underwriter. This
option may be exercised by you on the basis of the representations, warranties,
covenants, and agreements herein contained, but subject to the terms and
conditions herein set forth, at any time and from time to time on or before the
forty-fifth day following the date that the Registration Statement is declared
effective by the Commission, by written notice by you to the Company. Such
notice shall set forth the aggregate number of Additional Securities as to which
the option is being exercised, the name or names in which the certificates for
the Shares and Warrants (the "Additional Securities") underlying such Additional
Securities are to be registered, the authorized denominations in which such
Additional Securities are to be issued, and the time and date, as determined by
the Underwriter, when such Additional Securities are to be delivered (each such
time and date are herein called an "Additional Closing Date") (references herein
to the Closing Date shall mean the Closing Date referred to in section 5(a)
hereof and/or any Additional Closing Date, if any, as the context requires,
unless otherwise specifically provided herein); provided, however, that no
Additional Closing Date shall be earlier than the Closing Date nor earlier than
the second business day after the date on which the notice of the exercise of
the option shall have been given nor later than the eighth business day after
the date on which such notice shall have been given.
(d) Payment of the purchase price of $5.40 per Share and $.18 per
Warrant and delivery of certificates for the Additional Securities shall be made
at the offices Beckman & Millman, P.C., 116 John Street, New York, New York
10004, or at such other place as shall be agreed upon by the Representative and
the Company. Delivery of the certificates for the Additional Securities shall be
made to you, for the respective accounts of the Underwriters, against payment by
you, for the respective accounts of the Underwriters, of the purchase price for
the Additional Securities by certified or official bank checks payable in same
day funds or by wire transfer of immediately available funds, to the order of
<PAGE>
the Company. Certificates for the Additional Securities shall be in definitive,
fully registered form, shall bear no restrictive legends (except with respect to
Blue Sky resale restrictions) and shall be in such denominations and registered
in such names as the Underwriters may request in writing at least two business
days prior to the Closing Date. The certificates for the Additional Securities
shall be made available to the Representative at such office or such other place
as the Representative may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to the Additional Closing
Date.
You have advised the Company that each Underwriter has authorized you
to accept delivery of its Securities, to make payment and to deliver a receipt
therefor. You, individually and not as the Representative of the Underwriters,
may (but shall not be obligated to) make payment for any Securities to be
purchased by any Underwriter whose funds shall not have been received by you by
the Closing Date for the account of such Underwriter, but any such payment shall
not relieve such Underwriter from any of its obligations under this Agreement.
3. Public Offering of the Securities. Immediately upon effectiveness of the
Registration Statement, the Underwriters shall make a public offering of the
Securities (other than to residents of or in any jurisdiction in which
qualification of the Securities is required and has not become effective) at the
price and upon the other terms set forth in the Prospectus. The Representative
may from time to time increase or decrease the public offering price after
distribution of the Securities has been completed to such extent as the
Representative, in its sole discretion deems advisable. The Underwriters may
enter into one of more agreements as the Underwriters, in each of their sole
discretion, deem advisable with one or more broker-dealers who shall act as
dealers in connection with such public offering.
4. Covenants of the Company. The Company covenants and agrees with each
of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the Effective
Date, file any amendment to the Registration Statement or supplement to the
Prospectus or file any document under the Act or Exchange Act before termination
of the offering of the Securities by the Underwriters of which the
Representative shall not previously have been advised and furnished with a copy,
to which the Representative shall have reasonably objected or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement as amended, becomes effective or, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said rule 430A and when any post
effective amendment to the Registration Statement becomes effective; (ii) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or the initiation, or the threatening, of any proceeding for
<PAGE>
that purpose; (iv) of the receipt of any comments from the Commission, and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission or authority shall enter a
stop order or suspend such qualification at any time, the Company will make
every effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
reasonably satisfactory to the Representative) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b) not later than the Commission's close of business on the earlier of
(i) the second business day following the execution and delivery of this
Agreement, and (ii) the third business day after the Effective Date.
(d) The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Securities which differs from the
corresponding Prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Representative with copies of any such amendment or supplement
within a reasonable amount of time prior to such proposed filing or use, as the
case may be, and will not file any such amendment to which the Representative
shall reasonably object.
(e) The Company shall use its best efforts, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdiction as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose. In each
jurisdiction where such qualification shall be effected, the Company will,
unless the Representative agrees that such action is not at the time necessary
or advisable, use best efforts to file and make such statements or reports at
such times as are or may reasonably be required by the laws of such jurisdiction
to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use best efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities or the Representative's Securities is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
judgment of the Company, or in the opinion of counsel to the Underwriters, the
Prospectus, as then amended or supplemented, included an untrue statement of a
material fact or omits to state any material fact required to be stated therein
<PAGE>
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will notify the
Representative promptly and prepare and file with the Commission an appropriate
amendment or supplement (in form and substance satisfactory to the Underwriters)
to correct such statement or omission or to effect such compliance, and the
Company will furnish to the Underwriters copies of such amendment or supplement
as soon as available and in such quantities as the Underwriters may request.
(g) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the Effective Date occurs (90 days in
the event that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company shall make generally available to its security holders, in
the manner specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least 12 consecutive months
after the Effective Date.
(h) During the period of three years after the date hereof, the
Company will furnish to its shareholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports
to its shareholders, statements of income of the
Company for each quarter in the form furnished to
the Company's shareholders and certified by the
Company's principal financial or accounting
officer;
(ii) concurrently with furnishing such annual reports to
its shareholders, a balance sheet of the Company as
at the end of the preceding fiscal year, together
with statements of operations, shareholders'
equity, and cash flows of the Company for such
fiscal year, accompanied by a copy of the
certification thereof by the Company's independent
certified public accountants;
(iii) as soon as they are available, copies of all
reports (financial or other) mailed to
shareholders;
(iv) as soon as practicable after the filing thereof,
copies of all reports and financial statements
furnished to or filed with the Commission, the NASD
or any securities exchange, and
(v) every press release and every material news item or
article of interest to the financial community in
respect of the Company or its affairs which was
released or prepared by or on behalf of the
Company.
<PAGE>
(i) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar (which may be the
same entity as the transfer agent) for its Common Stock and Warrants.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, and all amendments and
supplements thereto, including any Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus and all amendments and supplements thereto, including any prospectus
prepared after the Effective Date, in each case as soon as available and in such
quantities as the Representative may request.
(k) On or before the Effective Date, the Company shall provide the
Representative with true copies of duly executed, legally binding and
enforceable agreements pursuant to which for a period of 24 months from the
effective date of the Registration Statement (or for such longer period not to
exceed 36 months as may be required under applicable state blue sky laws) each
of the Selling Securityholders agrees that it or he or she will not directly or
indirectly, issue, offer to sell, grant an option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of any shares of
Common Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common Stock
which are registered in the Registration Statement (either pursuant to Rule 144
of the Rules and Regulations or otherwise) or dispose of any beneficial interest
therein without the prior written consent of the Representative (collectively,
the "Lock-up Agreements"). On or before the Closing Date, the Company shall
deliver instructions to the transfer agent authorizing it to place appropriate
legends on the certificates representing the securities subject to the Lock-up
Agreements and to place appropriate stop transfer orders on the Company's
ledgers.
(l) None of the Company, any of its officers, directors, shareholders
or affiliates (within the meaning of the Rules and Regulations) will take,
directly or indirectly, any action designed to, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation of
the price of any securities of the Company.
(m) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(n) The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, and the Closing Date but not later
than two business days prior thereto, a copy of the latest available unaudited
<PAGE>
interim financial statements of the Company (which in no event shall be as of a
date more than 30 days prior to the effective date of the Registration
Statement) which have been read by the Company's independent public accountants,
as stated in their letters to be furnished pursuant to Section 9(g) hereof.
(o) The Company shall cause the Securities to be quoted on OTC Bulletin
Board for a period of five years from the date hereof shall use its best efforts
to maintain such quotation of the Securities.
(p) For a period of three years from the Closing Date, at the
Representative's request, the Company shall furnish to the Representative at the
Company's sole expense, daily consolidated transfer sheets relating to the
Common Stock and Warrants.
(q) Until the completion of the distribution of the Securities but in
no event more than 25 days after the Effective Date, the Company shall not
without prior written consent of the Representative, issue, directly or
indirectly any press release or other communication or hold any press conference
with respect to the Company or its activities or the offering contemplated
hereby.
(r) Until the earlier to occur of (i) the seventh anniversary of the
date hereof, and (ii) the sale to the public of the Representative's Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Representative's Securities.
(s) For a period of not less than two years from the Closing Date, the
Company will recommend and use its best efforts to elect the Representative's
designee (the "Designee") at the Representative's option, either as a member of
or a non-voting observer to the Company's Board of Directors; such Designee, if
elected or appointed, shall attend meetings of the Board and receive no more or
less compensation than is paid to other directors of the Company and shall be
entitled to receive reimbursement for all reasonable expenses incurred in
attending such meetings, including, but not limited to, food, lodging and
transportation. To the extent permitted by law, the Company will agree to
indemnify the Representative and the Designee for the actions of such Designee
as a director of the Company. The Company shall include each of the
Representative and the Designee as an insured under the insured policy referred
to in Section 7(gg) of this agreement. If the Representative does not exercise
its option to designate a member of or an advisor to the Company's Board of
Directors, the Representative shall nevertheless have the right to send a
representative (who need not be the same individual from meeting to meeting,
although the Representative shall endeavor to send the same representative to
each meeting to observe such meeting of the Board of Directors. The Company
agrees to give the Representative notice of each such meeting not later than it
gives such notice and provides such items to the other directors.
(t) The Company agrees that any and all future transactions between the
Company and its officers, directors, principal shareholders and the affiliates
of the foregoing persons will be on terms no less favorable to the Company than
could reasonably be obtained in arm's length transactions with independent third
parties, and that any such transactions also be approved by a majority of the
Company's outside independent directors disinterested in the transaction, if
any.
<PAGE>
(u) Until the offering contemplated hereby has been completed or
terminated, if there shall occur any event relating to or affecting, among other
things, the Company or any affiliate thereof, or the operations of the Company
as described in the Offering Documents, as a result of which it is necessary, in
the opinion of counsel for the Representative or counsel for the Company, to
amend or supplement the Offering Documents in order that the Offering Documents
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, the Company shall
immediately prepare and furnish to the Representative a reasonable number of
copies of an appropriate amendment of or supplement to the Offering Documents,
in form and substance satisfactory to counsel for the Representative.
(v) The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, substantially as set
forth under "Use of Proceeds" in the Prospectus.
(w) The Company shall be responsible for, and shall pay, all expenses
directly and necessarily incurred in connection with this Offering, including,
but not limited to, the costs of preparing, printing, mailing and filing, where
necessary, the Offering Documents and all amendments and supplements thereto;
the Company's legal and accounting fees, transfer agent fees and the blue sky
fees, filing fees and disbursements of the Representative's counsel in
connection with blue sky matters, as well as the fees and expenses of the
Representative as set forth in Section 8(b) hereof.
(x) Except as disclosed in the Offering Documents the Company has not
prior to the date hereof issued and irrespective of such disclosure will not
hereafter issue, any of the Company's Common Stock, or Preferred Stock(as
defined in the Offering Documents) or securities exercisable or convertible into
any of such securities or enter into any agreement therefor in satisfaction of
any obligation or indebtedness of the Company arising out of any agreement to
which the Company is a party or by which the Company is bound now or for a
period of one year after the Effective Date.
(aa) Until one (1) year from the date hereof, the maximum number of
shares of capital stock of the Company issuable under its 1995 Long Term
Incentive Plan and 1996 Non-Qualified Stock Option Plan shall not exceed
2,000,000 without the prior written consent of the Representative.
(bb) Except as contemplated hereby during the period commencing on the
date hereof and ending on the Closing Date, the Company shall not, without prior
notice to and consent of the Representative, (a) issue any securities or incur
any liability or obligation except the purchase of inventory, equipment and
machinery for the Company's manufacturing operations as described in the
Offering Documents, (b) enter into any transaction not in the ordinary course of
business, or (c) declare or pay any dividend on its capital stock.
<PAGE>
(cc) The Company shall for a period of no less than five years from the
date hereof cause and/or take all action necessary to maintain no less than two
(2) outside directors on the Company's Board of Directors.
(dd) For a period of three (3) years from the date hereof, the Company
shall register with and remain covered by the Corporation Records Service
published by Standard and Poors Corporation.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on the first Closing Date all
expenses and fees (other than fees of Underwriters' counsel, except as provided
in subclause (iv) of this section 8(a)) incident to the performance of the
obligations of the Company under this Agreement and the Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company; (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing (including mailing and handling charges),
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the duplication, mailing (including the payment of
postage with respect thereto) and delivery of this Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreement, the Powers of Attorney, and
related documents, including the cost of all copies thereof and of the
Preliminary Prospectus and of the Prospectus and any amendments thereof or
supplements thereto supplied to the Underwriters and such dealers as the
Underwriters may request; (iii) the printing, engraving, issuance and delivery
of the Securities; (iv) the qualification of the Securities under state
securities or "Blue Sky" laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" if
any, and disbursements and fees of counsel to the Underwriters in connection
therewith (such fees and disbursements to be so reimbursed not to exceed $35,000
in the aggregate; (v) the fees and disbursements of Underwriter's counsel in
connection with the qualification with the NASD of the terms of the transaction
relating to underwriting compensation; (vi) advertising costs and expenses,
including but not limited to costs and expenses in connection with the "road
show," information meetings and presentations, and "tombstone" advertisement
expenses; (vii) fees and expenses of the transfer agent and registrar, and
(viii) the fees payable to the Commission, the NASD and OTC Bulletin Board
including the fees and expenses incurred in connection with the listing of the
Securities on the OTC Bulletin Board.
(b) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 8, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the proceeds of the
offering contemplated herein a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Securities, it being acknowledged that $50,000 of said amount has already been
delivered to the Representative.
<PAGE>
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of each Closing Date, as if they had been made on and as of each Closing
Date, the accuracy on and as of each Closing Date of the statements of officers
of the Company made pursuant to the provisions hereof, and the performance by
the Company on and as of each Closing Date of its covenants and obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m. New York time, on the date subsequent to the date of this
Agreement or such later date and time as shall be consented to in writing by the
Representative, and, at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of the Representative. If the Company has elected to rely upon Rule
430A of the Rules and Regulations, the price of the Shares and Warrants and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Representative of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Registration Statement, or any amendment thereto, shall not
contain an untrue statement of a material fact or omit to state a material fact
which is required to be stated therein or is necessary to make the statements
therein not misleading, or the Prospectus, or any supplement thereof, shall not
contain an untrue statement of a material fact, or omit to state a material fact
which is required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) At each of the Effective Date and each Closing Date, the
Underwriters shall have received the opinion of Blau, Kramer, Wactlar &
Lieberman, P.C. (the "Firm") counsel to the Company, dated the Effective Date
and each Closing Date, respectively, addressed to the Underwriters and in form
and substance satisfactory to IAR, to the effect that:
(i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing
under the laws of the jurisdiction of its
incorporation; (B) is duly qualified and licensed
for the transaction of business and in good
standing as a foreign corporation in every
jurisdiction in which its ownership, leasing,
licensing or use of property and assets or the
conduct of its Business makes such
qualification necessary except where the failure
<PAGE>
to be so qualified does not now have and will not
in the future have a Material Adverse
Effect; and (C) has all requisite corporate power
and authority, has obtained any and all material
authorizations, approvals, orders,
licenses, certificates, franchises and permits of
and from all governmental or regulatory officials
and bodies, to own or lease its properties and
conduct its Business. The disclosures in the
Registration Statement concerning the effects of
Federal, state and local laws, rules and
regulations on the Company's business as
currently conducted and as contemplated are
accurate in all respects and do not omit to state
a fact necessary to make the statements
contained therein not misleading in light of the
circumstances in which they were made;
(ii) the Firm has not been engaged to perform legal
services in connection with any transaction whereby
the Company would acquire an interest in any
corporation, partnership, joint venture, trust or
other business entity;
(iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the
Prospectus (and any amendment or supplement
thereto) under the heading "Capitalization" and
except as set forth in the Prospectus, the Company
is not a party to or bound by any instrument,
agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options
or other securities. The Securities and all other
securities issued or issuable by the Company have
been duly authorized; all outstanding shares of
Common Stock have been fully paid for and are
non-assessable, and the Securities when issued,
paid for and delivered in accordance with
the terms hereof and of the Warrant Agreement,
will be validly issued fully paid and non-
assessable. The Securities conform to the
description thereof in the Prospectus. All
corporate action required to be taken for the
authorization, issue and sale of the Securities
has been duly and validly taken. The
Representative's Securities constitute valid and
binding obligations of the Company to issue and
sell, upon exercise thereof and payment therefor,
the number and type of securities of the Company
called for thereby. Upon the issuance
and delivery pursuant to this Agreement, the
Warrant Agreement and the RPO of the Securities
and Representative's Securities, as
applicable, the Underwriters will acquire title
to the Firm Securities, and the Representative
will acquire title to the Representative's
Securities, free and clear of any pledge, lien,
charge, claim, encumbrance, pledge, security
interest, or other restriction or equity
<PAGE>
of any kind whatsoever. No transfer tax is payable
by or on behalf of the Underwriters in connection
with (A) the issuance by the Company
of the Securities; (B) the purchase by the
Underwriters and the Representative of the Firm
Securities and the Representative's Securities,
respectively, from the Company; (C) the
consummation by the Company of any of its
obligations under this Agreement, the
Warrant Agreement or the RPO or (D) resales of the
Firm Securities in connection with the
distribution contemplated hereby;
(iv) the Registration Statement has become effective
under the Act, and, if applicable, filing of all
pricing information has been timely made
in the appropriate form under Rule 430A, and to
counsel's knowledge no stop order suspending the
effectiveness of the Registration Statement
or preventing the use of the preliminary
prospectus or any part of any thereof has been
issued and no proceeding for that purpose has
been instituted or is pending, or is threatened
or contemplated under the Act;
(v) counsel does not know of any agreements, contracts
or other documents required by the Act to be
described in the Registration Statement and the
Prospectus or to be filed as exhibits to the
Registration Statement (or required to be
filed under the Exchange Act if upon such
filing they would be incorporated, in whole
or in part, by reference therein) which are not so
described or filed; the descriptions in the
Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and
other documents to which the Company is a
party or by which it is bound, incorporated
by reference into the Prospectus and any
supplement or amendment thereto, are accurate
and fairly present in all material respects
the information required to be presented therein;
to counsel's knowledge there is no action,
arbitration, suit, proceeding, inquiry,
investigation, litigation, governmental, legal
or other proceeding (including, without
limitation those having jurisdiction over
environmental or similar matters), domestic or
foreign, pending or threatened against the
Company, or involving the properties or business
of the Company which is required to
be disclosed in the Registration Statement which
is not so disclosed. No Federal, state or local
statute or regulation required to be described in
the Prospectus is not described as required;
(vi) the Company has full corporate power and authority
to enter into each of this Agreement, the RPO and
the Warrant Agreement and to consummate the
transactions contemplated therein; and each of
this Agreement, the RPO and the Warrant Agreement
has been duly authorized, executed and delivered
by or on behalf of the Company.
<PAGE>
Each of this Agreement, the RPO and the Warrant
Agreement, assuming due authorization, execution
and delivery by each other party thereto,
constitutes a legal, valid and binding agreement
of the Company enforceable against the Company in
accordance with its respective terms (except as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to
or affecting enforcement of creditors' rights
generally and the application of general equitable
principles in any action, legal or equitable, and
except as to those provisions relating to
indemnity or contribution as to which no
opinion is expressed). None of the Company's
execution, delivery or performance of this
Agreement, the Warrant Agreement, the RPO, or
the conduct of its Business will result in any
breach or violation of any of the terms or
provisions of, or conflicts or will conflict with
or constitutes or will constitute a default under,
or result in the creation or imposition of any
lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or
equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the articles
of incorporation or by-laws of the Company;
(B) any material license, contract,
indenture, mortgage, deed of trust, voting trust
agreement, shareholders agreement, note, loan or
credit agreement or any other agreement or
instrument to which the Company is a party or by
which it is or may be bound or to which any of its
properties or assets (tangible or intangible) is
or may be subject; (C) any Federal, state or
local statute, judgment, decree, order, rule or
regulation applicable to the Company of any
arbitrator, court, regulatory body or
administrative agency or other governmental agency
or body, domestic or foreign, having jurisdiction
over the Company or any of its properties, or
(D) have any Material Adverse Effect on any permit,
certification, registration, approval, consent,
license or franchise necessary for the Company to
own or lease and operate any of its
properties and to conduct its Business or the
ability of the Company to make use thereof;
(vii) the Firm has not been engaged to provide legal
services with respect to, nor does the Firm have
any knowledge of, any breach of or a
default under, any term or provision of any
license, contract, indenture, mortgage,
installment sale agreement, deed of trust, lease,
voting trust agreement, shareholders' agreement,
note, loan or credit agreement or any other
<PAGE>
agreement or instrument evidencing any
obligation for borrowed money, or any other
agreement or instrument to which the Company is a
party or by which the Company may be bound or to
which the property or assets (tangible or
intangible) of the Company is subject or affected.
