<PAGE> 1
As filed with the Securities and Exchange Commission on February 11, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
Form SB-2
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 (Name, address and telephone number
of principal executives and of agent for service)
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> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Minimum Proposed Maximum
Class of Securities Amount to be Offering Aggregate Offering Amount of
to be Registered Registered Price Per Security Price (1) Registration Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (2)(3) 977,500 $6.00 $5,865,000 $1,777
Common Stock,
$.001 par value 977,500 - - -
Class A Warrants 977,500 - - -
Common Stock
underlying Class
A Warrants 977,500 $6.00 $5,865,000 $1,777
Underwriter's Purchase
Option (4) 85,000 $ .001 $85.00 -
Underwriter's Purchase
Option Units (5) 85,000 $7.80 $663,000 $201
Common Stock,
$.001 par value
contained in
Underwriter's
Purchase Option Units 85,000 - - -
Class A Warrants
contained in
Underwriter's Purchase
Option Units 85,000 - - -
Common Stock, $.001
par value
underlying Class A
Warrants contained
in Underwriter's
Purchase Option Units 85,000 $6.00 $510,000 $155
Common Stock, $.001
par value,
owned by Selling
Securityholders (6) 1,609,131 $6.00 $9,654,786 $2,927
Total 3,734,131 - $22,557,871 $6,836
________________
<FN>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes up to 127,500 Units which may be purchased by the
Underwriter to cover over-allotments, if any.
(3) Each Unit consists of one share of Common Stock and one Class A Warrant.
(4) Issued to the Underwriter entitling the Underwriter to purchase one
Unit for each ten Units sold in the offering (excluding the
Underwriter's over-allotment option).
(5) Reserved for issuance upon exercise of the Underwriter's Purchase
Option.
(6) Offered by Selling Securityholders.
</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> 3
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; Risk Factors
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> 4
Information contained herein is subjected to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE> 5
SUBJECT TO COMPLETION, DATED FEBRUARY 11, 1997
PRELIMINARY PROSPECTUS
850,000 Units
and
1,609,131 shares of Common Stock
MIKE'S ORIGINAL, INC.
Mike's Original, Inc. (the "Company"), a Delaware corporation, is offering
850,000 units (the "Units"). Each Unit consists of one share of common stock,
$.001 par value (the "Common Stock") and one redeemable common stock purchase
warrant (the "Class A Warrants"). The Common Stock and Class A Warrants
comprising the Units are detachable and will trade separately immediately upon
issuance. See "Description of Securities".
The Class A Warrants shall be exercisable commencing on the date of this
Prospectus. Each Class A Warrant entitles the holder to purchase one share of
Common Stock, at $6.00 per share, during the three year period commencing on the
date of this Prospectus. See "Description of Securities". The Class A Warrants
are redeemable by the Company for $.01 per Warrant, upon ten (10) business days'
notice to the Underwriter at any time, and upon not less than thirty (30) days'
nor more than sixty (60) days' prior written notice, if the closing bid
quotation of the Common Stock, as reported by the principal exchange or market
on which the Common Stock is quoted, equals or exceeds $12.00 per share for all
twenty (20) consecutive trading days ending three (3) days prior to the date of
the notice of redemption. See "Description of Securities".
Prior to this offering, there has been no public market for the Units,
Common Stock, or Class A Warrants. It is currently anticipated that the initial
public offering price will be $6.00 per Unit. The price of the Units, as well as
the exercise price of the Class A Warrants, has been determined by negotiations
between the Company and Millennium Securities Corp. (the "Underwriter"). For
additional information regarding the factors considered in determining the
initial public offering price of the Units and the exercise price of the Class A
Warrants, see "Underwriting".
The Company will be applying for quotation of the Units, the Common Stock
and the Class A Warrants on the OTC Bulletin Board and Philadelphia Stock
Exchange. 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 1,147,881 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 the Second Private Placement Lenders may not be
sold or transferred for eighteen (18) months from the date of this Prospectus,
subject to earlier release at the sole discretion of the Underwriter. The shares
of Common Stock owned by certain of the Selling Security Holders may not be sold
or transferred for twelve (12) months from the date of this Prospectus, subject
to earlier release at the sole discretion of the Underwriter.
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.
<PAGE> 6
<TABLE>
<CAPTION>
Price to Public Underwriting Discounts and Commissions(1) Proceeds to Company (2)
--------------- ----------------------------------------- -----------------------
<S> <C> <C> <C>
Per Unit $6.00 $.60 $5.40
Total (3) $5,100,000 $510,000 $4,590,000
<FN>
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $153,000 if
850,000 Units are sold (or $175,950 if the Underwriter's over-allotment
option is fully exercised); and (ii) an option entitling the Underwriter to
purchase 85,000 Units at $7.80 per Unit (the "Underwriter's Purchase
Option"). In addition, the Company and the Underwriter have agreed to
indemnity and contribution provisions regarding certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) Before deducting other offering expenses payable by the Company estimated
at $525,000, including the Underwriter's non-accountable expense
allowance in the amount of $153,000. See "Use of Proceeds" and
"Underwriting".
(3) The Company has granted to the Underwriter an option, exercisable within
forty-five (45) days of the date hereof, to purchase up to an aggregate
of 127,500 additional Units at the price to public less underwriting
discounts for the purpose of covering over- allotments, if any. If the
Underwriter exercises such option in full, the total price to public,
underwriting discounts and proceeds to Company will be $5,865,000,
$586,500 and $5,278,500, respectively. See "Underwriting".
</FN>
</TABLE>
The securities are offered, subject to prior sale, when, as and if accepted
by the Underwriter named herein and subject to approval of certain legal matters
by counsel for the Underwriter. 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 Millennium Securities Corp.
MILLENNIUM SECURITIES CORP.
The date of this Prospectus is , 1997
<PAGE> 7
[PHOTOGRAPHS OF THE COMPANY'S PRODUCTS, PACKAGING AND ADVERTISING]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, THE
COMMON STOCK AND/OR THE CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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> 8
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.
<PAGE> 9
Since October 1996, the Company has restructured its management. In this
regard, the Company 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 (12) 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 (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. 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 located on both the East and West coasts.
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> 10
THE OFFERING
Securities Offered by the Company(1) 850,000 Units
Price Per Unit $6.00
Shares of Common Stock Outstanding
After Offering (2)(3) 2,742,641 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".
OTC Bulletin Board Symbols (4)
Common Stock MOIC
Units MOICU
Class A Warrants MOICW
Risk Factors Purchase of Units 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) 1,147,881 shares of Common Stock owned
by the Investors. See "Selling Securityholders".
(2) Assumes no exercise of: (i) the Underwriter's over-allotment option to
purchase up to 127,500 Units; (ii) the Class A Warrants offered hereby as
part of the Units; (iii) the Underwriter's Purchase Option to purchase up
to 85,000 Units; (iv) the Class A Warrants purchasable by the Underwriter
upon exercise of the Underwriter's Purchase Option; (v) outstanding
options under the Company's 1995 Long Term Incentive Plan;
(vi) outstanding options under the Company's Non-Qualified Stock Option
Plan; and (vii) 278,431 shares of Common Stock issuable upon the
conversion of the Convertible Notes, as defined herein. See "Description
of Securities", "Underwriting" and "Certain Transactions".
(3) See "Dilution".
(4) Although the Company will be applying for initial quotation of the
Units, Common Stock and Class A Warrants on the OTC Bulletin Board and
Philadelphia Stock Exchange, 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> 11
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
31, 1996
Pro Forma December December March
As Adjusted(1) 31, 1996 31, 1995 31, 1995
--------------- --------- -------- --------
<S> <C> <C> <C> <C>
Total assets 3,035,218 443,232 400,014 555,132
Current liabilities(2) 1,424,713 2,897,727 1,901,644 704,978
Long-term liabilities net
of current portion (3) 541,916 541,916 255,722 288,333
Stockholders' equity (deficit) 1,068,589 (2,996,411) (1,757,352) (438,179)
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Data:
Fiscal Year
Ended
December Fiscal Year Nine Months Fiscal Year
31, 1996 Ended Ended Ended
Pro Forma December December March
As Adjusted(1) 31, 1996 31, 1995 31, 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $2,392,258 $2,392,258 $2,312,144 $1,086,106
Net loss (3,985,899)(4) (4,050,547)(4) (1,614,858) (719,380)
Loss per Common Share (5) ($1.25) ($1.73) ($0.78) ($0.47)
Weighted Average Common
Shares Outstanding (5) 3,190,537 2,340,537 2,059,829 1,534,200
- -------
<FN>
(1) The pro forma balance sheet data reflects (i) the anticipated receipt of
the net proceeds from this offering of $4,065,000, (i) the application of
$1,573,014 of the proceeds to the reduction of outstanding debt and
related interest expense, and (iii) the receipt of $100,000 in convertible
loans during January 1997, as if this offering had occurred as of December
31, 1996. The pro forma statement of operations data presents the results
of operations as if the offering had occurred at the beginning of the
period presented and reflects the above data.
(2) Includes the repayment of $325,000 of the Convertible Notes, rather
than conversion by the holders thereof at their option exercisable within
five (5) days of the closing date of this offering, into an aggregate
of 278,431 shares of Common Stock. See "Management's Discussion and
Analysis of Financial condition and Results of Operations - Liquidity
and Capital Resources" and "Certain Transactions".
(3) Includes long term portion of notes to related parties with the related
accrued interest, capital lease obligations and certain expense accruals
not currently due.
(4) 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".
(5) 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> 12
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 and working capital deficit of
$6,639,003 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
Units, 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 Manufacturer in the Company's Assets. The Company is
presently indebted to one of its former manufacturers in the sum of
approximately $710,275. 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. The entire debt is due on March 1,
1997 though the Company is presently negotiating to extend this payment date.
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> 13
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. One facility on the East
Coast and 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 both the
East and West coasts. See "Use of Proceeds". While the Company believes that
other manufacturers are available, changing to a new facility would result in
manufacturing delays, which could temporarily impair the Company's ability to
deliver products to its customers. Extended delivery delays could substantially
impair the Company's available shelf space in certain retail establishments. See
"Business - Distribution and Marketing".
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.
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.
<PAGE> 14
Seasonality. The ice cream industry generally experiences its highest
volume during the spring and summer months and the lowest volume in the winter
months.
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".
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. The current officers and directors (the
"Management Stockholders") and 5% stockholders own 60.4% of the outstanding
shares of Common Stock and, after completion of this offering, will own 45.2% of
the outstanding shares of Common Stock. Accordingly, 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.
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 Units, Common Stock or Class A Warrants.
Although the Company anticipates that upon completion of this offering, the
Units, Common Stock and Class A Warrants will be approved for quotation on the
OTC Bulletin Board and/or listed on the Philadelphia Stock Exchange there can be
no assurance that these securities will be approved for inclusion or, if
approved, that an active market will develop for the Units, Common Stock or the
Class A Warrants or, if developed, that it can be maintained. In addition, the
Units, Common Stock and Class A Warrants will be separately transferable
immediately. The initial public offering price of the Units, Common Stock and
the exercise price of the Class A Warrants have been established by negotiations
between the Company and the Underwriter 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> 15
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. 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 Units offered hereby
will incur immediate substantial dilution in the net tangible book value of
approximately $5.61 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".
Limited Experience of Underwriter. The Underwriter was organized in
February 1994 and became a member firm of the NASD in June 1994, with present
management commencing operations in July 1995. The Underwriter is principally
engaged in retail brokerage and market making activities and various corporate
finance projects. Although the Underwriter has experience in corporate finance,
it has not acted as the lead managing underwriter in any public offerings of
securities. The Underwriter's registration with the NASD does not currently
permit it to act as a lead managing underwriter, and although the Underwriter
has initiated the application process for such status, there can be no assurance
such status will be granted in time for the Underwriter to be the lead manager
of this offering. In such event, under the Letter of Intent, the Company and the
Underwriter have agreed to attempt to locate a member firm of the NASD able to
act as lead managing underwriter for this offering. There can be no assurance
that they will be successful in their efforts. In such event, the Company will
be unable to effect this offering. No assurance can be given that the
Underwriter's lack of experience as a lead managing underwriter of public
offerings will not adversely affect this offering and the subsequent development
of a liquid public trading market in the Company's securities.
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 14,770,595 shares of Common Stock
authorized but unissued and not reserved for specific purposes and an additional
2,486,764 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
<PAGE> 16
the Underwriter's Purchase Option, (v) exercise of the Underwriter's
over-allotment option and (vi) the conversion of the Convertible Notes. 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".
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.
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 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.
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby
(after deducting underwriting discounts and estimated offering expenses) are
estimated to be $4,065,000 ($4,730,550 if the Underwriter'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>
Repayment of Indebtedness (1) 1,573,014 38.7%
Advertising 550,000 13.5%
Working capital and general
corporate purposes (2) 1,941,986 47.8%
--------- ------
4,065,000 100.0%
========= ======
</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".
If the Underwriter exercises the over-allotment option in full, the Company
will realize additional net proceeds of approximately $665,550, half of which
will be utilized to repay recent loans to the Company as follows: (i) Michael
Rosen, $111,500; (ii) Steven A. Cantor, $135,125; (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 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 December 31, 1996 and certain accounts payable as follows: (i)
$421,166 to certain stockholders including interest at 8% to 12% per annum; (ii)
$325,938, in payment of the Convertible Notes including interest at 8% per
annum; (iii) $531,708 to a product manufacturer including interest at 9.25% per
annum; (iv) $163,534 to a product manufacturer including interest at 10% per
annum; (v) $32,879 to a product manufacturer including interest at 8% per annum;
and (vi) $61,789 and $36,000 to two product manufacturers against open accounts
payable. See "Certain Transactions".
(2) See "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<PAGE> 18
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 $3,785,282 or $2.00 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 $5.61 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 . . . . . . . . . . . . . . 2.00
Adjusted net tangible book value per share
after this offering. . . . . . . . . . . . . $ .39
------
Dilution per share to new investors. . . . . . $5.61
======
</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 . 1,892,641 850,000 2,742,641
Percentage of Outstanding Common Stock After
Offering. . . . . . . . . . . . . . . . 69.0% 31.0% 100%
Gross Consideration Paid . . . . . . . . . . 4,066,360 $5,100,000 $9,166,360
Percentage of Consideration Paid . . . . . . 44.4% 55.6% 100%
Average Consideration Per Share of Common
Stock . . . . . . . . . . . . . . . . . $2.15 $6.00 $3.34
</TABLE>
If the over-allotment option is exercised in full, the new investors will
have paid $5,865,000 and will hold 977,500 shares of Common Stock, representing
59.1% of the total consideration and 34.1% of the total number of outstanding
shares of Common Stock. See "Description of Securities" and "Underwriting".
- --------
(1) Assumes that the entire $6.00 purchase price of the Units is
attributable to the Common Stock.
(2) Assumes no exercise of (i) the Underwriter's over-allotment option to
purchase up to 127,500 Units; (ii) the Class A Warrants offered hereby as
part of the Units; (iii) the Underwriter's Purchase Option to purchase
up to 85,000 Units; (iv) the Class A Warrants purchasable by the
Underwriter upon exercise of the Underwriter's Purchase Option; (v) any
options to purchase shares of Common Stock granted under the Company's
1995 Incentive Plan or the 1996 Non-Qualified Plan; or (vi) the
conversion of the Convertible Notes. See "Description of Securities",
"Management" and "Underwriting".
<PAGE> 19
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 2,524,509 (2)(3)
--------------------------------
Short-term borrowings and current
portion of capital
lease obligations
Convertible notes 225,000 0
Notes payable to related parties 407,500 0
Obligations under capital leases 9,957 9,957
Notes payable trade 980,821 262,856
Line of credit 23,506 23,506
Accrued interest on notes 24,760 0
--------------------------------
Total short-term borrowings and
current portion of
capital lease obligations 1,671,544 296,319
--------------------------------
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
2,742,641 shares, as adjusted (4) 1,892 2,743
Additional paid-in capital 4.000,700 7,704,849
Deferred financing costs (360,000) 0
Accumulated deficit (6,639,003) (6,639,003)
----------------------------------
Total stockholders' equity (deficit) (2,996,411) 1,068,589
----------------------------------
Total capitalization (782,951) 1,906,824
----------------------------------
<FN>
(1) Adjusted to give effect to the consummation of this offering as if it
occurred on December 31, 1996.
(2) Net of $97,789 included in accounts payable. See "Use of Proceeds".
(3) Net of $100,000 payment of a Convertible Note received on January 24, 1997.
See "Use of Proceeds".
(4) 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> 20
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 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> 21
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
31, 1996
Pro Forma December December March
As Adjusted(1) 31, 1996 31, 1995 31, 1995
--------------- --------- -------- --------
<S> <C> <C> <C> <C>
Total assets 3,035,218 443,232 400,014 555,132
Current liabilities(2) 1,424,713 2,897,727 1,901,644 704,978
Long-term liabilities net
of current portion (3) 541,916 541,916 255,722 288,333
Stockholders' equity (deficit) 1,068,589 (2,996,411) (1,757,352) (438,179)
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations Data:
Fiscal Year
Ended
December Fiscal Year Nine Months Fiscal Year
31, 1996 Ended Ended Ended
Pro Forma December December March
As Adjusted(1) 31, 1996 31, 1995 31, 1995
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $2,392,258 $2,392,258 $2,312,144 $1,086,106
Net loss (3,985,899)(4) (4,050,547)(4) (1,614,858) (719,380)
Loss per Common Share (5) ($1.25) ($1.73) ($0.78) ($0.47)
Weighted Average Common
Shares Outstanding (5) 3,190,537 2,340,537 2,059,829 1,534,200
- -------
<FN>
(1) The pro forma balance sheet data reflects (i) the anticipated receipt of
the net proceeds from this offering of $4,065,000, (i) the application of
$1,573,014 of the proceeds to the reduction of outstanding debt and
related interest expense, and (iii) the receipt of $100,000 in convertible
loans during January 1997, as if this offering had occurred as of December
31, 1996. The pro forma statement of operations data presents the results
of operations as if the offering had occurred at the beginning of the
period presented and reflects the above data.
(2) Includes the repayment of $325,000 of the Convertible Notes, rather
than conversion by the holders thereof at their option exercisable within
five (5) days of the closing date of this offering, into an aggregate
of 278,431 shares of Common Stock. See "Management's Discussion and
Analysis of Financial condition and Results of Operations - Liquidity
and Capital Resources" and "Certain Transactions".
(3) Includes long term portion of notes to related parties with the related
accrued interest, capital lease obligations and certain expense accruals
not currently due.
(4) 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".
(5) 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> 22
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 month calendar year ended December 31, 1995, which twelve
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> 23
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 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. 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 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.
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.
<PAGE> 24
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.
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.
<PAGE> 25
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.
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
based upon its current plans, its resources, including the proceeds of this
offering, will be sufficient to meet its cash requirements for the next twelve
months. 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 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.
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 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 will be paid 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 have 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 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 payable on
or before March 1, 1997. The balance of this note was $210,283 at December 31,
1996.
<PAGE> 26
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
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 one-half 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 five 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.
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 December 31,
1996, this outstanding balance was $710,275. 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 March 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> 27
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.
<PAGE> 28
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.
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, the Company 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 (12) 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 (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 through participation in these programs. The
Company's products are currently manufactured by one independent facility
located in Buffalo, New York. 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 located on both the East
and West coasts.
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.
<PAGE> 29
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."
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 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
Rendezvous" 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.
<PAGE> 30
Manufacturing
The Company's products are presently manufactured by Fieldbrook Farms, an
independent FDA approved facility located in Buffalo, New York. One facility on
the East Coast and 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 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 both the East
and West coasts. 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.
<PAGE> 31
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
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.
Seasonality
The ice cream industry generally experiences its highest volume during the
spring and summer months and the lowest volume in the winter months.
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 $276,283 which is due and payable on March
1, 1997. The Company is presently negotiating with Crystal to extend the due
date of this obligation.
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.
Except as set forth above, the Company is not involved in any material
pending legal proceedings.
<PAGE> 32
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Position(s) with the Company
---- --- ----------------------------
Michael Rosen 38 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 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.
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.
<PAGE> 33
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.
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 $50,000 or 10% of the
officer's salary and bonus.
(3) Represents ten-year options granted in May 1996 and September 1996 pursuant to the Company's 1995 Long
Term Incentive Plan.
(4) Represents the nine month period ended December 31,1995.
(5) Represents the fiscal year ended March 31, 1995.
(6) Mr. Kelly resigned as an officer and director of the Company on September
16, 1996. His long-term compensation represents ten year options granted
in February 1995 which were terminated due to his resignation.
</FN>
</TABLE>
<PAGE> 34
Option/SAR Grants in Last Fiscal Year
The following table sets forth all stock options granted to the executive
officers named in the Executive Compensation table during the fiscal year ended
December 31, 1996.
<TABLE>
<CAPTION>
Individual Grants
______________________________________________________________________
Number of % of Total
Securities Options/SARS
Underlying Granted to
Options/SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ------------- ------------- ----------------- -----------
<S> <C> <C> <C> <C>
Michael Rosen 33,333 16.7% $3.00 May 31, 2006(1)
166,667 83.3% $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>
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 (6) 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
<PAGE> 35
offering or February 1, 1997, 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 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.
Consulting Agreements
The Company has entered into a consulting agreement as of November 1, 1996
with Steven A. Cantor. Under this agreement, Mr. Cantor has agreed to provide
business operations and management consulting services to the Company in
exchange for a consulting fee of $125,000 per annum during the three year term
of the agreement, however, no such fees shall be paid until the Company
consummates a private or public offering of its securities for not less than
$2,000,000 gross proceeds. The consulting agreement with Mr. Cantor expires on
December 31, 1999, restricts Mr. Cantor 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.
The Company may terminate the services of Mr. Cantor under the consulting
agreement upon thirty (30) days' written notice for a material breach by Mr.
Cantor of the non-competition, confidentiality and proprietary rights clauses.
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.
<PAGE> 36
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 453,333 options to purchase
shares of Common Stock under the Non-Qualified Plan at an exercise price of
$1.50 per share. Arthur G. Rosenberg, Martin Pilossoph and Myron Levy have been
granted options to purchase 23,333 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
<PAGE> 37
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.
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.
<PAGE> 38
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 29, 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 (1) Beneficially Owned* Offering Offering
- --------------------- -------------------- -------- --------
<S> <C> <C> <C>
Michael Rosen 283,333 (2) 13.5% 9.7%
Rachelle Rosen 283,333 (3) 13.5% 9.7%
Steven A. Cantor 580,945 (4) 28.7% 20.3%
Martin Weiss 66,667 (5) 3.4% 2.4%
Frederic D. Heller 16,667 * *
Arthur G. Rosenberg 23,333 (6) 1.2% *
Martin Pilossoph 23,333 (6) 1.2% *
Myron Levy 24,167 1.2% *
Louis P. Solferino 172,009 9.1% 6.3%
Jones Enterprises 142,329 7.5% 5.2%
The Moshe Isaac Foundation 200,000(7) 9.6% 6.8%
Food Commodities Limited 266,667 14.1% 9.8%
All officers and directors
as a group (7 persons) 437,500(8) 19.8% 14.4%
* less than one percent (1%) unless otherwise indicated.
<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) Represents shares of Common Stock issuable upon the conversion of a
Convertible Note. See "Certain Transactions".
(8) Includes 313,333 shares issuable upon the exercise of options granted
pursuant to the Company's stock option plans.
(9) Assumes no exercise of the over-allotment option.
</FN>
</TABLE>
<PAGE> 39
CERTAIN TRANSACTIONS
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 will
be 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 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.
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 one-half 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 five 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.
<PAGE> 40
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, the Company's largest stockholder. 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> 41
SELLING SECURITYHOLDERS
This Prospectus may also be used for the possible offering of additional
shares of Common Stock owned by the Selling Securityholders. Certain of the
Selling Securityholders have agreed that the shares owned by such persons may
not be sold for eighteen (18) months from the date of this Prospectus without
the prior written consent of the Underwriter. Certain other Selling
Securityholders have agreed that the shares of Common Stock owned by such
persons may not be sold for twelve (12) months from the date of this Prospectus
without the prior written consent of the Underwriter. The Company will not
receive any proceeds from such sales. The Underwriter 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 --
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
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 --
Jones Enterprises 142,329 133,611 8,718
Louis Solferino 172,009 156,111 15,898
Four L Realty Corp. 39,551 37,500 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. (3) 91,059 91,059 --
J. Scott Murphy 7,500 7,500 --
Raymond Hancock 7,500 7,500 --
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 (4) 447,611 219,407 228,205
Food Commodities Limited 266,667 266,667 --
The Moshe Isaac Foundation(4) 200,000 200,000 --
- -------
<FN>
*less than 1% unless otherwise indicated
(1) See "Legal Matters".
(2) See "Management" and "Principal Stockholders".
(3) Includes 78,431 shares issuable upon conversion of a Convertible Note.
(4) See "Principal Stockholders" and "Certain Transactions".
</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.
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.
<PAGE> 43
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereunder, any person engaged 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 "cooling off" period (9 days) prior to the
commencement of such distribution. 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, Rule 10b-6 and 10b-7, 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) 850,000
shares of Common Stock, and (ii) 850,000 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.
Units
The securities offered hereby consist of Units, with each Unit including
one share of the Company's Common Stock and one redeemable Class A Warrant. The
Common Stock and the Class A Warrants comprising the units are detachable and
separately transferable immediately following the date of this Prospectus. Prior
to this offering, there has been no public market for the Units, Common Stock or
Class A Warrants.
Common Stock
General. The Company has 20,000,000 authorized shares of Common Stock,
1,892,641 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".
<PAGE> 44
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 2,742,641 shares of Common Stock outstanding (2,870,141 shares
if the Underwriter's over-allotment option is exercised in full and 3,148,572 if
both the over-allotment option is exercised and the Convertible Notes are
converted). Of these shares, the 850,000 shares sold in this offering (997,500
shares if the Underwriter'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 461,250 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 eighteen (18) months from the date of this
prospectus or at such earlier date as may be permitted by the Underwriter.
Another 1,147,881 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 twelve (12) months from the date of this
Prospectus or at such earlier date as may be permitted by the Underwriter. 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 currently in effect, 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 two years 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 three 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 98,721 shares will be eligible for resale pursuant to Rule 144 at
the rates and subject to the conditions discussed above. Pursuant to the terms
of the Underwriting Agreement, certain Selling Securityholders owning an
<PAGE> 45
aggregate of 461,250 shares of Common Stock have agreed not to sell any of their
shares for a period of eighteen (18) months following the date of this
prospectus without the prior written consent of the Underwriter. Also, certain
other Selling Securityholders owning an aggregate of 1,147,888 shares of Common
Stock have agreed not to sell any of their shares for a period of twelve (12)
months following the date of this Prospectus without the prior written consent
of the Underwriter. 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 Units, Common Stock or the Warrants offered hereby.
Class A Warrants
The Class A Warrants included in the Units 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
transferable 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 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 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.
<PAGE> 46
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 eighteen (18) months following
the date of this prospectus or at such earlier date as may be permitted by the
Underwriter. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Underwriting".
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 eighteen (18) months after the date of this prospectus, subject to
the prior consent of the Underwriter.
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.
<PAGE> 47
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.
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.
<PAGE> 48
UNDERWRITING
Millennium Securities Corp., the Underwriter, has agreed, subject to the
conditions contained in the Underwriting Agreement (the form of which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part), to purchase from the Company, and the Company has agreed to sell to the
Underwriter, 850,000 Units.
The Underwriting Agreement provides that the obligation of the Underwriter
to purchase Units is subject to certain conditions, and that if any of the Units
are purchased by the Underwriter pursuant to the Underwriting Agreement, all of
the Units agreed to be purchased by the Underwriter under the Underwriting
Agreement must be so purchased.
The Company has been advised that the Underwriter proposes to offer such
Units to the public initially at the public offering price set forth on the
cover page of this Prospectus, and to certain selected dealers at such public
offering price less a selling concession not in excess of $___ per Unit. The
Underwriter may allow, and the selected dealers may reallow, a concession not in
excess of $____ per Unit to certain brokers or dealers. After the commencement
of the offering, the public offering price, the concession to selected dealers,
and the reallowance may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter 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.
The Company has granted to the Underwriter an option, exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase up to
an additional 127,500 Units, at the public offering price, less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. The
Underwriter may exercise such option only to cover over-allotments, if any, made
in connection with the sale of the Units offered hereby.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price (of which $50,000 has already
been received) with respect to 850,000 Units offered by the Company hereby (and
any Units purchased pursuant to the Underwriter'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 Underwriter a consulting fee of
$50,000 for financial consulting services to be performed over a period of three
years.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the aggregate offering price with respect to 850,000 Units
offered by the Company hereby (and any Units purchased pursuant to the
Underwriter's over-allotment option). Under certain circumstances, the expenses
previously paid by the Company are non-refundable if the offering is terminated
or otherwise does not proceed.
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 Underwriter
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 Underwriter and the holder of such Warrant so states in writing and
designates in writing that the Underwriter 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 Rule 10b-6
promulgated under the Exchange Act.
<PAGE> 49
The Company has also agreed to sell to the Underwriter or its designee the
Underwriter's Purchase Option to purchase 85,000 Units at a price of $.001 per
Unit. The Underwriter's Purchase Option will be exercisable for a period of four
years, commencing on the first anniversary of the date this offering is
consummated, at an initial per Unit exercise price equal to 120% the public
offering price per Unit. The Units underlying the Underwriter's Purchase Option
are identical in all respects to the Units to be issued to the public (except
that the exercise price of the Warrants included in the Units issuable upon the
exercise of the Underwriter's Purchase Option will be 120% of the exercise price
of the Warrants issued to the public in this offering). The Underwriter's
Purchase Option cannot be transferred, assigned or hypothecated for one year
from the date of its issuance, except that they may be assigned, in whole or in
part, to any successor, officer or partner of the Underwriter. The Underwriter's
Purchase Option will contain anti-dilution provisions providing for appropriate
adjustment of the exercise price and number of shares of Common Stock and
Warrants which may be purchased upon exercise upon the occurrence of certain
events.
The Company has agreed that it will, on any one occasion during the
four-year period commencing one year from the date of this Prospectus, register
the securities underlying the Underwriter's Purchase Option at the Company's
expense, at the request of holders of a majority of the shares underlying the
Underwriter's Purchase Option (including shares issuable upon exercise of the
Class A Warrants underlying such Underwriter's Purchase Option). The Company has
also agreed, during the seven-year period commencing on the date of this
Prospectus, to register on a piggyback basis, on an unlimited number of
occasions, the securities underlying the Underwriter's Purchase Option whenever
the Company files a registration statement, other than a registration statement
on Form S-8 or S-4.
The Company, and its officers and directors, have agreed that the
Underwriter shall have a right of first refusal for two years to manage,
underwrite or purchase for its own account any securities to be sold by the
Company, any subsidiary or successor of the Company or, subject to certain
exceptions, by any officer or director of the Company. The Company has also
agreed to pay the Underwriter a fee with respect to any merger, acquisition,
joint venture or other transaction, with certain exceptions, to which the
Company is a party in which the Underwriter introduced the Company to other
parties to such transaction during the five-year period commencing upon the
consummation of this offering.
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 Underwriter, to
nominate and use its best efforts to elect a designee of the Underwriter to the
Board of Directors of the Company or to appoint a designee of the Underwriter as
a non-voting observer of the Board of Directors.
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 Underwriter, 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.
The Underwriter has informed the Company that the Underwriter 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 eighteen months after the date of this Prospectus, without the prior written
consent of the Underwriter, except pursuant to the exercise of the Underwriter'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 Units, Common
Stock or the Warrants. Although the Company will apply to list the Units, Common
Stock and the Warrants on the OTC Bulletin Board and Philadelphia Stock
Exchange, there can be no assurance that an active trading market will develop
for the Units, Common Stock or the Warrants, or, if developed, that it will be
maintained. In addition, the Common Stock and the Warrants included in the Units
will be separately transferable immediately and it is not expected that a market
will develop for the Units.
<PAGE> 50
The initial public offering price has been arbitrarily determined by
negotiations between the Company and the Underwriter. 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 the
Underwriter, as Underwriter, 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
Underwriter. 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 73,334 options to purchase shares of Common Stock issued
under the Non-Qualified Plan.
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.
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.
<PAGE> 51
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.
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> 52
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> 53
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.
/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
Melville, New York
January 10, 1997 (except for Notes B, H, L and N, as to which the date is
January 25, 1997 and Note C-10 as to which the date is February 6, 1997)
F-2
<PAGE> 54
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> 55
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> 56
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 of sales returns, allowances, and
discounts) $ 2,919,798 $ 2,441,517
Less
Sales distribution fee 527,540 129,373
----------- -----------
Net sales 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 $(1.73) $(.78)
----------- -----------
Weighted average common shares outstanding 2,340,537 2,059,829
----------- -----------
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE> 57
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> 58
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> 59
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> 60
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.
On May 30, 1996, the Company signed a letter of intent with an investment
banker for a proposed public offering (the "Offering") by the Company of
$5,000,000. 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 $4,065,000 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.)
F-9
<PAGE> 61
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 price protection and certain rights of return on product unsold to
third parties. A provision for such costs is made as revenue is recognized.
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> 62
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> 63
Mike's Original, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE C (continued)
earnings per share are options to purchase 710,000 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 278,431 shares issuable upon the conversion of notes payable (Note H).
The incremental common equivalent shares of 748,432 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
850,000 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 $.48 to
$1.25, after giving effect to the issuance of additional shares of common stock
and the application of $1,573,014 of proceeds to reduce outstanding
indebtedness.
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> 64
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> 65
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> 66
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, one half of this note will be payable
with accrued or unpaid interest, 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 or five
days after the underwriter elects not to exercise the overallotment option.
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> 67
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> 68
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 provide for: (i)
payments to the lender from the proceeds of the Company's initial public
offering in the amount of $325,000, (ii) quarterly principal payments of
$200,000 and (iii) monthly principal payments of $12,000. In the event that
the initial public offering is not completed by March 1, 1997, all amounts
outstanding will then become immediately due and payable in full.
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. The amended terms provide
that the balance of the promissory note will be due on March 1, 1997.
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.
F-17
<PAGE> 69
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
lieu of receiving payment, the investor has the right to convert the note
within five days of the closing of such initial public offering 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) April 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> 70
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> 71
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> 72
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.
F-21
<PAGE> 73
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.
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 $(1.73)
Pro forma (1.96)
</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> 74
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.
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> 75
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> 76
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.
F-25
<PAGE> 77
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.
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> 78
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> 79
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 of Financial
Condition and Results of
Operations . . . . . . . . . . . 18
Business . . . . . . . . . . . . . 24
Management . . . . . . . . . . . . 28
Principal Stockholders . . . . . . 34
Certain Transactions . . . . . . . 35
Selling Securityholders. . . . . . 36
Description of Securities. . . . . 38
Underwriting . . . . . . . . . . . 43
Legal Matters. . . . . . . . . . . 45
Experts. . . . . . . . . . . . . . 45
Change in Accountants. . . . . . . 45
Available Information. . . . . . . 46
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 Underwriters and with respect to their unsold allotments or subscriptions.
<PAGE> 1
EXHIBIT 1.1
850,000 Units, each Unit Consisting
of One Share of Common Stock and One Class A
Common Stock Purchase Warrant
MIKE'S ORIGINAL, INC.
UNDERWRITING AGREEMENT
New York, New York
________ __, 1997
Millennium Securities Corp.
110 E. 59th Street, 6th floor
New York, New York 10022
Attn: Mr. Richard E. Sitomer
Chief Executive Officer
Ladies and Gentlemen:
Mike's Original, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Millennium Securities, Inc.("Millennium") 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 Millennium is acting as representative (in such capacity,
Millennium shall hereinafter be referred to as "you" or the "Representative")],
with respect to the sale by the Company and the purchase by the Underwriter[s],
acting severally and not jointly, of the respective numbers of units (the
"Units") set forth in said Schedule A, each Unit consisting of one share (the
"Shares") of the Company's common stock, $0.001 par value per share (the "Common
Stock"), and one redeemable Class A Common Stock Warrant (the "Warrants"). The
850,000 Units together with the Shares, Warrants and Warrant Shares comprising
such units are hereinafter collectively referred to as the "Firm Units". 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
<PAGE> 2
Millennium, 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 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
127,500 Units (the "Additional Units") identical to the Firm Units. The Company
also proposes to issue and to sell to you for the sum of $85.00 an Option (the
"UPO") for the purchase of up to an additional 85,000 Units. The Units issuable
upon exercise of the UPO, together with the Shares, Warrants and Warrant Shares
comprising such units are hereinafter referred to as the "Representative's
Units." Neither the Representative's Units nor any of the securities underlying
the Representative's Units shall be redeemable by the Company but the
Representative's Units and the securities underlying the Representative's Units
shall otherwise be identical to the Firm Units. The UPO will be exercisable
between the first and fifth anniversary dates of the Effective Date as below
defined (the "UPO Exercise Term"). You agree that during the one year period
from the Effective Date, Millennium will not transfer the Representative's Units
except to Millennium's officers or partners or to any underwriters or selected
dealers or their officers or partners. The UPO shall be exercisable at a price
per Unit equal to 130% of the public offering price of the Units and shall be
exercisable at any time and from time to time, in whole or in part, during the
UPO Exercise Term. The UPO 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 UPO) are hereinafter referred to as the "Warrant Shares."
The Firm Units, the Shares, the Warrants, the Representative's Units 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 Units,
Representative Units 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
<PAGE> 3
amendment thereto to which the Underwriters shall have objected in writing after
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
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
<PAGE> 4
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 Units and the Representative's
Units (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
<PAGE> 5
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.
(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.
(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 Units
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.
<PAGE> 6
(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 UPO, 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).
(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
<PAGE> 7
Agreement, and the UPO and to consummate the transactions provided for in each
such agreement; and this Agreement, the Warrant Agreement, and the UPO have each
been duly and properly authorized, executed and delivered by the Company. Each
of this Agreement, the Warrant Agreement, and the UPO 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 UPO, the Securities or the execution, delivery or performance of this
Agreement, the Warrant Agreement or the UPO, 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 UPO as described
in the Prospectus and the Registration Statement, the performance of this
Agreement, the Warrant Agreement or the UPO 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
constitute the legal, valid and binding agreements of the Company enforceable
<PAGE> 8
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
<PAGE> 9
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.
(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.
<PAGE> 10
(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.
(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 Millenium in connection with the
Bridge Financing.
<PAGE> 11
(v) The Securities have been approved for quotation on the OTC Bulletin
Board and the Philadelphia Stock Exchange.
(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.
(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
<PAGE> 12
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"),
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.
<PAGE> 13
(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 Unit, that number of Firm Units 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 Units which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 14 hereof.
The initial public offering price per Unit shall be $6.00.
(b) Payment of the purchase price and delivery of certificates for the Firm
Units 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 Firm Units
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 Units 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 Units shall be in definitive, fully
registered form, shall bear no restrictive legends (except with respect to Blue
<PAGE> 14
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 Units 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 Units 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 Units 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 Units 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 Units 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 Unit and delivery of
certificates for the Additional Units 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 Units 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 Units 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 Additional Units 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 Units 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.
<PAGE> 15
3. Public Offering of the Units. Immediately upon effectiveness of the
Registration Statement, the Underwriters shall make a public offering of the
Units (other than to residents of or in any jurisdiction in which qualification
of the Units 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
Units 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 Units 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
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.
<PAGE> 16
(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 Units 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
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.
<PAGE> 17
(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.
(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.
<PAGE> 18
(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 12 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 Company's shareholders owning at least 5% of the Shares outstanding prior
to the public offering, 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
(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
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 and the Philadelphia Stock Exchange and 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.
<PAGE> 19
(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 Units, 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 Units.
(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.
(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.
<PAGE> 20
(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 __ 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 shall not exceed 750,000 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.
(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) During the two-year period following the date hereof, Millenium
shall have the right to purchase for Millenium's account or to sell for the
account of the Company's officers and directors any securities sold pursuant to
Rule 144 under the Act. Each of the officers and directors (each a "144 Seller")
has agreed to consult with Millenium with regards to any such sales and to offer
Millenium the exclusive opportunity to purchase or sell such securities on terms
at least as favorable to the 144 Sellers as they can secure elsewhere. If
Millenium fails to accept in writing any such proposal for sale by the 144
Sellers within five business days after receipt of a copy of the proposal, you
shall be deemed to have released any claim or right with respect to any such
sales contained in the proposal. If thereafter, the proposal is modified in any
material respect, the 144 Sellers shall adopt the procedure set forth in this
paragraph with respect to the original proposal.
