United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934
For the fiscal year ended June 28, 1998
Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934 for the Transition Period from _____________ to _______________
Commission File No. 1-13818
The Rattlesnake Holding Company, Inc.
(Name of small business issuer in its charter)
Delaware 06-1369616
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 South Main Street
South Norwalk, CT 06854
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (860) 276-8660
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
State issuer's revenues for its most recent fiscal year. $3,888,643
State the number of shares outstanding of each of the issuer's classes of
common equity, as of June 28, 1998. 10,889,285
As of June 28, 1998, the aggregate market value of the registrant's common
stock held by non-affiliates computed by reference to the price at which the
stock was sold was $3,677,300. The shares of the Company's Common Stock are
currently traded on the Over-the-Counter Bulletin Board under the symbol "RTTL".
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
The Rattlesnake Holding Company, Inc. a Delaware corporation (unless the
context otherwise indicates, with its subsidiaries, the "Company") was formed
and commenced operations in 1993, and effected an initial public offering of its
stock in 1995 to develop, build and operate a chain of casual dining
southwestern restaurants under the name Rattlesnake Southwestern Grill. At one
time, the Company operated a total of 8 restaurants in the New York metropolitan
area. Management was unable to operate the restaurants profitably, failed to
control general and administrative expenses and did not develop a workable
growth strategy. As a consequence, the Company experienced substantial losses
and incurred a significant amount of debt. In 1997, the Board of Directors
elected certain of its members as officers to take control of operations and
replace the existing management pursuant to its Cost Reduction Plan. The Company
then disposed of development projects and non-performing restaurants, negotiated
severance agreements with the former management, and sharply reduced general and
administrative expenses.
In March 1998, the Company consummated a transaction with Nicolo
Ottomanelli and Joseph Ottomanelli, through which it acquired a company which
franchised Ottomanelli's Cafe(R) restaurants (casual dining New York City based
operations), an Ottomanelli's Cafe(R) and another food service operation in New
Jersey, and as well as management with expertise in the selection and sale of
meat and meat products. The Ottomanelli's Cafe(R) franchise company currently
has extremely limited operations. Upon further analysis, Company management
concluded that the Ottomanelli Cafe(R) operations were inconsistent with the
Company's operating plans and were authorized to be terminated. The restaurants
were closed in August 1998.
In fiscal 1998, in furtherance of its Cost Reduction Plan, the Company
terminated operations at its Lynbrook, New York and Danbury, Connecticut
facilities, and in November 1998, terminated operations at its Flemington, New
Jersey facility as well, for which it recorded an impairment charge in 1998.
In April 1999, 106 Federal Road Restaurant Corp., a wholly-owned subsidiary
of the Company, purchased the Danbury, Connecticut facility previously closed.
The closed restaurant is being remodeled and reconfigured to serve as the first
location for the Company's new restaurant concept.
The Company continues to operate a self sustaining Rattlesnake(R)
Southwestern Grill in South Norwalk, Connecticut.
New Restaurant Concept
In the last half of calendar year 1998, the Company's management recognized
that it had a limited future as an operator of Rattlesnake Southwestern Grill
restaurants. As a result, management set out to: (i) increase the Company's
working capital through the consummation of a private placement offering of the
Company's securities, with Commonwealth Associates serving as placement agent
(the "Placement Agent"); (ii) assemble a new, highly experienced and established
management team; and (iii) alter the Company's restaurant theme and menu and
develop restaurants with a new concept.
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Private Placement Offering
In October 1998, the Company commenced a private placement offering (the
"Offering") of its securities, pursuant to which it offered investors Series B
Convertible Preferred Shares. See "Description of Securities - Preferred
Shares." Upon completion of the Offering in July 1999, the Company had raised
approximately $6,000,000 and converted approximately $1,350,000 of debt to
equity. After satisfying certain of its remaining debts, disbursements of and
commissions to the placement agent, and payment of other expenses of the
Offering, the Company secured approximately $4,000,000 for working capital use.
New Management Team
In order to develop and implement its new restaurant concept, the Company
installed a new management team and Board of Directors with significant
experience in the restaurant operations industry. See "Management - Agreements
with New Management." Accordingly, the Company has entered into personal service
agreements (of varying commitment levels) with certain key persons who, as
principals, have previously participated in the development of food service
chains, including Shelly Frank (Chi-Chi's), Kenneth Berry (Roy Rogers,
regionally), A.G. "Sandy" Rappaport (Outback Steakhouse) and Stephan A. Stein
(David's Cookies). See "Management". However, due to a number of factors,
including the Company's historical operating losses, small restaurant base and
geographic concentration, as well as dependence on certain external factors it
cannot control, there can be no assurance that new management will be able to
make the Company profitable or commercially viable.
New Concept and Menu
The Company has commenced concept development of a multi-regional chain of
mid-priced steakhouses, to feature price/value steak and distinctive shrimp (and
other) dishes, tentatively named Spencer's.
The Spencer's is a price/value oriented restaurant concept which is
designed to provide fresh, high quality food at moderate prices in a relaxed
atmosphere. The key elements of the Spencer's concept include the following:
o A casual, back to basics, large portions, mid-priced steakhouse; designed
to offer exceptional service, specializing in two areas: steaks and shrimp
offerings.
o The menu will feature house cut and aged steaks and steak burgers
(intended to be comparable quality to high priced steakhouse offerings), as well
as bulk offerings of shrimp that are served in distinctive "house" sauces on
pasta or rice with dunking bread.
o The combination of food quality, comparatively moderate pricing,
entertaining shrimp offerings, in an atmosphere where customer focus will be on
price/value, without extensive or overbearing visual or gimmick effects, is
intended to distinguish Spencer's from competitors.
o To compliment the steak and shrimp offerings, menu items are expected to
include: appetizers, caesar and unique salads; various but basic chicken, fish,
rib, and pasta entrees; mainstay sandwiches; a separate Kid's list of choices
that are inclusive of fries and beverage; house made fries, steamed or creamed
"sides"; and desserts. Standard alcoholic beverages as well as selection of
blended specialty drinks will be offered.
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o The average check, exclusive of tax/tip, is estimated to be $8.50 at
lunch and $17.50 at dinner. Lunch and dinner will be served seven days (with a
target of 17 table turns) per week and will be location sensitive.
o A typical Spencer's should range in size from 6,000 to 8,000 square feet
with 150 to 250 seats with a 175 seat average. It is intended that the Spencer's
will be built according to a retrofit construction strategy. As a result, each
Spencer's is expected to have a somewhat different layout. The interior image
and trade dress, however, is intended to be consistent. The first Spencer's will
be located in Danbury, Connecticut.
o Total investment to open a Spencer's is estimated to be approximately
$700,000 inclusive of retrofit expenses and exclusive of capitalized lease
costs, with an estimated 3:1 annual sales to investment ratio.
o The Spencer's menu and unit economics are intended to facilitate
replication in multi-regional area development hubs through Company owned and
ultimately franchised operations.
Operating Strategy
The Company's objective is to differentiate its restaurants by exceeding
customer expectations as to the quality of food, the friendliness of service and
value of steak and shrimp dinners. To achieve this objective, the Company
proposes to use the following strategies:
Quality Assurance. The Company intends to provide freshly prepared, high
quality items. The Company believes that its menu offerings will allow for
simplified food preparation, efficient delivery and consistent quality. The
Company will implement generalized procedures for quality assurance concerning
products served in its restaurants.
Commitment to Value. The Company's pricing strategy is designed to create
an attractive price-to-value relationship, thereby increasing the Company's
ability to attract value-oriented customers as well as traditional casual dining
customers. The Company believes that the featured items, steak and shrimp, are
considered quality foods, and if delivered at moderate prices, there should be a
perceived value for the menu. The objective is to attract "repeat" business
rather than "special occasion" business.
Focus on Customer Service. The Company believes that it must provide
prompt, friendly and efficient service to generate customer satisfaction. The
Company plans to staff each restaurant with an experienced management team and
keep table-to-server ratios low. Through the use of customer surveys, management
expects to receive valuable feedback on its restaurants and through prompt
response demonstrate a continuing dedication to customer satisfaction.
Employee Training and Motivation. The Company believes a well-trained,
highly motivated restaurant management team is critical to achieving the
Company's operating objectives. The Company's training and compensation systems
will be designed to create accountability at the restaurant level for the
performance of each restaurant. The Company will train, motivate and educate its
restaurant level managers and hourly co-workers. Each new manager will
participate in a comprehensive training program which includes hands-on
experience in one of the Company's restaurants. To instill a sense of ownership
in restaurant management, compensation is proposed to be based, in part, on
restaurant profits and low employee turnover. Management believes this focus on
unit level operations creates a "single store mentality" and provides an
incentive for managers to focus on increasing same store sales and restaurant
profitability.
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Growth Strategy
The Company's growth strategy is to open new Company-owned restaurants by
converting existing restaurants to its Spencer's concept. In developing the
Spencer's format, there will be an emphasis on objective standards, so that the
format and operating procedure could be readily duplicated. The Company plans to
cluster new restaurants in existing metropolitan markets, which, management
believes, would enhance supervisory, marketing and distribution efficiencies.
Restaurant Layout
It is anticipated that Spencer's restaurants will be 6,000-8,000 square
feet in size. Seating will vary from 150-250. The restaurants will be designed
to include family dining with some privacy, and booths will be used when
appropriate. Kitchen areas should be as open as possible to the dining areas.
Decor should be uniform and designed to be distinctive. The Company will seek
visible main road locations which are suitable for Spencer's unit economics but
are below the size believed to be acceptable to general menu national restaurant
chain operations.
Support Operations
Advertising and Marketing. The Company plans to ultimately develop an
ongoing defined advertising and marketing plan for the potential development of
radio and newspaper advertising but will initially use point of sale and local
store marketing. The Company's advertising is planned to focus on building brand
loyalty and emphasizing the distinctiveness of the Spencer's atmosphere and menu
offerings. In addition to advertising, the Company will encourage unit level
personnel to become active in their communities through local charities and
other organizations and sponsorships.
Restaurant Reporting. Systems and technology are essential for the
management oversight needed to monitor the Company's restaurant operations.
Operational and financial controls are planned to be maintained through the use
of point of sale systems in each restaurant and an automated data processing
system at the home office. Management will utilize this data to monitor the
effectiveness of controls and to prepare periodic financial and management
reports. The system will also be utilized for financial and budgetary analysis,
including analysis of sales by restaurant, product mix and labor utilization.
All of the Company's systems are, because of the use of current software,
anticipated to be Year 2000 compliant. See "Year 2000 Modifications."
Human Resources. The Company will ultimately maintain a human resources
department that supports restaurant operations through the design and
implementation of policies, programs, procedures and benefits for the Company's
employees. The eventual human resources department will include an employee
relations manager.
Franchise Activities
The Company presently franchises Ottomanelli's Cafes(R). That operation
involves approximately five restaurants with nominal royalty revenues. No
franchises have been sold during the past approximately five years. The Company
has determined not to expand such operations. The Company may determine to
franchise the Spencer's concept through area development agreements once several
prototype restaurants are established and operating in a profitable manner, but
there can be no assurance as to if or when any franchising program would be
commenced for Spencer's restaurants.
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Trademarks
The Company is presently the licensee of Rattlesnake(R) and Ottomanelli's
Cafe(R). Rattlesnake(R) is licensed from a non-affiliated person under an
agreement expiring in or about the year 2000, with a right of renewal, and
requiring minimum royalty payments of $5,000 per year. The Company has not
determined whether to continue operations under the Rattlesnake(R) name.
Ottomanelli's Cafe(R) is licensed from a corporation, the capital stock of which
is owned by Nicolo and Joseph Ottomanelli, with a term co-extensive with the
licensor's rights and for no separate consideration, entered into as part of the
merger transaction between such persons and the Company (see "Certain
Transactions").
The Company will file an application with the United State Patent and
Trademark Office ("PTO") to trademark Spencer's should such be ultimately
determined to be the Company's final choice of concept names. There can be no
assurance as to the opposition to these filings by the PTO and/or third parties,
or if or when the trademarks would be granted to the Company. Names and marks
similar to the trademarks of the Company may be used by third parties in certain
limited geographical areas. Such third party use may prevent the Company from
licensing the use of its service marks for restaurants in such areas. The
Company intends to protect its trademarks by appropriate legal action whenever
necessary.
Government Regulation
The Company is subject to various federal, state and local laws affecting
its business. In addition, each of the Company's restaurants will most likely be
subject to licensing and regulation by a number of governmental authorities,
which may include alcoholic beverage control, health, safety, sanitation,
building and fire agencies in the state or municipality in which the restaurant
is located. Most municipalities in which the Company's restaurants will be
located require local business licenses. Difficulties in obtaining or failures
to obtain the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area. The Company is also
subject to Federal and state environmental regulations, but such regulations
have not had a material adverse effect on the Company's operations to date.
Approximately ten to twenty (10-20%) percent of the Company's restaurant
sales is anticipated to be attributable to the sale of alcoholic beverages. Each
restaurant, where permitted by local law, will require appropriate licenses from
regulatory authorities allowing it to sell liquor, beer and wine and in some
states or localities to provide service for extended hours and on Sunday. Each
restaurant requires food service licenses from local health authorities. The
failure of a restaurant to obtain or retain liquor or food service licenses
could adversely affect, or in an extreme case, terminate its operations.
However, each restaurant is expected to operate in accordance with standardized
procedures designed to assist in compliance with all applicable codes and
regulations. The Company is subject in the states in which it operates
restaurants and proposes to operate restaurants, to "dram-shop" statutes or
judicial interpretations, which generally provide a person injured by an
intoxicated person the right to cover damages from an establishment which
wrongfully served alcoholic beverages to such person.
The Americans With Disabilities Act (the "Disabilities Act") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Company designs its restaurants to be accessible to the disabled
and believes that it is in substantial compliance with all current applicable
regulations relating to restaurant accommodations for the disabled. The Company
intends to comply with future regulations relating to accommodating the needs of
the disabled, and the Company does not currently anticipate that such compliance
will require the Company to expend substantial funds.
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The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
The Company's operations are also subject to Federal and state minimum wage laws
and other laws governing such matters as working conditions, citizenship
requirements, overtime and tip credits. In the event a proposal is adopted which
materially increases the applicable minimum wage, such an increase would result
in an increase in the Company's payroll and benefits expense.
Employees
At June 28, 1998, the Company employed approximately 65 persons, 6 of whom
were home office management and staff personnel, and the remainder of whom were
restaurant personnel. As of June 30, 1999, the Company employed approximately 39
persons, 4 of whom were home office management and staff personnel, and the
remainder of whom were restaurant personnel (reflecting the reduction from three
restaurants to one active restaurant). A substantial number of the Company's
restaurant personnel are employed on a part-time basis. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
Competition
The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Such competitors include a large number of national and regional
restaurant chains. Although the Company believes that its concept will
distinguish it from competitors, steakhouse chains with which the Company will
compete include Outback, Longhorn, Lone Star and Bugaboo Creek restaurants. Some
of the Company's competitors have been in existence for a substantially longer
period than the Company and may be better established in the markets where the
Company's restaurants are or may be located. The restaurant business is often
affected by changes in consumer tastes, national, regional or local economic
conditions, demographic trends, traffic patterns, and the type, number and
location of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefits costs and the lack of experienced
management and hourly employees may adversely affect the restaurant industry in
general and the Company's restaurants in particular. Any restaurant unit may
face intense competition from a competitor opening a restaurant with a similar
format in the near vicinity, at least in the short term, since newly opened
restaurants frequently generate a high volume of customers.
Forward Looking Statements
The words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "projected", "intends to" or similar
expressions are intended to identify "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties, including but not limited to:
the Company's history of losses and cash flow deficit; existing indebtedness and
adverse litigation; the development and implementation of a new restaurant
format and menu, and the leasing and development of a chain of restaurants;
dietary trends; competition; ability to manage growth; volume manufacture timely
delivery quality control and customer service aspects of the Company's business;
limited manufacturing and warehouse facilities; ability to obtain and maintain
Nasdaq listing; government regulation and other factors affecting the food
service industry; trademark and service marks; insurance and potential
liability; control by management; the Penny Stock Rules and liquidity of the
Company's Common Stock, that could cause the Company's actual results to differ
materially from historical earnings and those presently anticipated or
projected. Such factors, which are discussed in "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the notes to financial statements, as well as unanticipated problems, could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods expressed in the Memorandum. As a
result, potential inventors are cautioned not to place undue reliance on any
such forward-looking statements, which speak only as of the date made. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
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Risk Factors
Operating Losses; Future Operating Results. The Company has a history of
losses since its inception in 1993. As of the end of its June 28, 1998 fiscal
year, losses aggregated $15,425,055 including losses of $4,797,857 and
$3,236,039 for its fiscal years ended June 29, 1997 and June 28, 1998,
respectively. The Company continued to incur operating losses in fiscal 1999.
The Company's future profitability will depend upon, among other things, the
Company's ability to generate a level of revenues sufficient to offset its cost
structure in addition to reducing its operating costs on a per location basis.
The Company believes that generation of that level of revenues is dependent upon
the timely opening of restaurants and achieving and maintaining market
acceptance. There can be no assurance that the Company will achieve
significantly increased revenues or maintain profitable operations.
Significant Capital Requirements; Need for Additional Financing;
Indebtedness. The Company's capital requirements have been significant and its
cash requirements have been exceeding its cash flow from operations (at June 28,
1998, the Company had a working capital deficit of $2,952,863) due to, among
other things, costs associated with the prior development and operation of its
Rattlesnake(R) Southwestern Grill restaurants and the Company's proposed
modified and expanded operations. As a result, the Company has been dependent
upon sales of its equity securities and loans to finance its working capital
requirements. The Company is dependent upon the proceeds of the Offering to
finance its proposed expansion. Based on the Company's current proposed plans
and assumptions relating to the implementation of its expansion strategy, the
Company anticipates that the net proceeds of the Offering, together with
anticipated cash flow from operations and equipment, food vendor and landlord
financing, will be sufficient to satisfy its contemplated cash requirements
through July 2000. In the event that the Company's plans change or its
assumptions prove to be inaccurate (due to unanticipated expenses, construction
delays or other difficulties) or the proceeds of the Offering otherwise prove to
be insufficient to fund operations and implement the Company's proposed
expansion strategy, the Company could be required to seek additional financing
sooner than anticipated. The Company has no current arrangements with banks or
otherwise with respect to, or potential sources of additional financing, and it
is not anticipated that any officers, directors or stockholders will provide
loans to the Company. Consequently there can be no assurance that any additional
financing will be available to the Company when needed, on commercially
reasonable terms, or at all. Any inability to obtain additional financing when
needed would have a material adverse effect on the Company, including requiring
it to curtail its expansion efforts. In addition, any additional equity
financing may involve substantial dilution to the interests of the Company's
then existing stockholders. At June 28, 1998, short term debt and liabilities
totaled approximately $3,300,000 and long term debt totaled approximately
$525,000. At June 28, 1998, approximately $1,212,000 of the Company's
outstanding notes payable were past due and in default. Additionally,
accumulated dividends for Series A preferred stock of $207,636 were also past
due and unpaid. In July 1999, the Company completed a private placement of
approximately $6,000,000 of Series B Preferred Stock. In conjunction with the
private placement, approximately $860,000 of the notes payable and $523,000 of
trade payables converted their obligations into Series B preferred stock and
$639,000 of the notes payable were paid. Coincident with the private placement,
the holders of 56,500 shares of Series A preferred stock exchanged their
holdings for 55,370 shares of Series B preferred stock and waived their rights
to the unpaid and accumulated dividends. There can be no assurance that cash
flow from operations will be sufficient to repay remaining indebtedness and
trade payables.
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Litigation. The Company is a party defendant to a number of litigations. If
such litigations are concluded on relatively unfavorable terms, the litigations
could have a material adverse effect on the Company and its prospects. (See
"Legal Proceedings".)
Dependence Upon Key Personnel; Varying Commitment Levels. The success of
the Company will be dependent on its ability to attract and retain experienced
management and restaurant industry personnel. The Company anticipates the
receipt of strategic advice from Shelly Frank, A.G. (Sandy) Rappaport, and
Stephan A. Stein, and full time services from Kenneth Berry as President, Nicolo
Ottomanelli as Senior Vice President and Frank T. Ferro as Chief Financial
Officer. These individuals have entered into agreements with the Company
including varying levels of commitment, one of which, an advisory service
agreement of Mr. Frank, is terminable by Mr. Frank without recourse by the
Company. The loss of the advice or services of any one or more of these persons
could have a material adverse effect on the business and prospects of the
Company. The Company faces considerable competition from other food service
businesses for personnel, many of which have significantly greater resources
than the Company. There can be no assurance that the Company will be able to
attract and retain personnel in the future, and the inability to do so could
have a material adverse effect on the Company.
Competition. The restaurant industry is intensely competitive with respect
to price, service, location and food quality and variety. There are many
well-established competitors with substantially greater financial and other
resources than the Company, as well as a significant number of new market
entrants. Such competitors include national, regional and local full-service
casual dining chains, many of which specialize in or offer steak and seafood
products, as well as single location restaurants. Some of the Company's
competitors have been in existence for substantially longer periods than the
Company, may be better established in the markets where the Company's
restaurants are or will be located and engage in extensive advertising and
promotional campaigns, both generally and in response to efforts by competitors
to open new locations or introduce new concepts or menu offerings. The Company
can also be expected to face competition from a broad range of other restaurants
and food service establishments which specialize in a variety of cuisines. While
the Company believes that it is focusing on exciting and profitable menu items,
there can be no assurance that consumers will regard the Company's menu and
concepts as sufficiently distinguishable from competitive menus and restaurant
concepts or that substantially equivalent menus and restaurant concepts will not
be introduced by the Company's competitors.
High Restaurant Failure Rate. The opening of new restaurants is
characterized by a very high failure rate. The Company proposes to initiate and
construct a new restaurant chain. During the initial operation of a newly opened
restaurant, such restaurant could operate at a loss. In the event of a prolonged
period of unfavorable operating results for a restaurant, the Company may be
required to close such restaurant, which could have a material adverse effect on
the financial condition and results of operations of the Company. In the short
term, the Company will remain dependent upon a limited number of restaurants for
substantially all of its revenues. The lack of success or closing of the
Company's existing restaurant, or the unsuccessful operation of a new
restaurant, could have material adverse effect upon the financial condition and
results of operations of the Company.
Risks Relating to Proposed Expansion. The Company is currently implementing
a strategy to change its concept and build a restaurant chain. The Company has
limited experience in effectuating rapid expansion and in managing a large
number of locations or locations that are geographically dispersed (and has
enlisted the assistance of persons experienced in these areas effective with the
Offering). The Company's proposed expansion will be dependent on, among other
things, achieving significant market acceptance for its Spencer's concept,
developing customer recognition and loyalty for the Spencer's name, identifying
a sufficient number of prime locations and entering into lease arrangements for
such locations on favorable terms, timely development and construction of
locations, securing required governmental permits and approvals, hiring,
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training and retaining skilled management and other personnel, the Company's
ability to integrate new restaurants into its operations and the general ability
to successfully manage growth (including monitoring restaurant operations,
controlling costs and maintaining effective equality controls). In the event
that cash flow from operations is insufficient or that the Company is unable to
obtain adequate equipment, food vendor or landlord financing, or other
unexpected events occur, such as delays in identifying suitable locations,
negotiating leases, obtaining permits or design and construction delays, the
Company may not be able to open all of such locations in a timely manner, or at
all. Moreover, the Company is using a new name and developing a new concept,
both of which will have to be tested and will have to demonstrate commercial
acceptance and financial viability. There can be no assurance that the Company
will be successful in opening the number of restaurants currently planned in a
timely manner, or at all, or that, if opened, those restaurants will operate
profitably.
Long Start-up Cycles; Fluctuations in Operating Results; Start-up Expense.
The Company's restaurant start-up cycle, which generally commences with site
selection and ends upon the opening of the restaurant to customers, will vary by
location and could extend for a period of months. Difficulties or delays in site
selection or events over which the Company will have no control, such as delays
in construction due to governmental regulatory approvals, shortage of or the
inability to obtain labor and/or materials, inability of the general contractor
or subcontractors to perform under their contracts, strikes or availability and
cost of needed debt or lease financing, could materially adversely affect the
start-up costs and completion times of new locations. The Company expects that
future quarterly operating results will fluctuate as a result of the timing of,
and expenses related to, the openings of new restaurants (since the Company will
incur significant expenses during the months preceding the opening of a
restaurant), as well as due to various other factors, including the seasonal
nature of its business and weather conditions. Accordingly, the Company's sales
and earnings may fluctuate significantly from quarter to quarter and operating
results for any quarter will not necessarily be indicative of the results that
may be achieved for a full year. In addition, the capital resources required to
construct each new location are significant. The Company estimates that the
costs of opening its future locations (location acquisition and concept
conversion) will be approximately $700,000 per location, net of any anticipated
landlord contributions. The Company expects that it will incur approximately
$75,000 in additional pre-opening costs in connection with the opening of future
sites. There can be no assurance that the costs to construct and open a new
location will not be significantly higher than currently anticipated.
Consumer Preferences; Factors Affecting the Restaurant Industry. The
restaurant industry is characterized by the continuing introduction of new
concepts and is subject to rapidly changing consumer preferences, tastes and
eating and purchasing habits. While the demand for steak restaurants has grown
significantly over the past several years, there can be no assurance that such
demand will continue to grow or that these trends will not be reversed. The
Company's success will depend on its ability to anticipate and respond to
changing consumer preferences, tastes and eating and purchasing habits, as well
as other factors affecting the food service industry, including new market
entrants, demographic trends and unfavorable national, regional and local
economic conditions, inflation, increasing seafood and other food and labor
costs. Failure to respond to such factors in a timely manner could have a
material adverse effect on the Company.
Geographic Concentration. The Company's existing restaurant, and the
initial site selection(s), are to be in the New York metropolitan tri-state
area. Given the Company's geographic concentration, adverse publicity relating
to the Company's restaurants could have a more pronounced adverse effect on the
Company's operating results than might be the case if the Company's restaurants
were more geographically dispersed. A decline in tourism, or in general economic
conditions, which affects the New York metropolitan area economy or tourism
industry, particularly during the time of peak sales, could have a material
adverse effect on the Company's operations and prospects.
<PAGE>
Seasonality. The restaurant business is seasonal, and could be adversely
affected by extreme weather during what would otherwise be a period of higher
sales.
Menu Emphasis on Steak and Shrimp. The focus of the Company's restaurant
expansion will be on a menu featuring mid-priced steaks and a variety of shrimp
selections (as well as other foods). Although the Company believes that this
menu will prove attractive, it is very limited in relation to the variety of
foods served in a "full menu" restaurant. Accordingly, if these menu items do
not prove attractive, the Company will be adversely affected and would have to
restructure its menu, with the attendant costs and loss of momentum resulting
from a second start up effort..
Fluctuations in Food and Other Costs; Supply of Food. The Company's
profitability is dependent on its ability to anticipate and react to increases
in food, labor, employee benefits, and similar costs over which the Company has
limited control. Specifically the Company's dependence on frequent deliveries of
meat, seafood and produce subjects it to the risk of possible shortages or
interruptions in supply caused by adverse weather, labor, transportation or
other conditions which could affect the availability and cost of such items. The
Company believes it will be able to anticipate and react to fluctuations in food
costs through selected menu price adjustments, purchasing steak and shrimp
directly from suppliers and promoting certain alternative menu selections (in
response to price and availability of supply). However, there can be no
assurance that the Company will be able to continue to anticipate and respond to
such supply and price fluctuations in the future or that the Company will not be
subject to significantly increased costs in the future. Moreover, the Company
does not maintain long term supply contracts with any of its suppliers, and
purchases products pursuant to purchase orders placed from time to time in the
ordinary course of business. Although the Company believes that its
relationships with its suppliers are satisfactory and that alternative sources
are available, the loss of certain suppliers, or substantial price increases,
could have a material adverse effect on the Company.
Potential Liability for Sale of Alcoholic Beverages. The Company's
restaurants will be subject to "dram-shop" statutes, which generally provide a
person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. New York law currently provides that a vendor of alcoholic beverages may
be held liable in a civil cause of action for injury or damage caused by or
resulting from the intoxication of a minor (under 21 years of age) if the vendor
willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to
the minor and knows that the minor will soon thereafter be driving a motor
vehicle. A vendor can similarly be held liable if it knowingly provides
alcoholic beverages to a person who is in a noticeable state of intoxication,
knows that person will soon thereafter be driving a motor vehicle and injury or
damage is caused by that person. In addition, significant national attention is
focused on the problem of drunk driving, which could result in the adoption of
additional legislation and increased potential liability of the Company for
damage or injury caused by its customers. The Company carries insurance for this
liability.
Limited Insurance Coverage. At the present time, the Company carries
limited liability insurance and casualty insurance and effective July 15, 1999
retroactive to February 17, 1999, an officer/director liability insurance policy
as well. The Company did not have such insurance during the period from January
1998 to such date. The Company does not maintain health insurance. The Company
intends to periodically upgrade its insurance coverage, but there can be no
assurance as to when upgrades will be effected and as to any claims which may be
made, or the impact of the same.
Government Regulation. The Company is subject to extensive state and local
government regulation by various governmental agencies, including state and
local licensing, zoning, land use, construction and environmental regulations
and various regulation relating to the sale of food and beverages, sanitation,
disposal of refuse and waste products, public health, safety and fire standards.
The Company's restaurants are subject to periodic inspections by governmental
agencies to assure conformity with such regulations. Difficulties or failure in
obtaining required licensing or other regulatory approvals could delay or
<PAGE>
prevent the opening of a new restaurant, and the suspension of, or inability to
renew, a license at an existing restaurant would adversely affect the operations
of the Company. Restaurant operating costs are also affected by other government
actions which are beyond the Company's control, including increases in the
minimum hourly wage requirements, workers compensation insurance rates, health
care insurance costs and unemployment and other taxes. The Federal Americans
With Disabilities ("ADA") prohibits discrimination on the basis of disability in
public accommodations and employment. The Company's restaurants are currently
designed to be accessible to the disabled, and the Company believes that it is
in compliance with all current applicable regulations relating to accommodations
for the disabled. However, there can be no assurance that the Company will not
be deemed to violate the ADA, and could be required to expend significant funds
to provide service to or make reasonable accommodations for disabled persons.
Uncertainty of Protection of Proprietary Information. The Company's
business prospects will depend in part on the Company's ability to develop
favorable consumer recognition of the Spencer's name, which is only a proposed
name and not a trademark. Although the Company intends to apply for trademark
registration for use of the Spencer's name by the United States Patent and
Trademark Office, there can be no assurance that: (i) the Company's
registrations will be issued and will not violate the proprietary rights of
others or that the Company's trademarks would be upheld; or (ii) that the
Company would not be prevented from using its trademarks, if challenged, any of
which could have an adverse effect on the Company. In addition, the Company will
rely on trade secrets and proprietary know-how, and will employ various methods,
to protect its concepts and recipes. However, such methods may not afford
adequate protection and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how, concepts and recipes. The Company does not maintain confidentiality
and non-competition agreements with all of its executives, key personnel or
suppliers. There can be no assurance that the Company will be able to adequately
protect its trade secrets. In the event competitors independently develop or
otherwise obtain access to the Company's know-how, concepts, recipes or trade
secrets, the Company could be adversely affected.
Control by Management. The Company's current officers and directors own
approximately 25% of the outstanding Common Stock of the Company. Accordingly,
such persons could be able to control the Company and generally direct the
Company's affairs, including electing a majority of the Company's directors and
causing an increase in the Company's authorized capital or the dissolution,
merger or sale of the Company or substantially all of its assets.
No Dividends. The Company has never paid any dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future, except
for possible cash dividends on the Preferred Shares. The Company currently
intends to retain any and all earnings for use in connection with the expansion
of its business and for general corporate purposes. The declaration and payment
of future cash dividends, if any, will be at the sole discretion of the
Company's Board of Directors and will depend upon the Company's profitability,
financial condition, cash requirements future prospects, and other factors
deemed relevant by the Board of Directors.
Shares Eligible for Future Sale. On June 30, 1999, the Company would have
approximately 200,000,000 shares of Common Stock outstanding (assuming
conversion of convertible securities but no exercise of any warrants or
options), of which approximately 15,000,000 shares of Common Stock are freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"). All of the remaining shares of Common
Stock outstanding are "restricted securities," as that term is defined under
Rule 144 promulgated under the Securities Act and all of such restricted shares
will become eligible for sale, pursuant to Rule 144, at the present time or
later, but in no event later than one year from the date hereof, subject to the
agreements set forth below. The Company plans to file a registration statement
<PAGE>
under the Securities Act of 1933 including substantially all of the restricted
securities which may be issued upon the conversion of convertible securities and
the exercise of options and warrants (approximately 300,000,000 shares of common
stock). It is anticipated that such registration statement will become effective
during the fourth quarter of calendar 1999. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or even the availability of
such shares for sale will have on the market prices prevailing from time to
time. The possibility that substantial amounts of Common Stock may be sold in
the public market is likely to adversely affect the prevailing market price for
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities at future dates.