The Company is not in violation of any term or
provision of its certificate of incorporation or
by-laws or, to counsel's knowledge in violation of
any franchise, license, permit, judgment, decree,
order, statute, rule or regulation;
(viii) the statements in the Prospectus under the
headings "THE COMPANY", "BUSINESS", "MANAGEMENT,"
"PRINCIPAL STOCKHOLDERS, "SELLING SECURITYHOLDERS",
"CERTAIN TRANSACTIONS", "DESCRIPTION OF
SECURITIES", and "SHARES ELIGIBLE FOR FUTURE SALE"
have been reviewed by such counsel, and insofar as
they refer to statements of law, descriptions of
statutes, licenses, rules or regulations or legal
conclusions, except for any of the foregoing
opined upon to the underwriters by counsel to the
Company other than Blau, Kramer, Wactlar &
Lieberman, P.C.; are correct in all
material respects;
(ix) the Firm Securities have been accepted for
quotation on the OTC Bulletin Board;
(x) to counsel's knowledge, there are no claims,
payments, issuances, arrangements or understandings
for services in the nature of a finder's or
origination fee with respect to the sale of the
Securities hereunder or financial consulting
arrangement or any other arrangements, agreements,
understandings, payments or issuances that may
affect the Underwriters' compensation, as
determined by the NASD;
(xi) to counsel's knowledge, the Company is not party to
any ERISA plans or defined benefit plan, as defined
in Section 3(35) of ERISA; and
(xii) The Securities, when issued in accordance with the
terms of this Agreement, will be duly and validly
issued. The stock certificates and warrants
comprising the Securities are in due and proper
legal form. To the knowledge of such counsel
and except as disclosed in the Prospectus, no
holder of any of the Company's securities has any
rights, "demand," "piggyback" or otherwise, to
have such securities registered or to demand the
<PAGE>
filing of a registration statement. Except
as set forth in the Prospectus, there are no
preemptive or other rights to subscribe for or
purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock, under the
Certificate of Incorporation or By-Laws of the
Company or under the General Corporation Law of
the State of Delaware, or, to the knowledge of
such counsel, under any agreement or other
outstanding instrument to which the Company is a
party or by which it is bound.
(xiii) To such counsel's knowledge, no approval or
consent of any court, board or governmental agency,
instrumentality or authority of the United States
or of any state having jurisdiction or authority
over the Company or of any other third party, not
duly obtained (other than any approval or consent
required under any state securities or Blue
Sky laws) is required for the valid authorization,
issuance, sale and delivery of the Securities and
the consummation of the transactions
contemplated by this Agreement, the Warrant
Agreement, the RPO or the Offering Documents.
(xiv) To such counsel's knowledge, there are no claims,
actions, suits, hearings, investigations,
inquiries or proceedings of any kind or
nature, before or by any court, governmental
authority, tribunal or instrumentality pending or
threatened against the Company or involving the
properties of the Company which could materially
and adversely affect the Business of the Company,
or which would reasonably be expected to
materially adversely affect the transactions
or other acts contemplated by this Agreement, the
Warrant Agreement, the RPO or the validity or
enforceability of such agreements.
(xv) To such counsel's knowledge, there are no material
licenses, permits, certificates, registrations,
approvals or consents of any governmental agency,
commission, board, instrumentality or department
that are required to be obtained by the Company in
order to conduct its current or presently proposed
business as described in the Offering Documents
which have not been so obtained and the failure to
so obtain which would have a Material Adverse
Effect.
(xvi) To such counsel's knowledge and except as disclosed
in the Prospectus, the issuance of the Securities
will not give any holder of any of the Company's
outstanding securities or rights to purchase shares
of the Company's Common Stock, the right to
purchase any additional shares of Common Stock
and/or the right to purchase shares at a reduced
price.
The opinion shall also state that the Registration Statement, the
Prospectus and each amendment thereto or supplement thereof (except for the
financial statements and schedules and other financial information included
therein, as to which such counsel will express no opinion) comply as to form in
all material respects with the applicable requirements of the Act and the Rules
and Regulations.
<PAGE>
Such counsel's opinion shall also include a statement to the effect
that it has participated in conferences with officers and other representatives
of the Company representatives of the independent public accountants of the
Company and representatives of the Representative at which the contents of the
Registration Statement and the Prospectus were discussed and, although such
counsel is not passing upon and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of officers and other
representatives of the Company), nothing has come to such counsel's attention
that causes it to believe that the Registration Statement at the time the
Registration Statement became effective contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus at the date of the Prospectus and as supplemented or amended at all
times up to and including the date of such opinion, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein, in light of circumstances under which they were made, not
misleading (it being understood that such counsel expresses no opinion or belief
with respect to the financial statements and schedules, statistical information
or other financial information included in the Registration Statement or
Prospectus, or as to information set forth in the Registration Statement under
the captions "Risk Factors -- Government Regulation", "Business -- Intellectual
Properties Patent, Patents Pending and Products", "Business -- Government
Regulation" and "Business -- Legal Proceedings").
(d) On or prior to each Closing Date, the Representative shall receive
from the President and chief financial officer of the Company a certificate
dated the date of each Closing Date stating that:
(i) the representations and warranties of the Company
in this Agreement are true and correct in all
material respects, on and as of each Closing Date,
and the Company has complied with all agreements
and covenants and satisfied all conditions
contained in this Agreement on its part to be
performed or satisfied at or prior to each Closing
Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been
issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of
each of such person's knowledge, after due inquiry,
are contemplated or threatened under the Act;
(iii) the Registration Statement and Prospectus contain
all statements and information required to be
included therein, and neither of the Registration
Statement or the Prospectus includes any untrue
statement of a material fact or omits to state any
<PAGE>
material fact required to be stated therein or
necessary to make statements therein not
misleading and neither the Preliminary Prospectus
or any supplement thereto includes any untrue
statement of a material fact or omits to
state any material fact required to be stated
therein or necessary to make the statements
therein, in light of the circumstances under
which they were made, not misleading, and
(iv) subsequent to the respective dates as of which
information is given in the Registration Statement
and the Prospectus, (A) the Company has not
incurred up to and including each Closing Date,
other than in the ordinary course of its business,
any material liabilities or obligations,
direct or contingent; (B) the Company has not paid
or declared any dividends or other distributions
on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary
course of business; (D) there has not been any
change in the capital stock or long-term debt or
any increase in the short-term borrowings of the
Company; (E) the Company has not sustained any
loss or damage to its property or assets, whether
or not insured; (F) there is no litigation
which is pending or threatened (or circumstances
giving rise to same) against the Company or any
affiliated party or any of the foregoing
which is required to be set forth in an amended
or supplemental Prospectus which has not been set
forth, and (G) there has occurred no event
required to be set forth in an amended or
supplemental Prospectus which has not been set
forth.
(References to the Registration Statement and the Prospectus in this subsection
are to such documents as amended and supplemented at the date of such
certificate.)
(e) By the Effective Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters.
(f) At the date this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory in all respects (including the non-material nature of the
changes or decreases, if any, referred to in clause (iii) below) to the
Underwriters and Underwriters' counsel, from Grant Thornton LLP.
(i) confirming that they are independent certified
public accountants with respect to the Company
within the meaning of the Act and the applicable
Rules and Regulations;
<PAGE>
(ii) stating that it is their opinion that the financial
statements and supporting schedules and footnotes
thereto of the Company included in the
Registration Statement comply as to form in all
material respects with the applicable accounting
requirements of the Act and the Rules and
Regulations thereunder and that the Representatives
may rely upon the opinion of Grant Thornton LLP
with respect to the financial statements and
supporting schedules included in the Registration
Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available
unaudited interim financial statements of the
Company (with an indication of the date of the
latest available unaudited interim financial
statements), a reading of the latest
available minutes of meetings of the shareholders
and board of directors and the various committees
of the board of directors of the Company,
consultations with officers and other employees of
the Company responsible for financial and
accounting matters and other specified procedures
and inquiries, nothing has come to their
attention which would lead them to believe that
(A) the unaudited financial statements and
supporting schedules of the Company
included in the Registration Statement, if any,
do not comply as to form in all material respects
with the applicable accounting requirements of the
Act and the Rules and Regulations or are not
fairly presented in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the
audited financial statements of the Company
included in the Registration Statement, or (B) at
a specified date not more than five days prior to
the Effective Date, there has been any change in
the capital stock or long-term debt of the Company,
or any decrease in the shareholders' equity or
net current assets or net assets of the
Company as compared with amounts shown in the
June 30, 1996 balance sheet included in the
Registration Statement, other than as set
forth in or contemplated by the Registration
Statement, or, if there was any change or decrease,
setting forth the amount of such change
or decrease;
(iv) setting forth, at a date not later than five days
prior to the date of the Registration Statement,
the amount of liabilities of the Company (including
a breakdown of commercial paper and notes payable);
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of
revenues and earnings, statements and other
financial information pertaining to the Company
set forth in the Prospectus in each case to the
extent that such amounts, numbers, percentages,
statements and information may be derived from the
general accounting records, including work sheets,
of the Company and excluding any questions
requiring an interpretation by legal
counsel, with the results obtained from the
application of specified readings, inquiries and
other appropriate procedures (which
procedures do not constitute an examination in
accordance with generally accepted auditing
standards) set forth in the letter and found
them to be in agreement, and
<PAGE>
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the
Representative may request.
(g) On each Closing Date, there shall have been duly tendered to the
Representative for the several Underwriters' accounts, the certificates in the
names and denominations requested by the Representative for the Securities.
(h) No order suspending the sale of the Securities in any jurisdiction
designated by the Representative pursuant to subsection (e) of Section 7 hereof
shall have been issued on the Closing Date and no proceedings for that purpose
shall have been instituted or shall be contemplated.
(i) On or before each Closing Date and upon exercise of the RPO and
payment of the exercise price therefor, if applicable, the Company shall have
executed and delivered to the Representative, the Representative's Securities in
the such denominations and to such designees as shall have been provided to the
Company.
(j) On or before Closing Date, the Securities shall have been duly
approved for quotation on the OTC Bulletin Board.
(k) On or before Closing Date, there shall have been delivered to the
Representative all of the Lock-up Agreements, in form and substance satisfactory
to Underwriters' counsel.
(l) On or before Closing Date, the Company shall have executed the RPO
and the Warrant Agreement, substantially in the forms thereof filed as exhibits
to the Registration Statement.
(m) On or before the Effective Date the Company shall deliver to the
Representative satisfactory results of UCC, lien and title searches effected in
all appropriate jurisdictions, showing that the Company's assets, including all
of its intellectual properties, except as set forth in the offering documents,
are unencumbered, and satisfactory evidence, including trademark and copyright
searches, of its unencumbered title to its owned intellectual properties.
<PAGE>
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date is not so fulfilled, the
Representative may terminate this Agreement on notice to the Company or, if the
Representative so elects, it may waive any such conditions which have not been
fulfilled or extend the time for their fulfillment, and proceed with the
transactions contemplated by this Agreement.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of the
Underwriters (for purposes of this Section 7 "Underwriters" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriters), including specifically each person who may be substituted for an
Underwriter (a "controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriters or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of based upon any
untrue statement or alleged untrue statement of a material fact contained (i) in
any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise of
the Securities, or (iii) in any application or other document or written
communication (in this Section 7 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
OTC Bulletin Board or any other securities exchange; or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances under which they were made) unless such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be.
The indemnity agreement above referred to shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not jointly, to
indemnify and hold harmless the Company, each of its officers and directors who
has signed the Registration Statement, and each other person, if any, who
controls the Company, within the meaning of the Act, to the same extent as the
foregoing indemnity from the Company to the Underwriters but only with respect
to statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
<PAGE>
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company by such Underwriter expressly
for use in such Preliminary Prospectus, the Registration Statement or Prospectus
or any amendment thereof or supplement thereto or any such application. The
Company acknowledges that the statements with respect to the public offering of
the securities set forth under the heading "Underwriting," the risk factor
entitled "Experience of the Underwriter" and the stabilization legend in the
Prospectus have been furnished by the Underwriters expressly for use therein and
constitute the only information furnished in writing by or on behalf of the
Underwriters for inclusion in the Prospectus.
(c) Promptly after receipt of an indemnified party under this Section 7
of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of the
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of such action at the expense of the indemnifying party; (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Anything is this Section 7 to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent, provided, such consent was not unreasonably
withheld.
(d) In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this Section 7, but it is judicially determined (by entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
<PAGE>
this Section 7 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any indemnified party, then each
indemnifying party shall contribute to the amount paid as a result of such
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties, on the one hand, and the party to
be indemnified on the other hand from the offering of the Securities, or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriters are the indemnified party, the relative benefits received
by the Company on the one hand, and the Underwriters on the other, shall be
deemed to be in the same proportions as the total net proceeds from the offering
of the Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriters hereunder, in each case as set forth in
the table on the Cover Page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission of alleged omission to state
a material fact relates to information supplied by the Company, or by the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expense or liabilities (or actions in respect thereof) referred
to above in this subdivision (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claims. Notwithstanding the
provisions of this subdivision (d) the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subparagraph (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this subparagraph (d), notify
such party or parties from whom contribution may be sought, but the omission so
to notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
<PAGE>
8. Representations and Agreements to Survive Delivery. All representations,
warranties, covenants and agreements contained in this Agreement or contained in
certificates of officers of the Company submitted pursuant hereto, shall be
deemed to be representations warranties and agreements of the Company at the
Closing Date and such representations, warranties and agreements of the Company
including without limitation the respective indemnity agreements contained in
Sections 4 and 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of either the Underwriter or the Company and
shall survive the execution and/or termination of this Agreement or the issuance
and delivery of the Securities to the Underwriters and the Representative, as
the case may be.
9. Effective Date. This Agreement shall become effective at 9:00 a.m., New
York City time, on the next full business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for the sale to
the public, provided, the provisions of Sections 7, 8 and 10 of this Agreement
shall at all times be effective. For purposes of this Section 9, the Securities
to be purchased hereunder shall be deemed to have been so released upon the
earlier of dispatch by the Representative of telegrams to securities dealers
releasing such shares for offering or the release by the Representative for
publication of the first newspaper advertisement which is subsequently published
relating to the Securities.
10. Termination.
(a) The Representative shall have the right to terminate this Agreement
by giving written notice to the Company at any time prior to the Closing Date if
(i) market conditions are unsuitable for the offering contemplated hereby at the
price per Share and Warrant set forth in Section 5(a) hereof and the Company and
the Representative cannot agree on another price or structure; or (ii) the
Company shall have failed, refused, or been unable to perform any of its
obligations hereunder, or breached any of its representations or warranties
hereunder or there shall be a failure of a closing condition to the
Representative's obligations hereunder; (iii) information comes to the
Representative's attention subsequent to the date hereof relating to the
Company, its financial operations and status, its management, its prospects or
its position in the industry which would preclude a successful offering on the
terms set forth herein; (iv) a material adverse change has occurred in the
financial condition, business or prospects of the Company; (v) the Company has
failed to comply with all applicable statutes, laws, rules and regulations; (vi)
the Company cannot expeditiously proceed with the offering contemplated hereby;
(vii) an action, suit or proceeding at law or in equity is commenced or brought
against the Company by any Federal, state or other commission, board or agency,
where any unfavorable decision would materially adversely affect the business
<PAGE>
property, financial condition, prospects or income of the Company; (viii) any
domestic or international event or act or occurrence shall have disrupted the
financial markets; (ix) minimum or maximum prices shall have been established by
the New York Stock Exchange, by the American Stock Exchange or in the
over-the-counter market by the NASD (but not in the discretion of any
Underwriter), or trading in securities generally shall have been suspended or
materially limited by either stock exchange or in the over-the-counter market by
the NASD; (x) the United States shall have become involved in a war or major
hostilities, or if there shall have been an escalation in an existing war or
major hostilities in which the United States is a participant, or a national
emergency shall have been declared in the United States; (xi) a general banking
moratorium shall have been declared by New York or Federal authorities, or (xii)
there shall have been a material adverse change in the general market, political
or economic conditions in the United States, such that in any such case, in the
Representative's judgment it would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities.
(b) If the Representative exercises its rights to terminate this
Agreement and not proceed with the Offering as a result of the circumstances
enumerated in subclauses (ii) through (xi) of the previous sentence, the Company
shall reimburse the Representative in full for its accountable out-of-pocket
expenses (including the Representative's counsel fees and disbursements), minus
any amounts previously paid pursuant to Section 5 hereof. If the Representative
exercises its rights to terminate this Agreement as a result of the
circumstances enumerated in subclause (i) of such sentence, the Company shall
reimburse the Representative in full for its accountable out-of-pocket expenses
(including the Representative's counsel fees and disbursements) up to a maximum
of $75,000 minus the amount previously paid pursuant to Section 5 hereof.
(c) In the event the Representative elects not to proceed with the
offering contemplated hereby as a result of any condition enumerated in Section
10(a) above, then the Company agrees that it will not negotiate with or engage
any investment banking firm or underwriter other than the Representative with
respect to any private or public financing for the Company during the 12-month
period commencing on the date of such termination.
11. Substitution of the Underwriters. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or Section 11 hereof) to
purchase the Securities which it or they are obligated to purchase on such date
under this Agreement (the "Defaulted Securities"), the Representative shall have
the right, within 24 hours thereafter, to make arrangement for one or more of
the non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth and if any such underwriter is willing
to so purchase the Defaulted Securities, then notwithstanding Section 14(ii)
below, the Representative shall be obligated to effect such arrangement; if,
however, the Representative shall not have completed such arrangement within
such 24-hour period, then:
(i) if the number of Defaulted Securities does not
exceed 10% of the total number of Firm Securities
to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their
respective underwriting
obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
<PAGE>
(ii) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Securities, this
Agreement shall terminate without liability on the
part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination
of this Agreement, the Representative shall have the right to postpone the
Closing Date for a period of not exceeding ten days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Notices. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given three days following the day when mailed by prepaid first class
mail, or upon the day of personal delivery. Notices to the Underwriters shall be
directed to the Representative, IAR Securities Corp., 99 Wall Street, New York,
New York 10005, Att: Isaac Rabinowitz, President, with a copy to Beckman &
Millman, P.C., 116 John Street, New York, NY 10004, Att: Michael Beckman, Esq.
Notices to the Company shall be directed to the Company at 131 Jericho Turnpike,
Jericho, NY 11753, with a copy to Blau, Kramer, Wactlar & Lieberman, P.C., 100
Jericho Quadrangle, Jericho, NY 11753, Att:
David H. Lieberman, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and shall
be binding upon, the Underwriters, the Company and the controlling persons,
directors and officers and their respective successors, legal representatives
and assigns, and no person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of by virtue of this
Agreement or any provisions herein contained. No purchaser of Securities from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
14. Construction. This Agreement shall be governed by and construed and
enforced in accordance with the law of the State of New York without giving
effect to the choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement and the Warrant Agreement
constitute the entire agreement between the parties hereto, and supersede all
prior written or oral agreement, understandings and negotiations, with respect
to the subject matter hereof, except as herein expressly provided. This
Agreement may not be amended except in writing, signed by the Representative and
the Company.
<PAGE>
17. Law. This Agreement shall be deemed to have been made and delivered in
New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company and you (i) agree that any legal suit, action or
proceeding arising out or relating to this letter shall be instituted
exclusively in New York State Supreme Court, County of New York or in the United
States District Court for the Southern District of New York, and the United
States District Court for the Southern District of New York; (ii) waive any
objection to the venue of any such suit, action or proceeding, and (iii)
irrevocably consent to the jurisdiction of the New York State Supreme Court,
County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company and you
further agree to accept and acknowledge service of any and all process which may
be served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agree that service of process upon it mailed
by certified mail to its address shall be deemed in every respect effective
service of process upon it in any such suit, action or proceeding.
18. No Assignment. Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior written consent of
the other party, and any attempted assignment without such consent shall be void
and of no effect.
19. Schedules. Any disclosure made on any schedule hereto shall be deemed
as also having been made on any other schedule hereto as to which such
disclosure is also responsive.
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
MIKE'S ORIGINAL, INC.
By:__________________________
Michael Rosen
President
Confirmed and accepted as of
the date first above written
IAR Securities Corp.
For itself and as Representative
of the other Underwriters named
in Schedule A hereto.
By: _______________________________
Isaac Rabinowitz
President
<PAGE>
SCHEDULE A
Number of Shares to Number of Warrants to
Underwriter be Purchased be Purchased
----------- --------------------- ------------------------
IAR Securities Corp.
Millennium Securities Corp.
TOTAL
Exhibit 1.2
MIKE'S ORIGINAL, INC.
675,000 Shares of Common Stock and
875,000 Redeemable Common Stock Purchase Warrants
, 1997
AGREEMENT AMONG UNDERWRITERS
IAR Securities Corp.