<PAGE> 21
(ee) 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 and the Philadelphia Stock Exchange.
(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.
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:
<PAGE> 22
(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 Units 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 Millennium, 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 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
<PAGE> 23
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 Units 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 UPO of the Securities and
Representative's Units, as applicable, the
Underwriters will acquire title to the Firm Units,
and the Representative will acquire title to the
Representative's Units, free and clear of any
pledge, lien, charge, claim, encumbrance, pledge,
security interest, or other restriction or equity
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
Units and the Representative's Units, respectively,
from the Company; (C) the consummation by the
Company of any of its obligations under this
Agreement, the Warrant Agreement or the UPO or (D)
resales of the Firm Units in connection with the
distribution contemplated hereby;
<PAGE> 24
(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 UPO and
the Warrant Agreement and to consummate
the transactions contemplated therein; and each of
this Agreement, the UPO and the Warrant Agreement
has been duly authorized, executed and delivered
by or on behalf of the Company. Each of this
Agreement, the UPO and the Warrant Agreement,
assuming due authorization, execution and delivery
by each other party thereto, constitutes a legal,
<PAGE> 25
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 UPO, 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
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;
<PAGE> 26
(viii) the statements in the Prospectus under the headings
"THE COMPANY", "BUSINESS", "MANAGEMENT," "PRINCIPAL
STOCKHOLDERS, "SELLING SECURITYHOLDERS",
"RELATED 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 Units have been accepted for quotation
on the OTC Bulletin Board and Philadelphia Stock
Exchange;
(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
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.
<PAGE> 27
(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 UPO 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 affecty
the transactions or other acts contemplated
by this Agreement, the Warrant Agreement, the UPO
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> 28
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 chief executive officer 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 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
<PAGE> 29
(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;
(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 Price
Waterhouse LLP with respect to the financial
statements and supporting schedules included in
the Registration Statement;
<PAGE> 30
(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> 31
(vi) statements as to such other matters incident to
the transaction contemplated hereby as the
Representative may request.
(g) On or prior to each Closing Date, the Underwriters shall have
received from Price Waterhouse LLP a letter, dated the Closing Date to the
effect that they reaffirm that statements made in the letter furnished pursuant
to subsection (f) of this Section, except that the specified date referred to
shall be a date not more than three days prior to each Closing Date and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause (v)
of subsection (g) of this section with respect to certain amounts, percentages
and financial information as specified by the Representative and deemed to be a
part of the Registration Statement pursuant to Rule 430(b) and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (v).
(h) 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.
(i) 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.
[(j) On or before each Closing Date and upon exercise of the UPO and
payment of the exercise price therefor, if applicable, the Company shall have
executed and delivered to the Representative, the Representative's Units in the
such denominations and to such designees as shall have been provided to the
Company.]
(k) On or before Closing Date, the Securities shall have been duly
approved for quotation on the OTC Bulletin Board and Philadelphia Stock
Exchange.
(l) 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.
(m) On or before Closing Date, the Company shall have executed the UPO
and the Warrant Agreement, substantially in the forms thereof filed as exhibits
to the Registration Statement.
(n) 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> 32
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 10 "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 10 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
<PAGE> 33
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
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
10 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 10, 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 10 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 10 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.
<PAGE> 34
(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 10, 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 this Section 10 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 10, 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> 35
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 10 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 8, 10 and 13 of this Agreement
shall at all times be effective. For purposes of this Section 12, 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 Unit 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
<PAGE> 36
unfavorable decision would materially adversely affect the business 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 8 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 8 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
13(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 9 or Section 13 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 Units
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> 37
(ii) if the number of Defaulted Securities exceeds 10%
of the total number of Firm Units, 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, Millennium Securities Corp., 110 E. 59th Street,
6th Floor, New York, New York 10022, Att: Richard E. Sitomer, Chief Executive
Officer, 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 referred to in Section 10 hereof, 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, the Warrant Agreement and
the Consulting Agreement constitute the entire agreements 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> 38
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> 39
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
Chief Executive Officer
Confirmed and accepted as of
the date first above written
MILLENNIUM SECURITIES CORP.
For itself and as Representative
of the other Underwriters named
in Schedule A hereto.
By: _______________________________
Richard E. Sitomer
Chief Executive Officer
<PAGE> 40
SCHEDULE A
NUMBER OF UNITS TO
UNDERWRITER BE PURCHASED
----------- --------------------
Millennium Securities Corp.
TOTAL $
<PAGE> 1
EXHIBIT 1.2
850,000 Units
MIKE'S ORIGINAL, INC.
Each Unit Consisting of One Share of
Common Stock and One Warrant
, 1997
AGREEMENT AMONG UNDERWRITERS
Millennium Securities Corp.
110 E. 59th Street
6th Floor
New York, New York 10022
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
an aggregate of 80,000 Units, each Unit consisting of one share of Common Stock,
par value $.001 per share, of the Company (the "Common Stock"), and one warrant
to purchase one share of Common Stock (the "Warrants"), (such 80,000 Units being
herein called the "Firm Units"), the option granted therein by the Company to
the Underwriters severally to purchase from it up to an additional 127,500
Units, (such 127,500 Units being herein called the "Additional Units"), and the
proposed sale of the Firm Units and the Additional Units as hereinafter set
forth. The obligations of the Underwriters to purchase the Firm Units and
Additional Units pursuant to the Underwriting Agreement are herein called
"Underwriting Obligations" and the Firm Units and (to the extent such option is
exercised) the Additional Units are herein sometimes referred to collectively as
the "Units."
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 Units to be
purchased by them, as in your judgment are not materially adverse to the
Underwriters; provided, however, that the number of Units 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
<PAGE> 2
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 Units; 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).
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 Unit for each Unit 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 Units 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 Units 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 Units 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 Units 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 Stock as you may
determine. Such sales of Units, 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 Units reserved for our account for offering to
Dealers bears to the aggregate of all Units of all Underwriters so reserved.
<PAGE> 3
You agree to notify us promptly on the date of the public offering as to
the number of Units, 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 Units remaining unsold theretofore retained by us and
we may, with your consent, retain any Units 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 Units 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 Units 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 several 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 Units, to any eligible broker or
dealer, all subject to the Rules of Fair Practice of the NASD.
You, as Representative, and any of the several Underwriters with your prior
consent, may make purchases or sales of Units (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 Units.
Nothing contained in this Agreement shall be deemed to restrict our right,
subject to the provisions of this Section 3, to offer our Units 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.
<PAGE> 4
IV. Repurchases in the Open Market. Any Units 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 Units delivered on such repurchase need not be the
identical Units originally sold by us. In lieu of delivery of such Units to us,
you may (a) sell such Units 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 Units, 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 Millennium Securities Corp.,
110 E. 59th Street, 6th Floor, New York, New York 10022, 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 Units which we are then obligated to purchase pursuant to the
Underwriting Agreement or (b) such of our Units 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 Units, against delivery of certificates for such Units or Additional Units
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
Units 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 Units 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).
Notwithstanding the other provisions of this Section 5, if transactions in
the Units can be settled through the facilities of The Depository Trust Company,
payment for and delivery of our Units 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 Units 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.
<PAGE> 5
Upon receipt by you of payment for the Units sold by or though you for our
account, you will (c) with respect to such Units paid for by us, remit to us
promptly an amount equal to the purchase price paid by us for such Units and
credit or debit our account on your books with the difference between the
selling price and the purchase price of such Units as set forth in or determined
pursuant to Section 5 of the Underwriting Agreement and (d) with respect to such
Units 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 Units 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 Units as shall not have been sold or
reserved for sale by you for our account.
In case any Units 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 Units 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 Units, to reimburse you on demand for the full
amount which you shall have paid us in respect of such Units.
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 Units 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.
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 units 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 several Underwriters.
<PAGE> 6
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 Units shall constitute any representation by you as to
the existence or non-existence of possible unforeseen expenses or liabilities of
or charges against the several 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 Units 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 Units 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.
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 Units 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 Units 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 Units 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.
<PAGE> 7
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 Units 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 Units in any jurisdiction. You agree,
however, to cause to be filed a Further State Notice with respect to the Units
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 Units
for our account hereunder to sell any of our Units to any particular Dealer or
other buyer because of the "blue sky" or securities laws of any jurisdiction, to
sell our Units 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 several Underwriters in proportion to their respective
underwriting obligations.
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.
<PAGE> 8
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 several Underwriters, except as
otherwise specifically provided herein where you may act individually. Your
authority as Representative of the several 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 Units, 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 Units 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 Units; 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 several 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 several 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 several 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 several 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.
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 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.
<PAGE> 9
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 Units, 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 Units 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 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).
<PAGE> 10
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 Units 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 Units we may be
obligated to purchase under any provision of the Underwriting Agreement or this
Agreement.
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 Millennium Securities Corp., 110 East
59th Street, New York, New York 10022, Attention: Richard E. Sitomer, Chief
Executive Officer.
<PAGE> 11
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 Units 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 Units, 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 Units,
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.
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 several
Underwriters named in Schedule A to the
Underwriting Agreement
Confirmed as of the date first above written.
New York, New York
MILLENNIUM SECURITIES CORP.
By: __________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 1.3
850,000 Units
MIKE'S ORIGINAL, INC.
Each Unit Consisting of
One Share of Common Stock and One Warrant
SELLING AGREEMENT
, 1997
Dear Sirs:
The undersigned, Millenium Securities Corp., as underwriter (the
"Underwriter"), 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 850,000 Units (the "Units"), each Unit consisting of one share of
Common Stock, par value $.001 per share, of the Company (the "Common Stock") and
one warrant (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 127,500 Units (the "Additional Units"), identical to the Units, to
cover over-allotments. The 850,000 Units are hereinafter referred to as the
"Firm Units." The Firm Units and the Additional Units are hereinafter
collectively called the "Securities". The Units, 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.
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.
<PAGE> 2
We have advised you by telegram or telex of the method and terms of the
offering. Acceptances should be sent to Millenium Securities Corp., 110 E. 59th
St., Sixth floor, New York, New York 10022, Attn: Richard E. Sitomer, Chief
Executive Officer. 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 Underwriter, 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
Underwriter, 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 Millenium Securities Corp., 110 E. 59th St., Sixth floor, New York, New
York 10022 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 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.
<PAGE> 3
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 Underwriter 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
Underwriter in offering Securities to the public or otherwise. Nothing contained
herein shall constitute the Selected Dealers partners with the Underwriter 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.
As Underwriter, 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 Underwriter shall not be under any obligation to
you except for obligations expressly assumed by us in this Agreement.
<PAGE> 4
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> 5
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> 6
All communications from you shall be address to Millenium Securities Corp.,
110 E. 59th St., Sixth floor, New York, New York 10022, Attn: Richard E.
Sitomer, Chief Executive Officer. 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,
MILLENIUM SECURITIES CORP.
By: __________________________
Richard E. Sitomer
Chief Executive Officer
<PAGE> 7
Millenium Securities Corp.,
110 E. 59th St., Sixth floor
New York, New York 10022
Dear Sirs:
We hereby confirm our agreement to purchase the Units (the "Units") of
Mike's Original, Inc. (the "Company"), each Unit consisting of one share of
Common Stock, par value $.001 per share, of the Company (the "Common Stock") and
one warrant (the "Warrant") 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 Units, and we confirm that in
purchasing Units 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 Units 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
prospectus, advertisement, or other offering document containing information
relating to the Units, 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.
<PAGE> 8
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 Units, 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 Underwriter, 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 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
<PAGE> 1
EXHIBIT 3.1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"MIKE'S ORIGINAL, INC.", FILED IN THIS OFFICE ON THE TWENTY-FIFTH DAY OF JUNE,
A.D. 1996, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
____________________________________
Edward J. Freel, Secretary of State
AUTHENTICATION: 8001953
DATE: 06-25-96
2380727 8100
960185587
<PAGE> 2
RESTATED CERTIFICATE OF
INCORPORATION OF
MIKE'S ORIGINAL, INC.
* * * * * *
Under Sections 242 and 245 of the
General Corporation Law of the State of Delaware
* * * * * *
MIKE'S ORIGINAL, INC., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is MIKE'S ORIGINAL, INC. The date of filing
of its original Certificate of Incorporation with the Secretary of State was
May 18, 1994.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this Corporation by amending
previous Article SIXTH to (a) provide for the removal of directors for cause
and only by the stockholders, and (b) provide for classification of the Board
of Directors.
3. The amendments and the restatement of the Certificate of Incorporation
set forth herein were duly adopted by vote of the stockholders in accordance
with Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of the Corporation is hereby restated
to set forth its entire terms as follows:
<PAGE> 3
FIRST: The name of the corporation is:
MIKE'S ORIGINAL, INC.
SECOND: The location of the registered office of the Corporation in the
State of Delaware is at Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation in the State of Delaware at such address upon whom process against
the Corporation may be served is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is 20,500,000 shares. Of these (i)
20,000,000 shares shall be shares of Common Stock of the par value of $.001 per
share; and (ii) 500,000 shares shall be shares of Preferred Stock of the par
value of $.01 per share.
Subject to the rights of any holders of Preferred Stock, the Common Stock
shall be entitled to dividends out of funds legally available therefor, when,
as and if declared and paid to the holders of Common Stock, and upon
liquidation, dissolution or winding up of the Corporation, to share ratably in
the assets of the Corporation available for distribution to the holders of
Common Stock. Except as otherwise provided herein or by law, the holders of the
Common Stock shall have full voting rights and powers, and each share of Common
Stock shall be entitled to one vote.
The Preferred Stock may be issued from time to time in classes or series and
shall have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions of the Board of
Directors providing for the issuance of such stock.
FIFTH: The name and mailing address of the incorporator is as follows:
Melinda O'Donnell Blau, Kramer, Wactlar
& Lieberman, P.C.
100 Jericho Quadrangle
Suite 225
Jericho, New York 11753
<PAGE> 4
SIXTH: (a) The number of directors of the corporation shall be
determined in the manner prescribed by the by-laws of this corporation. No
director need be a stockholder of the corporation. Any director may be removed
from office with cause at any time by the affirmative vote of stockholders of
record holding a majority of the outstanding shares of stock of the corporation
entitled to vote, given at a meeting of the stockholders called for that
purpose.
(b) The Board of Directors shall be divided into three (3)
classes as nearly equal in number as possible, and no class shall include less
than one (1) director. The terms of the office of the directors initially
classified shall be as follows: that of Class I shall expire at the next annual
meeting of shareholders to be held in 1996, Class II at the second annual
meeting of shareholders to be held in 1997 and Class III at the third
succeeding annual meeting of shareholders to be held in 1998. The foregoing
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified, unless he shall resign, become disqualified,
disabled or shall otherwise be removed. Whenever a vacancy occurs on the Board
of Directors, a majority of the remaining directors have the power to fill the
vacancy by electing a successor director to fill that portion of the unexpired
term resulting from the vacancy.
(c) At each annual meeting of shareholders after such initial
classification, directors chosen to succeed those whose terms then expire at
such annual meeting shall be elected for a term of office expiring at the third
succeeding annual meeting of shareholders after their election. When the number
of directors is increased by the Board of Directors and any newly created
directorships are filled by the Board of Directors, there shall be no
classification of the additional directors until the next annual meeting of
shareholders. Directors elected, whether by the Board of Directors or by the
shareholders, to fill a vacancy, subject to the foregoing, shall hold office
for a term expiring at the annual meeting at which the term of the Class to
which they shall have been elected expires. Any newly created directorships or
any decrease in directorships shall be so apportioned among the classes as to
make all classes as nearly equal in number as possible.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the corporation. Election of
directors need not be by written ballot unless the by-laws of the corporation
shall so provide.
EIGHTH: Subject to the provisions contained in Article TWELFTH hereof,
the corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
<PAGE> 5
NINTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the corporation may be taken
without a meeting, and the power of stockholders to consent in writing to the
taking of any action is specifically denied.
TENTH: Special meetings of stockholders may be called by the Chairman
of the Board, President or Board of Directors or at the written request of
stockholders owning at least sixty-six and two-thirds percent (66-2/3%)of the
entire voting power of the corporation's capital stock.
ELEVENTH: In the event that it is proposed that the corporation enter
into a merger or consolidation with any other corporation and such other
corporation or its affiliates singly or in the aggregate own or control
directly or indirectly fifteen (15%) percent or more of the outstanding voting
power of the capital stock of this corporation, or that the corporation sell
substantially all of its assets or business to such other corporation, the
affirmative vote of the holders of not less than sixty-six and two-thirds
(66-2/3%) percent of the total voting power of all outstanding shares of
capital stock of this corporation shall be required for the approval of any
such proposal; provided, however, that the foregoing shall not apply to any
such merger, consolidation or sale of assets or business which was approved by
resolutions of the Board of Directors of this corporation prior to the
acquisition of the ownership or control of fifteen (15%) percent of the
outstanding shares of this corporation by such other corporation or its
affiliates, nor shall it apply to any such merger, consolidation or sale of
assets or business between this corporation and another corporation, fifty
(50%) percent or more of the total voting power of which is owned by this
corporation. For the purposes hereof, an "affiliate" is any person (including a
corporation, partnership, trust, estate or individual) who directly or
indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified; and "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of a person, whether through the ownership
of voting securities, by contract, or otherwise.
TWELFTH: The provisions set forth in Articles SIXTH, NINTH, TENTH and
ELEVENTH above may not be altered, amended or repealed in any respect unless
such alteration, amendment or repeal is approved by the affirmative vote of the
holders of not less than sixty-six and two-thirds percent (66-2/3%) of the
total voting power of all outstanding shares of capital stock of the
corporation.
THIRTEENTH: Each person who at any time is or shall have been a
director or officer of the Corporation and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is, or he or his testator or intestate was, a director, officer,
employee or agent of the Corporation, or served at the request of the
Corporation as a director, officer, employee, trustee or agent of another
<PAGE> 6
corporation, partnership, joint, venture, trust or other enterprise, shall be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any such threatened, pending or completed action, suit or
proceeding to the full extent authorized under Section 145 of the General
Corporation Law of the State of Delaware. The foregoing right of
indemnification shall in no way be exclusive of any other rights of
indemnification to which such director, officer, employee or agent may be
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors, or otherwise.
FOURTEENTH: Any and all right, title, interest and claim in or to any
dividends declared by the Corporation, whether in cash, stock, or otherwise,
which are unclaimed by the stockholder entitled thereto for a period of six (6)
years after the close of business on the payment date shall be and be deemed to
be extinguished and abandoned; such unclaimed dividends in the possession of
the Corporation, its transfer agents, or other agents or depositaries, shall at
such time become the absolute property of the Corporation, free and clear of
any and all claims for any person whatsoever.
FIFTEENTH: Any and all directors of the Corporation shall not be liable
to the Corporation or any stockholder thereof for monetary damages for breach
of fiduciary duty as director except as otherwise required by law. No amendment
to or repeal of this Article FIFTEENTH shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or with
respect to any act or omission of such director occurring prior to such
amendment or repeal.
SIXTEENTH: The Board of Directors of the Corporation shall expressly
have the power and authorization to make, alter and repeal the By-Laws of the
Corporation, subject to the reserved power of the stockholders to make, alter
and repeal any By-Laws adopted by the Board of Directors.
IN WITNESS WHEREOF, said MIKE'S ORIGINAL, INC. has caused this
Certificate to be signed by Michael Rosen, its Chairman of the Board this 24th
day of June, 1996.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
Michael Rosen
Chairman of the Board
<PAGE> 1
EXHIBIT 3.2
6/25/96
MIKE'S ORIGINAL, INC.
AMENDED BY-LAWS
* * * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the city of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
board of directors either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
second Thursday of September if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 11:00 a.m., or at such other date and
time as shall be designated from time to time by the board of directors and
stated in the notice of meeting, at which they shall elect by a plurality vote
those directors whose terms have expired pursuant to the provisions of the
Certificate of Incorporation, and transact such other business as may properly
be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than fifty das before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, may be called only at the written request of the Chairman of the
Board, the President, a majority of the Board of Directors or by stockholders
owning at least sixty-six and two-thirds percent (66-2/3%) of the entire voting
power of the corporation's capital stock. Such request shall state the purpose
or purposes of the proposed meeting.
<PAGE> 2
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose for which the meeting is called,
shall be given not less than ten nor more than fifty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
Section 7. (A) (1) Nominations of persons for election to the board
of directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the board
of directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this By-law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to clause (c) of
paragraph (A) (1) of this by-law the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the 60th day nor earlier than the close of business on the 90th
day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting
is more than 30 days before or more than 60 days after such anniversary
date, notice by the stockholder to be timely must be so delivered not earlier
than the close of business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second
sentence of paragraph (A) (2) of this by-law to the contrary, in the event
that the number of directors to be elected to the board of directors of the
corporation is increased and there is no public announcement by the
corporation naming all of the nominees for director or specifying the size
of the increased board of directors at least 70 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this by-law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following
the day on which such public announcement is first made by the Corporation.
<PAGE> 3
(B) Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the board of directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the corporation's
notice of meeting (a) by or at the direction of the board of directors or (b)
provided that the board of directors has determined that directors shall be
elected at such meeting, by any stockholder of the corporation who is a
stockholder of record at the time of giving of notice provided for in this
by-law, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this by-law. In the event the corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the board of directors, any such stockholder may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the corporation's notice of meeting, if the stockholder's notice required by
paragraph (A) (2) of this by-law shall be delivered to the Secretary at the
principal executive offices of the corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the board of
directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(C) (1) Only such persons who are nominated in
accordance with the procedures set forth in this by-law shall be eligible
to serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this by-law. Except as otherwise provided by law,
the certificate of incorporation or these by-laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this by-law and, if any
proposed nomination or business is not in compliance with this by-law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions
of this by-law, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this by-law. Nothing in this by-law shall be
deemed to affect any rights (i) of stockholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
<PAGE> 4
Section 10. Unless otherwise provided in the certificate of
incorporation or certificates of designations, and preferences, each stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than three nor more than nine. No director need be a
stockholder of the corporation. Any director may be removed from office at any
time by the affirmative vote of stockholders of record holding a majority of the
outstanding shares of stock of the corporation entitled to vote, given at a
meeting of the stockholders called for that purpose.
Section 2. The board of directors shall be divided into three classes
as nearly equal in number as possible, and no class shall include less than two
directors. The terms of office of the directors initially classified shall be as
follows: that of Class I shall expire at the next annual meeting of stockholders
in 1996, Class II at the second succeeding annual meeting of stockholders in
1997 and Class III at the third succeeding annual meeting of stockholders in
1998. The foregoing notwithstanding, each director shall serve until his
successor shall have been duly elected and qualified, unless he shall resign,
become disqualified, disabled or shall otherwise be removed. Whenever a vacancy
occurs on the board of directors, a majority of the remaining directors have the
power to fill the vacancy by electing a successor director to fill that portion
of the unexpired term resulting from the vacancy.
Section 3. The business of the corporation shall be managed by its
board of directors, which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by these by-laws
directed or required to be exercised or done by the stockholders.
Section 4. The board of directors shall choose a chairman of the
board of directors who shall preside at all meetings of stockholders and
directors.
Section 5. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president or chairman of the board on three days' prior notice to each director,
either personally or by mail or by telegram; special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of two directors.
Section 8. At all meetings of the board one-half of the board of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting form time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
<PAGE> 5
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member of any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders of sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors.
COMPENSATION OF DIRECTORS
Section 12. Unless otherwise restricted by the certificate of
incorporation, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telephone.
<PAGE> 6
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chairman of the board of directors, a
president, one or more vice-presidents, a secretary and a treasurer. The board
of directors may also choose additional vice-presidents, and one or more
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these
by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board of
directors, a president, one or more vice-presidents, a secretary and a
treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
CHAIRMAN OF THE BOARD
Section 6. The chairman of the board of directors shall be the chief
executive officer of the corporation. He shall preside at all meetings of
stockholders and directors. Except where by law the signature of the president
is required, the chairman of the board of directors shall possess the same power
as the president to sign all certificates, contracts, and other instruments of
the corporation which may be authorized by the board of directors. During the
absence or disability of the president, he shall exercise all powers and
discharge all duties of the president.
THE PRESIDENT
Section 7. The president shall be the chief operating officer of the
corporation. In the absence of the chairman of the board of directors, the
president shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
<PAGE> 7
The president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. In the absence of the chairman of the board of directors
or the president or in the event of his inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated, or in the absence of any designation, first
any vice presidents in the order of their election and then the remaining vice
presidents in the order of their election) shall perform the duties of the
chairman of the board of directors or the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chairman
of the board of directors or the president. The vice presidents shall perform
such other duties and shall have other powers as the board of directors may from
time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all proceedings of the
meetings of the corporation and of the board of directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
such other duties as may be prescribed by the board of directors, the chairman
of the board of directors or the president, under whose supervision he shall be.
He shall have custody of the corporate seal of the corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries, in the order determined by the board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
<PAGE> 8
TREASURER AND ASSISTANT TREASURER
Section 11. The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chairman of the board of directors and
the president and board of directors, at its regular meetings, or when the board
of directors so requires, an account of all his transactions as treasurer and of
the financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, of if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
INDEMNIFICATION PROVISION
Section 15. The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened pending or
completed action, suit or proceeding by reason of the fact that he is or was a
director, officer, employee or an agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
the defense or settlement of such action, suit or proceeding, to the fullest
extent and in the manner set forth in and permitted by the General Corporation
Law of the State of Delaware, as from time to time in effect, and any other
applicable law, as from time to time in effect. Such right of indemnification
shall not be deemed exclusive of any other rights to which such director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of each such person.
<PAGE> 9
The foregoing provisions of this Article shall be deemed to be a
contract between the corporation and each director, officer, employee or agent
who serves in such capacity at any time while this Article, and the relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable law, if any, are in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore existing existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by the
chairman of the board of directors, the president or a vice president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the corporation, certifying the number of shares owned by him in the
corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitation or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Where a certificate is countersigned (1) by a transfer
agent other than the corporation or its employee, or (2) by a registrar other
than the corporation or its employee, any other signature on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
<PAGE> 10
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance hereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall required
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
<PAGE> 11
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining property of the corporation, or for such other purpose
as the directors shall think conducive to the interest of the corporation, and
the directors may modify or abolish any such reserve in the manner in which it
was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
<PAGE> 12
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words, "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended, repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting.
<PAGE> 1
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 850,000 common
stock purchase warrants (the "IPO Warrants") evidencing the right of the holders
thereof to purchase an aggregate of 850,000 shares of common stock, $0.001 par
value of the Company (the "Common Stock"), which IPO Warrants are to be issued
and delivered as part of units (the "Units") to be offered for sale to the
public pursuant to a registration statement No. 333-______ (the "Registration
Statement") filed with the Securities and Exchange Commission; and (ii) has
determined to issue and deliver to Millenium Securities Corp. ("Millenium")
options evidencing, inter alia, the right of Millenium and its permitted
transferees as holders thereof to purchase up to 85,000 Units, each Unit
comprised of one share of common stock and one nonredeemable common stock
purchase warrant (the "Millenium Warrants") evidencing the right of the holder
thereof to purchase an aggregate of 85,000 shares of Common Stock. The IPO
Warrants and the Millenium 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> 2
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
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.
<PAGE> 3
2.05. Detachability of Warrants. The Warrant Agent understands that the
Warrants are being issued as part of Units together with shares of the Company's
Common Stock and that the shares of Common Stock and the Warrants are
immediately detachable and may be traded separately.
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 $____ per share in the case of the IPO Warrants and at the price of
$_____ per share in the case of the Millenium 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
Date"). The Millenium Warrants may be exercised only during the period (the
"Millenium Exercise Period") commencing on the first anniversary of the
Effective Date and ending on the fifth anniversary of the Effective Date (the
"Underwriter 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.
<PAGE> 4
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 Millenium 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
rule 10b-6 (as such rule, 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 5% of the Warrant Price to Millenium. Within five days
after exercise, the Warrant Agent shall send Millenium a copy of the reverse
side of each Warrant exercised. Millenium 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 Millenium.
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
<PAGE> 5
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
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
<PAGE> 6
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
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.
<PAGE> 7
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
Statement; (iii) the issuance of Common Stock of the Company in connection with
(a) the IPO Warrants, the Unit Purchase Option and/or the Millenium 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
<PAGE> 8
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.
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 Millenium Warrants, may be
redeemed prior to the Expiration Date, at the option of the Company, with the
consent of Millenium 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 Millenium, which notice to
Millenium 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 National Association of Securities Dealers Automated Quotation System;
(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").
<PAGE> 9
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.
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 Millenium Warrants, which Millenium 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
<PAGE> 10
(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.
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
<PAGE> 11
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.
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.
<PAGE> 12
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.
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;
<PAGE> 13
(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, Millenium Securities Corp., 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.
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:
<PAGE> 14
Exhibit A
[FORM OF WARRANT CERTIFICATE]
No.
Certificate for _____ Warrants
NOT EXERCISABLE BEFORE 9:30 A.M., NEW
YORK CITY TIME, ON _________, 1997 OR
AFTER 5:00 P.M., NEW YORK CITY TIME, ON
_____________, 2000
MIKE'S ORIGINAL, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that
or registered assigns is the registered holder (the "Registered Holder") of the
number of Warrants set forth above, each of which represents the right to
purchase one fully paid and nonassessable share of Common Stock, par value $.01
per share (the "Common Stock"), of Mike's Original, Inc., a Delaware corporation
(the "Company"), at the initial exercise price (the "Warrant Price") of [$5.00]
at any time after the shares of Common Stock issuable upon exercise of the
Warrants evidenced hereby have been registered under the Securities Act of 1933,
as amended, or such other action as may be required by Federal or state law
relating to the issuance or distribution of securities shall have been taken,
but not after the Expiration Date hereinafter referred to, by surrendering this
Warrant Certificate, with the form of election to purchase set forth hereon duly
executed with signatures guaranteed as provided below, at the office maintained
pursuant to the Warrant Agreement hereinafter referred to for that purpose by
American Stock Transfer & Trust Company, or its successor as warrant agent (any
such warrant agent being herein called the "Warrant Agent"), and by paying in
full the Warrant Price, plus transfer taxes, if any. Payment of the Warrant
Price shall be made in United States currency, by certified check or money order
payable to the order of the Company.
Upon certain events provided for in the Warrant Agreement, the Warrant
Price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
The Warrants, or any portion thereof, are subject to call for
redemption by the Company at a call price of $0.01 per Warrant, upon written
notice to Millenium Securities Corp. (which notice shall be given to Millenium
Securities, Corp. not less than ten (10) days prior to the date notice of such
<PAGE> 15
redemption is first given by the Company to the Registered Holders) and upon no
more than sixty (60) days and no less than thirty (30) days notice to the
Registered Holders, provided that the "Closing Price" (as defined in the Warrant
Agreement) per share of the Common Stock shall have been greater than or equal
to ____% of the then-current Warrant Price for a period of 20 consecutive
trading days ending on the third day prior to the date that the notice of such
call (the "Call Notice") is given by the Company to the Warrant Agent and
subject to certain other conditions. Notwithstanding anything contained in this
paragraph to the contrary, nothing in this paragraph shall apply to or include
the Warrants issued to Millenium Securities Corp., which Warrants shall not be
redeemable hereunder.
No Warrant may be exercised after 5:00 P.M., New York City time, on
the expiration date (the "Expiration Date") which will be the earlier of (i)
_______________, 2000 or (ii) the close of business on the Redemption Date.
After the Expiration Date, all Warrants evidenced hereby shall thereafter become
void.
Prior to the Expiration Date, subject to any applicable laws, rules,
or regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate in accordance with
the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate in whole or in
part upon surrender of this Warrant Certificate at the office of the Warrant
Agent maintained for that purpose with the form of assignment set forth hereon
duly executed, with signatures guaranteed by a member firm of a national
securities exchange, a commercial bank (not a savings bank or a savings and loan
association) or a trust company located in the United States, a member of the
National Association of Securities Dealers, Inc., or other eligible guarantor
institution which is a participant in a signature guarantee program (as such
terms are defined in Reg. 240.17Ad-15 under the Securities Exchange Act of 1934,
as amended) acceptable to the Warrant Agent. Upon any such transfer, a new
Warrant Certificate or Warrant Certificates representing the same aggregate
number of Warrants will be issued in accordance with instructions in the form of
assignment.
Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, there shall be issued to the Registered Holder a new
Warrant Certificate in respect of the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled
to exchange this Warrant Certificate, with or without other Warrant
Certificates, for another Warrant Certificate or Warrant Certificates for the
same aggregate number of Warrants, upon surrender of this Warrant Certificate at
the office maintained for such purpose by the Warrant Agent.
No fractional shares will be issued upon the exercise of Warrants. As
to any final fraction of a share which the registered holder of one or more
Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement.
<PAGE> 16
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement between the Company and the Warrant Agent (the "Warrant
Agreement") and is subject to the terms and provisions contained in said Warrant
Agreement, to all of which terms and provisions the Registered Holder consents
by acceptance hereof.
This Warrant Certificate shall not entitle the Registered Holder to
any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of stockholders or any other
proceedings of the Company.
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its facsimile corporate seal.
MIKE'S ORIGINAL, INC.
By: Michael Rosen
President
Seal Attest:
_____________________________
Secretary
Countersigned: AMERICAN STOCK TRANSFER & TRUST
COMPANY
as Warrant Agent
Dated By: __________________________
<PAGE> 17
[FORM OF]
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise __________ of
the Warrants represented by this Warrant Certificate and to purchase the shares
of Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:
(NAME)
(ADDRESS, INCLUDING ZIP CODE)
(SOCIAL SECURITY OR OTHER TAX IDENTIFICATION NUMBER)
DELIVER TO:
(NAME)
at
(ADDRESS, INCLUDING ZIP CODE)
If the number of Warrants hereby exercised is less than all the
Warrants represented by this Warrant Certificate, the undersigned requests that
a new Warrant Certificate representing the number of full Warrants not exercised
be issued and delivered as set forth below.
In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_________ by certified check or money order payable in United States currency
to the order of the Company.
Dated ____________________, 19__
Name of Warrant Holder:
- ---------------------------------------------------------
Address: _________________________________________________________
- ---------------------------------------------------------
- ---------------------------------------------------------
Signature: _________________________________________________________
<PAGE> 18
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants set forth below:
Name of Assignee Address No. of Warrants
- ---------------- ------- ---------------
and does hereby irrevocably constitute and appoint ___________ Attorney to make
such transfer on the books of EcoTyre Technologies, Inc. maintained for that
purpose, with full power of substitution in the premises.
Dated: , 199_.
Signature
SIGNATURE(S) GUARANTEED
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stock Brokers, Savings and Loan
Associations, and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM
PURSUANT TO S.E.C. RULE 17Ad-15.
Signature
NOTICE: The signature(s) on 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.
<PAGE> 1
EXHIBIT 4.3
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE UNITS 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 UNITS 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 Units of
Common Stock and Warrants
No. 1 85,000 Units
THIS CERTIFIES that, for receipt in hand of $85 and other value
received, MILLENIUM SECURITIES CORP., 110 E. 59th Street, 6th floor, New York,
NY 10022 (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"), 85,000 Units (the "Warrant Units") at a price of
$_____ per Warrant Unit (the "Exercise Price"). Subject to adjustment as
provided herein, each Warrant Unit is comprised of one share (the "Unit Shares")
of the Company's common stock, par value $.001 per share (the "Common Stock"),
and one common stock purchase warrant (the "Unit Warrants") 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 Millenium Securities Corp., relating to the initial
public offering of 850,000 units (the "Units"), each comprised of one share of
Common Stock and one Public Warrant (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 of Common Stock or Unit Warrants
issued on exercise hereof, nor any of Common Stock issued upon exercise of any
such Unit 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
<PAGE> 2
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 of Units 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 Unit Warrant shall entitle the holder thereof to purchase one
share of Common Stock (the shares of Common Stock issuable upon exercise of the
Unit Warrants being collectively referred to as the "Warrant Shares"). Each Unit
Warrant shall 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 Warrant Units, 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 Warrant Units 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 Warrant Units
equal to the number of Warrant Units being purchased upon such exercise, less
that number of Warrant Units having a Current Market Price (calculated, for the
purpose hereof as the Current Market Price of the underlying Unit Shares and
Unit 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 Warrant
Units, the Holder shall be deemed to be the holder of record of the Warrant
Units issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant Units
(or the Unit Shares and Unit Warrants underlying such Warrant Units) 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 Warrant Units issuable upon such
exercise (or the Unit Shares and Unit Warrants underlying such Warrant Units),
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 Warrant Units (or portions thereof)
subject to purchase hereunder.
<PAGE> 3
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 Warrant
Units (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 Unit 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 Unit Warrants, upon receipt by the Company of the full payment therefor,
shall be validly issued, fully paid, nonassessable, and free of preemptive
rights.
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 Unit Shares issuable thereafter
upon exercise of this Warrant shall be adjusted to equal the number of Unit
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.
<PAGE> 4
(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 Unit 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
Unit 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 Unit 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 Unit Shares, if any, issuable upon such
exercise on the basis of the number of Unit 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 Unit Shares issuable as part
of each Warrant Unit and the exercise price and the number of Warrant Shares
purchasable upon the exercise of each Unit 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.
(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 Nasdaq SmallCap Market) on which such
<PAGE> 5
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 Unit
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 Unit 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.
(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.
<PAGE> 6
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.
<PAGE> 7
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
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 Unit Shares, the Unit
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.
<PAGE> 8
(b) If, at any time during the four-year period commencing
on ____________, 1997, the Company shall receive a written request, from
Eligible Holders who in the aggregate own (or upon exercise of all Warrants or
Unit 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.
(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.
<PAGE> 9
(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.
(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.
<PAGE> 10
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.
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
<PAGE> 11
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
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,
<PAGE> 12
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.
11. Unless registered pursuant to the provisions of Section 9
hereof, the Unit Shares and Unit Warrants issued upon exercise of the Warrants
and the Warrant Shares issued on exercise of the Unit 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."
<PAGE> 13
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
President
[Seal]
- -----------------------------
Rachele Rosen
Secretary
<PAGE> 14
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 _______ Units, each Unit consisting of 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> 15
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 ______
Warrant Units 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 Warrant Units shall not be all the Warrant Units covered
by the within Warrant, that a new Warrant for the balance of the Warrant Units
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)
<PAGE> 1
EXHIBIT 10.1
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
2-8-84
Agreement of Lease, made as of this 24th day of March 1994, between
DONALD E. AXINN, having an office at 131 Jericho Turnpike, Jericho, New York
11753,
party of the first part, hereinafter referred to as OWNER, and
MIKE'S ORIGINAL, INC., having an address of 73 Melanie Lane, Syosset, New York
11791,
party of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from
Owner Suite 402
in the building known as 131 Jericho Turnpike, Jericho, New York,
for the term of three (3) years
(or until such term shall sooner cease and expire as hereinafter
provided) to commence on the
1st day of April nineteen hundred and ninety-four , and to end on the
30th day of June nineteen hundred and ninety-seven
both dates inclusive, at an annual rental rate as set forth in Paragraph 53
below
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
convenant as follows:
RENT 1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY 2. Tenant shall use and occupy demised premises for office use,
and for no other purpose.
<PAGE> 2
TENANT ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent. Subject to the prior written
consent of Owner, and to the provisions of this article, Tenant at Tenant's
expense, may make alterations, installations, additions or improvements which
are non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
obtain all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the demised premises, or the building of which
the same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this article, the same
shall be discharged by Tenant within thirty days thereafter, at Tenant's
expense, by filing the bond required by law. All fixtures and all paneling,
partitions, railings and like installations, installed in the premises at any
time, either by Tenant or by Owner in Tenant's behalf, shall, upon installation,
become the property of Owner and shall remain upon and be surrendered with the
demised premises unless Owner, by notice to Tenant no later than twenty days
prior to the date fixed as the termination of this lease, elects to relinquish
Owner's right thereto and to have them removed by Tenant, in which event the
same shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense. Nothing in this Article shall be construed to give
Owner title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the condition
existing prior to installation and repair any damage to the demised premises or
the building due to such removal. All property permitted or required to be
removed, by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner, at Tenant's expense.