Possible Adverse Effect of Outstanding Warrants and Options. Upon the
consummation of the Offering in July 1999, there were approximately 165,000,000
shares of Common Stock reserved for issuance upon conversion of the Company's
outstanding Series B Preferred Stock, and an additional approximately
125,000,000 shares reserved for issuance upon the exercise of other options and
warrants. Upon issuance of these shares, dilution of the interests of the
holders of the Company's Common Stock will occur and any sales in the public
market of the shares may adversely affect prevailing market prices for the
Common Stock. Moreover, the terms upon which the Company will be able to obtain
additional equity may be adversely affected since the holders of the Series B
Preferred Stock, outstanding warrants and options can be expected to convert or
exercise them at a time when the Company would, in all likelihood, be able to
obtain capital on terms more favorable to the Company than those provided by
such securities.
Delaware Anti-Takeover Statute; Possible Adverse Effects of Authorization
of Preferred Shares. As a Delaware corporation, the Company will become subject
to prohibitions imposed by Section 203 of the Delaware General Corporation Law
("DGCL"). In general, this statute prohibits the Company from entering into
certain business combinations without the approval of its Board of Directors
and/or stockholders and, as such, could prohibit or delay mergers or other
attempted takeovers or changes in control with respect to the Company. Such
provisions may discourage attempts to acquire the Company. In addition, the
Company's Certificate of Incorporation authorizes the board of Directors to
issue up to 5,000,000 shares of "blank check" preferred shares (the "Preferred
Shares") without stockholder approval, in one or more series and to fix the
dividend rights, terms, conversation rights, voting rights, redemption rights
and terms, liquidation preferences, and any other rights, preferences,
privileges, and restrictions applicable to each new series of Preferred Shares.
The issuance of shares of Preferred Shares in the future could, among other
results, adversely affect the voting power of the holders of Common Stock and,
under certain circumstances, could make it difficult for a third party to gain
control of the Company, prevent or substantially delay a change in control,
discourage bids for the Common Stock at a premium, or otherwise adversely affect
the market price of the Common Stock. See "Description of Capital Stock".
Failure to List Common Stock on Nasdaq Small Cap or National Market System;
Risks Relating to Low-Prices Stocks. The Company will seek to list the Common
Stock on Nasdaq Small Cap or National Market System as soon as deemed practical.
The Company would have approximately 300,000,000 shares of Common Stock
outstanding, assuming conversion of all convertible securities and the exercise
of all outstanding options and warrants (of which there can be no assurance). It
would be necessary for the Company to seek authorization from its stockholders
for a Common Stock combination (ie: a reduction in the outstanding number of
shares of Common Stock) to achieve a market price which will enable the Company
to obtain a Nasdaq listing. If approved, this could sharply reduce the number of
shares of Common Stock outstanding (and the number of shares owned by any
stockholder). There are also stringent net worth requirements that the Company
does not currently meet, and may not meet in the future. The failure to meet
listing or maintenance criteria will result in the failure to effect the listing
of the Company's Common Stock on Nasdaq, and trading, if any, in the Company's
Common Stock would be limited to the non-Nasdaq Bulletin Board market. As a
result, there would be a significant lack of liquidity, and an investor could
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Company's Common Stock.
<PAGE>
Possible Adverse Effect of Penny Stock Rules on Liquidity for the Company's
Common Stock. The Securities and Exchange Commission (the "Commission")
regulations define a "penny stock" to be an equity security not registered on a
national securities exchange, or for which quotation information is disseminated
not on the Nasdaq SmallCap Market, that has a market price (as therein defined)
of less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exemptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to a transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. The foregoing required
penny stock restrictions will not apply to the Company's Common Stock if the
Common Stock becomes listed on the Nasdaq SmallCap Market, and if certain price
and volume information is provided on a current and continuing basis or, or if
the Company meets certain minimum net tangible assets or average return
criteria. In any event, even if the Common Stock was exempt from such
restrictions, the Company would remain subject to Section 15(b)(6) of the
Securities Act, as amended, which gives the Commission the authority to prohibit
any person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Common Stock remains
subject to the rules on penny stocks, the market liquidity for the Company's
securities could be materially and adversely affected. Any disruption in the
liquid market of the Common Stock could limit the Company's access to the equity
markets in the future, and could have a materially adverse effect on the
Company's business, financial conditions and results of operations.
ITEM 2. DESCRIPTION OF PROPERTIES
Properties
At June 28, 1998, the Company's principal office was located in New York
City in approximately 600 square feet of office space under a month-to-month
lease with an affiliate of Nicolo Ottomanelli. See "Certain Transactions". At
June 30, 1999, the Company's principal office was and is located at 2 South Main
Street, South Norwalk, CT 06854 at the location of its remaining Rattlesnake(R)
Southwestern Grill restaurant.
At June 28, 1998, the Company operated two of its then three owned
Rattlesnake(R) Southwestern Grill restaurants as follows:
Location Size/Seating Lease Expiration
South Norwalk, CT 3,270 sf/120 May 2002
Flemington, NJ (closed 7,800 sf/250 August 2002
November 1998)
As of June 30, 1999, the South Norwalk, Connecticut restaurant continues in
operation; 106 Federal Road Restaurant Corp., a wholly-owned subsidiary of the
Company, purchased the Danbury, Connecticut Rattlesnake Southwestern Grill
restaurant (which was closed June 22, 1998) and the underlying real estate for
conversion to the Spencer's prototype.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
As of June 28, 1998, the Company was engaged in certain material litigation
as follows:
Union Savings Bank of Danbury v. Thomas F. Moffit, et al. (Rattlesnake
Danbury, Inc.) This was a foreclosure action against Rattlesnake's landlord and
the Company was named as an additional defendant by virtue of its interest as a
tenant. On March 15, 1999, an execution of ejectment was entered by the Court.
(The Company subsequently purchased this property through its wholly-owned
subsidiary, 106 Federal Road Restaurant Corp.)
Peck v. Rattlesnake Ventures, Inc. et. al.
Plaintiff, the owner of an apartment situated above the South Norwalk
Rattlesnake Grill operated by Rattlesnake Ventures, Inc. ("RVI"), a wholly-owned
subsidiary of the Company, brought an action for negligence per se, intentional
infliction of emotional distress, negligent infliction of emotional distress,
and violations of the Connecticut Unfair Trade Practices Act based on
allegations of excessive noise, and rude and or threatening conduct of employees
of RVI including the Corporate Chairman and CEO at the time, William Opper
("Opper").
A jury verdict in the amount of $225,000 was entered against RVI and Opper
jointly on the negligence per se counts of the plaintiff's complaint. In
addition, verdicts in the amount of $200,000 were entered against both Opper and
RVI separately on the intentional and negligent infliction of emotional distress
counts of the complaint. The trial court subsequently set aside the emotional
distress awards against both Opper and RVI leaving only the negligence per se
award against Opper and RVI jointly in the amount of $225,000 referred to above.
This award is currently on appeal by RVI and Opper. The plaintiff has also
appealed the trial court's post trial reduction of the jury award. It should be
noted that an Offer of Judgment was filed in Peck in 1994. As a result there is
the potential that interest at the statutory rate of 12% will be applied to any
ultimate final award in Peck.
Plaintiff's claims are arguably covered by one or more of RVI's insurance
policies. Farmington Casualty Company (Travelers Property Casualty is successor
in interest to Aetna Property and Casualty who was successor in interest to
Farmington Casualty Company) and Insurance Company of Greater New York retained
counsel to defend Rattlesnake under a reservation of rights. The third insurance
carrier, Public Service Mutual denied coverage. Greater New York and Farmington
have continued to prosecute the appeal under a reservation of rights. RVI has
advised all three insurance companies that it intends to pursue its rights in an
action for damages and declaratory relief against them in the event that the
appeal is unsuccessful and the insurance carriers refuse to provide coverage for
plaintiff's claims.
William Opper Indemnification Demand/Peck
On or about July 7, 1999, a demand letter was tendered to the Company by
Mr. Opper's attorney seeking indemnification from potential liabilities arising
out of Peck (above). This demand is based on an indemnification provision in an
agreement between Mr. Opper and the Company. The Company has been advised that
viable defenses to this demand may exist.
<PAGE>
Travelers Property Casualty as Successor in Interest to Aetna Property and
Casualty v. Rattlesnake Bar and Grill Holding Company, Inc. et. al.
Travelers Property Casualty as Successor in Interest to Aetna Property and
Casualty v. Rattlesnake Bar and Grill Holding Company, Inc. et. al., Plaintiff
seeks declaratory judgment that Travelers is not obligated to indemnify the
defendants in the underlying Peck action. Plaintiff alleges the absence of a
qualifying incident of bodily injury or property damage due to the lack of an
"occurrence" defined in the policy as accidental, the lack of a bodily injury as
defined in the policy and the lack of property damage as defined in the policy.
The plaintiff furthermore argues for exclusion of coverage due to the alleged
intent to harm the plaintiff and alleged existence of property damage expected
or intended from the standpoint of the insured. Preliminary analysis suggests
viable arguments may exists for extension of coverage in this matter.
Jack Cioffi Trust v. Rattlesnake Lynbrook and Rattlesnake Holding. This is
an action for an alleged breach of a commercial lease in which damages exceeding
$190,000 are being sought. The Company has disputed this claim. The plaintiff
has inadequately responded to Rattlesnake's demand for discovery and inspection
and interrogatories. A compliance conference was adjourned to September 15,
1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In February 1999, the holders of a majority of the issued and outstanding
shares of the Company's Common Stock, by written consent in lieu of a meeting
pursuant to Section 228 of Delaware's General Corporation Law, adopted an
amendment to the Company's Certificate of Incorporation, increasing the
Company's capitalization. As a result of this amendment to the Certificate of
Incorporation, the Company is authorized to issue a total of 405,000,000 shares,
of which 400,000,000 are shares of Common Stock and 5,000,000 shares of Series B
Preferred Stock.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The high and low bid quotations for the preceding three fiscal years for
the Common Stock on the NASDAQ SmallCap Market (until September 1997) and the
NASDAQ Bulletin Board (thereafter), is as follows (fractions converted to
approximate decimal values):
BID
Fiscal Year 1997 Low High
Quarter ended September 30, 1996 2.88 3.63
Quarter ended December 31, 1996 1.25 3.62
Quarter ended March 31, 1997 .87 1.25
Quarter ended June 30, 1997 .62 .87
Fiscal Year 1998
Quarter ended September 30, 1997 .17 .65
Quarter ended December 31, 1997 .17 .31
Quarter ended March 31, 1998 .17 .65
Quarter ended June 28, 1998 .44 .65
Fiscal Year 1999
Quarter ended September 30, 1998 .22 1.03
Quarter ended December 31, 1998 .13 .45
Quarter ended March 31, 1999 .13 .31
Quarter ended June 30, 1999 .09 .31
As of the close of business on June 30, 1999, there were 164 holders of
record of the Common Stock. The Company has paid no dividends on its common
stock for the last three years and does not expect to pay dividends in the
future.
<PAGE>
Description of Securities
Authorized Capital Stock
At June 28, 1998, the Company's authorized capital stock consisted of
20,000,000 shares of Common Stock, par value of $.001 per share; and 5,000,000
shares of Preferred Stock, par value of $.10 per share, of which 56,500 shares
were designated Series A Preferred Shares. As of June 28, 1998, there were
10,889,285 shares of Common Stock issued and outstanding (not including shares
of Common Stock issuable upon conversion of convertible securities, or exercise
of options and warrants) and 56,500 shares of Series A Preferred Stock issued
and outstanding. As of June 30, 1999, the Company's authorized capital stock
consisted of 400,000,000 shares of Common Stock, par value of $.001 per share;
5,000,000 shares of preferred shares, of which 500,000 are designated Series B
Preferred Shares. As of June 30, 1999, there were approximately 29,500,000
shares of Common Stock issued and outstanding (not including shares of Common
Stock issuable upon conversion of convertible securities, or exercise of options
and warrants) and 308,000 shares of Series B Preferred Stock issued and
outstanding.
Common Stock
Holder of shares of Common Stock are entitled to one vote per share,
without cumulative voting, on all matters to be voted on by shareholders.
Therefore, the holders of more than 50% of the shares of Common Stock voting for
the election of directors can elect all of the directors, subject to the right
of the holders of the Preferred Shares (upon a default in the payment of
dividends) to elect one director (which right is to be exercised for the holders
of Preferred Shares by the Placement Agent) so long as Preferred Shares remain
outstanding. The Company's Certificate of Incorporation provides for a staggered
Board of Directors, which is intended to allow for the election of one third of
the Board every year for three year terms. This provision is designed to
maintain the continuity of the Board of Directors. Since there has not been a
meeting of stockholders for approximately three years, at the next meeting, the
Board of Directors structure, which has lapsed, will be reestablished, and one
third of the directors will be elected for a term of one year, one third of the
directors will be elected for a term of two years and the remaining one third of
the director will be elected for a term of three years. Subject to preferences
that may be applicable to any outstanding preferred shares, holders of Common
Stock are entitled to receive ratably, such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation or dissolution of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of the outstanding Preferred Shares. The Common Stock has
no preemptive or other subscription rights, and there are no conversion rights
or redemption or sinking-fund provisions with respect to such shares. All the
shares of Common Stock presently outstanding are fully paid and non-assessable.
Conversion of Preferred Shares. The Preferred Shares will be convertible,
at the option of the holder at any time after November 1999 at a conversion
price initially equal to $0.05 per share of Common Stock. The conversion rate
will be reduced by 10% per month for each month the Company fails to comply with
its obligations to file, and in good faith process, a registration statement
(see below). In the case of a consolidation or merger of the Company with or
<PAGE>
into any other corporation, or in case of any sale or transfer of substantially
all the assets of the Company, a holder of Preferred Shares will be entitled to
receive on conversion the consideration which the holder would have received had
he converted immediately prior to the occurrence of the event. The conversion
price is subject to the adjustments on the terms set forth in the Certificate of
Designation. The outstanding Preferred Shares may, at the option of the Company,
be converted, with no action on the part of the holder, if, at any time after
February 2000, the Common Stock into which the same is converted is registered
under the Securities Act and the closing bid price of the Common Stock for
twenty (20) consecutive trading days is at least four time the conversion price
($0.20 based on the initial conversion price of $0.05).
Filing of Registration Statement. The Company is required to cause a
registration statement under the Securities Act of 1933, as amended (the "Act")
to be filed under the Act covering the shares of Common Stock issuable upon
conversion of the Preferred Shares sold in the Offering, by August 17, 1999, and
is required thereafter use its best efforts to cause such Registration Statement
to be declared effective. In the event the Registration Statement is not filed,
or if the Company fails to use its best efforts to have such Registration
Statement declared effective within ninety (90) days thereafter, the conversion
price will be automatically reduced by 10% for each month of such failure, and
the dividend rate on the Preferred Shares will be increased to 14% per annum
from issuance. All expenses incurred in any registration of the holder's shares
of Common Stock will be paid by the Company; provided, however, that the Company
will not be liable for any discounts or commissions to any underwriter, any
stock transfer taxes incurred in respect of shares sold by the offering holders,
or for any legal fees and expenses to effect the sale of the respective holder's
shares. The holders and the Company will indemnify each other for certain
liabilities under the Act.
Dividends. Holders of Preferred Shares are entitled to receive, quarterly,
dividends at the rate of 8% per annum before any dividends may be paid with
respect to the Common Stock, which shall be paid in cash or Preferred Shares at
the election of the Company. If there is a failure to pay dividends, then the
Placement Agent, on behalf of such holders, has the right to designate one
director to the Company's Board. In addition, if the Company fails to comply
with its obligations to file and process a Registration Statement (see above),
the dividend rate will increase to 14% per annum from issuance.
Liquidation Preference. Holders of Preferred Shares are entitled to receive
$25.00 per share (plus all unpaid dividends), and no more before any
distribution or payment is made to holders of Common Stock or other junior stock
in the event of the dissolution, liquidation, or winding up the Company. If, in
any such event, the assets of the Company are insufficient to permit full
payment, the holders of Preferred Shares will be entitled to a ratable
distribution of the available assets. A consolidation, merger, or sale of all or
substantially all of the assets of the Company will not be considered a
liquidation, dissolution, or winding up for these purposes.
Voting Rights. The Preferred Shares are non voting (however, the shares of
Common Stock into which the Shares are convertible will be entitled to one vote
for each share). The Preferred Shares will have certain additional voting rights
provided by law and/or the Certificate of Designation. The Company may not,
without the consent of the majority of the holders of the then outstanding
Preferred Shares, voting as a class (i) alter, amend, or modify the authorizing
resolution or Certificate of Designation creating the Preferred Shares; (ii)
adversely affect rights or preferences of the Preferred Shares; or (iii) issue
any stock that ranks in liquidation equal or senior to the Preferred Shares.
<PAGE>
Warrants
The following chart provides a summary with respect to the warrants
granted by the Company which are outstanding as of June 30, 1999:
Number of Warrants 110,000,000
Price Range of Warrants $0.05 to $16.00
Series A Convertible Preferred Shares
At June 28, 1998, the Company had 56,500 shares of Series A Preferred
Shares outstanding. Based on a prior exchange offer and acceptance, these shares
were exchanged with the Company in February 1999 for 55,370 Preferred Shares,
and retired by the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis contains forward-looking statements
which involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," and "expect" and similar expressions as they relate to
the Company or its management are intended to identify such forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. The Company's actual results, performance or achievements could differ
materially from the results expressed in or implied by these forward-looking
statements.
The Company's original strategy of aggressive growth, utilizing a low cost
restaurant concept adaptable to different leasehold configurations in a short
construction timetable, met with significant difficulty, particularly in the
areas of inconsistent operational performance of newer units. As a result, the
Board of Directors voted in January 1997 to adopt a revised business plan (the
"Cost Reduction Plan") that focuses on profitability of existing restaurants and
the closing of marginal restaurants.
In late fiscal 1998, the Company modified its expansion and operating
strategy to facilitate a more rapid course to profitability and accelerate the
reduction of losses pursuant to the Cost Reduction Plan. This new strategy
incorporates a sharpened focus on existing profitable restaurants, the
elimination or conversion of unprofitable restaurants and the implementation of
aggressive cost cutting measures designed to reduce operating expenses and
improve restaurant operating performance. The Company has, accordingly,
terminated operations at seven locations.
At June 28, 1998, The Rattlesnake Holding Company, Inc. was the parent
corporation of two subsidiary companies operating at individual restaurant
locations, utilizing the unique Rattlesnake Southwestern Grill concept:
RESTAURANT LOCATIONS OPERATIONS COMMENCEMENT DATE
Flemington, New Jersey November 1995 (closed November 1998)
South Norwalk, Connecticut June 1992
<PAGE>
Fiscal Year Ended June 28, 1998 as Compared
with Fiscal Year Ended June 29, 1997
Net restaurant sales decreased 52.1% to $3,761,300 for the fiscal year
ended June 28, 1998 from $7,851,950 for the twelve months ended June 29, 1997.
The decrease in net restaurant sales resulted from the closing of the Fairfield,
Connecticut, White Plains and Yorktown Heights, New York restaurants in fiscal
1997. For the fiscal year ended June 28, 1998, the Company generated a net loss
of $3,236,039 as compared to a net loss of $4,797,857 for the fiscal year ended
June 29, 1997, a decrease of $1,561,818. The decreased loss was principally
attributed to the modified expansion and operating strategy adopted by the Board
of Directors in January of 1997.
Restaurant operating losses were $173,614 for the fiscal year ended June
28, 1998 as compared with $136,256 for the fiscal year ended June 29, 1997. This
decrease in operating losses was principally attributable to the implementation
of the Company's Cost Reduction Plan and closure of unprofitable restaurants.
Restaurant salaries and benefits were reduced as a result of a reduction in the
number of personnel being reduced. Furthermore, depreciation and amortization
reduced as the number of operating restaurant facilities was reduced.
Restaurant Sales
Gross restaurant sales decreased 53% to $3,888,643 for the fiscal year
ended June 28, 1998 from $8,265,474 for the fiscal year ended June 29, 1997. The
decrease in restaurant sales resulted from the decrease in number of operating
restaurants during the fiscal year 1997 period, the closure of the Danbury,
Connecticut restaurant, and lack of working capital to adequately maintain and
provide the restaurant operations. Store sales for comparable periods for fiscal
year ended June 28, 1998 decreased $897,008.
Promotional Sales
Promotional sales decreased from $413,524 for fiscal year ended June 29,
1997 to $127,343 for fiscal year ended June 28, 1998. This decrease is
attributed to a reduction in direct mail advertisement incentives and closer
controls of in-house manager promotions. Promotional sales have decreased as a
percentage of gross sales in fiscal year 1998 to 3.3% from 5.0% in fiscal year
1997. This decrease as a percentage of sales is the result of Corporate policy
to reduce promotional sales.
Food and Beverage Costs
Food and beverage costs increased slightly as a percentage of net
restaurant sales at 32.6% in fiscal year 1998 and 31.1% in 1997. The cost of
food and beverage sales decreased to $1,225,982 for the fiscal year ended June
28, 1998, as compared with $2,443,860 for the fiscal year ended June 29, 1997.
The slight increase is due to menu changes and loss of purchasing efficiencies
based on fewer restaurants in operation. This decrease as a percentage of sales
is the result of the beneficial effects of clustered marketing efforts and
shared costs among all of the Company's restaurants.
Restaurant Salaries and Fringe Benefits
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased to $1,322,119 for the fiscal year ended June 28, 1998 as compared to
$2,792,622 for the fiscal year ended June 29, 1997. This decrease is
attributable to the operation of fewer restaurants during fiscal 1998. As a
percentage of net sales, these costs decreased to 35.2% in fiscal 1998 from
35.6% in fiscal 1997, principally due to the implementation of the Company's
cost reduction plan under which it reduced restaurant management and staff
during the fourth quarter of fiscal year 1997.
<PAGE>
Occupancy and Related Expenses
Occupancy and related expenses, which include linen, repairs, maintenance,
utilities, rent, insurance and other occupancy related expenses, decreased to
$1,072,796 for the fiscal year ended June 28, 1998 from $2,025,198 for the
fiscal year end June 29, 1997. As a percentage of net restaurant sales, these
costs increased to 28.5% in fiscal 1998 from 25.8% in fiscal 1997. The increase
as a percentage of sales can be attributed primarily to the costs associated
with the maintenance of the Fairfield restaurant which closed in fiscal year
1997 and which was not sold until March 24, 1998.
Depreciation and Amortization Expense
Depreciation and amortization expenses decreased as a percentage of net
restaurant sales to 8.3% for the fiscal year ended June 28, 1998 from 9.3% for
the fiscal year end June 29, 1997. These expenses decreased to $314,017 in
fiscal year ended June 28, 1998 from $726,526 for the fiscal year end June 29,
1997. This decrease is primarily attributable to the reduction in the number of
restaurants which were in operation during fiscal year 1998.
General and Administrative Expenses
Selling, general and administrative expenses decreased to $1,279,831 in
fiscal year ended June 28, 1998 from $2,715,293 for the fiscal year end June 29,
1997. As a percentage of net sales, selling, general and administrative expenses
increased from 34.6% in 1997 to 34.0% in 1998. These reductions in expense are a
direct result of the Company's implementation of its cost reduction plan.
Interest Expenses
Interest expense increased to $261,276 for the fiscal year ended June 28,
1998 from $172,886 for the fiscal year end June 29, 1997. This increase resulted
from additional borrowing by the Company and the increased interest rate
relating to the extension of the Series C Notes payable.
Loss of Closure of Restaurant Sites and Impairment Charges
In fiscal 1998, the Company performed a further analysis of historical and
projected operating results, which reflected a pattern of historical operating
losses and negative cash flow, as well as future projected negative cash flow
and operating results for fiscal 1999 for its Flemington restaurant.
Accordingly, the Company recorded an impairment charge for this restaurant to
write-down the impaired asset of $558,282 in fiscal 1998 and well contemplated
the future closure based upon future operating results. The restaurant was
subsequently closed in November 1998.
On June 22, 1998, the Company closed its Danbury, Connecticut facility and
subsequently lost its tenancy pursuant to a foreclosure action. Accordingly, the
Company recognized a loss of $270,426 in fiscal 1998 relating to the closure.
In fiscal 1998, Company management concluded that the operations of the
former Ottomanelli Group were inconsistent with the Company's operating plans
and were terminated in fiscal 1998, including the operations of its two New
Jersey restaurants. Accordingly, the Company concluded that the goodwill
relating to the acquisition was impaired and recorded an impairment charge of
approximately $436,000 in fiscal 1998.
In fiscal 1998, the Company recorded an additional loss of $88,559 relating
to the ultimate sale of the Fairfield, Connecticut location closed in June 1997
and an additional loss of $55,725 relating to the Lynbrook facility closed in
September 1997.
<PAGE>
Subsequent Events
Between March 1998 and September 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share and issued
convertible promissory notes for approximately $50,000. All notes were satisfied
by payment of cash and/or conversion to Company equity at the Initial Closing of
the Offering February 17, 1999.
On June 22, 1998, the Company closed its facility in Danbury, Connecticut
for renovations; lost its tenancy pursuant to a foreclosure action against its
landlord by the mortgage lender; purchased the property for $1,350,000 cash from
the prior landlord's mortgage lender via its wholly-owned subsidiary, 106
Federal Road, Inc. April 15, 1999; 106 Federal Road, Inc. leased it to another
Company wholly-owned subsidiary, Federal Road Restaurants, Inc. on April 15,
1999; and the Company plans to a) mortgage its purchase and b) open a restaurant
(its Spencer's prototype) on or about October 15, 1999.
On July 2, 1998, the Company entered into a contract for the purchase of a
restaurant facility in New York City for $400,000 in a combination of cash &
notes. The Company ultimately chose not to purchase this property.
On July 3, 1998, the Company entered into a contract for the purchase of a
restaurant facility in Greenwich, Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose not to purchase this property.
Between August 1, 1998 and September 15, 1998, the Company entered into
various services and employment agreements with key personnel effective upon and
in anticipation of the initial Closing of the Offering. See "Business and
Management."
Between October 1998 and December 1998, the Company entered into private
financing arrangements with three individuals to provide $150,000 of bridge
financing at 16% interest per annum, plus warrants, with due dates of the
earlier of the closing of the proposed private placement or ninety (90) days,
respectively. All notes were satisfied by payment of cash and/or conversion to
Company equity at the Initial Closing of the Offering February 17, 1999.
On October 27, 1998, the Company commenced an offering (the "Offering") of
its Series B Convertible Preferred Shares, $.10 par value. Between February 17,
1999 and July 2, 1999, the Company sold approximately $6,000,000 of Series B
Preferred Shares pursuant to the Offering and converted approximately $1,350,000
of its debt to Company equity. During the Offering, the Company satisfied, by
payment of cash and/or equity in the form of preferred and/or common stock, the
following: (a) all outstanding Series C promissory notes; (b) certain
outstanding Series B promissory notes; (c) all outstanding promissory notes
related to the Fairfield facility; and (d) all outstanding promissory notes from
(i) September 1997, (ii) March through June 1998, and (iii) October and November
1998, effectively satisfying all short term and long term debt which was in
default at June 28, 1998.
In November 1998, the Company closed its facility in Flemington, New Jersey
as it was not meeting the Company's performance standards as part of its Cost
Reduction Plan. The Company recorded a net loss of $558,282 in fiscal 1998 for
this impaired asset.
<PAGE>
In December 1998, certain management personnel deferred a portion of their
salary pending completion of the Offering. This debt was satisfied by payment of
cash and conversion to Company equity at the initial closing of the Offering.
Fiscal Year Ended June 29, 1997 as Compared
with Fiscal Year Ended June 30, 1996
Net restaurant sales decreased 4.7% to $7,851,950 for the fiscal year ended
June 29, 1997 from $8,242,809 for the twelve months ended June 30, 1996. The
decrease in net restaurant sales resulted from the net effect of the closing of
the Fairfield, Connecticut, White Plains and Yorktown Heights, New York
restaurants in fiscal 1997 offset by an increase in the Danbury, Flemington and
Lynbrook restaurants operating for a full year as compared to the prior period.
For the fiscal year ended June 29, 1997, the Company generated a net loss of
$4,797,857 as compared to a net loss of $3,193,155 for the fiscal year ended
June 30, 1996, an increase of $1,604,702. The increased loss was principally
attributed to losses of $1,731,842 incurred from the closing of restaurant
sites.
Restaurant operating losses were $136,256 for the fiscal year ended June
29, 1997 as compared with $159,235 for the fiscal year ended June 30, 1996. This
decrease in operating losses was principally attributable to the implementation
of the Company's cost reduction plan mid-year. The benefits recognized by these
cost reductions were offset by the cost incurred relating to the maintenance of
closed restaurants prior to their sale.
Restaurant Sales
Gross restaurant sales decreased 5.6% to $8,265,474 for the fiscal year
ended June 29, 1997 from $8,755,565 for the fiscal year ended June 30, 1996. The
decrease in restaurant sales resulted from the decrease in the number of
operating restaurants during the fiscal 1997 period. The number of operating
restaurants decreased from seven to four in the period ended June 29, 1997. The
Company closed three of it's restaurants in fiscal year 1997 as follows:
Fairfield, Connecticut in January 1997; White Plains, New York in March 1997;
and Yorktown Heights, New York in June 1997. As a result of these restaurant
closings and the timing of restaurant openings, South Norwalk represents the
only restaurant for which same store sales can be analyzed. Same store sales for
the South Norwalk location increased $104,084 for the twelve-month period ended
June 29, 1997.
Promotional Sales
Promotional sales decreased from $512,756 for fiscal year ended June 30,
1996 to $413,524 for fiscal year ended June 29, 1997. This decrease is
attributed to a reduction in couponing and direct mail advertisement incentives,
which were distributed to counter extreme winter weather conditions during
fiscal year 1996. Promotional sales have decreased as a percentage of gross
sales in fiscal year 1997 to 5.0% from 5.9% in fiscal year 1996. This decrease
as a percentage of sales is the result of the beneficial effects of clustered
marketing efforts and shared costs among all of the Rattlesnake restaurants.
Food And Beverage Costs
Food and beverage costs remained constant as a percentage of net restaurant
sales at 31.1% in fiscal year 1997 and 1996. The cost of food and beverage sales
decreased to $2,443,860 for the fiscal year ended June 29, 1997, as compared
with $2,565,905 for the fiscal year ended June 30, 1996. The Company was able to
maintain it's food and beverage cost level through the implementation of a new
menu, revised recipes, improved inventory utilization, increased purchasing
efficiencies and improved training methods. This was done despite increases in
the cost of chicken, beef, and produce. There can be no assurance that the
Company will be able to maintain these cost levels.
<PAGE>
Restaurant Salaries And Fringe Benefits
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased to $2,792,622 for the fiscal year ended June 29, 1997 as compared to
$3,109,435 for the fiscal year ended June 30, 1996. This decrease is
attributable to the opening of additional restaurants during fiscal 1996 and no
restaurant openings in fiscal 1997. As a percentage of net sales, these costs
decreased to 35.6% in fiscal 1997 from 37.7% in fiscal 1996, principally due to
increased restaurant management and operating personnel in newly opened
restaurants in fiscal 1996. The decrease is also attributed to the
implementation of the Company's cost reduction plan under which it reduced
restaurant management and staff during the fourth quarter of fiscal year 1997.
Occupancy and Related Expenses
Occupancy and related expenses, which include linen, repairs, maintenance,
utilities, rent, insurance and other occupancy related expenses, decreased to
$2,025,198 for the fiscal year ended June 29, 1997 from $2,118,444 for the
fiscal year end June 30, 1996. As a percentage of net restaurant sales, these
costs increased to 25.8% in fiscal 1997 from 25.7% in fiscal 1996. The increase
as a percentage of sales can be attributed primarily to the costs associated
with the maintenance of the three restaurants closed in fiscal year 1997 prior
to their sale.
Depreciation and Amortization Expense
Depreciation and amortization expenses, including the amortization of
pre-opening store expenses, increased as a percentage of gross restaurant sales
to 9.3% for the fiscal year ended June 29, 1997 from 7.4% for the fiscal year
end June 30, 1996. These expenses increased to $726,526 in fiscal year ended
June 29, 1997 from $608,260 for the fiscal year end June 30, 1996. This increase
is primarily attributable to the depreciation and amortization recorded on
restaurants, which were closed during fiscal year 1997.