99 Wall Street
New York, New York 10005
Gentlemen:
We wish to confirm as follows the agreement among you, the undersigned, and
the other Underwriters named in Schedule A to the Underwriting Agreement (as
defined hereinafter), as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from Mike's Original, Inc., a Delaware corporation (the "Company"), of
675,000 shares (the "Shares") of Common Stock, par value $.001 per share, of the
Company (the "Common Stock"), and 875,000 Redeemable Common Stock Class A
Purchase Warrants, each of which, upon exercise, entitles the owner thereof to
purchase one share of Common Stock (the "Warrants"), the option granted therein
by the Company to the Underwriters severally to purchase from it up to an
additional 101,250 Shares of Common Stock and 131,250 Warrants (such 675,000
Shares and 875,000 Warrants (to the extent such option is exercised) being
herein called the "Additional Securities"), and the proposed sale of the Shares
and Warrants and the Additional Securities as hereinafter set forth. The
obligations of the Underwriters to purchase the Shares and Warrants and
Additional Securities pursuant to the Underwriting Agreement are herein called
"Underwriting Obligations".
I. Authority and Compensation of Representative. We hereby authorize you,
as our Representative and on our behalf, (a) to enter into an agreement with the
Company substantially in the form attached hereto as Exhibit A (the
"Underwriting Agreement), but with such changes therein, including changes in
those who are to be Underwriters and in the respective numbers Shares and/or
Warrants to be purchased by them, as in your judgment are not materially adverse
to the Underwriters; provided, however, that the number of Shares and/or
Warrants to be purchased by us as set forth in or determined pursuant to the
Underwriting Agreement will not be increased, except as provided herein and in
the Underwriting Agreement, without our consent, (b) to exercise all the
authority and discretion vested in the Underwriters and in you by the provisions
of the Underwriting Agreement, and (c) to take all such action and execute all
such documents and instruments as you in your discretion may deem necessary or
advisable in order to carry out the provisions of the Underwriting Agreement and
this Agreement and the sale and distribution of the Shares and/or Warrants;
provided, however, that the time within which the Registration Statement (as
defined in the Underwriting Agreement) is required to become effective pursuant
to the Underwriting Agreement will not be extended by more than 24 hours without
the approval of a majority in interest of the Underwriters (including you).
<PAGE>
As your share of the compensation for your services hereunder, we will pay
you, and we authorize you to charge to our account on the Closing Date and the
Additional Closing Dates referred to in the Underwriting Agreement, a sum equal
to not more than 25% of the underwriting discount per Share or Warrant for each
Share or Warrant which we are then obligated to purchase from the Company
pursuant to the Underwriting Agreement.
We hereby authorize you to furnish such information and to make such
representations to the Securities and Exchange Commission (the "Commission") on
behalf of the undersigned as you in your discretion may deem necessary or
advisable.
II. Public Offering. A public offering of the Shares and Warrants is to be
made, as herein provided, as soon, on or after the effective date of the
Registration Statement, as you deem it advisable so to do. The Shares and
Warrants are to be initially offered to the public at the public offering price
set forth on, or determined pursuant to the disclosure on, the cover page of the
Prospectus (as defined in the Underwriting Agreement). You will advise us by
telegraph or telephone when the Shares and Warrants are released for offering.
We authorize you, as Representative of the Underwriters, after the initial
public offering, from time to time to increase or decrease the public offering
price, in your sole discretion, by reason of changes in general market
conditions or otherwise. The public offering price of the Shares and Warrants at
the time in effect is herein called the "Offering Price".
III. Offering to Dealers and Group Sales. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers, among whom any of the Underwriters may be
included, being herein called "Dealers") all or any part of our Shares and/or
Warrants as you may determine. Such sales of Shares, Warrants and/or Additional
Securities, if any, shall be made (a) in the case of Group Sales, at the
Offering Price, and (b) in the case of sales to Dealers, at the Offering Price
or at the Offering Price less such concession or concessions as you may from
time to time determine.
The aggregate of any Group Sales made for our account shall be as nearly as
practicable in proportion to our underwriting obligations (unless you agree to a
smaller proportion for the account of any Underwriter at the request of such
Underwriter), but it shall not be necessary for each such sale to be made in
such proportion. Any sales to Dealers made for our account shall be as nearly as
practicable in the ratio that the Shares, Warrants and/or Additional Securities
reserved for our account for offering to Dealers bears to the aggregate of all
Shares, Warrants and/or Additional Securities of all Underwriters so reserved.
<PAGE>
You agree to notify us promptly on the date of the public offering as to
the number of Shares, Warrants and/or Additional Securities, if any, which we
may retain for direct sale. Prior to the termination of this Agreement, you may
reserve for offering and sale as hereinbefore provided any Shares, Warrants
and/or Additional Securities remaining unsold theretofore retained by us and we
may, with your consent, retain any Shares, Warrants and/or Additional Securities
remaining unsold theretofore reserved by you.
We authorize you to determine the form and manner of any communications or
agreements with Dealers, which may be in the form of the Selling Agreement, or
otherwise, as you may determine. If there shall be any such agreements with
Dealers, you are authorized to act as manager thereunder and we agree, in such
event, to be governed by the terms and conditions of such agreements. You may
arrange for any Underwriter, including yourself, to become one of such Dealers.
Each Underwriter agrees that it will not offer any of the Shares, Warrants
and/or Additional Securities for sale at a price below the Offering Price or
allow any concession therefrom except as herein otherwise provided.
It is understood that any Dealer to which an offer may be made as
hereinbefore provided shall be actually engaged in the investment banking or
securities business, shall execute the written agreement prescribed by Section
24(c) of Article III of the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), and shall either be a member in good
standing of the NASD or be a foreign dealer or institution not eligible for
membership in the NASD which agrees to make no offers or sales of the Shares,
Warrants and/or Additional Securities in the United States, its territories, or
its possessions or to persons who are citizens thereof or residents therein,
and, in making sales, to comply with the NASD's interpretation with respect to
Free-Riding and Withholding and Sections 8, 24, and 36 of the Article III of the
NASD's Rules of Fair Practice as if it were an NASD member and Section 25 of
such Article III as it applies to a non-member broker or dealer in a foreign
country. The Underwriters may allow, and the Dealers, if any may reallow, such
concession or concessions as you may from time to time determine on sales of
Shares, Warrants and/or Additional Securities, to any eligible broker or dealer,
all subject to the Rules of Fair Practice of the NASD.
You, as Representative, and any of the Underwriters with your prior
consent, may make purchases or sales of Shares, Warrants and/or Additional
Securities (c) from or to any of the other Underwriters, at the Offering Price
less all or any part of the underwriting discount as set forth on, or determined
pursuant to the disclosure on, the cover page of the Prospectus and (d) from or
to any of the dealers, at the Offering Price or at the Offering Price less all
or any part of the concession to Dealers.
We authorize you to determine the form and manner of any public
advertisement of the Shares, Warrants and/or Additional Securities.
<PAGE>
Nothing contained in this Agreement shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Shares, Warrants
and/or Additional Securities prior to the effective date of the Registration
Statement, provided that any such offer shall be made in compliance with any
applicable requirements of the Securities Act of 1933, as amended (the "Act"),
and the Securities Exchange act of 1934, as amended (the "Exchange Act"), and
the rules and regulation of the Commission thereunder and of any applicable
state or foreign laws.
IV. Repurchases in the Open Market. Any Shares, Warrants and/or Additional
Securities sold by us (otherwise than through you) which, prior to the
termination of this Agreement or such earlier date as you may determine, shall
be contracted for or purchased in the open market by you on behalf of any
Underwriter or Underwriters, shall be repurchased by us on demand at a price
equal to the cost of such purchase (including commissions and taxes paid in
connection with such purchase) plus commissions and taxes on redelivery. Any
Shares, Warrants and/or Additional Securities delivered on such repurchase need
not be the identical Shares, Warrants and/or Additional Securities originally
sold by us. In lieu of delivery of such Shares, Warrants and/or Additional
Securities to us, you may (a) sell such Shares, Warrants and/or Additional
Securities in any manner for our account and charge us with the amount of any
loss or expense, or credit us with the amount of any profit less any expense,
resulting from such sale or, at your option, (b) charge our account with an
amount not in excess of the concession to Dealers on such Shares, Warrants
and/or Additional Securities, plus commissions and taxes paid in connection with
such purchase.
V. Delivery and Payment. We agree to deliver to you at or before 8:30 A.M.,
New York City Time, on the Closing Date and any Additional Closing Date referred
to in the Underwriting Agreement, at the office of IAR Securities Corp., 99 Wall
Street, New York, New York 10005, a certified or official bank check in New York
Clearing House funds payable to your order for an amount equal to the initial
public offering price, less the selling concession, of either (a) the Shares and
Warrants which we are then obligated to purchase pursuant to the Underwriting
Agreement or (b) such of our Shares or Warrants which have not been sold or
reserved for sale in Group Sales or to Dealers, as you direct. The proceeds of
such check shall be credited to our account and applied by you, in the manner
provided in the Underwriting Agreement, to the payment of the purchase price of
the Shares, Warrants, and/or Additional Securities, against delivery of
certificates for such Shares or Warrants or Additional Securities to you for our
account. You are authorized to accept such delivery and to give receipts
therefor. If we fail (whether or not such failure shall constitute a default
hereunder) to deliver to you, or you fail to receive, our check for the Shares,
Warrants and/or Additional Securities which we have agreed to purchase, at the
time and in the manner provided in this Section 5, you, individually and not as
representative of the Underwriters, are authorized (but shall not be obligated)
to make payment for such Shares, Warrants and/or Additional Securities for our
account, but any such payment shall not relieve us of any of our obligations
under the Underwriting Agreement or under this Agreement, and we agree to repay
on demand the amount so advanced for our account (plus interest at then current
rates).
<PAGE>
Notwithstanding the other provisions of this Section 5, if transactions in
the Shares, Warrants and/or Additional Securities can be settled through the
facilities of The Depository Trust Company, payment for and delivery of our
Shares, Warrants and/or Additional Securities will be made through the
facilities of The Depository Trust Company if we are a member, unless we have
otherwise notified you prior to a date to be specified by you, or, if we are not
a member, settlement may be made through a correspondent which is a member
pursuant to instructions we may send to you prior to such specified date.
We also agree on demand to take up and pay for or to deliver to you funds
sufficient to pay for at cost any securities purchased by you for our account
pursuant to the provisions of Section 9 hereof, and to deliver to you on demand
any securities sold or over-allotted by you for our account pursuant to any
provision of this Agreement. We also authorize you to deliver our Shares,
Warrants and/or Additional Securities and any other securities purchased by you
for our account pursuant to the provisions of Section 9 hereof, against sales
made by you for our account pursuant to any provision of this Agreement.
Upon receipt by you of payment for the Shares, Warrants and/or Additional
Securities sold by or though you for our account, you will (c) with respect to
such Shares, Warrants and/or Additional Securities paid for by us, remit to us
promptly an amount equal to the purchase price paid by us for such Shares,
Warrants and/or Additional Securities and credit or debit our account on your
books with the difference between the selling price and the purchase price of
such Shares, Warrants and/or Additional Securities as set forth in or determined
pursuant to Section 5 of the Underwriting Agreement and (d) with respect to such
Shares, Warrants and/or Additional Securities not paid for by us, credit or
debit our account on your books with the difference between the selling price
and the purchase price of such Shares, Warrants and/or Additional Securities as
set forth in or determined pursuant to Section 5 of the Underwriting Agreement.
You agree to cause to be delivered to us, as soon as practicable after the
Closing Date or any Additional Closing Date, as the case may be, referred to in
the Underwriting Agreement, such part of our Shares, Warrants and/or Additional
Securities as shall not have been sold or reserved for sale by you for our
account.
In case any Shares, Warrants and/or Additional Securities reserved for sale
in Group Sales or to Dealers shall not be purchased and paid for in due course
as contemplated hereby, we agree (e) to accept delivery when tendered by you of
any Shares, Warrants and/or Additional Securities so reserved for our account
and not so purchased and paid for and (f) in case we shall have received payment
from you in respect of any such Shares, Warrants and/or Additional Securities,
to reimburse you on demand for the full amount which you shall have paid us in
respect of such Shares, Warrants and/or Additional Securities.
VI. Authority to Borrow. We authorize you (to the extent permitted by law)
to advance your funds for our account (charging then current interest rates) and
to arrange loans and to purchase funds for our account for the purpose of
carrying out this Agreement and in connection therewith to execute and deliver
any notes or other instruments and to hold or pledge as security therefor all or
any part of the Shares, Warrants and/or Additional Securities purchased by us
pursuant to the Underwriting Agreement or any other securities purchased by you
for our account pursuant to the provisions of Section 9 hereof as you shall
determine in your discretion. Any lending bank is hereby authorized to accept
your instructions as Representative in all matters relating to such loans and
purchase of funds. We will repay on demand any such advances, loans, or
purchases, including interest thereon at then current rates.
<PAGE>
VII. Allocation of Expense and Liability. We authorize you to charge our
account with and we agree to pay (a) all transfer taxes on sales made by you for
our account, except as herein otherwise provided, and (b) our proportionate
share (based on our underwriting obligations) of all expenses incurred by you in
connection with the purchase, carrying, and distribution, or proposed purchase
and distribution, of the Shares, Warrants and/or Additional Securities and all
other expenses arising under the terms of the Underwriting Agreement or this
Agreement. Your determination of all such expenses and your allocation thereof
shall be final and conclusive. Funds for our account at any time in your hands
as our Representative may be held in your general funds without accountability
for interest. As soon as practicable after the termination of this Agreement,
the net credit or debit balance in our account, after proper charge and credit
for all interim payments and receipts, shall be paid to or paid by us; provided,
however, that you in your discretion may establish such reserves as you deem
advisable to cover possible additional expenses chargeable to the Underwriters.
VIII. Liability for Future Claims. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Shares, Warrants and/or Additional Securities shall
constitute any representation by you as to the existence or non-existence of
possible unforeseen expenses or liabilities of or charges against the
Underwriters. Notwithstanding the distribution of any net credit balance to us
or the termination of this Agreement or both, we shall be and remain liable for,
and will pay on demand, (a) our proportionate share (based on our underwriting
obligations) of all expenses and liabilities which may be incurred by or for the
accounts of the Underwriters or any of them, including any liability which may
be incurred by or for the accounts of the Underwriters or any of them based on
the claim that the Underwriters constitute an association, unincorporated
business, partnership, or separate entity, and (b) any transfer taxes paid after
such settlement on account of any sale or transfer for our account.
IX. Stabilization. We authorize you, until the termination of this
Agreement, (a) to make purchases and sales of Shares, Warrants and/or Additional
Securities or of any other securities of the Company, in the open market or
otherwise, for long or short account, and on such terms and at such prices as
you in your discretion may deem desirable, (b) in arranging for sales of Shares,
Warrants and/or Additional Securities to Dealers, to over-allot, and (c) either
before or after the termination of this Agreement, to cover any short position
incurred pursuant to this Section 9; subject, however, to the applicable rules
and regulations of the Commission under the Exchange Act. All such purchases,
sales, and over-allotments shall be made for the accounts of the several
Underwriters as nearly as practicable in proportion to their respective
underwriting obligations.
<PAGE>
If you engage in any stabilizing transactions as Representative of the
Underwriters, you shall notify us of that fact. If we effect any transaction
which may be deemed to be a stabilizing purchase, we will notify you in writing
within three business days following such purchase of the information required
by Rule 17a-2(d) under the Exchange Act.
We agree to advise you, from time to time upon request until the settlement
of accounts hereunder, of the number of Shares, Warrants and/or Additional
Securities at the time retained by us unsold, and we will upon request sell to
you for the accounts of one or more of the several Underwriters such number of
our unsold Shares, Warrants and/or Additional Securities as you may designate,
at the Offering Price less such amount, not in excess of the concession to
Dealers, as you may determine.
X. Open Market Transactions. We agree that except with your consent and
except as herein provided we will not, prior to the termination of this
agreement or until you notify us that we are released from this restriction, bid
for, purchase, or sell, directly or indirectly, for our own account, in the open
market or otherwise, or attempt to induce others to bid for, purchase, or sell,
either before or after the sale of the Shares, Warrants and/or Additional
Securities and either for long or short account, any securities of the Company
or any right to purchase any such security, and, prior to the completion (as
defined in Rule 10b-6 under the Exchange Act) of our participation in the
distribution, we will otherwise comply with Rule 10b-6. We represent that we
have complied with Rule 10b-6 in connection with the offering. Nothing in this
Section 10 shall prohibit us from acting as broker or agent in the execution of
unsolicited orders of customers for the purchase or sale of any securities of
the Company.
XI. "Blue Sky." Prior to the initial offering by the Underwriters, you will
inform us as to the advice you have received from counsel concerning the
jurisdictions under the respective "blue sky" or securities laws of which it is
believed that the Shares, Warrants and/or Additional Securities have been
qualified or registered or are exempt for offer and sale, but you have not
assumed and will no assume any responsibility or obligation as to the accuracy
of such information or as to the right of any Underwriter or Dealer to offer or
sell the Shares, Warrants and/or Additional Securities in any jurisdiction. You
agree, however, to cause to be filed a Further State Notice with respect to the
Shares, Warrants and/or Additional Securities if, in the opinion of counsel for
the Underwriters, such filing is required by Article 23-A of the General
Business Law of the State of New York.
We authorize you, if you deem it inadvisable in arranging sales of Shares,
Warrants and/or Additional Securities for our account hereunder to sell any of
our Shares, Warrants and/or Additional Securities to any particular Dealer or
other buyer because of the "blue sky" or securities laws of any jurisdiction, to
sell our Shares, Warrants and/or Additional Securities to one or more other
Underwriters at the Offering Price less, in the case of a sale for resale to a
Dealer, such amount, not in excess of the concession to Dealers, as you may
determine. The transfer tax on any such sales among Underwriters shall be
treated as an expense and charged to the respective accounts of the Underwriters
in proportion to their respective underwriting obligations.
<PAGE>
XII. Default by Underwriters. Default by one or more Underwriters in
respect of their obligations under the Underwriting Agreement shall not release
us from any of our obligations or in any way affect the liability of any
defaulting Underwriter to the other Underwriters for damages resulting from such
default.
In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any securities purchased
by you for their respective accounts pursuant to Section 9 hereof, or to deliver
any such securities sold or over-allotted by you for their respective accounts
pursuant to any provision of this Agreement, or to bear their respective shares
of expenses or liabilities pursuant to any provision of this Agreement, and to
the extent that arrangements shall not have been made by you or the Company for
other persons to assume the obligations of such defaulting Underwriter or
Underwriters, each non-defaulting Underwriter shall assume its proportionate
share (without regard to the obligation of such defaulting Underwriter or
Underwriters) of the aforesaid obligations of each such defaulting Underwriter
without relieving any such Underwriter of its liability therefor.
XIII. Termination of Agreement. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 hereof shall, except as otherwise
provided therein, terminate at the close of business on the forty-fifth day
after the public offering price of the Stock is determined, but may be extended
by you for an additional period or periods not exceeding forty five days in the
aggregate. You may, however, terminate this Agreement or any provisions hereof
at any time by written or telegraphic notice to us.
XIV. General Position of the Representative. In taking action under this
Agreement, you shall act only as agent of the Underwriters, except as otherwise
specifically provided herein where you may act individually. Your authority as
Representative of the Underwriters shall include the taking of such actions as
you may deem advisable in respect of all matters pertaining to any and all
offers and sales of the Shares, Warrants and/or Additional Securities, including
the right to make any modifications which you consider necessary or desirable in
the arrangements with Dealers or others. You shall be under no liability for or
in respect of the value of the Shares, Warrants and/or Additional Securities or
the validity or the form thereof, any preliminary prospectus, the Registration
Statement, the Prospectus, the Underwriting Agreement, or other instruments
executed by the Company, or others; or for or in respect of the delivery of the
Shares, Warrants and/or Additional Securities; or for the performance by the
Company, or others of any agreement on its or their part; nor shall you as such
Representative or otherwise be liable to the Underwriters under any of the
provisions hereof or for any matters connected herewith, except for want of good
faith; and no obligation not expressly assumed by you as such Representative
herein shall be implied from this Agreement. In representing the Underwriters
hereunder, you shall act as the Representative of each of them respectively.
Nothing herein contained shall constitute the Underwriters partners with you or
with each other, or render any Underwriter liable for the commitments of any
other Underwriter, except as otherwise provided in Section 12 hereof. The
commitments and liabilities of each of the Underwriters are several in
accordance with their respective underwriting obligations and are not joint. If
for federal income tax purposes the Underwriters should be deemed to constitute
a partnership, then each Underwriter elects to be excluded from the application
of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986, as
amended, and agrees not to take any position inconsistent with such election.
You, as Representative of the Underwriters, are authorized, in your discretion,
to execute and file on behalf of the Underwriters such evidence of such election
as may be required by the Internal Revenue Service.