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this lease, take good care of
the demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other part
of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or which arise out of any work, labor, service
or equipment done for or supplied to Tenant or any subtenant or arising out of
the installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant's expense, all repairs in and to the
demised premises for which Tenant is responsible, using only the contractor for
the trade or trades in question, selected from a list of at least two
contractors per trade submitted by Owner. Any other repairs in or to the
building or the facilities and systems thereof for which Tenant is responsible
shall be performed by Owner at the Tenant's expense. Owner shall maintain in
good working order and repair the exterior and the structural portions of the
<PAGE> 3
building, including the structural portions of its demised premises, and the
public portions of the building interior and the building plumbing, electrical,
heating and ventilating systems (to the extent such systems presently exist)
serving the demised premises. Tenant agrees to give prompt notice of any
defective condition in the premises for which Owner may be responsible
hereunder. There shall be no allowance to Tenant for diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or others making repairs,
alterations, additions or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances or equipment
thereof. It is specifically agreed that Tenant shall not be entitled to any
setoff or reduction of rent by reason of any failure of Owner to comply with the
covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article 4 shall not apply
in the case of fire or other casualty which are dealt with in Article 9 hereof.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders
and regulations of all state, federal, municipal and local governments,
departments, commissions and boards and any direction of any public officer
pursuant to law, and all orders, rules and regulations of the New York Board of
Fire Underwriters, Insurance Services Office, or any similar body which shall
impose any violation, order or duty upon Owner or Tenant with respect to the
demised premises, whether or not arising out of Tenant's use or manner of use
thereof, (including Tenant's permitted use) or, with respect to the building if
arising out of Tenant's
<PAGE> 4
use or manner of use of the premises or the building (including the use
permitted under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by its manner of use of the
demised premises or method of operation therein, violated any such laws,
ordinances, others, rules, regulations or requirements with respect thereto.
Tenant may, after securing Owner to Owner's satisfaction against all damages,
interest, penalties and expenses, including, but not limited to, reasonable
attorney's fees, by cash deposit or by surety bond in an amount and in a company
satisfactory to Owner, contest and appeal any such laws, ordinances, orders,
rules, regulations or requirements provided same is done with all reasonable
promptness and provided such appeal shall not subject Owner to prosecution for a
criminal offense or constitute a default under any lease or mortgage under which
Owner may be obligated, or cause the demised premises or any part thereof to be
condemned or vacated. Tenant shall not do or permit any act or thing to be done
in or to the demised premises which is contrary to law, or which will invalidate
or be in conflict with public liability, fire or other policies of insurance at
any time carried by or for the benefit of Owner with respect to the demised
premises or the building of which the demised premises form a part, or which
shall or might subject Owner to any liability or responsibility to any person or
for property damage. Tenant shall not keep anything in the demised premises
except as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
premises in a manner which will increase the insurance rate for the building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or
damages, which may be imposed upon Owner by reason of Tenant's failure to comply
with the provisions of this article and if by reason of such failure the fire
insurance rate shall, at the beginning of this lease or at any time thereafter,
be higher than it otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire insurance premiums
<PAGE> 5
thereafter paid by Owner which shall have been charged because of such failure
by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a
schedule or "make-up" of rate for the building or demised premises issued by the
New York Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the facts therein
stated and of the several items and charges in the fire insurance rates then
applicable to said premises. Tenant shall not place a load upon any floor of the
demised premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law. Owner reserves the right to
prescribe the weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's judgement, to absorb and
prevent vibration, noise and annoyance.
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
PROPERTY -- LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by operations
in construction of any private, public or quasi public work.
If at any time any windows of the demised premises are temporarily
closed, darkened or bricked up (or permanently closed, darkened or bricked up,
if required by law) for any reason whatsoever including, but not limited to
Owner's own acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorneys fees, paid, suffered or incurred as a
result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
<PAGE> 6
DESTRUCTION, FIRE AND OTHER CASUALTY:
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered partially
unusable by fire or other casualty, the damages thereto shall be repaired by and
at the expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner, subject to Owner's right to elect not to restore
the same as hereinafter provided, (d) If the demised premises are rendered
wholly unusable or (whether or not the demised premises are damaged in whole or
in part) if the building shall be so damaged that Owner shall decide to demolish
it or to rebuild it, then, in any of such events, Owner may elect to terminate
this lease by written notice to Tenant, given within 90 days after such fire or
casualty, specifying a date for the expiration of the lease, which date shall
not be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be returned to
Tenant. Unless Owner shall serve a termination notice as provided for herein,
Owner shall make the repairs and restorations under the conditions of (b) and
(c) hereof, with all reasonable expedition, subject to delays due to adjustment
of insurance claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (e) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
each party shall look first to any insurance in its favor before making any
claim against the other party for recovery for loss or damage resulting from
fire or other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law, Owner and Tenant each hereby
releases and waives all right of recovery against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the issurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums, then the party benefitting from the waiver
shall pay such premium within ten days after written demand or shall be deemed
to have agreed that the party obtaining insurance coverage shall be free of any
further obligation under the provisions hereof with respect to waiver of
subrogation. Tenant acknowledges that Owner will not carry insurance on Tenant's
furniture and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated to
repair any damage thereto or replace the same. (f) Tenant hereby waives the
provisions of Section 227 of the Real Property Law and agrees that the
provisions of this article shall govern and control in lieu thereof.
<PAGE> 7
EMINENT DOMAIN:
10. If the whole or any part of the demised premises: shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease and assigns to
Owner, Tenant's entire interest in any such award.
ASSIGNMENT, MORTGAGE,ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Owner in each instance.
Transfer of the majority of the stock of a corporate Tenant shall be deemed an
assignment, If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment. underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further
assignment or underletting,
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion,
as the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
which Owner may elect to perform. Tenant shall permit Owner to use and maintain
and replace pipes and conduits in and through the demised premises and to erect
new pipes and conduits therein provided they are concealed within the walls,
floor, or ceiling. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the
- -------------------
Rider to be added if necessary.
<PAGE> 8
same to prospective purchasers or mortgagees of the building and during the last
six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the premises,
Owner or Owner's agents may enter the same whenever such entry may be necessary
or permissible by master key or forcibly and provided reasonable care is
exercised to safeguard Tenant's property, such entry shall not render Owner or
its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom. Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blue print or plan, or
anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by the sending of a written notice
to Tenant within a reasonable time after the happening of any one or
more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any state naming Tenant as the debtor;
or (2) the making by Tenant of an assignment or any other arrangement
for the benefit of creditors under any state statute. Neither Tenant
nor any person claiming through or under Tenant, or by reason of any
statute or order of court, shall thereafter be entitled to possession
of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms,
the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
<PAGE> 9
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be
entitled to recover from Tenant as and for liquidated damages an amount
equal to the difference between the rent reserved hereunder for the
unexpired portion of the term demised and the fair and reasonable
rental value of the demised premises for the same period. In the
computation of such damages the difference between any installment of
rent becoming due hereunder after the date of termination and the fair
and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such
premises or any part thereof be relet by the Owner for the unexpired
term of said lease, or any part thereof, before presentation of proof
of such liquidated damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall be deemed to be the
fair and reasonable rental value for the part or the whole of the
premises so re-let during the term of the re-letting. Nothing herein
contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal
to, or less than the amount of the difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional
rent; or if the demised premises becomes vacant or deserted; or if any
execution or attachment shall be issued against Tenant or any of
Tenant's property whereupon the demised premises shall be taken or
occupied by someone other than Tenant; or if this lease be rejected
under Section 235 of Title 11 of the U.S. Code (bankruptcy code); or
if Tenant shall fail to move into or take possession of the premises
within fifteen (15) days after the commencement of the term of this
lease, then, in any one or more of such events, upon Owner serving a
written five (5) days notice upon Tenant specifying the nature of said
default and upon the expiration of said five (5) days, if Tenant shall
have failed to comply with or remedy such default, or if the said
default or omission complained of shall be of a nature that the same
cannot be completely cured or remedied within said five (5) day
period, and if Tenant shall not have diligently commenced during such
default within such five (5) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such
default, then Owner may serve a written three (3) days' notice of
cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and
expire as fully and completely as if the expiration of such three (3)
day period were the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall
remain liable as hereinafter provided.
<PAGE> 10
(2) If the notice provided for in (I) hereof shall have been given, and
the term shall expire as aforesaid: or if Tenant shall make default in
the payment of the rent reserved herein or any item of additional rent
herein mentioned or any part of either or in making any other payment
herein required: then and in any of such events Owner may without
notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and
remove their effects and hold the premises as if this lease had not
been made, and Tenant hereby waives the service of notice of intention
to re-enter or to institute legal proceedings to that end. If Tenant
shall make default hereunder prior to the date fixed as the
commencement of any renewal or extension of this lease, Owner may
cancel and terminate such renewal or extension agreement by written
notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charge a higher rental than that in this lease, and/or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's
convenants herein contained, any deficiency between the rent hereby reserved
and/or covenanted to be paid and the net amount, if any, of the rents collected
on account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
attorneys' fees, brokerage, advertising and for keeping the demised premises in
good order or for preparing the same for re-letting. Any such liquidated damages
shall be paid in monthly installments by Tenant on the rent day specified in
this lease and any suit brought to collect the amount of the deficiency for
any month shall not prejudice in any way the rights of Owner to collect the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency of any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease, or otherwise.
<PAGE> 11
FEES AND EXPENSES
19. If Tenant shall default in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under or by virtue
of any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, Owner may immediately or at any time
thereafter and without notice perform the obligation of Tenant thereunder. If
Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
attorney's fees, in instituting, prosecuting or defending any action or
proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within five (5) days of rendition of any bill
or statement to Tenant therefor, If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same
constituting an eviction and without incurring liability to Tenant therefor to
change the arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public parts of the
building and to change the name, number or designation by which the building may
be known. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owners's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possesion of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
<PAGE> 12
END OF TERM:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this Lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
30 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in any
wise to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's inability to obtain
possession) until after Owner shall have given Tenant written notice that the
premises are substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the possession of the demised premises or to occupy
premises other than the demised premises prior to the date specified as the
commencement of the term of this lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
<PAGE> 13
NO WAIVER:
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. No act or thing done by Owner or Owner's
agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that
the respective parties hereto shall and they hereby do waive trial by jury in
any action, proceeding or counter claim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary proceeding for
possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever including, but not limited to, government
preemption in connection with a National Emergency or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions of supply and demand which have been or
are affected by war or other emergency.
<PAGE> 14
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill, statement,
notice or communication which Owner may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered if, in writing, delivered to
Tenant personally or sent by registered or certified mail addressed to Tenant at
the building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
SERVICES PROVIDED BY OWNERS
29. As long as Tenant is not in default under any of the covenants of
this lease, Owners shall provide: (a) necessary elevator facilities on business
days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m. and have one
elevator subject to call at all other times; (b) heat to the demised premises
when and as required by law, on business days from 8 a.m. to 6 p.m. and on
Saturdays from 8 a.m. to 1 p.m.; (c) water for ordinary lavatory purposes, but
if Tenant uses or consumes water for any other purposes or in unusual quantities
(of which fact Owner shall be the sole judge), Owner may install a water meter
at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense
in good working order and repair to register such water consumption and Tenant
shall pay for water consumed as shown on said meter as additional rent as and
when bills are rendered; (d) cleaning service for the demised premises on
business days at Owner's expense provided that the same are kept in order by
Tenant. If, however, said premises are to be kept clean by Tenant, it shall be
done at Tenant's sole expense. In a manner satisfactory to Owner and no one
other than persons approved by Owner shall be permitted to enter said premises
or the building of which they are a part for such purpose. Tenant shall pay
Owner the cost of removal of any of Tenant's refuse and rubbish from the
building; (e) if the demised premises is serviced by Owner's air
conditioning/cooling and ventilating system, air conditioning/cooling will be
furnished to tenant from May 15th through September 30th on business days
(Mondays through Fridays, holidays excepted) from 8:00a.m. to 6:00 p.m., and
ventilation will be furnished on business days during the aforesaid hours except
when air conditioning/cooling is being furnished as aforesaid. If Tenant
requires air conditioning/cooling or ventilation for more extended hours or on
Saturdays, Sundays or on holidays, as defined under Owner's contract with
Operating Engineers Local 94-94A, Owner will furnish the same at Tenant's
expense. RIDER to be added in respect to rates and conditions for such
additional service; (f) Owner reserves the right to stop services of the
heating, elevators, plumbing, air-conditioning, power systems or cleaning or
other services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually-operated
elevator service, Owner at any time may substitute automatic-control elevator
service and upon ten days' written notice to Tenant, proceed with alterations
necessary therefor without in any wise affecting this lease or the obligation of
Tenant hereunder. The same shall be done with a minimum of inconvenience to
Tenant and Owner shall pursue the alteration with due diligence.
<PAGE> 15
CAPTIONS:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
DEFINITIONS:
31. The term "office", or "offices", wherever used in this lease, shall
not be construed to mean premises used as a store or stores, for the sale or
display, at any time, of goods, wares or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a lease
of the building or of the land and building) of which the demised premises form
a part, so that in the event of any sale or sales of said land and building or
of said lease, or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner, hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 29
hereof), Sundays and all days observed by the State or Federal Government as
legal holidays and those designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION-SHORING:
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as Owner
or Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
<PAGE> 16
SECURITY:
34. Tenant has deposited with Owner the sum of $4,068.00 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum
as to which Tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the re-letting of the premises whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall have the right to transfer the
security to the vendee or lessee and Owner shall thereupon be released by Tenant
from all liability for the return of such security; and Tenant agrees to look to
the new Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
See (paragraph symbol) 56 for additional provisions.
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Owner and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this lease, their assigns.
SEE RIDER ANNEXED HERETO.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: DONALD E. AXINN [SEAL]
By: /s/ Donald E. Axinn [L.S.]
- ---------------------------------- ---------------------------
Witness for Tenant: MIKE'S ORIGINAL, INC. [SEAL]
By: /s/ Michael Rosen [L.S.]
- ---------------------------------- ---------------------------
<PAGE> 17
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personaly came ,
to me known, who being by me duly sworn, did depose and say that he resides
in
that he is the of
the corporation described in and which executed the foregoing instrument, as
OWNER: that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
--------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personaly came ,
to me known and known to me to be the individual
described in and who, as OWNER, executed the foregoing instrument and
acknowledged to me that he executed the same.
--------------------------------------------
CORPORATE TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 , before me personaly came ,
to me known, who being by me duly sworn, did depose and say that he resides
in
that he is the of
the corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
--------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
County of
On this day of , 19 . before me personally came ,
to me known and known to me to be the individual described in and who,
as TENANT, executed the foregoing instrument and acknowledged to me
that he executed the same.
--------------------------------------------
<PAGE> 18
RIDER TO AGREEMENT OF LEASE
between
DONALD E. AXINN, as Landlord
and
MIKE'S ORIGINAL, INC., as Tenant
Dated: March 24, 1994
37. The terms of the within Lease shall be deemed enlarged or modified as the
case may be, by the provisions of this Rider, and in case of a conflict between
the provisions of this Lease and the provisions of this Rider, the provisions of
this Rider shall prevail.
38. Tenant represents that Tenant dealt with no broker other than United Realty
in connection with the making of this Lease and agrees to hold Landlord harmless
from any claim of any broker other than United Realty who claims commissions by
reason of having dealt with Tenant. Landlord agrees to pay the commission of
United Realty in accordance with separate letter agreement.
39. For the purposes of this Lease, wherever referred to herein the "base year"
shall be the twelve month period commencing January 1, 1994.
40. It is expressly agreed by the Tenant that in order for the air conditioning
system to function properly, Tenant is obliged to, and Tenant agrees to keep all
windows in the premises closed. The Landlord will service and maintain the air
conditioning for the premises generally during the hours of 8:00 am to 6:00 pm
on Monday through Friday of each week during the months of June, July, August
and September, exclusive of holidays, subject always to event and causes,
physical, mechanical and otherwise, beyond the reasonable control of Landlord
for failure of which Landlord shall not be liable in any event whatever. Any
damage caused to said appliances, equipment or appurtenance as a result of the
negligence of, or the careless operation by the Tenant or the agents, servants,
employees, licensees, invitees or visitors of the Tenant, shall be repaired by
the Landlord at the cost and expense of the Tenant. Any such expense shall
constitute additional rent.
41. The removal of extraordinary waste, such as wooden crates, and the
discarding of used furniture or equipment are deemed extraordinary waste, and
shall be removed from the building by the Tenant at Tenant's own cost and
expense. At no time shall the Tenant place any waste of any kind in any public
areas. If Tenant does so, the parties agree that everything so placed is
abandoned and of no value to Tenant, and Landlord may have the same removed and
disposed of at Tenant's expense. This remedy is in addition to any other
remedies the Landlord may have.
42. The basic rent payable by Tenant as heretofore provided herein shall be
subject to annual increases to cover increased real estate taxes and/or
operating expenses, if any, to be arrived at in the following manner:
(a) In the event that in any calendar year, the Landlord's real estate
taxes and/or operating expenses for the building of which the Demised Premises
forms a part shall exceed the real estate taxes and/or operating expenses for
the base year, the Tenant shall pay, as additional rent, such proportion of the
respective excess as the rentable area of the Demised Premises bears to the
total rentable area of said building, to wit: 4.3%.
-1-
<PAGE> 19
(b) The real estate taxes shall be deemed to include school, real estate
taxes and assessments upon the land and building of which the Demised Premises
form a part. Tenant shall pay such excess of real estate taxes within thirty
(30) days after Landlord submits to Tenant evidence of Landlord's payment of the
tax and the Landlord's billing showing the computation of such excess. The tax
bills of the governing authority shall be deemed final and conclusive. Tenant
shall have no right to contest the amount or validity of any imposition.
However, in the event of a reduction in assessed valuation for a period for
which Tenant has paid excess real estate taxes, then Tenant shall be entitled to
a proportionate share of any reimbursement, less a proportionate share of any
expenses of the proceeding. In the event that Landlord does not receive separate
tax bills for the property of which the building and land containing the Demised
Premises are a part, the total tax bill shall be apportioned so that Tenant pays
his pro-rata share.
(c) For the purpose of determining any adjustments of the basic rent
under this Lease, the term "operating expenses" shall include the operating
expenses for the said building, its basement and sub-basement, the parking and
landscaped areas, and are defined to comprise the following, but only to the
extent that these items are paid for by the Landlord:
i. The wages and salaries of all employees engaged in the
operation, management and maintenance of the building, the
parking and landscaped areas, employees social security taxes
and any taxes which may be levied on such wages and salaries.
ii. All janitor and office supplies and materials used in the
operation and maintenance of the building.
iii. The cost of water and power, heating, lighting, ventilating
and air-conditioning the building.
iv. The cost of all maintenance and service agreements on
equipment including A.D.T. service, cleaning, window cleaning
and elevator maintenance.
v. Insurance premiums.
vi. The cost of repairs, improvements and general maintenance, of
the building, the parking and landscaped areas, exclusive of
expenses as alteration of premises for the accommodation of a
specific tenant or tenants.
vii. As soon as practicable after December 31st of each year
hereafter during the term of this Lease, Landlord shall cause
a certified public accountant to review its " operating
expenses" for the said building for said preceding 12 month
period and prepare a statement and computation of the
additional rental, if any, payable by the Tenant in accordance
with the provisions herein contained. A copy of such statement
of "operating expenses" and computation shall be delivered to
the Tenant. Tenant agrees to accept as final and determinative
the amount shown as due on said statement and agrees to pay
the same on present statement.
(d) All items of additional rent provided for in this agreement of lease
shall be payable when billed by Landlord to Tenant. Landlord may, at Landlord's
election, bill Tenant for one-twelfth (1/12th) of the anticipated increases
which shall be estimated by adding 8% to the expenses in the prior year.
Adjustment of the estimated increases shall be made at the end of each year when
the actual figures are available. Additional rent for the first and last year of
the term of the Lease shall be pro-rated. The obligation to pay the additional
rent accrued
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<PAGE> 20
during the last year of the term of the Lease shall survive the termination of
the Lease and be payable even though the calculations thereof are not made until
after the termination of the Lease. For the purpose of determining any
adjustments of the basic rent under this Lease, the term "operating expenses"
shall include the operating expenses for the said building, its basement and
sub-basement, the parking and landscaped areas, and are defined to comprise the
following, but only to the extent that these items are paid for by the Landlord.
43. Tenant shall require all of its personnel and visitors to park their
vehicles only in areas from time to time designated by Landlord as to areas for
such parking, if Landlord elects to so designate such areas. Tenant shall not
permit its employees, suppliers or invitees at all times to park trucks or
delivery vehicles in the parking areas. Landlord shall determine the area and
size of Tenant's parking. Tenant shall be allotted four (4) spaces for
automobiles.
44. All work that the Tenant does or shall do in the Demised Premises shall be
done with union labor and materials only, and shall at all times conform to the
standards for the buildings, and shall comply with all rules and regulations of
the municipal authorities having jurisdiction thereof and shall be free of all
mechanic's liens. Tenant shall not do any work without the prior written consent
of the Landlord.
45. Any partitions or installations that the Tenant may install, whether movable
or not, shall belong to the Landlord unless the Landlord advises to the
contrary, in which event the Tenant shall remove the same upon Tenant's removal
from the premises.
46. It is hereby expressly agreed and understood that no representations have
been made concerning this Lease and there have been no inducements by way of
statements or representations other than those contained herein, and that the
contents of any advertising brochures, literature or other media are hereby
expressly excluded from this Lease, and this Lease contains the entire agreement
between the parties.
47. Throughout the term of this Lease, the Tenant shall pay for electricity
consumed within the Demised Premises. The Landlord shall supply and pay for
electricity for those areas used in common by the Tenant herein and other
tenants. The Landlord shall similarly supply and pay for electricity consumed in
the heating, ventilating and air conditioning systems. In the event that
Tenant's consumption of electrical energy is not separately metered, Tenant
shall pay for Tenant's consumption of electrical energy as additional rent
hereunder in monthly installments in advance, in an amount based upon the
estimated electrical consumption of the Tenant. The estimated electrical
consumption may be compared as frequently as annually to the connected
electrical load within the Demised Premises, based upon full utilization during
the hours described in Paragraph 40, as calculated by a reputable independent
electrical engineer to be selected by the Landlord, at which time appropriate
adjustments shall be made to take effect retroactively. A copy of such
calculated electrical consumption and of the basic computations made in
calculating the same shall be delivered to the Tenant. Tenant agrees to accept
as final and determinative the calculated electrical consumption as prepared by
such engineer. Notwithstanding the foregoing, monthly installments of rent
attributable to Tenant's consumption of electric energy hereunder shall be
effective from the date electric service becomes available to the Tenant, at the
rate of $209.00 per month. Landlord may, at Landlord's election, install a
separate meter for the Tenant's premises, at Landlord's sole cost and expense,
in which event the Tenant shall pay for electricity as evidenced by such meter.
48. Tenant shall look solely to the estate and property of
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<PAGE> 21
Landlord in the land and buildings comprising the Demised Premises for the
collection of any judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default or breach by Landlord with respect
to any of the terms, covenants and conditions of this Lease to be observed
and/or performed by Landlord, and no other property or assets of Landlord shall
be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies in the event of a violation by Landlord of any
of the above specified provisions.
49. The Tenant acknowledges that it has been advised that the HVAC servicing the
Demised Premises is designed to operate based upon an occupancy of not more than
one person per 150 square feet of net useable area in the Demised Premises, and
agrees that Landlord shall not be liable for any failure to perform satisfactory
on the part of the HVAC in the event of any greater occupancy.
50. In measuring space within the Demised Premises, all measurements shall be to
the exterior of exterior walls and to the center line of interior walls.
Bathroom areas, elevator shafts, stairwells, elevator lobbies and duct space for
interfloor HVAC transmissions are excluded to determine the useable area and
that is divided by 85% to determine the rentable area.
51. In the event that the rental or additional rental reserved herein is not
received by the Landlord within five days after the date payment is due, Tenant
shall pay to Landlord as additional rent, 4% of the late rental payment as
compensation for the additional cost to Landlord resulting from such late
payment. This late charge shall apply despite any grace period provided for in
this Lease.
52. The rent for the first month of the term of the Lease for which rent is
payable shall be payable prior to Tenant's occupancy or prior to March 31, 1995,
whichever shall first occur.
53. The basic annual rental rate shall be payable as follows:
(a) For the period April 1, 1994 to March 31, 1995, the sum of SIXTEEN
THOUSAND TWO HUNDRED SEVENTY TWO DOLLARS ($16,272.00) per annum
($1,356.00 per month);
(b) For the period April 1, 1995 to March 31, 1996, the sum of TWENTY
ONE THOUSAND TWO HUNDRED SEVENTY SIX DOLLARS ($21,276.00) per
annum
($1,773.00 per month); and
(c) For the period April 1, 1996 to June 30, 1997, the sum of TWENTY
TWO THOUSAND FOUR HUNDRED TWENTY EIGHT DOLLARS ($22,428.00) per
annum
($1,869.00 per month).
54. Landlord agrees, at Landlord's sole cost and expense, to perform the
following work, labor and services and supply the material required therefor:
(a) Provide new carpeting throughout the entire space chosen by Tenant
from Landlord's building standard samples.
(b) Repaint entire suite in color selected by Tenant from Landlord's
building standard samples.
(c) Replace all stained ceiling tiles.
(d) Install pass-thru glass opening between two windowed offices.
(e) Secure door to unrented office with lock.
In all other respects, the Tenant accepts the premises in their "as is"
condition.
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<PAGE> 22
55. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 etc. or, where
permitted, pursuant to the terms of this Lease, shall be deemed without further
act or deed to have assumed all of the obligations arising under this Lease on
and after the date of such assignment. Any such assignee shall upon demand
execute and deliver to the Landlord an instrument confirming such assumption.
56. Tenant has deposited with Landlord by check subject to collection the sum of
$4,068.00 as security for the performance by the Tenant of the terms, covenants
and conditions of this Lease on the part of the Tenant to be performed. On
condition that the Tenant is not then in default under the terms of the Lease,
the sum of $522.00 is to be returned to the Tenant at the commencement of the
thirteenth (13th) month of the term of this Lease. The remaining $3,546.00
shall continue on deposit under this Lease for the balance of the Lease term in
accordance with the provisions of paragraph 34 above. In lieu of returning the
aforesaid sum of $522.00, the Landlord may apply the same on account of rent due
to the Landlord from the Tenant for the thirteenth (13th) month of the term of
the Lease.
57. Notwithstanding anything to the contrary in paragraph 47 above, payment at
the rate of $209.00 per month for the consumption by the Tenant of electric
energy shall be deemed included in the basic annual rent set forth in paragraph
53 for the period April 1, 1994 to March 31, 1995 only. Notwithstanding anything
heretofore said in this paragraph 57, this paragraph shall be deemed deleted and
of no further force or effect as if never written for the period commencing
April 1, 1995 and for the balance of the term of this Lease.
58. The provisions of paragraph 3 to the contrary notwithstanding:
(a) Landlord's approval of contractors or mechanics shall not
be unreasonably withheld or delayed.
(b) The Workmen's Compensation, general liability and
personal and property damage insurance shall be such as the Landlord may
reasonably require.
(c) Tenant may discharge any mechanic's lien filed by satisfying the
same.
59. The provisions of paragraph 4 to the contrary notwithstanding, Landlord
agrees to exercise due diligence and take reasonable measures to minimize any
inconvenience, annoyance or injury arising from the performance of any such
repairs, alterations, additions or improvements, but the foregoing shall not
required the Landlord to perform the same on an overtime basis.
60. To the last sentence of paragraph 8, there shall be added the following:
"which notice shall be given promptly following the commencement of any such
action or proceeding."
61. The provisions in paragraph 10 to the contrary notwithstanding, Tenant shall
have the right to make a claim (separate and apart from the claim of Owner), for
the value of: (i) improvements, alterations and additions made to the Demised
Premises by Tenant at Tenant's expense, as long as they are not replacements of
any improvements, alterations or additions previously existing in the Demised
Premises or for which Owner gave Tenant any credit or allowances; and (ii)
Tenant's furniture, fixtures, machinery and equipment contained in the Demised
Premises and for expenses (including but not limited to moving expenses and
attorneys' fees) incurred by Tenant as a result of any such proceedings.
Notwithstanding the foregoing, in no event shall any award to Tenant result in
Owner receiving an award in a lesser amount than it would have received if
Tenant had not applied for and received its award.
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<PAGE> 23
62. The provisions of paragraph 13 to the contrary notwithstanding, Landlord
hereby agrees that (except in the case of an emergency) Landlord shall not
exercise its right of entry under this Article without prior notice to Tenant
(which may be oral and telephonic) and, in any event, only during Tenant's
business hours. Landlord, in exercising any such right of entry or making such
repairs, replacements and improvements or performing any work in the Demised
Premises shall use reasonable efforts (but Landlord shall not be obligated to
perform work on an overtime or premium pay basis) to minimize its interference
with the conduct of Tenant's business in the Demised Premises.
63. The provisions of paragraph 16(a) and 17(1) to the contrary notwithstanding,
Tenant shall have twenty (20) days in which to have any involuntary bankruptcy
proceeding dismissed.
64. With respect to the discount rate set forth in paragraph 16(b), the
percentage shall be changed from four (4%) percent to eight (8%) percent.
65. The provisions of paragraph 18 and 19 to the contrary notwithstanding,
Tenant shall have fifteen (15) days after notice within which to cure any
violation of the Lease which does not require the payment of a sum of money only
provided that if the performance of such obligation, by its nature, cannot be
fully performed within such fifteen (15) day period, Tenant shall not be in
default if Tenant has promptly commenced or procured commencement of the same
and proceeds expeditiously and continually in good faith.
66. Tenant shall be entitled to ingress to, and egress from, the Demised
Premises through the public portions of the building, except at certain times as
may otherwise be specifically set forth in the Lease.
67. The provisions of paragraph 33 to the contrary
notwithstanding:
(a) Notice of any additional rules or regulations shall be in writing
and shall become effective on the tenth (10th) day following the giving of such
notice; and
(b) The Landlord agrees not to enforce the rules and regulations in a
manner which unreasonably discriminates against the Tenant.
DONALD E. AXINN
By:/s/ Donald E. Axinn
--------------------------
MIKE'S ORIGINAL, INC.
By:/s/ Michael Rosen, President
----------------------------
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<PAGE> 24
AMENDMENT
AGREEMENT made as of the 6th day of February 1995 by and between DONALD E.
AZINN, having an office at 131 Jericho Turnpike, Jericho, New York 11753
(hereinafter referred to as "Landlord") and MIKE'S ORIGINAL, INC., having an
office at 131 Jericho Turnpike, Jericho, New York 11753 (hereinafter referred to
as "Tenant").
W I T N E S S E T H :
WHEREAS, the parties hereto as Landlord and Tenant respectively entered
into an Agreement of Lease (the "Lease") with respect to Suite 402 in the
building known as 131 Jericho Turnpike, Jericho, New York (the "Original
Premises"), as more fully described in the Lease; and
WHEREAS, the parties hereto desire to expand the Original Premises and
modify the Lease as hereinafter provided.
NOW THEREFORE, in consideration of the premises, IT IS AGREED AS FOLLOWS:
1. The Original Premises are, as of the Effective Date hereof, expanded to
include the additional premises ("Additional Premises") shown on the plan
annexed hereto as Exhibit "A".
2. Commencing the Effective Date hereof , the annual basic rental rate
shall be increased by the sum of FIVE THOUSAND SEVEN HUNDRED TWENTY FOUR DOLLARS
($5,724.) ($477.00 per month).
3. On and after the Effective Date, Tenant's proportionate share as defined
in the Lease shall be increased by 1% to 5.3%, and Tenant's allocation of
parking shall be increased by space for 1 automobile.
4. Tenant represents to Landlord that Tenant dealt with no broker in
connection with this Expansion Agreement.
5. The Landlord shall not be required to perform any work, labor or
services or supply any materials to prepare the Additional Premises for Tenant's
occupancy, Tenant agreeing to accept the same in their "as is" condition, except
as set forth in the annexed work letter.
6. Notwithstanding anything aforesaid to the contrary, the Effective Date
hereof shall be the earlier of: (i) the date that Tenant takes occupancy in
whole or in part of the Additional Premises: or (ii) the date Landlord's work as
set forth in paragraph 5 hereof and the annexed work letter is substantially
completed and possession of the Additional Premises by the Landlord to the
Tenant shall be evidenced by written notice given by the Landlord to the Tenant
stating that the work to be performed in paragraph 5 hereof has been
substantially completed and the Additional Premises are ready for occupancy by
the Tenant. The parties shall execute an agreement setting forth the Effective
Date upon which the obligation of the Tenant for base annual rent as set forth
in paragraph 2 above with respect to the Additional Premises shall have
commenced. If such Effective Date is not the first day of a calendar month, the
Tenant shall pay pro rata rent in advance for the period from the Effective Date
to the first day of such following calendar month. On and after the first day of
such following calendar month, Tenant shall pay rent as provided in paragraph 2
of this Agreement. For the purposes of this paragraph, "substantial completion"
shall be defined and construed to mean completion of all work to be performed by
Landlord except such items as do not materially interfere with the use of the
Additional Premises by the Tenant for the purpose intended in the Lease. With
respect to "undone" items, Landlord agrees to pursue the completion of the same
continuously and in good faith.
7. The term of the Lease with respect to the Additional Premises shall
terminate and expire as provided in the Lease for the Original Premises.
8. Except as herein modified, the terms, covenants and conditions of the
Lease are hereby ratified, confirmed and agreed to and shall continue in full
force and effect with respect to the Original Premises and the Additional
Premises.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
first day above written.
DONALD E. AXINN
By: /s/ Donald E. Axinn
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
<PAGE> 25
EXHIBIT B
Work Letter
Mike's Original - 259 rentable square feet
1. Create new door from new front office to existing open area, as shown on
attached plan.
2. Replace stained ceiling tiles.
3. Finish off (trim up) existing sheetrock wall that divided the two rooms,
as shown on attached plan.
4. Carpet entire cross-hatched area, as shown on the attached plan, to
match existing color. (Iced Blue #3007 - 20 oz.)
5. Print Walls in cross-hatched area, as shown on the attached plan, to
match existing color. (Atrium White -Benjamin Moore)
6. Provide that existing electric in cross - hatched area on attached plan
is in working order.
7. Separate electric to provide overhead lighting in each office with a
light switch in each office.
<PAGE> 1
EXHIBIT 10.2
MIKE' S ORIGINAL, INC.
1995 Long-Term Incentive Plan
1. PURPOSE.
The purpose of the 1995 Long-Term Incentive Plan (the "Plan") is to
advance the interests of Mike's Original, Inc. a Delaware corporation (the
"Company"), and its shareholders by providing incentives to certain key
employees of the Company and its affiliates and to certain other key individuals
who perform services for these entities, including those who contribute
significantly to the strategic and long-term performance objectives and growth
of the Company and its affiliates.
2. ADMINISTRATION.
(a) The Plan shall be determined solely by the Long-Term Incentive Plan
Administrative Committee (the "Committee") of the Board of Directors (the
"Board") of the Company, as such Committee is from time to time constituted, or
any successor committee the Board may designate to administer the Plan; provided
that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), so permits
without adversely affecting the ability of the Plan to comply with the
conditions for exemption from Section 16 of the Exchange Act (or any successor
provision) provided by Rule 16b-3, the Committee may delegate the administration
of the Plan in whole or in part, on such terms and conditions, and to such
person or persons as it may determine in its discretion, as it relates to
persons not subject to Section 16 of the Exchange Act (or any successor
provision). The membership of the Committee or such successor committee shall be
constituted o as to comply at all times with the applicable requirements of Rule
16b-3. No member of the Committee shall be eligible or have been eligible within
one year prior to his appointment to receive awards under the Plan ("Awards") or
to receive awards under any other plan, program or arrangement of the Company or
any of its affiliates if such eligibility would cause such member to cease to be
a "disinterested person" under Rule 16b-3; provided that if at any time Rule
16b-3 so permits without adversely affecting the ability of the Plan to comply
with the conditions for exemption from Section 16 of the Exchange Act (or any
successor provision) provided by Rule 16b-3, one or more members of the
Committee may cease to be "disinterested persons."
(b) The Committee has all the powers vested in it by the terms of the
Plan set forth herein, such powers to include exclusive authority (except as may
be delegated as permitted herein) to select the key employees and other key
individuals to be granted Awards under the Plan, to determine the type, size and
terms of the Award to be made to each individual selected, to modify the terms
of any Award that has been granted, to determine the time when awards will be
granted, to establish performance objectives, to make any adjustments necessary
or desirable as a result of the granting of Awards to eligible individuals
located outside the United States and to prescribe the form of the instruments
embodying Awards made under the Plan. The Committee is authorized to interpret
<PAGE> 2
the Plan and the Awards granted under the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other
determination, which it deems necessary or desirable for the administration of
the Plan. The Committee (or its delegate as permitted herein) may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any Award in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. any decision of the Committee (or its
delegate as permitted herein) in the interpretation and administration of the
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned. The Committee
may act only by a majority of its members in office, except that the members
thereof may authorize any one or more of their members or any officer of the
Company to execute and deliver documents or to take any other ministerial action
on behalf of the Committee with respect to Awards made or to be made to Plan
participants. No member of the Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him, by any other member of
the Committee or by any officer of the Company in connection with the
performance of duties under the Plan, except for his own willful misconduct or
as expressly provided by statute. Determinations to be made by the Committee
under the Plan may be made by its delegates.
3. PARTICIPATION.
(a) Affiliates. If an Affiliate (as hereinafter defined) of the
Company wishes to participate in the Plan and its participation shall have been
approved by the Board upon the recommendation of the Committee, the board of
directors or other governing body of the Affiliate shall adopt a resolution in
form and substance satisfactory to the Committee authorizing participation by
the Affiliate in the Plan with respect to its key employees or other key
individuals performing services for it. As used herein, the term "Affiliate"
means any entity in which the Company has a substantial direct or indirect
equity interest or which has a substantial direct or indirect equity interest in
the Company, as determined by the Committee in its discretion.
An Affiliate participating in the Plan may cease to be a
participating company at any time by action of the Board or by action of the
board of directors or other governing body of such Affiliate, which latter
action shall be effective not earlier than the date of delivery to the Secretary
of the Company of a certified copy of a resolution of the Affiliate's board of
directors or other governing body taking such action. If the participation in
the Plan of an Affiliate shall terminate, such termination shall not relieve it
of any obligations theretofore incurred by it, except as may be approved by the
Committee in its discretion.
(b) Participants. Consistent with the purposes of the Plan, the
Committee shall have exclusive power (except as may be delegated as permitted
herein) to select the key employees and other key individuals performing
services for the Company, including consultants or independent contractors and
others who perform services for the Company and its Affiliates who may
participate in the Plan and be granted Awards under the Plan. Eligible
<PAGE> 3
individuals may be selected individually or by groups or categories, as
determined by the Committee in its discretion. No director of the Company,
unless he is an employee of the Company or is an officer or director of an
Affiliate, shall be eligible to receive an Award under the Plan. In no event may
a corporation be eligible to receive an Award under the Plan.
4. AWARDS UNDER THE PLAN.
(a) Types of Awards. Awards under the Plan may include, but need
not be limited to, one or more of the following types, either alone or in any
combination thereof: (i) "Stock Options," (ii) "Stock Appreciation Rights,"
(iii) "Restricted Stock," (iv) "Performance Grants" and (v) any other type of
Award deemed by the Committee in its discretion to be consistent with the
purposes of the Plan (including but not limited to, Awards of or options or
similar rights granted with respect to unbundled stock units or components
thereof, and Awards to be made to participants who are foreign nationals or are
employed or performing services outside the United States). Stock Options, which
include "Non-Qualified Stock Options" and "Incentive Stock Options" or
combinations thereof, are rights to purchase common shares of the Company and
stock of any other class into which such shares may thereafter be changed (the
"Common Shares"). Non-Qualified Stock Options and Incentive Stock Options are
subject to the terms, conditions and restrictions specified in Paragraph 5.
Stock Appreciation Rights are rights to receive (without payment to the Company)
cash, Common Shares, other Company securities (which may include, but need not
be limited to, unbundled stock units or components thereof, debentures,
preferred stock, warrants, securities convertible into Common Shares or other
property, and other types of securities including, but not limited to, those of
the Company or an Affiliate, or any combination thereof ("Other Company
Securities") or property, or other forms of payment, or any combination thereof,
as determined by the Committee, based on the increase in the value of the number
of Common Shares specified in the Stock Appreciation Right. Stock Appreciation
Rights are subject to the terms, conditions and restrictions specified in
Paragraph 6. Shares of Restricted Stock are Common Shares which are issued
subject to certain restrictions pursuant to Paragraph 7. Performance Grants are
contingent awards subject to the terms, conditions and restrictions described in
Paragraph 8, pursuant to which the participant may become entitled to receive
cash, Common Shares, Other Company Securities or property, or other forms of
payment, or any combination thereof, as determined by the Committee.