General and Administrative Expenses
Selling, general and administrative expenses decreased to $2,715,293 in
fiscal year ended June 29, 1997 from $2,810,433 for the fiscal year end June 30,
1996. As a percentage of net sales, selling, general and administrative expenses
increased from 34.1% in 1996 to 34.6% in 1997. These reductions in expense are a
direct result of the Company's implementation of its cost reduction plan. The
increase as a percentage of sales reflect the impact of the decreased sales
resulting from the closing of related restaurant sites
Amortization of Debt Issuance Costs
Debt issuance costs are principally associated with the subordinated note
component of the Company's $1,800,000 unit offering and were capitalized and
amortized ratably over the initial one-year term of the debt. As a result of the
restructuring of this debt, the related unamortized debt issuance costs of
$72,114 were offset against the extraordinary gain recognized in this
transaction in fiscal year 1996.
Loss on Closure of Restaurant Sites
The Rattlesnake Southwestern Grill Restaurant located in Fairfield,
Connecticut was closed on January 4, 1997. The fixed assets, leasehold
improvements and intangibles at the facility have been written off and are
recorded at its estimated fair value. A net loss of $394,941 relating to the
closing of the Fairfield location was recorded during the 1997 fiscal year.
The Rattlesnake Southwestern Grill Restaurant located in White Plains, New
York was closed on March 1, 1997 and sold on July 16, 1997. The facility was
sold to individuals including the Company's former Chairman of the Board. A net
loss of $224,135 relating to the closing of the White Plains location was
recorded in fiscal 1997.
<PAGE>
The Rattlesnake Southwestern Grill Restaurant located in Yorktown Heights,
New York was closed on June 9, 1997 and sold on June 27, 1997. A net loss of
$362,091 relating to the closing of the Yorktown Heights location was recorded
in fiscal 1997.
The restaurant location on 86th Street in New York City was never opened
and the Company sold the fixed assets on May 29, 1997 and transferred its
interest in the lease at that location. A net loss of $306,456 relating to the
selling of the 86th Street location was recorded in fiscal 1997.
The Rattlesnake Southwestern Grill Restaurant located in Lynbrook, New York
was closed on September 17, 1997. A net loss of $374,852 relating to the closing
of the Lynbrook location was recorded in fiscal 1997 closing.
Interest Expenses
Interest expense increased to $172,886 for the fiscal year ended June 29,
1997 from $108,536 for the fiscal year end June 30, 1996. This increase resulted
from additional borrowing by the Company and the increased interest rate
relating to the extension of the Series C Notes Payable.
Seasonality and External Influences on Quarterly Results
The Company's sales and earnings reflect a seasonality of the business.
Quarterly results have been and, in the future are likely to be, substantially
affected by the timing of new restaurant openings. Because of the impact of new
restaurant openings, results for any quarter are not necessarily indicative of
the results that may be achieved for a full fiscal year and cannot be used to
indicate financial performance for the entire year.
Recent Accounting Announcements
In April 1998, Statement of Position 98-5 ("SOP 98-5"), "Reporting the Cost
of Start-up Activities," was issued. SOP 98-5 requires that costs incurred
during start-up activities, including pre-opening costs, be expensed as
incurred. The Company will adopt SOP 98-5 in the first quarter of fiscal 2000
and management does not believe that the adoption of SOP 98-5 will have a
material impact on the Company's financial position or results of operations.
In June 1997, the FASB issues Statement 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. This Statement establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources an din assessing
performance. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profits or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the consolidated financial statements. Restatement of comparative
information for earlier periods presented is required in the initial year of
application. Interim information is not required until the second year of
application, at which time comparative information is required. The Company does
not believe that adoption of the Statement will have a significant impact on the
financial statements disclosures. The Company will adopt this accounting
standard effective in fiscal 1999, as required.
<PAGE>
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), was issued which is effective for fiscal years beginning after June 15,
2000. Statement 133 standardizes the accounting for derivative instruments and
requires that all derivative instruments be carried at fair value. The Company
has not determined the impact that Statement 133 will have on its financial
statements and believes that such determination will not be meaningful until
closer to the date of initial adoption.
Liquidity and Capital Resources
The Company has a long history of losses which has depleted its capital
resources and has resulted in the incurrence of a significant amount of
indebtedness. Without additional funds, the Company will have to abandon its
long term plans for the Spencer's concept development and the opening of
additional restaurants, and drastically reduce its corporate overhead. The
Company estimates that the financing obtained at the Offering will enable the
Company to effect some expansion and to operate through July 2000. There can be
no assurance that the Company will have adequate resources after such time
unless it conducts profitable operations and/or obtains additional financing, of
which there can be no assurance.
The Company's cash position increased by $243,306 during the year ended
June 28, 1998, principally as a result of the proceeds of a private placement of
common stock, the proceeds from the sale of a convertible note which was
subsequently converted into common stock, and certain bridge financing
arrangements which were partially offset by operating losses and principal
repayments.
At June 28, 1998, the Company was past due and in default of a majority of
its financing arrangements as $303,749 of Series C subordinated notes payable
matured on August 6, 1997, of which noteholders with principal balances
aggregating $62,499 extended the repayment date to December 15, 1997, $100,000
convertible subordinated notes payable matured September 4, 1997, $425,000 note
payable matured on January 2, 1997, $11,709 note payable matured in February
1998, $220,000 note payable matured on December 31, 1997, $100,000 notes payable
matured on May 31, 1998, $50,000 note payable matured on May 31, 1998, and a
$2,089 subordinated note payable matured on August 6, 1996, such obligations
aggregating $1,212,547 and all of which are in default as of June 28, 1998.
Additionally, $207,636, of accumulated dividends Series A Preferred Stock were
also past due and unpaid. All of the foregoing have subsequently been satisfied.
On October 27, 1998, the Company commenced an offering (the "Offering") of
its Series B Convertible Preferred Shares, $.10 par value. Between February 17,
1999 and July 2, 1999, the Company sold approximately $6,000,000 of Series B
Preferred Shares pursuant to the Offering and converted approximately $1,350,000
of its debt to Company equity. During the Offering, the Company satisfied, by
payment of cash and/or equity in the form of preferred and/or common stock, the
following: (a) all outstanding Series C promissory notes; (b) certain
outstanding Series B promissory notes; (c) all outstanding promissory notes
related to the Fairfield facility; and (d) all outstanding promissory notes from
(i) September 1997, (ii) March through June 1998, and (iii) October and November
1998, effectively satisfying all short term and long term debt which was in
default.
Management of the Company was completing its Cost Reduction Plan, which
included a further reduction in workforce and continuation of the closure of
unprofitable restaurants, in fiscal 1998. Such plan included the closing and on
sale of the Yorktown Heights, White Plains, New York, Fairfield, Connecticut
and/or Lynbrook, New York locations, as well as the sale of its unopened New
York City property. As indicated in note 4, the Company performed an analysis of
its remaining restaurants and identified the Flemington restaurant as
non-performing. The restaurant was subsequently closed in fiscal 1999. Effective
upon the completion of the private placement, the Company has assembled a new
management team and developed a new restaurant theme which will be introduced at
the recently reacquired Danbury, Connecticut location.
<PAGE>
In September 1997, the Company completed a bridge financing under which it
sold units consisting of notes and warrants totaling $250,000, which were due
December 31, 1997. Each full unit consisted of (i) the Company's ten percent
(10%) promissory note in the principal amount of $50,000 (the "Note"), and (ii)
upon repayment of the Note, one four-year warrant for each dollar of financing
provided herewith, at the rate of one warrant convertible into one share of the
Company's common stock at the average bid price on the date of the receipt of
the financing. The Company made principal payments of $30,000 in fiscal 1998 and
the remaining $220,000 was outstanding and in default at June 28, 1998.
On September 8, 1997, the Company repriced warrants issued to three Series
C noteholders with principal aggregating $62,499 in return for extension of the
re-payment period to December 15, 1997. The noteholders received 30,000 warrants
as a result of the Company's failure to satisfy the debt on July 15, 1997.
On December 8, 1997, the Company entered into a refinancing arrangement in
which it raised $500,000 in a convertible note. $400,000 of the proceeds were
utilized to reduce the 18% convertible subordinated notes due September 4, 1997.
The remaining $100,000 was outstanding and in default at June 28, 1998. In March
1998, the December 1997 note was satisfied by conversion into 937,000 shares of
the Company's common stock.
In fiscal 1998, the Company entered into private financing arrangements to
provide an aggregate of $150,000 of bridge financing at interest rates ranging
from 14% to 16%, payable on dates ranging between May 31, 1998 and October 31,
1998. At June 28, 1998, $100,000 of the debt was unpaid and in default.
Between March 1998 and September 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share. As of June 28,
1998, the Company had sold 4,480,000 shares of common stock and received
proceeds of $543,548, net of expenses.
Between October and December 1998, the Company entered into private
financing arrangements to provide an aggregate of $150,000 of bridge financing
at 16%, with due dates at the earlier of the closing of the private placement or
ninety days, respectively. The noteholders also received warrants for an
aggregate of 412,500 shares, at an exercise price of $0.05 per share expiring on
December 30, 2003. The warrants were valued at $12,375 and recognized as a debt
issuance cost. At June 28, 1998, the notes were outstanding and in default.
In February 1998, the Company executed a $50,000 convertible note agreement
with an investment banking firm for services rendered. The note is convertible
into 250,000 shares of common stock, bears interest at 8% and matured on May 31,
1998. The note was outstanding on June 28, 1998 and was satisfied by conversion
into equity in February 1999.
At June 28, 1998, the Company had available a net operating loss carry
forward (NOL) for Federal and State income tax purposes of approximately
$13,962,000, which are available to offset future taxable income, if any, before
2013. In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, a change in more than 50% in the beneficial ownership of the Company
within a three-year period (an "Ownership Change"), will place an annual limit
on the Company's ability to utilize its existing NOL carry forwards to offset
taxable income in current and future periods. The Company believes that
ownership changes have occurred and will cause the annual limitations to apply.
The Company has not determined what the maximum annual amount of taxable income
is that can be reduced by the NOL carry forwards.
Management believes that the finalization of its Cost Reduction Plan and
its $6,000,000 private placement financing will enable the Company to achieve
profitable operations and restore liquidity. However, no assurance can be made
regarding achievement of the goals outlined in the strategic plan as outlined
above, or if such plans are achieved, that the Company's operations will be
profitable.
<PAGE>
Inflation
The impact of general inflation on the Company's business has been
insignificant to date and the Company believes that it will continue to be
insignificant for the foreseeable future.
Market Risk
The Company is not subject to interest rate risk, as substantially all
borrowings are fixed rate obligations. However, the Company has exposure to
commodity risk, including the dependence on the rapid availability of food,
principally steak and shrimp, and fluctuations in price of these commodities.
Although the Company believes that its relationships with suppliers are
satisfactory and that alternative sources are available, the loss of certain
suppliers, or substantial price increases could have a material adverse effect
on the Company.
Year 2000 Modifications
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process certain transactions, send
invoices, or engage in similar normal business activities.
The Company does not believe the Year 2000 Issue will significantly affect
its operations since it is in a "re-start" mode with respect to its business and
uses little or no computer equipment outside of its accounting programs.
Based on recent assessments, the Company determined that it will not
require significant modifications of its hardware or software so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with little or no modifications to its existing
software, the Year 2000 Issue can be mitigated.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. As of June
30, 1999, the Company has fully completed its assessment of all internal systems
that could be significantly affected by the Year 2000. The completed assessment
indicated that most of the Company's significant information technology systems
will not be significantly affected, particularly the general ledger, and
inventory systems. The Company does not believe that the Year 2000 presents a
material exposure as it relates to the Company's products or services. In
addition, the Company has begun to gather information about the Year 2000
compliance status of its external agents and continues to monitor their
compliance. To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. The Company has requested from its bank an
assessment of the extent of the bank's Year 2000 compliance. However, the
Company has no means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000 resolution process
in a timely fashion could materially and adversely impact the Company. The
effect of non-compliance by external agents is not determinable.
The Company will utilize external software and service providers to
reprogram, test and implement software for the Year 2000 modification as needed,
the cost of which is not expected to be significant. The Company will evaluate
the status of completion of Year 2000 modifications in September 30, 1999 and
will undertake all remaining necessary steps to seek to ensure its systems are
Year 2000 compliant.
In the event the Company's computer systems are materially adversely
affected by the Year 2000 issue, the Company's business and operations could be
materially adversely affected by disruptions in the operations of other entities
with which the Company interacts. However, the Company believes that the most
likely worst case scenario is that there will be some localized disruptions of
systems that will affect individual facilities or services for a short time
rather than systematic or long-term problems affecting its business operations
as a whole. In such event the Company has contingency plans for certain critical
applications and is working on plans for others. These contingency plans
involve, among other actions, increasing inventories, and adjusting staffing
strategies.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The information required by this item is incorporated by reference to the
Company's financial statements. See Pages F-1 to F-34.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth certain information concerning each of the
executive officers, directors and advisors as of June 30, 1999 (See "Agreements
with New Management" below for information on contractual commitments related to
certain of these persons). The Company's officers are elected to serve in such
capacities until the earlier to occur of the election and qualification of their
respective successors or until their respective deaths, resignations or removals
by the Company's board of directors from such position. The Company does not pay
any compensation to any person for serving, as such, as a director. Management
on June 28, 1998 included: (i) Louis Malikow, Roger Rankin and Joseph Adinaro as
directors; (ii) Nicolo Ottomanelli as President; (iii) Stephan A. Stein as
Acting Chairman as such; and (iv) Joseph Ottomanelli and Kenneth Olsen as
vice-president and CFO, respectively, all whom served until early 1999. Current
officers and directors include:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Kenneth Berry 46 President, CEO and Director
Stephan A. Stein 47 Consultant, Secretary and
Director
Nicolo Ottomanelli 57 Senior Vice President and Director
Frank T. Ferro 47 Vice-President, CFO and Treasurer
- -------------------------
Shelly Frank 54 Consultant and Director*
A.G. (Sandy) Rappaport 50 Consultant and Director*
</TABLE>
<PAGE>
* Messrs. Frank and Rappaport will join the Company's Board of Directors,
with Mr. Frank to serve as Chairman, at such time as the Company finalizes its
officers and directors insurance obtained July 15, 1999, among other matters,
anticipated to be on or about September 1, 1999. See "Agreements with New
Management".
Kenneth Berry From 1997 until the Initial Closing, Mr. Berry was a Director
of Operations for Briad Group, a $75 million per year multi-unit restaurant
operations company in the Metro-New York area operating primarily Wendy's and
TGIF Friday's restaurants. From 1989 to 1996, Mr. Berry was a principal in the
Kerry Organization, which acquired and operated Roy Rogers Restaurants in
Connecticut, during which period he served on the Board of the Roy Rogers
National Franchisee Advisory Council. Prior to that, and from 1985 to 1989, Mr.
Berry was a Regional Vice-President of Operations for KFC National Management
Company, a PepsiCo subsidiary. Mr. Berry attended Pace University.
Stephan A. Stein Mr. Stein has been a Director of the Company since 1996
and served as its Acting Chairman from inception of the 1997 Cost Reduction Plan
until the Initial Closing of the Offering. Mr. Stein was a Managing Director of
the Corporate Finance Department of the Placement Agent until May 31, 1999.
Prior to joining the Placement Agent, and from 1977 to 1996, Mr. Stein had broad
based transaction and business management experience, initially as a practicing
attorney in New York City and thereafter as a principal of various food-service
related companies involved in manufacturing, distribution, retailing and
franchising, both domestically and internationally. Mr. Stein has a B.A. degree
in economics from Ohio State University and a Juris Doctor degree from The
Vermont Law School.
Nicolo Ottomanelli For more than forty years, Mr. Ottomanelli has been
engaged in the food business in New York as a member of Ottomanelli Bros., a
century old retail meat purveyor, and has operated a number of casual dining
restaurants under the Ottomanelli's Cafe(R) name. He has also operated steak
restaurants and is the founder of the Ottomanelli's Cafe franchising operation,
which is now owned by the Company.
Frank T. Ferro From 1997 until the Initial Closing, Mr. Ferro was employed
by Deloitte and Touche, LLP as a special projects financial and tax accountant.
From 1995 to 1997, Mr. Ferro was a financial and tax consultant for Royal Par
Industries from 1991 to 1994, Mr. Ferro was CFO for CAT Entertainment, a New
York City based restaurant turnaround company. Previously, from 1978 to 1985,
Mr. Ferro was the Audit Supervisor for General Foods Corporation where he was
responsible for full scope and operational audits for its multi-unit restaurant
chains then owned. Mr. Ferro is a CPA and has B.S. and MBA Degrees from St.
John's University.
Shelly Frank During the past 10 years, Mr. Frank has been a private
investor and, among other things, a consultant to the restaurant industry. From
1977 to 1986, Mr. Frank was Chairman and CEO of Chi-Chi's, Inc. a casual dining
restaurant chain that established the Mexican food sit-down segment and as a
public company expanded nationally from one location to more than 200
restaurants and yearly revenues in excess of $500 million per year during his
tenure. Prior to 1977, Mr. Frank held various executive positions in the
restaurant industry with Kentucky Fried Chicken, Burger King International and
General Mills. Mr. Frank is a past recipient of the Wall Street Transcript's CEO
of The Year Award as well as the MUFSO (Multi-Unit Food Service Operator) Golden
Chain Award given by the Nations Restaurant News. Mr. Frank has a B.S. degree in
accounting from the University of New Haven and attended the MBA program at the
University of Miami, Florida.
A.G. (Sandy) Rappaport Mr. Rappaport is currently a co-owner and
development partner of R&A Food Services, L.P., the master franchise of Boston
Market for the State of Florida and a development partner of Einstein's Bros.
Bagels, for which he has opened more than 150 locations combined. Mr. Rappaport
was president of the first franchise and a development partner of the Outback
Steakhouse concept. Mr. Rappaport also engages in investment activities. Mr.
Rappaport has a Masters degree from and is an Advisory Board Member of the
University of South Florida.
<PAGE>
Committees of the Board of Directors
The Company's Board of Directors currently has no committees, though it
anticipates the formation of an Audit Committee and Compensation Committee prior
to the next annual meeting of stockholders.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten (10%) percent of a
registered class of the Company's equity securities (collectively, the
"Reporting Persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish the Company with copies of
these reports. Based solely on the Company's review of the copies of such forms
received by it during its fiscal year ended June 28, 1998, the Company believes
that all filing requirements applicable to the Reporting Persons were not
complied with by its executive officers and directors during such period. As of
June 30, 1999, the Company is in compliance with all Section 16 requirements and
believes its current management and directors to be in compliance.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth as of June 28, 1998 the cash compensation
paid by the Company, as well as any other compensation paid to or earned by the
President of the Company and those executive officers compensated at or greater
than $100,000 for services rendered to the Company in all capacities during the
three most recent fiscal years:
Summary Compensation Table
<TABLE>
<CAPTION>
Name of Individual Stock Long-Term
and Principal Position Year Salary Bonus Compensation Compensation
- ---------------------------- ---------- ---------------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Nicolo Ottomanelli, 1998 $69,230 --- --- ---
President *1997 $ --- --- --- ---
*1996 $ --- --- --- ---
</TABLE>
- ---------------
* Nicolo Ottomanelli was not employed by the Company in fiscal years 1997
and 1996.
<PAGE>
Executive Compensation
The following table sets forth information with respect to the compensation
of the Company's officers for the fiscal year ended June 28, 1998:
Name Compensation
Nicolo Ottomanelli (1) $69,230
Joseph Ottomanelli (2) $16,490
Stephan A. Stein (3) $53,519
Louis Malikow (4) $27,000
(1) Nicolo Ottomanelli was compensated under an employment agreement
entered into on in March, 1998 and terminating in 2002 pursuant to which he was
to receive a salary of $150,000 per annum. The Company and Nicolo Ottomanelli
amended his employment agreement effective February 1999 to reduce the fixed
compensation to $85,000, to make him a participant in the Company's incentive
bonus program and to provide a payment of $25,000 in early 1999.
(2) Joseph Ottomanelli was compensated under an employment agreement
entered into in March, 1998 and pursuant to which he was to receive a salary of
$150,000 per annum. Mr. Ottomanelli's salary was prorated for the amount of time
he spent on the business of the Company. For the period ended June 28, 1998,
approximately 25% of his time is allocated to the business of the Company. The
Company and Joseph Ottomanelli terminated his employment agreement in October
1998 and he received a payment of $7,500 in mid-1999, and will receive a payment
of $7,500 in mid-2000.
(3) A corporation wholly owned by Mr. Stein, SAS Ventures, Inc. entered
into a 1996 consulting agreement with the Company under which it is to provide
his services to the Corporation. The agreement was amended in March 1997 and May
1998 and expires in 2001. The consulting fee under the agreement is $6,250 per
month. In addition, Mr. Stein was granted the common stock and warrants
described in "Security Ownership of Certain Beneficial Owners and Management".
(4) Mr. Malikow, a Director since 1995, acted as Co-CEO with Mr. Stein
during the 1997 Cost-Reduction Strategy Plan period authorized by the Board of
Directors and received cash and warrants in consideration of services provided.
Agreements with New Management
Subsequent to June 28, 1998, the Company entered into a three year advisory
service agreement, as revised, with Mr. Shelly Frank. Mr. Frank's agreement does
not obligate him to also serve as a director or Chairman of the Board of
Directors until the Company obtains at least $10 million of officer/director
liability insurance and certain other conditions are satisfied. Mr. Frank's
agreement is terminable by Mr. Frank without recourse by the Company. Mr. Frank
will receive no regular compensation but will be entitled to participate in the
Company's performance bonus plan. Mr. Frank may receive consulting compensation
prior to commencing as Chairman of the Board of Directors. In addition, Mr.
Frank was granted the warrant described in "Security Ownership of Certain
Beneficial Owners and Management".
Subsequent to June 28, 1998, the Company entered into a three year
employment agreement, as revised, with Kenneth Berry which commenced on March
31, 1999, providing for fixed compensation of $95,000 a year, a signing bonus of
$30,000, participation in the Company's performance bonus plan, and receipt of
$250,000 of term life insurance coverage. In addition, Mr. Berry was granted the
warrant described in "Security Ownership of Certain Beneficial Owners and
Management".
<PAGE>
Subsequent to June 28, 1998, the Company entered into a three year
employment agreement, as revised, with Frank T. Ferro providing for fixed
compensation of $52,000 in year one, with a time allowance in year one to
complete certain projects, and commercially standard compensation for full time
services to be determined for years two and three. Mr. Ferro has also been
granted options to purchase Common Stock as follows: 100,000 vesting at close of
year one; 100,000 vesting at close of year two; 100,000 vesting at close of year
three at the exercise price of $.05, with additional options to purchase 200,000
shares, exercisable at the close of each years two and three.
Subsequent to June 28, 1998, the Company entered into a three year advisory
service agreement with A. G. (Sandy) Rappaport providing for certain
consultative services on an as need basis and providing for compensation of
$12,000 per year plus the warrant described in "Security Ownership of Certain
Beneficial Owners and Management".
The performance bonus plan for senior management creates a bonus pool based
on the yearly targeted number of restaurant openings, the aggregate revenues and
pre-tax (and pre-bonus) income of the Company. The plan initially has a five
year term. The pool, if created, would be allocated by the Chairman of the
Board, currently anticipated to be Shelly Frank, including to himself. It is
anticipated that the bonus pool could vary from a maximum of approximately
$100,000 in the first year to $1,000,000 (or more) in the fifth year, based on
meeting or exceeding targeted goals. There can be no assurance as to the size of
the bonus pool, if any, during any year of operations.
Limited Liability of Directors and Executive Officers
The Certificate of Incorporation of the Company provides that the Company
shall indemnify to the fullest extent permitted by Delaware law any person whom
it may indemnify thereunder, which includes directors, officers, employees and
agents of the Company. Such indemnification (other than as ordered by a court)
shall be made by the Company only upon a determination that indemnification is
proper in the circumstances because the individual met the applicable standard
of conduct. Advances for such indemnification may be made pending such
determination. In addition, the Certificate of Incorporation provides for the
elimination, to the extent permitted by Delaware law, of personal liability of
directors to the Company and its stockholders for monetary damages for breach of
fiduciary duty as directors.
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 in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of the expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company, will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy, as expressed in the Securities Act, and will be governed by the
final adjudication of such issue.
Stock Option Plans
1994 Employees Stock Option Plan
In December 1994, the Company adopted the 1994 Employees Stock Option Plan
(the Employees Plan), which provides for the issuance of incentive stock options
(ISO's) and non-qualified options (Non-ISO's) to officers and key employees. Up
to 1,000,000 shares of the Company's common stock have been reserved for
issuance under the Plan. The Plan is currently administered by the Board of
Directors of the Company. The term of the options is generally for a period of 5
years. The exercise price for non-qualified options outstanding under the
Employees Plan can be no less than 100% of the fair market value, as defined, of
the Company's common stock at the date of the grant. For ISO's the exercise
price can be generally no less than the fair market value of the Company's
common stock at the date of the grant, with the exception of any employee who
prior to the granting of the option, is a 10% or greater stockholder as defined,
for which the exercise price can be no less than 110% of the fair market value
of the Company's common stock at the date of grant. There are presently
approximately 1,000,000 shares available for option under the Employees Plan.
The Company anticipates seeking stockholder approval to substantially increase
the number of shares for which options may be granted.
<PAGE>
1994 Director Plan
In December 1994, the Company adopted the non-Executive Director Stock
Option Plan (the "Director Plan"), which provides for the issuance of non-ISO's
to non-executive directors, as defined, and members of any advisory board
established by the Company who are not full-time employees of the Company. The
Company has reserved 500,000 shares for issuance under the provisions of the
Director Plan. The Director Plan provides that each non-executive director will
automatically be granted an option to purchase 25,000 shares upon joining the
Board of Directors and 15,000 shares on each December 1st thereafter, provided
such person has served as a director for the 12 months immediately prior to such
December 1st. The exercise price for options granted under the Director Plan
shall be 100% of the fair market value of the Common Stock on the date of grant.
There are presently 295,000 shares available for option under the Directors
Plan.
1999 Stock Option Plan
On April 18, 1999, the Board of Directors approved the adoption of the 1999
Stock Option Plan (the "1999 Plan"), which provides for the issuance of ISOs,
Non-ISOs, and stock appreciation rights to officers and key employees of the
Company. Up to 10,000,000 shares have been reserved for issuance under the 1999
Plan, which is administered by the Board of Directors of the Company. The term
of the options is generally for a period of five (5) years. The exercise price
for Non-ISOs outstanding under the 1999 Plan can be no less than 100% of the
fair market value as, defined, of the Company's Common Stock on the date of
grant. For ISOs, the exercise price can generally be no less than the fair
market value of the Company's Common Stock at the date of grant, without the
exception of any employee who prior to the option grant, is a 10% or greater
stockholder, as defined, for which the exercise price can be no less than 110%
of the fair market value of the Company's Common Stock at the date of grant.
There are presently no options granted under the 1999 Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock as of June 28, 1998, based on
information obtained from the persons named below, by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each executive officer and director of the Company, and (iii) all
officers and directors of the Company as a group:
<PAGE>
Name and Address of Amount and Nature of Beneficial
Beneficial Owner** Ownership*** Percentage****
- -------------------- -------------------------------- -----------------
Louis Malikow 223,231 (1) 2.4%
Roger Rankin 620,101 (2) 6.8%
Joseph Adinaro 0 *
Joseph Ottomanelli 1,411,029 15.8%
Nicolo Ottomanelli 1,411,029 15.8%
Kenneth Olsen 0 *
Stephan A. Stein 1,390,000 14.8%
- ------------------------------
All Directors and Officers 5,055,390 54.3%
as a group (7 Persons)
* Less than 1% of outstanding shares of Common Stock.
** Unless otherwise indicated, the beneficial owner's address is the
principal office of the Company.
*** The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they may
include securities owned by or for, among others, the spouse and/or minor
children of the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares
voting or investment power or has the right to acquire under outstanding stock
options within 60 days after the date of this table. Beneficial ownership may be
disclaimed as to certain of the securities.
**** In computing the "Percentage of Class" figures as to each person,
there is added to the numerator and denominator, for such person, the number of
shares of Common Stock such person could acquire within 60 days by the
conversion of a convertible security owned by such person or the exercise of an
option or warrant held by such person. This presentation maximizes the
percentage of each person, since it assumes that no other holder of rights to
convert or purchase preferred stock or warrants or notes is then exercising the
same, and often results in a combined listing percentage of ownership that
exceeds 100%.
(1) Includes options to purchase up to 55,000 shares of the Company's
Common Stock and a warrant to acquire up to 100,000 shares of the Company's
Common Stock.
(2) Includes (i) options to purchase 55,000 shares of Common Stock; (ii)
77,000 shares issuable upon exercise of a warrant; (iii) 15,151 shares issuable
upon conversion of a convertible promissory note; and (iv) 50,000 warrants
issuable in conjunction with a bridge financing in September 1997.
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock as of June 30, 1999, based on
information obtained from the persons named below, by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each executive officer and director of the Company, and (iii) all
officers and directors of the Company as a group:
<PAGE>
Name and Address of Amount and Nature of Beneficial
Beneficial Owner** Ownership*** Percentage****
- --------------------- ------------------------------- ------------------
Kenneth Berry 10,000,000 (1) 25.3%
Nicolo Ottomanelli 5,415,749 (2) 18.3%
Joseph Ottomanelli 4,271,029 (3) 14.3%
Stephan A. Stein 6,151,224 (4) 18.4%
Frank T. Ferro (5) *
Shelly Frank***** 45,000,000 (6) 64.3%
16 Arrowhead Way
Weston, CT 06883
Andrew Silverman***** 2,000,000 6.8%
A.G. (Sandy) Rappaport***** 1,500,000 (7) 4.8%
c/o Wellington Realty Advisors
11015 North Dale Mabry Highway
Tampa, FL 33618
Commonwealth Associates 15,650,000 (8) 37.7%
830 Third Avenue
New York, New York 10022
Guy Snowden 2,254,126 (9) 7.6%
4080 Ibis Point Circle
Boca Raton, FL 33431
- ----------------------------
All Directors and Officers 25,838,002 59.4%
as group (5 Persons)
* Less than 1% of outstanding shares of Common Stock.
** Unless otherwise indicated, the beneficial owner's address is the
principal office of the Company.
*** The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they may
include securities owned by or for, among others, the spouse and/or minor
children of the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares
voting or investment power or has the right to acquire under outstanding stock
options within 60 days after the date of this table. Beneficial ownership may be
disclaimed as to certain of the securities.
<PAGE>
**** In computing the "Percentage of Class" figures as to each person,
there is added to the numerator and denominator, for such person, the number of
shares of Common Stock such person could acquire within 60 days by the
conversion of a convertible security owned by such person or the exercise of an
option or warrant held by such person. This presentation maximizes the
percentage of each person, since it assumes that no other holder of rights to
convert or purchase preferred stock or warrants or notes is then exercising the
same, and often results in a combined listing percentage of ownership that
exceeds 100%. ***** Not a director at June 30, 1999.
(1) Includes warrants to purchase 10,000,000 shares of Common Stock at an
exercise price of $.05. Does not include warrants to purchase 20,000,000 shares
of Common Stock at $.05 per share, which are not exercisable within sixty (60)
days.
(2) Does not include any shares beneficially owed by Mr. J. Ottomanelli,
Mr. N. Ottomanelli's brother, of which Mr. N. Ottomanelli disclaims beneficial
ownership.
(3) Does not include any shares beneficially owned by Mr. N. Ottomanelli,
Mr. J. Ottomanelli's brother, of which Mr. J. Ottomanelli disclaims beneficial
ownership.
(4) Includes warrants to purchase 3,920,548 shares of Common Stock at an
exercise price of $.05 per share.
(5) Does not include warrants to purchase up to 700,000 shares of Common
Stock at an exercise price of $.05, exercisable annually in one-third increments
beginning after year one of his employment by the Company.
(6) Includes warrant to acquire 45,000,000 shares of common stock at $.05
per share.
(7) Includes warrants granted in conjunction with Mr. Rappaport's
consulting agreement. See "Agreements of New Management."
(8) Includes warrants to purchase 12,000,000 shares of Common Stock at an
exercise price of $.05.