<PAGE>
XV. Acknowledgment of Registration Statement. We hereby confirm that we
have received and examined the Registration Statement (including all amendments
thereto but excluding exhibits) and the related prospectus in respect of the
Stock as heretofore filed with the Commission, that we are familiar with any
amendment to the Registration Statement which may have been filed and the final
form of amendment and prospectus proposed to be filed, that we are willing to
accept the responsibilities of an Underwriter thereunder, and that we are
willing to proceed as therein contemplated. We further confirm that the
statements made under the heading " Underwriting" in such proposed final form of
prospectus, insofar as they relate to us, do not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. We understand that
the aforementioned documents are subject to further change and that we will be
supplied with copies of any amendment or supplement to the Registration
Statement or the Prospectus promptly, if and when received by you, but the
making of such changes, amendments, or supplements shall not release us or
affect our obligations hereunder or under the Underwriting Agreement.
XVI. Indemnity and Contribution. A. We agree to indemnify and hold harmless
each other Underwriter (including you), its officers, directors, partners,
employees, agents, and counsel and each person, if any, who controls any such
Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the extent and upon the terms which we agree to indemnify and
hold harmless the Company as set forth in the Underwriting Agreement.
B. Each Underwriter (including you) will pay, upon your request, as
contribution, its proportionate share, based upon its underwriting obligation,
of any losses, liabilities, claims, or damages, joint or several, paid or
incurred by any Underwriter (including you) to any person other than an
Underwriter, arising out of, based upon, or in connection with any untrue
statement or alleged untrue statement of any material fact contained in any
preliminary prospectus, the Registration Statement, the Prospectus (as from time
to time amended or supplemented), any amendment or supplement thereto, any other
selling or advertising material approved by you for use by the Underwriters in
connection with the sale of the Shares, Warrants and/or Additional Securities,
or in any application or other document or communication executed by or on
behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify the Shares,
Warrants and/or Additional Securities under the "blue sky" or securities laws
thereof or filed with the Commission or any securities exchange, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will pay
such proportionate share, based upon its underwriting obligation, of all
attorney's fees and any and all expenses whatsoever reasonably incurred by you
or with your consent in investigating, preparing, or defending against any such
<PAGE>
loss, liability, claim, or damage, or any action in respect thereof and any
amounts paid in settlement of any claim or litigation. In determining the amount
of our obligation under this Section 16(b), appropriate adjustment will be made
by you to reflect any amounts received by any Underwriter in respect of such
untrue statement, alleged untrue statement, omission, or alleged omission from
the Company pursuant to the Underwriting Agreement or otherwise. There shall be
credited against any amount paid or payable by us pursuant to this Section 16(b)
any loss, liability, claim, damage, or expense which is reasonably incurred by
us as a result of any such claim asserted against us (other than fees and
disbursements of our separate counsel if such counsel is not approved by you as
provided in the next sentence), and if such loss, liability, claim, damage, or
expense is incurred by us subsequent to any payment by us pursuant to this
Section 16(b), appropriate provision shall be made to effect such credit by
refund or otherwise. If any such claim is asserted or any action is commenced in
respect thereto, you may take such action in connection therewith as you deem
necessary or desirable, including retaining counsel for the Underwriters, and in
your discretion separate counsel for any particular Underwriter or group or
Underwriters, and the fees and disbursements of any counsel so retained by you
shall be included in the amounts payable pursuant to this Section 16(b).
C. Our indemnity and contribution agreements contained in this
Section 16 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of such other Underwriter or its officers,
directors, partners, employees, agents, counsel, or controlling persons (if any)
and shall survive the delivery of the Shares, Warrants and/or Additional
Securities to the several Underwriters and the termination of this Agreement and
the similar agreements entered into with the other Underwriters. In determining
amounts payable pursuant to Section 16(b) hereof, any loss, liability, claim,
damage, or expense incurred by any person who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act or by
any officer, director, partner, employee, agent, or counsel of any Underwriter
which has been incurred by reason of such control or other relationship shall be
deemed to have been incurred by such Underwriter. Any Underwriter shall have the
right to employ its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Underwriter. No Underwriter may settle any such claim
or action, except you may so settle on advice of counsel retained by you and
with approval of a majority in interest of the Underwriters (including you).
Whenever you receive notice of the assertion of any claim or the commencement of
any action to which the provisions of Section 16(b) hereof would be applicable,
you will give prompt notice thereof to each Underwriter. If any Underwriter or
Underwriters default in its or their obligation to make payments under Section
16(b) hereof, each non-defaulting Underwriter shall be obligated to pay its
proportionate share of all defaulted payments, based upon such Underwriter's
underwriting commitment as related to the underwriting commitments of all
non-defaulting Underwriters. Nothing herein shall relieve a defaulting
Underwriter of liability for its default.
XVII. Capital Requirements. We confirm that we may, in accordance with and
pursuant to Rule 15c3-1 promulgated by the Commission under the Exchange Act and
any applicable rules relating to capital requirements of any securities exchange
to which we are subject, agree to purchase the numbers of Shares, Warrants
and/or Additional Securities we may be obligated to purchase under any provision
of the Underwriting Agreement or this Agreement.
<PAGE>
XVIII. Undertaking to Mail Prospectuses. As contemplated by Rule 15c2-8
under the Exchange Act, you agree to mail a copy of the Prospectus to any person
making a written request therefor during the period referred to in Rule 15c2-8,
such mailing to be made to the address given in the request. We confirm that we
have delivered all preliminary prospectuses and revised preliminary
prospectuses, if any, required to be delivered under the provisions of Rule
15c2-8 and agree to deliver all final prospectuses and amendments or supplements
thereto required to be delivered under Rule 15c2-8. You have heretofore
delivered to us such preliminary prospectuses as have been requested by us,
receipt of which is hereby acknowledged, and will deliver such copies of the
Prospectus will be requested by us.
XIX. Miscellaneous. Any notice hereunder from you to us or from us to you
shall be deemed to have been duly given if sent by registered mail, telegram, or
teletype, to us at our address as set forth in our Underwriters' Questionnaire
previously delivered to you, or to you at IAR Securities Corp., 99 Wall Street,
New York, New York 10005 Attention: Isaac Rabinowitz, President.
We understand that you are a member in good standing of the NASD. We
represent that we are actually engaged in the investment banking or securities
business and that we are a member in good standing of the NASD which agrees to
comply with all applicable rules of the NASD, including, without limitation, the
NASD's interpretation with respect to Free-Riding and Withholding and Section 24
of Article III of the NASD's Rules of Fair Practice, or, if we are not such a
member, we are a foreign dealer or institution not eligible for membership in
the NASD (a) which agrees to make no offers or sales within the United States,
its territories, or its possessions (except that we may participate in Group
Sales under Section 3 hereof) or to persons who are citizens thereof or
residents therein, and, in making sales, to comply with the NASD's
interpretation with respect to Free-Riding and Withholding and Sections 8, 24,
and 36 of Article III of the NASD's Rules of Fair Practice as if we were an NASD
member and Section 25 of such Article III as it applies to a non-member broker
or dealer in a foreign country and (b) which in connection with sales and offers
of Shares, Warrants and/or Additional Securities made by us outside the United
States, (i) will either furnish to each person to whom any such offer or sale is
made a copy of the then current preliminary prospectus or the Prospectus (as
then amended or supplemented if the Company shall have furnished amendments or
supplements thereto), as the case may be, or inform such person that such
preliminary prospectus or the Prospectus will be made available upon request and
(ii) will furnish to each person to whom any such offer or sale is made such
prospectus, advertisement, or other offering document containing information
relating to the Shares, Warrants and/or Additional Securities, Common Stock,
Warrants, or the Company as may be required under the law of the jurisdiction in
which such offer or sale is made. Any prospectus, advertisement, or other
offering document furnished by us to any person in accordance with clause
(b)(ii) of the preceding sentence and any such additional offering material as
we may furnish to any person (c) shall comply in all respects with the laws of
the jurisdiction in which it is so furnished, (d) shall be prepared and so
furnished at our sole risk and expense, and (e) shall not contain information
relating to the Common Stock, Warrants, or the Company which is inconsistent in
any respect with the information contained in the then current preliminary
prospectus or in the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), as the case may be.
<PAGE>
This Agreement may be signed by the Underwriters in various counterparts
which together shall constitute one and the same agreement among all the
Underwriters and shall become effective at such time as all the Underwriters
shall have signed such counterparts and you shall have confirmed all such
counterparts.
This Agreement shall be construed in accordance with the laws of the State
of New York, without giving effect to conflict of laws. Time is of the essence
in this Agreement.
Please confirm that the foregoing correctly sets forth the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
-----------------------------------
As Attorney-in-Fact for each of the
Underwriters named in Schedule A to the
Underwriting Agreement
Confirmed as of the date first above written.
New York, New York
IAR SECURITIES CORP.
By: __________________________________
Name:
Title:
Exhibit 1.3
MIKE'S ORIGINAL, INC.
675,000 Shares of Common Stock and
875,000 Redeemable Common Stock Purchase Warrants
SELLING AGREEMENT
, 1997
Dear Sirs:
The undersigned, IAR Securities Corp., as representative of the
underwriters (the "Representative"), has agreed, subject to the terms and
conditions of the Underwriting Agreement dated __________, 1997 (the
"Underwriting Agreement"), to purchase from Mike's Original, Inc., a Delaware
corporation (the "Company"), an aggregate of 675,000 shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock") and 875,000
Redeemable Common Stock Purchase Warrants (the "Warrants") to purchase one share
of Common Stock, at the purchase price set forth on the cover of the Prospectus
(as hereinafter defined), and has obtained from the Company an option to
purchase at such price an additional 101,250 shares of Common Stock and an
additional 131,250 Redeemable Common Stock Class A Purchase Warrants (the
"Additional Securities"), identical to the Common Stock and Warrants, to cover
over-allotments. The 675,000 Shares of Common Stock and 875,000 Warrants are
hereinafter referred to as the "Firm Securities." The Firm Securities and
Additional Securities are hereinafter collectively called the "Securities". The
Firm Securities, Additional Securities, Common Stock and Warrants are more
particularly described in the enclosed prospectus (the "Prospectus"), additional
copies of which will be supplied in reasonable quantities upon request.
<PAGE>
We are offering a part of the Securities for sale to selected dealers (the
"Selected Dealers"), among which we are pleased to include you, at the public
offering price or at such price less a concession in the amount set forth in the
Prospectus under "Underwriting", as provided herein. This offering is made
subject to delivery of the Securities and its acceptance by us, to the approval
of all legal matters by counsel, and to the terms and conditions herein set
forth and may be made on the basis of the reservation of Securities or an
allotment against subscription.
We have advised you by telegram or telex of the method and terms of the
offering. Acceptances should be sent to IAR Securities Corp., 99 Wall Street,
New York, New York 10005, Attn: Isaac Rabinowitz, President. We reserve the
right to reject any acceptance in whole or in part.
The Securities purchased by you hereunder are to be offered by you to the
public at the public offering price, except as herein otherwise provided.
We, as Representative, may buy Securities from, or sell Securities to, any
Selected Dealer, and any Selected Dealer may buy Securities from, or sell
Securities to, any other Selected Dealer at the public offering price or at such
price less all or any part of the concession, as provided herein. We, as
Representative, after the initial public offering may change the public offering
price, the concession, and the reallowance.
Securities purchased by you hereunder shall be paid for in full at the
public offering price or such price less the applicable concession, as we shall
advise, on such date as we shall determine, on one day's notice to you, by
certified or official bank check payable in New York Clearing House funds to the
order of IAR Securities Corp., 99 Wall Street, New York, New York 10005 against
delivery of the Securities. If you are called upon to pay the public offering
price for the Securities purchased by you, the applicable concession will be
<PAGE>
paid to you, less any amounts charged to your account as provided herein, after
termination of this Agreement as it applies to the offering of the Securities.
Notwithstanding the preceding two sentences, payment for and delivery of
Securities purchased by you hereunder will be made at our option either by
physical delivery of certificates representing the shares so purchased or
through the facilities of The Depository Trust Company if you are a member or,
if you are not a member, settlement may be made through a correspondent which is
a member pursuant to instructions you may send to us prior to such specified
date.
We have been advised by the Company that a registration statement for the
Securities, filed under the Securities Act of 1933, as amended (the "Securities
Act"), has become effective. You agree (which agreement shall also be for the
benefit of the Company) that in selling Securities purchased pursuant hereto you
will comply with the applicable requirements of the Securities Act and of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"). No person is
authorized by the Company or the Representative to give any information or to
make any representations not contained in the Prospectus, in connection with the
sale of Securities. You are not authorized to act as agent for the Company or
the Representative in offering Securities to the public or otherwise. Nothing
contained herein shall constitute the Selected Dealers partners with the
Representative or with one another.
Upon your application to us, we will inform you as to the advice we have
received from counsel concerning the jurisdictions under the respective "blue
sky" or securities laws of which it is believed that the Securities have been
qualified or registered or is exempt for offer and sale, but we have not assumed
and will not assume any responsibility or obligation as to the accuracy of such
information or as to the right of any Selected Dealers to offer or sell
Securities in any jurisdiction.
<PAGE>
As Representative, we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. We, acting as the Representative shall not be under any
obligation to you except for obligations expressly assumed by us in this
Agreement.
We are authorized to over-allot in arranging for sale of the Securities to
the Selected Dealers and to purchase and sell the Securities and shares of
Common Stock or Warrants for long or short account and we are also authorized to
stabilize or maintain the market prices of the Common Stock and the Warrants.
You agree, from time to time until the termination of this Agreement, to
report to us the number of Securities purchased by you pursuant to the
provisions hereof which then remain unsold and, on our request, you will resell
to us any such Securities remaining unsold at the purchase price thereof if, in
our opinion, such Securities are needed to make delivery against sales made to
others.
If prior to the termination of this Agreement as it applies to the offering
of the Securities (or prior to such earlier date as we have determined) we
purchase or contract to purchase in the open market or otherwise any Securities
or shares of Common Stock or Warrants underlying the Securities which were
purchased by you from us or from any other underwriter or dealer for reoffering
(including any Securities or shares of Common Stock or Warrants which may have
been issued on transfer or in exchange for such Securities or shares of Common
Stock or Warrants), and which Securities or shares of Common Stock or Warrants
were therefore not effectively placed for investment by you, you authorize us
either to charge your account with an amount equal to the concession from the
public offering price for which you purchased such Securities, which shall be
credited against the cost of such Securities, or to require you to repurchase
such Securities at a price equal to the total cost of such purchase, including
any commissions and transfer taxes on redelivery.
<PAGE>
You agree that except with our consent and except as otherwise provided
herein, you will not, prior to termination of this Agreement or until we notify
you that you are released from this restriction, bid for, purchase, or sell,
directly or indirectly, any Securities or any shares of Common Stock or Warrants
(or, if requested by us by telex or otherwise, any other securities of the
Company) for your account or for the accounts of customers except as broker or
agent in the execution of unsolicited brokerage orders therefor.
As contemplated by Rule 15c2-8 under the Exchange Act, we agree to mail a
copy of the Prospectus to any person making a written request therefor during
the period referred to in Rule 15c2-8, such mailing to be made to the address
given in the request. You confirm that you have delivered all preliminary
prospectuses and revised preliminary prospectuses, if any, required to be
delivered under the provisions of Rule 15c2-8 and agree to deliver all final
prospectuses and amendments or supplements thereto required to be delivered
under Rule 15c2-8. We have heretofore delivered to you such preliminary
prospectuses as have been requested by you, receipt of which is hereby
acknowledged, and will deliver such copies of the Prospectus as will be
requested by you.
Selected Dealers will be governed by the conditions herein set forth until
this Agreement is terminated. This Agreement will terminate at the close of
business on the 45th full day after the date hereof, but may be extended by us
for an additional period or periods not exceeding 45 full days in the aggregate.
Whether or not extended, we may, however, terminate this agreement or any
provision hereof at any time. Notwithstanding the termination of this Agreement,
you shall be and shall remain liable for, and will pay on demand, your
proportionate amount of any loss, liability, claim, or damage or related expense
which may be asserted against you alone, or against you together with other
dealers purchasing Securities upon the terms hereof, or against us, based upon
the claim that the Selected Dealers, or any of them, constitute an association,
unincorporated business, partnership, or separate entity.
<PAGE>
All communications from you shall be address to IAR Securities Corp., 99
Wall Street, New York, New York 10005, Attn: Isaac Rabinowitz, President. Any
notice from us to you shall be deemed to have been fully authorized by us and to
have been duly given if mailed, telegraphed, or telexed to you at the address to
which this letter is mailed. This Agreement shall be construed in accordance
with the laws of the State of New York, without giving effect to conflict of
laws. Time is of the essence in this Agreement.
If you agree to purchase Securities in accordance with the terms hereof,
kindly confirm such agreement by completing and signing the form provided for
that purpose on the enclosed duplicate hereof and returning it to us promptly.
Very truly yours,
IAR SECURITIES CORP.
By: __________________________
Isaac Rabinowitz
President
<PAGE>
IAR Securities Corp.,
99 Wall Street
New York, New York 10005
Dear Sirs:
We hereby confirm our agreement to purchase shares of Common Stock, par
value $.001 per share, of Mike's Original, Inc. (the "Company") (the "Common
Stock") and warrants (the "Warrants") to purchase one share of Common Stock,
allotted to us subject to the terms and conditions of the foregoing Selling
Agreement and your telegram or telex to us referred to therein. We hereby
acknowledge receipt of the definitive Prospectus relating to the Common Stock
and Warrants, and we confirm that in purchasing Common Stock and Warrants we
have relied upon no statements whatsoever, written or oral, other than the
statements in the Prospectus. We represent that we are actually engaged in the
investment banking or securities business and that we are a member in good
standing of the NASD which agrees to comply with all applicable rules of the
NASD or, if we are not such a member, we are a foreign dealer or institution not
eligible for membership in the NASD (a) which agrees to make no offers or sales
within the United States, it territories, or its possessions or to persons who
are citizens thereof or residents therein, and, in making sales, to comply with
the NASD's interpretation with respect to free-Riding and Withholding and
Sections 8, 24 and 36 of Article III of the NASD's Rules of Fair Practice as if
we were an NASD member and Section 25 of such Article III as it applies to a
nonmember broker or dealer in a foreign country and (b) which in connection with
offers and sales of Common Stock and Warrants made by us outside the United
States (i) will either furnish to each person to whom any such offer or sale is
made a copy of the then current preliminary prospectus or the Prospectus (as
then amended or supplemented if the Company shall have furnished amendments or
supplements thereto), as the case may be, or inform such person that such
preliminary prospectus or the Prospectus will be available upon request and (ii)
will furnish to each person to whom any such offer or sale is made such
<PAGE>
prospectus, advertisement, or other offering document containing information
relating to the the Common Stock, the Warrants or the Company as may be required
under the law of the jurisdiction in which such offer or sale is made. Any
prospectus, advertisement, or other offering document furnished by us to any
person in accordance with clause (b)(ii) of the preceding sentence and any such
additional offering material as we may furnish to any person (c) shall comply in
all respects with the laws of the jurisdiction in which it is so furnished, (d)
shall be prepared and so furnished at our sole risk and expense, and (e) shall
not contain information relating to the the Common Stock, the Warrants or the
Company which is inconsistent in any respect with the information contained in
the then current preliminary prospectus or in the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), as the case may be. It is understood that no action has been taken to
permit a public offering in any jurisdiction other than the United States where
action would be required for such purpose.
If for federal income tax purposes the Selected Dealers, among themselves
or with the Representative, should be deemed to constitute a partnership, then
we elect to be excluded from the application of Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986, as amended, and we agree not to
take any position inconsistent with such election. We authorize
<PAGE>
you, in your discretion, to execute and file on our behalf such evidence of such
election as may be required by the Internal Revenue Service.
-------------------------------
(Name of Selected Dealer)
--------------------------------
(Authorized Signature)
Dated: , 1997
Exhibit 4.1
MO-
MIKE'S ORIGINAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
PAR VALUE $.001 PER SHARE SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES that _________________________________ is the owner of
_______________________FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF MIKE'S ORIGINAL, INC. transferable on the books
of the Corporation by the holder hereof in person or by duly authorized
attorney, on surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
AUTHORIZED SIGNATURE
____________________________ ______________________________
SECRETARY-TREASURER PRESIDENT
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative
rights, participating, optional or other special rights of each class of stock
of the Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporations Secretary at the principal office of the Corporation.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT..................... Custodian .....................
(Cust) (Minor)
under Uniform Gifts to Minors
Act.................................................
(State)
UNIF TRF MIN ACT........................ Custodian (until age.........)
(Cust)
.............................under Uniform Transfers
(Minor)
to Minors Act.......................................
(State)
Additional abbreviatons may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________hereby sell, assign and transfer unto
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________________
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated__________________________
X ______________________________
X ______________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
By:____________________________________
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
Exhibit 4.2
AGREEMENT
THIS AGREEMENT made as of this _______ day of _______ 1997, between MIKE'S
ORIGINAL, INC., a Delaware corporation with offices at 131 Jericho Turnpike,
Jericho, New York 11753 (the "Company") and AMERICAN STOCK TRANSFER & TRUST
COMPANY, with offices at 6201 15th Avenue, Brooklyn, New York 11219 (the
"Warrant Agent").