(b) Maximum Number of Shares that May Be Issued. There may be
issued under the Plan (as Restricted Stock, in payment of Performance Grants,
pursuant to the exercise of Stock Options or Stock Appreciation Rights, or in
payment of or pursuant to the exercise of such other Awards as the Committee, in
its discretion, may determine) an aggregate of not more than 433,333 Common
Shares, subject to adjustment as provided in Paragraph 15. Common Shares issued
pursuant to the Plan may be either authorized but unissued shares, treasury
shares, reacquired shares, or any combination thereof. If any Common Shares
issued as Restricted Stock or otherwise subject to repurchase or forfeiture
rights are reacquired by the Company pursuant to such rights, or if any Award is
cancelled, terminates or expires unexercised, any Common Shares that would
otherwise have been issuable pursuant thereto will be available for issuance
under new Awards.
<PAGE> 4
(C) Rights with Respect to
Common Shares and Other Securities.
(i) Unless otherwise determined by the Committee in its
discretion, a participant to whom an Award of Restricted Stock has been
made (and any person succeeding to such a participant's rights pursuant
to the Plan) shall have, after issuance of a certificate or copy thereof
for the number of Common Shares awarded and prior to the expiration of
the Restricted Period or the earlier repurchase of such Common Shares as
herein provided, ownership of such Common Shares, including the right to
vote the same and to receive dividends or other distributions made or
paid with respect to such Common Shares (provided that such Common
Shares, and any new, additional or different shares, or Other Company
Securities or property, or other forms of consideration which the
participant may be entitled to receive with respect to such Common
Shares as a result of a stock split, stock dividend or any other change
in the corporate or capital structure of the Company, shall be subject
to the restrictions hereinafter described as determined by the Committee
in its discretion), subject, however, to the options, restrictions and
limitations imposed thereon pursuant to the Plan. Notwithstanding the
foregoing, unless otherwise determined by the Committee in its
discretion, a participant with whom an Award agreement is made to issue
Common Shares in the future shall have no rights as a shareholder with
respect to Common Shares related to such agreement until issuance of a
certificate to him.
(ii) Unless otherwise determined by the Committee in its
discretion, a participant to whom a grant of Stock Options, Stock
Appreciation Rights, Performance Grants or any other Award is made (and
any person succeeding to such a participant's rights pursuant to the
Plan) shall have no rights as a stockholder with respect to any Common
Shares or as a holder with respect to other securities, if any, issuable
pursuant to any such Award until the date of the issuance of a stock
certificate to him for such Common Shares or other instrument of
ownership, if any. Except as provided in Paragraph 15, no adjustment
shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities, other
property or other forms of consideration, or any combination thereof)
for which the record date is prior to the date such stock certificate or
other instrument of ownership, if any, is issued.
5. STOCK OPTIONS.
The Committee may grant Stock Options either alone, or in
conjunction with Stock Appreciation Rights, Performance Grants or other Awards,
either at the time of grant or by amendment thereafter, provided that an
Incentive Stock Option may be granted only to an eligible employee of the
Company or its parent or subsidiary corporation. Each Stock Option (referred to
herein as an "Option") granted under the Plan shall be evidenced by an
instrument in such form as the Committee shall prescribe from time to time in
<PAGE> 5
accordance with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions, including, but not limited
to, restrictions upon the Option or the Common Shares issuable upon exercise
thereof, as the Committee, in its discretion, shall establish:
(a) The option price may be less than, equal to, or greater than,
the fair market value of the Common Shares subject to such Option at the time
the Option is granted, as determined by the Committee, but in no event will such
option price be less than 50% of the fair market value of the underlying Common
Shares at the time the Option is granted; provided, however, that in the case of
an Incentive Stock Option granted to such an employee, the option price shall
not be less than the fair market value of the Common Shares subject to such
Option at the time the Option is granted, or if granted to such an employee who
owns stock representing more than ten percent of the voting power of all classes
of stock of the Company or of its parent or subsidiary (a "Ten Percent
Employee"), such option price shall be not less than 110% of such fair market
value at the time the Option is granted; provided, further that in no event will
such option price be less than the par value of such Common Shares.
(b) The Committee shall determine the number of Common Shares to be
subject to each option. The number of Common Shares subject to an outstanding
Option may be reduced on a share-for-share or other appropriate basis, as
determined by the Committee, to the extent that Common Shares under such Option
are used to calculate the cash, Common Shares, Other Company Securities or
property, or other forms of payment, or any combination thereof, received
pursuant to exercise of a Stock Appreciation Right attached to such Option, or
to the extent that any other Award granted in conjunction with such Option is
paid.
(c) The Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent and
distribution, and shall be exercisable during the grantee's lifetime only by
him. Unless the Committee determines otherwise, the Option shall not be
exercisable for at least six months after the date of grant, unless the grantee
ceases employment or performance of services before the expiration of such
six-month period by reason of his disability as defined in Paragraph 12 or his
death.
(d) The Option shall not be exercisable:
(i) in the case of any Incentive Stock Option granted to a Ten
Percent Employee, after the expiration of five years from the date it is
granted, and, in the case of any other Option, after the expiration of
ten years from the date it is granted. Any Option may be exercised
during such period only at such time or times and in such installments
as the Committee may establish;
(ii) unless payment in full is made for the shares being
acquired thereunder at the time of exercise, such payment shall be made
in such form (including, but not limited to, cash, Common Shares, or the
surrender of another outstanding Award under the Plan, or any
combination thereof) as the Committee may determine in its discretion;
and
<PAGE> 6
(iii) unless the person exercising the Option has been, at all
times during the period beginning with the date of the grant of the
Option and ending on the date of such exercise, employed by or otherwise
performing services for the Company or an Affiliate, or a corporation,
or a parent or subsidiary of a corporation, substituting or assuming the
Option in a transaction to which Section 425(a) of the Internal Revenue
Code of 1986, as amended, or any successor statutory provisions thereto
(the "Code"), is applicable, except that:
(A) in the case of any Non-Qualified Stock Option, if such
person shall cease to be employed by or otherwise performing
services for the Company or an Affiliate solely by reason of a
period of related Employment as defined in Paragraph 14, he may,
during such period of Related Employment, exercise the
Non-Qualified Stock Option as if he continued such employment or
performance of service; or
(B) if such person shall cease such employment or
performance of services by reason of is disability as defined in
Paragraph 12 or early, normal or deferred retirement under an
approved retirement program of the Company or an Affiliate (or
such other plan or arrangement as may be approved by the Committee,
in its discretion, for this purpose) while holding an option which
has not expired and has not been fully exercised, such person, at
any time within three years (or such other period determined by
the Committee) after the date he ceased such employment or
performance of services (but in no event after the Option has
expired), may exercise the Option with respect to any shares as to
which he could have exercised the Option on the date he ceased
such employment or performance of services, or with respect to
such greater number of shares as determined by the Committee, or
(C) if such person shall cease such employment or
performance of services for reasons other than Related Employment,
disability, early, normal or deferred retirement or death (as
provided elsewhere) while holding an Option which has not expired
and has not been fully exercised, such person may exercise the
Option at any time during the period, if any, which the Committee
approves (but not beyond the expiration of the Option) following
the date he ceased such employment or performance of services with
respect to any shares as to which he could have exercised the
Option on the date he ceased such employment or performance of
services or, in the Committee's discretion, any or all shares under
the Option whether or not he could have exercised the Option on the
date he ceased such employment or performance of services; or
<PAGE> 7
(D) if any person to whom an Option has been granted shall
die holding an Option which has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as
the case may be, may, at any time within one year (or such other
period determined by the Committee) after the date of death (but in
no event after the Option has expired), exercise the Option with
respect to any shares as to which the decedent could have exercised
the Option at the time of his death, or with respect to such
greater number of shares as determined by the Committee.
(E) In the case of an Incentive Stock Option, the amount of
aggregate fair market value of Common Shares (determined at the
time of grant of the Option pursuant to subparagraph 5(a) of the
Plan) with respect to which incentive stock options are
exercisable for the first time by an employee during any calendar
year (under all such plans of his employer corporation any
calendar year (under all such plans of his employer corporation
and its parent and its parent and subsidiary corporations) shall
not exceed $100,000.
(F) It is the intent of the Company that Non-Qualified Stock
Options granted under the Plan not be classified as Incentive
Stock Options, that the Incentive Stock Options granted under the
Plan be consistent with and contain or be deemed to contain all
provisions required under Section 422A and other appropriate
provisions of the Code and any implementing regulations (and
any successor provisions thereof), and that any ambiguities in
construction shall be interpreted in order to effectuate such
intent. The Agreements providing Non-Qualified Stock Options
shall provide that such Options are not "incentive stock options"
for the purposes of Section 422A of the Code.
6. STOCK APPRECIATION RIGHTS.
The Committee may grant Stock Appreciation Rights either alone, or
in conjunction with Stock Options, Performance Grants or other Awards, either at
the time of grant or by amendment thereafter. Each Award of Stock Appreciation
Rights granted under the Plan shall be evidenced by an instrument in such form
as the Committee shall prescribe from time to time in accordance with the Plan
and shall comply with the following terms and conditions, and with such other
terms and conditions, including, but not limited to, restrictions upon the Award
of Stock Appreciation Rights or the Common Shares issuable upon exercise
thereof, as the Committee in its discretion shall establish:
(a) The Committee shall determine the number of Common Shares to
be subject to each Award of Stock Appreciation Rights. The number of Common
Shares subject to an outstanding Award of Stock Appreciation Rights may be
reduced on a share-for-share or other appropriate basis, as determined by the
Committee, to the extent that Common Shares under such Award of Stock
<PAGE> 8
Appreciation Rights are used to calculate the cash, Common Shares, Other
Company Securities or property, or other forms of payment, or any combination
thereof, received pursuant to exercise of an Option attached to such Award of
Stock Appreciation Rights, or to the extent that any other Award granted in
conjunction with such Award of Stock Appreciation Rights is paid.
(b) The Award of Stock Appreciation Rights may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of the descent and distribution, and shall be exercisable
during the grantee's lifetime only by him. Unless the Committee determines
otherwise, the Award of Stock Appreciation Rights shall not be exercisable for
at least six months after the date of grant, unless the grantee ceases
employment or performance of services before the expiration of such six-month
period by reason of his disability as defined in Paragraph 12 or his death.
(c) The Award of Stock Appreciation Rights shall not be
exercisable:
(i) in the case of any Award of Stock Appreciation Rights that
are attached to an Incentive Stock Option granted to a Ten Percent Employee,
after the expiration of five years from the date it is granted, and, in the case
of any other award of Stock Appreciation Rights, after the expiration of ten
years from the date it is granted. Any Award of Stock Appreciation Rights may be
exercised during such period only at such time or times and in such installments
as the Committee may establish;
(ii) unless the Option or other Award to which the Award of
Stock Appreciation Rights is attached is at the time exercisable; and
(iii) unless the person exercising the Award of Stock
Appreciation Rights has been, at all times during the period beginning with the
date of the grant thereof and ending on the date of such exercise, employed by
or otherwise performing services for the Company or an Affiliate, except that
(A) in the case of any Award of Stock Appreciation Rights
(other than those attached to an Incentive Stock Option), if such
person shall cease to be employed by or otherwise performing
services for the Company or an Affiliate solely by reason of a
period of Related Employment as defined in Paragraph 14, he may,
during such period of Related Employment, exercise the Award of
Stock Appreciation Rights as if he continued such employment or
performance of services; or
(B) if such person shall cease such employment or
performance of services by reason of his disability as defined in
Paragraph 12 or early, normal or deferred retirement under an
approved retirement program of the Company or an Affiliate (or such
other plan or arrangement as may be approved by the Committee, in
its discretion, for this purpose) while holding an Award of Stock
Appreciation Rights which has not expired and has not been fully
<PAGE> 9
exercised, such person may, at any time within three years (or such
other period determined by the Committee) after the date he ceased
such employment or performance of services (but in no event after
the Award of Stock Appreciation Rights has expired), exercise the
Award of Stock Appreciation Rights with respect to any shares as to
which he could have exercised the Award of Stock Appreciation
Rights on the date he ceased such employment or performance of
services, or with respect to such greater number of shares as
determined by the Committee; or
(C) if such person shall cease such employment or
performance of services for reasons other than Related Employment,
disability, early, normal or deferred retirement or death (as
provided elsewhere) while holding an Award of Stock Appreciation
Rights which has not expired and has not been fully exercised, such
person may exercise the Award of Stock Appreciation Rights at any
time during the period, if any, which the Committee approves (but
in no event after the Award of Stock Appreciation Rights expires)
following the date he ceased such employment or performance of
services with respect to any shares as to which he could have
exercised the Award of Stock Appreciation Rights on the date he
ceased such employment or performance of services or as otherwise
permitted in the Committee's discretion; or
(D) if any person to whom an Award of Stock Appreciation
Rights has been granted shall die holding an Award of Stock
Appreciation Rights which has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as
the case may be, may, at any time within one year (or such other
period determined by the Committee) after the date of death (but in
no event after the Award of Stock Appreciation Rights has expired),
exercise the Award of Stock Appreciation Rights with respect to any
shares as to which the decedent could have exercised the Award of
Stock Appreciation Rights at the time of his death, or with respect
to such greater number of shares as determined by the Committee.
(d) An Award of Stock Appreciation Rights shall entitle the holder (or
any person entitled to act under the provisions of subparagraph 6(c)(iii)(D)
hereof) to exercise such Award or to surrender unexercised the option (or other
Award) to which the Stock Appreciation Rights is attached (or any portion of
such Option or other Award) to the Company and to receive from the Company in
exchange therefor, without payment to the Company, that number of Common Shares
having an aggregate value equal to the excess of the fair market value of one
share, at the time of such exercise, over the exercise price (or Option Price,
as the case may be) per share, times the number of shares subject to the Award
or the Option (or other Award), or portion thereof, which is so exercised or
<PAGE> 10
surrendered, as the case may be. The Committee shall be entitled in its
discretion to elect to settle the obligation arising out of the exercise of a
Stock Appreciation Right by the payment of cash or Other Company Securities or
property, or other forms of payment, or any combination thereof, as determined
by the Committee, equal to the aggregate value of the Common Shares it would
otherwise be obligated to deliver. Any such election by the Committee shall be
made as soon as practicable after the receipt by the Committee of written notice
of the exercise of the Stock Appreciation Right. The value of a Common Share,
Other Company Securities or property, or other forms of payment determined by
the Committee for this purpose shall be the fair market value thereof on the
last business day next preceding the date of the election to exercise the Stock
Appreciation Right, unless the Committee, in its discretion, determines
otherwise.
(e) A Stock Appreciation Right may provide that it shall be deemed to
have been exercised at the close of business on the business day preceding the
expiration date of the Stock Appreciation Right or of the related Option (or
other Award), or such other date as specified by the Committee, if at such time
such Stock Appreciation Right has a positive value. Such deemed exercise shall
be settled or paid in the same manner as a regular exercise thereof as provided
in subparagraph 6(d) hereof.
(f) No fractional shares may be delivered under this Paragraph 6, but in
lieu thereof a cash or other adjustment shall be made as determined by the
Committee in its discretion.
7. RESTRICTED STOCK.
Each Award of Restricted Stock under the Plan shall be evidenced by an
instrument in such form as the Committee shall prescribe from time to time in
accordance with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions as the Committee, in its
discretion, shall establish:
(a) The Committee shall determine the number of Common Shares to be
issued to a participant pursuant to the Award, and the extent, if any, to which
they shall be issued in exchange for cash, other consideration, or both.
(b) Common Shares issued to a participant in accordance with the
Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution, or as
otherwise determined by the Committee, for such period as the Committee shall
determine, from the date on which the Award is granted (the "Restricted
Period"). The Company will have the option, at the Committee's discretion, to
repurchase the shares subject to the Award at such price as the Committee shall
have fixed or to provide for forfeiture to the Company of the shares subject to
the Award, which option or forfeiture may be exercisable (i) if the
participant's continuous employment or performance of services for the Company
and its Affiliates shall terminate for any reason, except solely by reason of a
period of Related Employment as defined in Paragraph 14, or except as otherwise
provided in subparagraph 7(c), prior to the expiration of the Restricted Period,
<PAGE> 11
(ii) if, on or prior to the expiration of the Restricted Period or the earlier
lapse of such forfeiture option, the participant has not paid to the Company an
amount equal to any federal, state, local or foreign income or other taxes which
the Company determines is required to be withheld in respect of such shares, or
(iii) under such other circumstances as determined by the Committee in its
discretion. Such repurchase option or forfeiture shall be exercisable on such
terms, in such manner and during such period as shall be determined by the
Committee when the Award is made or as amended thereafter, except as otherwise
determined in the Committee's discretion. Each certificate for Common Shares
issued pursuant to a Restricted Stock Award shall bear an appropriate legend
referring to the foregoing repurchase option or forfeiture and other
restrictions and to the fact that the shares are partly paid, shall be deposited
by the award holder with the Company, together with a stock power endorsed in
blank, or shall be evidenced in such other manner permitted by applicable law as
determined by the Committee in its discretion. Any attempt to dispose of any
such Common Shares in contravention of the foregoing repurchase and forfeiture
options and other restrictions shall be null and void and without effect. If
Common Shares issued pursuant to a Restricted Stock Award shall be repurchased
or forfeited pursuant to the repurchase option described above, the participant,
or in the event of his death, his personal representative, shall forthwith
deliver to the Secretary of the Company the certificates for the Common Shares
awarded to the participant, accompanied by such instrument of transfer, if any,
as may reasonably be required by the Secretary of the Company.
(c) If a participant who has been in continuous employment or
performance of services for the Company or an Affiliate since the date on which
a Restricted Stock Award was granted to him shall, while in such employment or
performance of services, die, or terminate such employment or performance of
services by reason of disability as defined in Paragraph 12 or by reason of
early normal or deferred retirement under an approved retirement program of the
Company or an Affiliate (or such other plan or arrangement as may be approved by
the Committee in its discretion, for this purpose) and any of such events shall
occur after the date on which the Award was granted to him and prior to the end
of the Restricted Period of such Award, the Committee may determine to cancel
the repurchase option or forfeiture (and any and all other restrictions) on any
or all of the Common Shares subject to such Award; and the repurchase option or
forfeiture shall become exercisable at such time as to the remaining shares, if
any.
8. PERFORMANCE GRANTS.
The Award of a Performance Grant ("Performance Grant") to a
participant will entitle him to receive a specified amount determined by the
Committee (the "Actual Value"), if the terms and conditions specified herein and
in the Award are satisfied. Each Award of a Performance Grant shall be subject
to the following terms and conditions, and to such other terms and conditions,
including but not limited to, restrictions upon any cash, Common Shares, Other
Company Securities or property, or other forms of payment, or any combination
thereof, issued in respect of the Performance Grant, as the Committee, in its
discretion, shall establish, and shall be embodied in an instrument in such form
and substance as is determined by the Committee.
(a) The Committee shall determine the value or range of values of a
Performance Grant to be awarded to each participant selected for an award and
whether or not such a Performance Grant is granted in conjunction with an Award
of Options, Stock Appreciation Rights, Restricted Stock or other Award, or any
<PAGE> 12
combination thereof, under the Plan (which may include, but need not be limited
to, deferred Awards) concurrently or subsequently granted to the participant
(the "Associated Award"). As determined by the Committee, the maximum value of
each Performance Grant (the "Maximum Value") shall be: (i) an amount fixed by
the Committee at the time the award is made or amended thereafter, (ii) an
amount which varies from time to time based in whole or in part on the then
current value of a Common Share, Other Company Securities or property, or other
securities or property, or any combination thereof, or (iii) an amount that is
determinable from criteria specified by the Committee. Performance Grants may be
issued in different classes or series having different names, terms and
conditions. In the case of a Performance Grant awarded in conjunction with an
Associated Award, the Performance Grant may be reduced on an appropriate basis
to the extent that the Associated Award has been exercised, paid to or otherwise
received by the participant, as determined by the Committee.
(b) The award period ("Award Period") in respect of any Performance
Grant shall be a period determined by the Committee. At the time each Award is
made, the Committee shall establish performance objectives to be attained within
the Award Period as the means of determining the Actual Value of such a
Performance Grant. The performance objectives shall be based on such measure or
measures of performance, which may include, but need not be limited to, the
performance of the participant, the Company, one or more of its subsidiaries or
one or more of their divisions or units, or any combination of the foregoing, as
the Committee shall determine, and may be applied on an absolute basis or be
relative to industry or other indices, or any combination thereof. The Actual
Value of a Performance Grant shall be equal to its Maximum Value only if the
performance objectives are attained in full, but the Committee shall specify the
manner in which the Actual Value of Performance Grants shall be determined if
the performance objectives are met in part. Such performance measures, the
Actual Value or the Maximum Value, or any combination thereof, may be adjusted
in any manner by the Committee in its discretion at any time and from time to
time during or as soon as practicable after the Award Period, if it determines
that such performance measures, the Actual Value or the Maximum Value, or any
combination thereof, are not appropriate under the circumstances.
(c) The rights of a participant in Performance Grants awarded to
him shall be provisional and may be cancelled or paid in whole or in part, all
as determined by the Committee, if the participant's continuous employment or
performance of services for the Company and its Affiliates shall terminate for
any reason prior to the end of the Award Period, except solely by reason of a
period of Related Employment as defined in Paragraph 14.
(d) The Committee shall determine whether the conditions of
subparagraph 8(b) or 8(c) hereof have been met and, if so, shall ascertain the
Actual Value of the Performance Grants. If the Performance Grants have no Actual
Value, the Award and such Performance Grants shall be deemed to have been
cancelled and the Associated Award, if any, may be cancelled or permitted to
continue in effect in accordance with its terms. If the Performance Grants have
any Actual Value and:
<PAGE> 13
(i) were not awarded in conjunction with an Associated Award, the
Committee shall cause an amount equal to the actual Value of the Performance
Grants earned by the participant to be paid to him or his beneficiary as
provided below; or
(ii) were awarded in conjunction with an Associated Award, the Committee
shall determine, in accordance with criteria specified by the Committee (A) to
cancel the Performance Grants, in which event no amount in respect thereof shall
be paid to the participant or his beneficiary, and the Associated Award may be
permitted to continue in effect in accordance with its terms, (B) to pay the
Actual Value of the Performance Grants to the participant or his beneficiary as
provided below, in which event the Associated Award may be cancelled or (C) to
pay to the participant or his beneficiary as provided below, the Actual Value of
only a portion of the Performance Grants, in which a complimentary portion of
the Associated Award may be permitted to continue in effect in accordance with
its terms or be cancelled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as
practicable following the end of the Award Period or upon the earlier
termination of employment or performance of services, or at such other time or
times as the Committee shall determine, and shall be made pursuant to criteria
specified by the Committee.
Payment of any amount in respect of the Performance Grants which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the Award Period or at such other time
or times as the Committee shall determine, and may be made in cash, Common
Shares, Other Company Securities or property, or other forms of payment, or any
combination thereof or in such other manner, as determined by the Committee in
its discretion. Notwithstanding anything in this Paragraph 8 to the contrary,
the Committee may, in its discretion, determine and pay out the Actual Value of
the Performance Grants at any time during the Award Period.
9. DEFERRAL OF COMPENSATION.
The Committee shall determine whether or not an Award shall be
made in conjunction with deferral of the participant's salary, bonus or other
compensation, or any combination thereof, and whether or not such deferred
amounts may be
(i) forfeited to the Company or to other participants, or any
combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company and its Affiliates),
(ii) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain performance
measures and/or
<PAGE> 14
(iii) credited with income equivalents (which may include, but need
not be limited to, interest, dividends or other rates of return) until
the date or dates of payment of the Award, if any.
10. DEFERRED PAYMENT OF AWARDS.
The Committee may specify that the payment of all or any portion
of cash, Common Shares, Other Company Securities or property, or any other form
of payment, or any combination thereof, under an Award shall be deferred until a
later date. Deferrals shall be for such periods or until the occurrence of such
events, and upon such terms, as the Committee shall determine in its discretion.
Deferred payments of Awards may be made by undertaking to make payment in the
future based upon the performance of certain investment equivalents (which may
include, but need not be limited to, government securities, Common Shares, other
securities, property or consideration, or any combination thereof), together
with such additional amounts of income equivalents (which may be compounded and
may include, but need not be limited to, interest, dividends or other rates of
return, or any combination thereof) as may accrue thereon until the date or
dates of payment, such investment equivalents and such additional amounts of
income equivalents to be determined by the Committee in its discretion.
11. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN.
The terms of any outstanding Award under the Plan may be amended
from time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any Award and/or payments thereunder, or reduction of the Option Price of an
Option or exercise price of an Award of Stock Appreciation Rights); provided,
that no such amendment shall adversely affect in a material manner any right of
a participant under the Award without his written consent, unless the Committee
determines in its discretion that there have occurred or are about to occur
significant changes in the participant's position, duties or responsibilities,
or significant changes in economic, legislative, regulatory, tax, accounting or
cost/benefit conditions which are determined by the Committee in its discretion
to have or to be expected to have a substantial effect on the performance of the
Company, or any subsidiary, affiliate, division or department thereof, on the
Plan or an any Award under the Plan. The Committee may, in its discretion,
permit holders of Awards to surrender outstanding Awards as a condition
precedent to the grant of new Awards under the Plan.
<PAGE> 15
12. DISABILITY.
For the purposes of this Plan, a participant shall be deemed to
have terminated his employment or performance of services for the Company and
its Affiliates by reason of disability if the Committee shall determine that the
physical or mental condition of the participant by reason of which such
employment or performance of services terminated was such at that time as would
entitle him to payment of monthly disability benefits under any disability plan
of the Company or an Affiliate in which he is a participant. If the participant
is not eligible for benefits under any disability plan of the Company or an
Affiliate, he shall be deemed to have terminated such employment or performance
of services by reason of disability if the Committee shall determine that he is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code.
13. TERMINATION OF A PARTICIPANT.
For all purposes under the Plan, the Committee shall determine
whether a participant has terminated employment by or the performance of
services for the Company or an Affiliate, provided that transfers between the
Company and an Affiliate or between Affiliates, and approved leaves of absence
shall not be deemed such a termination.
14. RELATED EMPLOYMENT.
For the purposes of this Plan, Related Employment shall mean the
employment or performance of services by an individual for an employer that is
neither the Company nor an Affiliate, provided that (i) such employment or
performance of services is undertaken by the individual at the request of the
Company or an Affiliate, (ii) immediately prior to undertaking such employment
or performance of services, the individual was employed by or performing
services for the Company or an Affiliate or was engaged in Related Employment as
herein defined, and (iii) such employment or performance of services is in the
best interests of the Company and is recognized by the Committee, in its
discretion, as Related Employment for purposes of this Paragraph 14. The death
or disability of an individual during a period of Related Employment as herein
defined shall be treated, for purposes of this Plan, as if the death or onset of
disability had occurred while the individual was employed by or performing
services for the Company or an Affiliate.
15. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding Common Shares of the
Company by reason of any stock split, stock dividend, split-up, split-off,
spin-off, recapitalization, merger, consolidation, rights offering, share
offering, reorganization, combination or exchange of shares, a sale by the
<PAGE> 16
Company of all or part of its assets, any distribution to shareholders other
than a normal cash dividend, or other extraordinary or unusual event, if the
Committee shall determine, in its discretion, that such change equitably
requires an adjustment in the terms of any Award or the number of Common Shares
available for Awards, such adjustment may be made by the Committee and shall be
final, conclusive and binding for all purposes of the Plan.
16. DESIGNATION OF BENEFICIARY BY PARTICIPANT.
A participant may name a beneficiary to receive any payment to
which he may be entitled in respect of any Award under the Plan in the event of
his death, on a written form to be provided by and filed with the Committee, and
in a manner determined by the Committee in its discretion. The Committee
reserves the right to review and approve beneficiary designations. A participant
may change his beneficiary from time to time in the same manner, unless such
participant has made an irrevocable designation. Any designation of beneficiary
under the Plan (to the extent it is valid and enforceable under applicable law)
shall be controlling over any other disposition, testamentary or otherwise, as
determined by the Committee in its discretion. If no designated beneficiary
survives the participant and is living on the date on which any amount becomes
payable to such participant's beneficiary, such payment will be made to the
legal representatives of the participant's estate, and the term "beneficiary" as
used in the Plan shall be deemed to include such person or persons. If there is
any question as to the legal right of any beneficiary to receive a distribution
under the Plan, the Committee in its discretion may determine that the amount in
question be paid to the legal representatives of the estate of the participant,
in which event the Company, the Board and the Committee and the members thereof
will have no further liability to anyone with respect to such amount.
17. CHANGE IN CONTROL.
(a) Upon any Change in Control:
(i) each Stock Option and Stock Appreciation Right that is
outstanding on the date of such Change in Control shall be exercisable
in full immediately;
(ii) all restrictions with respect to Restricted Stock shall
lapse immediately, and the Company's right to repurchase or forfeit any
Restricted Stock outstanding on the date of such Change in Control shall
thereupon terminate and the certificates representing such Restricted
Stock and the related stock powers shall be promptly delivered to the
participants entitled thereto; and
(iii) All Award Periods for the purposes of determining the
amounts of Awards of Performance Grants shall end as of the end of the
calendar quarter immediately preceding the date of such Change in
<PAGE> 17
Control, and the amount of the Award payable shall be the portion of the
maximum possible Award allocable to the portion of the Award Period that
had elapsed and the results achieved during such portion of the Award
Period.
(b) For this purpose, a Change in Control shall be deemed to
occur when and only when any of the following events first occurs:
(i) any person who is not currently such becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding voting securities; or
(ii) three or more directors, whose election or nomination
for election is not approved by a majority of the Incumbent Board (as
hereinafter defined), are elected within any single 24-month period to
serve on the Board of Directors; or
(iii) members of the Incumbent Board cease to constitute a
majority of the Board of Directors without the approval of the remaining
members of the Incumbent Board; or
(iv) any merger (other than a merger where the Company is the
survivor and there is no accompanying Change in Control under
subparagraphs (i), (ii) or (iii) of this paragraph (b)), consolidation,
liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur pursuant to subparagraph (i) of this paragraph (b) solely because 25%
or more of the combined voting power of the Company's outstanding securities is
acquired by one or more employee benefit plans maintained by the Company or by
any other employer, the majority interest in which is held, directly or
indirectly, by the Company. For purposes of this Section 17, the terms "person"
and "beneficial owner" shall have the meaning set forth in Sections 3(a) and
13(d) of the Exchange Act, and in the regulations promulgated thereunder, as in
effect on February 1, 1995 the term "Incumbent Board" shall mean (A) the members
of the Board of Directors of the Company on February 1, 1995, to the extent that
they continue to serve as members of the Board of Directors, and (B) any
individual who becomes a member of the Board of Directors after February 1,
1995, if his election or nomination for election as a director was approved by a
vote of at least three-quarters of the then Incumbent Board.
18. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim or right to be
granted an Award under the Plan. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among eligible individuals
<PAGE> 18
under the Plan, whether or not such eligible individuals are similarly situated.
Neither the Plan nor any action taken hereunder shall be construed as giving any
employee or other person any right to continue to be employed by or perform
services for the Company or any Affiliate, and the right to terminate the
employment of or performance of services by any participant at any time and for
any reason is specifically reserved.
(b) No participant or other person shall have any right with
respect to the Plan, the Common Shares reserved for issuance under the Plan or
in any Award, contingent or otherwise, until written evidence of the Award shall
have been delivered to the recipient and all the terms, conditions and
provisions of the Plan and the Award applicable to such recipient (and each
person claiming under or through him) have been met.
(c) Except as may be approved by the Committee where such approval
shall not adversely affect compliance of the Plan with Rule 16b-3 under the
Exchange Act, a participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided,
however, that any Option or similar right (including, but not limited to, a
Stock Appreciation Right) offered pursuant to the Plan shall not be transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the participant's lifetime only by him.
(d) No Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment shall be issued hereunder with
respect to any Award unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state, local and foreign
legal, securities exchange and other applicable requirements.
(e) It is the intent of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3.
(f) The Company and its Affiliates shall have the right to deduct
from any payment made under the Plan, any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Common Shares, Other Company Securities or property, other securities or
property, or other forms of payment, or any combination thereof, upon exercise,
settlement or payment of any Award under the Plan, that the participant (or any
beneficiary or person entitled to act) pay to the Company, upon its demand, such
<PAGE> 19
amount as may be requested by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other taxes. If
the amount requested is not paid, the Company may refuse to issue Common Shares,
Other Company Securities or property, other securities or property, or other
forms of payment, or any combination thereof. Notwithstanding anything in the
Plan to the contrary, the Committee may, in its discretion, permit an eligible
participant (or any beneficiary or person entitled to act) to elect to pay a
portion or all of the amount requested by the Company for such taxes with
respect to such Award, at such time and in such manner as the Committee shall
deem to be appropriate including, but not limited to, by authorizing the Company
to withhold, or agreeing to surrender to the Company on or about the date such
tax liability is determinable, Common Shares, Other Company Securities or
property, other securities or property, or other forms of payment, or any
combination thereof, owned by such person or a portion of such forms of payment
that would otherwise be distributed, or have been distributed, as the case may
be, pursuant to such Award to such person, having a fair market value equal to
the amount of such taxes.
(g) The expenses of the Plan shall be borne by the Company.
However, if an Award is made to an individual employed by or performing services
for an Affiliate:
(i) if such Award results in payment of cash to the
participant, such Affiliate shall pay to the Company an amount equal to
such cash payment unless the Committee shall otherwise determine in its
discretion;
(ii) if the Award results in the issuance by the Company to
the participant of Common Shares, Other Company Securities or property,
other securities or property, or other forms of payment, or any
combination thereof, such Affiliate shall, unless the Committee shall
otherwise determine in its discretion, pay to the Company an amount
equal to the fair market value thereof, as determined by the Committee,
on the date such Common Shares, other Company Securities or property,
other securities or property, or other forms of payment, or any
combination thereof, are issued (or in the case of the issuance of
Restricted Stock or of Common Shares, Other Company Securities or
property, or other securities or property, or other forms of payment
subject to transfer and forfeiture conditions, equal to the fair market
value thereof on the date on which they are no longer subject to
applicable restrictions), minus the amount, if any, received by the
Company in respect of the purchase of such Common Shares, Other Company
Securities or property, other securities or property or other forms of
payment, or any combination thereof, all as the Committee shall
determine in its discretion; and
(iii) the foregoing obligations of any such Affiliate entity
shall survive and remain in effect and binding on such entity even if
its status as an Affiliate of the Company should subsequently cease,
except as otherwise agreed by the Company and the entity.
(h) The Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under the Plan, and rights to the
payment of Awards shall be no greater than the rights of the Company's general
creditors.
<PAGE> 20
(i) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken by the Company, the Board or the Committee or its delegates.
(j) Fair market value in relation to Common Shares, Other Company
Securities or property, other securities or property or other forms of payment
of Awards under the Plan or any combination thereof, as of any specific time
shall mean such value as determined by the Committee in accordance with
applicable law.
(k) The masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.
(l) The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding Awards hereunder or any
Common Shares issued pursuant hereto as may be required by Section 13 or 15(d)
of the Exchange Act (or any successor provision) or any other applicable
statute, rule or regulation.
(m) The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating to the
Plan and to Awards granted under the Plan, shall be governed by the substantive
laws, but not the choice of law rules, of the State of Delaware.
19. PLAN AMENDMENT OR SUSPENSION.
The Plan may be amended or suspended in whole or in part at any
time and from time to time by the Board, but no amendment shall be effective
unless and until the same is approved by shareholders of the Company where the
failure to obtain such approval would adversely affect the compliance of the
Plan with Rule 16b-3 under the Exchange Act and with other applicable law. No
amendment of the Plan shall adversely affect in a material manner any right of
any participant with respect to any Award theretofore granted without such
participant's written consent, except as permitted under Paragraph 11.
20. PLAN TERMINATION.
This Plan shall terminate upon the earlier of the following dates
or events to occur:
(a) upon the adoption of a resolution of the Board terminating
the Plan; or
<PAGE> 21
(b) ten years from the date the Plan is initially approved and
adopted by the shareholders of the Company in accordance with Paragraph 21
hereof; provided, however, that the Board may, prior to the expiration of such
ten-year period, extend the term of the Plan for an additional period of up to
five years for the grant of Awards other than Incentive Stock Options. No
termination of the Plan shall materially alter or impair any of the rights or
obligations of any person, without his consent, under any Award theretofore
granted under the Plan except that subsequent to termination of the Plan, the
Committee may make amendments permitted under Paragraph 11.
21. SHAREHOLDER ADOPTION.
The Plan shall be submitted to the shareholders of the Company
for their approval and adoption at a meeting to be held on or before December
31, 1995, or at any adjournment thereof. The Plan shall not be effective and no
Award shall be made hereunder unless and until the Plan has been so approved and
adopted. The shareholders shall be deemed to have approved and adopted the Plan
only if it is approved and adopted at a meeting of the shareholders duly held by
vote taken in the manner required by the laws of the State of Delaware and the
applicable Federal securities laws.
<PAGE> 1
EXHIBIT 10.3
MIKE'S ORIGINAL, INC.
1996 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose and Effect
The purpose of this plan (the "Plan") is to induce officers, directors
and other senior executives and management and supervisory personnel of and
consultants to Mike's Original, Inc., a Delaware corporation ("Mike's" or the
"Company"), who are in a position to make material contributions to the
Company's success, to remain in the service of the Company, to offer them
incentives and rewards in recognition of their share in the Company's progress,
and to encourage them to continue to promote the best interests of the Company
through the grant to them of options (the "Options") for the purchase of Common
Stock, $.001 par value, of Mike's (the "Common Stock"). The Plan is also
intended to aid the Company in competing with other enterprises for the services
of new senior executives needed to help insure continued development.
2. Administration
(a) The Plan shall be administered by the Board of Directors of Mike's
(the "Board"), provided however, that the Board may, in the exercise of its
discretion, designate from among its members a Compensation Committee (the
"Committee") consisting of no fewer than two directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act"), and may delegate to the Committee full power and authority,
subject to such orders or resolutions not inconsistent with the provisions of
the Plan as may from time to time be issued or adopted by the Board, to
interpret the provisions and supervise the administration of the Plan. Any
member of the Committee may be removed at any time either with or without cause
by resolution adopted by the Board, and any vacancy on the Committee may at any
time be filled by resolution adopted by the Board. Any or all power and
functions of the Committee may at any time and from time to time be exercised by
the Board; provided, however, that with respect to the participation in the Plan
of persons who are members of the Board, such powers and functions of the
Committee may be exercised by the Board only if, at the time of such exercise, a
majority of the members of the entire Board and a majority of the directors
acting in the particular matter are "Non-Employee Directors" within the meanings
of Rule 16b-3 promulgated under the Exchange Act.
(b) Each Option shall be evidenced by an Option Agreement that shall
contain such terms and conditions (consistent with the terms and conditions of
this Plan) as may be approved by the Board or the Committee, as the case may be,
and shall be signed by an officer of Mike's and the optionee (the "Optionee").
(c) Subject to any applicable provisions of the Company's By-Laws, all
decisions made by the Board or the Committee pursuant to the provisions of the
Plan and related orders or resolutions of the Board shall be final, conclusive
and binding on all persons, including the Company, stockholders, employees and
Optionees.
<PAGE> 2
3. Shares Subject to the Plan
(a) The shares of Common Stock to be delivered upon exercise of
Options granted under the Plan shall be made available, at the discretion of the
Board, either from the authorized but unissued shares of Common Stock or from
shares of Common Stock reacquired by Mike's and held in treasury.
(b) Subject to adjustments made pursuant to the provisions of
Paragraph (c) of this Section 3, the aggregate number of shares to be delivered
upon exercise of all Options that may be granted under this Plan shall be
500,000 shares. If an Option granted under the Plan shall expire or terminate
for any reason during the term of the Plan, the shares subject to but not
delivered under such Option shall be available for the grant of other Options.
(c) In the event of a merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or other change in corporate
structure affecting the Common Stock, appropriate adjustments shall be made in
the aggregate number of shares subject to the Plan and in the number of shares
subject to unexercised Options previously granted under the Plan.