(9) Does not include 54,126 shares of Common Stock owned by Mr. Snowden's
spouse, of which Mr. Snowden disclaims any beneficial ownership. Does not
include 3,000 shares of Preferred B Shares owned by Mr. Snowden.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain Transactions
Nicolo Ottomanelli
In August 1997, Nicolo Ottomanelli and his brother, Joseph Ottomanelli,
entered into a Reorganization Agreement with the Company, whereby they agreed to
exchange the stock of certain corporations owned by them for certain shares of
Common Stock of the Company and certain warrants. This transaction was closed in
March 1998. After amendment to the transaction, the Ottomanellis transferred the
stock of (i) a corporation which franchises Ottomanelli's Cafes(R) and (ii) a
corporation which operated two restaurants in Paramus, New Jersey (since
closed), for a total of approximately 6,975,000 shares of Common Stock
(including an estimated 4,152,750 shares of Common Stock to be issued on account
of the 55,370 Preferred Shares, convertible into 6,921,250 shares of Common
Stock, to be exchanged for the outstanding shares of Series A Preferred Shares).
In accordance with the agreement, Nicolo Ottomanelli and a designee of Joseph
Ottomanelli (who has since resigned) were designated directors, and the
Ottomanellis received employment agreements, one of which has been terminated
and the other of which has been modified (see "Management--Executive
Compensation").
The Ottomanellis own the outstanding stock of a corporation which licenses
the name Ottomanelli's Cafe(R) to the Company. There is no license fee.
The Ottomanellis own the premises at which the Company's offices were
located until December 1, 1998, and at which the Company occupied approximately
600 square feet of space as a month-to-month tenant at a rent of $2,200 per
month. The Company believes these terms were at least as favorable to the
Company as could have been obtained from a non-affiliated person. Following the
Initial Closing, the Company terminated this tenancy without penalty and to
moved its offices to one of its restaurants.
Stephan A. Stein
Mr. Stein was an employee of the placement agent in the Offering until May
31, 1999. Commencing in March 1998, the placement agent raised approximately
$850,000 for the Company, principally by the sale of common stock, and to a
lesser extent, by the sale of notes with warrants. The Placement Agent received
a commission of approximately $75,000 and warrants to purchase 750,000 shares of
common stock at $0.15 per share for a term of five years. Commencing October
1998, the placement agent raised approximately $6,000,000 for the Company,
principally by the sale of Series B Preferred Stock, and to a lesser extent, by
the sale of notes with warrants. The placement agent received a commission of
approximately $650,000 and warrants to purchase approximately 30,000,000 shares
of common stock at $.05 per share for a term of five (5) years.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1* Form of Restated Certificate of Incorporation of the Registrant
3.1.1*** Designation of Preferred Stock
3.1.2 Amendment to Certificate of Incorporation regarding capitalization of Registrant
3.2* By-Laws
4.1* Form of Common Stock Certificate
4.2+ Form of Series B Preferred Stock Certificate
10.1* 1994 Employee Stock Option Plan
10.2* 1994 Non-executive Directors Stock Option Plan
10.3*** Employment Agreement with Stephen A. Stein
10.3.1+ Revised Employment Agreement with Stephen A. Stein
10.4*** Lease Agreement with Jack Cioffi Trust ULWT dated April 15, 1996 together with Exhibits
10.5*** Form of Series C Note
10.6 License Agreement by and between Ottomanelli Bros., Ltd. and The Rattlesnake Holding Company, Inc.
10.7+ Convertible Subordinated Secured 18% Promissory Note dated March 4, 1997, in favor of J.L.B. of Nevada, Inc.
10.8+ Convertible Subordinated Secured 18% Promissory Note dated March 4, 1997, in favor of Michael Lauer
10.9 Reorganization and Stock Exchange Agreement among The Rattlesnake Holding Company, Inc. and Ottomanelli Brothers
west, Ltd., Ottomanelli's Cafe Franchising Corp., 34th St. Cafe Associates Inc., Garden State Cafe Corp.
10.10 Modification Agreement to the Reorganization and Stock Exchange
Agreement among The Rattlesnake Holding Company, Inc. and Ottomanelli Brothers
West, Ltd., Ottomanelli Cafe Franchising Corp., 34th St. Cafe Associates, Inc.,
Garden State Cafe Corp. and their shareholders, dated February 26, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.11 Amendment Agreement among The Rattlesnake Holding Company, Inc. and
Ottomanelli Brothers West, Ltd., Ottomanelli Cafe Franchising Corp., 34th St.
Cafe Associates, Inc., Garden State Cafe Corp., Nicolo Ottomanelli and Joseph
Ottomanelli, dated April 27, 1998.
10.12 Registration Rights Agreement dated February 26, 1997.
10.13+ William J. Opper Severance Agreement
10.14 Shelly Frank Consulting Agreement dated as of October 1998.
10.15 Kenneth Berry Employment Agreement dated as of October 1998.
10.16 A.G. (Sandy) Rappaport Consulting Agreement dated as of July 20, 1998.
10.17 Frank Ferro Employment Agreement dated as of September 1998.
10.18 Stephan A. Stein Consulting Agreement dated as of May 1, 1998.
10.18.1 Amendment to Stephan A. Stein Consulting Agreement dated as of March 15,
1997.
10.19 Nicolo Ottomanelli Employment Agreement dated as of February 26, 1998.
10.19.1 Amendment to Nicolo Ottomanelli Employment Agreement dated as of October
1998.
10.20 Form of Shelly Frank and Kenneth Berry Warrants
10.21 Form of Investor Rights Agreement for Subscribers in Offering
10.22 Form of Warrant Issued to Commonwealth Associates in Offering
22*** Subsidiary List
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed with the Commission with the Company's registration on
Form SB-2 (File No. 33-88486)
** Previously filed with the Company's 10-KSB for the year ended June 30,
1995
*** Previously filed with the Company's 10-KSB for the year ended June 30,
1996.
+ To be filed by amendment.
(b) Reports on Form 8-K
None.
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Rattlesnake Holding Company, Inc.
By:/s/Kenneth Berry
--------------------------------
Kenneth Berry
President, CEO, Director
By:/s/Frank Ferro
-------------------------------
Frank Ferro
Vice President, CFO, Treasurer
Dated: August 13, 1999
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dated indicated.
<TABLE>
<CAPTION>
Signature Title Date
-------------- --------- ---------
<S> <C> <C>
/s/Nicolo Ottomanelli Senior Vice President August 13, 1999
- ---------------------- and Director
Nicolo Ottomanelli
/s/Stephan Stein Secretary and Director August 13, 1999
- ----------------------------------
Stephan Stein
</TABLE>
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
(a) Report of Independent Auditors............................................................................F-2
(b) Consolidated Balance Sheets as of June 28, 1998 and June 29, 1997.........................................F-3
(c) Consolidated Statements of Operations for the Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996....................................................................................F-4
(d) Consolidated Statements of Stockholders' Equity for the Years Ended June 28,
1998, June 29, 1997 and June 30, 1996..............................................................................F-5
(e) Consolidated Statements of Cash Flows for the Years Ended June 28, 1998,
June 29, 1997 and June 30, 1996....................................................................................F-7
(f) Notes to Consolidated Financial Statements................................................................F-8
</TABLE>
<PAGE>
- ----------------------------------
THE RATTLESNAKE HOLDING COMPANY, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
June 28, 1998, June 29, 1997 and June 30, 1996
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors and Stockholders
The Rattlesnake Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of The
Rattlesnake Holding Company, Inc. and subsidiaries as of June 28, 1998 and June
29, 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the year in the three-year period ended June
28, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 The Rattlesnake Holding
Company, Inc. and subsidiaries as of June 28, 1998 and June 29, 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 28, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. Management of the Company is finalizing its cost
reduction plan, which includes a further reduction in workforce and continuation
of the closure of unprofitable restaurants and implementing a new strategic
plan. At June 28, 1998, approximately $1,212,000 of the Company's outstanding
notes payable were past due and in default. Additionally, accumulated dividends
for Series A preferred stock of $207,636 were also past due. In July 1999, the
Company completed a private placement of approximately $6,000,000 of Series B
preferred stock. Coincident with the private placement, the holders of 56,500
shares of Series A preferred stock exchanged their holdings for 55,370 shares of
Series B preferred stock and waived their rights to the unpaid and accumulated
dividends. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG LLP
Melville, New York
August 6, 1999
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 28, 1998 and June 29, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Assets 1998 1997
Current assets:
Cash $ 311,328 68,022
Accounts receivable 16,831 13,287
Notes receivable, current installments 4,080 ---
Inventory 29,397 42,119
Prepaid expenses and other current assets 7,200 23,272
Assets held for sale --- 679,544
Total current assets $ 368,836 826,244
Notes receivable, less current installments 225,920 ---
Property and equipment, net 81,375 1,007,092
Intangible assets, net 30,598 299,102
Other assets 78,443 129,457
---------- ---------
$ 785,172 2,261,895
========== =========
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of notes payable, including amounts
due to related parties of $553,385 and $551,579 at
June 28, 1998 and June 29, 1997, respectively $ 1,282,539 835,335
Accounts payable 1,019,139 280,528
Liabilities related to assets held for sale --- 1,133,257
Accrued expenses 629,414 357,407
Dividends payable 207,636 103,818
Other current liabilities 182,971 218,220
---------- ---------
Total current liabilities $ 3,321,699 2,928,565
---------- ---------
Notes payable, net of current maturities 525,006 545,006
---------- ---------
Total liabilities $ 3,846,705 3,473,571
---------- ---------
Stockholders' deficit:
Preferred stock, Series A, $.10 par value, 5,000,000 shares
authorized, 56,500 issued and outstanding $ 5,650 5,650
Common stock, $.001 par value - 20,000,000
shares authorized, 10,889,285 and 2,650,227 issued and
outstanding, at June 28, 1998 and June 29, 1997, respectively 10,890 2,651
Additional paid-in capital 12,554,618 11,072,857
Accrued dividends (207,636) (103,818)
Accumulated deficit (15,425,055) (12,189,016)
---------- ----------
(3,061,533) (1,211,676)
---------- ----------
$ 785,172 2,261,895
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 28, 1998, June 29,1997, June 30, 1996.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 28, 1998 June 29, 1997 June 30, 1996
<S> <C> <C> <C>
Restaurant sales $ 3,888,643 8,265,474 8,755,565
Less: promotional sales 127,343 413,524 512,756
Net restaurant sales 3,761,300 7,851,950 8,242,809
Costs and expenses:
Cost of food and beverage sales 1,225,982 2,443,860 2,565,905
Restaurant salaries and fringe benefits 1,322,119 2,792,622 3,109,435
Occupancy and related expenses 1,072,796 2,025,198 2,188,444
Depreciation and amortization expense 314,017 726,526 608,260
----------- ---------- ---------
Total restaurant costs and expenses 3,934,914 7,988,206 8,402,044
Selling, general and administrative 1,279,831 2,715,293 2,810,433
Loss on closure of restaurant sites 1,464,756 1,731,842 192,311
and impairment charges
Interest expense 261,276 172,886 108,536
Miscellaneous expenses 56,562 41,580 12,350
----------- --------- ---------
Total expenses 6,997,339 12,649,807 11,525,674
----------- --------- ---------
Net loss before extraordinary item (3,236,039) (4,797,857) (3,282,865)
Gain on early extinguishment of debt --- --- 89,710
Net loss (3,236,039) (4,797,857) (3,193,155)
----------- --------- ---------
Dividends on preferred shares (103,818) (103,818) --
----------- --------- ---------
Net loss available common stockholders (3,339,857) (4,797,857) (3,193,155)
=========== ========== ==========
Net loss per share:
Loss before extraordinary item $ (0.80) (1.85) (1.26)
Extraordinary item --- --- .03
------------ ---------- ----------
Net loss - Basic and diluted $ (0.80) (1.85) (1.23)
=========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding -
Basic and diluted 4,173,985 2,645,335 2,605,808
=========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 28, 1998, June 29, 1997 and June 30, 1996
<TABLE>
<CAPTION>
Additional
Common Common Preferred Preferred Paid-in
Shares Stock Shares Stock Capital
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 2,558,563 $ 2,559 -- 9,279,649
Additional costs from Initial Public Offering -- -- -- (43,239)
Issuance of common stock for
services performed 2,671 3 -- 14,355
Proceeds from issuance of preferred stock -- -- 54,500 5,450 1,123,632
Conversion of debt to equity 82,500 82 -- 329,918
Net loss -- -- -- --
Balance, June 30, 1996 2,643,734 2,644 54,500 5,450 10,704,315
Proceeds from issuance of preferred stock -- -- 2,000 200 49,800
Conversion of debt to equity 6,493 7 -- 24,992
Accrued dividends -- -- -- --
Issuance of warrants for services performed -- -- -- 293,750
Net loss -- -- -- --
Balance, June 29, 1997 2,650,227 $ 2,651 56,500 5,650 11,072,857
Issuance of common stock in connection 2,822,058 2,822 -- 437,419
with acquisition of Ottomanelli Group
Net proceeds from issuance of common 4,480,000 4,480 539,068
stock in connection with private
placement
Conversion of debt to equity 937,000 937 -- 499,063
Issuance of warrants for services performed -- -- -- 25,100
Deferred compensation -- -- -- (18,889)
Accrued dividends -- -- -- --
Net loss -- -- -- --
Balance, June 28, 1998 10,889,285 $10,890 56,500 5,650 12,554,618
========== ======= ====== ===== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Total
Accrued Accumulated Stockholders'
Dividends Deficit Equity
<S> <C> <C> <C>
Balance, June 30, 1995 -- (4,198,004) 5,084,204
Additional costs from Initial Public
Offering -- -- (43,239)
Issuance of common stock for
services performed -- -- 14,358
Proceeds from issuance of preferred stock -- -- 1,129,082
Conversion of debt to equity -- -- 330,000
Net loss -- (3,193,155) (3,193,155)
Balance, June 30, 1996 -- (7,391,159) 3,321,250
Proceeds from issuance of preferred stock -- -- 50,000
Conversion of debt to equity -- -- 24,999
Accrued dividends (103,818) -- (103,818)
Issuance of warrants for services performed -- -- 293,750
Net loss -- (4,797,857) (4,797,857)
Balance, June 29, 1997 (103,818) (12,189,016) (1,211,676)
Issuance of common stock in connection
with acquisition of Ottomanelli Group 440,241
Net proceeds received from issuance of
common stock in connection with private
placement 543,548
Conversion of debt to equity 500,000
Issuance of warrants for services performed -- -- 25,100
Deferred compensation -- -- (18,889)
Accrued dividends (103,818) -- (103,818)
Net loss -- (3,236,039) (3,236,039)
Balance, June 28, 1998 (207,636) (15,425,055) (3,061,533)
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 28, 1998, June 29, 1997 and June 30, 1996
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 28, 1998 June 29, 1997 June 30, 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,236,039) $ (4,797,857) $(3,193,155)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 314,017 797,092 651,597
Loss from fixed asset disposals -- 26,989 --
Gain on early extinguishment of debt -- -- (89,710)
Loss on closure of restaurant sites 1,437,136 1,850,043 190,965
Valuation warrants issued for services 6,211 293,750 --
Issuance of stock in connection with
debt restructuring -- -- 30,000
Issuance of stock in connection with acquisition -- -- --
Debt issued for services provided 50,000 -- --
Stock issued for services provided -- -- 14,358
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 9,832 (50,308) (36,521)
Decrease (increase) in inventory 15,072 27,356 (25,013)
Decrease (increase) in prepaid and other assets 54,550 119,016 (206,384)
Decrease (increase) in assets held for sale 25,000 -- (169,138)
Increase (decrease) in accounts payable and accrued expenses 902,214 (177,779) (334,691)
Increase (decrease) in other liabilities -- 157,016 34,609)
Decrease in liabilities related to
assets held for sale (330,041) -- --
-------- ------- -------
Net cash used in operating activities (752,048) (1,654,066) (3,202,301)
Cash flows from investing activities:
Capital expenditures -- (269,237) (1,769,272)
Payments for acquisitions of leaseholds
and lease costs -- (208,627) (155,924)
Purchase of liquor license -- - (150,000)
------- ------- ----------
Net cash used in investing activities -- (477,864) (2,075,196)
Cash flows from financing activities:
Proceeds from IPO -- -- 7,260,800
Proceeds from issuance of convertible notes -- 500,000 --
Proceeds from private placement 543,548 -- --
Proceeds from issuance of preferred stock -- 1,287,625 (108,543)
Costs of Issuance of Preferred Stock -- -- (108,543)
Proceeds from borrowings 900,000 -- 100,000
Principal repayments of borrowings (448,194) (272,087) (1,275,423)
IPO costs -- -- (43,239)
-------- --------- ---------
Net cash provided by financing activities 995,354 1,515,538 5,933,595
Net increase (decrease) in cash 243,306 (616,392) 656,098
Cash, beginning of period 68,022 684,414 28,316
-------- ------- --------
Cash, end of period $ 311,328 $ 68,022 $ 684,414
======== ======= ========
Cash paid during the period for:
Interest $ 5,263 $ 100,871 $ 221,825
Income taxes $ 9,800 $ 31,963 $ 17,015
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended June 28,1998, June 29, 1997 and June 30, 1996
(1) Description of Business
As of June 28, 1998, The Rattlesnake Holding Company, Inc. and subsidiaries
(collectively, the Company), operated two restaurants in South Norwalk,
Connecticut and Flemington, New Jersey. Company restaurants feature casual
dining utilizing a southwestern theme.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The consolidated financial statements have
been presented on a historical cost basis for the consolidated statements of
operations. All significant inter-company balances and transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
However, due to the matters discussed below, its continuation as a going concern
can not be reasonably assured.
The Company has incurred aggregate losses since inception of $15,425,055,
inclusive of a net loss in fiscal 1998 of $3,236,039. Based upon interim
financial information prepared by management, the Company has continued to incur
losses in fiscal 1999. Additionally, $303,749 of Series C subordinated notes
payable matured on August 6, 1997, of which noteholders with principal balances
aggregating $62,499 extended the repayment date to December 15, 1997, $100,000
convertible subordinated notes payable matured September 4, 1997, $425,000 note
payable matured on January 2, 1997, $11,709 note payable matured in February
1998, $220,000 note payable matured on December 31, 1997, $100,000 notes payable
matured on May 31, 1998, $50,000 note payable matured on May 31, 1998, and a
$2,089 subordinated note payable matured on August 6, 1996, such obligations
aggregating $1,212,547 and all of which are in default as of June 28, 1998.
Additionally, $207,636 of accumulated dividends on Series A Preferred Stock were
also past due and unpaid.
<PAGE>
Management of the Company is completing its Cost Reduction Plan, which
includes a further reduction in workforce and continuation of the closure of
unprofitable restaurants in fiscal 1998. Such plan included the closing and sale
of the Yorktown Heights, White Plains, New York, Fairfield, Connecticut and
Lynbrook, New York locations, as well as the sale of its New York City property.
As indicated in note 4, the Company performed an analysis of its remaining
restaurants and identified the Flemington restaurant as non-performing. The
restaurant was subsequently closed in fiscal 1999. Subsequent to the completion
of the private placement which effectively satisfied all short and long-term
debt that was in default (note 18), the Company has assembled a new management
team and developed a new restaurant theme which will be introduced at the
recently reacquired Danbury, Connecticut location.
Management believes that the finalization of its cost reduction plan and
its approximately $6,000,000 private placement financing will enable the Company
to achieve profitable operations and restore liquidity. However, no assurance
can be made regarding the achievement of the goals outlined in the strategic
plan as outlined above, or if such plans are achieved, that the Company's
operations will be profitable.
(b) Reporting Periods
On April 2, 1996, the Board of Directors approved a change, effective July
1, 1996, in the Company's accounting reporting period to a 52 week cycle ending
on the last Sunday in June. On May 12, 1998, the Board of Directors approved a
further change of its fiscal year to June 30, effective for fiscal 1999.
(c) Accounts Receivable
Accounts receivable consist principally of bank credit card accounts
receivable.
(d) Inventories
Inventories consist primarily of restaurant food items and supplies and are
stated at the lower of cost or market value. Cost is determined using the
first-in, first-out method.
(e) Pre-Opening Costs
Certain costs relating to hiring and training of employees prior to the
opening of new restaurants are capitalized and amortized over a twelve month
period commencing upon restaurant opening. At June 28, 1998 and June 29, 1997,
there were no unamortized pre-opening costs.
(f) Net Assets Held for Sale
Pursuant to a restaurant lease agreement, the Company exercised its option
to purchase the facility for $425,000. This transaction was financed by a
related party shareholder through a 15% short-term note payable (note 9). In
addition, the related party shareholder received 50,000 warrants at an exercise
price equal to the market price at the date of the grant. The restaurant
facility at this location was closed on January 4, 1997. The building was being
held for sale and was classified in the 1997 financial statements as net assets
held for sale, net of an additional $100,000 writedown (note 4). During fiscal
1998, the Company sold this property for $350,000.
<PAGE>
At June 29, 1997, the Company recorded $679,544 of net assets held for
sale. This balance represents $335,986 of assets which were sold on July 16,
1997, $25,000 of assets from a restaurant facility which was closed September
17, 1997 and $318,558 relating to a building as discussed above.
(g) Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated
primarily on the straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the estimated
useful life or the lease term of the related asset. The estimated useful lives
are as follows:
Artifacts 3-years
Original small wares 3 years
Furniture and fixtures 5 years
Restaurant and office equipment 7 years
Leasehold improvements 3-15 years
Building 40 years
(h) Intangible Assets
Intangible assets consist principally of costs to acquire leased
facilities. These costs are amortized over the life of the related lease,
generally 3 to 15 years. Accumulated amortization at June 28, 1998 and June 29,
1997 was $69,942 and $107,950, respectively. Amortization expense was $44,501,
$201,377 and $227,847 for the years ended June 28, 1998, June 29, 1997 and June
30, 1996, respectively. In connection with the Flemington location, the Company
wrote off approximately $258,490 in leasehold and related costs, net of
accumulated amortization of $48,012 in fiscal 1998. In connection with the
Danbury location, the Company wrote off approximately $41,285 in leasehold and
related costs, net of accumulated amortization of $29,023 in fiscal 1998. In
connection with the closing of the Fairfield, White Plains, Yorktown Heights,
Lynbrook and 86th Street locations, the Company wrote off approximately
$1,239,000 in leasehold and related costs, net of accumulated amortization of
$494,541 in fiscal 1997. In connection with the closing of the Hamden location,
the Company wrote off approximately $65,000 in leasehold and related costs, net
of accumulated amortization of $21,672 in fiscal 1996.
As a result of the fiscal 1998 acquisition of the Ottomanelli Group (note
4), goodwill of $436,383 was recorded. Upon further analysis, the operations of
the former Ottomanelli Group were deemed inconsistent with the Company's
operating plans, were authorized to be terminated in fiscal 1998 and the
restaurants were closed in August 1998. Accordingly, the Company concluded that
the goodwill was impaired and recorded an impairment charge in the 1998
consolidated statement of operations.
<PAGE>
(i) Other Assets
The Company utilizes an outside service to provide financing and
promotional activities. The costs relating to these activities are capitalized
and are being amortized over the repayment period.
(j) Financial Instruments
Management of the Company believes that the book value of its monetary
assets and liabilities, exclusive of long-term debt, approximates fair value as
a result of the short-term nature of such assets and liabilities. Management
further believes that the fair market value of long-term debt does not differ
materially from carrying value.
(k) Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of
Effective July 1, 1996, the Company adopted "Statement of Financial
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No.121
requires, among other things, that long-lived assets held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
SFAS No.121 on July 1, 1996 did not have a material impact on the Company's
consolidated financial position or results of operations (note 4).
(l) Accounting for Stock-Based Compensation
Effective July 1, 1996, the Company adopted SFAS No.123 "Accounting for
Stock-Based Compensation", which encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation under the existing accounting rules contained in Accounting
Principles Board Opinion No.25, "Accounting for Stock Issued to Employees", and
related interpretations, but has provided disclosures of stock-based
compensation expense determined under the fair value provisions of SFAS No.123.
(m) Advertising Expense
Advertising costs are expensed as incurred. Advertising expenses were
$15,500, $128,736 and $258,969, in 1998, 1997 and 1996, respectively.
(n) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Dilutive earnings per share is calculated in a
manner similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement 128 requirements (note 17).
<PAGE>
(o) Comprehensive Income
Effective for fiscal 1998, the Company has adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income", which requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. The Company has no activities which
represent items of other comprehensive income and, accordingly, the adoption of
SFAS No. 130 did not have a material effect in the Company's consolidated
financial statements.
(p) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amount of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
(3) Acquisition
On August 21, 1997, the Company signed a Reorganization and Stock Exchange
Agreement with the Ottomanelli Group, which was later amended pursuant to a
Modification Agreement dated February 26, 1998 and the transaction closed in
March 1998.
After amendment to the transaction, the Ottomanelli Group transferred the
stock of (i) a franchising corporation which has limited operations and (ii) a
corporation which operated two restaurants in Paramus, New Jersey (since closed
- - note 4), for a total of 2,822,058 shares of common stock with a fair value
determined by an independent appraisal of approximately $440,000. The Agreement
also contains certain anti-dilution provisions (note 18). The acquisition was
accounted for as a purchase transaction, and, accordingly, the purchase price
was allocated to identifiable assets and liabilities based upon their fair
values at the date of acquisition. The excess of the aggregate purchase price
over the fair value of the net assets acquired was recorded as goodwill and
amortizable over the period to be benefitted, fifteen years.
As indicated in note 4, Company management concluded that upon further
analysis, the operations of the former Ottomanelli Group were deemed
inconsistent with the Company's operating plans and were authorized to be
terminated. Accordingly, the Company concluded that the goodwill was impaired
and recorded an impairment charge in the 1998 consolidated statement of
operations.
The Company's 1998 financial statements contain approximately three months
of operations of the Ottomanelli Group. Pro-forma data has not been provided as
they were deemed immaterial to the operations of the Company by management.
<PAGE>
(4) Closure of Restaurant Sites
In fiscal year 1996, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Hamden, Connecticut. The
facility was closed on January 7, 1996. A majority of the fixed assets at the
facility were removed to be utilized at other existing or new facilities. All
remaining fixed assets and leasehold improvements have been abandoned and all
intangible assets have been written off. A loss of $192,311, relating to the
closing of the Hamden location, was recorded in fiscal 1996.
In fiscal 1997, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Fairfield, Connecticut. The
facility was closed on January 4, 1997. The fixed assets, leasehold improvements
and intangibles at the facility were written off. The building is reflected at
its estimated realizable value and was accounted for in the financial statements
in "net assets held for sale. A net loss of $394,941 relating to the closing of
the Fairfield location was recorded in fiscal 1997. In March 1998, this location
was sold with the Company receiving a $230,000 note from the purchaser (note 5).
Pursuant to the finalization of the terms of sale, an additional loss of $88,559
was recorded in fiscal 1998.
In fiscal 1997, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in White Plains, New York. The
facility was closed on March 1, 1997 and sold on July 16, 1997. The Company
recorded a loss of $224,135 related to the closing of this location in 1997. The
Company sold all of the assets of White Plains except for cash, receivables and
certain items specified in the Asset Purchase Agreement in exchange for a
release from its note payable to the landlord of $276,499, the purchaser's
assumption of food credits and other miscellaneous liabilities and the receipt
of a $23,500 note receivable from the purchaser. The facility was sold to a
group which includes the Company's Chairman of the Board and the Company is a
guarantor of the remaining lease obligation (note 13).
In fiscal 1997, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Yorktown Heights, New York.
The facility was closed on June 9, 1997 and sold on June 27, 1997. The purchaser
assumed the remaining outstanding balance of the notes payable to the landlord
and the related lease obligation. A net loss of $362,091, relating to the
closing of the Yorktown Heights location, was recorded in fiscal 1997.
The Restaurant location on 86th Street in New York was never opened and on
May 29, 1997 the Company sold the fixed assets and transferred its interest in
the lease at that location for cash of $289,387. The Company continues to
guarantee the lease obligation (note 13). A net loss of $306,456, relating the
sale of the 86th Street location, was recorded in fiscal 1997.
In fiscal 1997, the Board of Directors authorized the disposition of the
Rattlesnake Southwestern Grill Restaurant located in Lynbrook, New York. On
September 17, 1997, the Company closed the restaurant and wrote-off the related
assets to its estimated realizable value. A net loss of $374,852 relating to the
closing of this location was recorded in fiscal 1997. An additional loss of
$55,725 was recorded in fiscal 1998 relating to the Lynbrook facility,
principally relating to additional exit costs.
<PAGE>
At June 29, 1997, consistent with the Board's approval for the closure of
the above-mentioned locations, the assets held for sale and related liabilities
have been reclassified as "assets held for sale" and "liabilities related to
assets held for sale". The accompanying June 29, 1997 consolidated balance sheet
includes the following components: 1997
Fairfield restaurant facility $ 318,558
White Plains restaurant facility 335,986
Lynbrook equipment 25,000
-------
Assets held for sale $ 679,544
=======
Notes payable 702,914
Accounts payable 185,555
Accrued expenses 47,759
Other current liabilities 197,029
-------
Liabilities related to assets held for sale $1,133,257
=========
As indicated in notes 2 and 3, Company management concluded that the
operations of the former Ottomanelli Group were inconsistent with the Company's
operating plans and were authorized to be terminated in fiscal 1998, including
the operations of its two New Jersey restaurants. Accordingly, the Company
concluded that the goodwill relating to the acquisition was impaired and
recorded an impairment charge of approximately $436,000 in fiscal 1998.
On June 22, 1998, the Company closed its Danbury, Connecticut facility and
subsequently lost its tenancy pursuant to a foreclosure action. Accordingly, the
Company recognized a loss of $270,426 in fiscal 1998 relating to the closure.
On April 15, 1999, the Company subsequently reacquired the facility for
$1,350,000 in cash (note 18).
In fiscal 1998, the Company performed a further analysis of historical and
projected operating results, which reflected a pattern of historical operating
losses and negative cash flow, as well as future projected negative cash flow
and operating results for fiscal 1999 for its Flemington restaurant.
Accordingly, the Company recorded an impairment charge for this restaurant to
write-down the impaired asset of $558,282 in fiscal 1998. The restaurant was
subsequently closed in November 1998.
<PAGE>
(5) Note Receivable
At June 28, 1998, a $230,000 note receivable is outstanding relating to the
sale of the Company's Fairfield, Connecticut facility. The note bears interest
at 7%, is secured by a leasehold mortgage on the restaurant, with stipulated
monthly payments of principal and interest and a balloon payment due in March
2003.
As indicated in note 18, the note receivable was assigned to a related
party in partial satisfaction of the Company's indebtedness to that party.
(6) Property and Equipment
Property and equipment consists of the following:
June 28,1998 June 29, 1997
------------ -------------
Leasehold improvements $ 100,047 783,415
Restaurant and office equipment 110,578 457,378
Furniture and fixtures 31,425 301,578
242,050 1,542,371
Less accumulated depreciation
and amortization (160,675) (535,279)
-------- --------
$ 81,375 1,007,092
======== ========
Related depreciation and amortization expenses were $269,516, $478,611 and
$334,695 for the year ended June 28, 1998, June 29, 1997 and June 30, 1996,
respectively.
(7) Other Assets
Other assets consist of the following:
June 28, 1998 June 29, 1997
------------- -------------
Promotional meal programs 76,738 71,071
Deposits 1,704 47,779
Loans receivable --- 10,607
------ ------
$ 78,442 129,457
======== ========
<PAGE>
(8) Capital Structure
The Company's capital structure is as follows:
<TABLE>
<CAPTION>
Shares
Par value Authorized June 28, 1998 June 29, 1997
<S> <C> <C> <C> <C>
Common stock $.001 per share 20,000,000 10,899,285 2,650,227
Preferred stock, Series A $.10 per share 5,000,000 56,500 56,500
</TABLE>
The Company's preferred stock bears a dividend rate of 7-1/2% per annum
payable semi-annually in arrears on May 15 and November 15 of each year
commencing November 15, 1996. The shares are convertible at any time, one year
after issuance into common stock at a conversion price equal the lesser of (i)
120% of the average of the last reported sale price of the common stock for the
10 trading days immediately preceding the first closing of the offering, or
$4.50, whichever is lower; or (ii) 85% of the average of the last reported sale
price of the common stock for the 10 trading days immediately preceding the
first anniversary of the first closing, subject to certain anti-dilution
adjustments. The Board of Directors has the authority to establish the specific
provisions of the preferred stock, i.e., liquidation rights, dividend
parameters, at the date of issuance.
The preferred stock is redeemable only at the option of the Company,
commencing one year from the date of issuance, based upon the sales price of the
Company's common stock. The preferred stock has a liquidation preference of
$24.50 per share, together with accrued and unpaid dividends. The Board of
Directors has the authority to establish the specific provisions of the
preferred stock, i.e., liquidation rights, dividend parameters, at the date of
issuance.