Introduction
The Company (i) has determined to issue and deliver up to 1,006,250 common
stock purchase warrants (the "IPO Warrants") evidencing the right of the holders
thereof to purchase an aggregate of 1,006,250 shares of common stock, $0.001 par
value of the Company (the "Common Stock"), which IPO Warrants are to be offered
for sale to the public pursuant to a registration statement No. 333-21575 (the
"Registration Statement") filed with the Securities and Exchange Commission; and
(ii) has determined to issue and deliver to IAR Securities Corp. ("IAR") an
option (the "Representative's Purchase Option") evidencing, inter alia, the
right of IAR and its permitted transferees as holders thereof to purchase up to
67,500 shares of common stock and 87,500 nonredeemable common stock purchase
warrants (the "IAR Warrants") evidencing the right of the holder thereof to
purchase an aggregate of 87,500 shares of Common Stock. The IPO Warrants and the
IAR Warrants are hereinafter referred to as the "Warrants". The Company desires
the Warrant Agent to act on behalf of the Company, and the Warrant Agent is
willing to so act, in connection with the issuance, registration, transfer,
exchange, redemption and exercise of the Warrants. The Company desires to
provide for the form and provisions of the Warrants, the terms upon which they
shall be issued and exercised, and the respective rights, limitation of rights,
and immunities of the Company, the Warrant Agent, and the holders of the
Warrants.
All acts and things have been done and performed which are necessary to make
the Warrants, when executed on behalf of the Company and countersigned by or on
behalf of the Warrant Agent, as provided herein, the valid, binding and legal
obligation of the Company, and to authorize the execution and delivery of this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
ARTICLE I
Appointment of Warrant Agent
The Company hereby appoints the Warrant Agent to act as agent for the Company
for the Warrants, and the Warrant Agent hereby accepts such appointment and
agrees to perform the same in accordance with the terms and conditions set forth
in this Agreement.
<PAGE>
ARTICLE II
Warrants, Form of Warrants, Execution,
Countersignature and Registration of Warrants
2.01. Form of Warrant. Each Warrant shall be issued in registered form only,
shall be in substantially the form of Exhibit A hereto (the "Warrant
Certificate"), shall be signed by, or bear the facsimile signature of, the
President or any Vice President and by the Secretary of the Company and shall
bear a facsimile of the Company's seal. The Warrant Certificate may also bear
such letters, marks of identification, legends, designations, summaries and
endorsements as the Company may deem appropriate and as are not inconsistent
with this Agreement, or in any particular case as may be required in the opinion
of counsel to the Company. In the event the person whose facsimile signature has
been placed upon any Warrant Certificate shall have ceased to be President or
Secretary of the Company before such Warrant Certificate is issued, it may be
issued with the same effect as if she had not ceased to be such at the date of
issuance. No Warrant Certificate may be exercised until it has been
countersigned by the Warrant Agent as provided in Section 2.03 hereof.
2.02. Warrant Valid Only If Countersigned. Unless and until manually
countersigned by the Warrant Agent and dated the date of countersignature
pursuant to this Agreement, a Warrant Certificate shall be invalid and of no
effect.
2.03. Countersignature. The Warrant Agent shall countersign a Warrant
Certificate only (i) if the Warrant Certificate is to be issued in exchange or
substitution for one or more previously countersigned Warrant Certificates, as
hereinafter provided, or (ii) if the Company instructs the Warrant Agent to do
so.
2.04. Registration.
2.04.1 The Warrant Agent shall maintain books (the "Warrant Register") for the
registration of original issuance and the registration of transfer of the
Warrant Certificates. Upon the initial issuance of the Warrant Certificates, the
Warrant Agent shall issue and register the Warrant Certificates in the names of
the respective holders thereof in such denominations and otherwise in accordance
with instructions delivered to the Warrant Agent by the Company.
2.04.2 Prior to due presentment for registration of transfer of any Warrant
Certificate, the Company and the Warrant Agent may deem and treat the person in
whose name such Warrant Certificate shall be registered upon the Warrant
Register (the "Holder" or the "registered holder") as the absolute owner of such
Warrant Certificate and of each Warrant represented thereby (notwithstanding any
notation of ownership or other writing on the Warrant Certificate made by anyone
other than the Company or the Warrant Agent) for the purpose of any exercise
thereof, and for all other purposes, and neither the Company nor the Warrant
<PAGE>
Agent shall be affected by any notice to the contrary and shall not be required
to recognize any equitable or other claim to or interest in such Warrant
Certificate on the part of any other person, and shall not be liable for any
registration or transfer of Warrant Certificates which are registered or to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with such knowledge of
such facts that its participation therein amounts to bad faith.
ARTICLE III
Term and Exercise of Warrants
3.01. Warrant Price. Each Warrant Certificate shall, when signed by the proper
officers of the Company and countersigned and dated by the Warrant Agent,
entitle the registered holder thereof, subject to the provisions of such Warrant
Certificate and of this Warrant Agreement, to purchase from the Company up to
the number of shares (the "Warrant Shares") of Common Stock stated therein, at
the price of $6.00 per share in the case of the IPO Warrants and at the price of
$7.20 per share in the case of the IAR Warrants, subject to the adjustments
provided in Article IV hereof. The term "Warrant Price" as used in this
Agreement refers to the price per share at which Common Stock may be purchased
at the time a Warrant is exercised, reflecting all appropriate adjustments made
in accordance with Article IV hereof.
3.02. Duration of Warrants. An IPO Warrant may be exercised only during the
period (the "IPO Exercise Period") commencing on the effective date (the
"Effective Date") of the Registration Statement, and ending at 5:00 p.m. New
York City time on the date which is the earlier of (i) the third anniversary of
the Effective Date, or (ii) the date fixed for redemption of such Warrant as
provided in Article VI of this Agreement (in each such case, the "IPO Expiration
<PAGE>
Date"). The IAR Warrants may be exercised only during the period (the "IAR
Exercise Period") commencing on the first anniversary of the Effective Date and
ending on the fifth anniversary of the Effective Date (the "IAR Warrant
Expiration Date"). Each Warrant not exercised on or before the applicable
Expiration Date shall become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall cease at the close of business on the
Expiration Date. The Company in its sole discretion may extend the duration of
the Warrants by extending the applicable Expiration Date upon written notice to
holders of the Warrants.
3.03. Exercise of Warrants.
3.03.1 A Warrant Certificate, when countersigned by the Warrant Agent, may be
exercised by the registered holder thereof by surrendering it, at the office of
the Warrant Agent, or at the office of its successor as Warrant Agent, in the
Borough of Manhattan, City and State of New York, with the subscription form, as
set forth in the Warrant Certificate and in substantially the form of Exhibit A
hereto, duly executed with signature guaranteed by an eligible guarantor
institution. These institutions (commercial banks, member firms of a national
securities exchange, savings and loans and thrifts) qualify as long as the
guarantor is a member of The Securities Transfer Agent Medallion Program or any
other industry recognized program and by paying in full, in lawful money of the
United States, in cash, certified check or bank draft payable to the Company,
the Warrant Price for each full share of Common Stock as to which the Warrant is
exercised and any and all applicable taxes due in connection with the exercise
of the Warrant, the exchange of the Warrant for the Common Stock, and the
issuance of the Common Stock.
3.03.2 As soon as practicable after the exercise of any Warrant, the Company
shall issue to the registered holder of such Warrant a certificate or
certificates for the number of full shares of Common Stock to which he is
entitled, registered in such name or names as may be directed by him, and if
such Warrant shall not have been exercised in full, a new countersigned Warrant
for the number of shares as to which such Warrant shall not have been exercised.
3.03.3 All shares of Common Stock issued upon the proper exercise of a Warrant
in conformity with this Warrant Agreement shall be validly issued.
3.03.4 Each person in whose name any such certificate for shares of Common
Stock is issued shall for all purposes be deemed to have become the holder of
record of such shares on the date on which the Warrant was surrendered and
payment of the Warrant Price was made, irrespective of the date of delivery of
such certificate, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are closed, such person shall
be deemed to have become the holder of such shares at the close of business on
the next succeeding date on which the stock transfer books are open.
3.03.5 If, upon the exercise of any Warrant (other than an IAR Warrant, as to
which this subsection shall not apply), after the first anniversary of the
Effective Date, (i) disclosure of compensation arrangements was made both at the
time of the original offering and at the time of exercise (by delivery of the
Prospectus or as otherwise required by applicable law, rule or regulation), and
(ii) the solicitation of the exercise of the Warrant was not in violation of
rules 100-105 of Regulation M (as such rules, or any successor rule as may be in
effect as of such time of exercise) promulgated under the Securities Exchange
Act of 1934 and is otherwise in compliance with any applicable rules and
regulations of NASD, then the Company shall forthwith pay from the proceeds
received upon exercise of the Warrant(s), a fee of % of the Warrant Price to
IAR. Within five days after exercise, the Warrant Agent shall send IAR a copy of
the reverse side of each Warrant exercised. IAR and the Company may at any time
during business hours, examine the records of the Warrant Agent, including its
ledger of original Warrant Certificates returned to the Warrant Agent upon
exercise of Warrants. The provisions of this Section may not be modified,
amended or deleted without the prior written consent of IAR.
3.04. Disposition of Proceeds. Upon the exercise of any Warrant, the
Warrant Agent shall promptly forward all funds received by it for the purchase
of Warrant Shares to the Company.
ARTICLE IV
Adjustments
4.01. Stock Dividends--Split-Ups. If after the date hereof the number of
outstanding shares of Common Stock is increased by a stock dividend payable in
shares of Common Stock or by a split-up of shares of Common Stock or other
similar event, or the number of outstanding shares of Common Stock is decreased
by a consolidation, combination or reclassification of shares of Common Stock,
reverse stock split or other similar event, then, on the date following the date
fixed for the determination of holders of Common Stock entitled to receive such
stock dividend, or whom are affected by such split-up, consolidation,
combination, reclassification or other similar event, the Warrant Price in
<PAGE>
effect immediately after the record date of such dividend or distribution or the
effective date of any such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of any Warrant exercised after such
time shall be entitled to receive the aggregate number of shares which, if such
Warrant had been exercised prior to any such event, the registered holder would
have owned upon such exercise and would have been entitled to receive by virtue
of such event. Such adjustment shall be made successively whenever any such
event specified above shall occur.
4.02. Adjustment to Number of Shares. Upon each adjustment of the Warrant
Price pursuant to Section 4.01, each Warrant shall thereupon evidence the right
to purchase that number of shares of Common Stock (calculated to the nearest
hundredth of a share) obtained by multiplying the number of shares of Common
Stock purchasable immediately prior to such adjustment upon exercise of the
Warrant by the Warrant Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Warrant Price in effect immediately
after such adjustment.
4.03. Reorganization, etc. If after the date hereof any capital reorganization
or reclassification (other than pursuant to Section 4.01 hereof) of the Common
Stock of the Company, or consolidation or merger of the Company with another
corporation (other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any reclassification of the
outstanding shares of Common Stock or the conversion or exchange of such
outstanding shares into shares of other stock or other securities or property),
or the sale of all or substantially all of its assets to another corporation or
other similar event shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful and
fair provision shall be made whereby the Warrant holders shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified in the Warrants and in lieu of the shares of Common Stock
of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented thereby, such shares of stock, securities, or
assets as may be issuable or payable with respect to or in exchange for the
number of shares of Common Stock purchasable and receivable upon the exercise of
the Warrants had such exercise occurred in full prior to such reorganization,
reclassification, consolidation, merger, or sale. In such event appropriate
provision shall be made with respect to the rights and interests of the Warrant
Holders to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Warrant Price and of the number of shares
purchasable upon the exercise of the Warrants) shall thereafter be applicable,
as nearly as may be in relation to any share of stock, securities, or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any such consolidation, merger, or sale unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing such assets, shall assume
by written instrument executed and delivered to the Warrant Agent the obligation
to deliver to the Warrant Holders such shares of stock, securities, or assets
as, in accordance with the foregoing provision, such Holders may be entitled to
purchase. In the event of sale or conveyance or other transfer of all or
substantially all of the assets of the Company as a part of a plan for total
liquidation of the Company, all rights to exercise any Warrant shall terminate
30 days after the Company gives notice to each Holder that such sale or
conveyance or other transfer has been consummated.
4.04. Notices of Changes in Warrant. Upon every adjustment of the Warrant
Price or the number of shares issuable on exercise of a Warrant, the Company
shall give notice thereof to the Warrant Agent, which notice shall state the
Warrant Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of a
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Warrant Agent shall promptly
<PAGE>
cause a similar notice to be mailed to each Holder of Warrants. Upon the
occurrence of any event above specified in this Article IV, the Company shall
give notice to the Warrant Agent and each Holder of the record date for such
dividend, distribution, or subscription rights, or the effective date of such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding up or issuance. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution, or subscription rights, or shall be entitled to exchange
their Common Stock for stock, securities, or other assets deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding up or issuance. Failure to give such notice, or any defect
therein shall not affect the legality or validity of such event.
4.05. No Fractional Shares. Notwithstanding any provision contained in this
Agreement to the contrary, the Company shall not issue fractional shares upon
exercise of Warrants. If, by reason of any adjustment made pursuant to this
Article IV, the holder of any Warrant would be entitled, upon the exercise of
such Warrant, to receive a fractional interest in a share, the Company shall,
upon such exercise, purchase such fractional interest for an amount in cash
equal to the current market value of such fractional interest, determined as
follows:
4.05.1. If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price regular way of the Common Stock on such
exchange. If the Common Stock is not listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange but is listed for
trading on the NASDAQ Automated Quotation System, the current value shall be the
closing bid quotation on NASDAQ on the last business day prior to the date of
exercise of the Warrant.
4.05.2. If the Common Stock is not listed or admitted as above described, the
current value shall be the mean of the last reported bid and asked prices
reported by first, the OTC Bulletin Board, or if the Common Stock is not listed
or admitted for trading on the OTC Bulletin Board, second, the National
Quotation Bureau, Inc. on the last business day prior to the date of the
exercise of the Warrant.
4.05.3. If the Common Stock is not so listed or admitted as above described
and bid and asked prices are not so last reported, the current value shall be an
amount determined in such reasonable manner as may be prescribed by the Board of
Directors of the Company.
4.06. Form of Warrant. The form of Warrant need not be changed because of any
adjustment pursuant to this Article IV or Article IX hereof, and Warrants issued
after such adjustment may state the same Warrant Price and the same number of
shares as is stated in the Warrants initially issued pursuant to this Agreement.
However, the Company may at any time in its sole discretion make any change in
the form of Warrant that the Company may deem appropriate and that does not
affect the substance thereof, and any Warrant thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
4.07. Limitations. No adjustment of the Warrant Price shall be made as a
result of or in connection with (i) the issuance of Common Stock pursuant to
options, warrants, and stock purchase agreements outstanding or in effect on the
date hereof and as set forth on Schedule 1 hereto, or issuable pursuant to
agreements for the issuance thereof described in the Registration Statement;
(ii) the granting of additional options or warrants by separate agreements or
pursuant to the 1995 Long-Term Incentive Plan and/or the 1996 Non-Qualified
Stock Option Plan of the Company as currently in effect or as hereafter
modified, renewed, or extended, or the issuance of Common Stock of the Company
upon exercise of any such options or warrants described in the Registration
<PAGE>
Statement; (iii) the issuance of Common Stock of the Company in connection with
(a) the IPO Warrants, the Representative's Purchase Option and/or the IAR
Warrants or (b) compensation arrangements with officers, employees, or agents of
the Company or any subsidiary described in the Registration Statement, (iv) the
issuance of Common Stock in connection with the conversion of any other
securities of the Company currently issued and outstanding or hereafter issued
or issuable pursuant to agreements for the issuance thereof described in the
Registration Statement into shares of Common Stock or other securities of the
Company pursuant to any conversion or exercise privileges attached thereto or
contained therein, or (v) any other circumstances other than those set forth in
Section 4.01 hereof.
ARTICLE V
Transfer and Exchange of Warrants
5.01. Registration Procedure. The Warrant Certificates shall be transferable
only on the books of the Company maintained at the principal office of the
Warrant Agent in New York, New York upon delivery thereof duly endorsed by the
registered holder or to his order, or duly authorized attorney or
representative, accompanied by proper evidence of succession, assignment or
authority to transfer, which endorsement shall be guaranteed by a member firm of
a national securities exchange, a commercial bank (not a savings bank or a
savings and loan association) or trust company located in the United States or a
member of the NASD. In all cases of transfer by an attorney-in-fact, the
original power of attorney, duly approved, or a copy thereof, duly certified, by
such attorney-in-fact, shall be deposited and remain with the Warrant Agent. In
case of transfer of executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Warrant Agent
in its discretion. Upon any such transfer, a new Warrant Certificate
representing an equal aggregate number of Warrants so transferred shall be
issued, a new Warrant Certificate representing the balance of the Warrants not
so transferred shall be issued, and the original Warrant Certificate which is
the subject of such transfers shall be canceled by the Warrant Agent. The
Warrant Certificate so canceled shall be delivered by the Warrant Agent to the
Company upon request.
5.02. Cancellation and Surrender. Warrant Certificates may be surrendered to
the Warrant Agent together with a request for exchange, and thereupon the
Warrant Agent shall issue in exchange therefor one or more new Warrant
Certificates as requested by the registered holder of the Warrants so
surrendered, representing an equal aggregate number of Warrants. In the event
that a Warrant Certificate surrendered for transfer bears a restrictive legend,
the Warrant Agent shall not cancel such Warrant Certificate and issue a new
Warrant Certificate in exchange therefor until the Warrant Agent has received an
opinion of counsel for the Company stating that such transfer may be made and
indicating whether the new Warrants must also bear a restrictive legend. The
Warrant Agent shall not be required to effect any registration of transfer or
exchange which will result in the issuance of a Warrant Certificate for a
fraction of a Warrant.
5.02.1. No service charge shall be made for any exchange or registration of
transfer of Warrants.
<PAGE>
5.02.2. The Warrant Agent is hereby authorized to countersign and to deliver,
in accordance with the terms of this Agreement, the Warrant Certificate required
to be issued pursuant to the provisions hereof, and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose.
ARTICLE VI
Redemption
6.01. Redemption. The IPO Warrants, but not the IAR Warrants, may be redeemed
prior to the Expiration Date, at the option of the Company, with the consent of
IAR with respect to any notice of redemption given during the twelve (12) month
period following the Effective Date, upon written notice as provided in Section
6.02 below and notice to IAR, which notice to IAR shall be given concurrently
with the Company's decision to deliver notices to Noteholders provided for in
Section 6.02 below, as a whole at any time or in part from time to time, by lot,
in any proportion as the Company in its sole discretion shall determine, at the
office of the Warrant Agent, upon notice as below provided, at the price of $.01
per Warrant (the "IPO Redemption Price"), provided, (i) the closing bid
quotation of the Common Stock as quoted by the OTC Bulletin Board; (ii) the last
reported sale price, regular way, or if no such reported sale has occurred on
any such day, the average of the closing bid and asked prices, regular way, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or (iii) if not so quoted or reported, the average of
the bid and asked prices as furnished by two members of the NASD selected for
that purpose, in any such case has been at least one hundred thirty percent
(130%) of the then exercise Warrant Price of the IPO Warrants on each of the
twenty (20) consecutive trading days ending on the third (3rd) day prior to the
day on which notice is given (the "Closing Price").
6.02. Date Fixed for, and Notice of, Redemption. In the event the Company
shall elect to redeem all or any part of the IPO Warrants, the Company shall fix
a date for the redemption (the "Redemption Date") not more than sixty (60) days
and not less than thirty (30) days following the date upon which notice is given
to the registered holders of the IPO Warrants to be redeemed, at their
respective addresses then appearing on the registration books. Nothing herein
shall limit the rights of registered holders to exercise the IPO Warrants in
accordance with Article III of this Agreement at any time prior to the date
fixed for redemption. Written notice by first class mail shall be given by the
Company to all Holders of IPO Warrant Certificates, as the case may be, to be
redeemed by the Warrant Agent not more than sixty (60) days and not less than
thirty (30) days prior to the Redemption Date. Each such notice of redemption
will specify the Redemption Date and the Redemption Price. The notice will state
that payment of the Redemption Price will be made by the Warrant Agent upon
presentation and surrender of the IPO Warrant Certificates representing such IPO
Warrants to the Warrant Agent at its principal office, and will also state that
the right to exercise the IPO Warrants will terminate at 5:00 p.m., New York
City time, on the Redemption Date. Failure to mail the notice of redemption to
any Holder or any defect therein, however, shall not affect the validity of the
redemption of the remaining IPO Warrants. The Company will also make prompt
public announcement of such redemption by news release.