4. Eligibility and Participation
The persons eligible to receive Options shall consist of officers,
directors and other senior executives and management and supervisory personnel
of and consultants to the Company. Subject to the limitations of the Plan, the
Board or the Committee, as the case may be, shall select the person to be
granted Options, determine the number and exercise price of the shares subject
to each Option, and determine the time when each Option shall be granted. More
than one Option may be granted to the same person.
5. Term of Plan and Option Period
The term during which Options may be granted under this Plan shall
commence on October 15, 1996 and expire on October 14, 2006. Subject to the
provisions of the Plan with respect to death, retirement and termination of
employment, the maximum period during which each Option may be exercised may be
fixed by the Board or the Committee, as the case may be, at the time such Option
is granted but shall in no event exceed ten (10) years.
6. Exercise Price
(a) The price at which shares of Common Stock may be purchased upon
exercise of a particular Option shall be not less than eighty-five percent (85%)
of the fair market value of such shares on date such Option is granted, as
determined by the Board or the Committee, as the case may be.
(b) For purposes of determining the fair market value of a share of
Common Stock on the date of grant, if the Common Stock (i) is then listed on any
national securities exchange, the fair market value shall be the closing price
per share of the Common Stock on such exchange at the close of the trading
session on the date of grant, (ii) is then listed on NASDAQ (but not on any
national securities exchange), the fair market value shall be the closing price
per share of the Common Stock on NASDAQ on the date of grant, or (iii) is then
traded on the over-the-counter market (but not on a national securities exchange
or NASDAQ), the fair market value shall be the average of the closing bid and
asked prices of the Common Stock as reported by the National Quotation Bureau,
Inc. or other entity then publishing bide and asked prices for the Common Stock
for the date of grant, or, if unavailable, then the last trading date on which
bid and asked quotations were published immediately preceding the date of grant.
<PAGE> 3
7. Exercise of Options
(a) Each Option granted under this Plan may be exercised only during
the continuance of the Optionee's employment or service with the Company and
only as to such percentage of the shares covered thereby during such periods as
may be determined at the time of grant by the Board or the Committee, as the
case may be, but if no such percentage is specified, then each Option granted
under this Plan may be exercised as to 50% of the shares covered thereby one
year after the date of grant and as to an additional 50% of the shares covered
thereby two years after the date of grant (so that such Option may be exercised
as to 100% of the shares covered thereby beginning two (2) years after the date
of grant), except in case of death, retirement or termination of employment or
service as hereinafter provided. Subject to the foregoing limitations and the
terms and conditions of the option certificate, each Option shall be exercisable
with respect to such number of shares and during such periods as shall be fixed
by the Board or the Committee, as the case may be; provided, however that if the
Board or the Committee grants an Option or Options exercisable in more than one
installment, and if the employment or service of an Optionee holding such Option
is terminated, the Option shall be exercisable as to such number of shares as to
which the Optionee had the right to exercise on the date of termination of
employment or service.
(b) No shares of Common Stock shall be delivered pursuant to the
exercise of any Option, in whole or in part, until qualified for delivery under
such laws and regulations as may be deemed by the Board or the Committee, as the
case may be, to be applicable thereto and until payment in full of the exercise
price thereof is received by the Company.
(c) When exercising Options in whole or in part, Optionees may pay the
exercise price in cash, in shares of Common Stock or by means of any other
consideration acceptable to the Board or the Committee. For purposes of valuing
any share of Common Stock used to exercise any Option in whole or in part, such
shares shall be valued as provided in Section 6(b). Shares of Common Stock used
to exercise any Option granted hereunder shall be free and clear of all liens,
pledges, claims, encumbrances and restrictions of any kind or nature whatsoever,
other than restrictions imposed upon such shares pursuant to the provisions of
the Securities Act of 1933, as amended.
(d) No Optionee, or legal representative, legatee, or distributee of
an optionee, shall be deemed to be a holder of any shares subject to any Option
granted hereunder unless and until the certificate or certificates therefor have
been issued and delivered.
8. Non-Transferability of Options
An Option granted under the Plan may not be transferred except by will
or the laws of descent and distribution, and during the lifetime of the person
to whom granted, may be exercised only by such person.
9. Death, Retirement and Termination of Employment
Any Option, the period of which has not theretofore expired, shall
terminate at the time of death of the person to whom granted or at the time of
retirement or termination for any reason of such person's employment or service
with the Company, and no share of Common Stock may thereafter be delivered
pursuant to such Option, except that:
<PAGE> 4
(a) upon retirement or termination of employment or service (other
than by death, disability, voluntary termination or termination for cause), an
Optionee may within two (2) months after the date of such retirement or
termination, purchase all or part of the shares with respect to which such
Optionee is entitled to exercise such Option, in accordance with the provisions
of Section 7 hereof, but in no event after the expiration of the term of the
Option ("cause" for purposes of this Plan shall mean (i) willful disregard of
duties, (ii) habitual absence from employment or service, (iii) intoxication, or
(iv) dishonesty);
(b) upon the "disability" of any Optionee, the Optionee may within six
(6) months after the date of such termination of employment, but in no event
after the expiration of the term of the Option, purchase all or part of the
shares with respect to which such Optionee is entitled to exercise such Option,
in accordance with the provisions of Section 7 hereof. For purposes of the Plan
the term "disability" shall mean a physical or mental disability as defined in
Section 105 of the Internal Revenue Code of 1986, as amended; and
(c) upon the death of any Optionee while in active employment or
service, the person or persons to whom such Optionee's rights under the Option
are transferred by will or the laws of descent and distribution may, within six
(6) months after the date of such Optionee's death, but in no event after the
expiration of the term of the Option, purchase all or any part of the shares
with respect to which the Option was exercisable on the date of death in
accordance with the provisions of Section 7 hereof.
10. Amendments and Discontinuance
The Board may amend, suspend, or discontinue the Plan, but may not,
without the prior approval of Mike's's stockholders, make any amendment that
would (i) make any material change in the class of eligible persons as defined
in the Plan, (ii) increase the total number of shares for which Options may be
granted under the Plan, (iii) extend the term of the Plan or the maximum option
period, (iv) decrease the minimum option price, or (v) permit adjustments in the
number and option price of shares granted under the Plan except as permitted by
the provisions of Paragraph (c) of Section 3 above.
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
Employment Agreement made as of this 1st day of June, 1995 by and between
Mike's Original, Inc., a Delaware corporation (hereinafter the "Company") and
Michael Rosen (hereinafter called the "Employee").
W I T N E S S E T H:
Whereas, the Company and Employee entered into an Employment Agreement on
March 31, 1994; and
Whereas, the Company desires to enter into a new Employment Agreement with
Employee (the "Agreement"); and
Whereas, Employee desires to be employed by the Company in an executive
capacity on the terms and conditions set forth herein.
Now, therefore, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
1. Prior Agreements Superseded. The Agreement supersedes any
employment or consulting agreements, oral or written, entered into between the
Employee and the Company or any of its subsidiaries, prior to the date of this
Agreement.
2. Term. The Company hereby employs Employee to perform such duties of an
executive nature as shall be determined and assigned to him by the Board of
Directors of the Company and Employee shall so serve the Company on a full-time
basis for a term of four (4) years, commencing on the date of this Agreement;
subject, however, to termination as hereinafter provided. Employee hereby
accepts such employment.
3. Remuneration. The Company shall pay to Employee an annual salary at the
rate of $100,000 for the first year and $125,000 for the second, third and
fourth years of the Agreement, payable in weekly installments, or in such other
manner as shall be agreed to by the Company and Employee.
4. Employee Benefits; Expenses. The Company shall reimburse Employee for
all proper expenses incurred by him, including disbursements made in the
performance of his duties to the Company; provided, however, that no
extraordinary expenses and/or disbursements shall be incurred by Employee
without the prior approval of the Chief Executive Officer or the Board of
Directors of the Company.
<PAGE> 2
5. Non-Competition. Employee agrees that during the term of this Agreement
he will not directly or indirectly enter into or remain in the employ of any
person, firm or corporation, or engage in or have a financial interest in any
business which is then directly or indirectly competitive to the business of the
Company or is then manufacturing any article or product or performing any
service which is the same as, or similar to, any articles or products
manufactured, or service performed by the Company. In the event of a breach of
this covenant not to compete, the parties acknowledge that the Company may be
irreparably damaged and may not have an adequate remedy at law. The Company may
therefore obtain injunctive relief, without the necessity of posting a bond, for
any breach or threatened breach of this covenant. The parties hereto further
acknowledge that this covenant not to compete is intended to conform with the
laws of the State of New York. Any court of competent jurisdiction is hereby
authorized to expend or contract the restrictions of this covenant not to
compete in order to conform with the laws of New York so that it shall bind the
parties hereto.
Employee further agrees that he will not use the name "Mike's Original" or
any variation thereof, or otherwise allow any person to use such name or permit
any member of his family to use such name, or authorize the use of such name as
or in the name of any corporation, partnership, firm or venture which
manufactures any article, product, special process or performs any service which
is the same as, or similar or in competition with any article, product, special
process or service manufactured or performed by the Company, or as in the name
of any such article or product.
6. Termination. Employee's employment hereunder may be terminated by
the Company for a material breach of the terms of this Agreement which is not
cured after Employee receives five days notice thereof. This Agreement shall
also terminate on his death.
7. Confidential Information. With respect to any patent, invention,
trademark or copyright hereafter developed by Employee, Employee shall promptly
notify the Company of any such patent, etc., and shall execute such documents as
the Company may reasonably request in order to evidence the Company's title to
same. In the event Employee determines to develop on his own time and expense
and outside of the Company's facilities any invention, trademark or copyright
not related to the Company's business, he shall have the right to retain
ownership of such invention, trademark or copyright.
<PAGE> 3
8. Ordinary Course. Employee shall not, on behalf of the Company, enter
into any contract other than those in the ordinary course of business of the
Company, unless approved by the Board of Directors of the Company.
9. 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 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.
10. Notices. Notice is to be given hereunder to the parties by telegram
or by certified or registered mail, addressed to the respective parties at the
addresses hereinbelow set forth or to such addresses as may be hereinafter
furnished, in writing:
To: Mr. Michael Rosen
73 Melanie Lane
Syosset, New York 11791
To: Mike's Original, Inc.
131 Jericho Quadrangle
Jericho, New York 11753
Copy to: David H. Lieberman, Esq.
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
11. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company. Unless
clearly inapplicable, reference herein to the Company shall be deemed to
include such other successor.
12. Change of Control.
(a) In the event there shall be a change in the present control of the
Company as hereinafter defined, or in any person directly or indirectly
presently controlling the Company, as hereinafter defined, Employee shall have
<PAGE> 4
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 control of the
Company, or in any person directly or indirectly controlling the Company, shall
mean:
(i) a change in control as such term is presently defined in
Regulation 240.12b-2 under the Securities Exchange Act of 1934 ("Exchange Act");
or
(ii) if during the term of this Agreement, individuals who at the
beginning of such agreement 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.
13. Amendments. This Agreement may not be altered, modified, amended or
terminated except by a written instrument signed by each of the parties hereto.
14. Governing Law. This Agreement is entered into and shall be construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MIKE'S ORIGINAL, INC.
By: /s/ Rachelle Rosen
----------------------------------------
Rachelle Rosen, Secretary/Treasurer
/s/ Michael Rosen
----------------------------------------
Michael Rosen, Employee
<PAGE> 5
MODIFICATION AGREEMENT
MODIFICATION AGREEMENT made this 6th day of February, 1997 by and between
MIKE'S ORIGINAL, INC., a Delaware corporation (hereinafter the "Company") and
MICHAEL ROSEN (hereinafter "Employee")
W I T N E S S E T H:
WHEREAS, the Company and Employee entered into an Employment Agreement
dated as of June 1, 1995 (hereinafter the "Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Paragraph "2" of the Employment Agreement is hereby deleted in its
entirety, and in its place and stead shall be the following:
"2. Term. The Company hereby employs Employee to perform such
duties of an executive nature as shall be determined and assigned
to him by the Board of Directors of the Company and Employee shall so
serve the Company on a full-time basis for a term of six (6) years,
commencing on June 1, 1995; subject, however, to termination as
hereinafter provided. Employee hereby accepts such employment."
2. Paragraph "3" of the Employment Agreement is hereby deleted in its
entirety and in its place and stead shall be the following:
"3. Remuneration. The Company shall pay to Employee an annual
salary at the rate of $100,000 for the first year and $125,000 for
the second through sixth years of the Agreement, payable in weekly
installments, or in such other manner as shall be agreed to by the
Company and Employee."
3. Paragraph "4A" shall be added to the Employment Agreement to be and read
as follows:
"4A. (i) For the third through sixth years of the term of
employment, Employee shall receive an annual bonus of $50,000 for
each such year provided the Company's pre-tax income for
such year exceeds $1,000,000.
(ii) Any bonus payable under this Agreement shall be paid to
Employee upon receipt of audited financial statements for the year
with respect to which it is to be received.
The aforesaid Employment Agreement in all other respects is hereby ratified
and confirmed.
IN WITNESS WHEREOF, the undersigned have executed this Modification
Agreement as of the day and year first above written.
MIKE'S ORIGINAL, INC.
By: /s/ Frederic D. Heller
Frederic D. Heller
Vice President-Finance
/s/ Michael Rosen
Employee
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT made as of the first day of November, 1996 by and between MIKE'S
ORIGINAL, INC., a Delaware corporation (hereinafter the "Company") and Martin
Weiss, residing at 12 Crest Hill Drive, Oak Ridge, New Jersey 07438 (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 the earlier of (i)
February 28, 1998 or (ii) one (1) year after the date on which the Company
completes an initial public offering (the "IPO") of its capital stock.
3. Duties and Extent of Services During Period of Employment. During the
term of employment, Employee shall be an officer of the Company. In such
capacity, Employee agrees that he shall serve the Company under the direction of
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 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 during the term
hereof Employee shall be responsible for the sales and marketing operations of
the Company and that the duties of Employee during the period of active
employment shall not be inconsistent therewith or with (i) his position and
title as a Vice-President; or (ii) with those duties ordinarily performed by a
Vice-President. The Company shall not require Employee to be employed in any
location other than Nassau County, New York, unless he consents in writing to
such location.
4. Remuneration. During the period of employment, Employee shall be
entitled to receive the following compensation for his services:
<PAGE> 2
(a) The Company shall pay to Employee a salary at the rate of $100,000 per
annum, payable in equal bi-weekly installments, or in such other manner as shall
be agreeable to the Company and Employee.
(b) Not later than ninety (90) days after the end of each fiscal year of
the Company, so long as the Company has had net operating income before income
taxes and extraordinary items ("Pre-Tax Income") for such immediately preceding
fiscal year, as reported on the Company's audited annual financial statements,
the Company shall pay to Employee, as incentive compensation, an amount equal to
three percent (3%) of the Company's Pre-Tax Income for such immediately
preceding fiscal year. The Company agrees to furnish to Employee a copy of such
financial statements not later than ninety (90) days after the end of each
fiscal year of the Company during the term hereof.
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 with
the Company as beneficiary.
(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 (including without limitation its 1995 Long-Term
Incentive Plan and 1996 Non-Qualified Stock Option Plan) 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 Vice President 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, and shall reimburse the Employee for all expenses relating to
gasoline and automobile insurance, throughout the term of this Agreement.
(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
<PAGE> 3
any hospitalization, life insurance, pension, profit sharing, incentive
compensation or other present or future employee benefit plan or plans of the
Company.
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 and any increment thereto
payable under Section 4(b) 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
(including, without limitation, "Mike's Original, Inc. ", "Gramwich ", "Graham
<PAGE> 4
Cracker Delight ", "Strawberry Fantasy " and "Chocolate Tidbits "), 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.
(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;
(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.
<PAGE> 5
(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 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 any
applicable grace period, or (v) in the event of any willful breach by the
Employee of this Agreement.
(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.
<PAGE> 6
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 Crest Hill Drive, Oak Ridge, New Jersey 07438, 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.
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.
<PAGE> 7
(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. Acknowledgment. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
Michael Rosen
Chairman, President and
Chief Executive Officer
/s Martin Weiss
Martin Weiss
<PAGE> 1
EXHIBIT 10.6
CONSULTING AGREEMENT
Consulting Agreement made as of this 4th day of November, 1996 by and
between Mike's Original, Inc., a Delaware corporation (hereinafter the
"Company") and Steven A. Cantor (hereinafter called the "Consultant").
W I T N E S S E T H:
Whereas, the Company is aware of Consultant's business expertise and
desires to enter into a Consulting Agreement with Consultant; and
Whereas, Consultant desires to act as a consultant to the Company on the
terms and conditions set forth herein.
Now, therefore, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto agree as follows:
1. Prior Agreements Superseded. The Agreement supersedes any employment or
consulting agreements, oral or written, entered into between the Consultant and
the Company or any of its subsidiaries, prior to the date of this Agreement.
2. Term. The Company hereby retains Consultant to perform certain
consulting services to the Company as shall be determined by Consultant for a
term of three (3) years, commencing on January 1, 1997; subject, however, to
termination as hereinafter provided. Consultant hereby accepts such retention.
3. Remuneration. The Company shall pay to Consultant an annual salary at
the rate of $125,000 for the first year, $125,000 for the second year, and
$125,000 for the third year of this Agreement, payable in weekly installments,
or in such other manner as shall be agreed to in writing by the Company and
Consultant.
4. Accrual of Salary until Initial Public Offering. Notwithstanding the
terms contained herein, the parties agree that no monies shall be payable to
Consultant, except for reimbursement of expenses as provided in Paragraph 5
hereof, 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
such event, all accrued amounts under this Agreement not previously paid shall
immediately become due and payable.
5. Consultant Benefits; Expenses. The Company shall reimburse Consultant
for all proper expenses incurred by him, including disbursements made in the
performance of his duties to the Company; provided, however, that no expenses
and/or disbursements shall be incurred by Consultant without the prior approval
of the Chief Executive Officer or the Board of Directors of the Company.
<PAGE> 2
6. Non-Competition. Consultant agrees that during the term of this
Agreement and provided he is receiving payment hereunder, he will not directly
or indirectly enter into or remain in the employ of any person, firm or
corporation, or engage in or have a financial interest in any business which is
then manufacturing any article or product which is the same as, or similar to,
any articles or products manufactured by the Company. In the event of a breach
of this covenant not to compete, the parties acknowledge that the Company may be
irreparably damaged and may not have an adequate remedy at law. The Company may
therefore obtain injunctive relief, without the necessity of posting a bond, for
any breach or threatened breach of this covenant. The parties hereto further
acknowledge that this covenant not to compete is intended to conform with the
laws of the State of New York. Any court of competent jurisdiction is hereby
authorized to expend or contract the restrictions of this covenant not to
compete in order to conform with the laws of New York so that it shall bind the
parties hereto.
Consultant further agrees that he will not use the name "Mike's Original"
or any variation thereof, or otherwise allow any person to use such name or
permit any member of his family to use such name, or authorize the use of such
name as or in the name of any corporation, partnership, firm or venture which
manufactures any article, product, special process or performs any service which
is the same as, or similar or in competition with any article, product, special
process or service manufactured or performed by the Company, or as in the name
of any such article or product.
7. 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 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 Consultant's
obligations hereunder shall continue in favor of such successor corporation.
8. Notices. Notice is to be given hereunder to the parties by telegram
or by certified or registered mail, addressed to the respective parties at
the addresses hereinbelow set forth or to such addresses as may be hereinafter
furnished, in writing:
To: Mr. Steven A. Cantor
16 Raeburn Court
Babylon Village, New York 11702
<PAGE> 3
To: Mike's Original, Inc.
131 Jericho Quadrangle
Jericho, New York 11753
Attn: Mr. Michael Rosen
9. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of the Company. Unless clearly
inapplicable, reference herein to the Company shall be deemed to include such
other successor. In addition, this Agreement shall be binding upon and inure to
the benefit of the Consultant and his heirs, executors, legal representatives
and assigns, provided, however, that the obligations of Consultant hereunder may
not be delegated without the prior written approval of the Board of Directors of
the Company.
10. Amendments. This Agreement may not be altered, modified, amended or
terminated except by a written instrument signed by each of the parties hereto.
11. Governing Law. This Agreement is entered into and shall be construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
---------------------------------
/s/ Steven A. Cantor
---------------------------------
Steven A. Cantor
<PAGE> 1
EXHIBIT 10.7
CONSULTING AGREEMENT
AGREEMENT, dated November 1, 1996, by and between MIKE'S ORIGINAL, INC., a
Delaware corporation (the "Company") and ALMA MANAGEMENT CORP., a domestic
corporation (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Consultant because of the
extensive knowledge, experience and abilities with respect to the business being
conducted by the Company and possessed by the principals of the Consultant,
including Alan Olstein (the "Principals"), and the Company considers that the
advice of the Consultant and its Principals will be important to the continued
success of the Company, and the Consultant is willing to accept a retainer with
the Company as a consultant and to provide to the Company the services of the
Principals, upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, the Company and the Consultant hereby agree as
follows:
Section 1. Consulting Period.
(a) The Company hereby engages the Consultant to furnish the advisory and
consulting services specified herein, and the Consultant hereby accepts such
engagement and agrees to provide such services, on the terms and conditions
herein set forth, for a one (1) year period commencing on November 1, 1996 (the
"Closing Date") and ending on October 31, 1997 (the "Consulting Period").
(b) Notwithstanding the foregoing, the Consulting Period may be terminated
by the Company:
(i) Upon the date of death of both Principals;
(ii) Upon the Company's sending to the Consultant or to the Principals
written notice terminating the same for Just Cause. For purposes of this
Agreement, "Just Cause" shall include, but not be limited to, (A) action by the
Consultant or the Principals involving dishonesty or fraud detrimental to the
Company; (B) either Principal's conviction of a felony; (C) either Principal's
substance abuse, including without limitation, alcoholism or drug addiction, as
determined by the judgment of a physician selected in good faith by the Board of
Directors of the Company; (D) any violation in a material respect of any of the
provisions of Sections 4 or 5 hereof; or (E) any material failure by the
Consultant or the Principals to perform their duties in accordance with this
Agreement (other than by reason of physical or mental disability of the
Principals), provided the Consultant shall first have been given written notice
of such failure and the Consultant and the Principals shall not have corrected
or caused to be corrected such failure within 30 days from such notice.
<PAGE> 2
(c) In the event the Company terminates one of the Principals, the
Consulting Fee shall be reduced by one half. In the event the Company terminates
either the Consultant or both Principals, no further compensation will be
payable hereunder.
Section 2. Consulting Services.
(a) During the Consulting Period, the Consultant shall and shall cause the
Principals to furnish the Company with advisory and consulting services to be
reasonably determined by the Company respecting sales, marketing and
distribution matters and operations of the Company and/or any current or future
parent of the Company ("parent") or of any current or future subsidiary of
("subsidiary"), or corporation affiliated with ("affiliate"), the Company as
well as such other advisory and consulting services within the areas of the
Consultant's expertise as may be reasonably determined from time to time by the
Company. Consultant shall cause the principals to develop and inform the Company
of any and all potential business opportunities that the Consultant may devise
as well as assisting the Company in the implementation of these opportunities.
The Company may select which of the Principals shall provide specified services
to the Company. For the purpose of this Agreement, the term "Company" shall
include also any corporation which is a successor in interest to the Company,
whether by reason of merger, consolidation, and/or purchase or acquisition of
substantially all of the Company's assets or otherwise.
(b) During the Consulting Period, the Consultant shall cause the Principals
to be available to furnish advisory and consulting services hereunder, at the
request of the Company, during normal business hours on a part-time basis, not
to exceed 20 hours per week but no less than 15 hours unless agreed to in
writing. In performing such duties, the Consultant agrees that if necessary,
upon request of the Company, that the Principals shall be available to furnish
consulting and advisory services to the Company by telephone at mutually
agreeable times.
Section 3. Compensation and Expenses.
(a) Subject to the provisions of this Agreement, as compensation for its
services and covenants hereunder, the Company shall pay to the Consultant during
the Consulting Period, a fee at the rate of $50,000 per annum, payable in equal
bi-weekly installments of $1,923.00 each (the foregoing fee being herein
referred to as the "Consulting Fee").
(b) As further compensation, Consultant shall receive five year options to
purchase 200,000 shares of the Company's Common Stock at $1.00 per share vesting
over an eighteen month period commencing on the date hereof. One-third shall
vest within six months of the date hereof, two-thirds within twelve months, and
the remaining one-third in eighteen months.
(c) The Company will reimburse the Consultant and the Principals for all
reasonable, actual out-of-pocket expenses previously approved in writing
incurred by it or them in the performance of duties hereunder at the request of
<PAGE> 3
the Company, either upon presentation of properly itemized charges, receipts and
similar documentation or otherwise in accordance with policies or practices
established from time to time by the Board of Directors of the Company.
(d) Notwithstanding anything contained herein to the contrary, the
Consultant shall be an independent contractor and shall not be considered an
employee of the Company for any purpose whatsoever, including, but not limited
to, medical, health or accident insurance or plans, retirement or pension plans
or benefits; incentive, bonus or similar plans; sick, disability or vacation pay
or allowances; withholding, social security or other employer contributions; and
the use of credit cards.
Section 4. Assignment.
This Consulting Agreement shall not be assigned by either party hereto
except that the Company may assign its rights hereunder to any parent,
subsidiary or affiliate or to any successor in interest of the Company whether
by merger, consolidation, purchase or acquisition of substantially all of the
Company's assets or otherwise.
Section 5. Notices.
All notices, requests, demands and other communications hereunder must be
in writing and shall be deemed to have been duly given if mailed, by prepaid,
first-class, registered or certified mail, return receipt requested, delivered
by a nationally recognized overnight courier service or sent by facsimile
transmission electronically confirmed during normal business hours, and
addressed as follows:
(a) If to the Company:
Mike's Original, Inc.
131 Jericho Turnpike
Jericho, New York 11753
Fax No: (516) 334-2292
with copy to:
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Attn: David H. Lieberman, Esq.
Fax No.: (516) 822-4824
<PAGE> 4
(b) If to the Consultant:
Alma Management Co.
c/o Alan Olstein
63 Downing Street
New York, New York 10014
Fax No:
with copy to:
Wallach, Turkish & Wallach
50 Broadway
25th Floor
New York, New York 10004
Fax No: 212-742-4219
Section 6. Miscellaneous.
This Agreement represents the entire understanding of the parties hereto
relating to the retention of the Consultant as a consultant to the Company, and
the terms and provisions of this Agreement may not be modified or amended,
except in writing. Any failure or delay on the part of either party in
exercising any power or right hereunder shall not operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
other or further exercise thereof or the exercise of any other right or power
hereunder. The headings in this Agreement are for convenience of reference only
and shall not be considered as part of this Agreement nor limit or otherwise
affect the meaning thereof. This Agreement shall be construed and enforced in
accordance with, and governed by, the laws of the State of New York, without
regard to its conflicts of laws or rules. Any disputes or litigation arising out
of this Agreement shall be litigated in the Supreme Court of the State of New
York, Nassau County and it shall be the understanding of the parties that by
entering this agreement, they consent to the jurisdiction of the Supreme Court
of the State of New York, Nassau County.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly executed this Consulting
Agreement on the day and year first above written.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
_______________________________
Michael Rosen
Chairman, President and Chief
Executive Officer
Consented and Agreed to:
the Principal
ALMA MANAGEMENT CORP.
/s/ Alan Olstein
________________________
By: /s/ Alan Olstein
________________________________
Name: Alan Olstein
Title:
<PAGE> 1
EXHIBIT 10.8
MIKE'S ORIGINAL, INC.
PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR UNDER ANY
STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED UNTIL
(i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH NOTE MAY BE
PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS.
$2,500 ___________, 1996
Note No. 96M-1
FOR VALUE RECEIVED, Mike's Original, Inc., a Delaware corporation (the
"Company"), with its principal office at 131 Jericho Turnpike, Jericho, New York
11753 promises to pay to __________________ residing at
________________________________________ (the "Holder"),the principal amount of
__________________________ ($_______), in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public or private debts, together with interest on the unpaid balance
of said principal amount from time to time outstanding at the rate of twelve
(12%) percent per annum from the date hereof until the Maturity Date (as defined
below). Payment of principal shall be made on the earlier of (i) thirteen (13)
months from the date hereof, or (ii) such date as shall be determined pursuant
to the provisions of Sections 3.1, 3.2 or 3.3 of this Note (the earlier of such
dates set forth in or referred to in clauses (i) and (ii) of this sentence is
herein referred to as the "Maturity Date"). Payment of interest accrued on the
unpaid principal balance hereof shall be made on the Maturity Date and
thereafter shall be payable monthly, if applicable. Payments of principal and
interest are to be made at the address of the Holder designated above or at such
other place as the Holder shall have notified the Company in writing at least
five days before such payment is due.
This Note is issued pursuant to a Subscription Agreement between the
Company and the Holder and is entitled to all the benefits, and is subject to
all the limitations, set forth therein, provided, that reference herein to the
Subscription Agreement shall in no way impair the absolute and unconditional
obligation of the Company to pay both principal and interest hereon as provided
herein. The Company covenants that the proceeds of this Note will be used only
for the purposes described in the Subscription Agreement.
<PAGE> 2
1. Events of Default.
(a) Upon the occurrence of any of the following events (each an "Event
of Default", and collectively the "Events of Default"):
(i) the Company shall fail to make a payment of the principal or
of interest on this Note within five (5) days after such payment is
due;
(ii) (1) the Company shall commence any proceeding or other action
relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation,
winding-up, composition or any other relief under any bankruptcy law,
or under any other insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt or any
other similar act or law, of any jurisdiction, domestic or foreign, now
or hereafter existing; or (2) the Company shall admit the material
allegations of any petition or pleading in connection with any such
proceeding; or (3) the Company applies for, or consents or acquiesces
to, the appointment of a receiver, conservator, trustee or similar
officer for it or for all or a substantial part of its property; or (4)
the Company makes a general assignment for the benefit of creditors;
(iii) (1) the commencement of any proceedings or the taking of any
other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
dissolution, arrangement, composition, readjustment of debt or any
other relief under any bankruptcy law or any other similar act or law
of any jurisdiction, domestic or foreign, now or hereafter existing and
the continuance of any of such events for forty-five (45) days
undismissed, unbonded or undischarged; or (2) the appointment of a
receiver, conservator, trustee or similar officer for the Company or
for all or substantially all of its property and the continuance of any
of such events for forty-five (45) days undismissed, unbonded or
undischarged; or (3) the issuance of a warrant of attachment, execution
or similar process against substantially all of the property of the
Company and the continuance of such event for forty-five (45) days
undismissed, unbonded and undischarged;
(iv) the Company shall fail to perform any obligation of the
Company contained in the Subscription Agreement relating to the
offering of the Notes (as defined below) and such failure is not
remedied within twenty (20) days after the occurrence thereof, which
failure shall have the effect more fully set forth in Section 3.3
hereof, to the extent applicable, or there shall have occurred any
breach of a representation or warranty of the Company set forth in the
Subscription Agreement which breach shall have the effect more fully
set forth in Section 3.3 hereof;
<PAGE> 3
(v) the Company shall fail to comply with any of its obligations
under this Note (including without limitation those incorporated by
reference herein);
(vi) the Company shall (a)(i) fail to pay any indebtedness for
borrowed money (other than as evidenced by this Note) owing by it to
the Holder of any promissory note (the "Notes") issued by the Company
as part of the private placement of the Company's securities (comprised
of units of notes and shares of Common Stock) contemplated by the
Private Placement Memorandum dated June ___, 1996 when due, whether
such indebtedness shall become due by scheduled maturity, required
prepayment, acceleration or otherwise, (ii) fails to pay any other
indebtedness in excess of $100,000 existing at the date hereof or
created at any time prior to the Maturity Date, when due, whether such
indebtedness shall become due by scheduled maturity, required
prepayment, acceleration or otherwise, or (iii) any "event of default"
(as defined in any such promissory note or other instrument of
indebtedness) has occurred; or
(iv) a final judgment or judgments for the payment of money in
excess of $100,000 in the aggregate shall be rendered by one or more
courts, administrative or arbitral tribunals or other bodies having
jurisdiction against the Company and the same shall not be discharged
(or provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within 60 days from the date
of entry thereof and the Company shall not, within such 60-day period,
or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal;
then, in any such event, the entire unpaid principal amount of this Note
outstanding together with accrued interest thereon shall forthwith become
immediately due and payable without presentment, demand, protest, or other
notice of any kind, all of which are expressly waived. The Events of Default
listed herein are solely for the purpose of protecting the interests of the
Holder of this Note. If the Note is not paid in full upon acceleration, as
required above, interest shall accrue on the outstanding principal of and
interest on this Note from the date of the Event of Default up to and including
the date of payment at a rate equal to the lesser of 18% per annum or the
maximum interest rate permitted by applicable law, and shall be payable monthly.
(b) Non-Waiver and Other Remedies. No course of dealing or delay
on the part of the Holder in exercising any right hereunder shall operate as a
waiver or otherwise prejudice the right of the Holder. No remedy conferred
hereby shall be exclusive of any other remedy referred to herein or now or
hereafter available at law, in equity, by statute or otherwise.
2. Principal Obligation: Covenants. No provision of this Note shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, at the rates, and in the currency herein prescribed.
<PAGE> 4
2.1 Affirmative Covenants. The Company hereby covenants and agrees
that, while this Note is outstanding, it shall:
(a) Pay and discharge all taxes, assessments and governmental
charges or levies imposed upon it or upon its income and profits, or upon any
properties belonging to it before the same shall be in default; provided,
however, that the Company shall not be required to pay any such tax, assessment,
charge or levy which is being contested in good faith by proper proceedings and
adequate reserves for the accrual of same are maintained if required by
generally accepted accounting principals; and
(b) Do all things necessary to preserve its corporate existence.
2.2 Negative Covenants. The Company hereby covenants and agrees that
while this Note is outstanding it will not directly or indirectly:
(a) guaranty or otherwise in any way become or be responsible for
indebtedness for borrowed money or obligations of any of its officers, directors
or principal stockholders or any of their affiliates, contingently or otherwise;
(b) sell, transfer or dispose of, any of its assets other than
in the ordinary course of its business and for fair value;
(c) fail to comply with any statute, law, ordinance, order,
judgment, decree, injunction, rule, regulation, permit, license, authorization
or requirement ("Requirement(s)") of any governmental body, department,
commission, board, company or association insuring the Company or its property,
court, authority, official, or officer, which are or may be applicable to the
Company or its properties and of which the Company has knowledge; except wherein
the failure to comply would not have a material adverse effect on the Company or
its property; provided that nothing contained herein shall prevent the Company
from contesting the validity or the application of any Requirement; or
<PAGE> 5
3. Prepayment.
3.1 Public Offering. This Note shall be paid in full with accrued or
unpaid interest but without premium, in the event, and on the date (the
"Effective Date"), that the Company successfully consummates an initial public
offering of securities of the Company including, but not limited to, the initial
public offering contemplated by the Letter of Intent dated as of May 30, 1996
between Millenium Securities Corp. and the Company.
3.2 Change of Control.
(a) Upon the occurrence of any of the following events (herein
called a "Change of Control"):
(i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Subsidiaries to
any person or related group of persons for purposes of Section 13(d) of
the Exchange Act (a "Group"), together with any affiliates thereof
(whether or not otherwise in compliance with the provisions of this
Note);
(ii) the shareholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of this Note); or
(iii) the acquisition in one or more transactions of
beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) by (y) any person or entity or (z) any Group, in either
case, of any Capital Stock of the Company such that, as a result of
such acquisition, such person, entity or Group beneficially owns
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, at least 50% of the Company's then outstanding voting
capital stock entitled to vote on a regular basis for a majority of the
Board of Directors;
each Holder shall have the right, at such Holder's option, to require the
Company to immediately repurchase such Holder's Notes at a purchase price in
cash equal to the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of purchase, in accordance with the terms contemplated in
paragraph (b) below.
(b) Within 10 Business Days following any Change of Control, the Company
shall mail a notice (a "Change of Control Offer") to each Holder, stating:
(i) that a Change of Control has occurred and that such
Holder has the right, at such Holder's option, to require the
Company to repurchase such Holder's Notes at the applicable purchase
price in cash as determined above;
<PAGE> 6
(ii) the circumstances and relevant facts regarding such
Change of Control (including, but not limited to, information with
respect to pro forma historical income, cash flow and capitalization
after giving effect to such Change of Control and whether the
transaction giving rise to such Change of Control was approved by a
majority of the Board of Directors);
(iii) the purchase date (which shall be no earlier than 10
days nor later than 20 days from the date such notice is mailed); and
(iv) the instructions determined by the Company, consistent
with this Section 3.2, that a Holder must follow in order to have
Notes repurchased.
3.3 Voluntary Prepayment. This Note may be called and prepaid by the
Company at any time in whole or in part from time to time at par, without
premium or penalty. Interest shall accrue to and including the date on which
prepayment is made.
4. Required Consent. The Company may not modify any of the terms of
this Note without the prior written consent of the Holder.
5. Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Note,
if mutilated, the Company will make and deliver in lieu of such Note a new Note
of like tenor and unpaid principal amount and dated as of the original date of
the Note.
6. Miscellaneous.
(a) Benefit. This Note shall be binding upon and inure to the
benefit of the parties hereto and their legal representatives, successors and
assigns (but with respect to an assignee, only an assignee to whom this Note has
been assigned in accordance with the provisions of Section 7(f) hereof).
(b) Notices and Addresses. All notices, offers, acceptance and any
other acts under this Note (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressee in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
Holder: To his address on page 1 of this Note
<PAGE> 7
The Company: Mike's Original, Inc.
131 Jericho Turnpike
Jericho, New York 11753
Attention: Mr. Michael Rosen
Fax: (516) 334-8500
In either case
with copies
to: Millenium Securities Corp.
110 E. 59th Street, 6th Floor
New York, NY 10022
Attention: Mr. Richard E. Sitomer
Fax: (212) 909-0528
and
Blau, Kramer, Wactlar & Lieberman, P.C.
100 Jericho Quadrangle, Suite 225
Jericho, New York 11753
Attention: David H. Lieberman, Esq.
Fax: (516) 822-4824
and
Beckman & Millman, P. C.
116 John Street, Suite 1313
New York, New York 10038
Attn: Michael Beckman, Esq.
Fax: (212) 732-1443
or to such other address as any of them, by notice to the others may designate
from time to time. The transmission confirmation-receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person,
by Federal Express or similar receipted delivery, by facsimile or by mailing.
(c) Governing Law. This Note and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided therein or performance
shall be governed and interpreted according to the laws of the State of New
York, without regard to its conflicts of law principles.
(d) Section Headings. Section headings herein have been inserted
for reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
<PAGE> 8
(e) Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein shall survive the
delivery of this Note.
(f) Restriction on Transfer. This Note has not been registered
under the Securities Act of 1933, as amended (the "Act"), nor under any state
securities law and may not be pledged, sold, assigned or transferred until (i) a
registration statement with respect thereto is effective under the Act and any
applicable state securities law or (ii) the Company receives an opinion of
counsel to the Company or other counsel to the Holder of such Note which other
counsel is reasonably satisfactory to the Company that such Note may be pledged,
sold, assigned or transferred without an effective registration statement under
the Act or applicable state securities laws.
(g) Payment of Costs of Collection. The Company agrees to pay
all costs of collection, when incurred, including, without limitation,
reasonable attorneys' fees and court costs.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
MIKE'S ORIGINAL, INC.
By:__________________________________
Michael Rosen, Chairman of the Board,
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.9
SUBSCRIPTION AGREEMENT
Subscription Agreement, dated as of June __, 1996, between Mike's Original,
Inc., a Delaware corporation (the "Company") and _____________________________
(the "Purchaser").
WHEREAS, the Purchaser desires to subscribe for, and the Company desires to
issue to the Purchaser, Bridge Units (the "Units") consisting of $______
principal amount of promissory notes (the "Notes"), substantially in the form
attached hereto as Exhibit A, and ______ shares (the "Shares") of common stock,
par value $.001 per share (the "Common Stock") of the Company, all upon the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
premises, covenants, representations and warranties herein contained, it is
hereby agreed as follows:
1. Subscription Price; Issuance.
In reliance on the representations and warranties contained herein and
subject to the terms and conditions hereof, the Purchaser hereby subscribes for
___ Units and concurrently with delivery hereof has paid to the Company an
amount equal to $25,000 per Unit or $__________ in the aggregate, in immediately
available funds upon the execution and delivery of this Agreement, and the
Company will issue upon the closing as contemplated by the Memorandum (as
hereinafter defined) to the Purchaser a Note in the principal amount of $2,500
with respect to each such Unit and 11,250 Shares of Common Stock with respect to
each such Unit.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Purchaser as follows:
2.1. Corporate Status.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware with full corporate power
and authority to carry on its business as now conducted.