To date, the Board of Directors have not declared any dividends, although
cumulative dividends relating to the preferred stock of $207,636 have been
accrued in the June 28, 1998 consolidated balance sheet.
In July 1999, the Company completed a private placement of approximately
$6,000,000 of Series B preferred stock. Coincident with the private placement,
the holders of 56,500 shares of Series A preferred stock exchanged their
holdings for 55,370 shares of Series B preferred stock and waived their rights
to the unpaid and accumulated dividends.
In February 1999, the holders of a majority of the issued and outstanding
shares of the Company's common stock, by written consent in lieu of a meeting
pursuant to Section 228 of Delaware's General Corporation Law, adopted an
amendment to the Company's Certificate of Incorporation, increasing the
Company's capitalization. As a result of this amendment to the Certificate of
Incorporation, the Company is authorized to issue a total of 405,000,000 shares,
of which 400,000,000 are shares of common stock and 5,000,000 shares of Series B
preferred stock.
<PAGE>
(9) Notes Payable
Notes payable consists of the following:
<TABLE>
<CAPTION>
June 28, 1998 June 29, 1997
<S> <C> <C>
Series A subordinated notes payable due August 6, 1996,
with interest at 9% 2,089* $2,089
Series B convertible subordinated notes payable due
July 7, 2000 with interest at 9%, convertible at
$3.85 per share (including $58,338 held by a
related party) 500,000 500,000
Note payable to shareholder relating to the acquisition
of Pen-Z Corp., payable in monthly payments of $2,700
at June 30, 1996 with interest at 1% over prime (9.25%
at June 30, 1996). The Company was released from this
debt in fiscal year 1997 as a result of the sale of this
location (note 4) --- 225
Series C subordinated notes payable due August 6, 1997,
with interest at 15% (including $58,338 held by a related party) 303,749* 303,749
Convertible subordinated notes payable due September 4,
1997, with interest at 18% 100,000* 500,000
Note payable to related party relating to the
acquisition of the Fairfield building, due January 2,
1997 with interest at 15% 425,000* 425,000
Note payable to a related party, due in monthly
installments of $1,270, including principal and
interest at 18% through February 1998 11,709* 9,505
Note payable to a stockholder relating to purchase of
furniture and equipment for the Penz Corp., due in
monthly installments of $900 at June 30, 1996 including
principal and interest at prime plus 1% through 2009. The
Company was released from this debt in fiscal year
1997 as a result of the sale of this location (note 4) --- 173
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Notes payable relating to bridge financing, due
December 31, 1997 with interest at 10% and a default 220,000* -
interest rate of 14% for $120,000 of principal
Notes payable relating to bridge financing due May 31,
1998 with interest of 14%. 100,000* -
Note payable to investment banking firm due May 31,
1998 with interest at 8%. 50,000* -
Note payable to relating to bridge financing due October
31, 1998 with interest at 16%. 50,000 -
Note payable relating to acquisition of lease, due
in monthly installments of $2,867, including principal
and interest at 8% through July 2010. The Company was
released from this debt in fiscal 1998 as a result
of the sale of the location (note 4) --- 277,516
Notes payable relating to acquisition of lease, due in
monthly installments of $1,666 of principal plus interest
at 1% over prime (9.5% at June 29, 1997 through September 1, 2000) 44,998 64,998
--------- ---------
$1,807,545 2,083,255
Less: Current maturities 1,282,539 835,335
Less: Liabilities relating to assets held for sale --- 702,914
$ 525,006 $ 545,006
========= =========
</TABLE>
*Obligation in default at June 28, 1998
Notes payable to shareholders and other related parties (Company officers
and directors) were $553,385 and $551,579 at June 28, 1998 and June 29, 1997,
respectively.
At June 28, 1998, notes payable aggregating $1,212,547 were unpaid and in
default. Additionally, interest payments on these obligations were also not paid
in fiscal 1998. As indicated in note 18, in July 1999 the Company utilized the
proceeds of a private placement to pay $639,000 of notes payable and $860,000 of
notes payable converted their obligations into Series B preferred stock,
inclusive of Series B convertible notes payable not in default at year-end.
<PAGE>
Maturities of these notes is as follows:
Fiscal year ended:
1999 $1,282,539
2000 19,992
2001 and Thereafter 505,014
---------
$1,807,545
==========
(10) Financing Arrangements
In July 1995, the Company redeemed $225,000 of the Series A notes and
restructured the remaining principle amount outstanding of $1,575,000. This
redemption was partially funded by a $50,000 note payable issued in June 1995 by
the Company, with interest at 9%, and repaid in July 1995, together with 10,000
shares of common stock, valued at the IPO price of $5.50 per share. The value of
the common stock was recorded as interest expense by the Company. Each $25,000
principal amount of Notes was exchanged as follows: (i) $8,334 paid in August
and September 1995 (the "First Payment"); and (ii) a 9% $8,333 Series A Note
(the Series A Notes) due 13 months after the first payment, and a 9% $8,333
Series B Note (the Series B Notes) due five years after the first payment was
issued to each Noteholder with the First Payment. Each Series B Note is
convertible into common stock thirteen months after issuance at a conversion
price equal to 70% of the initial public offering price of the common stock
sold, with piggy-back registration rights for the shares underlying the Series B
Notes. Each Series B Note is redeemable with 30 days prior written notice at any
time after the closing bid price of the common stock is 150% of the conversion
price for the ten consecutive trading days ending within 15 days of the date of
notice of redemption. As a result of the restructuring of this debt, the related
debt issuance costs were written off in July 1995. An extraordinary gain of
$89,710, net of the write-off of $72,114 debt issuance costs was recognized in
fiscal 1996.
In fiscal 1997, the Company offered an extension agreement to the Series A
noteholders, providing for a one year extension of the maturity date, in
exchange for Series C notes that provided for an increase in the interest rate
from 9% to 15% and one warrant for every dollar of indebtedness. The warrants
provide for exercise prices ranging between $2.50 - $3.00 and expire on August
6, 2001. Noteholders aggregating $303,749 accepted the terms of the extension
and the remaining $221,243 was paid in cash. At June 28, 1998, the $303,749 was
unpaid and in default (note 18).
In March 1996, the Company entered into an agreement with an investment
banking firm to sell 200,000 shares of Series A preferred stock and 800,000
common stock warrants in a private placement for a total consideration of
$5,000,000. The preferred stock was valued at $24.50 per share and each warrant
at $.125 per warrant. The warrants are exercisable at a price of $7.00 per share
and expire on August 31, 2001. On June 30, 1996, the Company closed on the sale
of 54,500 shares of the aforementioned Series A preferred stock and 218,000
common stock purchase warrants. The underwriter received warrants to purchase
27,250 shares of common stock at $3.78 per share which expire on August 31,
2001. The net proceeds of the offering were $1,129,082, net of commissions and
expenses of $233,418. In July 1996, the Company sold to an outside investor,
through a separate offering, an additional 2,000 shares of preferred stock under
the same terms as noted above.
On March 4, 1997, the Company entered into a private financing arrangement
for $500,000 of convertible subordinated notes. The notes are payable on
September 4, 1997. The principal amount of the Notes may be converted into the
Company's common stock at a conversion price of $0.75 per share anytime before
the repayment of principal. The notes are fully subordinated to all "senior
indebtedness" of the Company and are secured by all the issued and outstanding
shares of the Company's wholly-owned subsidiaries: Rattlesnake Ventures, Inc.,
Rattlesnake-Danbury, Inc., Rattlesnake-Flemington, Inc. and
Rattlesnake-Lynbrook, Inc. The notes matured on September 4, 1997 and $400,000
was paid in fiscal 1998. The remaining $100,000 was in default on June 28, 1998
(note 18).
<PAGE>
A $425,000 note payable associated with the acquisition of the Fairfield
restaurant matured on January 2, 1997. The restaurant was sold on March 24, 1998
and the note was restructured to provide for interest payments of $5,500.44
monthly through June 24, 1998, with the remaining principal and any unpaid
interest due on June 24, 1998. The obligation was unpaid and in default on June
28, 1998 (note 18).
In September 1997, the Company completed a bridge financing under which it
sold units consisting of notes and warrants totaling $250,000, which were due
December 31, 1997. Each full unit consisted of (i) the Company's ten percent
(10%) promissory note in the principal amount of $50,000 (the "Note"), and (ii)
upon repayment of the Note, one four-year warrant for each dollar of financing
provided herewith, at the rate of one warrant convertible into one share of the
Company's common stock at the average bid price on the day of the receipt of the
financing. The Company made principal payments of $30,000 in fiscal 1998 and the
remaining $220,000 was outstanding and in default at June 28, 1998 (note 18).
On September 8, 1997, the Company repriced warrants issued to three Series
C note holders with principal aggregating $62,499 in return for extension of the
re-payment period to December 15, 1997. The noteholders received 30,000 warrants
as a result of the Company's failure to satisfy the debt on July 15, 1997.
On December 8, 1997, the Company entered into a refinancing arrangement in
which it raised $500,000 in a convertible note. $400,000 of the proceeds were
utilized to reduce the 18% convertible subordinated notes due September 4, 1997.
The remaining $100,000 was outstanding at June 28, 1998 and is in default (note
18). In March 1998, the December 1997 note was satisfied by conversion into
937,000 shares of the Company's common stock.
Between March 1998 and September 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share. As of June 28,
1998, the Company had sold 4,480,000 shares of common stock and received
proceeds of $543,548, net of expenses.
In fiscal 1998, the Company entered into private financing arrangements to
provide an aggregate of $150,000 of bridge financing at interest rates ranging
from 14% to 16%, payable on dates ranging between May 31, 1998 and October 31,
1998. At June 28, 1998, $100,000 of the debt was unpaid and in default.
In 1998, the Company executed a $50,000 convertible note agreement with an
investment banking firm for services rendered. The note is convertible into
250,000 shares of common stock, bears interest at 8% and matured on May 31,
1998. The note was in default on June 28, 1998 and was subsequently satisfied by
conversion into equity (note 18).
<PAGE>
(11) Accrued Expenses and Other Liabilities
(a) Accrued Expenses
Accrued expenses consist of the following:
June 28, 1998 June 29, 1997
Interest payable $ 424,610 166,515
Severance liabilities --- 80,696
Other 152,664 57,867
Accrued payroll 52,140 52,329
-------- --------
$ 629,414 357,407
======== ========
(b) Other Liabilities
The Company has entered into marketing agreements whereby it receives
temporary financing in exchange for participating in discounted price meal
programs. At June 28, 1998 and June 29, 1997 , the balances outstanding under
this program were $182,971 and $218,220, respectively, which are included in
other liabilities in the accompanying consolidated balance sheets.
(12) Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No.109, "Accounting for Income Taxes".
SFAS 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
There was no income tax expense for any period presented due to losses
incurred by the Company. Components of the deferred tax assets and deferred tax
liabilities at June 29, 1997 and June 30, 1996 are presented below:
<PAGE>
<TABLE>
<CAPTION>
June 28, 1998 June 29, 1997
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forward $5,584,600 4,349,000
Fixed Assets 15,324 ---
---------- ---------
Total gross deferred tax assets 5,599,924 4,349,000
Less valuation allowance 5,599,924 4,336,000
---------- ---------
Net deferred tax assets --- 13,000
Deferred tax liabilities:
Fixed Assets --- 13,000
---------- ---------
Net deferred tax liability $ --- ---
========== =========
</TABLE>
The valuation allowance for deferred tax assets as of June 30, 1997 and
July 1, 1996 was $5,599,924 and $4,336,000, respectively. The change in the
total valuation allowance for the years ended June 28, 1998 and June 29, 1997
was $1,263,924 and $1,986,000, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the net operating losses and
temporary differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment. At June
28, 1998 and June 29, 1997, the Company has net operating loss carry forwards
for Federal and State income tax purposes of approximately $13,962,000 and
$10,873,000, respectively (the NOL carry forwards), which are available to
offset future taxable income, if any, through 2013. Based upon the limited
operating history of the Company and losses incurred to date, management has
fully reserved the deferred tax asset.
In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, as it applies to the NOL carry forwards, a change in more than 50% in
the beneficial ownership of the Company within a three-year period (an
"Ownership Change") will place an annual limitation on the Company's ability to
utilize its existing NOL carryforwards to offset United States Federal taxable
income in future years. Generally, such limitation would be equal to the value
of the Company as of the date of the Ownership Change multiplied by the Federal
long-term tax exempt interest rate, as published by the Internal Revenue
Service. The Company believes that Ownership Changes have occurred and would
cause the annual limitations as described above to apply. The Company has not
determined what the maximum annual amount of taxable income is that can be
reduced by the NOL carryforwards.
<PAGE>
(13) Commitments
Commitments
The Company's operations are principally conducted in leased premises.
Remaining lease terms range through 2002 and include options for extension. The
leases contain contingent rental provisions based upon a percentage of gross
sales. As of June 29, 1998, the Company has operating lease commitments as
follows, for its Flemington and South Norwalk restaurants:
1999 128,000
2000 128,233
2001 130,800
2002 126,600
2003 13,400
-------
$ 527,033
=======
Certain shareholders and former officers have personally guarantee lease
payments for one location.
Pursuant to sales agreements for the Company's New York City and White
Plains, New York restaurants (note 4), the Company guarantee specified lease
obligations. As of June 28, 1998, the Company has not been notified of any
claims against these guarantees.
The Company is also a defendant in litigation regarding lease guarantees
for its former Lynbrook, New York facility (note 16).
Contingent rental payments on building leases are typically made based on
the percentage of gross sales on the individual restaurants that exceed
predetermined levels. The percentage of gross sales to be paid and related gross
sales level vary by unit. There were no contingent rental payments in any of the
periods presented.
Rent expense was $426,923, $930,676 and $677,877 for the periods ended June
28, 1998, June 29, 1997 and June 30, 1996, respectively.
(14) Employee Benefit Plans
(a) Stock Option Plan
In December 1994, the Company adopted the 1994 Employees Stock Option Plan
(the Employees Plan), which provides for the issuance of incentive stock options
(ISO's) and non-qualified options (Non-ISO's) to officers and key employees. Up
to 1,000,000 shares of the Company's common stock have been reserved for
issuance under the Plan. The Plan is currently administered by the Board of
Directors of the Company. The term of the options is generally for a period of 5
<PAGE>
years. The exercise price for non-qualified options outstanding under the
Employees Plan can be no less that 100% of the fair market value, as defined, of
the Company's common stock at the date of the grant. For ISO's, the exercise
price can be generally no less than the fair market value of the Company's
common stock at the date of the grant, with the exception of any employee who
prior to the granting of the option, is a 10% or greater stockholder as defined,
for which the exercise price can be no less than 110% of the fair market value
of the Company's common stock at the date of grant.
In December 1994, the Company adopted the non-Executive Director Stock
Option Plan (the Director Plan), which provides for the issuance of non-ISO's to
non-executive directors, as defined, and members of any advisory board
established by the Company who are not full-time employees of the Company. The
Company has reserved 500,000 shares for issuance under the provisions of the
Director Plan. The Director Plan provides that each non-executive director will
automatically be granted an option to purchase 25,000 shares upon joining the
Board of Directors and 15,000 shares on each December 1st thereafter, provided
such person has served as a director for the 12 months immediately prior to such
December 1st. The exercise price for options granted under the Director Plan
shall be 100% of the fair market value of the Common Stock on the date of grant.
At June 28, 1998, there were 1,000,000 and 295,000 additional shares
available for grant under the Employees and Director Plans, respectively. The
per share weighted-average fair value of stock options granted during 1997 and
1996 was $0.51 and $1.22, respectively for those options whose exercise price
equaled the market price of the stock on the date of grant and $.05 and $0,
respectively for those options whose exercise price was above the market price
of the stock on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 1997 and 1996 - expected
dividend yield 0%, risk-free interest rate of between 5.07% and 5.86%, an
expected life of between approximately 2.5 - 5 years and expected stock
volatility of between 38 - 130%. There were no shares granted in 1998.
The Company applies APB Opinion No.25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its employees and
directors stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No.123, the Company's net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net loss available to common
shareholders: As reported $ (3,339,857) (4,901,675) (3,193,155)
Pro-forma $ (3,422,957) (5,371,634) (3,403,118)
Loss per share: As reported $ (0.80) (1.85) (1.23)
Pro-forma $ (0.82) (2.03) (1.31)
</TABLE>
Pro forma net loss reflects only options and warrants granted in 1997 and
1996. Therefore, the full impact of calculating compensation cost for stock
options and warrants under SFAS No.123 is not reflected in the pro forma net
income amounts presented above because compensation cost for options and
warrants granted prior to July 1, 1995 were not considered.
Activity in non-ISO's was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Price Exercise
of Shares per Share Price
<S> <C> <C> <C>
Options outstanding June 30, 1995 600,000 $ 4.50 $ 2.63
Options Granted 124,000 5.25 3.06
------- --------- ----
Options outstanding June 30, 1996 724,000 4.50-5.25 4.25
Options Granted 396,000 0.25-2.25 .44
Terminated Options (427,000) .375-5.25 3.21
------- --------- ----
Options outstanding June 29, 1997 693,000 $0.25-5.25 $ 3.11
Options Granted --- --- ---
Terminated Options (488,000) 0.25-5.25
------- --------- ----
Options outstanding June 28, 1998 205,000 $4.50-5.25 4.88
======= ========= ====
</TABLE>
Activity in ISO's was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Price Exercise
of Shares per Share Price
<S> <C> <C> <C>
Options outstanding June 30, 1995 87,000 $4.50-5.50 $ 2.41
Options Granted 78,500 3.50-5.25 2.99
Terminated Options (36,000) 4.50 2.91
------- --------- ------
Options outstanding June 30, 1996 129,500 3.50-5.50 4.14
Options Granted 44,000 0.25-2.63 3.53
Terminated Options (70,000) 2.50-5.25 3.62
------- --------- ------
Options outstanding June 29, 1997 103,500 $0.25-5.50 5.35
Options Granted --- --- ---
Terminated Options (103,500) $0.25-5.50 5.35
--------- --------- ------
Options outstanding June 28, 1998 --- --- ---
========= ========= ======
</TABLE>
The Employees and Director Plans expire in December 2004, unless terminated
earlier by the Board of Directors under conditions specified in the respective
Plans. No options have been exercised as of June 28, 1998, June 29, 1997 and
June 30, 1996.
At June 28, 1998, the range of exercise prices and range of the remaining
contractual life of outstanding options was $4.50 - 5.25 and approximately 1.5 -
2.5 years, respectively.
At June 28, 1998, June 29, 1997 and June 30, 1996, the number of options
exercisable was 205,000, 653,500, and 346,167, respectively, and the
weighted-average exercise price of those options was $4.88, $3.40, and $4.24,
respectively.
<PAGE>
The Company granted 335,000 shares of restricted warrants to employees and
directors during the 1997 fiscal year. The warrants were granted on June 2,
1997; 200,000 as a result of the separation agreement signed between the Company
and the Executive Vice President (note 13(c)) and 135,000 shares of options
previously issued to the Vice President of Finance which were terminated as of
this date and warrants were issued in their place with the exercise price equal
to the market price of the stock on the date of grant.
The Company granted 717,992 shares of warrants to non-employees during 1997
for services performed. The total compensation cost recognized in fiscal 1997
for these stock-based compensation awards was approximately $294,000 using the
Black Scholes option-pricing model with the following assumptions - expected
dividend yield 0%, risk-free interest rate of 5.25%, expected life of 5 years
and expected stock volatility of 86%.
(b) Employment Agreements
The Company and its Chairman, President and Executive Vice President
(collectively, the Senior Management Group) entered into employment agreements
in December 1994 for a period commencing in December 1994 through December 1997.
The agreements provide for annual compensation for the Senior Management Group
collectively of $250,000, increasing by 10% annually, plus certain other
benefits. The agreements also provide for annual aggregate incentive
compensation for the Senior Management Group, as defined.
The agreements also provide that upon a change in control, as defined, that
all stock options held by the employee become immediately exercisable and that a
credit equivalent to three times the employee's annual compensation be credited
against the exercise price of the options.
On June 6, 1996, the board of directors authorized additional compensation
aggregating $70,000 for the aforementioned executive officers.
The Company and its Vice-Chairman & Chief Administrative Officer entered
into a part-time employment agreement in December 1995 for a period commencing
December 1995 through December 1998. The agreement provides for annual
compensation of $90,000 increasing 10% per annum, plus certain other benefits.
An additional $20,000 was paid for services rendered in fiscal 1996 provided
over and above the part-time agreement. The employee is also entitled to receive
a bonus during each year of this agreement, determined by the Board of
Directors. The Board of Directors and/or the Compensation Committee shall set
forth a formula for determining the bonus for each year.
On March 15, 1997 an agreement was signed between the Company and Vice
Chairman & Chief Administrative Officer which amended the December 1995
employment agreement. Under the new agreement, the former Vice Chairman & Chief
Administrative Officer will accept the position of Acting Co-Chief Executive
Officer. This agreement waives any base rate or annual rate increases per the
previous agreement and modified the term to March 1, 1997 through February 28,
1999. Services are provided on a part-time consulting basis. The compensation
for the period March 1, 1997 through February 28, 1999 will be $75,000, plus
benefits. This agreement also included the grant of an option to purchase
125,000 shares of stock at the closing price on the date of this agreement. The
agreement also includes that in the event the stock options previously granted
under the current Company stock option plans are repriced for any employee, the
existing stock option grants for the acting Co-CEO will be repriced at the same
time as any repricing and under the same terms and conditions. No such options
were repriced and the agreement was replaced with a May 1998 consulting
agreement (note 15).
<PAGE>
Subsequent to June 1998, the Company entered into a three year employment
agreement, as amended, with the Chief Financial Officer providing for fixed
compensation of $52,000 in year one, with a time allowance in year one to
complete certain projects and commercially standard compensation for full time
services to be determined for years two and three. The executive has also been
granted options to purchase common stock as follows: 100,000 vesting at close of
year one; 100,000 vesting at close of year two; 100,000 vesting at close of year
three at the exercise price of $.05, the fair value at the date of grant, with
additional options to purchase 200,000 shares exercisable at the close of each
of years two and three.
In October 1998, the Company entered into a three year employment agreement
with an individual to act as President and/or Chief Executive Officer and as a
member of the Board of Directors of the Company, effective upon the completion
of the private placement in February, 1999. In consideration, the employee is to
receive a monthly fee of $7,917 plus reasonable expenses and a $30,000 sign-on
bonus. In addition, the employee shall be entitled to a performance bonus and
shall receive a warrant to purchase an amount of Common Stock equal to ten (10%)
of the outstanding common stock of the Company, on a fully diluted basis, after
the private placement financing at $0.05 per share, the fair value at the date
of grant, exercisable for a period of five years, one third of the number of
shares covered thereby vesting at the time of the private placement financing,
and one third (1/3) at the end of each one year period thereafter during the
term.
In February 1998, the Company executed a four year employment agreement
with the then President and Chief Executive Officer, which provides for annual
compensation of $150,000. The agreement was amended in October 1998 to reduce
the annual compensation to $85,000, provided for a $25,000 cash payment and the
executive accepted a new position as Vice President.
(c) Separation Agreements
On March 15, 1997 an agreement was signed between the Company and the then
Chairman & Chief Executive Officer which terminated the previous December 1,
1994 employment agreement and any and all oral agreements relating to his
employment. The agreement included payments for expense reimbursement, accrued
and unused vacation, medical, dental, disability and life insurance and
severance payments, all unpaid amounts are accrued at June 29, 1997. In
connection with this agreement, the Chief Executive Officer's employee stock
options shall be immediately vested and shall be amended to constitute
non-qualified employee stock options and the strike price is reduced to an
exercise price of $2.00, the fair value at the date of grant.
<PAGE>
On May 29, 1997 an agreement was signed between the Company and a Director
of the Company for acceptance of the position of acting Co-CEO for up to 150
days. This agreement included five months of compensation at $5,000 a month and
100,000 warrants at the closing bid on the date of this agreement.
On June 2, 1997 an agreement was signed between the Company and an
Executive Vice President which terminated the December 1, 1994 employment
agreement and any and all oral agreements relating to his employment. The
agreement included payments for expense reimbursement, accrued and unused
vacation, medical, dental, disability and life insurance and severance payments,
all of which is accrued at June 29, 1997. In connection with this agreement, the
Executive Vice President's stock options were replaced by a warrant to purchase
up to 200,000 shares of common stock exercisable at the closing bid on the date
of this agreement.
On July 25, 1997, an agreement was signed between the Company and then
President which terminated the previous December 1, 1994 agreement and any and
all oral agreements relating to the employment. The agreement included payments
for expense reimbursement, accrued and unused vacation, medical, dental,
disability and life insurance and severance payments. In connection with this
agreement, the President's employee stock options are replaced by a warrant to
purchase up to 150,000 shares of common stock exercisable at the closing bid
price on July 18, 1997.
In October 1998, the Company and a Vice President terminated a March 1998
employment agreement. The executive is to receive $15,000 over a one year
period.
(15) Consulting Agreements
On May 1, 1998, the Company entered into a three year consulting agreement
with its former Vice Chairman and current Secretary, which replaced a March 15,
1997 employment agreement to provide financial and related services to the
Company with compensation of $7,000 per month. The consultant, in consideration
for services, received 500,000 shares of the Company's common stock, of which
250,000 shares are subject to anti-dilution provisions and 250,000 shares which
may be repurchased at the Company's option under specified conditions. In
addition, the consultant received a warrant, expiring in April 30, 2003, to
purchase an additional 250,000 at an exercise price of $.15 per share.
On July 20, 1998, the Company entered into a three year consulting
agreement with an individual to provide service to design and implement the
future expansion of the Company's planned restaurant concepts. In consideration,
the consultant is to receive a monthly fee of $1,000 plus reasonable expenses.
The consultant purchased $100,000 of common stock and received a warrant to
purchase 300,000 shares of the Company's common stock, with an initial exercise
price of $0.48 per share expiring in July 2002, vesting one-third annually.
In October 1998, the Company entered into a three year consulting
agreement, as revised, with an individual to provide advice and consultation in
the implementation of the future expansion of the Company's planned restaurant
concepts. In consideration, the consultant shall serve without regular, periodic
compensation. The consultant shall be entitled to a performance bonus and shall
receive a warrant, immediately exercisable, to purchase an amount of common
stock equal to fifteen of the outstanding common stock of the Company, on a
fully diluted basis, after the private placement financing at $0.05 per share,
exercisable for a period of five years representing 45,000,000 shares.
<PAGE>
(16) Litigation
The Company is a co-defendant in an action brought by an owner of an
apartment above the South Norwalk restaurant for negligence per se, intentional
infliction of emotional distress, negligent infliction of emotional distress,
and violations of the Connecticut Unfair Trade Practices Act (CUTPA) based upon
alleged excessive noise and rude and/or threatening conduct of employees. The
jury awarded a verdict in the amount of $625,000 against various defendants,
including the Company's former Chairman on August 5, 1998. On November 20, 1998,
the Court set aside the jury's verdict as to all counts against the Company
except for plaintiff's claim for negligence per se and accordingly reduced the
jury's award to $225,000. The jury's award is currently on appeal by the
Company, and plaintiff has appealed the Court's decision to set aside a portion
of the jury's verdict and reduce the award. There are also potential claims of
indemnification by other defendants against the Company in the event the
plaintiff's appeal is successful.
In July 1999, a demand letter was tendered to the Company by the legal
counsel of the former Chairman seeking indemnification from potential
liabilities arising out of this matter. This demand is based on an
indemnification provision in an agreement between the former Chairman and the
Company. The Company believes that there are valid defenses to the
indemnification claim.
Plaintiff's negligence claims in this matter are arguably covered by one or
more of the Company's insurance policies. Farmington Casualty Company
("Farmington") and Insurance Company of Greater New York ("GNY"), two out of
three of the Company's insurance carriers, retained counsel to represent the
Company and defended the Company in this case under a reservation of rights. The
third, Public Service Mutual Ins. Co., denied coverage for the claim altogether.
GNY and Farmington have continued to prosecute the appeal in this matter, but
under a reservation of rights. The Company has advised Farmington and GNY that
it intends to pursue its rights in an action for damages and declaratory relief
in the event that the appeal is unsuccessful and the insurance carriers refuse
to provide coverage for plaintiff's claims. GNY and Farmington continue to
reserve all rights with respect to coverage.
Settlement negotiations are ongoing, however, there can be no assurance of
a satisfactory settlement.
The Company is a defendant in an action for an alleged breach of a
commercial lease in which damages exceeding $190,000 are being sought. The
Company has disputed this claim and believes that the plaintiff has inadequately
responded to the Company's demand for discovery and inspection and
interrogatories. A compliance conference was adjourned to September 15, 1999.
The Company intends to vigorously defend this action.
The Company is also a party in various other legal actions incidental to
the normal conduct of its business. Management does not believe that the
ultimate resolution of these actions will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
<PAGE>
(17) Earnings Per Share
As discussed in note 2, the Company adopted Statement 128, which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Dilutive net loss per share for fiscal 1996, 1997
and 1998 are the same as basic net loss per share due to the anti-dilutive
effect of the assumed conversion of preferred stock, and exercise of stock
options and warrants.
The following table reconciles net loss per share with net loss per share
available to common stockholders:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss per share $(0.78) (1.81) (1.23)
Net loss per share attributable to preferred stock dividends (0.02) (0.04) ---
------- ------ ------
Net loss per share available to common stockholders $(0.80) (1.85) (1.23)
======= ====== ======
</TABLE>
(18) Subsequent Events
On July 2, 1998 The Rattlesnake Holding Company, Inc. signed an agreement
to purchase some of the assets of 1562 Restaurant Corp. Located at 1562 2nd
Avenue, New York City. The purchase price was $425,000 payable $20,000 on
contract, $105,000 at closing, and a promissory note at 8.5% payable in 72
payments of $5,332.52. The Company decided not to pursue the acquisition of this
restaurant.
On July 3, 1998, the Company entered into a contract for the purchase of a
restaurant facility in Greenwich, Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose not to purchase this property.
Between October 1998 and December 1998, the Company entered into private
financing arrangements with three individuals to provide $150,000 of bridge
financing at 16% interest per annum, plus warrants, with due dates of the
earlier of the closing of the proposed private placement or ninety days,
respectively. All notes were satisfied by payment of cash and/or conversion to
Company equity at the initial closing of the private placement February 17,
1999.
In December 1998, certain management personnel deferred a portion of their
salary pending completion of the private placement financing. This debt was
satisfied by a payment of cash and conversion of the remaining balance to equity
of the initial closing of the private placement.
On October 27, 1998, the Company commenced an offering (the "Offering") of
its Series B Convertible Preferred Shares, $.10 par value. Between February 17,
1999 and July 2, 1999, the Company sold approximately $6,000,000 of Series B
Preferred Shares pursuant to the Offering and converted approximately $1,350,000
of its debt to Company equity. During the Offering, the Company satisfied, by
payment of cash and/or equity in the form of preferred and/or common stock, the
following: (a) all outstanding Series C promissory notes; (b) certain
outstanding Series B promissory notes; (c) all outstanding promissory notes
related to the Fairfield facility; and (d) all outstanding promissory notes from
(i) September 1997, (ii) March through June 1998, and (iii) October and November
1998, effectively satisfying all short term and long term debt which was in
default.
The preferred shares will be convertible, at the option of the holder at
any time after November 1999, at a conversion price initially equal to $0.05 per
share of common stock. The conversion rate will be reduced by 10% per month for
each month the Company fails to comply with its obligations to file, and in good
faith process, a registration statement.
The conversion price is subject to the adjustments on the terms set forth
in the Certificate of Designation. The outstanding preferred shares shall be
converted, with no action on the part of the holder, if, at any time after
February 2000, the common stock into which the same is converted is registered
under the Securities Act and the closing bid price of the common stock for
twenty consecutive trading days is at least four times the conversion price
($0.20 based on the initial conversion price of $0.05).
<PAGE>
Holders of preferred shares are entitled to receive, quarterly, dividends
at the rate of 8% per annum before any dividends may be paid with respect to the
Common Stock, which shall be paid in cash or preferred shares at the election of
the Company. If there is a failure to pay dividends, the Placement Agent, on
behalf of such holders, has the right to designate one director to the Company's
Board. In addition, if the Company fails to comply with its obligations to file
and process a Registration Statement, the dividend rate will increase to 14% per
annum from issuance.
Pursuant to the March 1998 agreement to acquire the Ottomanelli Group (note
3) additional consideration, due to anti-dilution provisions contained in the
agreements in the form of common stock payable to the Ottomanelli Group
shareholders as a result of the private placement. In February 1999, 5,000,000
shares of common stock were issued pursuant to the anti-dilution provisions,
which included a maximum addition which was met.