<PAGE>
6.03. Payment of Redemption Price. On or prior to the opening of business on
the Redemption Date (as defined in Section 6.01 hereof), the Company shall
deposit with the Warrant Agent funds in form satisfactory to the Warrant Agent
sufficient to purchase all the IPO Warrants which are to be redeemed. Payment of
the Redemption Price shall be made by the Warrant Agent upon presentation and
surrender of the Warrant Certificates representing such IPO Warrants to the
Warrant Agent at its principal office.
6.04. Limited Redemption Rights. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Article VI shall apply to or include
the IAR Warrants, which IAR Warrants shall not be redeemable hereunder.
ARTICLE VII
Other Provisions Relating to
Rights of Holders of Warrants
7.01. No Rights as Stockholder Conferred by Warrants. A Warrant does not
entitle the registered holder thereof to any of the rights of a stockholder of
the Company, including, without limitation, the right to receive dividends or
other distributions, exercise any preemptive rights to vote or to consent or to
receive notice as shareholders in respect of the meetings of shareholders or the
election of directors of the Company or any other matter.
7.02. Lost, Stolen, Mutilated, or Destroyed Warrants. If any Warrant is lost,
stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such
terms as to indemnity or otherwise as the Company may in its discretion impose
(which shall, in the case of a mutilated Warrant Certificate, include the
surrender thereof), issue a new Warrant Certificate of like denomination, tenor,
and date as the Warrant so lost, stolen, mutilated, or destroyed. Any such new
Warrant Certificate shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated, or destroyed
Warrant shall be at any time enforceable by anyone.
7.03. Reservation of Common Stock. The Company shall at all times reserve and
keep available a number of its authorized but unissued shares of Common Stock
that will be sufficient to permit the exercise in full of all outstanding
Warrants covered by this Agreement.
7.04 Registration of Common Stock. Prior to the commencement of the
Exercise Period, the Company shall have the Registration Statement on file with
the Securities and Exchange Commission for the registration of the Common Stock
issuable upon exercise of the Warrants, and shall use good faith efforts with
due diligence to maintain such Registration Statement current, until the
expiration of the Warrants in accordance with the provisions of this Agreement,
whether by filing an appropriate post-effective amendment thereto or otherwise.
<PAGE>
ARTICLE VIII
Concerning the Warrant Agent and Other Matters
8.01. Payment of Taxes. The Company will from time to time pay on or before
the due date therefor, all taxes and charges that may be imposed upon the
Company or the Warrant Agent in respect of the issuance or delivery of shares of
Common Stock upon the exercise of Warrants, but the Company shall not be
obligated to pay any transfer taxes in respect of the Warrants or such shares.
8.02. Resignation, Consolidation, or
Merger of Warrant Agent.
8.02.1. The Warrant Agent, or any successor to it hereafter appointed, may
resign its duties and be discharged from all further duties and liabilities
hereunder after giving sixty (60) days' notice to the Company. If the office of
the Warrant Agent becomes vacant by resignation or incapacity to act or
otherwise, the Company shall appoint in writing a successor Warrant Agent in
place of the Warrant Agent. If the Company shall fail to make such appointment
within a period of thirty (30) days after receiving notification of such
resignation or incapacity by the Warrant Agent or by the holder of a Warrant
(who shall, with such notice, submit his Warrant for inspection by the Company),
then the holder of any Warrant may apply to the Supreme Court of the State of
New York for the County of New York for the appointment of a successor Warrant
Agent.
8.02.2. Any successor Warrant Agent, whether appointed by the Company or by
such court, shall be a corporation organized and existing under the laws of the
State of New York, in good standing and having its principal office in the
Borough of Manhattan, City and State of New York, and authorized under such laws
to exercise corporate trust powers and subject to supervision or examination by
Federal or state authority. After appointment, any successor Warrant Agent shall
be vested with all the authority, powers, rights, immunities, duties, and
obligations of its predecessor Warrant Agent with like effect as if originally
named as Warrant Agent hereunder, without any further act or deed. The
predecessor Warrant Agent shall execute and deliver, at the expense of the
Company, an instrument transferring to such successor Warrant Agent all the
authority, powers, and rights of such predecessor Warrant Agent hereunder and
the successor Warrant Agent shall execute and deliver an instrument accepting
the same. Upon request of any successor Warrant Agent, the Company and the
predecessor Warrant Agent shall make, execute, acknowledge, and deliver any and
all instruments in writing in order to more fully and effectually vest in and
confirm to such successor Warrant Agent all such authority, powers, rights,
immunities, duties, and obligations.
8.02.3. In the event a successor Warrant Agent shall be appointed, the Company
shall give notice thereof to the predecessor Warrant Agent and the Transfer
Agent for the Common Stock not later than the effective date of any such
appointment.
8.02.4. Any corporation into which the Warrant Agent may be merged or with
which it may be consolidated or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party may be the successor
Warrant Agent under this Agreement upon delivery to the Company of an agreement
whereby such successor shall assume all obligations of the Warrant Agent
hereunder.
<PAGE>
8.03. Fees and Expenses of Warrant Agent.
8.03.1 The Company shall pay the Warrant Agent reasonable remuneration for its
services as such Warrant Agent hereunder and will promptly reimburse the Warrant
Agent for all expenditures that the Warrant Agent may reasonably incur in the
execution of its duties hereunder.
8.03.2 The Company agrees to perform, execute, acknowledge, and deliver or
cause to be performed, executed, acknowledged, and delivered all such further
and other acts, instruments, and assurances as may reasonably be required by the
Warrant Agent for the carrying out or performing of the provisions of this
Agreement.
8.04. Liability of Warrant Agent.
8.04.1 Whenever in the performance of its duties under this Agreement the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a statement signed by the President of the Company and delivered
to the Warrant Agent. The Warrant Agent may rely upon such statement for any
action taken or suffered in good faith by it pursuant to the provisions of this
Agreement.
8.04.2 The Warrant Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct. The Company agrees to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted by
the Warrant Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence, willful misconduct, or bad faith.
8.04.3 The Warrant Agent shall have no responsibility with respect to the
validity of this Agreement or with respect to the validity or execution of any
Warrant (except its countersignature thereof), nor shall it be responsible for
any breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant. The Warrant Agent shall not be responsible to make
any adjustments required under the provisions of Article IV or responsible for
the manner, method, or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment, nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock to be issued pursuant
to this Agreement or any Warrant or as to whether any shares of Common Stock
will when issued be validly issued and fully paid and nonassessable.
8.05. Acceptance of Agency. The Warrant Agent hereby accepts the agency
established by this Agreement and agrees to perform the same upon the terms and
conditions herein set forth and among other things, shall account promptly to
the Company with respect to Warrants exercised and concurrently account for, and
remit to the Company, all moneys received by the Warrant Agent for the purchase
of shares of the Company's Common Stock through the exercise of Warrants.
<PAGE>
8.06. Purchase of Warrants by the Company. The Company shall have the right,
except as limited by law, other agreement or herein, to purchase or otherwise
acquire Warrants at such times, in such manner and for such consideration as it
may deem appropriate.
ARTICLE IX
Miscellaneous Provisions
9.01. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and permitted assigns.
9.02. Notices. Any notice, statement or demand or other communication
authorized or permitted by this Agreement shall be in writing and signed and
shall be deemed given or made as and when sent by registered or certified mail,
postage prepaid addressed to the parties at their above addresses or such other
address as a party may hereafter specify in the manner for the giving of notice
herein.
9.03. Applicable Law: Amendment. The validity, interpretation, and performance
of this Agreement and of the Warrants shall be governed in all respects by the
laws of the State of New York, without regard to its conflicts of laws
principles. This Agreement and the Warrants may be amended only in writing. The
Warrant Agent may, without the consent or concurrence of any Holder, by
supplemental agreement or otherwise, join with the Company in making any changes
or corrections in this Agreement that they shall reasonably believe (i) are
required to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error herein contained;
(ii) add to the covenants and agreements of the Company or the Warrant Agent in
this Agreement such further covenants and agreements thereafter to be observed,
or (iii) result in the surrender of any right or power reserved to or conferred
upon the Company or the Warrant Agent in this Agreement, but which changes or
corrections do not or will not adversely affect, alter or change the rights,
privileges or immunities of the Holders of Warrant Certificates.
9.04. Persons having rights under this Agreement. Nothing in this Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the parties hereto and the registered holders of the
Warrants and, as the context implies, IAR, any right, remedy, or claim under or
by reasons of this Agreement or of any covenant, condition, stipulation,
promise, or agreement hereof. All covenants, conditions, stipulations, promises,
and agreements contained in this Agreement shall be for the sole and exclusive
benefit of the parties hereto and their successors and assigns and of the
registered holder of the Warrants.
9.05. Examination of Warrant Agreement. A copy of this Agreement shall be
available at all reasonable times at the office of the Warrant Agent in the
Borough of Manhattan, City and State of New York, for inspection by the
registered holder of any Warrant. The Warrant Agent may require any such holder
to submit his Warrant for inspection by it.
<PAGE>
9.06. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
9.07. Effect of Headings. The Article and Section headings herein are for
convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto under their respective corporate seals as of the day and year first above
written.
MIKE'S ORIGINAL, INC.
By: _______________________________
Michael Rosen
President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: ________________________________
Name:
Title:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE
SHARES AND WARRANTS ISSUABLE UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, PURSUANT TO A REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, NEITHER THE WARRANTS NOR SUCH SHARES MAY BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT,
(ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT,
OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
MIKE'S ORIGINAL, INC.
Warrant for the Purchase of
Common Stock and Warrants
No. 1 67,500 Shares
87,500 Warrants
THIS CERTIFIES that, for receipt in hand of $250.00 and other value
received, IAR SECURITIES CORP., 99 Wall Street, New York, NY 10005 (the
"Holder"), is entitled to subscribe for and purchase from MIKE'S ORIGINAL, INC.,
a Delaware corporation (the "Company"), upon the terms and conditions set forth
herein, at any time or from time to time after _____________, 1998, and before
5:00 P.M. on _______________, 2001, New York time (the "Exercise Period"),
67,500 Shares (the "Representative's Shares") of the Company's common stock, par
value $.001 per share (the "Common Stock") at a price of $7.20 per Share (the
"Share Exercise Price") and 87,500 common stock purchase warrants (the
"Representative's Warrants") at a price of $.26 per Warrant, to be issued
pursuant to a Warrant Agreement, dated as of ______________, 1997 (the "Public
Warrant Agreement")between the Company and American Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agent"). This Warrant is the warrant or
one of the warrants (collectively, including any warrants issued upon the
exercise or transfer of any such warrants in whole or in part, the "Warrants")
issued pursuant to the Underwriting Agreement, dated ________________, 1997,
between the Company, and IAR Securities Corp., relating to the initial public
<PAGE>
offering of 675,000 Shares of Common Stock and 875,000 Public Warrants (as
defined below). As used herein the term "this Warrant" shall mean and include
this Warrant and any Warrant or Warrants hereafter issued as a consequence of
the exercise or transfer of this Warrant in whole or in part. Neither this
Warrant nor any share of Representative's Shares or Representative's Warrants
issued on exercise hereof, nor any share of Common Stock issued upon exercise of
any such Representative's Warrants, may be sold, transferred, assigned or
hypothecated until ______________, 1998, except that this Warrant or any such
other securities may be transferred, in whole or in part, to (i) one or more
officers or partners of the Holder (or the officers or partners of any such
partner); (ii) any other underwriting firm or member of the selling group which
participated in the public offering which commenced on ____________, 1997 (or
the officers or partners of any such firm); (iii) a successor to the Holder, or
the officers or partners of such successor; (iv) a purchaser of substantially
all of the assets of the Holder; or (v) by operation of law; and the term the
"Holder" as used herein shall include any transferee to whom this Warrant has
been transferred in accordance with the above.
Each Representative's Warrant be identical in all respects to the warrants
(the "Public Warrants") issued pursuant to the Public Warrant Agreement and sold
to the public.
1. This Warrant may be exercised during the Exercise Period, as to the
whole or any lesser number of whole Representative's Shares and/or
Representative's Warrants, by the surrender of this Warrant (with the election
at the end hereof duly executed) to the Company at its office at 131 Jericho
Turnpike, Jericho, NY 11753, or at such other place as is designated in writing
by the Company, together with (a) a certified or bank cashier's check payable to
the order of the Company in an amount equal to the Exercise Price multiplied by
the number of Representative's Shares and/or Representative's Warrants for which
this Warrant is being exercised (the "Aggregate Exercise Price"), (b) the
surrender to the Company of securities of the Company or any subsidiary of the
Company having a Current Market Price (as defined in Section 5(g) below) equal
to the Aggregate Exercise Price, (c) the acceptance by the Holder of a number of
Representative's Shares and/or Representative's Warrants equal to the number of
Representative's Shares and/or Representative's Warrants being purchased upon
such exercise, less that number of Representative's Shares and/or
Representative's Warrants having a Current Market Price (calculated, for the
purpose hereof as the Current Market Price of the underlying Representative's
Shares and Representative's Warrants) equal to the Aggregate Exercise Price, or
(d) any combination of the foregoing.
2. Upon each exercise of the Holder's rights to purchase Representative's
Shares and/or Representative's Warrants, the Holder shall be deemed to be the
holder of record of the Representative's Shares and/or Representative's Warrants
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Representative's
Shares and/or Representative's Warrants (or the Representative's Shares
underlying such Representative's Shares and/or Representative's Warrants) shall
not then have been actually delivered to the Holder. As soon as practicable
after each such exercise of this Warrant, the Company shall issue and deliver to
the Holder a certificate or certificates for the Representative's Shares and/or
Representative's Warrants issuable upon such exercise (or the Representative's
Shares underlying such Representative's Shares and/or Representative's
Warrants), registered in the name of the Holder or its designee. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing the right
of the Holder to purchase the balance of the Representative's Shares and/or
Representative's Warrants (or portions thereof) subject to purchase hereunder.
<PAGE>
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall he numbered and shall he registered in a Warrant Register as they
are issued. The Company shall be entitled to treat the registered holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any suitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of
Representative's Shares and/or Representative's Warrants (or portions thereof),
upon surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Warrants to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Securities Act
of 1933, as amended (the "Act"), and the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of the Warrants and the Representative's Warrants, such number of
shares of Common Stock as shall, from time to time, be sufficient therefor. The
Company covenants that all shares of Common Stock issuable upon exercise of this
Warrant and the Representative's Warrants, upon receipt by the Company of the
full payment therefor, shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
<PAGE>
5. (a) Upon the occurrence of any event (an "Event") as a result of which
an adjustment is made to the exercise price (the "Public Exercise Price") of any
of the Public Warrants, the number of Representative's Shares issuable
thereafter upon exercise of this Warrant shall be adjusted to equal the number
of Representative's Shares issuable prior to such Event multiplied by a
fraction, the numerator of which shall be the Public Exercise Price in effect
prior to such Event and the denominator of which shall be the Public Exercise
Price subsequent to such Event.
(b) Notwithstanding any other provision of this Warrant, any adjustment of
the exercise price and/or the number of the Warrant Shares purchasable upon the
exercise of the Representative's Warrants shall be determined solely by the
antidilution and other adjustment provisions contained in the Public Warrant
Agreement (which provisions are incorporated herein by reference) as if such
Representative's Warrants were and had been outstanding on and from the date of
original issuance of the Public Warrants.
(c) All calculations under this Section 5 shall be made to the nearest cent
or to the nearest one-thousandth of a share, as the case may be.
(d) In any case in which this Section 5 shall require that an adjustment in
the number of Representative's Shares be made effective as of a record date for
a specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the number of Representative's Shares, if any, issuable upon such
exercise on the basis of the number of Representative's Shares in effect prior
to such adjustment; provided, however, that the Company shall deliver to the
Holder a due bill or other appropriate instrument evidencing the Holder's right
to receive such additional shares upon the occurrence of the event requiring
such adjustment.
(e) Whenever there shall be an adjustment as provided in this Section 5,
the Company shall promptly cause written notice thereof to be sent by registered
mail, postage prepaid, to the Holder, at its address as it shall appear in the
Warrant Register, which notice shall be accompanied by an officer's certificate
setting forth the number of Representative's Shares issuable as part of each
Representative's Purchase Warrant and the exercise price and the number of
Warrant Shares purchasable upon the exercise of each Representative's Warrant
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment and the computation thereof, which officer's certificate shall
be conclusive evidence of the correctness of any such adjustment absent manifest
error.
(f) The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company upon the exercise of this
Warrant. If any fraction of a share would be issuable on the exercise of this
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price (as hereinafter defined) of such share of Common Stock on the date of
exercise of this Warrant.
<PAGE>
(g) The "Current Market Price" per share of any security on any date shall
be deemed to be the average of the daily closing prices for the 30 consecutive
trading days immediately preceding the date in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, the OTC Bulletin Board) on which such security is listed or
admitted to trading or, if such security is not listed or admitted to trading on
any national securities exchange, the highest reported bid price for such
security as furnished by the National Association of Securities Dealers, Inc.
through Nasdaq or a similar organization if Nasdaq is no longer reporting such
information. If on any such date the security is not listed or admitted to
trading on any national securities exchange and is not quoted by Nasdaq or any
similar organization, the fair value of a share of such security on such date,
as determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
6. (a) In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock and the
Representative's Warrants for which this Warrant might have been exercised
immediately prior to such consolidation, merger, sale, lease, or conveyance and
(ii) make effective provision in its certificate of incorporation or otherwise,
if necessary, to effect such agreement. Such agreement shall provide for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 5.
(b) In case of a reclassification or change of the shares of Common Stock
issuable upon exercise of this Warrant (other than a change in par value or from
no par value to a specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes or
series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of this Warrant solely the kind and amount
of shares of stock and other securities, property, cash, or any combination
thereof receivable upon such reclassification, change, consolidation, or merger
by a holder of the number of shares of Common Stock and the Representative's
Warrants for which this Warrant might have been exercised immediately prior to
such reclassification, change, consolidation, or merger. Thereafter, appropriate
provision shall be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
<PAGE>
(c) The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than regularly
scheduled cash dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants, or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding shares of
Common Stock, or any consolidation, merger, sale, lease, or conveyance of
property, described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of the Company;
or
(e) to take any other action which would cause an adjustment to the Public
Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants, or other securities are to be determined, (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such action which would require
an adjustment to the Public Exercise Price.
8. The issuance of any shares or other securities upon the exercise of this
Warrant, and the delivery of certificates or other instruments representing such
shares or other securities, shall be made without charge to the Holder for any
tax or other charge in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of any certificate in a name other than that
of the Holder and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
9. (a) If, at any time during the six-year period commencing on
____________, 1998, the Company shall file a registration statement (other than
on Form S-4, Form S-8, or any successor form) with the Securities and Exchange
Commission (the "Commission") while any Underwriters' Securities (as hereinafter
defined) are outstanding, the Company shall give all the then holders of any
Underwriters' Securities (the "Eligible Holders") at least 45 days prior written
<PAGE>
notice of the filing of such registration statement. If requested by any
Eligible Holder in writing within 30 days after receipt of any such notice, the
Company shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Eligible Holders and the underwriting
discounts, if any, payable in respect of the Underwriters' Securities sold by
any Eligible Holder), register or qualify all or, at each Eligible Holder's
option, any portion of the Underwriters' Securities of any Eligible Holders who
shall have made such request, concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering and sale
of the Underwriters' Securities through the facilities of all appropriate
securities exchanges and the over-the-counter market, and will use its good
faith best efforts through its officers, directors, auditors, and counsel to
cause such registration statement to become effective as promptly as
practicable. Notwithstanding the foregoing, if the managing underwriter of any
such offering shall advise the Company in writing that, in its opinion, the
distribution of all or a portion of the Underwriters' Securities requested to be
included in the registration concurrently with the securities being registered
by the Company would materially adversely affect the distribution of such
securities by the Company for its own account, then any Eligible Holder who
shall have requested registration of his or its Underwriters' Securities shall
delay the offering and sale of such Underwriters' Securities (or the portions
thereof so designated by such managing underwriter) for such period, not to
exceed 60 days (the "Delay Period"), as the managing underwriter shall request,
provided that no such delay shall be required as to any Underwriters Securities"
if any securities of the Company are included in such registration statement and
eligible for sale during the Delay Period for the account of any person other
than the Company and any Eligible Holder unless the securities included in such
registration statement and eligible for sale during the Delay Period for such
other person shall have been reduced pro rata to the reduction of the
Underwriters' Securities which were requested to be included and eligible for
sale during the Delay Period in such registration. As used herein,
"Underwriters" Securities' shall mean the Warrants, the Representative's Shares,
the Representative's Warrants, and the Warrant Shares which, in each case, have
not been previously sold pursuant to a registration statement or Rule 144
promulgated under the Act.