2.2. Authority of Agreement.
The Company has the power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement constitutes the
valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally now or hereafter in effect and subject to the
application of equitable principles and the availability of equitable remedies.
The Company has reserved from its authorized but unissued shares of Common Stock
such number of shares as shall be deliverable to the Purchaser upon the Closing
of the Units subscribed for hereby.
<PAGE> 2
2.3. No Conflicts.
The execution, delivery and performance of this Agreement and the
other instruments and agreements to be executed, delivered and performed by the
Company pursuant hereto and the consummation of the transactions contemplated
hereby and thereby by the Company do not and will not with or without the giving
of notice or the passage of time or both, violate or conflict with or result in
a breach or termination of any provision of, or constitute a default under, the
Certificate of Incorporation or the By-Laws of the Company or any order,
judgment, decree, statute, regulation, contract, agreement or any other
restriction of any kind or description to which the Company or its assets may be
bound or subject.
2.4 Fully Paid and Non-Assessable
Upon issuance of the Shares and payment therefor pursuant to the terms
hereof, each share of Common Stock shall be validly issued, fully paid and
non-assessable.
3. Representations and Warranties of the Purchaser.
The Purchaser represents and warrants to the Company as follows:
3.1. Status.
If the Purchaser is a corporation or other entity, the Purchaser is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with full power
and authority to execute, deliver and perform its obligations under this
Agreement. If the Purchaser is an individual, the Purchaser has legal capacity
to execute, deliver and perform his or her obligations under this Agreement.
3.2 Authority for Agreements.
The Purchaser has the power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance by the Purchaser of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Purchaser and this Agreement constitutes the valid and
legally binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally now or hereafter in effect and subject to the application of
equitable principles and the availability of equitable remedies.
<PAGE> 3
3.3. No Conflicts.
The execution, delivery and performance of this Agreement and the
other instruments and agreements to be executed, delivered and performed by the
Purchaser pursuant hereto and the consummation of the transactions contemplated
hereby and thereby by the Purchaser do not and will not with or without the
giving of notice or the passage of time or both, violate or conflict with or
result in a breach or termination of any provision of, or constitute a default
under, the Certificate of Incorporation or the By-Laws of the Purchaser (if the
Purchaser is a corporation), any other organizational instrument (if the
Purchaser is a legal entity other than a corporation) or any order, judgment,
decree, statute, regulation, contract, agreement or any other restriction of any
kind or description to which the Purchaser is a party or by which the Purchaser
may be bound.
3.4. Investor Representations and Acknowledgements.
(a) The Purchaser is acquiring the Bridge Units for the Purchaser's
own account for investment only and not as nominee or agent and not with a view
to, or for sale in connection with, a distribution of the Bridge Units or its
components and with no present intention of selling, transferring, granting a
participation in or otherwise distributing, the Bridge Units or such components,
all within the meaning of the Securities Act of 1933, as amended, and the rules
and regulations thereunder (the "Securities Act") and any applicable state,
securities or blue sky laws.
(b) The Purchaser is not a party or subject to or bound by any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge the Bridge Units or any part thereof to any person, and has
no present intention to enter into such a contract, undertaking, agreement or
arrangement.
(c) The Purchaser acknowledges to the Company that:
(i) The Company has advised the Purchaser that the Bridge Units and
their components have not been registered under the Securities Act or
under the laws of any state on the basis that the issuance thereof
contemplated by this Agreement is exempt from such registration;
(ii) The Company's reliance on the availability of such exemption
is, in part, based upon the accuracy and truthfulness of the
Purchaser's representations contained herein;
<PAGE> 4
(iii) The Bridge Units and their components cannot be resold without
registration or an exemption under the Securities Act and such state
securities laws, and that certificates representing the Shares will
bear a restrictive legend to such effect;
(iv) The Purchaser has evaluated the merits and risks of purchasing
the Bridge Units, and has such knowledge and experience in financial
and business matters that the Purchaser is capable of evaluating the
merits and risks of such purchase, is aware of and has considered the
financial risks and financial hazards of purchasing the Bridge Units,
and is able to bear the economic risk of purchasing the Bridge Units,
including the possibility of a complete loss with respect thereto;
(v) The Purchaser has had access to such information regarding the
business and finances of the Company, including without limitation,
the Company's audited and unaudited financial statements (including
certain drafts thereof) included in the disclosure documents delivered
by the Company to the Purchaser, and has been provided the opportunity
to discuss with the Company's management the business, affairs and
financial condition of the Company and such other matters with respect
to the Company as would concern a reasonable person considering the
transactions contemplated by this Agreement and/or concerned with the
operation of the Company.
(vi) The Purchaser hereby covenants and agrees that Purchaser shall
not directly or indirectly, offer, offer to sell, contract to sell,
pledge, hypothecate, grant any option to purchase or otherwise dispose
or transfer (or announce any offer, offer of sale, sale, contract of
sale, grant of any option to purchase or other disposition or
transfer), or agree to do any of the foregoing, with respect to the
Bridge Units and/or Shares, without the prior written consent of
Millenium Securities Corp., for a period of up to 18 months after an
initial public offering of Common Stock of the Company, even if such
Units or Shares of Common Stock are registered in such initial public
offering. The certificates representing the Bridge Units and such
Shares of Common Stock will bear a restrictive legend to such effect;
(vii) All the information which is set forth with respect to the
Purchaser in the Purchaser Questionnaire executed by the Purchaser,
all of which are incorporated herein by this reference, and all of the
Purchaser's representations and warranties set forth herein are
correct and complete as of the date of this Agreement, shall be true
and correct as of the closing of the transaction contemplated by this
Agreement, shall survive such closing and if there should by any
material change in such information prior to the sale to the Purchaser
of the Bridge Units the Purchaser will immediately furnish such
revised or corrected information to the Company; and
<PAGE> 5
(viii) Additional Representations and Warranties of Accredited
Investors. The Purchaser, by initialing the applicable paragraph below
(a) through (g) hereby represents and warrants that the Purchaser is
an "Accredited Investor", because the Purchaser comes within one or
more of the enumerated categories. The Purchaser has reviewed the
Investor Suitability Standards attached as Annex A hereto and confirms
it is an "Accredited Investor" as indicated below. Place your initials
in the space provided in the beginning of each applicable paragraph,
thereby representing and warranting as to the applicability to the
Purchaser of the initialed paragraph or paragraphs:
[ ] (a) any individual Purchaser whose net worth, or joint net
worth with that person's spouse at the time of his purchase,
exceeds $1,000,000 (including any individual participant of a
Keogh Plan, IRA or IRA Rollover Purchaser);
[ ] (b) any individual Purchaser who had an income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of those
years and who reasonably expects an income in excess of the same
income level in the current year (including any individual
participant of a Keogh Plan, IRA or IRA Rollover Purchaser);
[ ] (c) any corporation or partnership not formed for the
specific purpose of making an investment in the Bridge Units,
with total assets in excess of $5,000,000;
[ ] (d) any trust, which is not formed for the specific purpose
of investing in the Bridge Units, with total assets in excess of
$5,000,000, whose purchase is directed by a sophisticated person,
as such term is defined in Rule 506(b) of Regulation D under the
Securities Act;
[ ] (e) any ERISA Plan if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of ERISA, which is
either a bank, insurance company, or registered investment
adviser, or the Plan has total assets in excess of $5,000,000;
[ ] (f) any entity in which all of the equity owners are
Accredited Investors under paragraphs (a), (b) or (c) above or
any other entity meeting required "Accredited Investor" standards
under Rule 501 of Regulation D under the Securities Act and
applicable State securities law criteria;
[ ] (g) other (please explain)
<PAGE> 6
4. Registration Rights.
4.1 IPO Registration. In connection with the purchase of the Bridge Units
and as an inducement to the Purchaser with respect thereto, the Company hereby
covenants and agrees that it shall cause all Shares purchased by the Purchaser
pursuant hereto to be registered under the registration statement relating to
the Company's initial public offering, as contemplated by the Letter of Intent
dated May 30, 1996 between the Company and Millenium Securities Corp. In
addition, the Company does hereby grant certain other registration rights, which
rights are set forth in more detail in Section 4.2 hereof and Section 5.
4.2 Piggyback Registration Rights. The Company further covenants and agrees
that if, at any time following the date hereof, the Company proposes to file a
registration statement with respect to the public offering of any class of
security (other than in connection with a merger or acquisition on Form S-4 or
successor form or in connection with an employee benefit plan on Form S-8 or
successor form) under the Securities Act in a primary registration on behalf of
the Company and/or in a secondary registration on behalf of holders of such
securities (other than the Shares) and the registration form to be used may be
used for registration of the Shares, the Company will give prompt written notice
(which shall be at least thirty (30) days prior to the proposed date of such
filing) to the holders of the Shares (the "Holders") at the addresses appearing
on the records of the Company of its intention to file a registration statement
and will offer to include in such registration to the maximum extent possible,
subject to paragraph (a) and (b) below of this Section 4.2, such number of
Shares with respect to which the Company has received written requests for
inclusion therein within ten (10) days after the giving of the Company's
aforementioned notice. The registration requested pursuant to this Section 4.2
is referred to herein as a "Piggyback Registration." The Company shall continue
to provide these Piggyback Registration rights and shall continue to give notice
of any such registrations to the Holders until such time as all of the Shares
shall have been registered under the Act.
(a) Priority on Primary Registrations. If the Piggyback Registration
applies to an underwritten primary registration on behalf of the
Company and the underwriter(s) of the offering being registered by the
Company shall determine in good faith and advise the Company in
writing that, in its/their opinion, the number of Shares requested to
be included in such registration exceeds the number than can be
registered on such registration statement without materially adversely
affecting the distribution of such securities by the Company, the
Company will include in such registration (i) first, the securities
that the Company proposes to sell, (ii) second, the securities
purchased by the Purchaser pursuant to this Subscription Agreement and
all other purchasers in this same non-public offering of Bridge Units
by the Company through Millenium Securities Corp., as placement agent
(the "Bridge Offering"), (iii) third, the securities issued to
Millenium Securities Corp. in connection with that certain Unit
Purchase Option more fully described in that certain Letter of Intent
dated May 30, 1996 between the Company and Millenium Securities Corp.
and (iv) fourth, any other securities requested to be included in such
registration, apportioned pro rata among the holders of such
securities.
<PAGE> 7
(b) Priority on Secondary Registrations. If the Piggyback Registration
applies only to an underwritten secondary registration on behalf of
holders of securities of the Company, and the underwriter(s) for such
offering being registered by the Company advise(s) the Company in
writing that, in its/their opinion, the number of Shares requested to
be included in such registration exceeds the number which can be
registered on such registration statement without materially adversely
affecting the distribution of such securities, the Company will
include in such registration (i) first, the securities requested to be
included therein by the initial holders requesting such registration,
(ii) second, the securities purchased by the Purchaser pursuant to
this Subscription Agreement and all other purchasers in the Bridge
Offering, and (iii) third, any other securities requested to be
included in such registration, apportioned pro rata among the holders
of such securities.
(c) Notwithstanding the foregoing, if any such underwriter shall
determine in good faith and advise the Company in writing that any
distribution of the Shares 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, then the Holders of such Shares shall delay
their offering and sale for such period ending on the earliest of (1)
120 days following the effective date of the Company's registration
statement, (2) the day upon which the underwriting syndicate, if any,
for such offering shall have been disbanded or, (3) such date as the
Company, the managing underwriter of such offering and the Holders
shall otherwise agree. In the event of such delay, the Company shall
file such supplements, post-effective amendments and take any such
other steps as may be necessary to permit such Holders to make his
proposed offering and sale for a period of 120 days immediately
following the end of such period or delay. If the Purchaser
disapproves of the terms of any such underwriting, the Purchaser may
elect to withdraw therefrom by written notice to the Company.
5. Company's Obligations for Registrations.
5.1 Costs and Expenses. The Company shall pay all costs (excluding
expenses of counsel to the Holders and underwriting, dealers or selling
commissions, which shall be borne by the Holders), fees and expenses in
connection with any registration statement filed pursuant to Section 4 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses. If the Company shall fail to comply with
the provisions of Section 4 hereof, the Company shall, in addition to any other
equitable or other non-monetary relief available to the Holders, be liable for
any or all incidental, special and consequential damages due to loss of profit
sustained by the Holders as a result of such failure.
<PAGE> 8
5.2 Blue Sky Laws. The Company will take all necessary action which
may be required in qualifying or registering the Shares included in a
registration statement for offer and sale under the securities or blue sky laws
of such states as reasonably are requested by the Holder(s); provided, that the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction; provided, further, that the Company shall not be
obligated to qualify or register the Shares in any state where the Company's
shares are not already qualified or registered for offer and sale as of the
effective date of the Company's initial public offering contemplated by that
certain Letter of Intent dated May 30, 1996 between the Company and Millenium
Securities Corp.
5.3 Indemnification of Holders. The Company shall indemnify the
Holder(s) of the Shares to be sold pursuant to any registration statement and
each person, if any, who controls such Holders within the meaning of Section 15
of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, arising
from such registration statement; provided, however, that the Company shall not
be required to indemnify the Holders for any loss, claim, damage, expense or
liability arising from any misstatement or omission of a material fact which is
based on information furnished in writing by or on behalf of such Holders, or
their successors or assigns, for inclusion in the registration statement. In
addition, the Company shall not be obligated to indemnify the Holders for any
loss, claims, damage, expense or liability arising from any misstatement or
omission of a material fact where the Company shall have timely delivered to the
Holders amendments or supplements of a registration statement or prospectus
which correct such misstatement or omission of a material fact and the Holders
fail to utilize such amendment or supplement in the offer and sale of the
Shares.
5.4 Indemnification of the Company. The Holders(s) of the Shares to be
sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Securities Act, the
Exchange Act or otherwise, arising from information furnished in writing by or
on behalf of such Holders, or their successors or assigns, for inclusion in such
registration statement.
5.5 Deliveries. The Company shall furnish to each Holder participating
in the offering and to each underwriter thereof, if any, a signed counterpart,
addressed to such Holder or underwriter, of a "cold comfort" letter dated the
effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
<PAGE> 9
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein) and, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in accountants' letters delivered to underwriters in
underwritten public offerings of securities. In addition, in the event that the
subject registration is underwritten, the Company shall furnish to each Holder
participating in such offering and to each such underwriter thereof, an opinion
of counsel to the Company, dated as of the closing date of the public offering
covered by such registration statement, covering substantially the same matters
with respect to such registration statement (and the Prospectus included
therein) as are customarily covered in opinions of issuer's counsel delivered to
underwriters in underwritten public offerings of securities.
5.6 Financial Statements. The Company 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 of the registration statement occurs (90 days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), shall
make generally available to its securities holders, in the manner specified in
Rule 158(b) under the Securities Act, and to the underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of section 11(a) of the Securities Act and Rule 158(a),
which statement need not be audited unless required by the Securities Act,
covering a period of at least 12 consecutive months after the effective date of
the registration statement.
5.7 Copies. The Company shall furnish to each Holder of Shares such
number of copies of the registration statement, each amendment thereto, the
prospectus included in such registration (including each preliminary prospectus)
and such other documents as such Holder any reasonably request in order to
facilitate the disposition of the Shares owned by such Holder.
5.8 Underwritten Piggyback Offering. Subject to the Company's other
contractual obligations, the Company shall enter into an underwriting agreement
with the managing underwriters reasonably selected for such underwriting by
Holders holding a majority of the Shares requested to be included in such
underwriting and upon consent of the Company, which consent shall not be
unreasonably withheld. Such agreement shall be satisfactory in form and
substance to the Company, each Holder and such managing underwriters, and shall
contain such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used by the
managing underwriter. The Company shall deliver promptly to each managing
underwriter, if any, of an offering to which Piggyback Registration applies,
copies of all correspondence between the Securities and Exchange Commission (the
"Commission") and the Company, its counsel or auditors and all memoranda
relating to discussions with the Commission or its staff with respect to the
registration statement and permit each underwriter to do such investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the registration statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association of
<PAGE> 10
Securities Dealers, Inc. ("NASD"). Such investigation shall include access to
books, records and properties and opportunities to discuss the business of the
Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as any such Underwriter shall
reasonably request. The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Shares and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall be required to make such
representations or warranties as to such Holders to or agreements with the
Company or the underwriters as are customary under the circumstances.
6. Further Assurances.
At any time and from time to time after the date hereof, each party shall,
without further consideration, execute and deliver to the other such other
instruments or documents and shall take such other actions as the other may
reasonably request to carry out the transactions contemplated by this Agreement.
7. Miscellaneous.
Any party may waive compliance by the other with any of the provisions of
this Agreement. No waiver of any provision shall be construed as a waiver of any
other provision. Any waiver must be in writing. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement may not be modified
or amended except in writing signed by both parties hereto. This Agreement may
be executed in several counterparts, each of which shall be deemed an original,
and all of which shall constitute one and the same instrument. This Agreement
shall be governed in all respects, including validity, interpretation and
effect, by the laws of the State of Delaware, applicable to contracts made and
to be performed in Delaware. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the successors and assigns of the parties
hereto. This Agreement shall not be assignable by either party without the prior
written consent of the other, such consent not to be unreasonably withheld. The
rights and obligations contained in this Agreement are solely for the benefit of
the parties hereto and are not intended to benefit or be enforceable by any
other party, under the third party beneficiary doctrine or otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
<PAGE> 11
EXECUTION PAGE FOR SUBSCRIPTION BY INDIVIDUALS
(not applicable to subscriptions by entities, Individual
Retirement Accounts, Keogh Plans or ERISA Plans)
TOTAL SUBSCRIPTION AMOUNT $___________________________
INDIVIDUAL OWNER CUSTODIAN UNDER
(One signature required below) Uniform Gifts to Minors Act
JOINT TENANTS WITH RIGHT _______________________________
OF SURVIVORSHIP (Insert applicable state)
(All tenants must sign below) (Custodian must sign below)
TENANTS IN COMMON COMMUNITY PROPERTY
(All tenants must sign below) (Both spouses in community property
states must sign below)
Print information as it is to appear on the Company records.
___________________________ ___________________________________
(Name of Subscriber) (Social Security or Taxpayer ID No.)
___________________________
___________________________ ___________________________________
(Home Address) (Home Telephone)
___________________________
___________________________ ___________________________________
Address) (Business Telephone)
___________________________ ___________________________________
(Name of Co-Subscriber) (Social Security or Taxpayer ID No.)
___________________________
___________________________ ___________________________________
(Home Address) (Home Telephone)
___________________________
___________________________ ___________________________________
(Business Address) (Business Telephone)
SIGNATURE(S)
Dated:______________, 1996.
(1) By: _____________________________ (2) By: ___________________________
Signature of Authorized Signatory Signature of Authorized Co-Signatory
Print Name of Signatory and Title, Print Name of Co-Signatory and Title,
if applicable if applicable
ACCEPTED AND AGREED:
MIKE'S ORIGINAL, INC.
By: ________________________________ Dated: ________________________, 1996
Name:
Title:
<PAGE> 12
(ACKNOWLEDGEMENT FOR INDIVIDUALS)
STATE OF :
: s:
COUNTY OF :
On this _____________ day of ___________, 1996, before me, a notary public in
and for the state and county aforesaid, personally appeared
___________________________, known to me to be the person(s) whose name(s) is
(are) subscribed to the foregoing Subscription Agreement and acknowledged that
he, she or they executed the same.
<PAGE> 13
EXECUTION PAGE FOR SUBSCRIPTION BY ENTITIES
TOTAL SUBSCRIPTION AMOUNT $
[ ] EMPLOYMENT BENEFIT PLAN OR TRUST (including pension plan, profit sharing
plan, other defined contribution plan and SEP)
[ ] IRA, IRA ROLLOVER OR KEOGH PLAN
[ ] TRUST (other than employee benefit trust)
[ ] CORPORATION (Please include certified corporate resolution authorizing
signature)
[ ] PARTNERSHIP
[ ] OTHER
Print information as it is to appear on the Company records.
______________________________ _________________________________
(Name of Subscriber) (Taxpayer ID Number)
______________________________ _________________________________
(Address) (Telephone Number)
Name and Taxpayer ID number of sponsor, if applicable
The undersigned trustee, partner, corporate officer or fiduciary certifies
that he or she has full power and authority from all beneficiaries, partners or
shareholders of the entity named above to execute this Subscription Agreement on
behalf of the entity and to make the representations, warranties and agreements
made herein on their behalf and that investment in the Bridge Units has been
affirmatively authorized by the governing board or body of such entity and is
not prohibited by law or the governing documents of the entity.
SIGNATURE(S)
Dated: ___________________, 1996.
By:__________________________________ ____________________________________
Signature of Authorized Signatory Signature of Required Authorized
Co-Signatory
__________________________________ ____________________________________
Print Name of Authorized Signatory Print Name of Required Authorized
Co-Signatory
Co-Signatory
__________________________________ ____________________________________
Print Name of Authorized Signatory Print Name of Required Authorized
Co-Signatory
ACCEPTED AND AGREED:
MIKE'S ORIGINAL, INC.
By: _________________________________ Dated: _______________________, 1996
Name:
Title:
<PAGE> 14
(ACKNOWLEDGEMENT FOR ENTITIES)
STATE OF :
: ss:
COUNTY OF :
On this ___________ day of _______, 1996, before me personally came
_____________________ known to me, who, being by me duly sworn, did depose and
say that he or she is the __________ of ___________________________________, the
entity described in and which executed the foregoing Subscription Agreement;
that is was so affirmatively authorized by the governing board or body of such
entity; and that he or she signed his or her name thereto by like order.
Notary Public
<PAGE> 15
Annex A
INVESTOR SUITABILITY STANDARDS
A purchase of the Bridge Units involves a high degree of risk and is suitable
only for persons of substantial financial means who have no need for liquidity
in their investments. The offer, offer for sale, and sale of the securities are
intended to be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to Regulation D promulgated
thereunder ("Regulation D"), and are intended to be exempt from the requirements
of applicable state securities laws.
The Bridge Notes are being offered and sold to up to 35 non-accredited
investors and to "accredited investors," as that term is defined in Regulation
D. Each "accredited investor" must represent, in writing, that he or she is an
accredited investor. In addition, such investor will be required, upon the
request of the Company, to provide such information as may be deemed necessary
to substantiate the accuracy of such representation.
Regulation D defines an "accredited investor" as follows:
(1) Any bank as defined in section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to Section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in section
2(13) of the Securities Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined in
section 2(a)(48) of that act; any Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d) of the Small
Business Investment act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such act, which is
or either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with investment decisions made solely
by persons that are accredited investors;
(2) Any private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose or acquiring the securities offered, with total
assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or general
partner of a general partner of that issuer;
<PAGE> 16
(5) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his or her purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of $200,000 in
each of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
(7) Any trust with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
(8) Any entity in which all of the equity owners are accredited investors.
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, made and entered into this 12th day of
September 1996 ("Agreement"), by and between MIKE'S ORIGINAL, INC., a Delaware
corporation (the "Corporation", which term shall include any one or more of its
subsidiaries where appropriate), and _________________ ("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or as officers or in other capacities
unless they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to, and activities on behalf of, such corporations;
and
WHEREAS, the statutes and judicial duties regarding the duties of
officers and directors are often difficult to apply, ambiguous or conflicting
and therefore fail to provide such directors and officers with adequate and
reliable knowledge of legal risks to which they are exposed or information
regarding the proper cause of action to take; and
WHEREAS, the current impracticability of obtaining adequate insurance
and the uncertainties relating to indemnification have increased the difficulty
of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board of
Directors") has determined that the difficulty in attracting and retaining such
persons is detrimental to the best interests of the Corporation's stockholders
and that the Corporation should act to assure such persons that there will be
increased certainty of such protection in the future; and
WHEREAS, the Corporation believes it is unfair for the directors and
officers to assume the risk of huge judgments and other expenses which may occur
in cases in which the director or officer acted in good faith; and
WHEREAS, Section 145 of the General Corporation Law of Delaware
("Section 145") under which the Corporation is organized, empowers the
Corporation to indemnify its officers and directors by agreement and expressly
provides that the indemnification provided by Section 145 is not exclusive; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and/or to
take on additional service for or on behalf of the Corporation on the condition
that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
<PAGE> 2
1. DEFINITIONS FOR PURPOSES OF THIS AGREEMENT:
(a) "Change in Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
Item 5(f) of Schedule 14A of Regulation 14A (or in response to any similar item
or similar schedule or form) promulgated under the Securities Exchange Act of
1934 (the "Act"), whether or not the Corporation is then subject to such
reporting requirement; provided, however, that, without limitation, such a
Change in Control shall be deemed to have occurred if (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Corporation representing 20% or more of the
combined voting power of the Corporation's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board of Directors in office immediately prior to such
transaction or event constitute less than two-thirds of the Board of Directors
thereafter; (iii) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Corporation's stockholders was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of such period) cease for any reason to constitute at least
two-thirds of the Board of Directors; or (iv) the stockholders of the
Corporation approve a plan of complete liquidation of the Corporation or an
agreement for the sale or disposition by the Corporation (in one transaction or
a series of transactions) of all or substantially all of the Corporation's
assets.
(b) "Potential Change in Control" shall be deemed to have occurred
if (i) the Corporation enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) a person (including the
Corporation) publicly announces a legitimate intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or a corporation owned, directly or
indirectly, by the shareholders of the Corporation in substantially the same
proportions as their ownership of stock of the Corporation, who is or becomes
the beneficial owner, directly or indirectly, of securities of the Corporation
representing 9.5% or more of the combined voting power of the Corporation's then
outstanding Voting Securities, increases his beneficial ownership of such
securities by five percentage points or more over the percentage so owned by
such person; or (iv) the Board of Directors adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has
occurred.
(c) "Corporate Status" describes the status of a person who is or
was or has agreed to become a director, officer, employee or agent of the
Corporation, or served at the request of the Corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint, venture,
trust or other enterprise.
<PAGE> 3
(d) "Disinterested Director" means a director of the Corporation
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(e) "Proceeding" includes any threatened, pending or completed
inquiry, action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other proceeding, whether civil,
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section 12(a) of this Agreement to enforce his rights under this
Agreement.
(f) "Expenses" includes all direct and indirect costs of any type
or nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements, other out-of-pocket costs and reasonable compensation for
time spent by the Indemnitee for which he is not otherwise compensated by the
Corporation or any third party, provided that the rate of compensation and
estimated time involved is approved in advance by the Board of Directors),
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a Proceeding (including amounts paid in
settlement by or on behalf of Indemnitee), or the prosecution of an action or
proceeding, including appeals, to establish or enforce a right to
indemnification under this Agreement, Section 145 or otherwise. Expenses as
defined herein, shall not include any judgments, fines or penalties actually
levied against the Indemnitee.
(g) "Independent Counsel" means (i) any law firm or member of a
law firm which the Board of Directors may designate from time to time provided
that the law firm or member of the law firm so designated is experienced in
matters of corporation law and neither presently is, nor in the past five years
has been, retained to represent: (A) the Corporation or Indemnitee in any matter
material to either such party, or (B) any other party to the Proceeding giving
rise to a claim for indemnification hereunder. Notwithstanding the foregoing,
the term "Independent Counsel" shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Corporation or Indemnitee in an
action to determine Indemnitee's rights under this Agreement arising on or after
the date of this Agreement, regardless of when the Indemnitee's act or failure
to act occurred.
2. SERVICES BY INDEMNITEE.
Indemnitee agrees to serve or continue to serve as a Director of
the Board of the Corporation so long as he is duly appointed or elected and
qualified in accordance with the applicable provisions of the By-Laws of the
Corporation or the By-Laws of any subsidiary of the Corporation or until such
time as he tenders his resignation in writing. This Agreement shall not impose
any obligation on the Indemnitee or the Corporation to continue the Indemnitee's
position with the Corporation beyond any period otherwise applicable, nor to
create any right to continued employment of the Indemnitee in any capacity.
<PAGE> 4
3. GENERAL.
The Corporation shall indemnify, and shall advance Expenses to
Indemnitee as provided in this Agreement and to the fullest extent permitted by
law.
4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF
THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4 if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any Proceeding, other than a Proceeding by or
in the right of the Corporation. Pursuant to this Section 4, Indemnitee shall be
indemnified against Expenses, including amounts paid in settlement, as well as
any judgments, fines and penalties levied or awarded against him in connection
with such Proceeding or any claim, issue or matter therein, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal Proceeding,
had no reasonable cause to believe his conduct was unlawful.
5. PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION.
Indemnitee shall be entitled to the rights of indemnification
provided in this Section 5, if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Corporation to procure a judgment
in its favor. Pursuant to this Section, Indemnitee shall be indemnified against
Expenses actually incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation. Notwithstanding
the foregoing, no indemnification against such Expenses shall be made in respect
of any claim, issue or matter as to which Indemnitee shall have been adjudged to
be liable to the Corporation if such indemnification is not permitted by the
laws of the State of Delaware or other applicable law; provided, however, that
indemnification against Expenses nevertheless shall by made by the Corporation
in such event to the extent that the Court of Chancery of the State of Delaware,
or the court in which such Proceeding shall have been brought or is pending,
shall determine.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR
PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually incurred by him or on his behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Corporation shall
indemnify Indemnitee against all Expenses actually incurred by him or on his
behalf in connection with each successfully resolved claim, issue or matter. For
purposes of this Section, but without limitation, the termination of any claim,
issue or matter in such a Proceeding by dismissal or withdrawal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
<PAGE> 5
7. ADVANCE OF EXPENSES.
The Corporation shall advance all reasonable Expenses incurred by
or on behalf of Indemnitee in connection with any Proceeding within twenty days
after the receipt by the Corporation of a statement or statements from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. Such statement or statements
shall evidence or reflect the Expenses incurred by Indemnitee and shall include
or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses advanced if it is determined ultimately that Indemnitee is
not entitled to be indemnified against such Expenses.
8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO
INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Corporation a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. Promptly upon receipt of such a
request for indemnification, the Secretary of the Corporation shall advise the
Board of Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 8(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in the specific
case as follows: (i) if a Change in Control shall have occurred, by Independent
Counsel in a written opinion to the Board of Directors, a copy of which shall be
delivered to Indemnitee (unless Indemnitee shall request that such determination
be made by the Board of Directors, in which case the determination shall be made
in the manner provided below in clauses (ii) or (iii)); (ii) if a Change of
Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors, or (B) if a quorum of
the Board of Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, if such quorum of Disinterested Directors so directs, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; (iii) as provided in Section 9(b) of
this Agreement; and, if it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination. Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or Expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Corporation (regardless of
the determination as to Indemnitee's entitlement to indemnification) and the
Corporation hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
<PAGE> 6
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b) of
this Agreement, and no counsel shall have been designated previously by the
Board of Directors or the Independent Counsel so designated is unwilling or
unable to serve, then, (i) if no Change of Control shall have occurred, the
Independent Counsel shall be selected by the Board of Directors and the
Corporation shall give written notice to Indemnitee advising him of the identity
of the Independent Counsel so selected; (ii) if a Change of Control shall have
occurred, the Independent Counsel shall be selected by Indemnitee (unless
Indemnitee shall request that such selection be made by the Board of Directors,
in which event the preceding sentence shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of the Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may, within 7 days after such written notice of selection shall have
been given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirement of
"Independent Counsel" as defined in this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. If such written
objection is made, the Independent Counsel so selected may not serve as
Independent Counsel unless and until a court has determined that such objection
is without merit. If, within 20 days after submission by Indemnitee of a written
request for indemnification pursuant to Section 8(a) hereof, no Independent
Counsel shall have been selected or if selected, shall have been objected to, in
accordance with this Section 8(c), either the Corporation or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Corporation or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall designate, and the
person with respect to whom an objection is favorably resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Corporation shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with the performance
of his responsibilities pursuant to Section 8(b) hereof, and the Corporation
shall pay all reasonable fees and Expenses incident to the implementation of the
procedures of this Section 8(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement of any
judicial proceeding or arbitration pursuant to Section 12 of this Agreement,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person, persons or entity making such determination shall presume that the
Indemnitee is entitled to indemnification under this Agreement if the Indemnitee
has submitted a request for indemnification in accordance with Section 8(a) of
this Agreement, and the Corporation shall have the burden of proof to overcome
that presumption in connection with the making of any determination contrary to
that presumption by any person, persons or entity.
<PAGE> 7
(b) If within 30 days after receipt by the Corporation of the
request for indemnification, the Board shall not have made a determination under
Section 8(b)(i) or 8(b)(ii)(A) with regard thereto, the requisite determination
of entitlement to indemnification shall be deemed to have been made in favor of
the Indemnitee who then shall be entitled to such indemnification. The foregoing
provisions of this Section 9(b) shall not apply if the determination of
entitlement to indemnification is to be made by Independent Counsel pursuant to
Section 8(b)(i) or 8(b)(ii)(B) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of the
Indemnitee to indemnification or create a presumption that the Indemnitee did
not act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation or, with respect to any
criminal Proceeding, that the Indemnitee had reasonable cause to believe that
his conduct was unlawful.
10. ASSUMPTION OF DEFENSE.
In the event the Corporation shall be obligated to pay the
Expenses of any Proceeding against the Indemnitee, the Corporation, if
appropriate, shall be entitled to assume the defense of such Proceeding, with
counsel reasonably acceptable to the Indemnitee, upon the delivery to the
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Corporation, the Corporation will not be liable to the Indemnitee
under this Agreement for any fees of counsel subsequently incurred by the
Indemnitee with respect to the same Proceeding, provided that (i) the Indemnitee
shall have the right to employ his counsel in such Proceeding at the
Indemnitee's expense; and (ii) if (a) the employment of counsel by the
Indemnitee has been previously authorized in writing by the Corporation, (b) the
Corporation shall have reasonably concluded that there may be a conflict of
interest between the Corporation and the Indemnitee in the conduct of any such
defense, or (c) the Corporation shall not, in fact, have employed counsel to
assume the defense of such Proceeding, the fees and Expenses of the Indemnitee's
counsel shall be at the expense of the Corporation.
11. ESTABLISHMENT OF A TRUST.
(a) In the event of a Potential Change in Control, the
Corporation, upon written request by the Indemnitee, shall create a trust for
the benefit of the Indemnitee and from time to time upon written request of the
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses which at the time of each such request it is reasonably anticipated
will be incurred in connection with a Proceeding for which the Indemnitee is
entitled to rights of indemnification under Section 4 or 5 hereof, and any and
all judgments, fines, penalties and settlement amounts of any and all
proceedings for which the Indemnitee is entitled to rights of indemnification
under Section 4 or 5 from time to time actually paid or claimed, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in the
trust pursuant to the foregoing funding obligation shall be determined by the
party who would be required to make the determination of the Indemnitee's right
<PAGE> 8
to indemnification under Section 8(b) hereof (the "Reviewing Party"). The terms
of the trust shall provide that upon a Change in Control (i) the trust shall not
be revoked or the principal thereof invaded, without the written consent of the
Indemnitee, (ii) the trustee shall advance, within two business days of a
request by the Indemnitee, any and all Expenses to the Indemnitee (and the
Indemnitee hereby agrees to reimburse the trust under the circumstances under
which the Indemnitee would be required to reimburse the Corporation under
Section 7 hereof), (iii) the trust shall continue to be funded by the
Corporation in accordance with the funding obligation set forth above, (iv) the
trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds in such trust shall revert to the
Corporation upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be an
institutional trustee with a highly regarded reputation chosen by the
Indemnitee. Nothing in this Section 11 shall relieve the Corporation of any of
its obligations under this Agreement.
(b) Nothing contained in this Section 11 shall prevent the Board
of Directors of the Corporation in its discretion at any time and from time to
time, upon request of the Indemnitee, from providing security to the Indemnitee
for the Corporation's obligations hereunder through an irrevocable line of
credit or other collateral. Any such security, once provided to the Indemnitee,
may not be revoked or released without the prior consent of the Indemnitee.
12. REMEDIES OF INDEMNITEE.
(a) In the event that any one or more of the following events
shall have occurred: (i) a determination is made pursuant to Section 8 of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement; (ii) Expenses are not advanced timely in accordance with Section 7 of
this Agreement; (iii) the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 8(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Corporation of the request for
indemnification; (iv) payment of indemnification is not made pursuant to Section
6 of this Agreement within ten days after receipt by the Corporation of a
written request therefor; (v) payment of indemnification is not made within ten
days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 9(b) of this Agreement; and/or (vi) the Corporation fails to comply with
its obligations under Section 11(a) with regard to the establishment or funding
of a trust for Expenses, the Indemnitee shall be entitled to an adjudication of
his entitlement to such indemnification, advancement of Expenses or the
establishment and funding of the trust in an appropriate court of the State of
Delaware, or in any other court of competent jurisdiction. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 12. The Corporation
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
<PAGE> 9
(b) Whenever a determination is made pursuant to Section 8 of this
Agreement that Indemnitee is not entitled to indemnification, the judicial
proceeding or arbitration commenced pursuant to this Section 12 shall be
conducted in all respects as a de novo trial, or arbitration, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred, the Corporation shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be, in any judicial proceeding or arbitration
commenced pursuant to this Section 12.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 12 absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 12 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 12,
seeks a judicial adjudication or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of the types described in the
definition of Expenses in this Agreement) actually incurred by him in connection
with obtaining such judicial adjudication or arbitration, but only if he
prevails therein. If it shall be determined in said judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, the Expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
13. NON-EXCLUSIVITY; DURATION OF AGREEMENT; INSURANCE:
SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Corporation's certificate of incorporation or by-laws, any other
agreement, a vote of stockholders or a resolution of directors, or otherwise.
This Agreement shall continue until and terminate upon the later of: (a) 10
years after the date that Indemnitee shall have ceased to serve as an officer or
director of the Corporation, or (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification
or advancement of Expenses hereunder and of any proceeding commenced by
Indemnitee pursuant to Section 12 of this Agreement relating thereto. This
Agreement shall be binding upon the Corporation and its successors and assigns
and shall inure to the benefit of Indemnitee and his heirs, executors and
administrators.
<PAGE> 10
(b) (i) To the extent that the Corporation maintains an insurance
policy or policies providing liability insurance for directors and officers of
the Corporation, Indemnitee shall be covered by such policy or policies in
accordance with the terms thereof to the maximum extent of the coverage
available for any such director or officer under such policy or policies. The
Corporation shall take all necessary or appropriate action to cause such
insurers to pay on behalf of the Indemnitee all amounts payable as a result of
the commencement of a proceeding in accordance with the terms of such policy.
(ii) For a period of three years after the date the Indemnitee
shall have ceased to serve as an officer or director of the Corporation, the
Corporation will provide officers and directors liability insurance for
Indemnitee on terms no less favorable than the terms of the liability insurance
which the Corporation then provides to the current officers and directors;
provided, that the Corporation provides officers and directors liability
insurance to its current officers and directors; and provided further, that the
annual premiums for the liability insurance to be provided to the Indemnitee do
not exceed by more than 50% the premium charged for the coverage available for
any of the Corporation's current officers and directors.
(c) In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
(d) The Corporation shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee otherwise actually has received such payment under any
insurance policy, contract, agreement or otherwise.
14. SEVERABILITY.
If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
15. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF
EXPENSES.
Except as otherwise provided specifically herein, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim herein, brought or made
by him against the Corporation.
<PAGE> 11
16. HEADINGS.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof.
17. MODIFICATION AND WAIVER.
This Agreement may be amended from time to time to reflect changes
in Delaware law or for other reasons. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
18. NOTICE BY INDEMNITEE.
Indemnitee agrees promptly to notify the Corporation in writing
upon being served with any summons, citation, subpoena, complaint, indictment,
information or other document relating to any Proceeding or matter which may be
subject to indemnification or advancement of Expenses covered hereunder;
provided, however, that the failure to give any such notice shall not disqualify
the Indemnitee from indemnification hereunder.
19. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (i) delivered
by hand to the party to whom said notice or other communication shall have been
directed, (ii) mailed by certified or registered mail with postage prepaid or
(iii) delivered by facsimile transmission electronically confirmed.
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
MIKE'S ORIGINAL, INC.