In May 1999, the Company changed its fiscal year from the last Sunday in
June of each year to June 30th of each year.
(19) Other Information
On September 17, 1997, the Company received a letter from NASDAQ indicating
that the Company would be removed from the NASDAQ Small Cap listing at the close
of business on September 17, 1997 due to its failure to comply with the minimum
capital and surplus requirement of $1,000,000 and the $1.00 minimum stock price.
On November 4, 1997 the Boston Stock Exchange suspended trading and has
applied for the delisting of the Company common stock from such exchange
pursuant to Rule 12d-2f2.
LICENSE AGREEMENT
AGREEMENT is made as of the 26th day of February, 1998 by and between
OTTOMANELLI BROS., LTD., a New York corporation ("Licensor") and THE RATTLESNAKE
HOLDING COMPANY, INC., a Delaware corporation ("Licensee").
RECITALS
Licensor is the owner of the trademark "Ottomanelli's Cafe", registered
with the United States Patent and Trademark Office on June 6, 1989, No.
1,543,074 (the "Trademark"). A copy of the registration is enclosed.
Licensor has developed substantial goodwill, reputation and public
recognition associated with and identified by the Trademark which have
substantial value and which have been used in connection with sit-down
restaurants.
Licensee desires to obtain a license to use the Trademark in connection
with all of the purposes for which the same may lawfully be used (the "Permitted
Uses").
Licensor desires to grant to Licensee said license in accordance with the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. GRANT OF TRADEMARK LICENSE
1.1. Licensor hereby grants to Licensee, and Licensee hereby accepts the
sole and exclusive license (the "License") to use the Trademark in connection
with the Permitted Uses in the Territory (as hereinafter defined).
1.2. The License is intended to be an exclusive license, and, during the
Term (as hereinafter defined) of the License, Licensor shall not use the
Trademark or authorize any person other than Licensee to use the Trademark for
any purpose whatsoever.
2. TERM AND TERRITORY
2.1 The term (the "Term") of the License shall commence on the date hereof
and shall continue for so long as Licensor has any rights in the Trademark,
except for an earlier termination of the Term as provided herein.
2.2. The territory (the "Territory") in which the License can be used is
the United States of America and any other jurisdiction in which Licensor has a
right to use the Trademark.
<PAGE>
2.3. During the Term, Licensor shall refer to Licensee all requests and
inquiries relating to the use of the Trademark.
3. FEES AND ROYALTIES
In consideration for the License herein granted, Licensee shall pay to
Licensor contemporaneously herewith the sum often ($10.00) dollars. No other fee
or royalty shall be payable during the Term of this Agreement.
4. OPERATING STANDARDS
To protect the Licensor's rights in the Trademark and the goodwill
associated therewith, Licensee shall at Licensee's expense during the Term of
this Agreement:
4.1. Maintain any premises ("Premises") displaying the Trademark and all
fixtures, furnishings, signs and equipment, including the parking areas, in good
condition and in conformity with established standards of sanitation, safety and
repair, including, without limitation, such periodic repainting, repairs or
replacements as may be required because of damage and normal wear and tear;
4.2. Operate the Premises in conformity with high standards of quality,
service and sanitation.
4.3. Allow the Licensor and its representatives the right to inspect the
operation of the Premises during business or non-business hours;
4.4. Correct any deficiencies detected during Licensor's inspections,
including, without limitation, refraining from the future use of any items that
do not conform with the provisions of this Section 4.
4.5. Use all such indicia of registration and notices of registrations and
of the relationship between the parties, as Licensor may reasonably require in
conjunction with Licensee's use of the Trademark.
4.6 Use the Trademark only with products of high quality.
47 Comply with all other requirements of all applicable Federal, state,
county or city statutes, ordinances or regulations applicable to the operations
and product sales associated with the Trademark.
4.8 Not take any action to bring the name "Ottomanelli" into disrepute.
<PAGE>
5. GOODWILL AND RIGHTS ASSOCIATED WITH THE TRADEMARK
5.1. Licensee recognizes the value of the goodwill associated with the
Trademark and acknowledges that the Trademark and all rights therein and the
goodwill pertaining thereto belong exclusively to Licensor. Licensee agrees not
to commit any act or omission adverse or injurious to said rights.
5.2. Licensee agrees that Licensee shall not at any time acquire any rights
in the Trademark by virtue of any use Licensee may make of the Trademark.
5.3. Licensee agrees to cooperate fully and in good faith with Licensor for
the purpose of securing, preserving, and protecting Licensor' s rights in and to
the Trademark.
5.4. Licensee shall have the right, but shall not be under any obligation,
to use the License.
5.5. Licensee acknowledges and admits that there may be no adequate remedy
at law for a breach of this Agreement by Licensee, and agrees that in the event
of such breach, Licensor shall be entitled to equitable relief by way of
temporary and permanent injunction and such other and further relief as any
court with jurisdiction may deem just and proper.
5.6. Licensee shall report to Licensor in writing any infringement or
limitation of the Trademark of which Licensee becomes aware. Licensor shall have
the initial right to determine whether to institute litigation upon such
infringements as well as the selection of counsel. Licensor may commence or
prosecute any claims or suits for the infringement of the Trademark in its own
name or the name of the Licensee or join Licensee as party thereto. Licensor
shall bear the cost of such litigation and shall be entitled to keep the entire
amount of any recovery therefrom. If Licensor brings an action against any
infringer of the Trademark, Licensee shall cooperate with Licensor and lend
whatever assistance Licensee can or is necessary m the prosecution of such
litigation, and Licensor shall reimburse Licensee for its out of pocket
expenses, if any. If Licensor decides not to institute such litigation, Licensee
is authorized to institute such litigation, in which event Licensee shall be
solely responsible for the costs of such litigation and shall be entitled to
keep any recovery therefrom.
5.7. Licensee shall not contest or deny the validity or enforceability of
the Trademark or oppose or seek to cancel any registration thereof by Licensor,
or aid or abet others in doing so, either during the Term of this Agreement or
at any time thereafter.
5.8 During the Term, Licensor shall, at its sole cost and expense, maintain
in effect the United States Patent and Trademark Office registration for the
Trademark.
5.9 Licensee shall have the right to record and register the license herein
granted, and otherwise to make appropriate application to the United States
Patent and Trademark Office with respect to its right as a permitted or
registered user of the Trademark as set forth in this Agreement. Licensor agrees
to join in any such registration or application and to execute all documents as
may reasonably be required by Licensee in connection therewith, at the cost and
expense of Licensee. Copies of all relevant documents shall be provided to
Licensor.
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF LICENSOR
6.1. Licensor hereby represents and warrants to Licensee as follows:
6.1.1. Licensor is the owner of the Trademark free and clear of all liens,
claims and encumbrances, and has the sole and exclusive right to use the
Trademark within the Territory.
6.1.2. The Trademark does not, to Licensor's knowledge, infringe upon the
rights of any third person with respect to the use of the Trademark in the
Territory, and Licensor has not received notice of any claim of infringement,
and does not have any knowledge of any use of the Trademark within the Territory
by any unauthorized person.
6.1.3. There are no actions, suits, proceedings or investigations pending
or threatened against or affecting the Trademark in any court or before any
governmental department, commission, board, bureau, agency or instrumentality in
the Territory.
6.1.4 Licensor has full corporate power and authority to enter into and to
perform this Agreement, and this Agreement has been duly authorized by all
requisite corporate action on the part of Licensor and is enforceable against
Licensor in accordance with its terms.
6.2. Licensor shall indemnify Licensee from and against any and all causes
of action, claims, losses and expenses (including reasonable counsel fees) in
connection with or arising out of a breach of any of the representations and
warranties set forth in this Section 6.
7. DEFAULT AND TERMINATION
7.1. Licensor shall have the right to terminate the Term of the License
upon a material breach of this Agreement by Licensee. Licensor may terminate the
Term of the License only upon sixty (60) days' written notice to Licensee
setting forth the material breach complained of. If Licensee shall cure said
breach prior to the end of such period, said right to terminate the License
shall cease; provided, however, that if, because of the nature of said breach,
Licensee shall be unable to cure the same within said sixty (60) day period,
Licensee shall be given such additional time as shall be reasonably necessary
within which to cure said breach, upon condition that Licensee shall, upon
receipt of such notice from Licensor, immediately commence to cure such breach
and continue to use its best efforts to effect such cure until such cure has
been completed.
7.2. Notwithstanding Section 6.1, the Term of the License shall immediately
terminate.
7.2.1. If Licensee shall purport to assign or otherwise sell, transfer or
encumber the License, the rights of Licensee hereunder, the Trademark or any
interest in any of the foregoing, other than as herein expressly permitted,
without the written consent of Licensor as herein provided.
7.2.2. In the event that Licensee shall be adjudicated bankrupt or shall
make an assignment for the benefit of creditors.
<PAGE>
8. OBLIGATIONS AND RIGHTS OF PARTIES UPON TERMINATION OR EXPIRATION
8.1. In the event of expiration or termination of the Term of the License,
whether by reason of default, lapse or time, or other cause, Licensee shall
forthwith discontinue the use of the Trademark, and shall not thereafter use, in
any manner, or for any purpose, directly or indirectly, any of the same, or any
trademark or symbols deceptively similar thereto.
8.2. The expiration or termination of the Term of the License shall be
without prejudice to any other rights or claims or Licensor against Licensee, or
any other remedy available to it, or relieve Licensee of any obligations which
by their nature survive the expiration or termination of the License.
9. GENERAL TERMS AND CONDITIONS
9.1. Captions used in this Agreement are for convenience only and are not a
part of the terms hereof.
9.2. No amendment or other modification of this Agreement shall be valid or
binding on either party hereto, unless reduced to writing and executed by the
parties hereto.
9.3 The parties hereto are independent and neither party is the agent,
joint venturer, partner or employee of the other, and Licensor shall not be
obligated by any agreements, representations or warranties made by Licensee to
any person, nor with respect to other action of Licensee, nor shall Licensor be
obligated for any damages to any person whether caused by Licensee's action,
failure to act, negligence, or willful conduct.
9.4. No waiver by either party of any breach or series of breaches or
defaults in performance by the other party, and no failure, refusal, or neglect
to exercise any right, power or option given to either party hereunder or to
insist upon strict compliance with or performance of the obligations under this
Agreement, shall constitute a waiver of the provisions of this Agreement with
respect to any subsequent breach thereof or a waiver by such party of its right
at any time thereafter to require exact and strict compliance with the
provisions thereof.
9.5. This Agreement shall be governed and construed under and in accordance
with the laws of the State of New York.
9.6 All provisions of this Agreement shall be severable and no such
provision shall be affected by the invalidity of any other such provision shall
be affected by the invalidity of any other such provision to the extent that
such invalidity does not also render such other provision invalid. In the event
of the invalidity of any provision of this Agreement, it shall be interpreted
and enforced as if all provisions thereby rendered invalid were not contained
herein. If any provision of this Agreement shall be susceptible of two
interpretations, one of which would render the provision invalid and the other
of which would cause the provision to be valid, such provision shall be deemed
to have the meaning which would cause it to be valid.
<PAGE>
9.7 In the event that any suit or action shall be commenced by either party
to enforce any right or obligation hereunder, the prevailing party in such suit
or action shall be entitled to recover the costs incurred by such party in
connection therewith, including reasonable attorneys' fees.
9.8 The License shall not be assigned or sublicensed except only as
expressly set forth below:
9.8.1 Licensee may sublicense the License to any subsidiary of which it
maintains ownership of a majority of the capital stock and the power to vote
two-thirds or more of its voting stock.
9.8.2 Licensee may assign the License only in connection with the sale of
all or substantially all of its assets, and the assignee shall assume, in
writing, the obligation of the assignor hereunder.
9.8.3 Notwithstanding the foregoing, so long as Licensee maintains the
ownership of a majority of the capital stock of Ottomanelli's Cafe Franchising
Corp. ("Franchise Corp."), Franchise Corp. may sublicense the Trademark to
franchisees of Franchise Corp. in accordance with its normal franchising
business practices.
9.9 This License Agreement was entered into pursuant to a Reorganization
Agreement, dated August 21, 1997 between Licensee and certain affiliates of
Licensor, as amended by a Modification Agreement of even date herewith (the
"Reorganization Agreement"). If pursuant to Section 2(d) of the Reorganization
Agreement, the affiliates of the Licensor named therein elect to rescind the
transactions contemplated by the Reorganization Agreement, the Term of the
License shall immediately terminate, and no separate action shall be required
hereunder.
IN WITNESS THEREOF, the parties have executed this Agreement as of the date
first indicated above.
OTTOMANELLI BROS., LTD.
By: /s/ Nicolo Ottomanelli
--------------------------
Nicolo Ottomanelli
THE RATTLESNAKE HOLDING
COMPANY, INC.
By: /s/ Louis Malikow
--------------------------
Louis Malikow, President
REORGANIZATION
AND STOCK EXCHANGE AGREEMENT
AMONG
THE RATTLESNAKE HOLDING COMPANY, INC.
AND
OTTOMANELLI BROTHERS WEST, LTD.,
OTTOMANELLI'S CAFE FRANCHISING CORP.,
34TH ST. CAFE ASSOCIATES INC.,
GARDEN STATE CAFE CORP.
AND THEIR SHAREHOLDERS
August 21, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions................................................................................................1
2. Purchase and Sale of Ottomanelli Corporations Shares.......................................................6
(a) Basic Transaction......................................................................................6
(b) Stock Exchange.........................................................................................6
(c) The Closing............................................................................................6
3. Representations and Warranties Concerning the Transaction..................................................7
(a) Representations and Warranties of the Shareholders.....................................................7
(b) Representations and Warranties of RHC..................................................................8
4. Representations and Warranties Concerning the Ottomanelli Corporations....................................10
(a) Organization, Qualification, and Corporate Power......................................................11
(b) Capitalization........................................................................................11
(c) Noncontravention......................................................................................11
(d) Brokers' Fees.........................................................................................12
(e) Title to Assets.......................................................................................12
(f) Subsidiaries..........................................................................................12
(g) Financial Statements..................................................................................12
(h) Events Subsequent to Most Recent Fiscal Year End......................................................13
(i) Undisclosed Liabilities...............................................................................15
(j) Legal Compliance......................................................................................15
(k) Tax Matters...........................................................................................15
(l) Real Property.........................................................................................17
(m) Intellectual Property.................................................................................17
(n) Tangible Assets.......................................................................................18
(o) Inventory.............................................................................................18
(p) Contracts.............................................................................................18
(q) Notes and Accounts Receivable.........................................................................19
(r) Powers of Attorney....................................................................................20
(s) Insurance.............................................................................................20
(t) Litigation............................................................................................20
(u) Employees.............................................................................................20
(v) Employee Benefits.....................................................................................21
(w) Guaranties............................................................................................21
(x) Environment, Health, and Safety.......................................................................21
(y) Certain Business Relationships between the
Shareholders and with the Ottomanelli Corporations....................................................22
(z) Disclosure............................................................................................22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5. Pre-Closing Covenants.....................................................................................22
(a) General...............................................................................................22
(b) Notices and Consents..................................................................................22
(c) Operation of Business.................................................................................22
(d) Preservation of Business..............................................................................23
(e) Full Access...........................................................................................23
(f) Notice of Developments................................................................................23
6. Post-Closing Covenants....................................................................................23
(a) General...............................................................................................23
(b) Litigation Support....................................................................................24
(c) Transition............................................................................................24
(d) Confidentiality.......................................................................................24
(e) Covenant Not to Compete...............................................................................25
(f) Management of RHC and Subsidiaries....................................................................26
7. Conditions to Obligation to Close.........................................................................26
(a) Conditions to Obligation of RHC.......................................................................26
(b) Conditions to Obligation of the Shareholders..........................................................28
8. Remedies for Breaches of This Agreement...................................................................29
(a) Survival of Representations ad Warranties.............................................................29
(b) Indemnification Provisions for Benefit of the Buyer...................................................29
(c) Indemnification Provisions for Benefit of the Shareholders............................................30
(d) Matters Involving Third Parties.......................................................................31
(e) Determination of Adverse Consequences.................................................................32
(f) Other Indemnification Provisions......................................................................32
9. Termination...............................................................................................33
(a) Termination of Agreement..............................................................................33
(b) Effect of Termination.................................................................................34
10. Post-Closing Financing; Security Interest.................................................................34
11. Miscellaneous.............................................................................................34
(a) Nature of Certain Obligations.........................................................................34
(b) Press Releases and Public Announcements...............................................................34
(c) No Third-Party Beneficiaries..........................................................................35
(d) Entire Agreement......................................................................................35
(e) Succession and Assignment.............................................................................35
(f) Counterparts..........................................................................................35
(g) Headings..............................................................................................35
(h) Notices...............................................................................................35
(i) Governing Law.........................................................................................36
(j) Amendments and Waivers................................................................................36
(k) Severability..........................................................................................36
(l) Expenses..............................................................................................36
(m) Construction..........................................................................................37
(n) Incorporation of Exhibits, Annexes, and Schedules.....................................................37
(o) Specific Performance..................................................................................37
(p) Submission to Jurisdiction............................................................................37
</TABLE>
<PAGE>
Exhibit A = Form of Opinion of Counsel to Shareholders and Ottomanelli
Corporations
Exhibit B = Form of Opinion of Counsel to RHC
Exhibit C = Form of Registration Rights Agreement
Exhibit D = Form of RHC Warrant
Exhibit E = Form of Nicolo Ottomanelli Employment Agreement
Exhibit F = Form of Joseph Ottomanelli Employment Agreement
Exhibit G = Form of Trademark License Agreement
Exhibit H = preferred Stock Restructuring Terms Disclosure Schedule =
Exceptions to Representations and Warranties Concerning the Ottomanelli
Corporations
<PAGE>
REORGANIZATION AND STOCK EXCHANGE AGREEMENT
Agreement entered into on August 21, 1997, by and among The Rattlesnake
Holding Company, Inc., a Delaware corporation ("RHC") and Nicolo Ottomanelli and
Joseph Ottomanelli (collectively the "Shareholders") and Ottomanelli Brothers
West, Ltd., Ottomanelli's Cafe Franchising Corp., 34th Street Cafe Associates,
Inc., and Garden State Cafe Corp. (together, the "Ottomanelli Corporations").
RHC, the Ottomanelli Corporations and the Shareholders are referred to
collectively herein as the "Parties."
WHEREAS, the Shareholders in the aggregate own all of the outstanding
capital stock of each of the Ottomanelli Corporations.
WHEREAS, the Parties desire to consummate a tax free reorganization under
Section 368 of the Internal Revenue Code in which RHC will acquire from the
Shareholders, and the Shareholders will deliver to RHC, all of the outstanding
capital stock of the Ottomanelli Corporations in exchange for the RHC Shares and
RHC Warrants (as defined herein).
WHEREAS, it is the intention of the Parties that the reorganization qualify
as a tax free exchange in accordance with Section 368 of the Internal Revenue
Code.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Sec. 1504.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that substantially forms, or is likely,
substantially to form the basis for any specified consequence.
"Closing" has the meaning set forth in ss.2(c) below.
<PAGE>
"Closing Date" has the meaning set forth in Section 2 (c) below.
"Commonwealth Fairness Opinion" means the investment banking fairness
opinion in customary form to be delivered by Commonwealth Associates LP which
opinion shall deem the terms of the transaction contemplated herein as fair to
RHC.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Ottomanelli Corporations or RHC, as the case may be, that is
not already available to the public.
"Controlled Group of Corporations" has the meaning set forth in Code Sec.
1563.
"Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Employment Agreements" means the employment agreements between Nicolo
Ottomanelli and Joseph Ottomanelli, respectively, and RHC, substantially in the
form of Exhibit E and F, respectively annexed hereto.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or toxic
wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or toxic wastes.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Loss Account" has the meaning set forth in Treas. Reg. Section
1.1502-19.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statement" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations- in-part, revisions, extensions, and
reexaminations thereof, in which the person organization, or a governmental
entity (or any department, agency, or political subdivision thereof).
(next page missing)
<PAGE>
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"RHC Common Stock" means the Common Stock, par value $.00l per share of
RHC.
"RHC Shares" means the RHC Common Stock to be delivered to the
Shareholders.
"Registration Rights Agreement" means the agreement substantially in the
form of Exhibit C annexed hereto whereby RHC grants to the Shareholders certain
registration rights for certain shares of RHC Common Stock for sale under the
Securities Act.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"RHC Warrant" means the common stock purchase Warrants to be delivered to
the Shareholders and substantially in the form of Exhibit D annexed hereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1,934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Shareholder" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified Person
(or a subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Ottomanelli Corporations Capital Stock" means all shares of capital stock
of the Ottomanelli Corporations.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
<PAGE>
"Third Party Claim" has the meaning set forth in Section 8(d) below.
"Trademark License Agreement" mean the license agreement to be entered into
between Ottomanelli Brothers West Ltd. and RHC whereby RHC grants an exclusive,
perpetual license to Ottomanelli Brothers Ltd. for use of the registered
tradename "Ottomanelli's Cafe."
2. Exchange of Ottomanelli Corporations Capital Stock for RHC Shares and
RHC Warrants.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Shareholders shall exchange all of the Ottomanelli Corporations
Capital Stock for the RHC Shares and RHC Warrants.
(b) In exchange for all of the Ottomanelli Corporations Capital Stock RHC
agrees to deliver to the Shareholders at the Closing (i) such number of shares
of RHC Common Stock as shall equal 37.5% of the issued and outstanding shares of
RHC Common Stock (including shares of RHC Common Stock issuable in connection
with issued and outstanding convertible securities of RHC other than RHC Common
Stock purchase warrants and options) as of a date which is three (3) business
days prior to the Closing and (ii) RHC Common Stock purchase Warrants to
purchase an amount of RHC Common Stock as shall equal up to 37.5% of the RHC
Common Stock underlying all issued and outstanding warrants of RHC as of the
date which is three days prior to the Closing (the RHC Shares and RHC Warrants
sometimes hereinafter referred to as the "Stock Exchange Consideration"). The
Stock Exchange Consideration shall be allocated among the Shareholders in
proportion to their respective holdings of Ottomanelli Corporations Capitol
Stock as set forth in Section 4(b) of the Disclosure Schedule or as the
Shareholders shall otherwise advise RHC in writing. RHC covenants and agrees not
to issue any shares of RHC Common Stock or any securities convertible into RHC
Common Stock during the period commencing three days prior to the Closing.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Goldstein & DiGioia
LLP at 369 Lexington Avenue, New York, New York commencing at 9:00 a.m. local
time on such date as RHC and the Shareholders may mutually determine (the
"Closing Date"); provided, however, that the Closing Date shall be no later than
October 30, 1997.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Shareholders. Each of the
Shareholders represents and warrants to RHC that the statements contained in
this Section 3 (a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to himself, except as set forth in
the Disclosure Schedule.
<PAGE>
(i) Authorization of Transaction. The Shareholder has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Shareholder, enforceable in accordance with its terms and conditions. The
Shareholder need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Shareholder is subject or (B)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any material agreement, contract, lease,
license, instrument, or other arrangement to which the Shareholder is a party or
by which he or it is bound or to which any of his or its material assets is
subject.
(iii) Brokers' Fees. The Shareholder has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which RHC could become liable or
obligated.
(iv) Investment. The Shareholder: (A) understands that neither the RHC
Shares nor RHC Warrants have been, nor will be, registered under the Securities
Act, or under any state securities laws, and are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering; (B) agrees that he is acquiring the RHC Shares and RHC Warrants
solely for his own account for investment purposes, and not with a view to the
distribution thereof; (C) is a sophisticated investor with knowledge and
experience in business and financial matters; (D) has received certain
information concerning RHC including, without limitation, RHC's Report on Form
10KSB for the fiscal year ended June 30, 1996 and Reports on Form 10QSB for the
fiscal quarters ended September 30, 1996, December 31, 1996 and March 31, 1997,
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent owning and holding the RHC Shares
and RHC Warrants; and is able to bear the economic risk and lack of liquidity
inherent in holding the RHC Shares and RHC Warrants.
(vi) Ottomanelli Corporations Capital Stock. The --Shareholder holds of
record and owns beneficially the number and types of Ottomanelli Corporations
Capital Stock set forth next to his name on Section 4(b) of the Disclosure
Schedule annexed hereto free and clear of any restrictions on transfer (other
than any restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. The Shareholder is not a party to
any option, warrant, purchase right, or other contract or commitment that could
require the Shareholder to sell, transfer, or otherwise dispose of any capital
stock of the Ottomanelli Corporations (other than this Agreement). The
Shareholder is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the Ottomanelli
Corporations.
<PAGE>
(b) Representations and Warranties of RHC. RHC represents and warrants to
the Shareholders that the statements contained in this Section 3 (b) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3 (b))
(i) organization of RHC. RHC is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(ii) Authorization of Transaction. RHC has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder, except for RHC Board of
Directors approval to be obtained within five days of the date hereof. This
Agreement constitutes the valid and legally binding obligation of RHC,
enforceable in accordance with its terms and conditions. RHC need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which RHC is subject or any provision of its
charter or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
RHC is a party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. RHC has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which any Shareholder could become liable or
obligated or for which RHC could become liable or obligated.
(v) Investment. RHC is not acquiring the Ottomanelli Corporation's Capital
Stock with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
(vi) Accuracy of SEC Reports. RHC has filed all reports ("Exchange Act
Reports") required to be filed by it with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended ("Exchange Act").
All of such Exchange Act Reports have been prepared and contain such information
as may be required under the Exchange Act. None of the Exchange Act Reports
contain any untrue statements of a material fact or omit 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.
<PAGE>
(vii) Capitalization. Exhibit 3 (b) (vii) annexed hereto sets forth the
capitalization of RHC and the outstanding debt (excluding trade debt) of RHC as
of the date of this Agreement. Exhibit 3(b) (vii) states (i) the amount of
authorized capital stock of RHC (ii) the number [proceed to next page] issued
and outstanding shares of Common Stock and preferred stock of RHC (iii) the
number of issued and outstanding options and warrants and (iv) a description of
the terms and principal amount of all outstanding debt securities of RHC.
(viii) Litigation. There is no action, suit, proceedings, litigation or
governmental proceeding pending or to the knowledge of RHC threatened against
RHC or involving the properties or business of RHC.
(ix) Other than as set forth on Schedule 3(b) (ix) annexed hereto, RHC and
its subsidiaries are not in breach of any lease or other material agreement with
respect to any of their respective restaurant locations. To the knowledge of RHC
and its subsidiaries, each restaurant property is in substantial compliance with
all environmental, health and safety laws.
(x) RHC has delivered to the Shareholders all correspondence received by
RHC from the Nasdaq Stock Market Inc. ("NASDAQ") and all correspondence sent by
RHC to NASDAQ regarding the continued listing of RHC's Common Stock on the
- -NASDAQ SmallCap Market.
(xi) The RHC Shares and RHC Warrants will be, when delivered at the Closing
to the Shareholders, validly issued fully paid and non-assessable, and will not
be subject to any lien, security interest or encumbrance of any kind whatsoever.
Assuming due payment therefor in accordance with the RHC Warrants, the Shares of
RHC Common Stock issuable upon exercise of the RHC Warrants will be validly
issued fully paid and non-assessable, and will not be subject to any lien,
security interest or encumbrance of any kind whatsoever.
(xii) Exhibit 3 (b) (xii) annexed hereto sets forth the unaudited cost of
operations data of RHC for the months of June and July, 1997.
<PAGE>
4. Representations and Warranties Concerning the Ottomanelli Corporations.
The Shareholders represent and warrant to RHC that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in the disclosure schedule
delivered by the Shareholders to RHC on the date hereof and initialed by the
Parties (the "Disclosure Schedule") . Nothing in the Disclosure Schedule shall
be deemed adequate to disclose an exception to a representation or warranty made
herein, however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) Organization, Qualification, and Corporate Power. Each of the
Ottomanelli Corporations is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation. Each
of the Ottomanelli Corporations is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required. Each of the Ottomanelli Corporations has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. Section 4(a) of the Disclosure Schedule lists the directors and
officers of each of the Ottomanelli Corporations. Prior to the Closing, the
Shareholders have delivered to RHC correct and complete copies of the charter
and bylaws of each of the Ottomanelli Corporations (as amended to date). The
stock (certificate books and the stock record books of each of the Ottomanelli
Corporations are correct and complete and the minute books accurately reflect
all formal actions of the directors and/or shareholders of each of the
Ottomanelli Corporations since the date of its respective incorporation. None of
the Ottomanelli Corporations is in material default under or in violation of any
provision of its charter or bylaws.
(b) Capitalization. The entire authorized, issued and outstanding capital
stock of each of the Ottomanelli Corporations is set forth on Section 4(b) of
the Disclosure Schedule. All of the issued and outstanding Ottomanelli
Corporations Capital Stock have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the respective Shareholders
as set forth in Section 4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require any of the Ottomanelli Corporations to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to any of the Ottomanelli
Corporations. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the any of the
Ottomanelli Corporations.
<PAGE>
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Ottomanelli Corporations is
subject or any provision of the charter or bylaws of any of the Ottomanelli
Corporations or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any of the Ottomanelli Corporations is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its respective assets) . None of the Ottomanelli
Corporations needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) Brokers' Fees. None of the Ottomanelli Corporations has any Liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(e) Title to Assets. The Ottomanelli Corporations have good and marketable
title to, or a valid leasehold interest in, or a valid license to use the
properties and assets used by them, located on their premises, or acquired after
the date thereof, free and clear of all Security Interests, except as provided
in the license agreements and except for properties and assets disposed of in
the Ordinary Course of Business.
(f) Subsidiaries. None of the Ottomanelli Corporations owns any capital
stock of any other corporation, partnership or other entity.
(g) Financial Statements. At least 10 days prior to Closing, the
Shareholders shall cause the Ottomanelli Corporation to deliver to RHC the
following financial statements (collectively the "Financial Statements"). (i)
audited consolidated and unaudited consolidating balance sheets and statements
of income, changes in stockholders' equity, and cash flow as of and for the
fiscal years ended December 31, 1995, December 31, 1996) ("Most Recent Fiscal
Year End") and (ii) unaudited consolidated and consolidating balance sheets and
statements of income, changes in stockholders equity, cash flow as of and for
the 6 months ended June 30( 1997 for each of the Ottomanelli Corporations. The
Financial Statements (including the notes thereto) shall have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods being
covered thereby, present fairly the financial condition of the Ottomanelli
Corporations as of such dates and the results of operations of the Ottomanelli
Corporations for such periods, and shall be consistent with the books and
records of the Ottomanelli Corporations (which books and records are correct and
complete in all material respects.
(h) Events Subsequent to June 30, 1997. Since June 30, 1997, there has not
been any material adverse change in the business, financial condition,
operations, results of operations, or future prospects of any of the Ottomanelli
Corporations. Without limiting the generality of the foregoing, since that date:
(i) none of the Ottomanelli Corporations has sold, leased, transferred, or
assigned any of its assets, tangible or other than in the Ordinary Course of
Business;
(ii) none of the Ottomanelli Corporations has entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) outside the Ordinary Course of Business;
<PAGE>
(iii) no party (including any of the Ottomanelli Corporations) has
accelerated, terminated, modified, or canceled any material agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) the Ottomanelli Corporations is a party or by which any of them is
bound;
(iv) none of the Ottomanelli Corporations has imposed any Security Interest
upon any of its assets, tangible or intangible;
(v) except as disclosed to RHC none of the Ottomanelli Corporations has
made any capital expenditure (or series of 4 related capital expenditures)
either involving more than $25,000;
(vi) none of the Ottomanelli Corporations has made any capital investment
in, any loan to, or any acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and acquisitions)
either involving more than $10,000;
(vii) none of the Ottomanelli Corporations and its Subsidiaries has issued
any note, bond, or other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease obligation
either involving more than $50,000 in the aggregate;
(viii) none of the Ottomanelli Corporations has delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) none of the Ottomanelli Corporations has cancelled, compromised,
waived, or released any right or claim (or series of related rights and claims)
outside of the Ordinary Course of Business;
(x) none of the Ottomanelli Corporations has granted any license or
sublicense of any rights under or with respect to any Intellectual Property
belonging to it;
(xi) there has been no change made or authorized in the charter or bylaws
of any of the Ottomanelli Corporations;
(xii) none of the Ottomanelli Corporations has issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion, exchange, or exercise)
any of its capital stock;
(xiii) none of the Ottomanelli Corporations has declared, set aside, or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired any
of its capital stock;
<PAGE>
(xiv) none of the Ottomanelli Corporations has experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property which
has had or will have, a material adverse affect upon the business or operations
of the Ottomanelli Corporations;
(xv) none of the Ottomanelli Corporations has made any loan to, or entered
into any other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) none of the Ottomanelli Corporations has entered into any employment
contract or collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement outside the ordinary Course of
Business;
(xvii) none of the Ottomanelli Corporations has granted any increase in the
base compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) none of the Ottomanelli Corporations has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(xix) none of the Ottomanelli Corporations has made or pledged to make any
charitable or other capital contribution;
(xx) there has not been any other material adverse occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course of
Business involving any of the Ottomanelli Corporations.