(b) If, at any time during the four-year period commencing on ____________,
1998, the Company shall receive a written request, from Eligible Holders who in
the aggregate own (or upon exercise of all Warrants or Representative's Warrants
then outstanding or issuable would own) a majority of the total number of shares
of Common Stock then included (or upon such exercises would be included) in the
Underwriters' Securities (the "Majority Holders"), to register the sale of all
or part of such Underwriters' Securities, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Underwriters'
Securities through the facilities of all appropriate securities exchanges and
the over-all appropriate securities exchanges and the over-the-counter market,
and will use its good faith best efforts through its officers, directors,
auditors, and counsel to cause such registration statement to become effective
as promptly as practicable; provided, however, that the Company shall only be
obligated to file one such registration statement for which all expenses
incurred in connection with such registration (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Underwriters' Securities sold by the Eligible
Holders) shall be borne by the Company. Within three business days after
receiving any request contemplated by this Section 9(b), the Company shall give
written notice to all the other Eligible Holders, advising each of them that the
Company is proceeding with such registration and offering to include therein all
or any portion of any such other Eligible Holder's Underwriters' Securities,
provided that the Company receives a written request to do so from such Eligible
Holder within 30 days after receipt by him or it of the Company's notice.
<PAGE>
(c) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Underwriters'
Securities so registered to be registered or qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder or such holders
may reasonably request; provided, however, that the Company shall not be
required to qualify to do business in any state by reason of this Section 9(c)
in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or qualification
contemplated by this Section 9 and shall from time to time amend or supplement
each applicable registration statement, preliminary prospectus, final
prospectus, application, document, and communication for such period of time as
shall be required to permit the Eligible Holders to complete the offer and sale
of the Underwriters' Securities covered thereby. The Company shall in no event
be required to keep any such registration or qualification in effect for a
period in excess of nine months from the date on which the Eligible Holders are
first free to sell such Underwriters' Securities; provided, however, that, if
the Company is required to keep any such registration or qualification in effect
with respect to securities other than the Underwriters' Securities beyond such
period, the Company shall keep such registration or qualification in effect as
it relates to the Underwriters Securities for so long as such registration or
qualification remains or is required to remain in effect in respect of such
other securities.
(e) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Underwriters' Securities included in such
registration.
<PAGE>
(f) In the event of a registration pursuant to the provisions of this
Section 9, the Company shall furnish each Eligible Holder of any Underwriters'
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Eligible Holders) to the effect that (i) the registration statement has
become effective under the Act and no order suspending the effectiveness of the
registration statement, preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus, or any amendment or
supplement thereto has been issued, nor has the Commission or any securities or
blue sky authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order, (ii) the registration statement and
each prospectus forming a part thereof (including each preliminary prospectus),
and any amendment or supplement thereto, complies as to form with the Act and
the rules and regulations thereunder, and (iii) such counsel has no knowledge of
any material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Underwriters' Securities have been registered or
qualified for sale pursuant to the provisions of Section 9(c).
(g) In the event of a registration pursuant to the provision of this
Section 9, the Company shall enter into a cross-indemnity agreement and a
contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing conventional
representations, warranties, allocation of expenses, and customary closing
conditions, including, but not limited to, opinions of counsel and accountants'
cold comfort letters, with any underwriter who acquires any Underwriters'
Securities.
(h) The Company agrees that until all the Underwriters' Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Underwriters'
Securities to sell such securities under Rule 144.
10. (a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 10, but not be
limited to, attorneys' fees and any and all reasonable expense whatsoever
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), as and when incurred, arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
any of the Underwriters' Securities, or (B) in any application or other document
or communication (in this Section 10 collectively called an 'application')
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
register or qualify any of the Underwriters' Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fit required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company with respect to such Eligible
Holder by or on behalf of such person expressly for inclusion in any
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to indemnify shall be
in addition to any liability the Company may otherwise have, including
liabilities arising under this Warrant.
<PAGE>
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents, or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10(a)) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action after
written request therefor by the party seeking indemnification or such
indemnified party or parties shall have reasonably concluded that there may be
one or more legal defenses available to it or them or to other indemnified
parties which are different from those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 10 to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify the Eligible Holders of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the sale of any Underwriters' Securities or any preliminary
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Underwriters'
Securities.
(b) The Holder agrees to indemnify and hold harmless the Company, each
director of the Company, each officer of the Company who shall have signed any
registration statement covering Underwriters' Securities held by the Holder,
each other person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, and its or their
respective counsel, to the same extent as the foregoing indemnity from the
Company to the Holder in Section 10(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder by or on behalf of the Holder expressly for inclusion in any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity' may be sought against the Holder pursuant to
this Section 10(b), the Holder shall have the rights and duties given to the
<PAGE>
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
10(a).
(c) To provide for just and equitable contribution, if (i) an indemnified
party makes a claim for indemnification pursuant to Section 10(a) or 10(b)
(subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Eligible Holders of the
Underwriters' Securities included in such registration in the aggregate
(including for this purpose any contribution by or on behalf of an indemnified
party), as a second entity, shall contribute to the losses, liabilities, claims,
damages, and expenses whatsoever to which any of them may be subject, on the
basis of relevant equitable considerations such as the relative fault of the
Company and such Eligible Holders in connection with the facts which resulted in
such losses, liabilities, claims, damages, and expenses. The relative fault, in
the case of an untrue statement, alleged untrue statement, omission, or alleged
omission, shall be determined by, among other things, whether such statement,
alleged statement, omission, or alleged omission relates to information supplied
by the Company or by such Eligible Holders, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement, alleged statement, omission, or alleged omission. The Company and the
Holder agree that it would be unjust and inequitable if the respective
obligations of the Company and the Eligible Holders for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages, and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 10(c). In no case shall any Eligible Holder be responsible
for a portion of the contribution obligation of all Eligible Holders in excess
of its pro rata share based on the number of shares of Common Stock owned (or
which would be owned upon exercise of all Underwriters' Securities) by it and
included in such registration as compared to the number of shares of Common
Stock owned (or which would be owned upon exercise of all Underwriters'
Securities) by all Eligible Holders and included in such registration. No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this Section 10(c), each
person, if any, who controls any Eligible Holder within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent, and counsel of each such Eligible Holder or control
person shall have the same rights to contribution as such Eligible Holder or
control person and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed any such registration statement,
each director of the Company, and its or their respective counsel shall have the
same rights to contribution as the Company, subject in each case to the
provisions of this Section 10(c). Anything in this Section 10(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
Section 10(c) is intended to supersede any right to contribution under the Act,
the Exchange Act or otherwise.
<PAGE>
11. Unless registered pursuant to the provisions of Section 9 hereof, the
Representative's Shares issued upon exercise of the Warrants and the Warrant
Shares issued on exercise of the Representative's Warrants shall be subject to a
stop transfer order and the certificate or certificates evidencing such Warrant
Shares shall bear the following legend:
"THE [SHARES] [WARRANTS] REPRESENTED
BY THIS CERTIFICATE [AND THE SHARES
ISSUABLE UPON EXERCISE THEREOF] HAVE
BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
HOWEVER, SUCH [SHARES] [WARRANTS AND
SHARES] MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION
STATEMENT UNDER SUCH ACT, OR (iii) AN
EXEMPTION FROM REGISTRATION UNDER
SUCH ACT."
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expense, and execution of such form of lost Warrant affidavit and
indemnity as the Company shall reasonably require, the Company shall execute and
deliver to the Holder thereof a new Warrant of like date, tenor, and
denomination.
13. The Holder of any Warrant shall not have, solely on account of such
status, any rights of a stockholder of the Company, either at law or in equity,
or to any notice of meetings of stockholders or of any other proceedings of the
Company, except as provided in this Warrant.
14. This Warrant shall be construed in accordance with the laws of the
State of New York applicable to contracts made and performed within such State,
without regard to principles of conflicts of law.
Dated: ____________, 1997
MIKE'S ORIGINAL, INC.
By: _________________________________________
Michael Rosen
Chairman/President and
Chief Executive Officer
[Seal]
___________________________________
Rachelle Rosen
Secretary
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the attached Warrant.)
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto ____________
a Warrant to purchase _______ shares of Common Stock, par value $.001 per share,
and _______common stock purchase warrants of Mike's Original, Inc. (the
"Company"), together with all right, title, and interest therein, and does
hereby irrevocably constitute and appoint __________________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated: ____________________
Signature____________________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
To: Mike's Original, Inc.
131 Jericho Turnpike
Jericho, New York 11753
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase ______
Representative's Shares and/or Representative's Warrants covered by the within
Warrant and tenders payment herewith in the amount of $____________in accordance
with the terms thereof, and requests that certificates for such securities be
issued in the name of, and delivered to:
_________________________________________
_________________________________________
_____________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Representative's Shares and/or Representative's
Warrants shall not be all the Representative's Shares and/or Representative's
Warrants covered by the within Warrant, that a new Warrant for the balance of
the Representative's Shares and/or Representative's Warrants covered by the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below.
Dated:_____________________________ Name_____________________________
(Print)
Address:___________________________
______________________________________
(Signature)
Exhibit 5.1
April 17, 1997
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Re: Mike's Original, Inc.
Registration Statement on Form SB-2
Gentlemen:
Reference is made to the filing by Mike's Original, Inc. (the "Company") of
a Registration Statement on Form SB-2 (the "Registration Statement"), as
amended, with the Securities and Exchange Commission pursuant to the provisions
of the Securities Act of 1933, as amended, covering the registration of (a)
776,250 Units, in connection with the sale thereof by the Company, each Unit
consisting of one share of the Company's common stock, par value $.001 per share
(the "Common Stock") and one redeemable common stock purchase warrant (the
"Class A Warrants"); (b) 67,500 Unit Purchase Options owned by the Underwriter
("Underwriter's Purchase Option") and (c) an aggregate of 1,635,275 shares of
Common Stock which are owned by other selling shareholders (the "Selling
Securityholders").
As counsel for the Company, we have examined its corporate records,
including its Certificate of Incorporation, By-Laws, its corporate minutes, the
form of its Common Stock certificate and Class A Warrant certificate and such
other documents as we have deemed necessary or relevant under the circumstances.
Based upon our examination, we are of the opinion that:
1. The Company is duly organized and validly existing under the laws of
the State of Delaware.
2. The shares of Common Stock and the Class A Warrants covered by the
Registration Statement have been duly authorized and, when issued in accordance
with their terms, as more fully described in the Registration Statement, will be
validly issued, fully paid and non-assessable.
3. The shares of Common Stock reserved for issuance upon the exercise of
the Class A Warrants and the Underwriter's Purchase Option , when issued in
accordance with the terms and conditions of such Warrants and Option, will be
validly issued, fully paid and non-assessable.
We hereby consent to be named in the Registration Statement and in the
Prospectus which constitutes a part thereof as counsel to the Company, and we
hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement.
Very truly yours,
/s/
BLAU, KRAMER, WACTLAR
& LIEBERMAN, P.C.
Exhibit 10.6
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of March, 1997 by and between MIKE'S
ORIGINAL, INC., a Delaware corporation (hereinafter the "Company") and Frederic
D. Heller residing at 12 Parkwood Lane, Dix Hills, New York 11746 (hereinafter
called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to enter into an Employment
Agreement relating to the Company's employment of the Employee; and
WHEREAS, this Agreement is intended to supersede and replace all prior
agreements, understandings and arrangements between the Company and the Employee
relating to such employment.
NOW, THEREFORE, it is agreed as follows:
1. Retention of Services. The Company hereby retains the services of
Employee, and Employee agrees to furnish such services, upon the terms and
conditions hereinafter set forth.
2. Term. Subject to earlier termination on the terms and conditions
hereinafter provided, and further subject to certain provisions hereof which
survive the term hereof, the term of this Agreement shall be comprised of a two
(2) year period of employment commencing on the date hereof.
3. Duties and Extent of Services During Period of Employment. During the
term of employment, Employee shall be a director of the Company and shall be
employed as Vice President-Finance of the Company. In such capacity, Employee
agrees that he shall serve the Company under the direction of the President and
the Board of Directors of the Company to the best of his ability, shall perform
all duties incident to his offices on behalf of the Company and shall perform
such other duties as may from time to time be assigned to him by the President
or the Board of Directors of the Company. Employee shall also serve in similar
capacities of such of the subsidiary corporations of the Company as may be
selected by the Board of Directors and shall be entitled to such additional
compensation therefor as may be determined by the Board of Directors of the
Company. Notwithstanding the foregoing, it is understood and agreed that the
duties of Employee during the period of employment shall not be inconsistent
therewith or with (i) his position and title as Vice President-Finance; or (ii)
with those duties ordinarily performed by a Vice President-Finance. The Company
shall not require Employee to be employed in any location other than Long
Island, New York, unless he consents in writing to such location.
<PAGE>
4. Remuneration. During the period of employment, Employee shall be
entitled to receive the following compensation for his services:
(a) The Company shall pay to Employee a salary at the rate of $95,000
per annum for the first year of this Agreement and $105,000 per annum for the
second year of this Agreement, payable in equal bi-weekly installments, or in
such other manner as shall be agreeable to the Company and Employee.
(b) Employee shall receive non-qualified stock options to purchase
25,000 shares of Common Stock at $1.50 per share, vesting on September 1, 1997.
5. Employee Benefits; Expenses.
(a) During the period of employment, the Company may provide at its
expense, life insurance to Employee in the face amount of up to $1,000,000.
(b) During the period of employment, Employee shall be eligible to
participate in the Company's stock option plans, stock purchase plans or other
employee incentive plans to the extent determined in the sole discretion of the
Board of Directors of the Company or a committee thereof.
(c) During the period of employment, Employee shall be furnished with
office space and facilities commensurate with his position and adequate for the
performance of his duties; he shall be provided with the perquisites customarily
associated with the position of the Vice President-Finance of the Company; and
he shall be entitled to regular vacations during each year of three weeks in the
aggregate.
(d) It is contemplated that during the period of employment, Employee
may be required to incur out-of-pocket expenses in connection with the
performance of his services hereunder, including expenses incurred for travel
and business entertainment. Accordingly, the Company shall reimburse Employee
for all reasonable out-of-pocket expenses incurred by Employee in the
performance of his duties hereunder upon submission of reasonable documentation
therefore in accordance with the Company's policies. Notwithstanding and in
addition to the foregoing, in recognition that Employee will be required during
the term of this Agreement to do a considerable amount of driving in connection
with his services hereunder, the Company shall also provide Employee with an
automobile allowance of $400 per month.
(e) All benefits to Employee specifically provided for herein shall be
in addition to, and shall not diminish, (i) such other benefits and/or
compensation as may hereafter be granted to or afforded to Employee by the Board
of Directors of the Company, or (ii) any rights which Employee may have or may
acquire under any hospitalization, life insurance, pension, profit sharing,
incentive compensation or other present or future employee benefit plan or plans
of the Company.
<PAGE>
(f) In the event of the death of Employee during the course of his
employment hereunder, the Company shall continue to pay to Employee's widow, or
to such other person or persons as may be designated by Employee in his Will, or
to his Estate in the event of Employee's intestacy, one-half (1/2) of the
compensation to which Employee is entitled pursuant to paragraph 4 hereunder for
the balance of the period covered by this Agreement.
6. Disability. If Employee, during the period of employment, becomes unable
for three consecutive months or more, or any 180 days in any twelve-month
period, due to ill health or other physical or mental incapacity, to perform his
services hereunder, the Company may thereafter, upon at least 45 days' written
notice to Employee, place him on disability status. After such action by the
Company, Employee shall continue to receive one-half (1/2) of the sum of the
last salary paid to Employee under Section 4(a) hereof until the end of the
period of employment or until his disability ends.
7. Confidential Information.
(a) In the course of Employee's employment by the Company, Employee
will have access to and possession of valuable and important confidential or
proprietary data or information of the Company and its operations. Employee will
not during Employee's employment by the Company or at any time thereafter
divulge or communicate to any person nor shall Employee direct any Company
employee, representative or agent to divulge or communicate to any person or
entity (other than to a person or entity bound by confidentiality obligations
similar to those contained herein and other than as necessary in performing
Employee's duties hereunder) or use to the detriment of the Company or for the
benefit of any other person or entity, any of such confidential or proprietary
data or information or make or remove any copies thereof, whether or not marked
or otherwise identified as "confidential" or "secret." Employee shall take all
reasonable precautions in handling the confidential or proprietary data or
information within the Company to a strict need-to-know basis and shall comply
with any and all security systems and measures adopted from time to time by the
Company to protect the confidentiality of confidential or proprietary data or
information.
(b) The term "confidential or proprietary data or information" as used
in this Agreement shall mean information not generally available to the public,
including, without limitation, all database information, personnel information,
financial information, customer lists, supplier lists, trade secrets, patented
or proprietary information, forms, information regarding operations, systems,
services, know how, computer and any other processed or collated data, computer
programs, pricing, marketing and advertising data.
(c) Employee will at all times promptly disclose to the Company in such
form and manner as the Company may reasonably require, any inventions,
improvements or procedural or methodological innovations, programs, methods,
forms, systems, services, designs, marketing ideas, products or processes
(whether or not capable of being trademarked, copyrighted or patented) conceived
or developed or created by Employee during or in connection with Employee's
employment hereunder and which relate to the business of the Company
("Intellectual Property"). Employee agrees that all such Intellectual Property
shall be the sole property of the Company. Employee further agrees that Employee
will execute such instruments and perform such acts as may reasonably be
requested by the Company to transfer to and perfect in the Company all legally
protectable rights in such Intellectual Property.
<PAGE>
(d) All written materials, records and documents made by Employee or
coming into Employee's possession during Employee's employment by the Company
concerning any products, processes or equipment manufactured, used, developed,
investigated, purchased, sold or considered by the Company or otherwise
concerning the business or affairs of the Company shall be the sole property of
the Company, and upon termination of Employee's employment by the Company, or
upon request of the Company during Employee's employment by the Company,
Employee shall promptly deliver the same to the Company. In addition, upon
termination of Employee's employment by the Company, Employee will deliver to
the Company all other Company property in Employee's possession or under
Employee's control, including, but not limited to, financial statements,
marketing and sales data, customer and supplier lists, database information and
other documents, and any Company credit cards.
(e) The provisions of this Section 7 shall survive the termination of
this Employment Agreement.
8. Non-Competition.
(a) During the term of this Agreement and for one year thereafter
(subject to clause (b) of this Section 8, the "Restricted Period"), the Employee
shall not, without the written consent of the Company, directly or indirectly,
(i) become associated with, render services to, invest in, represent,
advise or otherwise participate in as an officer, employee, director,
stockholder, partner, promoter, agent of, consultant for or otherwise, any
business which is conducted in any of the jurisdictions in which the Company's
business is conducted and which is competitive with the business in which the
Company is engaged or plans to be engaged at the time Employees' employment by
the Company ceased; provided, however, that nothing contained herein will
prevent Employee from owning less than five percent (5%) of any class of equity
or debt securities listed on a national securities exchange or traded in any
established over-the-counter securities market, so long as such involvement with
the issuer of any such securities is solely that of a passive investor;
<PAGE>
(ii) for your own account or for the account of any other person or
entity (A) interfere with the Company's relationship with any of its suppliers,
customers, representatives or agents or (B) transact any business with any
customer or supplier of the Company which transacts or has transacted business
with the Company at any time during the term of this Agreement; or
(iii) employ or otherwise engage, or solicit, entice or induce on
behalf of yourself or any other person or entity, the services, retention or
employment of any person who has been an employee, sales representative,
consultant to or agent of the Company within one year of the date of such offer
or solicitation.
(b) In the event that the Employee terminates his employment hereunder
after a breach hereof by the Company, or if the Company terminates the
Employee's employment hereunder other than for cause (as defined in Section 9(a)
hereof), the covenant contained in Section 8(a) hereof shall extend for a period
of one year beyond the termination of the Employee's employment only if the
Company shall pay to the Employee with respect to such period an amount equal to
the annual compensation otherwise provided for hereunder with respect to the
immediately preceding year during the term hereof. This Section 8(b) shall be of
no effect, and the Employee shall be subject to the restrictive covenant
contained in Section 8(a) hereof without the Company being obligated to make the
payments referred to in the preceding sentence, if the Company terminates its
employment of the Employee for cause (as defined in Section 9(a) hereof) or if
the Employee terminates his employment hereunder in the absence of a breach
hereof by the Company.
(c) The parties hereto intend that the covenants contained in this
Section 8 shall be deemed a series of separate covenants for each country,
state, county and city. If, in any judicial proceeding, a court shall refuse to
enforce all the separate covenants deemed included in this Section 8 because,
taken together, they cover too extensive a geographic area, the parties intend
that those of such covenants (taken in order of the cities, counties, states and
countries therein which are lease populous) which if eliminated would permit the
remaining separate covenants to be enforced in such proceeding shall, for the
purpose of such proceeding, be deemed eliminated from the provisions of this
Section 8.
(d) With respect to the covenants contained in Sections 7 and 8 of this
Agreement, Employee agrees that any remedy at law for any breach or threatened
or attempted breach of such covenants may be inadequate and that the Company
shall be entitled to specific performance or any other mode of injunctive and/or
other equitable relief to enforce its rights hereunder or any other relief a
court might award without the necessity of showing any actual damage or
irreparable harm or the posting of any bond or furnishing of other security.