131 Jericho Turnpike
Jericho, New York 11753
Fax No: (516) 334-2292
with a copy to:
BLAU, KRAMER, WACTLAR & LIEBERMAN, P.C.
100 Jericho Quadrangle
Jericho, New York 11753
Attn: David H. Lieberman, Esq.
Fax No: (516) 822-4824
<PAGE> 12
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
20. GOVERNING LAW.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
MIKE'S ORIGINAL, INC.
By:
Name:
Title:
INDEMNITEE:
______________________________________
<PAGE> 1
EXHIBIT 10.11
CREDIT AGREEMENT
BETWEEN
MIKE'S ORIGINAL, INC.
AND
THE PENN TRAFFIC COMPANY
Dated: April 10, 1996
<PAGE> 2
T A B L E 0 F C 0 N T E N T S
Page
Preliminary Statement. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Certain Defined Terms. . . . . . . . . . . . . 1
Section 1.02 Accounting Terms . . . . . . . . . . . . . . . 5
ARTICLE II - RESTRUCTURING OF PT DEBT. . . . . . . . . . . . . 5
Section 2.01 Terms of Repayment . . . . . . . . . . . . . . 5
Section 2.02 Collateral . . . . . . . . . . . . . . . . . . 7
Section 2.03 Prepayments. . . . . . . . . . . . . . . . . . 7
Section 2.04 Interest Computation . . . . . . . . . . . . . 8
ARTICLE III - FUTURE SHIPMENTS . . . . . . . . . . . . . . . . 8
Section 3.01 Additional Product . . . . . . . . . . . . . . 8
ARTICLE IV - REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 8
Section 4.01 Representations and Warranties . . . . . . . . 8
(a) Organization. . . . . . . . . . . . . . . . . . . . 8
(b) Execution . . . . . . . . . . . . . . . . . . . . . 9
(c) Validity. . . . . . . . . . . . . . . . . . . . . . 9
(d) Violation . . . . . . . . . . . . . . . . . . . . . 9
(e) Title . . . . . . . . . . . . . . . . . . . . . . . 10
(f) All Necessary Assets. . . . . . . . . . . . . . . . 10
(g) Notice. . . . . . . . . . . . . . . . . . . . . . . 10
(h) Taxes.. . . . . . . . . . . . . . . . . . . . . . . 11
(i) Litigation. . . . . . . . . . . . . . . . . . . . . 11
(j) Perfected First Security Interest . . . . . . . . . 11
ARTICLE V - COVENANTS OF MOI . . . . . . . . . . . . . . . . . . 12
Section 5.01 Affirmative Covenants of MOI
Other Than Reporting Requirements. . . . . . . . . 12
(a) Preservation of Corporate
Existence Qualification. . . . . . . . . . . . . . . 12
(b) Compliance with Laws . . . . . . . . . . . . . . . . 12
(c) Keeping of Records and Books of Account. . . . . . . 12
(d) Maintenance of Properties. . . . . . . . . . . . . . 12
(e) Replacement Confessions. . . . . . . . . . . . . . . 12
(f) Cause Direct Payments. . . . . . . . . . . . . . . . 13
(g) Filings with Patent or
Trademark Office. . . . . . . . . . . . . . . . . . . 13
<PAGE> 3
Section 5.02 Negative Covenants of MOI. . . . . . . . . . 14
(a) Capital Expenditures . . . . . . . . . . . . . . . 14
(b) Indebtedness . . . . . . . . . . . . . . . . . . . . 14
(c) Liens. . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Mergers, Etc . . . . . . . . . . . . . . . . . . . . 14
(e) Sale and Leaseback . . . . . . . . . . . . . . . . . 14
(f) Dividends. . . . . . . . . . . . . . . . . . . . . . 15
(g) Sale of Assets . . . . . . . . . . . . . . . . . . . 15
(h) Guaranties, Etc. . . . . . . . . . . . . . . . . . . 15
(i) Loans. . . . . . . . . . . . . . . . . . . . . . . . 15
(j) Management Fees. . . . . . . . . . . . . . . . . . . 15
(k) Subsidiaries . . . . . . . . . . . . . . . . . . . . 15
(1) Other Obligations. . . . . . . . . . . . . . . . . . 16
Section 5.03 Reporting Requirements . . . . . . . . . . . 16
(a) Quarterly Report . . . . . . . . . . . . . . . . . . 16
(b) Annual Report. . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . 17
Section 6.01 Events of Default. . . . . . . . . . . . . . 17
ARTICLE VII - (INTENTIONALLY OMITTED). . . . . . . . . . . . . . . 20
ARTICLE VIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . 20
Section 8.01 Cumulative Remedies . . . . . . . . . . . 20
Section 8.02 Addresses for Notices, Etc. . . . . . . . 20
Section 8.33 Execution in Counterparts . . . . . . . . 21
Section 8.04 Governing Law . . . . . . . . . . . . . . 21
Section 8.05 Integration; Entire Agreement . . . . . . 22
Section 8.06 Jurisdiction, Etc. . . . . . . . . . . . . 22
Exhibit A - Form of Note
Exhibit B - Form of Settlement Agreement
Exhibit C - Form of Security Agreement
<PAGE> 4
CREDIT AGREEMENT, dated April 10, 1996, between MIKE'S ORIGINAL,
INC. ("MOI") and THE PENN TRAFFIC COMPANY ("PT").
Preliminary Statement
A. Under arrangements heretofore contracted, MOI is indebted to PT in
the amounts (which, together with interest hereafter accruing thereon, will be
called collectively the "PT Debt") set forth in a Settlement Agreement dated of
even date (the "Settlement Agreement") , a true copy of the form of which is
annexed as Exhibit 1 to this Agreement.
B. MOI has requested PT to restructure and reschedule the PT Debt and
provide for the repayment of the PT Debt on the terms and conditions hereinafter
set forth and PT is willing to do so.
C. MOI and PT desire to provide for the future shipment by PT to MOI
customers of additional packaged ice cream product ("Product") and for the
payment to PT therefor.
NOW, THEREFORE, for valuable consideration (the receipt and sufficiency
of which are hereby acknowledged), PT and MOI hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. As used in the Loan Documents or
in any other documents made or delivered pursuant thereto, unless the context
shall otherwise require, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Affiliate" means any Person directly or indirectly owning or
controlling more than 5% of the voting stock of MOI or any of its
Subsidiaries and any Person who is an officer, director or
employee of MOI or any of its Subsidiaries and any spouse, child
or trust created by or for the benefit of any such Person.
"Agreement" means this Agreement, as the same may hereafter
be amended or restated from time to time.
"Closing" means the date on which the Loan Documents are
executed and delivered by PT and moi.
"Confessions" is defined in Section 2.03 of this
Agreement.
"Event of Default" is defined in Section 6.01 of
this Agreement.
<PAGE> 5
"Indebtedness" means, for any Person, (i) all indebtedness or
other obligations of such Person for borrowed money or for the
deferred purchase price of property or services, (ii) all
indebtedness or other obligations of any other Person for borrowed
money or for the deferred purchase price of property or services
the payment or collection of which such Person has guaranteed
(except by reason of endorsement for collection in the ordinary
course of business) or in respect of which such Person is liable,
contingently or otherwise, including, without limitation,
liability by way of agreement to purchase, to provide funds for
payment, to supply funds to or otherwise to invest in such other
Person, or otherwise to assure a creditor against loss, (iii) all
indebtedness or other obligations of any other Person for borrowed
money or for the deferred purchase price of property or services
secured by any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance upon or in property owned
by such Person, whether or not such Person has assumed or become
liable for the payment of such indebtedness or obligations, and
(iv) capitalized lease obligations of such Person.
"GAAP" means generally accepted accounting principles as from
time to time in effect, including the official interpretations
thereof by the Financial Accounting Standards Board, consistently
applied.
"Loan Documents" means this Agreement, the
Settlement Agreement, the Note and the Security
Agreement.
"MOI" is defined in the first paragraph of this
Agreement.
"PT" is defined in the first paragraph of this
Agreement.
"PT Debt" is defined in the Preliminary Statement
of this Agreement.
"Person" means an individual, corporation, partnership,
limited partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political
subdivision thereof.
<PAGE> 6
"Product" shall mean ice-cream and related dairy products,
packaged or unpackaged, ordered by MOI from PT for production and
sale in the course of MOI's business.
"Reconfession Date" is defined in Section 5. 01
(e) .
"Replacement Confession" is defined in Section
5.01(e).
"Settlement Agreement" is defined in the Preliminary
Statement of this Agreement. "Subsidiary" means a corporate or
other entity the management of which is controlled, directly or
indirectly or both, by MOI and in which MOI owns equity directly
or indirectly or both.
Section 1.02. Accounting Terms. All accounting terms, unless
otherwise specifically defined herein, shall be construed in
accordance with GAAP.
ARTICLE II
RESTRUCTURING OF PT DEBT
Section 2.01. Terms of Repayment. (a) Prior to the occurrence of an
Event of Default, the principal amount of the PT Debt as stipulated in paragraph
2 of the Settlement Agreement, outstanding from time to time shall bear interest
at one (1%) percent in excess of the rate reported by The Chase Manhattan Bank,
N.A. as its "prime rate" and while an Event of Default shall continue the PT
Debt shall bear interest at a rate 2% over said prime rate but in no event
higher than the maximum amount permitted by law.
(b) MOI will make payments upon the PT Debt in monthly
installments, such payments to be made not later than the first (lst) day of
every calendar month, commencing with May, 1996, consisting of (i) accrued
interest, calculated in accordance with the terms hereof, and (ii) principal, to
be applied in reduction of the PT Debt (as defined in paragraph 2 of the
Settlement Agreement), of $12,000. Each installment shall be applied, together
with any amount required by subsection (c) below of this Section to be paid by
MOI to PT, first to accrued interest on the PT Debt and then to outstanding
principal.
(c) In addition to the regular monthly installments provided for
in subsection (b) of this Section, MOI shall pay to PT in respect of the PT
Debt, immediately upon receipt, (i) upon the closing of each "bridge" financing
obtained by MOI the sum of $75,000, payable directly from the proceeds of such
financing; and (ii) upon the consummation of MOI's initial public offering, the
sum of $150,000, payable directly from the proceeds of such offering. In
addition, on the first day of the first January, April, July or October
immediately succeeding the Closing of such initial public offering, and on each
three-month anniversary of such first day until the PT Debt has been paid in
full, MOI shall pay to PT the sum of $200,000 in respect of the PT Debt.
(d) On December 31, 1996, unless the initial public offering of
MOI shall have closed, MOI shall make a mandatory prepayment of principal and
interest so as to reduce the outstanding PT Debt to zero.
Section 2.02. Collateral. The PT Debt shall be secured by a security
interest in certain assets of MOI pursuant to a security agreement in the form
of Exhibit C hereto (the "Security Agreement"), together with appropriate UCC-1
financing statements previously executed and delivered to PT by the Borrower.
Herewith MOI is delivering to PT the Affidavit of Confession of Judgment
referred to in paragraph 4 of the Settlement Agreement ("Confession") . In the
event the Confession or a Replacement Confession is in fact entered as a
judgment by PT, PT agrees to credit MOI with actual amounts theretofore paid.
<PAGE> 7
Section 2.03. Prepayments. MOI may prepay the PT Debt at any time in
whole or in part, without penalty or premium, but such prepayment, unless of all
indebtedness (including accrued interest) outstanding hereunder, shall be
credited to last (i.e., rear end) payments and shall not relieve MOI from the
required payments provided for in Section 2.01(b) and (c) hereof.
Section 2.04. Interest Computation. Interest shall be computed
on the basis of the actual number of days elapsed, over a year of 360
days.
ARTICLE III
FUTURE SHIPMENTS
Section 3.01. Additional Product. So long as MOI shall comply with the
terms and provisions of this Agreement and no Event of Default shall have
occurred, PT agrees to entertain orders for shipment of additional Product in
the ordinary course of business to customers of MOI (including, without
limitation, Kraft and its subsidiary and affiliated companies) provided that (i)
the credit standing of such customer is satisfactory to PT and (ii) each such
customer shall agree to make payment for such product directly to a lock-box for
the benefit of PT in accordance with the provisions hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties. MOI represents,
warrants and covenants that:
(a) Organization. It is a corporation formed and operating under
the laws of the State of Delaware, is qualified to do business in the State of
New York and in such other jurisdictions as is required by the nature and
operation of its business and has all requisite power and authority to enter
into and perform this Agreement and to perform the transactions contemplated
hereby.
(b) Execution. The execution, delivery and performance
by MOI of this Agreement and the transactions contemplated hereby have been
duly authorized by all necessary or corporate action and do not violate or
contravene any law, rule, regulation, order, decree, loan agreement, lease
mortgage, contract or other restriction binding on or affecting MOI or its
assets and do not result in or require the creation of any lien, security
interest, charge or encumbrance upon or with respect to any of such assets,
except where otherwise set forth herein.
(c) Validity. This Agreement has been duly and validly executed
and delivered by MOI and (assuming the due authorization, execution and delivery
hereof by PT), subject to laws affecting creditors' rights generally,
constitutes the legal, valid and binding obligation of MOI, enforceable against
it in accordance with its terms.
<PAGE> 8
(d) Violation. MOI is not a party to, subject to or bound by any
agreement, judgment, order, writ, injunction or decree of any court or
governmental body which could prevent or impair the effectiveness of this
Agreement or any of the transactions contemplated hereby or the use of the
assets for the purposes intended.
(e) Title. MOI has good and marketable title to all of the assets
that are the subject of the security agreement executed simultaneously herewith
("Assets"), and, except for a lien in favor of Wasco Funding Corp. with respect
to MOI's computer system, free and clear of any lien, security interest, charge,
restriction or encumbrance of any kind.
(f) All Necessary Assets. The Assets constitute all of the fixed
assets presently used in, and necessary for the conduct of, the operation of
MOI's business in the same manner and to the same extent conducted by it
immediately prior to the date hereof. MOI has not sold, transferred or otherwise
disposed of any Assets from June 1, 1995 to present (other than the sale of
obsolete items), and during that period it has operated only in the ordinary
course of business.
(g) Notice. MOI has not received any notice, nor is it subject to
any claim or proceeding, pending or threatened which asserts that it is in
violation of any applicable laws, rules and regulations.
(h) Taxes. All sales tax returns and reports required to be filed
by or on behalf of MOI have been prepared and filed in accordance with
applicable law, and all sales and use taxes, interest, penalties, assessments or
deficiencies that had become due pursuant to such returns have been paid in
full.
(i) Litigation. There is no action, litigation, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court, public
board or body, pending or, to the best of MOI's knowledge, threatened against or
affecting either MOI or the Assets, nor is there any basis therefor, wherein an
unfavorable decision, ruling or finding would adversely affect the validity or
enforceability of this Agreement or the consummation of the transactions
contemplated hereby.
(j) Perfected First Security Interest. Except as otherwise set
forth in this Agreement, upon the filing of the Security Agreement, PT will have
a valid and perfected first security interest in the property described therein,
and upon the execution and delivery of the Note there shall have been
subordinated thereto all Indebtedness (including, without limitation, any
Indebtedness to officers, directors, shareholders or other Affiliates of MOI)
other than indebtedness to trade creditors.
ARTICLE V
COVENANTS OF MOI
Section 5.01. Affirmative Covenants of MOI other Than Reporting
Requirements. So long as the PT Debt or any portion thereof remains outstanding,
MOI shall:
(a) Preservation of Corporate Existence Qualification.
Preserve and maintain its corporate existence and franchise in its
jurisdiction of incorporation.
(b) Compliance with Laws. Comply with the requirements of all
applicable laws, non-compliance with which would have a material adverse affect
on its business taken as a whole.
<PAGE> 9
(c) Keeping of Records and Books of Account. Keep adequate
records and books of account reflecting all its financial
transactions.
(d) Maintenance of Properties. Maintain and preserve all of its
properties, necessary or useful in the proper conduct of its business, in good
working order and condition, ordinary wear and tear excepted.
(e) Replacement Confessions. If any portion of the PT Debt remains
outstanding two (2) years and nine (9) months after the date hereof
("Reconfession Date"), MOI shall execute an Affidavit of Confession of Judgment
in replacement of, and in the same form and substance as, the Affidavit of
Confession of Judgment executed and delivered to the PT contemporaneously
herewith and deliver same to PT ("Replacement Confession"), within ten (10) days
after demand. Similarly, if any portion of the PT Debt remains outstanding on
the third (and each succeeding three-year) anniversary of the Reconfession Date,
substitute Affidavits of Confession of Judgment will be executed and delivered
on demand of PT. Each Replacement Confession will be in the principal amount
then due and the judgment rate will be reset to equal a rate 3% over prime on
the date of execution.
(f) Cause Direct Payments. Cause each of its account debtors
(including, without limitation, Sam's Club and Kraft), to make direct payment to
a lock-box for the benefit of PT until receipt of written notice from PT to the
contrary.
(g) Filings with Patent or Trademark Office. Cooperate with PT,
promptly following the Closing, in executing and filing with the Federal Patent
and Trademark Office and such other offices as required such instruments and
documents with respect to PT's security interest in MOI's intellectual property
as PT, in its discretion, shall deem necessary or advisable.
Section 5.02 Negative Covenants of MOI. So long as the Note or any
portion thereof remains outstanding, MOI shall not:
(a) Capital Expenditures. Make any capital expenditures in
excess of $25,000.
<PAGE> 10
(b) Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except for (i) trade payables incurred in the ordinary course of
business to entities other than Affiliates of MOI, or (ii) pursuant to the
contemplated "bridge" financing.
(c) Liens. Create, assume or suffer to exist any mortgages, liens
or security interests, except for the lien of taxes not yet due and payable and
mortgages, liens and security interests that are of record as at this date and
any refinancings thereof.
(d) Mergers, Etc. Merge or consolidate with or into any
Person, or assign, transfer or sell all or substantially all of its
properties or assets (now owned or hereafter acquired).
(e) Sale and Leaseback. Sell, transfer or otherwise dispose of any
real or personal property to any Person and thereafter directly or indirectly
lease back the same.
(f) Dividends. Declare or pay dividends or purchase or redeem,
retire or otherwise acquire for value any of its capital stock now or hereafter
outstanding or set aside any sum for such payment.
(g) Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of any of its now owned or hereafter acquired assets except (i)
inventory disposed of in the ordinary course of business, and (ii) assets no
longer used or useful in the conduct of its business, unless if such assets are
sold at fair market value to Persons other than any Affiliate of MOI.
(h) Guaranties, Etc. Assume, guarantee, endorse or
otherwise be or become directly or contingently responsible or liable
on any obligation of any person except endorsement of negotiable
instruments for deposit or collection.
(i) Loans. Make any loans or advances to any Person.
(j) Management Fees. Incur or pay to any Affiliate of MOI
management fees, advisory fees, service fees or any other compensation
for services rendered. Except as to the payments required to be made upon
the closing of the Company's Initial Public Offering under the Consulting
Agreement dated as of March 1, 1994 between MOI and Steven Cantor.
(k) Subsidiaries. Not to create or invest in any
Subsidiaries or make any investment in any Affiliate.
(1) Other Obligations. Permit any obligation of MOI
to any officer, director, shareholder or other Affiliate of MOI to be
senior to or pari passu with the obligations of MOI to PT hereunder.
Section 5.03. Reporting Requirements. So long as the Note or any
portion thereof remains outstanding, MOI shall furnish to PT:
(a) Quarterly Report. As soon as available and in any event within
60 days after the end of each of the first three quarters of each fiscal year of
MOI, the consolidated balance sheet of MOI and its Subsidiaries, if any, as of
the end of such quarter and the consolidated statements of operations, cash
flows and changes in shareholders' equity of MOI and its Subsidiaries, if any,
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, duly certified (subject to year-end audit adjustments)
by the chief financial officer of MOI as having been prepared in accordance with
sound accounting practice by certified public accountants.
<PAGE> 11
(b) Annual Report. As soon as available and in any event within
120 days after the end of each fiscal year of MOI, an annual report for such
year for MOI, including therein the consolidated balance sheet of MOI and its
Subsidiaries, if any, as of the end of such fiscal year and the consolidated
statements of operations, cash flows and changes in stockholders' equity of MOI
and its Subsidiaries, if any, for such fiscal year, prepared in accordance with
GAAP by certified public accountants and certified by the Chief Financial
Officer of MOI.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following events
(each an "Event of Default") shall occur, that is to say:
(i) If MOI shall default in the payment when due of any principal or
interest on the PT Debt, and such default continues for fifteen (15) business
days after the holder notifies MOI in writing of such default; or
(ii) If any material representations or warranty made by MOI in any of
the Loan Documents shall prove to have been materially inaccurate when made, and
such inaccuracy is not cured within 30 days after PT notifies MOI thereof in
writing; or
(iii) If MOI shall materially fail to perform or observe any material
term, covenant or agreement contained in this Agreement, or MOI shall materially
fail to observe or perform any other material term, covenant or agreement
contained in any of the Loan Documents on its part to be performed or observed
and any such failure is not cured within 30 days after PT notifies Mikes thereof
in writing; or
(iv) If a decree or order for relief shall be entered by a court having
jurisdiction in the premises in respect of MOI in any involuntary case under the
federal bankruptcy code, as now or hereafter constituted, or any other
applicable federal, state or foreign bankruptcy or insolvency law, or a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official shall be appointed for MOI or for all or substantially all of its
properties, or the winding-up or liquidation of its affairs shall be ordered,
and any such decree, order or appointment shall continue unstayed and in effect
for a period of 120 consecutive days; or
(v) If MOI shall commence a voluntary case under the federal bankruptcy
doe, as now or hereafter constituted, or any other applicable federal, state or
foreign bankruptcy or insolvency law, or it shall consent to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of MOI, or for all or substantially all
of its properties, or it shall make any assignment for the benefit of creditors;
(vi) If MOI fails to execute and deliver Replacement Confessions within
ten (10) days of demand for such Replacement Confessions by PT as required by
Section 5.01(e) hereof. then, and in any such event, PT may do any or all of the
following: (x) declare the entire unpaid principal amount of the PT Debt, and
all interest accrued and unpaid thereon, to be immediately due and payable,
whereupon the same shall become and be immediately due and payable; and (y)
exercise any and all remedies allowed to it by any document executed in
connection with this Agreement or otherwise available at law or in equity,
including filing and realizing upon the Confessions and on the Replacement
Confessions, provided, however, that if an event of the type described in
paragraphs (d) or (e) of this Section 6.01 shall occur, then the entire
principal amount of the PT Debt and all interest thereon shall forthwith
automatically become due and payable without the need for such a declaration.
<PAGE> 12
ARTICLE VII
(INTENTIONALLY OMITTED)
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Cumulative Remedies. The remedies herein and in
the other Loan Documents provided are cumulative and not exclusive of
each other or of any other remedies allowed by law or equity.
Section 8.02. Addresses for Notices, Etc. All notices, requires,
demands, directions and other communications provided for hereunder or under any
Loan Document and shall be sufficient if delivered personally (including by
Federal Express or other recognized courier for which receipt is given) or if
mailed by certified mail, return receipt requested, to the applicable party at
the addresses indicated below:
If to MOI or any Guarantor:
Mike's Original, Inc.
131 Jericho Turnpike
Jericho, New York 11753
with a copy to:
Richard G. Satin, Esq.
150 Motor Parkway
Suite 205
Hauppauge, New York 11788
If to PT:
Francis D. Price, Jr., Esq.
The Penn Traffic Company
P.O. Box 4965
Syracuse, New York 13221
with a copy to:
Harold S. Poster, Esq.
Gilmartin, Poster & Shafto
One William Street
New York, New York 10004
or, as to any party, at such other address as shall be designated by
such party in a written notice to each other party complying as to
deliver with the terms of this Section. All notices, requests, demands,
directions and other communications shall (if delivered personally) be
effective when delivered or (if mailed) two days after having been
deposited in the mail, addressed as aforesaid.
<PAGE> 13
Section 8.03. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original and all of which
(taken together) shall constitute one and the same agreement.
Section 8.04. Governing Law. This Agreement and the other Loan Documents
shall be governed by, and construed in accordance with, the internal laws of the
State of New York (without giving effect to principles of conflicts of law).
Section 8.05. Integration; Entirement Agreement. This Agreement and the
other Loan Documents are intended by the parties hereto and thereto to be an
integrated contract, which together contain the entire understanding of the
parties with respect to the subject matter contained herein and therein; this
Agreement and the other Loan Documents supersede all prior agreements and
understandings between or among the parties (or any of them) with respect to
such subject matter, whether written or oral. Without limiting the generality of
the foregoing, this Agreement and the Note supersede and replace the promissory
notes and other agreement previously executed and delivered by MOI to PT to
evidence the PT Debt.
Section 8.06 Jurisdiction, Etc. MOI accepts and agrees that courts sitting
in the City, County and State of New York having concurrent jurisdiction over
it, its Subsidiaries, if any, and its and their respective properties and will
pay all legal fees and disbursements which PT may incur after the date hereof in
order to be advised as to its rights and responsibilities under the Loan
Documents and/or to enforce the Loan Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized,
as of the date first above
written.
ATTEST: MIKE'S ORIGINAL, INC.
/s/_______________________ By: /s/ _________________________
THE PENN TRAFFIC COMPANY
By: /s/__________________________
<PAGE> 14
EXHIBIT A
PROMISSORY NOTE
$830,274.59 April 10, 1996
MIKE'S ORIGINAL, INC., a corporation organized and existing under the laws
of Delaware ("MOI"), for value received, hereby promises to pay to the order of
THE PENN TRAFFIC COMPANY ("PT"), at its office at c/o Gilmartin, Poster &
Shafto, One William Street, New York, New York (or at such other location as PT
shall designate in writing), the principal amount of Eight Hundred Thirty
Thousand Two Hundred Seventy-Four Dollars and Fifty-Nine Cents ($830,274.59) in
lawful money of the United States of America, on the dates provided in the
Credit Agreement referred to below. MOI also promises to pay interest on the
principal balance hereof outstanding from time to time, at said office, in like
money, at the rate of interest as provided in the Credit Agreement described
below on the dates provided in said Credit Agreement.
This is the Note referred to in that certain Credit Agreement ("Credit
Agreement") dated the date hereof between MOI and PT, and this Note evidences
the PT Debt owing to PT thereunder. As provided in the Credit Agreement, this
Note supersedes and replaces any other promissory note previously evidenced
hereby. All terms not defined herein shall have the meanings given to them in
the Credit Agreement.
The Credit Agreement provides for the acceleration of the maturity of
the principal upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
The Borrower waives presentment, notice of dishonor and protest with
respect to this Note and further waives right to trial by jury.
This Note shall be governed by, and interpreted and construed in
accordance with, the laws of the State of New York.
ATTEST: MIKE'S ORIGINAL, INC. By,
By: _______________________
Name:
Title:
<PAGE> 15
SETTLEMENT AGREEMENT
THIS AGREEMENT, made as of the 10th day of April, 1996, by and 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, MOI is indebted to PT in the sum of $830,274.59
("Balance") for goods sold to MOI and packaged and delivered by PT to
various entities as directed by MOI for sale by MOI; and
WHEREAS, PT and MOI have reached the conclusion that it is in their mutual
and respective interests to (a) agree on a schedule for the payment of the
Balance upon the terms and conditions set forth below, and (b) provide for the
ongoing business relationship between them on such terms and conditions as are
mutually acceptable.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, PT and MOI hereby agree as follows:
1. PT and MOI shall simultaneously herewith enter into a Credit Agreement,
substantially in the form annexed hereto as Exhibit A ("Credit Agreement") , as
well as the Note, Security Agreement and Confession of Judgment referred to
therein.
2. MOI shall, in full and final payment of the Balance, together with
reimbursement to PT of its legal fees and disbursements in connection with the
subject matter hereof, pay to PT all of the following: (a) the principal sum of
Eight Hundred Ten Thousand Two Hundred Seventy-Four Dollars and Fifty-Nine Cents
($810,274.59), (b) Twenty Thousand Dollars ($20,000) in accrued interest through
April 10, 1996, which too shall be principal, and (c) interest on the unpaid
principal balance (i.e., the unpaid balance of the aggregate of (a), and (b)
aforesaid), at one (1%) percent in excess of the floating rate of Chase
Manhattan Bank, N.A. ("Chase") from time to time announced as its so-called
"prime rate", from the date hereof until paid in full, provided that if an Event
of Default (as defined in the Credit Agreement) shall occur and be continuing,
then such interest rate shall be increased to 2% above said Chase prime rate,
but not higher than the maximum rate permitted by law (collectively, the
"Settlement Amount"). The Settlement Amount shall be paid in installments as
provided in the Credit Agreement. Each payment shall be applied as provided in
the Credit Agreement.
3. All payments to be made by MOI shall be made as provided in the
Credit Agreement, by check sent to a lock-box for the benefit of PT.
4. As security for the payment of amounts set forth in paragraph 2 of
this Agreement, and for any future advances that may be made by PT for MOI's
benefit in the future (including, without limitation, the shipment of additional
product), (a) MOI shall execute and deliver to PT the Security Agreement
referred to in the Credit Agreement, and (b) MOI shall execute and deliver to PT
(i) an Affidavit of Confession of Judgment in the form annexed hereto as Exhibit
B, (ii) any other Loan Documents required by the Credit Agreement, and (iii) any
Replacement Confessions as provided in the Credit Agreement. PT agrees that it
will not file any such Affidavit of Confession of Judgment (or Replacement
<PAGE> 16
Confession) until there has occurred an Event of Default as provided in the
Credit Agreement. In the event judgment is entered pursuant to an Affidavit of
Confession of Judgment or Replacement Confession, PT shall have execution only
for the balance due hereunder or as a result of any advances made to MOI
pursuant to the Credit Agreement after crediting MOI for all payments made
hereunder.
5. All notices to be sent by PT to MOI pursuant to this Agreement
shall be faxed addressed as follows:
Mike's Original, Inc.
131 Jericho Turnpike
Jericho, New York 11753
516-334-2292
with a faxed copy to:
Richard G. Satin, Esq.
150 Motor Parkway
Suite 205
Hauppauge, New York 11788
516-231-3075
6. This Agreement may be executed in counterparts and each such
counterpart shall be deemed an original and part of a single instrument for all
purposes.
7. This Agreement shall not be changed orally and may be
amended only by a writing signed by both parties
hereto.
8. This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
9. This Agreement and the other agreements and documents executed
simultaneously herewith constitute the entire agreement of the parties hereto
with respect to the subject matter hereof, and supersede all prior agreements
and understandings, whether written or oral.
THE PENN TRAFFIC COMPANY
By: /s/ Harold Poster
Name: Harold Poster
Title:Director
ATTEST: MIKE'S ORIGINAL, INC.
Daniel B. Kelly By: /s/ Michael Rosen
Name: Michael Rosen
Title: Chairman of the Board
<PAGE> 17
EXHIBIT C
SECURITY AGREEMENT
MIKE'S ORIGINAL, INC., a Delaware corporation (the "Debtor"), hereby
grants to THE PENN TRAFFIC COMPANY (the "Secured Party") a security interest in
all the Debtors' respective:
(i) equipment, fixtures, furnishings and leasehold
improvements;
(ii) inventory (including, without limitation, raw materials, work in
process and goods held for sale);
(iii) accounts and contract rights;
(iv) chattel paper;
(v) instruments;
(vi) documents;
(vii) general intangibles;
(viii) intellectual property including, without limitation,
all trade names, trademarks, logos and patents; and
(ix) proceeds of the foregoing, including proceeds of insurance thereof
(as such terms are defined in the New York Uniform Commercial
Code), whether now owned or hereafter acquired (all of the
foregoing being called the "Collateral") to secure the payment and
performance of the Note (as such capitalized term is
defined in the Credit Agreement hereinafter referred to).
This Security Agreement is being executed and delivered pursuant to a
certain Credit Agreement dated the date hereof (the "Credit Agreement") between
the Debtor and the Secured Party.
The Debtor and the Secured Party hereby agree as follows:
(a) The Debtor shall keep the tangible Collateral insured to
the extent it is in its possession or control for the benefit of the Secured
Party against fire (including extended coverage) and such other hazards as the
Secured Party may reasonably request with the Secured Party named as loss payee.
Should the Debtor fail to provide insurance as herein required, the Secured
Party may, at its option, provide such insurance. Any sum so paid by the Secured
Party shall constitute obligations of the Debtor secured hereby which the Debtor
shall repay to the Secured Party on demand.
(b) Upon the occurrence of an Event of Default, the Secured Party shall
have, in addition to all other rights and remedies provided in this agreement or
otherwise, the remedies of a secured party under the Uniform Commercial Code,
including without limitation, the right to take possession of the Collateral,
and for that purpose the Secured Party may, so far as the Debtor can give
authority therefor, enter upon any premises upon which Secured Party may require
the Debtor to assemble the Collateral and make it available to the Secured Party
at a place to be designated by the Secured Party which is reasonably convenient
to the Secured Party. The Secured Party shall give the Debtor 45 days' notice of
the time and place of any public sale of any Collateral or of the time after
which any private sale or any other intended disposition is to be made, the
sufficiency of which notice is hereby acknowledged by the Debtor and Debtor
agrees that said notice period may be reduced to three days in the case of sale
of perishable inventory.
(c) The Debtor agrees that the Secured Party, in its discretion, may, after
an Event of Default (as hereinafter defined) has occurred, demand, sue for,
collect and receive any money receivable in respect of any account, chattel
paper, instrument, documents or general intangible comprising the Collateral.
<PAGE> 18
3. General. The Secured Party's rights and remedies, whether-evidenced
hereby or by any other agreement, instrument or paper, shall be cumulative and
may be exercised singularly or concurrently. This agreement and all rights and
obligations hereunder, including matters of construction, validity and
performance, shall be governed by the laws of the State of New York. Any
provisions of this agreement prohibited by law shall be ineffective to the
extent of such prohibition without invalidating the remaining provisions hereof.
All rights of the Secured Party herein shall inure to the benefit of its
successors and assigns.
<PAGE> 19
IN WITNESS WHEREOF, the Debtor and the Secured Party have executed this
Agreement as of the 10th day of April, 1996.
DEBTOR:
ATTEST: MIKE'S ORIGINAL, INC.
_____________________ By:________________________
SECURED PARTY:
THE PENN TRAFFIC COMPANY
By: _______________________
<PAGE> 20
AGREEMENT, dated as of January 1, 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 (the
"Agreements"); and
WHEREAS, the parties hereto desire to amend in certain
respects the Settlement Agreement and the Credit Agreement on the
terms hereinafter set forth.
NOW, THEREFORE, the parties hereto hereby agree as
follows:
1. MOI has heretofore furnished to PT a check in the
amount of $44,629, which amount represents the last payment due
under Subsection 2.01(b) of the Credit Agreement (including
interest), as well as two additional payments, in advance, for the
months of January and February 1997. In consideration of such
additional payments, MOI and PT have agreed to extend the date set
forth in Subsection 2.01(d) of the Credit Agreement from December
31, 1996 to February 28, 1997. Unless the public offering
contemplated by the Credit Agreement ("Offering") shall close prior
to March 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 March 1,
1997.
<PAGE> 21
2. Should the Offering be concluded prior to March 1,
1997,then, directly from the proceeds of such Offering, PT shall
receive the following payments by certified or bank check or by
wire transfer:
(i) the outstanding account receivable balance
which, as of the date hereof, is $61,786.23;
(ii) The $75,000 payment described in Subsection
2.01(c) of the Credit Agreement;
(iii) The $150,000 payment also described in
Subsection 2.01(c) of the Credit Agreement, together with an
additional payment of $100,000 (such additional payment to be
applied to outstanding principal); and
(iv) All gross proceeds received in the public
offering in excess of $5,750,000.
3. Except as expressly modified hereby, the Settlement
Agreement and Credit Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned have executed this
amendment this 30th day of January, 1997.
THE PENN TRAFFIC COMPANY
By:/s/Francis D.Price, Jr.
Vice President
MIKE'S ORIGINAL, INC.
By:/s/Michael Rosen
<PAGE> 1
EXHIBIT 10.12
MANUFACTURING, DELIVERY & PRICING AGREEMENT
This agreement made and entered into as of this 11th day of September,
1996, by and between MIKE'S ORIGINAL, INC., a Delaware corporation (hereinafter
referred to as "MOI") and FIELDBROOK FARMS ICE CREAM, INC., a Delaware
corporation (hereinafter referred to as "FIELDBROOK").
WITNESSETH:
WHEREAS, MOI is engaged in the sale and use of certain food products
commonly described as "Mike's Original Ice Cream" (hereinafter called the
"Product"); and
WHEREAS, MOI is the rightful owner of the formulae, finished product
standards and specifications relating to the Product; and
WHEREAS, MOI is the rightful owner of certain intellectual property
including, without limitation, all trade names, trademarks, logos and patents
(hereinafter "Trademarks").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. MANUFACTURE
FIELDBROOK shall manufacture and sell the Product only to MOI and said
manufacture shall be in accordance with the specifications furnished to
FIELDBROOK by MOI from time to time. The quality of the Product shall be as
specified by MOI.
FIELDBROOK shall manufacture and package the Product in cartons
acceptable to MOI and bearing its trademark "Mike's Original" and sell same to
MOI according to the pricing as shown in Schedule A and in the quantities as
shown in Section 4.
2. PRICING
MOI shall pay FIELDBROOK for the Product according to prices shown in
Schedule A.
Pricing to MOI shall be adjusted for bona fide ingredient and carton
price variations. MOI will be given thirty (30) days advance written notice
of such changes. Milk pricing will be in accordance with Federal Order #36.
<PAGE> 2
Processing cost adjustments shall be permitted annually on a
prospective basis. The costs of goods will be based on liquid cream cheese
formulation with a temporary surcharge added for the additional labor
requirements of handling and processing finished cream cheese with such time
as the liquid cream cheese formulation begins production.
All pricing to MOI on Schedule A shall be at FIELDBROOK's dock.
3. PAYMENT
Payment terms between FIELDBROOK and MOI shall be twenty-one (21) days
from the date the Product is shipped by FIELDBROOK.
4. QUANTITIES
FIELDBROOK shall fulfill MOI's reasonable quantity requirements by
delivering all orders to MOI within three (3) days for items in stock, and five
(5) days for items to be manufactured from date of FIELDBROOK's receipt of such
orders. FIELDBROOK shall be obliged to hold MOI products in the minimum
quantities set for in Schedule "B" attached hereto and made a part hereof, for
which quantities MOI guarantees payment. Schedule "B" will be reviewed/updated
quarterly to reflect any advances or declines in Par or minimum quantities.
5. TRADEMARK
Nothing herein contained shall give FIELDBROOK any right, title or
interest in or to the Trademarks, except the right to use the same in connection
with the packaging of the product strictly in accordance with the terms hereof
and FIELDBROOK acknowledges and agrees that MOI is the owner of the exclusive
right, title and interest in and to said Trademarks, that FIELDBROOK shall not
do or cause to be done, at any time, any act or thing in any way impairing any
part of MOI's right, title and interest in and to said Trademarks, and that any
and all uses of said Trademarks are and shall continue to inure to the exclusive
benefit of MOI. FIELDBROOK shall no longer be entitled to use the Trademarks of
MOI at such time as this Agreement is terminated.
6. CONDITION OF PREMISES
FIELDBROOK AGREES THAT THE PREMISES IN WHICH THE Product is
manufactured will at all times be kept clean, healthy and sanitary and will at
all times conform to all Federal, state and local health and sanitary
requirements. Upon receipt of reasonable notice from MOI, FIELDBROOK agrees to
authorize agents or employees of MOI at any and all times during FIELDBROOK's
regular business hours to enter FIELDBROOK's premises to inspect the said
premises, FIELDBROOK's manufacturing procedures and to obtain samples of the
Product in the process of manufacture as well as the finished Product for the
purpose of ascertaining or determining compliance with Section 1.
<PAGE> 3
7. WARRANTIES AND REPRESENTATIONS OF FIELDBROOK
All warranties provided by the Uniform Commercial Code as adopted by
the state in which the manufacturing facility of FIELDBROOK used to manufacture
the Product is located shall apply to all transactions under this Agreement
unless otherwise specifically provided herein. In furtherance, and not by way of
limitation of any warranties provided by such Uniform Commercial Code,
FIELDBROOK represents and warrants that the Product when sold and delivered to
MOI shall (a) be fit and sufficient for the purpose intended; (b) be
merchantable, of good quality, and free from defects, whether patent or latent,
in material or workmanship; (c) conform to the standards and specifications set
forth in Exhibit A hereof; and (d) be in compliance with the Federal Food, Drug
and Cosmetic Act of 1938, as amended from time to time, with all other Federal,
state and local laws applicable to the sale of the Product and with all
applicable regulations thereunder. In the event a material used in the Product
to be sold hereunder is deleted from acceptance as a food ingredient or additive
by Federal, state or local regulatory action, or a supply thereof is no longer
available, such action or unavailability will constitute automatic cancellation
with respect to such material in the formulation of the Product and FIELDBROOK
shall have the right, subject to the prior written approval of MOI to substitute
other material. All warranties shall survive the random inspection and
acceptance hereinabove provided.