(i) Undisclosed Liabilities. None of the Ottomanelli Corporations has any
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities in the
Financial Statements (or in any notes thereto) and (ii) Liabilities which have
arisen after the Financial Statements in the Ordinary Course of Business (none
of which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law which would result in damages to or liability of the
Ottomanelli Corporation in excess of $50,000).
(j) Legal Compliance. Each of the Ottomanelli Corporations, and their
respective predecessors has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply except where the failure to so
comply would not have a material adverse affect upon the business or operations
of Ottomanelli Corporations taken as a whole.
<PAGE>
(k) Tax Matters.
(i) The Ottomanelli Corporations are S Corporations under the Code. Each of
the Ottomanelli Corporations has filed all Tax Returns that it was required to
file. All. such Tax Returns were correct and complete in all respects, except
where amendments to such returns have been made or will be made to conform to
the Financial Statements, copies of which amendments have been or will be
delivered to RHC prior to Closing. All Taxes owed by any of the Ottomanelli
Corporations (whether or not shown on any Tax Return) have been paid. None of
the Ottomanelli Corporations currently is the beneficiary of any extension of
time within which to file any Tax Return. No claim is pending by an authority in
a jurisdiction where any of the Ottomanelli Corporations does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Security Interests on any of the assets of any of the Ottomanelli
Corporations that arose in connection with any failure (or alleged failure) to
pay any Tax.
(ii) Each of the Ottomanelli Corporations has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Shareholder or director or officer of any of the Ottomanelli
Corporations has any actual acknowledgment of a basis on which any authority
will assess any additional Taxes for any period for which Tax Returns have been
filed, except for matters related to the Financial Statements. There is no
dispute or claim concerning any Tax Liability of any of the Ottomanelli
Corporations either (A) claimed or raised by any authority in writing or (B) as
to which any of the Shareholders and the directors and officers (and employees
responsible for Tax matters) of the Ottomanelli Corporations has Knowledge based
upon personal contact with any agent of such authority. Section 4(k) of the
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Ottomanelli Corporations for taxable
periods ended on or after December 31 1994, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Shareholders have delivered to RHC correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Ottomanelli
Corporations since December 31, 1994.
(iv) None of the Ottomanelli Corporations has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
<PAGE>
(v) None of the Ottomanelli Corporations has filed a consent under Code
Sec. 341(f) concerning collapsible corporations. None of the Ottomanelli
Corporations has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Code Sec. 280G. None of the
Ottomanelli Corporations has been a United States real property holding
corporation within the meaning of Code Sec. 897(c) (2) during the applicable
period specified in Code Sec. 897(c) (1) (A) (ii). Each of the Ottomanelli
Corporations has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Code Sec. 6662. None of the Ottomanelli Corporations
is a party to any Tax allocation or sharing agreement. None of the Ottomanelli
Corporations (A) has been a member of an Affiliated Group filing a consolidated
federal income Tax Return or (B) has any Liability for the Taxes of any Person
(other than any of the Ottomanelli Corporations) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law) , as a
transferee successor, by contract, or otherwise.
(1) Real Property. The Ottomanelli Corporations do not own, or lease, any
real property.
(m) Intellectual Property.
(i) The Ottomanelli Corporations own or have the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Ottomanelli Corporations as
presently conducted. Each item of Intellectual Property owned or used by any of
the Ottomanelli Corporations immediately prior to the Closing hereunder will be
owned or available for use by the respective Ottomanelli Corporations on
identical terms and conditions immediately subsequent to the Closing hereunder.
Each of the Ottomanelli Corporations has taken all necessary action to maintain
and protect each item of Intellectual Property that it owns.
(ii) To the knowledge of the Shareholders, none of the Ottomanelli
Corporations has interfered with, infringed upon, misappropriated, any
Intellectual Property rights of third parties, and none of the Shareholders has
within the last three (3) years received any charge, complaint, claim, demand,
or notice alleging any such interference, infringement, misappropriation, or
violation (including any 4 claim that any of the Ottomanelli Corporations must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Shareholders and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of the Ottomanelli Corporations, no third party has interfered with, infringed
upon, misappropriated any Intellectual Property rights of any of the Ottomanelli
Corporations.
(iii) Section 4(m) (iii) of the Disclosure Schedule identifies each trade
name or unregistered trademark used by any of the Ottomanelli Corporations in
connection with any of its businesses. With respect to each item of Intellectual
Property required to be identified in Section 4(m) (iii) of the Disclosure
Schedule:
<PAGE>
(A) the Ottomanelli Corporations possess all right, title, and interest in
and to the item, free and clear of any Security Interest, license, or other
restriction, except as disclosed in Section 4 (m) of the Disclosure Schedule;
(B) the item is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand is pending or, to the Knowledge of any of the Shareholders is
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(D) none of the Ottomanelli Corporations has agreed to indemnify any Person
for or against any interference, infringement, misappropriation, or other
conflict with respect to the item which agreement is now in effect.
(iv) To the Knowledge of any of the Shareholders the use of the
Intellectual Property by the Ottomanelli Corporations will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continue
operation of its business as presently conducted.
(n) Tangible Assets. The Ottomanelli Corporations are authorized to use all
buildings, machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted and as presently proposed to
be conducted, subject to the terms of the Macy's license agreements. Each such
tangible asset has been maintained in accordance with normal industry practice,
is in good operating condition and repair (subject to normal wear and tear) ,
and is suitable for the purposes for which it presently is used.
(o) Inventory. The inventory of the Ottomanelli Corporations consists of
raw materials and supplies utilized in the restaurant and related businesses of
the Ottomanelli Corporations. All of such inventory is fit for the purpose for
which it was procured except for normal spoilage and waste.
(p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
contracts and other agreements to which any of the Ottomanelli Corporations is a
party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in excess
of 10,000 per annum;
(ii) any agreement concerning a partnership or joint venture;
<PAGE>
(iii) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed money,
or any capitalized lease obligation, in excess of $50,000 or under which it has
imposed a Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Shareholders and their Affiliates (other
than the Ottomanelli Corporations)
(vii) any profit sharing, stock option, stock purchase, stock appreciation,
deferred compensation, severance, or other plan or arrangement for the benefit
of its current or former directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in excess of
$25,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned -any amount to any
of its directors, officers, and employees outside the Ordinary Course of
Business;
The Shareholders have delivered to RHC a correct and complete copy of each
written agreement listed in Section 4 (p) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect in accordance with its terms, subject
to bankruptcy, insolvency, moratorium or similar rights and remedies of
creditors generally and general principles of equity; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby subject to; (C) to the Shareholders knowledge no party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or material default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any material
provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of the
Ottomanelli Corporations are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to a reserve for bad debts set forth in the
Financial Statements.
(r) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of any of the Ottomanelli Corporations.
<PAGE>
(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of the Ottomanelli Corporations has
been a party, a named insured, or otherwise the beneficiary of coverage at any
time within the past five (5) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the name of
each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on a
claims made, occurrence, or other basis) -and amount (including a description of
how deductibles and ceilings are calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby.
(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which any of the Ottomanelli Corporations (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or (ii) is a party or,
to the Knowledge of any of the Shareholders is threatened to be made a party to
any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator.
(u) Employees. To the Knowledge of any of the Shareholders of the
Ottomanelli Corporations, no executive, key employee, or group of employees has
any plans to terminate employment with any of the Ottomanelli Corporations. None
of the Ottomanelli Corporations is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes except
for grievances or claims in the Ordinary Course of Business. None of the
Ottomanelli Corporations has committed any unfair labor practice. None of the
Shareholders has any Knowledge of any organizational effort presently being made
or threatened by or on behalf of any labor union with respect to employees of
any of the Ottomanelli Corporations.
<PAGE>
(v) Employee Benefits.
(i) Other than with respect to indirect contributions to the Macy's
Employee Benefit Plans, none of the Ottomanelli Corporations maintains or
contributes to, an Employee Benefit Plan.
(ii) None of the Ottomanelli Corporations maintains or ever has maintained
or contributes, ever has contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
Code Sec. 498(B).
(w) Guaranties. None of the Ottomanelli Corporations is a guarantor or
otherwise is liable for any Liability or obligation (including indebtedness) of
any other Person.
(x) Environment, Health, and Safety.
(i) Each of the Ottomanelli Corporations, has complied in all material
respects with all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply. Without limiting the generality of the preceding sentence, each of the
Ottomanelli Corporations has obtained and been in compliance with all of the
terms and conditions of all permits, licenses, and other authorizations which
are required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety Laws.
(ii) None of the Ottomanelli Corporations has any Liability for damage to
any site, location, or body of water (surface or subsurface), for any illness of
or personal injury to any employee or other individual, or for any reason under
any Environmental, Health, and Safety Law, except for matters in the Ordinary
Course of Business and covered by insurance.
(y) Certain Business Relationships between the Ottomanelli Corporations and
the Shareholders. None of the Shareholders has been involved in any business
arrangement or relationship with any of the Ottomanelli Corporations within the
past 12 months, and none of the Shareholders and their Affiliates owns any
asset, tangible or intangible, which is used in the business of any of the
Ottomanelli Corporations except as described in Section 4 (y) of the Disclosure
Schedule.
(z) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
<PAGE>
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its commercially
reasonable efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the' transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Section 7 below).
(b) Notices and Consents. Each of the Parties will (and the Shareholders
will cause each of the Ottomanelli Corporations to) give any notices to, make
any filings with, and use its best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in Section 3 (a) (ii) , Section 3 (b) (ii) , and
Section 4(c) above, except as set forth in the Disclosure Schedule.
(c) Operation of Business. (i) The Shareholders will not cause or permit
any of the Ottomanelli Corporations to engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Shareholders will not cause or
permit any of the Ottomanelli Corporations to (i) declare, set aside, or pay any
dividend or make any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock or (ii) otherwise engage
in any practice, take any action, or enter into any transaction of the sort
described in Section 4(h) above.
(ii) RHC shall not engage in any practice, take any action, or enter into
any transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, RHC will not: (i) declare, set aside, or pay any
dividend or make any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock or (ii) otherwise engage
in any practice, take any action, or enter into any transaction of the sort
described in Section 4(h) above or (iii) close or suspend operations at any
restaurant.
(d) Preservation of Business. (i) The Shareholders will cause each of the
Ottomanelli Corporations to keep its business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers, and
employees.
(ii) RHC will keep its business and properties substantially intact,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
(e) Full Access. (i) Each of the Shareholders will permit, and the
Shareholders will cause each of the Ottomanelli Corporations to permit,
representatives of RHC to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of the
Ottomanelli Corporations, to all premises, properties, personnel, books, records
(including. Tax records) , contracts, and documents of or pertaining to each of
the Ottomanelli Corporations.
<PAGE>
(ii) RHC shall permit the Shareholders full access at all reasonable times,
and in a manner so as not to interfere with the normal business operations of
RHC and its subsidiaries to all premises, properties, personnel, books, records
(including Tax records) , contracts, and documents of or pertaining to RHC and
its subsidiaries.
(f) Notice of Developments. Each Party and the Shareholders with respect to
the Ottomanelli Corporations will give prompt written notice to the others of
any material adverse development causing a breach of any of his or its own
representations and warranties contained herein. No disclosure by any Party
pursuant to this Section 5(f), however, shall be deemed to amend or supplement
the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary to carry out the purposes of this Agreement, each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 8 below) . The Shareholders
acknowledge and agree that from and after the Closing RHC will be entitled to
possession of all documents, books, records (including Tax records) agreements,
and financial data of any sort relating to the Ottomanelli Corporations. RHC
acknowledges and agrees that from and after the Closing the Shareholders will be
entitled to review and make copies of all documents, books, records (including
Tax records) , agreements, and financial data of any sort relating to the
Ottomanelli Corporations.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any of the Ottomanelli Corporations , each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below)
(c) Transition. (i) None of the Shareholders will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of any of the Ottomanelli
Corporations from maintaining the same business relationships with the
Ottomanelli Corporations after the Closing as it maintained with the Ottomanelli
Corporations prior to the Closing. Each of the Shareholders will refer all
customer inquiries relating to the businesses of the Ottomanelli Corporations to
RHC from and after the Closing. None 0(pound) the Shareholders will take any
action that is designed or intended to have the effect of discouraging any
lessor, licensor, customer, supplier, or other business associate of any of the
Ottomanelli Corporations from maintaining the same business relationships with
the Ottomanelli Corporations after the Closing as it maintained with the
Ottomanelli Corporations prior to the Closing. Each of the Shareholders will
refer all customer inquiries relating to the businesses of the Ottomanelli
Corporations to RHC from and after the Closing.
<PAGE>
(d) Confidentiality. (i) Each of the Shareholders will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to RHC or destroy, at the request and option of RHC, all tangible
embodiments (and all copies) of the Confidential Information which are in his or
its possession. In the event that any of the Shareholders is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that Shareholder will notify
RHC promptly of the request or requirement so that RHC may seek an appropriate
protective order or [proceed to next page] waive compliance with the provisions
of this Section 6(d). If, in the absence of a protective order or the receipt of
a waiver hereunder, any of the Shareholders is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else stand
liable for contempt, that Shareholder may disclose the Confidential Information
to the tribunal; provided, however, that the disclosing Shareholder shall use
his reasonable efforts to obtain, at the reasonable request of RHC, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as RHC shall designate.
The foregoing provisions shall not apply to any Confidential Information which
is generally available to the public immediately prior to the time of
disclosure.
(ii) RHC will treat and hold as such all of the Confidential Information,
refrain from using any of the Confidential Information except in connection with
this Agreement, and deliver promptly to the Shareholders or destroy, at the
request and option of the Shareholders, all tangible embodiments (and all
copies) of the Confidential Information which are in his or its possession. In
the event that RHC is requested or required (by oral question or request for
information or documents in a legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, RHC will notify the Shareholders promptly of the request or
requirement so that the Shareholders may seek an appropriate protective order or
waive compliance with the provisions of this Section 6 (d). If, in the absence
of a protective order or the receipt of a waiver hereunder, RHC is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that RHC may disclose the
Confidential Information to the tribunal; provided, however, that the RHC shall
use its reasonable efforts to obtain, at the reasonable request of the
Shareholders, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as the Shareholders shall designate. The foregoing provisions shall
not apply to any Confidential Information which is generally available to the
public immediately prior to the time of disclosure.
<PAGE>
(e) Covenant Not to Compete. For a period of five years from and after the
Closing Date, (i) as long as a Shareholder is employed by RHC, such Shareholder
will not engage directly or indirectly in any business that competes with the
business that the Ottomanelli Corporations or RHC conducts as of the Closing
Date, and (ii) if the Shareholder is not then employed by RHC, then the
Shareholder shall not compete in any business which and of the Ottomanelli
Corporations or RHC restaurants conducts as of the date of termination of
employment within a one-half mile radius of the Ottomanelli Corporations or RHC
restaurants; provided, however, that no owner of less than 1% of the outstanding
stock of any publicly traded corporation shall be deemed to engage solely by
reason thereof in any of its businesses. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section 6(e)
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(f) Management of RHC and Subsidiaries. Following the Closing, and for a
period of five years thereafter. The Board of Directors of RHC shall consist of
not more than five persons, two of whom shall be the Shareholders or their
designees, The Board of Directors of RHC shall also designate an Executive
Committee comprised of not more than four persons, inclusive of the Shareholders
or their designees, which shall vote by a majority of its members on all
significant transactions and remain in effect for a period of at least five (5)
years following the Closing.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of RHC. The obligation of RHC to consummate
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 (a) and
Section 4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Shareholders shall have performed and complied with all of their
covenants hereunder in all material respects through the Closing;
(iii) the Ottomanelli Corporations shall have procured all of the third
party consents specified in Section 5 (b) above;
(iv) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of RHC to own the
Ottomanelli Corporations Shares and to control the Ottomanelli Corporations , or
(D) affect materially and adversely the right of any of the Ottomanelli
Corporations to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
<PAGE>
(v) the Shareholders shall have delivered to RHC a certificate to the
effect that each of the conditions specified above in Section 7(a) (i)-(iv) is
satisfied in all respects;
(vi) the relevant parties shall have entered into the Registration Rights
Agreement, and Trademark License Agreement and the Employment Agreements and the
same shall be in full force and effect;
(vii) RHC shall have received from counsel to the Shareholders are the
Ottomanelli Corporations an opinion in form and substance as set forth in
Exhibit A attached hereto, addressed to RHC, and dated as of the Closing Date;
(viii) RHC shall have received the resignations, effective as of the
Closing, of each director and officer of the Ottomanelli Corporations other than
Nicolo Ottomanelli and Joseph Ottomanelli;
(ix) the Ottomanelli Corporations shall have delivered the Financial
Statements at least 10 days prior to Closing;
(x) all actions to be taken by the Shareholders in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
RHC;
(xi) RHC shall have obtained an agreement from the holders of its Series A
Preferred Stock whereby the holders agree to restructure the terms of the Series
A Preferred Stock substantially on the terms forth in Exhibit H annexed hereto;
(xii) RHC shall have received the Commonwealth Fairness Opinion at least 10
days prior to Closing;
(xiii) RHC shall have received a commitment letter in usual and customary
form from Commonwealth Associates LP to effect and close a private placement
offering of equity securities with gross proceeds of at least $1,500,000 on
behalf of RHC within 120 days of the Closing.
<PAGE>
RHC may waive any condition specified in this Section 7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Shareholders. The obligation of the
Shareholders to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties of RHC set forth in Section 3 (b)
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) RHC shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction [or before any arbitrator] wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation of any
of the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(iv) RHC shall have delivered to the Shareholders a certificate to the
effect that each of the conditions specified above in Section 7(b) (i)-(iii) is
satisfied in all respects;
(v) the relevant parties shall have entered into the Registration Rights
Agreement, Trademark License Agreement, RHC Warrants and the Employment
Agreements and the same shall be in full force and effect;
(vi) the Shareholders shall have received from counsel to RHC an opinion in
form and substance as set forth in Exhibit B attached hereto, addressed to the
Shareholders, and dated as of the Closing Date;
(vii) There shall be agreements entered into by RHC with respect to RHC
debt of approximately (a) $500,000 principal amount held by Mr. Botchman whereby
the same shall be converted into equity and (b) $425,000 principal amount of
debt with respect to the RHC Fairfield, Connecticut restaurant whereby the same
shall be paid or assumed by a third party;
(viii) RHC shall have received a commitment letter in usual and customary
form from Commonwealth Associates L.P. to conduct a private placement offering
of equity securities with gross proceeds of at least $1,500,000 on behalf of RHC
within 120 days of the Closing, which is reasonably satisfactory to the
Shareholders;
(ix) the Bylaws of RHC shall have been amended in form satisfactory to the
Shareholders to reflect the obligations set forth in Section 6(f) herein;
<PAGE>
(x) RHC shall have obtained an agreement from the holders of its Series A
Preferred Stock whereby the holders agree to restructure the terms of the Series
A Preferred Stock substantially on the terms set forth in Exhibit H;
(xi) all actions to be taken by RHC in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Shareholders; and
(xii) Bridge Financing of at least $150,00 reasonably satisfactory to the
Shareholders shall be obtained.
The Shareholders may waive any condition specified in this Section 7(b) if
they execute a writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or
had reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of one year from the
Closing.
(b) Indemnification Provisions for Benefit of RHC.
(i) In the event any of the Shareholders breaches (or in the event any
third party alleges facts that, if true, would mean any of the Shareholders has
breached) any of their representations, warranties, and covenants contained
herein (other than the covenants in Section 2 (a) above and the representations
and warranties in Section 3 (a) above), and, if there is an applicable survival
period pursuant to Section 8(a) above, provided that RHC makes a written claim
for indemnification against any of the Shareholders pursuant to Section 10(h)
below within such survival period, then each of the Shareholders agrees to
indemnify RHC from and against the entirety of any Adverse Consequences .RHC may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences RHC may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the breach (or the alleged breach) provided, however, that the Shareholders
shall not have any obligation to indemnify RHC from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or alleged breach) of any representation or warranty of
the Shareholders contained in until RHC has suffered Adverse Consequences by
reason of all such breaches (or alleged breaches) in excess of a $50,000
aggregate threshold (such initial $50,000 not being subject to collection by
RHC)
<PAGE>
(ii) In the event any of the Shareholders breaches (or in the event any
third party alleges facts that, if true, would mean any of the Shareholders has
breached) any of his or its covenants in Section 2 (a) above or any of his or
its representations and warranties in Section 3 (a) above, and, if there is an
applicable survival period pursuant to Section 8(a) above, provided that RHC
makes a written claim for indemnification against the Shareholder pursuant to
Section l0(h)below within such survival period, then the Shareholder agrees to
indemnify RHC from and against any Adverse Consequences RHC may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences RHC may suffer after the end of any applicable survival period)
resulting from or, arising out of, the breach (or the alleged breach).
(c) Indemnification Provisions for Benefit of the Shareholders. In the
event RHC breaches (or in the event any third party alleges facts that, if true,
would mean RHC has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 8(a) above, provided that any of the Shareholders makes a
written claim for indemnification against RHC pursuant to Section 10(h) below
within such survival period, then RHC agrees to indemnify each of the
Shareholders from and against the entirety of any Adverse Consequences the
Shareholder may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Shareholder may suffer
after the end of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against any other Party (the "Indemnifying Party")
under this Section 8, then the Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing within 15 days after the Indemnified
Party has given notice of the Third Party Claim that the Indemnifying Party
will, if final indemnification liability is established, indemnify the
Indemnified Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim, (B) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (C) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (D) the Indemnifying
Party conducts the defense of the Third Party Claim reasonably and -in good
faith.
<PAGE>
(iii) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 8(d) (ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8 (d) (ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the reasonable
costs of defending against the Third Party Claim (including reasonable
attorneys' fees and expenses) , and (C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 8. The
Indemnifying Party may participate in any proceedings at its sole cost and
expense with counsel of its choosing.
(e) Determination of Adverse Consequences. All indemnification payments
under this Section 8 shall be deemed adjustments to the Purchase Price.
(f) Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. Each of the Shareholders hereby agrees that he will not
make any claim for indemnification against any of the Ottomanelli Corporations
by reason of the fact that he or it was a director, officer, employee, or agent
of any such entity or was serving at the request of any such entity as a
partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
RHC against such Shareholder (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
<PAGE>
(g) RHC hereby agrees, notwithstanding anything to the contrary set forth
herein, that the Shareholders liability for indemnification shall be limited to
the value of the RHC Shares and RHC Warrants on the Closing Date. The
Shareholders may use the RHC Shares and RHC Warrants to pay any indemnification
liability hereunder. For purposes herein the RHC Shares and RHC Warrants shall
be valued at the greater of (i) the value on the Closing Date as recorded on the
financial statements of RHC, or (ii) the fair market value on the date of
payment. In the event that the Shareholders have sold any RHC Shares or RHC
Warrants, then the Shareholders shall deliver cash to the extent of such sale
proceeds. In addition, any claim for liability shall be reduced by the amount of
such claim or loss which is satisfied by the proceeds of insurance.
9. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) RHC and the Shareholders may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) RHC may terminate this Agreement by giving written notice to the
Shareholders on or before the 15th day following the date of this Agreement if
RHC is not reasonably satisfied with the results of its continuing business,
legal, and accounting due diligence regarding the Ottomanelli Corporations;
(iii) RHC may terminate this Agreement by giving written notice to the
Shareholders at any time prior to the Closing (A) in the event any of the
Shareholders has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, RHC has notified the
Requisite Shareholders of the breach, and the breach has continued without cure
for a period of 15 days after the notice of breach or (B) if the Closing shall
not have occurred on or before October 30, 1997, by reason of the failure of any
condition precedent under Section 7(a) hereof (unless the failure results
primarily from RHC itself breaching any representation, warranty, or covenant
contained in this Agreement).
(iv) the Shareholders may terminate this Agreement by giving written notice
to RHC at any time prior to the -Closing (A) in the event RHC has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, any of the Shareholders has notified RHC of the breach,
and the breach has continued without cure for a period of 15 days after the
notice of breach or (B) if the Closing shall not have occurred on or before
October 30, 1997, by reason of the failure of any condition precedent under
Section 7(b) hereof (unless the failure results primarily from any of the
Shareholders themselves breaching any representation, warranty, or covenant
contained in this Agreement).
(v) The Shareholders may terminate this Agreement by giving written notice
to RHC on or before the 15th day following the date of this Agreement if the
Shareholders are not reasonably satisfied with the results of its continuing
business, legal, and accounting due diligence regarding RHC.
<PAGE>
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 9(a) above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach) and except as set forth in Section 11 (1)
hereof.
10. Post-Closing Financing; Security Interest. The Parties hereby
acknowledge and understand that the Shareholders have entered into this
Agreement in anticipation of RHC receiving post-Closing equity financing in an
amount reasonably satisfactory to the post-Closing Executive Committee of the
Board of Directors of RHC in an amount deemed necessary to operate RHC and the
Ottomanelli Corporations and to assist RHC in maintaining its present listing or
reapplying for listing on the NASDAQ Stock Market. In the event that the
post-Closing financing is not consummated within 180 days of the Closing Date,
then the Shareholders shall have the option to purchase for $10.00, the
trademark "Ottomanelli Cafe(R)" trade name from RHC for their use for any
business purpose in accordance with the Trademark License Agreement. In order to
secure the rights granted herein, the Shareholders shall be granted a security
interest in and to the trade name as of the Closing Date.
11. Miscellaneous.
(a) Nature of Certain Obligations.
(i) The covenants of each of the Shareholders in Section 2 (a) above
concerning the sale of his or its Ottomanelli Corporations Capital Stock to RHC
and the representations and warranties of each of the Shareholders in Section 3
(a) above concerning the transaction are several obligations. This means that
the particular Shareholder making the representation, warranty, or covenant will
be -solely responsible to the extent provided in Section 8 above for any Adverse
Consequences RHC may suffer as a result of any breach thereof.
(ii) The remainder of the representations, warranties, and covenants in
this Agreement are joint and several obligations. This means that each
Shareholder will be responsible to the extent provided in Section 8 above for
the entirety of any Adverse Consequences RHC may suffer as a result of any
breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of RHC and the
Shareholders; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other
Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
<PAGE>
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of RHC and the Shareholders.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Shareholders: Copy to:
Nicolo Ottomanelli Stuart Sieger, Esq.
1549 York Avenue Salon Marrow & Dyckman LLP
New York, NY 10028 685 Third Avenue
New York, NY 10017
If to RHC: Copy to:
3 Stamford Landing Goldstein & DiGioia, LLP
Suite 130 369 Lexington Avenue
Stamford, CT 06902 New York, NY 10017
Attention: Stephan Stein Attention: Brian C. Daughney
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
<PAGE>
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by RHC and the
Shareholders. No waiver by any Party of any default misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(1) Expenses. Each of the Parties, will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Shareholders agree that
none of the Ottomanelli Corporations has borne or will bear any of the
Shareholders' costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby. Notwithstanding the foregoing, the parties agree that (A)
in the event the transactions contemplated herein are consummated, the
accounting fees of KPMG Peat Marwick in preparing the Financial Statements shall
be paid by RHC and (B) in the event the transactions contemplated herein are not
consummated because the Financial Statements have a material adverse deviation
from the previously delivered financial statements by more than 10% for amounts
regarded as gross revenues or results of operations (excluding $750,000 with
respect to a discontinued operation), then the Shareholders shall bear the
entire cost of the Financial Statements. In the event the transactions are not
consummated by RHC under Section 9(a) (ii) hereof, then RHC shall pay the entire
costs of the Financial Statements. Notwithstanding the foregoing, if the
transactions contemplated hereby are consummated, RHC agrees to pay up to
$60,000 of the legal and accounting expenses increased by the Shareholders.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
<PAGE>
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 10(p)
below), in addition to any other remedy to which they may be entitled, at law or
in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in New York, New York, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Each
Party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity. In the event of suit under this Agreement, the
prevailing party will be entitled to costs, including reasonable attorneys'
fees.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By: /s/
-----------------------------
Name:
Title:
/s/Joseph Ottomanelli
----------------------------
JOSEPH OTTOMANELLI
/s/Niclolo Ottomanelli
-----------------------------
NICOLO OTTOMANELLI
OTTOMANELLI BROTHERS WEST, LTD.
By: /s/
----------------------------
Name:
Title:
OTTOMANELLI'S CAFE FRANCHISING CORP.
By: /s/
----------------------------
Name:
Title:
34TH ST. CAFE ASSOCIATES INC.
By: /s/
-----------------------------
Name:
Title:
GARDEN STATE CAFE CORP.
By: /s/
----------------------------
Name:
Title:
MODIFICATION AGREEMENT TO THE
REORGANIZATION AND STOCK EXCHANGE AGREEMENT
AMONG
THE RATTLESNAKE HOLDING COMPANY, INC.,
AND
OTTOMANELLI BROTHERS WEST, LTD., OTTOMANELLI'S
CAFE FRANCHISING CORP., 34TH ST. CAFE
ASSOCIATES, INC., GARDEN STATE CAFE CORP.
AND THEIR SHAREHOLDERS
FEBRUARY 26, 1998
<PAGE>
MODIFICATION AGREEMENT
Modification Agreement made as of February 26, 1998, by and among THE
RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation and OTTOMANELLI
BROTHERS WEST, LTD., OTTOMANELLI'S CAFE FRANCHISING CORP., 34TH ST. CAFE
ASSOCIATES, INC., AND GARDEN STATE CAFE CORP. (Terms used but not defined in
this Modification Agreement have the meanings set forth in the 1997 Agreement,
as defined below.)
WHEREAS, the parties hereto entered into a Reorganization and Stock
Exchange Agreement (the "1997 Agreement"), dated August 21, 1997 (the 1997
Agreement and this Modification Agreement being referred to herein as the
"Agreement".
WHEREAS, the parties to the 1997 Agreement desire to modify and amend the
1997 Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants
hereinafter set forth, it is agreed as follows:
1. Modification of Preamble. The Preamble to the 1997 Agreement is hereby
amended to alter the definition of "Ottomanelli Corporations" to include only
Ottomanelli's Cafe Franchising Corp. and Garden State Cafe Corp.
2. Modification of Section 2. Section 2 of the 1997 Agreement is hereby
deleted and the following is inserted:
2. Merger of Ottomanelli Corporations with Subsidiaries of RHC.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, Ottomanelli's Cafe Franchising Corp, and Garden State Cafe Corp.
shall be merged with Franchising Acquisition Corp. and Otto-GSC Acquisition
Corp., respectively, (the "RHC Subsidiaries"), each a newly formed subsidiary of
RHC with only nominal assets and liabilities (referred to hereinafter as the
"Merger"), in accordance with the laws of their respective jurisdiction of
organization and pursuant to the Plans of Merger annexed hereto as Exhibits A-1
and A-2, respectively. The Ottomanelli Corporations shall be the surviving
corporations. If there is any inconsistency between the Agreement and the Plans
of Merger, the Plans of Merger shall control.
(b) The Merger Consideration. The merger consideration (the "Merger
Consideration") payable to the Shareholders by RHC shall be as follows:
<PAGE>
(i) Consideration Deliverable at Closing. RHC shall issue and deliver to
the Shareholders at the Closing (subject to Section 1(e) hereof), such number of
shares of RHC Common Stock as shall equal, after the issuance thereof 37.5% of
the RHC Common Stock issued and outstanding, (including for such purpose, all
shares of Common Stock issuable under outstanding convertible RHC securities
except for the Existing Preferred described in Section 2 (b)(ii) below) as of
the date which is one day prior to the Closing. For the purposes of the
preceding sentence, the shares issuable to J.B.L. of Nevada, Inc. and Michael
Lauer shall be deemed issuable at $.30 per share. If the shares are issued at a
different price, there shall be an appropriate, retroactive adjustment to the
number of shares of Common Stock issued to the Shareholders at Closing.
(ii) Consideration Deliverable at Private Placement. Reference is made to
the existing Series A Preferred Stock of RHC and the rights related thereto
(collectively the "Existing Preferred"). The holders of the Existing Preferred
have agreed to exchange the Existing Preferred for RHC preferred stock in the
Private Placement of a type simllar to the type being sold to investors in the
Private Placement (the preferred stock to be issued in exchange for the Existing
Preferred is referred to herein as the "New Preferred"). Simultaneously with the
closing of the Private Placement, RHC shall issue and deliver to the
Shareholders (subject to Section 1(e) hereof), such number of shares of RHC
Common Stock as shall equal 60.0% of the maximum number of shares of RHC Common
Stock into which the New Preferred could be converted as of that time.