9. Termination.
(a) The Company recognizes that, for the period during which Employee
has been employed and/or associated with the Company, the Company has been
intimately familiar with the ability, competence and judgment of Employee.
Accordingly, the Company and Employee agree that Employee's services hereunder
may be terminated for "cause" by the Company only (i) for an act of fraud or
embezzlement adversely affecting the financial interest of the Company, (ii) in
the event that the Company places Employee on disability status pursuant to
Section 6 hereof more than once during the term hereof, (iii) in the event of a
conviction of the Employee for any felony, (iv) in the event of material breach
without cure by the Employee of this Agreement after the expiration of a
thirty-day grace period, or (v) in the event of any willful breach by the
Employee of this Agreement.
<PAGE>
(b) If the Company terminates Employee's employment hereunder for any
reason other than for "cause" as set forth in Section 9(a) hereof, Employee's
compensation shall be paid to him as provided hereunder for the greater of the
(i) remainder of the term of this Agreement or (ii) one year. If the Company
terminates Employee's employment hereunder for "cause" as set forth in Section
9(a) hereof, Employee shall not be entitled to receive any further compensation
hereunder which has not already been earned pursuant to the terms hereof.
Employee shall have no duty to mitigate the Company's damages hereunder;
provided, that there shall be deducted from the amounts payable by the Company
hereunder an amount equal to any compensation earned by Employee from other
employment subsequent to such termination of his employment hereunder. Employee
and the Company acknowledge that the foregoing provisions of this paragraph 9(b)
are reasonable and are based upon the facts and circumstances of the parties at
the time of entering into this Agreement, and with due regard to future
expectations.
10. Consolidation or Merger. In the event of any consolidation or merger of
the Company into or with any other corporation during the term of this
Agreement, or the sale of all or substantially all of the assets of the Company
to another corporation, person or entity during the term of this Agreement, such
successor corporation shall assume this Agreement and become obligated to
perform all of the terms and provisions hereof applicable to the Company, and
Employee's obligations hereunder shall continue in favor of such successor
corporation.
11. Notices. Any notice to be given to the Company hereunder shall be
deemed sufficient if addressed to the Company in writing and delivered or mailed
by certified or registered mail to its offices at 131 Jericho Turnpike, Jericho,
New York 11753, or such other address as the Company may hereafter designate,
with a copy to David H. Lieberman, Esq., Blau, Kramer, Wactlar & Lieberman,
P.C., 100 Jericho Quadrangle, Jericho, New York 11753. Any notice to be given to
Employee hereunder shall be delivered or mailed by certified or registered mail
to him at: 12 Parkwood Lane, Dix Hills, New York 11746 or such other address as
he may hereafter designate.
12. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company, and unless clearly
inapplicable, all references herein to the Company shall be deemed to include
any such successor. In addition, this Agreement shall be binding upon and inure
to the benefit of the Employee and his heirs, executors, legal representatives
and assigns; provided, however, that the obligations of Employee hereunder may
not be delegated without the prior written approval of the Board of Directors of
the Company.
13. Amendments. This Agreement may not be altered, modified, amended or
terminated except by a written instrument signed by each of the parties hereto.
<PAGE>
14. Prior Agreements Superseded. This Agreement supersedes any employment
or consulting agreements, oral or written, entered into between Employee and the
Company prior to the date of this Agreement.
15. Change of Control.
(a) In the event there shall be a change in the present control of the
Company, as hereinafter defined, and the Employee's working conditions as
contemplated hereby shall have been adversely affected as a result thereof,
Employee shall have the option, exercisable within six (6) months of his
becoming aware of such event, to terminate this Agreement forthwith. Upon such
termination, Employee shall have the right to immediately receive as a lump sum
payment an amount equal to three times the total compensation paid to Employee
during the immediately preceding fiscal year of the Company, less $1.00.
(b) For purposes of this Agreement, a change in the present control of
the Company shall mean:
(i) if any "person" (as such term is used in Section 13(d) and 14(d)
of the Exchange Act) other than the Company or any "person" who on the date of
this Agreement is a director or officer of the Company, becomes the "beneficial
owner" (as defined in Rule 13(d)-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing thirty percent (30%) of
the voting power of the Company's then outstanding securities; or
(ii) if during any period of two (2) consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board of Directors cease for any reason to constitute at least a majority
thereof, unless the election of each director who is not a director at the
beginning of such period has been approved in advance by directors representing
at least two-thirds (2/3) of the directors then in office who were directors at
the beginning of the period.
16. Applicable Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of New York, without regard to
conflicts of laws.
17. Acknowledgement. Employee acknowledges that he has carefully read this
Agreement and hereby represents and warrants to the Company that Employee's
entering into this Agreement, and the obligations and duties undertaken by
Employee hereunder, will not conflict with, constitute a breach of or otherwise
violate the terms of any other agreement to which Employee is a party and that
Employee is not required to obtain the consent of any person, firm, corporation
or other entity in order to enter into and perform his obligations under this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MIKE'S ORIGINAL, INC.
By: _______________________
Name: Michael Rosen
Title: President
____________________________
Frederic D. Heller
Exhibit 10.16
AGREEMENT
This agreement (the "Agreement"), dated as of March 20, 1997, is among
Fieldbrook Farms Ice Cream, Inc., a Delaware corporation ("Fieldbrook"), Mike's
Original, Inc., a Delaware corporation (the "Company"), and Michael Rosen (the
"Guarantor").
WHEREAS, Fieldbrook manufactures ice cream products for the Company
(the "Products") at its facility in Dunkirk, New York;
WHEREAS, as of the date hereof, the Company owes Fieldbrook One-Hundred
Twenty-Five Thousand Six Hundred Seventeen Dollars ($125,617.00), subject to
adjustments, if any, to be mutually agreed upon by the parties hereto in their
sole discretion (the "Accounts Receivable") for Products delivered to the
Company prior to this date;
WHEREAS, the Accounts Receivable are past due;
WHEREAS, the Company has not made any profit since its inception and
its accountants have qualified their reports on the financial statements of the
Company with respect to the Company's ability to continue as a going concern;
WHEREAS, the Guarantor is the founder, Chief Executive Officer and a
stockholder of the Company and will benefit from the execution and delivery of
this Agreement;
WHEREAS, Fieldbrook is unwilling to continue to manufacture the
Company's Product unless the Company and the Guarantor agree to enter into this
Agreement; and
WHEREAS, the Company and the Guarantor are willing to enter into this
Agreement in order to induce Fieldbrook to continue the production of the
Product until the termination of this Agreement pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the premises set forth above and
the terms and conditions contained herein and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company, the
Guarantor and Fieldbrook hereby agree as follows:
SECTION 1 - Supply Agreement
(a) The Company hereby agrees that Fieldbrook shall be the exclusive
supplier all Products manufactured by Fieldbrook and distributed by the Company
east of the Mississippi River for a period of twenty-four (24) months from the
date hereof. Fieldbrook will supply such Product on the same terms and
conditions as set forth in paragraphs 1 though 15 of that certain Manufacturing,
Delivery and Pricing Agreement, dated September 11, 1996 (the "Supply
Agreement") presently in effect between Fieldbrook and the Company, except as
set forth in the following sentence. Notwithstanding the foregoing, all Products
sold by Fieldbrook to the Company shall be sold at the prices specified in the
Supply Agreement, plus additional adjustments, if any, related to increases or
decreases in the costs of processing the Products.
<PAGE>
(b) Fieldbrook shall be obligated to sell Products to the Company
pursuant to SECTION 1(a) hereof and the Supply Agreement. Nothing in this
Agreement or otherwise, however, shall obligate Fieldbrook to manufacture, sell
or produce any new or different products or class or line of products that the
Company wishes to distribute that Fieldbrook does not choose to manufacture,
sell or produce for the Company, notwithstanding the fact that Fieldbrook may
manufacture, sell or produce such products for one or more of its other
customers. If Fieldbrook declines to manufacture, sell and produce any new
product, the Company shall be free to obtain such product from another supplier.
SECTION 2 - Raw Materials
As of the date hereof, certain raw materials or packaging used in the
manufacture of the Product are owned by and stored at Sani Dairy and are
described on Schedule A attached hereto. As soon as possible, but in no case
later than March 25, 1997, all such raw materials and packaging shall be
delivered to Fieldbrook in one or more shipments. Upon delivery; Fieldbrook
shall receive good title to such raw materials and packaging. The cost of
delivery shall be borne by the Company. The raw materials shall be of commercial
marketable quality, and shall be valued as set forth on Schedule A. Fieldbrook
will credit the Company at the time such raw material and packaging is received
by Fieldbrook in an amount equal to its value as stated on Schedule A. In
addition, Fieldbrook will credit the Company for packaging valued at Twenty
Thousand Ninety-Nine Dollars ($20,099) heretofore delivered to Fieldbrook.
Fieldbrook will examine all such raw material delivered to it on the date of
delivery and will immediately notify the Company if, in the exercise of its
reasonable judgment, any such raw material does not meet the standards set forth
herein.
SECTION 3 - Outstanding Indebtedness
(a) On or before the earlier of (i) the initial public offering of
securities (the "Units") of the Company or (ii) April 23, 1997, the Company
shall pay to Fieldbrook One Hundred Fifty Thousand Dollars ($150,000) with
respect to outstanding accounts receivable. If the Company shall fail to pay
such amount in full by April 30, 1997, the Company shall sell to Fieldbrook
30,000 additional fully paid and non assessable shares of the Company's common
stock, $.001 par value (the "Common Stock"), for a purchase price of $300.00 and
Fieldbrook agrees to purchase such Common Stock from the Company. The Company
agrees to register all such Common Stock as part of the initial public offering.
<PAGE>
(b) All accounts receivable due and owing to Fieldbrook arising from
the date hereof to and including the date of consummation of the proposed
initial public offering of Units shall be paid no later than the consummation of
such offering. If the Company is unable to consummate the initial public
offering of the Units on or prior to May 15, 1997, Fieldbrook may terminate this
Agreement and the Company shall pay to Fieldbrook upon such termination on all
amounts outstanding for Products delivered to the Company.
SECTION 4 - Common Stock
Within one day of the execution of this Agreement, the Company shall
sell, convey and transfer to Fieldbrook 35,000 fully paid and nonassessable
shares of the Company's Common Stock, for a purchase price of $350.00 and
Fieldbrook agrees to purchase such Common Stock from the Company and execute a
letter indicating its investment interest. The. Company agrees to register all
of such Common Stock as part of the initial public offering discussed in SECTION
3 above. Fieldbrook agrees that it will not publicly sell any shares of Common
Stock received pursuant to this Agreement for a period of six (6) months after
the date of the initial public offering; provided that if the National
Association of Security Dealers, Inc. shall require Fieldbrook to hold such
shares for a longer period, which shall not exceed twelve (12) months,
Fieldbrook will agree to not sell such shares until such later date. All such
restrictions are subject to earlier release by the underwriter of the initial
public offering. The Company shall use its reasonable efforts to cause the
underwriter to release Fieldbrooks' shares from the lock up if Fieldbrook
desires to sell such shares as least as early as any other stockholder of the
Company.
SECTION 5 - Maximum Accounts Receivable
The Company agrees that prior to the earlier of (i) the initial public
offering or (ii) April 30, 1997, Fieldbrook shall not be obligated to deliver
any additional Product to the Company at any time that the accounts receivable
of the Company to Fieldbrook, whether or not overdue, exceed an aggregate of Two
Hundred Fifty Thousand Dollars ($250,000). Subsequent to the earlier of the
initial public offering or April 30, 1997, Fieldbrook shall determine the
maximum amount of outstanding accounts receivable available to the Company band
upon an evaluation of the Company's creditworthiness and the Company's
compliance with the terms and conditions herein.
SECTION 6 - Default
Upon the failure of the Company to comply with the provisions herein,
Fieldbrook may terminate providing Products to the Company upon ten (10) days'
prior written notice to the Company (a "default"), provided that the Company
does not cure such noncompliance within such ten (10) day period. Any amounts
owed hereunder or under any prior agreement between Fieldbrook and the Company
shall remain due and owing.
On the occurrence of a default, Fieldbrook may exercise any rights and
remedies available to it and require the Company, and the Company hereby agrees,
to pay all reasonable costs and expenses incurred by Fieldbrook in connection
with the enforcement of any obligations owed to Fieldbrook by the Company.
<PAGE>
Without limiting the foregoing, upon the occurrence of a default hereunder,
Fieldbrook shall have the Immediate right to sell liquidation and dispose of all
Product, raw materials and packaging held by Fieldbrook with respect to which
title has not yet passed to the Company, and such sale, liquidation or disposal
may take place in any manner deemed appropriate by Fieldbrook in its sole
discretion.
SECTION 7 - Guaranty
The Guarantor hereby unconditionally and irrevocably guarantees the
punctual payment when due, whether on the due date, by acceleration or
otherwise, of all obligations of every kind and character now or hereinafter
existing, whether matured or unmatured, contingent or liquidated, of the Company
to Fieldbrook, including any interest accrued thereon (including interest at the
applicable rate after the filing of a petition initiating and case or proceeding
in bankruptcy with respect to the Company). The Guarantor hereby acknowledges
that this is a guaranty of payment and not of collection. The Guarantor hereby
waives notice of acceptance of this guaranty and notice of any liability to
which it may apply, and waives diligence, presentment, demand of payment,
protest and notice of dishonor or nonpayment of any the obligations of the
Company to Fieldbrook. The Guarantor irrevocably waives any and all rights to
which he may be entitled, by operation of law or otherwise, to be subrogated to
the rights of Fieldbrook against the Company.
The guaranty set forth in this SECTION 7 shall terminate upon the
consummation of the initial public offering referred to above, provided that all
monies due and owing to Fieldbrook at the time of the offering are paid in full.
SECTION 8 - Termination by the Company
This Agreement may be terminated by the Company upon the occurrence and
continuance of any of the following events:
(i) Any proceeding shall be instituted by or against Fieldbrook seeking
to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, adjustment, protection or relief under any law relating to
bankruptcy, insolvency or reorganization of relief of debtors, or seeking the
entry of an order for relief or the appointment of a trustee, or similar
official for it, and if such proceeding is instituted against Fieldbrook such
proceeding shall not have been stayed within sixty (60) days;
(ii) Any person or entity (other than an affiliate of such person or
entity) other than the stockholders of all the issued and outstanding common
stock of Fieldbrook on the date hereof shall obtain beneficial ownership (as
defined under Section 13(d) of the Securities Exchange Act of 1934, amended) of
more than fifty-one percent (51%) of such stock, or represent more than fifty
percent (50%) of the Company's Board of Directors; and
<PAGE>
(iii) Fieldbrook shall be in material breach of any of the terms and
provisions of this Agreement, which breach shall remain uncured for a period of
thirty (30) days after written notice to Fieldbrook thereof.
SECTION 9 - Amendments
This Agreement may not be amended or waived by any party without the
prior written consent of the others. No failure on the part of Fieldbrook to
exercise and no delay in exercising any right hereunder shall operate as a
waiver or preclude Fieldbrook from exercising any remedy or any other right
permitted by law. The remedies herein are cumulative and not exclusive.
SECTION 10 - Assignment
The rights and obligations of the parties hereto may not be assigned to
any other person or entity with out the written consent of all the other parties
hereto, which consent shall be in each such party's sole discretion.
SECTION 11 - Governing Law
This Agreement shall be, governed by and interpreted and construed in
accordance with the laws of the State of New York.
SECTION 12 - Jurisdiction
The Company hereby irrevocably submits to the jurisdiction of any court
in the State of New York or any United States Federal Court sitting in the State
of New York over any action or proceeding arising out of or relating to this
Agreement. The Company irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to the Company at its address set forth on the signature page hereof.
The Company further waives any objection to venue in such State and any
objection to an action or proceeding in such State on the basis of forum
nonconveniens. The Company hereby waives any right it may have to jury trial.
SECTION 13 - Notices
All notices given hereunder shall be in writing and delivered by
facsimile, confirmation received, mailed or delivered by overnight courier,
confirmed by signed receipt at the address set forth on the signature page
hereof, or to such other address as any party hereto shall specify to the other
parties in writing. AD notices shall be effective upon receipt.
SECTION 14 - Counterparts
Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one and the same instrument and any party hereto
may execute this Agreement by signing each counterpart.
<PAGE>
SECTION 15 - Legal Fees
On the earlier of the consummation of the initial public offering or
May 15, 1997, the Company agrees to pay Fieldbrook all costs and expenses of
Fieldbrooks legal counsel Incurred in preparing this Agreement; provided,
however, that such fees and expenses shall not exceed Eight Thousand Dollars
($8,000) and shall not be included in determining the outstanding accounts
receivable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and the year first written above.
FIELDBROOK FARMS ICE CREAM, INC.
By______________________________
Title
Address:_________________________
--------------------------------
Telephone No.____________________
Facsimile No._____________________
MIKE'S ORIGINAL, INC.
By_____________________________
Title
Address:________________________
--------------------------------
Telephone No.____________________
Facsimile No._____________________
------------------------------------
MICHAEL ROSEN, as guarantor
Address:________________________
-------------------------------
Telephone No. ___________________
Facsimile No. ____________________
Exhibit 10.17
AGREEMENT
AGREEMENT, dated as of April 15, 1997, between THE PENN TRAFFIC COMPANY, a
Delaware corporation ("PT") and MIKE'S ORIGINAL, INC., a Delaware corporation
("MOI").
W I T N E S S E T H:
WHEREAS, the parties hereto previously entered into a Settlement Agreement
("Settlement Agreement") and a Credit Agreement ("Credit Agreement"), each dated
April 10, 1996, an Amendment dated January 1, 1997 and several additional
extension agreements (the "Agreements"); and
WHEREAS, the parties hereto desire to amend the Agreements on the terms
hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. Except as otherwise set forth in this agreement, the date set forth in
Subsection 2.01(d) of the Credit Agreement has been extended to June 1, 1997.
Unless the public offering contemplated by the Credit Agreement (the "Offering")
shall close prior to June 1, 1997, all amounts outstanding under Subsection
2.01(d) of the Credit Agreement, as well as all other outstanding amounts due
and payable by MOI to PT, shall be payable in full on June 1, 1997, with accrued
interest thereon.
2. Should the Offering be concluded prior to June 1, 1997, then, directly
from the proceeds of such Offering, PT shall receive by certified or bank check
or by wire transfer, $575,000 principal balance with accrued interest thereon to
date of payment.
3. The remaining principal balance, except for existing trade payables as
specifically set forth in paragraph 4 hereunder, shall be payable on December
31, 1997 together with accrued interest thereon.
4. All outstanding trade payables (approximately $220,000, subject to
certain adjustments by the parties) shall be represented by a convertible
promissory note due December 31, 1998. The amount of this indebtedness shall
bear interest at the annual rate of 10% with interest accruing until date of
payment. The note shall be convertible, at PT's sole option into Common Stock of
MOI at a conversion rate of $3.00 principal amount for each share of Common
Stock, subject to standard dilution provisions. Conversion shall be permitted in
whole or, from time to time, in part at any time prior to the maturity date. To
the extent MOI issues convertible securities to other vendors in consideraiton
for the restructuring of indebtedness and thereafter prepays such indebtedness,
in whole or in part, MOI agrees similarly to prepay the indebtedness to PT.
<PAGE>
5. Except as expressly modified hereunder, the Agreements shall remain in
full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this amendment this 15th
day of April, 1997.
THE PENN TRAFFIC COMPANY
By: ____________________________
MIKE'S ORIGINAL, INC.
By: __________________________
Michael Rosen, President
Exhibit 11
Mike's Original, Inc.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Primary Earnings Per Share
Year Nine Months
Ended Ended
December 31, December 31,
1996 1995
------------ -------------
<S> <C> <C>
Loss $(4,050,547) $(1,614,858)
Shares
Weighted average shares outstanding (1) 1,592,106 1,311,398
Dilutive stock options 542,916 542,916
Dilutive shares - convertible notes 296,223 296,223
---------- ----------
Weighted average common and equivalent
shares outstanding 2,431,245 2,150,537
---------- ----------
Primary earnings per share $(1.67) $(.75)
</TABLE>
(1) Excluded from the weighted average shares outstanding are 132,769 shares
that were held in escrow for the period September 1995 to February 1996.
Exhibit 16
201 North Service Road Telephone 516 425 3100
Melville, NY 11747
Price Waterhouse LLP
February 23, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Mike's Original, Inc.
We have read the statements made relating to "Change in Accountants" appearing
on page 45 of the Company's SB-2 Registration Statement filed with the
Securities and Exchange Commission on February 11, 1997 and are in Agreement
with the statements contained therein.
Yours very truly,
/s/
Price Waterhouse LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 17, 1997 accompanying the financial
statements of Mike's Original, Inc. contained in the Registration Statement
on Form SB-2 and Prospectus. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus, and to the use of our name as
it appears under the caption "Experts."
GRANT THORNTON LLP
Melville, New York
April 17, 1997