8. WARRANTIES OF MOI
MOI represents and warrants to FIELDBROOK that the MOI labels and
carton copy furnished and/or specified by MOI hereunder shall comply with all
applicable Federal, state and local laws and regulations, including without
limitation the Federal Food, Drug and Cosmetic Act of 1938, as amended from time
to time.
9. INDEMNIFICATION BY FIELDBROOK
FIELDBROOK agrees to defend, indemnify and hold MOI harmless from and
against any and all claims, actions, causes of action, liabilities, loss, cost,
damages or expenses, including reasonable attorneys' fees arising out of any
breach of its warranties, covenants or agreements herein contained including,
without limitation, product liability. FIELDBROOK shall be responsible for the
proper formulation, sanitation, processing procedures and other factors under
its control. FIELDBROOK shall not be responsible for normal Product
deterioration or other damage done to the Product once it has been delivered and
accepted F.O.B. Fieldbrook's dock. MOI and FIELDBROOK agree to promptly notify
the other party of any assertion of any such claim or assertion of liability.
FIELDBROOK shall maintain general liability insurance with an insurance company
licensed to do business in the State of New York having limits of not less than
$3,000,000 per occurrence which contains endorsements for both product liability
broad form vendor's coverage and contractual liability coverage for all
obligations of FIELDBROOK herein. Such endorsements shall be amended to
specifically include MOI and MOI shall be entitled to copies thereof and to
copies of other insurance documents related to the subject matter hereof. Any
such liability insurance policy(ies) and/or endorsement(s) shall provide that
MOI be entitled to thirty (30) days advance written notice prior to a reduction
or elimination of coverage.
<PAGE> 4
10. INDEMNIFICATION BY MOI
MOI agrees to defend, indemnify and hold harmless FIELDBROOK (except
in the case of the willful or negligent acts or omissions of FIELDBROOK, its
agents and employees) from and against any and all claims, actions, causes of
action, liabilities, loss, cost, damages or expenses, including reasonable
attorneys' fees, arising out of breach of its warranties that the label is in
compliance with all applicable Federal, state and local statutes and
regulations. In the event such a claim is proven, either MOI or FIELDBROOK may
terminate this Agreement upon ten (10) days written notice to the other party.
The names and addresses of any and all persons, businesses, corporations,
partnerships, associations, or other enterprises challenging the use of any
formulae, standards and specifications or procedures or the use of MOI's
trademark with details concerning the claim or challenge shall be furnished by
either MOI or FIELDBROOK to the other party immediately upon becoming aware of
such claims.
11. FORCE MAJEURE
MOI and FIELDBROOK shall each be relieved of its obligations under
this Agreement if, when and to the extent that either party is unable to perform
or is limited in such performance because of force majeure. As used herein,
"force majeure" shall include acts of God, fires, explosions, bombings, floods,
civil commotions, riots, strikes, declared or undeclared wars, military police
actions, blockades, embargoes, insurrections, crop failure, restraint of rulers
and peoples, and all such interruptions of business, casualties, events or
circumstances beyond the control of the party claiming the benefits of force
majeure. When the limitation or curtailment caused by force majeure shall have
ended, the obligations of the parties hereunder shall be restored or full force
and effect. FIELDBROOK and MOI shall take all reasonable business precautions to
anticipate force majeure conditions and to inventory said materials.
<PAGE> 5
12. RESPONSIBILITIES UPON TERMINATION
In the event this Agreement is terminated as provided herein,
FIELDBROOK shall destroy or deliver to MOI, at MOI's written direction, all
unshipped product and all inventories of MOI trademarked packaging materials
existing on the effective date of such termination. MOI shall pay FIELDBROOK its
out-of-pocket cost therefor.
13. ASSIGNMENT
This Agreement and the rights and obligations hereunder shall not be
assigned or transferred in any manner whatsoever by either party, by the
operations of law, or otherwise, without the prior written consent of the other
party.
14. RELATIONSHIP OF PARTIES
Neither MOI nor FIELDBROOK is the agent, employee, joint venturer or
partner of the other, nor shall either of the parties hereto have the right,
power or authority to bind the other to any obligations whatsoever or to extend
the credit of or to assume or agree to assume any obligations or any liability
in the name of the other party.
15. TERMINATION
Either FIELDBROOK or MOI shall have the right to terminate this
Agreement without prejudice with ten (10) days advance, written notice if either
breaches any of the covenants of this Agreement. Notwithstanding anything to the
contrary, each party shall have fifteen (15) days after notice within which to
cure any such breach.
In any event, either party shall have the right to terminate this
agreement for any reason whatever within ninety (90) days advance, written
notice to the other.
16. ENTIRE AGREEMENT
This instrument constitutes the entire Agreement between the parties
with respect to the subject matter hereof and as an inducement to enter into
this Agreement, each party represents to the other that no representation or
statements have been made to the other party or its officers, agents, employees
or representatives, which would in any way tend to add, modify or change any of
the provisions of this Agreement shall not be enlarged, varied, modified or
waived by any agent or representative of MOI or FIELDBROOK except by an
instrument in writing executed by both parties hereto, and no party shall be
construed by and governed in accordance with the internal laws of the State of
New York.
<PAGE> 6
17. NOTICES
All notices hereunder shall be deemed to have been sufficiently given
if in writing and delivered or sent by registered or certified mail, postage
prepaid, as follows:
If to MOI, to
MIKE'S ORIGINAL, INC.
131 Jericho Turnpike
Jericho, NY 11753
Att: Mr. Michael Rosen
If to FIELDBROOK, to
FIELDBROOK FARMS ICE CREAM, INC.
One Ice Cream Drive
Dunkirk, NY 14048
Att:
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in duplicate by their duly authorized officers as of the day and year first
above written.
MIKE'S ORIGINAL, INC.
By: /s/ Michael Rosen
Michael Rosen
FIELDBROOK FARMS ICE CREAM, INC.
By: /s/______________
<PAGE> 7
Item 1) Samples: samples collected and forwarded at MOI's direction will be
at cost, and payable by customer.
Item 2) Mix processing: extenuating mix processing cots above FIELDBROOK's
normal routine will be billed separately, at cost, and payable by customer.
Item 3) Case Cost: see attached sheets, item specific.
By: /s/
Fieldbrook Farms Ice Cream, Inc.
<TABLE>
<CAPTION>
SCHEDULE A
RETAIL NOVELTIES
Pack Unit Cost Case Cost
---- --------- ---------
<S> <C> <C> <C>
Mike's Pint Strawberry Fantasy 8/Sleeve $.940 $ 7.52
Mike's Pint Chocolate Tidbits 8/Sleeve $.894 $ 7.15
Mike's Pint Graham Cracker Delight 8/Sleeve $.920 $ 7.36
Mike's Gramwich Sandwich 12/4 Pks $.698 $ 8.37
Mike's Strawberry Sorbet Coated Bar 12/6 Pks $.821 $ 9.85
Mike's Cracker Crunch Bar 12/6 Pks $1.038 $12.46
</TABLE>
Schedule "B"
<TABLE>
<CAPTION>
Novelties Par Minimum
--------- --- -------
<S> <C> <C>
Graham Crunch 12/6 pack 35 Pallets 25 Pallets
Strawberry Sorbet 12/6 pack 25 Pallets 15 Pallets
Gramwich 12/4 pack 25 Pallets 15 Pallets
Pints Par Minimum
----- --- -------
Graham Delight 16oz/8 pack 15 Pallets 8 Pallets
Chocolate Tidbit 16oz/8 pack 15 Pallets 8 Pallets
Strawberry Fantasy 16oz/8pack 15 Pallets 8 Pallets
Bulk Novelties Par Minimum
-------------- --- -------
Graham Crunch 6/18 pack 5 Pallets -----
Strawberry Fantasy 6/18 pack 5 Pallets -----
Gramwich 3/24 pack 3 Pallets -----
</TABLE>
<PAGE> 1
EXHIBIT 10.13
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is made and entered into this
1st day of October, 1995, by and between TOMBSTONE PIZZA CORPORATION, a Delaware
corporation with its principal place of business at Kraft Court, Glenview,
Illinois 60025, ("Tombstone") and MIKE'S ORIGINAL, INC., a New York corporation
with its principal place of business at 131 Jericho Turnpike, Jericho, New York
11753
WHEREAS, Mikes is a manufacturer of cheesecake ice cream products, and
Tombstone is a manufacturer and distributor of food products; and
WHEREAS, Mike's' desires to engage the services of Tombstone to distribute
its products to certain accounts in the distribution area described herein, and
Tombstone desires to act in such capacity, all on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein set forth the parties hereto agree as follows:
1. Nature and Scope of the Distribution Relationship.
a. Mike's hereby appoints Tombstone as its exclusive distributor of Mike's
products set forth on Exhibit A, attached hereto and incorporated herein by
reference (the "Products"), to the Distribution Area (the "Distribution Area")
set forth on Exhibit A, and Tombstone hereby accepts such appointment, all
according to the terms and subject to the conditions set forth herein. The
parties agree to modify Exhibit A from time to time to reflect changes in the
Products and/or Distribution Area. Notwithstanding the parties' failure to
timely modify Exhibit A, in the absence of a written agreement to the contrary,
the terms of this Agreement shall apply to Tombstone's distribution of any of
Mike's products in any territory to which the parties orally agree.
b. Mike's has previously contracted with various brokers for the sale of
Products. Tombstone may sell and deliver Product to such Broker(s)' accounts and
to other accounts in the Distribution Area. Tombstone has no obligation to any
such Broker, all obligations with such Brokers is the sole responsibility of
Mike's. Tombstone will provide direct store delivery of the Products and
merchandising of the Products.
c. Except as provided in Subparagraph 1(a), Tombstone shall not (i) sell or
deliver the Products outside the Distribution Area or (ii) assist any third
party in selling or distributing the Products outside the Distribution Area.
Mike's reserves the right to solicit and make direct sales of the Products to
any person, at any location, and to appoint such additional distributors in
other locations outside the Distribution Area, or brokers for Products, as in
Mike's sole judgment may be desirable, without obligation to Tombstone of any
kind, including, without limitation, for commissions or other charges based on
such sales.
2. Undertakings of Tombstone.
a. Tombstone shall use its best efforts to support and promote the sale of
the Products in the Distribution Area. This obligation shall include efforts to:
(i) fill, deliver, and handle all orders placed by Mike's customers,
including orders for new items and introductory offers, in accordance with
Mike's normal standards of doing business. Tombstone will not substitute
non-Mike's branded products for the Products ordered by customers;
<PAGE> 2
(ii) make every reasonable effort to maintain good trade relations
so that Mike's relationship with the trade is enhanced;
(iii) handle special orders or give special service when reasonably
necessary to the same extent provided by Tombstone with respect to other
products sold by it;
(iv) furnish a written list of customers and locations quarterly upon
Mike's request;
(v) provide quarterly sales data by customer and by route, as requested
try Mike's with respect to the Products;
(vi) meet periodically with Mike's to review performance;
(vii) Tombstone shall comply with all applicable federal, state and
local laws and regulations with respect to the distribution of the Products and
with all reasonable rules, regulations and policies established by Mike's and
communicated to Tombstone which relate in general to distributors of the
Products; and
(viii) Tombstone shall safeguard, promote and maintain the excellent
reputation for high quality now associated with the Products and with the Mike's
trademark.
b. Tombstone shall maintain adequate facilities for the warehousing and
timely distribution of the Products.
c. Tombstone shall permit Mike's personnel to make periodic audits of its
facilities and vehicles used for distribution of the Products to determine
compliance with this Agreement.
d. Tombstone shall not be liable for its failure to comply with the
provisions of this Agreement arising from causes beyond its control, including
without limitation fire, storm, flood, earthquake, explosion, accident, acts of
public enemies, war, rebellion, insurrection, sabotage, epidemic, quarantine
restrictions, labor disputes or shortages, transportation embargo, or failure or
delays in transportation, acts of God or acts of any governmental authority or
agency thereof.
3. Undertakings by Mike's.
a. Mike's shall supply full truck load orders (22 pallets) of the Products
ordered by Tombstone to Tombstone F.O.B. Tombstone's designated warehouse(s).
Title shall pass to Tombstone and Tombstone shall bear all risks of loss with
respect to the Products upon delivery of the Products to Tombstone's dock.
b. Mike's shall not be liable for its failure to supply the Products
arising from causes beyond its control, including without limitation fire,
storm, flood, earthquake, explosion, accident, acts of public enemies, war,
rebellion, insurrection, sabotage, epidemic, quarantine restrictions, labor
disputes or shortages, transportation embargo, or failure or delays in
transportation, inability to secure ingredients, acts of God or acts of any
governmental authority or agency thereof. Mike's agrees, however, that in the
event of any such failure it shall use reasonable efforts to supply to Tombstone
any of the Products Mike's is able to supply on a proportionate basis with
Mike's other distributors and/or brokers.
c. Mike's shall produce and maintain adequate supplies of the Products to
fill Tombstone's orders.
<PAGE> 3
d. Mike's shall be solely liable for all obligations and any amounts due to
Mike's brokers in connection with the distribution of Products by Tombstone.
e. Mike's will ensure that Tombstone is apprised of all promotions (both
off invoice discounts and all fixed advertising allowances) no less than thirty
(30) days prior to the event.
4. Term and Termination.
a. Except as otherwise provided herein, this Agreement shall commence an
October 1, 1995, and continue in effect for an initial term of one (1) year.
Unless terminated upon 60 days prior notice, this Agreement will thereafter
continue provided that either party may terminate at any time by giving the
other party at least sixty (60) days written notice that it desires to terminate
this Agreement.
b Notwithstanding Section 4(a), this Agreement may be terminated
immediately by Mike's if there is a default, breach or failure of Tombstone to
perform any material covenant, warranty or representation of this Agreement
which is not cured within ten (10) days after Tombstone receives notice of such
condition from Mike's.
c. Notwithstanding Section 4(a), this Agreement may be terminated
immediately by Tombstone if there is a default, breach or failure of Mike's to
perform any material covenant, warranty or representation of this Agreement
which is not cured within ten (10) days after Mike's receives notice of such
condition from Tombstone.
d. Any delay in sending any of the notices specified herein shall not
constitute any waiver of the sending party's right to terminate this Agreement
upon compliance with the terms of this Agreement.
e. Tombstone shall have the right to distribute in the ordinary course of
its business the Products in its possession on the effective date of any
termination of this Agreement; provided, however, that any such sales shall be
in accordance with the provisions of this Agreement. In its sole discretion,
Mike's may elect to buy back all or any portion of such inventory of Products.
f. The termination of this Agreement will operate as a cancellation, as of
the date thereof, of all orders for Products which have not been delivered or
shipped by Mike's, and neither party shall thereafter be under any obligation to
the other with respect to orders so canceled.
g. Tombstone shall not be entitled to any compensation, damages, payment
for goodwill that may have been established, or any amount for any other cause
by reason of a rightful termination by Mike's pursuant to this Agreement.
h. Neither the expiration nor any termination of this Agreement for
whatever cause shall affect any rights or obligations of any party which have
accrued as of the effective date of such expiration or termination, nor shall it
affect any rights or obligations of any party under this Agreement which are
intended by the parties to survive such expiration or termination.
5. Pricing and Payment.
a. Mike's shall sell Products to Tombstone which will be distributed by
Tombstone. Mike's suggested retail list prices are set forth on Exhibit A,
attached hereto and incorporated herein by reference. Such prices may be amended
by Mike's at any time in its sole discretion upon written notice to Tombstone.
<PAGE> 4
In compensation for the distribution services provided herein, Mike's will pay
Tombstone 25% of such suggested retail list price, Mike's will invoice Tombstone
at the suggested retail price for such Products and Tombstone will deduct such
25%, plus all fixed costs previously deducted by Tombstone's customers, from
Mike's invoice before payment is made to Mike's.
b. Tombstone is entitled to offset any amounts owed by Mike's for
unsaleables or other matters from any other amounts that it owes to Mike's;
Tombstone may, at its option, invoice Mike's for such amounts rather than offset
such amounts.
c. All payments by Tombstone to Mike's shall be made within twenty-one (2
1) days of receipt of invoice.
d. At the conclusion of each accounting period (4 or 5 weeks), Tombstone
will invoice Mike's for all samples, demo samples, replacements, discounts or
allowances made to Mike's customers for that accounting period. All payments by
Mike's to Tombstone shall be made within twenty-one (21) days of receipt of
invoice.
e. Tombstone is entitled to return to and invoice Mike's for all Products
which Tombstone is not able to distribute before the shelf-life code for such
Products has expired. The parties contemplate that such returned Products may
occur as a result of (i) anticipated sales to new and significant customers
which do not occur, (ii) promotional sales which are anticipated but not
achieved, and (iii) other such events which result in overstocking based upon
reasonable expectations of sales. The parties do not contemplate that such
returns will occur on a continuing basis; in such event, however, the parties
agree to work together to control such returns.
f. If Tombstone manages total annual variable expense (off-invoice discount
rate, replacement rate and sample rate) to less than six and one-half percent
(6.5%) of total gross sales (the "Target Spending Amount") for any calendar
year, Tombstone shall be entitled to receive as a bonus an amount equal to the
difference between actual total variable sales expense and the Target Spending
Amount, payable within thirty (30) days of the close of that year. By way of
example only, if Tombstone's total annual variable expense for an accounting
period was 5.5% of total gross sales, it would be entitled to a bonus of 1% of
total gross sales for that year.
g. Tombstone shall be entitled to a five percent (5%) commission on all
sales to subdistributors for which Tombstone acts as selling agent.
6. Confidentiality. All business information and materials and trade
secrets of one party provided to the other party hereunder in furtherance of
this Agreement will be treated by the receiving party as confidential, to be
used solely in connection with such party's performance under the terms of this
Agreement, and will not be disclosed to any persons other than the receiving
party's employees who have a reasonable need to know in connection with the
receiving party's performance hereunder. The receiving party agrees that any
breach of this section by the receiving party, its employees, agents or
subcontractors shall cause irreparable injury to the disclosing party, and that
the disclosing party shall be entitled to specific performance and injunctive
relief or other equitable relief as a remedy for any such breach.
7. Indemnification.
a. Mike's shall indemnify, defend and hold Tombstone harmless from all
liabilities, damages, injuries, claims ' suits, judgments, causes of action, and
expenses (including reasonable attorneys' fees, court costs and out-of-pocket
expenses) suffered or incurred by Tombstone as a result of (i) a breach of any
representation, warranty or covenant made hereunder, (ii) except with respect to
product liability, any act or deed, whether by way of tort or contract,
committed or omitted by Mike's, its employees or agents in the performance of
<PAGE> 5
this Agreement or (iii) a failure to comply with all valid federal, state, or
local laws, ordinances and regulations or a breach of warranty, express or
implied, as to the quality of the Product if such quality is detective through
causes arising in the production, packaging, delivery, or storage by Mike's or
for tort damages arising out of negligence or omission by Mike's or its
employees in producing, packing, or storing or delivering the Product.
b. Tombstone shall indemnify, defend and hold Mike's harmless from all
liabilities, damages, injuries, claims, suits, judgments, causes of action, and
expenses (including reasonable attorneys' fees, court costs and out-of-pocket
expenses) suffered or incurred by Mike's as a result of (i) a breach of any
representation, warranty or covenant made hereunder or, (ii) any act or deed,
whether by way of tort or contract, committed or omitted by Tombstone, its
employees or agents in the performance of this Agreement, except if such
liability arises as a result of Mike's breach of any of its obligations under
this Agreement.
8. Independent Contractor. Tombstone is an independent contractor
(hiring the term hereof. Neither Tombstone, its agents or its employees
shall under any circumstances be deemed agents, partners, joint venturers or
representatives of Mike's. No party hereto shall have the right to bind any
other party in any respect except as expressly provided herein.
9. Notice. Any notice, request, information or other document to be
given hereunder to any of the parties by any other party shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, return receipt requested, as follows:
If to Mike's: Mike's Original, Inc.
131 Jericho Turnpike
Jericho, NY 11753
Attention: Dan Kelly
Telecopy #: (516) 334-2292
If to Tombstone: Tombstone Pizza Corporation
Kraft Court
Glenview, Illinois 60025
Attention: Vice President, Sales
Telecopy #: (708) 646-3981
Either party may change the address to which notices are to be seat to
it by giving written notice of such change of address to the other party in the
manner herein provided for giving notice.
10. Trademarks. Trademarks and trade names used by Mike's or by any of
its subsidiaries or affiliates in connection with any of the Products shall be
used by Tombstone pursuant to this Agreement only with reference to such
Products in the manner approved in writing by Mike's. Tombstone shall
discontinue all use of such trademarks and trade names pursuant to this
Agreement immediately upon termination of this Agreement. Tombstone acknowledges
that it does not have nor will it obtain by this Agreement any proprietary
interest in any of such trademarks and trade names. Tombstone further agrees not
to use any of such trademarks and trade names as part of its corporate or
business name.
<PAGE> 6
11. Survival. The provisions of Sections 4, 6, 7 and 11 hereof
shall survive any expiration or termination of this Agreement.
12. Miscellaneous.
a. The failure of any party hereto at any time to require performance
by any other party of any provision of this Agreement shall in no way affect the
right of such party to require performance of that provision, and any waiver by
any party of any breach of any provision as this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver or any right under this Agreement.
b. This Agreement is to be construed and governed by the substantive
laws, but not the laws of conflict, of the State of Illinois.
c. Tombstone acknowledges that the services to be rendered by it to
Mike's are unique and personal. Accordingly, Tombstone may not assign any of its
rights or delegate any of its obligations under this Agreement without the prior
written consent of Mike's, except that this Agreement may at any time be
assigned as a part of a sale or reorganization of all or substantially all of
Tombstone's business. This Agreement shall inure to the benefit of Mike's and to
Mike's successors, assigns or affiliates.
d. This document and any documents incorporated by reference herein
constitute the entire agreement and understanding between the parties regarding
the subject matter hereof, and supersedes and merges all prior discussions and
agreements between them relating thereto. No waiver, modification or amendment
to this Agreement shall be valid unless in writing, signed by the parties
hereto. No usage of trade or course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
party hereunder.
e. This Agreement may be executed in counterparts, including by means
of telecopied signature pages, any one of which need not contain the signature
of more than one party, each of which shall be deemed an original, but all of
which together shall constitute tire entire agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MIKE'S ORIGINAL, INC.
By:__________________________________
Its:__________________________________
TOMBSTONE PIZZA CORPORATION
By:_________________________________
Its:__________________________________
<PAGE> 7
EXHIBIT A
Distribution Area: The State of California
The following counties in the State of Washington:
Skamania, Clark and Cowlitz.
The State of Oregon except for the following counties:
Union, Baker, Umatilla and Wallowa.
The City of Las Vegas, Nevada
Classes of Trade: All (military, club and C-stores with approval of both
parties).
Product description:Pints of Cheesecake Ice Cream
Flavors: Strawberry Fantasy
Graham Cracker Delight
Chocolate Tidbits
Costs: $16.00 per case
$2.00 per unit
Product Description: Novelties
Flavors- Graham Cracker Crunch Bar
Strawberry Sorbet Bar
Grahamwich Sandwich
Costs: $27.00 per case
$2.25 per unit
However, the cost for Novelties for sale in those portions of the
Distribution Area serviced by Tombstone's Seattle office only shall be as
follows:
$25.80 per case
$2.15 per unit
<PAGE> 8
November 21, 1995
Daniel B. Kelly
Mike's Original, Inc.
131 Jericho Turnpike
Jerico, NY 11753
Re: Mike's/Tombstone Distribution Agreement - Exhibit A-1
Dear Dan:
This letter will confirm that we have added the areas set forth in the attached
Exhibit A-1 to the Territory for Distibution Agreement between Tombstone and
Mike's Orignial. All of the terms of the Agreement shall apply to the expanded
Territory. Please sign below an on the enclosed duplicate original and return
one copy to me to confirm your agreement. We look forward to continued success
in this venture and thank you for your cooperation.
Very truly yours,
Greg Banks
Agreed and Accepted
Mike's Original, Inc.,
By:______________________
Its:_______________________
<PAGE> 9
EXHIBITS A-1
Distribuition Area: The States of:
Maine Massachusetts New York
Vermont Rhode Island New Jersey
New Hampshire Connecticut Pennsylvania
Class of Trade: All (Military, Cluband C-Stores and Foodservicewith
approval of both parties
Product Description: Pints of Cheeesecake ice Cream
Flavors Strawberry Fantasy
Graham Cracker Delight
Chocolate Tidbits
Costs: $16.00 per case
$2.00 per Unit
Product Description: Novelties
Flavors
Graham Cracker Crunch Bar
Strawberry Sorbet Bar
Grahamwich Sandwich
Costs: $25.00 per case
$2.083 per unit
Service: D.C. and I.C.S storage facilities will be serviced twice per month
by bonded, dedicated driver via Prime Trucking. Tombstone will
provide security access to all I.C.S. units to Prime Trucking
dedicated driver.
<PAGE> 1
EXHIBIT 10.14
BROKER AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of April, 1996, by and
between KRAFT FOODS, INC., a Delaware corporation, with a place of business at
930 South Avenue, Suite 11, Colonial Heights, VA 23834 ("Kraft"), and MIKE'S
ORIGINAL, INC., with its principal place of business at 131 Jericho Turnpike,
Jericho, NY 11753 ("Mike's").
WHEREAS, Mike's wishes to engage Kraft's services as a broker with
respect to sales of Mike's products to the United States military; and
WHEREAS, Kraft is willing to act as such a broker on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Representation. Kraft shall represent Mike's in the sales of those
products listed in Exhibit A, attached hereto and incorporated herein by
reference (the "Products"), to the military institutions listed on Exhibit B,
attached hereto and incorporated herein by reference (the "Military Customers"),
on the terms and conditions set forth below. Such representation shall be
exclusive within the Super Premium ice cream category. Kraft shall also
represent Mike's in the sale of such other products to such other customers as
the parties may mutually agree to from time to time, as reflected by written
amendments to Exhibits A and B, respectively.
2. Effective Date. The term of this Agreement shall commence as of April 1,
1996, and shall continue for a period of one year, unless earlier terminated
pursuant to Section 8 hereof. After such initial term, this Agreement shall
renew for successive periods of one year, unless either party shall notify the
other in accordance with Section 8A of its desire to terminate this Agreement.
3. Obligations of Kraft. During the term of this Agreement, Kraft shall
perform the following obligations in a professional and workmanlike manner:
A. Offer all the Products for sale to the Military Customers. The
parties acknowledge and agree that Kraft is acting as a sales representative
only with respect to the Products. Kraft shall not purchase or inventory the
Products, take title to the Products or bear any risk of loss or liability with
respect to the Products.
B. Make recommendations concerning the selection of delivery
agents to provide delivery services to the Military Customers; provided,
however, that Mike's shall have the sole discretion as to whether such delivery
agents are actually utilized to deliver such Products (the delivery agents
actually contracted by Mike's shall be referred to herein as the "Delivery
Agents").
C. Assist Mike's in managing issues with the Delivery Agents. Such
assistance shall include using reasonable efforts to assure that Delivery Agents
provide Mike's with (i) timely proof of delivery documents in accordance with
Mike's contract with such Delivery Agents; (ii) proper ordering and stock
rotation; and (iii) quality delivery service and Product presentation at the
stores of the Military Customers.
<PAGE> 2
D. Accept pricing information and information regarding Product
additions or deletions form Mike's and maintain and distribute to the Military
Customers.
E. Make recommendations concerning marketing plans and trade
deals; provided, however, that Mike's shall have sole discretion whether to
accept such recommendations and shall be solely responsible and liable for all
decisions and agreements relating to pricing, marketing and promotions of the
Products, including but not limited to any most favored customer warranties made
by Mike's to the government.
F. Make payments to Military Customers located outside the
Continental United States for trade promotions that have been authorized by
Mike's and provide Mike's with invoices on a quarterly basis for the aggregate
amount of such trade promotions payments. Mike's shall reimburse Kraft for such
payments in accordance with Section 5D.
G. Provide assistance with respect to unsaleable Products. Such
assistance shall include: (i) picking up such unsaleable Products at the
Military Customer's store; (ii) reimbursing the applicable Military Customer as
the shelf price of such Product in effect on the date of pick-up; (iii)
completing Military Customer's vendor credit memorandum ("VCM") which serves as
supporting backup to the unsaleable reimbursement (except that in the case of
overseas deliveries, such VCM shall be prepared by Kraft's overseas broker, S&K
Sales Company); (iv) on a quarterly basis, provide Mike's with an invoice for
the aggregate amount of VCMs reimbursed during such quarter, together with such
supporting internal documentation as is reasonably available to Kraft. Mike's
shall reimburse Kraft for such payments in accordance with Section 5E.
H. If requested by Mike's, provide assistance in resolving
disputes with Military Customers regarding deductions or other issues relating
to the collection of accounts receivable; provided, however, that Mike's shall
bear all financial and legal risks associated with the collection of such
accounts receivable.
I. In the case of products that are proposed to be introduced to
Military Customers, pick up samples for such products from the Delivery Agents
and demonstrate them with the Military Customers. Samples shall be shipped by
Mike's to Delivery Agents for this purpose and should be recognized by the
Delivery Agents as "No Charge" samples for Kraft's sales use.
J. In the case of distribution voids, purchase samples with Mike's
approval for use with Military Customers in such quantities as may be authorized
by Mike's and provide Mike's quarterly with an invoice for such purchases,
together with such supporting documentation as is reasonably available to Kraft.
Mike's shall reimburse Kraft for such payments in accordance with Section 5F
hereof.
4. Obligations of Mike's. During the term of this Agreement, Mike's shall
perform the following obligations in a professional and workmanlike manner.
<PAGE> 3
A. Establish separate contracts with the Military Customers and
the Delivery Agents and advise Kraft of the terms and conditions of, termination
of and/or material amendments to such contracts and any other information that
Kraft shall deem relevant to enable Kraft to perform its obligations hereunder.
Mike's acknowledges that Kraft is not a party to, or a third party beneficiary
of, any of these contracts with the Military Customers or the Delivery Agents
and shall have no responsibility for liabilities arising in contract or tort
under such contracts or arising out of the pricing, manufacture, storage or
delivery of Products to the Military Customers.
B. File such certifications and/or documentation as may be
required by federal, state or local law or regulation regarding the brokerage
relationship between Kraft and Mike's with respect to sales of the Products.
C. Provide Kraft with current, accurate and complete information
regarding the Products, pricing, marketing, trade promotions and Retail
Order Agreement changes. All data relating to Product and pricing changes and
trade promotions shall be submitted to the Kraft Sales Planning Department not
less than forty-five (45) days prior to their respective effective dates.
D. Provide timely approvals of the marketing plans and trade
promotions recommended by Kraft and Retail Order Agreement amendments; provided,
however, that such approval may be withheld in Mike's sole discretion.
5. Commissions and Other Payments.
A. Commissions. In full and complete consideration for the
services to be provided by Kraft under this Agreement, Mike's shall pay Kraft
commissions as follows:
(i) Mike's shall pay an initial commission of five percent
(5%) on all Net Sales of the Products to Military Customers located inside the
Continental United States. "Net Sales" hereunder shall be defined as Mike's then
current published list price for a Product minus any Vendor Price Reductions or
similar off-invoice allowances. Such commissions shall be paid on a monthly
basis as soon as practicable (but not more than ten (10) days) after the close
of business for the month to the following address: Kraft Foods, Inc., 930 South
Avenue, Suite 11, Colonial Heights, VA 23834, Attention: Steve Smith - Military
Sales. The parties intend that this five percent (5%) commission be in effect
for an initial period only, and that such commission shall be amended at such
time as the parties shall mutually agree in writing to be payable as follows:
(i) four percent (4%) of Net Sales commission payable in accordance with the
foregoing payment terms plus (ii) one percent (l%) of Net Sales commission
payable upon Kraft's achievement of such sales volume objectives as the parties
may agree to in writing.
(ii) Mike's shall pay a commission of three percent (3%) on
all Net Sales of Products to Military Customers located outside the Continental
United States. Such commissions shall be paid on a monthly basis as soon as
practicable (but not more than ten (10) days after the close of business for the
month to Kraft's overseas military sales broker at the following address: S&K
Sales Company, 1172 Azalea Garden Road, Norfolk VA 23502, Attention: Linda
Viohl.
<PAGE> 4
(iii) Mike's shall pay an additional initial commission of two
percent (2%) to Kraft on all Net Sales of Products to Military Customers located
outside the Continental United States to cover Kraft's marketing and
administrative support of the overseas market and sales management of Kraft's
overseas broker. Such commissions shall be paid on a monthly basis as soon as
practicable (but not more than ten (10) days) after the close of business for
the month and mailed to the address set forth in Section 5A(i) hereof. The
parties intend that this two percent (2%) commission be in effect for an initial
period only, and that such commission shall be amended at such time as the
parties shall mutually agree in writing to be payable as follows: (i) one
percent (1%) of Net Sales commission payable in accordance with the foregoing
payment terms plus (ii) one percent (1%) of Net Sales commission payable upon
Kraft's achievement of such sales volume objectives as the parties may agree to
in writing.
B. Stocking Allowances.
(i) Mike's shall ensure that its Product pricing is sufficient
to cover a thirty-six cents ($.36) per case charge for vendor stocking services.
(ii) Mike's shall pay monthly, within ten (10) days of
receipt, all invoices delivered by Kraft's stockage broker, Prime Team Services,
with respect to stocking services performed in connection with the Products in
the Continental United States. Such invoices shall have been audited and
approved in advance by Kraft prior to their submission to Mike's by Prime Team
Services.
(iii) Mike's shall pay to Kraft thirty-six cents ($.36) per
case for each case of Product delivered to Military Customers not located in the
Continental United States to cover stocking allowances paid by S&K Sales Co.,
Kraft's overseas sales broker. Such stocking allowance shall be paid on a
monthly basis as soon as practicable (but not more than ten (10) days) after the
close of business for the month and mailed to the address set forth in Section
5A(i) hereof.
C. Delivery Agent Fees. Mike's shall pay the Delivery Agents
for services rendered in connection with the delivery of the Products to
the Military Customers in accordance with Mike's agreements with such Delivery
Agents.
D. Trade Promotions. In accordance with Section 3(f) hereof,
Mike's shall reimburse Kraft for all trade promotion payments made by Kraft's
overseas broker to Military Customers located outside the Continental United
States. Such payments shall be made within ten (10) days of receipt of Kraft's
quarterly invoice for such amounts, with the notation of "trade promotion
payments" on the check.
E. Unsaleable Payments. In accordance with Section 3(g) hereof
Mike's shall reimburse Kraft for all VCMs reimbursed by Kraft to Military
Customers for unsaleable Products. Such payments shall be made within
ten(10)days of receipt of Kraft's quarterly invoice for such amounts, with the
notation of "unsaleable reimbursement" on the check.
<PAGE> 5
F. Distribution Void Samples. In accordance with Section 3(i)
hereof, Mike's shall reimburse Kraft for all samples purchased for purposes of
making sales presentations to military customers in an effort to close an
existing distribution void. Such payments shall be made within ten (10) days of
receipt of Kraft's quarterly invoice for such amounts, with the notation of
"distribution void samples" on the check.
6. Prices and Terms of Sale. Kraft shall quote to the Military
Customers only those prices and other terms that Mike's shall designate
to Kraft in writing from time to time.
7. Independent Status. Neither Mike's nor Kraft shall have any
authority to employ any person on behalf of the other. Each party shall have (as
between the parties) the exclusive right to select, engage, fix the compensation
of, discharge, and otherwise to manage, supervise, and control the persons hired
by it and shall, with respect to all such persons, perform all obligations and
discharge all liabilities imposed upon employers under labor, wage-hour,
workman's compensation, unemployment compensation or insurance, social security,
and other Federal, State and local laws and regulations.
8. Termination.
A. This Agreement may be terminated by either party at any time
for any reason upon thirty (30) days written notice by one party to the other.
Such termination shall be deemed effective immediately upon notice being given.
In the event of such termination, Mike's shall make all payments as set forth in
this Agreement on Products that are sold and shipped to the Military Customers
through the date on which termination is effective.
B. This Agreement shall terminate immediately without the
necessity of prior notice if (a) either party should discontinue or cease doing
business, (b) either party should become bankrupt or insolvent or take advantage
of any bankruptcy or insolvency act or make an assignment of the benefit of
creditors, (c) a controlling interest in either party's organization is acquired
by any third party, (d) either party fails to comply with or perform any
material provisions of this Agreement, and such failure is not cured within
thirty (30) days of written notification of such failure, (e) Mike's contract
with the government is terminated for any reason, (f) either party is debarred,
suspended or in any way sanctioned by the United States government, or (g) any
warranty made by either party is breached or is false or misleading in any
material respect.
C. Upon notification receipt or issuance under Section 8A
or termination under Section 8B hereof, Kraft will immediately discontinue
all services described in this Agreement and will incur no further commissions
or expenses pursuant hereto without Mike's prior written approval. Except as
otherwise specifically provided herein, termination of this Agreement shall not
relieve the parties of any obligation accruing with respect to this Agreement
prior to such termination.
9. Notice. All notices, reports and receipts shall be in writing
and shall be deemed duly given on (i) the date of personal or courier
delivery; (ii) the date of transmission by telecopy or other electronic
transmission service, provided a confirmation copy is also sent no later than
the next business day by postage paid, return receipt requested first-class
mail; or (iii) three (3) business days after the date of deposit in the United
States mails, by postage paid, return receipt requested first-class mail,
addressed as follows:
<PAGE> 6
If to Kraft: Kraft Foods, Inc.
930 South Avenue
Suite 11
Colonial Heights, VA 23834
Attention: Steve Smith - Military Sales
Telecopy No: (804) 524-3723
If to Mike's: Mike's Original, Inc.
131 Jericho Turnpike
Jericho, NY 11753
Attention: Dan Kelly - President & COO
Telecopy No: ________________
Either party may change its mailing address by written notice to the other party
in accordance with this paragraph.
10. Indemnification; Compliance with Laws.
A. Kraft shall indemnify, defend and hold Mike's, its employees
and agents harmless from and against any and all liabilities, losses,
costs, damages, injuries, claims, suits, judgments, causes or action and
expenses (including reasonable attorney's fees, court costs and out-of-pocket
expenses) (collectively the "Liabilities") suffered or incurred by Mike's as a
result of a breach of any representation, warranty or covenant made hereunder by
Kraft or any negligent act or deed, whether by way of tort or contract,
committed or omitted by Kraft, its employees or agents in the performance of
this Agreement.
B. Mike's shall indemnify, defend and hold Kraft, its employees
and agents harmless from and against any and all Liabilities suffered or
incurred by Kraft as a result of a breach of any representation, warranty or
covenant made hereunder by Mike's or any negligent act or deed, whether by way
of tort or contract, committed or omitted by Mike's, its employees or agents in
the performance of this Agreement.
C. In addition to the foregoing, Mike's acknowledges that Kraft is
engaged hereunder solely to sell Products to the Military Customers and that
Kraft shall not take title to or have possession of any Products at any time
other than product samples for selling purposes. Mike's shall indemnify Kraft
and hold Kraft, its employees and agents harmless from and against any and all
Liabilities arising out of the pricing, manufacture, production, storage or
delivery of the Products, whether such Liabilities are for personal injury,
property damage or otherwise and all liabilities arising out of Mike's contracts
with the government.
<PAGE> 1
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 524,167 524,167
Dilutive shares - convertible notes 224,264 224,264
---------- ----------
Weighted average common and equivalent
shares outstanding 2,340,537 2,059,879
---------- ----------
Primary earnings per share $(1.73) $(.78)
</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.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 10, 1997, (except for Notes B, H,
L, and N, as to which the date is January 25, 1997 and Note C-10,as to which the
date is February 6, 1997), which includes an explanatory paragraph discussing
the factors described in Note B to the financial statements about the Company's
ability to continue as a going concern, 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."
/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
Melville, New York
February 7, 1997