(iii) Consideration Deliverable at Subsequent Date. RHC shall issue and
deliver to the Shareholders at the closing of the private placement described in
Section 2(d)(I)(b) below (the "Private Placement"), or April 1, 1998, whichever
is later, (subject to Section 1(e) hereof) either of the following, at the sole
election of RHC:
(A) RHC common stock purchase warrants ("Ottomanelli Warrants") to purchase
at the same exercise price (1) such number of shares of Common Stock as shall
equal 60.0% of the Common Stock underlying all RHC warrants and options
outstanding at the Closing Date, but only when and if those warrants and options
are exercised by their holders and (2) such number of shares of Common Stock as
shall equal 60.0% the Common Stock underlying the Preferred Stock or other
securities to be issued by RHC in connection with the Private Placement (except
for the New Preferred described in Section 2(b)(ii) above), but only when and if
those securities are converted by the holders of the securities issued in the
Private Placement; or
(B) Such number of shares of RHC Common Stock, in addition to the Common
Stock (the "Other Ottomanelli Issuances") issued to the Shareholders pursuant to
Sections 2(b)(i) and (ii) above, as shall equal, after issuance, 12.5% of the
RHC Common Stock issued and outstanding, including for such purpose, the Other
Ottomanelli Issuances and all shares of Common stock issuable under (1) existing
outstanding convertible RHC securities (other than the Existing Preferred) and
(2) the New Preferred, as of the closing date of the Private Placement.
The Merger Consideration shall be allocated among the Shareholders in
proportion to their respective holdings of the Ottomanelli Corporations' Capital
Stock as set forth in Section 4(b) of the Disclosure Schedule. RHC covenants and
agrees not to issue any shares of RHC Common Stock or any securities convertible
into RHC Common Stock during the period commencing one day prior to the Closing.
<PAGE>
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Robinson, Brog,
Leinwand, Greene, Genovese & Gluck, P.C., 1345 Sixth Avenue, New York, New York,
commencing at 2:00 p.m. local time on date hereof (the "Closing Date").
(d) Recission by the Shareholders. Notwithstanding the Closing, and unless
both of the following shall occur:
(i) the completion of a private placement within three business days after
Closing resulting in gross proceeds to RHC of at least $250,000; and
(ii) the completion of the Private Placement, which shall be an equity
security placement, within 60 days of the date on which a private placement
memorandum reasonably acceptable to RHC and Commonwealth Associates is
available, in the gross amount of at least $2,000,000 (which Private Placement
shall include a refinancing or payment of the September 1997 placement in the
amount of $150,000 and the post-closing placement referred to in (i) of this
subsection), the Shareholders shall have the right for fifteen (15) days to
rescind the transaction contemplated by this Agreement and have transferred to
them all of the stock of the Ottomanelli Corporations, upon delivery of all of
the Merger Consideration (other than as held in escrow pursuant to Section
1(e)), to RHC. RHC shall, in any event, bear all of the expenses of the
transactions contemplated hereby and this Agreement shall otherwise be null and
void.
(e) Escrow of Portion of Merger Consideration. Notwithstanding the
provisions of subsection (b) above, and because Ottomanelli Bros. West, Ltd. and
34th Street Cafe Associates, Inc. have been excluded from this transaction
because Macy's East, Inc. has terminated their licenses effective February 21,
1998, one half (1/2) of any Merger Consideration otherwise deliverable to the
Shareholders shall instead be placed in escrow with Hollenberg, Levin, Solomon,
Ross, Beisky & Daniels, LLP pursuant to an escrow agreement annexed hereto as
Exhibit B. It is anticipated that RHC will acquire or build one or more
restaurants following the Closing (those acquired or built within 12 months
after the Closing are referred to as the "Subject Restaurants"). If and when the
sales (net of taxes and tips) of each Subject Restaurant for the first twelve
months of its operations, when aggregated for all of the Subject Restaurants,
totals at least $4,500,000, the Merger Consideration in escrow shall be
delivered to the Shareholders. If such condition is not satisfied, the Merger
Consideration in escrow shall instead be delivered to RHC.
3. Modification to Section 3. Section 3(b) of the 1997 Agreement is
modified to add Section 3(b)(xiii) which shall read as follows:
"(xiii) Schedule 3(b)(xiii) annexed hereto sets forth as of one day prior
to the Closing Date: (a) the capitalization of RHC; (b) all current and
long-term debt of RHC; (c) all contingent obligations of RHC; (d) the amount of
authorized capital stock of RHC; (e) the number of issued and outstanding shares
of Common Stock and preferred stock of RHC; (f) the number of issued and
outstanding options and warrants; and (g) a description of the terms and
principal amount of all outstanding debt securities of RHC."
<PAGE>
4. Modification to Section 7.
(a) Section 7(a)(xiii) of the 1997 Agreement is amended to read as follows:
"(xiii) RHC shall have received a commitment letter in usual and customary
form from Commonwealth Associates to effect and close the Private Placement of
equity securities with gross proceeds of at least $2,000,000 on behalf of RHC
within 60 days of the date on which a private placement memorandum reasonably
acceptable to RHC and Commonwealth Associates is available."
(b) Section 7(b)(vii) of the 1997 Agreement is amended to read as follows:
"(vii) There shall be in fill' force and effect agreements entered into by
RHC with respect to (a) $150,000 of RHC Debt held by J.L.B. of Nevada, Inc. and
Michael Lauer, the conversion of which into Common Stock shall be automatically
effected by the Closing; and (b) a contract of sale for the Fairfield restaurant
having a purchase price of at least $350,000 and a cash payment at closing of at
least $120,000 with the balance in the form of a second promissory note (said
cash at closing to be paid to the holder of the debt on the Fairfield restaurant
and said promissory note to be pledged to the holder of such debt), with the
balance to be paid to the holder of the debt from the proceeds of the Private
Placement."
(c) Section 7(b)(viii) of the 1997 Agreement is amended to read as follows:
"(viii) RHC shall have received a commitment letter in usual and customary
form from Commonwealth Associates to effect and close the Private Placement of
equity securities with gross proceeds of at least $2,000,000 on behalf of RHC
within 60 days of the date on which a private placement memorandum reasonably
acceptable to RHC and Commonwealth Associates is available."
(d) Section 7(b)(x) of the 1997 Agreement is amended to read as follows:
"(x) RHC shall have entered into an agreement with the holders of the
Existing Preferred to exchange the same for the New Preferred, as contemplated
by Section 2(a)(ii) hereof."
(e) Section 7(b)(xii) of the 1997 Agreement is hereby deleted.
<PAGE>
5. Exhibits D and E. With respect to Exhibits E and F of the 1997
Agreement, Article IV of each Exhibit, entitled "Options", any reference to same
contained in Exhibits E and F, is hereby deleted.
6. Interim Financial Statements. The balance sheets of the Ottomanelli
Corporations as of September 30, 1997 (the "Balance Sheet Date") and their
income statements for the period from January 1, 1997 to the Balance Sheet Date
(collectively the "Interim Financial Statements") have heretofore been delivered
by the Shareholders to RHC. The Shareholders represent that the Interim
Financial Statements present fairly the financial condition of the Ottomanelli
Corporations as of such dates and the results of the operations of the
Ottomanelli Corporations for such periods, and shall be consistent with the
books and records of the Ottomanelli Corporations (which books and records are
correct and complete in all material respects).
7. Representation Letters. At Closing, the Shareholders shall execute
representation letters concerning the Merger Consideration in customary form
necessary to permit counsel to RHC to opine on the conformity of the issuance
thereof with applicable securities laws and to confirm the statements made about
them and the Ottomanelli Corporations in a private offering memorandum addressed
to the holder of RHC Preferred Stock (including the termination of the Macy's
operations on or about February 21, 1998).
8. Committee of the Board. The Shareholders, as directors of RHC, agree to
vote for the creation of a committee of the Board of Directors to administer the
interest of RHC in, and to take action on behalf of RHC concerning, the
Agreement, of which they shall not be members.
9. Further Modification to Section 3. Notwithstanding the provisions of
Section 3(b)(vi) hereof, RHC has advised the other parties that it has not filed
certain exhibits with the Securities and Exchange Commission. In addition, RHC
has advised the other parties that the RHC Common Stock is not presently traded
on either the NASDAQ Small Cap Market or the Boston Stock Exchange, and may no
longer be registered under Section 12(b) or 12(g) of the Securities Exchange Act
of 1934.
10. Modification to Section 4(h). The introduction to Section 4(h) of the
1997 Agreement is modified as follows: "Since September 30, 1997".
11. Modification to Section 4(i). With respect to Section 4(i) of the 1997
Agreement, the term "Financial Statements" includes the Interim Financial
Statements.
12. Full Force and Effect. Except as modified hereunder, the 1997 Agreement
shall continue in full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Modification
Agreement as of the day and year first above written.
THE RATTLESNAKE HOLDING COMPANY INC.
By:/s/Louis Malikow
----------------------------
Name:Louis Malikow
Title: President
/s/Joseph Ottomanelli
----------------------------
JOSEPH OTTOMANELLI, Individually
/s/Nicolo Ottomanelli
-----------------------------
NICOLO OTTOMANELLI, Individually
OTTOMANELLI BROTHERS WEST, LTD.
By:/s/Nicolo Ottomanelli
----------------------------
Name: Nicolo Ottomanelli
Title: President
OTTOMANELLI'S CAFE FRANCHISING CORP.
By:/s/Nicolo Ottomanelli
----------------------------
Name: Nicolo Ottomanelli
Title: President
34TH ST. CAFE ASSOCIATES, INC.
By:/s/Nicolo Ottomanelli
----------------------------
Name: Nicolo Ottomanelli
Title: President
GARDEN STATE CAFE CORP.
By:/s/Nicolo Ottomanelli
----------------------------
Name: Nicolo Ottomanelli
Title: President
AMENDMENT AGREEMENT
AGREEMENT made as of April 27, 1998, by and among THE RATTLESNAKE HOLDING
COMPANY, INC., a Delaware Corporation and OTTOMANELLI BROTHERS WEST, LTD.,
OTTOMANELLI'S CAFE FRANCHISING CORP., 34TH ST. CAFE ASSOCIATES, INC., and GARDEN
STATE CAFE CORP., NICOLO OTTOMANELLI and JOSEPH OTTOMANELLI (terms used but not
defined in this Amendment Agreement have the meanings set forth in the 1997
Agreement as defined below.)
WHEREAS, the parties hereto entered into a Reorganization and Stock
Exchange Agreement, dated August 21, 1997 and into a Modification Agreement
dated February 26, 1998 (such Agreements being referred to collectively as the
"1997 Agreement").
WHEREAS, the parties to the 1997 Agreement desire to further amend the 1997
Agreement.
NOW THEREFORE, in consideration of the promises and mutual covenants
hereinafter set forth, it is agreed as follows:
1. The Merger Consideration. Section 2(b)(iii) of the 1997 Agreement,
entitled "Consideration Deliverable at Subsequent Date", is hereby deleted, and
such consideration shall not be payable to the Shareholders.
2. Escrow of Portion of Merger Consideration. Section 2(c) of the 1997
Agreement, entitled "Escrow of Portion of Merger Consideration" is hereby
deleted, and none of the Merger Consideration shall be escrowed. Furthermore,
Hollenberg Levin Solomon Ross Belsky & Daniels, LLP shall be relieved of all
responsibility under an Escrow Agreement signed by it in anticipation of the
implementation of such provision.
3. Full Force and Effect. Except as modified hereunder, the 1997 Agreement
shall continue in full force and effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment Agreement
as of the day and year first above written.
THE RATTLESNAKE HOLDING COMPANY INC.
By:/s/Stephan Stein
-------------------------------
Name: Stephan Stein
Title:Secretary
/s/Joseph Ottomanelli
------------------------------
Joseph Ottomanelli, Individually
/s/Nicolo Ottomanelli
------------------------------
Nicolo Otomanelli, Individually
OTTOMANELLI BBROTHERS WEST, LTD.
By: /s/Nicolo Ottomanelli
--------------------------------
Name: Nicolo Ottomanelli
Title: President
OTTOMANELLI'S CAFE FRANCHISING CORP.
By: /s/Nicolo Ottomanelli
----------------------------------
Name: Nicolo Ottomanelli
Title: President
34TH ST. CAFE ASSOCIATES, INC.
By: /s/Nicolo Ottomanelli
----------------------------------
Name: Nicolo Ottomanelli
Title: President
GARDEN STATE CAFE CORP.
By: /s/Nicolo Ottomanelli
----------------------------------
Name: Nicolo Ottomanelli
Title: President
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, is made as of the 26th day of February,
1997 by and among The Rattlesnake Holding Company, Inc. a Delaware corporation
(the "Company"), and the persons whose names appear on the signature page
attached hereto (individually the "Holder" and collectively the "Holders").
WHEREAS, the Company, Joseph Ottomanelli an Nicolo Ottomanelli (together
the "Shareholders"), Ottomanelli Brothers West, Ltd., Ottomanelli's Cafe
Franchising Corp., 34th Street Cafe Associates, Inc. and Garden State Cafe Corp.
(collectively the "Ottomanelli Corporations") entered into a Reorganization and
Stock Exchange Agreement, dated August 21, 1997 as modified by a Modification
Agreement, dated February 26, 1998 (the "Reorganization Agreement").
WHEREAS, the consideration payable to the Shareholders under the
Reorganization Agreement mcludes the delivery of certain shares of the Company's
Common Stock par value $.OO1 per share ("Common Stock") and may include the
delivery of Common Stock purchase warrants ("Warrants") to purchase Common Stock
of the Company;
WHEREAS, it is a condition to the Reorganization Agreement that the Company
enter into this Registration Rights Agreement with the Shareholders and provide
for the registration under the Securities Act of 1933, as amended (the "Act")
of: the shares of Common Stock issued to the Shareholders under the
Reorganization Agreement and, if warrants are issued to the Holders, the shares
of Common Stock issuable on exercise of the warrants (collectively the
"Acquisition Shares").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein the parties hereby agree as follows:
1. Registration Rights and Procedures.
(a) If the Company at any time proposes to register any of its securities
under the Act, including the registration of any securities owned by
shareholders (other than in connection with a merger or acquisition on Form SA
or pursuant to Form S-8 or other comparable form), the Company shall include the
Acquisition Shares and Option Shares (for purposes of this Section 1 referred to
as the "Registerable Securities") in such registration. The Holder shall not be
required to give any notice to the Company in connection with the registration
of the Registerable Securities, it being agreed by the Company that it shall
automatically include the Registerable Securities in any such registration. Such
right shall exist for a period of the earlier of the 30th day of the month which
is 60 months from the date hereof.
<PAGE>
(b) In the event the Holders have not sold all of their Registerable
Securities in connection with a registration statement pursuant to Section 1,
and provided that the Holders procure an underrr'riter to conduct an
underwritten offering of their Registerable Securities on a "firm commitment
basis" or "best efforts basis", the Holders of a majority of the Registerable
Securities shall, have the right, on one occasion, to demand that the Company
file with the Securities and Exchange Commission "(SEC") a registration
statement under the Act on an appropriate from to register for sale some or all
of the Registerable Securities. In order to execute the right granted under this
Section 1(1,) the Holders shall deliver a written notice to the Company. The
Company shall use its best efforts to file a registration statement with the SEC
within 90 days of such demand notice. The Company ftirther undertakes to use
commercially reasonable efforts to have the registration statement declared
effective within 90 days after it is filed and to keep such registration
statement effective and "current" until the later of nine (9) months from the
effective date of the registration statement, or such time as all of the
Registerable Securities shall have been sold, not to exceed two years.
(c) Cooperation with Company. The Holders will cooperate with the Company
in all respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Company and executing and returning
all documents reasonably requested by the Company in connection with the
registration and sale of the Registerable Securities.
(d) If and whenever the Company is required by any of the provisions of
this Agreement to use commercially reasonable efforts to effect the registration
of any of the Registerable Securities under the Act, the Company shall (except
as otherwise provided in this Agreement), as expeditiously as possible (subject
any conditions set forth in Section l) above in the event of a demand
registration):
(i) prepare and file with the SEC a registration statement on an
appropriate form and shall use its best efforts to cause such registration
statement to become effective and remain effective until all the Registerable
Securities are sold.
(ii) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Act with respect to the sale or other disposition of all
securities covered by such registration statement whenever the Holder or Holders
of such securities shall desire to sell or otherwise dispose of the same
(including prospectus supplements with respect to the sales of securities from
time to time in connection with statement pursuant to Rule 415 of the SEC);
(iii) furnish to each Holder such numbers of copies of a summary prospectus
or other prospectus, including a preliminary prospectus or any amendment or
supplement to any prospectus, m conformity with the requirements of the Act, and
such other documents, as such Holder may reasonably request in order to
facilitate the public sale or other disposition of the securities owned by such
Holder;
<PAGE>
(iv) use commercially reasonable efforts to register and quali~ the
securities covered by such registration statement under such other securities or
blue sky laws of suchjurisdictions as the Holders shall reasonable request, and
do any and all other acts and things which may be necessary or advisable to
enable each Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
shall not for any such purpose be required to quali~ to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified or to file
therein any general consent to service of process.
(v) use commercially reasonable efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange or NASDAQ Stock Market.
(vi) enter into and perform its obligations under an underwriting
agreement, if the offering is an underwritten offering, in usual and customary
form, with the managing underwriter or underwriters of such underwritten
offering.
(vii) notify each Holder of Registerable Securities covered by such
registration statement, as any time when a prospectus relating thereto covered
by such regisration statement is required to be delivered under the Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(viii) furnish, as the request of any Holder on the date such Registerable
Securities are delivered to the underwriters for sale pursuant to such
registration or, if such Registerable Securities are not being sold through
underwriters, on the date the registration statement with respect to such
Registerable Securities becomes effective, (Li) an opmion, dated such date, of
the counsel representang the Company for the purpose of such registration,
addressed to the underwriters, if any, and to the Holder making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as the Holder of such Registerable Securities may
reasonably request and are customarily included in such an opinion and (ji)
letters, dated, respectively, (1) the effective date of the registration
statement and (2) the date such Registerable Securities are delivered to the
underwriters, if any, for sale pursuant to such registration from a firm of
independent certified public accountants of recogni~ standing selected by the
Company, addressed to the underwriters, if any, and to the Holder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such l~ers are being given as
the Holder of such Registerable Securities may reasonably request and are
customarily included in such letters; and
(ix) take such other actions as shall be reasonably requested by any Holder
to facilitate the registration and sale of the Registerable Securities;
provided, however, that the Company shall not be obligated to take any actions
not specifically required elsewhere herein which in the aggregate would cost in
excess of $5,000.
<PAGE>
2. Restrictions on Transfer of Acquisition Shares and Option Shares.
(a) In the event: (i) the Company has declared effective a registration
statement for an underwritten public offering of its securities prior to the
date that the Holder's piggyback or demand registration becomes effective, or
(ii) the Company entered into a letter of intent with a placement agent within
120 days of the date hereof for the sale, m a private placement offering, of its
securities, then the Holder shall deliver to the underwriter or placement agent,
as the case may be, a lock-up agreement whereby the Holder agrees that the
Acquisition Shares shall be subject to a lock up for a term equal to the term,
if any, agreed to by other officers and directors of the Company and as
otherwise of customary duration.
(b) Notwithstanding anything to the contrary contained herein except for
any lock-up provided in Section 2(a) hereof, the Holder hereby agrees that none
of the Acquisition Shares may be sold prior to a date which is 360 days from the
date hereof, and that this provision may not be waived or amended by the Company
without the unanimous vote of all of the directors of the Company. Commencing
(i) 360 days from the date hereof, the Holder may sell up to 25% of the
Acquisition Shares ; (ii) 480 days from the date hereof the Holder may sell up
to 50% of the Acquisition Shares ; and (iii) 720 days from the date hereof may
sell 100% of the Acquisition Shares. The Holder hereby understands and agrees
that a legend may be placed upon all certificates representing the Acquisition
Shares, and that the transfer agent shall be notified of the provisions herein
and a "stop order" shall be placed against the transfer of any such
certification.
3. Expenses. All expenses incurred in any registration of the Holders'
Acquisition Shares under this Agreement shall be paid the Company, including,
without limitation, printing expenses, fees and disbursements of counsel for the
Company and each participating Holder, expenses of any audits to which the
Company shall agree or which shall be necessary to comply with governmental
requirements in connection with any such registration, all registration and
filing fees for the Holders' Acquisition Shares under Federal and state
securities laws, and expenses of complying with the securities or blue sky laws
of any jurisdictions; provided, however, the Company shall not be liable for (a)
any discounts or commissions to any underwriter; ~) any stock transfer taxes
incurred with respect to Acquisition Shares or (c) the fees and expenses of
counsel for any Holder, provided that the Company will pay the costs and
expenses of Company counsel when the Company's counsel is representmg any or all
selling security holders.
4. Indemnification. In the event any Acquisition Shares are mcluded in a
registration statement pursuant to this Agreement:
(a) Without limitation of any other indemnity provided to any Holder,
either in connection with the offering or otherwise, to the extent permitted by
law, the Company shall indemni~ and hold harmless each Holder, the affiliates,
officers, directors and partners of each Holder, any underwriter (as defmed in
the Act) for such Holder, and each person, if any, who controls such Holder or
underwriter (within the meaning of the Act or the Securities Exchange Act of
1934 (the "Exchange Act"), against any losses, claims, damages or liabilities
Uoin or several) to which they may become subject under the Act, the Exchange
Act or other federal or sttte law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement including any preliminary
<PAGE>
prospectus or fiaal prospectus contained herein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary tojake the statements
therein not misleading, and (iii) any violation or alleged violation by the
Company of the Act, or the Exchange Act, or (iv) any state securities law or any
rule or regulation promulgated under the Act, the Exchange Act or any state
securities law, and the Company shall reimburse each such Holder, affiliate,
officer or director or partner, underwriter or controlling person for any legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to any Holder in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information finnished expressly for use in connection with such
registration by any such Holder or any other officer, director or controlling
person thereof (a "Holder Statement").
(b) Holder Indemnity. Each Holder shall indemnif~ and hold harmless the
Company, its affiliates, its counsel, officers, directors, shareholders and
representatives, any underwriter (as defined in the Act) and each persen, if
any, who controls the Company or the underwriter (within the meaning of the Act
or liabilities ('oin or several) to which they may become subject under the Act,
the Exchange Act or any state securities law, and the Holder shall reimburse
each such affiliate, officer or director or parrner, underwriter or controlling
person for any legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
insofar as such losses, claims damages or liabilities (or actions and respect
thereof) arise out of or are based upon any Holder Statement; ptovided, however,
such indemnification shall not exceed the amount of sale proceeds received by
such indemnif~ing Holder.
(c) Notice: Right to Defend. Promptly after receipt by an indemnified party
under this Section 4, of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 4
deliver to the indemni~ing party a written notice of the commencement thereof
and the indemnifying party shall the right to participate in and if the
indemnifying party agrees in writing that it will be responsible for any costs,
expenses, judgments, damages and losses incurred by the indemnified party with
respect to such claim, jointly with any other indemni~ing party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes that
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnif~ing party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Agreement only if and to the extent that such failure is
prejudicial to its ability to defend such action, and the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Agreement.
<PAGE>
(d) Contribution. If the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the fault of the indemnified
party and the indemnifying party in connection with the statements or omissions
which resulted in such loss, liability, claim, damage or expense as well as any
other relevant equitable considerrrions. The relative fault of the indemnifying
party and the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the foregoing, the amount any Holder
shall be obligated to contribute pursuant to the Agreement shall be limited to
an amount equal to the proceeds to such Holder of the Registerable Securities
sold pursuant to the registration statement which gives rise to such obligation
to contribute (less the aggregate amount of any damages which the Holder has
otherwise been required to pay in respect of such loss, claim, damage, liability
or action or any substantially similar loss, claim, damage, liability or action
arising from the sale of such Registerable Securities).
(e) Survival of Indemnity. The indemnification provided by this Agreement
shall be a continuing right to indemnification and shall survive the
registration and sale of any Acquisition Shares by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
5. Limitation on Other Registration Rights. Except as otherwise set forth
in this Agreement, the Company shall not, without the prior written consent of
the Holders of Acquisition Shares representmg a majority thereof held by all the
Holders, file any registration statement filed on behalf of any person
(including the Company) other than a Holder to become effective during any
period when the Company is not in compliance with this Agreement.
6. Remedies
(a) Time is of Essence. The Company agrees that time is of the essence of
each of the covenants contained herein and that, in the event of a dispute
hereunder, this Agreement is to be interpreted and construed in a manner that
will enable the Holders to sell their Acquisition Shares as quickly as possible.
Any delay on the part of the Company not expressly permitted under this
Agreement, whether material or not, shall be deemed a material breach of this
Agreement.
<PAGE>
(b) Remedies Upon Default or Delay. The Company acknowledges the breach of
any part of this Agreement may cause irreparable harm to a Holder and that
monetary damages alone may be inadequate. The Company therefore agrees that the
Holder shall be entitled to injunctive relief or such other applicable remedy as
a court of competent jurisdiction may provide. Nothing contained herein will be
construed to limit a Holder's right to any remedies at law, including recovery
of damages for breach of any part of this Agreement.
7. Notices.
(a) All communications under this Agreement shall be in writing and shall
be mailed by first class mail, postage prepaid, or telegraphed or telexed with
confirmation of receipt or delivered by hand or by overnight delivery service,
(b) If to the Company, at:
The Rattlesnake Holding Company, Inc.
439 East 82nd Street
New York, New York 10028
or at such other address as it may have fiii~shed in writing to the Holders
of Acquisition Shares and Option Shares at the time outstanding, or
(c) if to any Holder of any Acquisition Shares, to the address of such
Holder as it appears in the stock or waarant ledger of the Company or such
address as may be provided to the Company.
(d) Any notice so addressed, when mailed by registered or certified mail
shall be deemed to be given on the first attempted date of delivery after so
mailed, when telegraphed or faxed shall be deemed to be given when transmitted,
or when delivered by hand or overnight shall be deemed to be given when
delivered.
8. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the Company and each of the Holders.
9. Amendment and Waiver. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, but only with the written consent
of the Company and the Holders of securities representing a majority of the
Registerable Securities; provided, however, that no such amendment or waiver
shall take away any registration right of any Holder of Registerable Securities
or reduce the amount of reimbursable costs to any Holder of Registerable
Securities in connection with any registration hereunder without the consent of
such Holder; further provided, however, that without the consent of any other
Holder of Registerable Securities, any Holder any from time to time enter into
one or more agreements amending, modifying or waiving the provisions of this
Agreement if such action does not adversely affect the rights or interest of any
other Holder of Registerable Securities. No delay on the part of any party in
the exercise of any right, power or remedy shall operate as a waiver thereof;
nor shall any singie or partial exercise by any party of any right, power or
remedy preclude any other or flirther exercise thereof; or the exercise of any
other right, power or remedy.
<PAGE>
10. Counterparts. One or more counterparts of this Agreement may be signed
by the parties, each of which shall be an original but all of which together
shall constitute one and same instrument.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
12. Submission to Jurisdiction. Each of the parties submits to the
jurisdiction of any state or Federal court sitting in New York, New York, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance or
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Each
Party agrees that a fmal judgment in holding the same can have a property right
(b) all trademarks1 service marks, trade dress, logos, trade lames, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals) , but excluding any publicly or generally available information,
(f) all computer software (including data and related docmentation) , and (g)
all copies and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4(g) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.
<PAGE>
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37)
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency)
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability corporation, an association, a joint stock company, a trust, a joint
venture, an unincorporated any action or proceeding so brought shall be
conslusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity. In the event or suit under this Agreement, the
prevailing party will be entitled to costs, including reasonably attorneys'
fees.
13. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shalkl not be
affected thereby.
14. Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions thereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date above written.
THE RATTLESNAKE HOLDING COMPANY, INC.
BY: /s/Louis Malikow
-----------------------------
Louis Malikow
BY: /s/Nicolo Ottomanelli
-----------------------------
Nicolo Ottomanelli
136 Old Tappan Road
Old Tappan, New Jersey 07675
BY: /s/Joseph Ottomanelli
-----------------------------
Joseph Ottomanelli
AGREEMENT made as of the ______ day of October 1998, by and between THE
RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (hereinafter referred
to as the "Company"), having a place of business at 439 East 82nd Street, New
York, New York 10028 and SHELLY FRANK, residing at_____________________
(hereinafter referred to as "Mr. Frank").
RECITALS
The Company desires to retain the services of Mr. Frank, and Mr. Frank
desires to provide his services, on the terms set forth herein.
In addition, the Company desires Mr. Frank to protect certain proprietary
interests of the Company concerning non-disclosure and non-competition, and Mr.
Frank desires to do so, on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties herein, the parties hereto agree as follows:
1. Services of Mr. Frank. (a) Mr. Frank is hereby engaged as general
advisor to the Company on all matters pertaining to the business of the Company
and its subsidiaries, and will provide such advice and consultation as Mr. Frank
deems appropriate, and which is consistent with Mr. Frank's experience and
expertise. Services rendered under this Agreement shall not materially interfere
with Mr. Frank's other business activities. Mr. Frank shall perform his services
under this Agreement solely as an independent contractor and not as an agent or
employee of the Company or any subsidiary of the Company. The Company shall not
be responsible for the payment of any withholding taxes, FICA, workers'
compensation, insurance, disability benefits or any fringe benefits and Mr.
Frank is not entitled to any of the same. The only compensation and benefits to
which Mr. Frank shall be entitled hereunder is as set forth in Sections 3 and 4
hereof However, if the CWA Financing (as defined below) is not funded by
November 15, 1998, this Agreement shall become null and void, except that Mr.
Frank will be compensated at the rate of $1,000.00 per day to the date of
termination of this Agreement.
(b) Mr. Frank will act as a director of the Company and serve as Chairman
of the Board of Directors, if requested to do so by the Company on or after date
on which the Company completes a private placement conducted for it by
Commonwealth Associates of equity or non-performing convertible debt with
proceeds to the Company, net of all fees, commissions and expenses, of at least
$4,100,000 (the "CWA Financing").
2. Term. The term for the services described in Section 1 hereof, except if
earlier terminated pursuant to Section 5 hereof, shall be for a period of three
(3) years commencing on September 15, 1998. The term shall then continue from
year to year thereafter unless either party gives notice to the contrary to the
other party not less than 90 days prior to the commencement of any such one year
extension period.
<PAGE>
3. Compensation.
(a) Mr. Frank shall serve without regular, periodic compensation.
(b) Mr. Frank shall be entitled to a performance bonus in accordance with
the plan annexed hereto as Exhibit A.
(c) Mr. Frank shall receive an warrant, in the form of Exhibit B hereto, to
purchase an amount of Common Stock equal to fifteen (15%) percent of the
outstanding Common Stock of the Company after the CWA Financing at $0.20 per
share, exercisable for a period of five (5) years, and a right to purchase an
amount of Common Stock equal to 15% of outstanding options and warrants (other
than Exhibit B and a similar warrant for Kenneth Berry), which warrant will vest
at the time of the CWA Financing.
(d) The Company shall use its best efforts to obtain and retain $10 million
of officer/director liability insurance in a form acceptable to Mr. Frank. Until
such insurance is in fill' force and effect, the provisions of Section 1(b)
shall not be in effect, and Mr. Frank shall be compensated as in Section 1(a).
(e) The Company shall use its best efforts to structure the option
described in Section 3(c) 50 that the grant of the same is not a taxable event.
In the event that the option grant is taxable, the option grant shall be
deferred at the request of Mr. Frank, but the terms will not change.
(f) Mr. Frank shall have a right of first refusal, to be set forth in a
separate agreement with customary terms, to purchase up to fifty (50%) percent
of any future securities offerings of the Company made by or though Commonwealth
Associates.
4. Expenses. Mr. Frank shall be entitled to reimbursement for expenses
reasonably incurred by him in the course of his duties hereunder upon his
accounting therefor. Such expenses shall include, but not be limited to,
expenses reasonably incurred by Mr. Frank while rendering services from his home
office, and any and all business related expenses associated with travel to or
on behalf of the Company, including automobile mileage and first class air fare.
5. Termination.
(a) The term of this Agreement may be ended prior to the date specified in
Section 2, under the following conditions:
(i) Upon the death of Mr. Frank;
( ii) Upon notice to Mr. Frank of any act of fraud, embezzlement,
misappropriation or gross failure to perform duties:
<PAGE>
(iii) Thirty (30) days after notice to Mr. Frank of his breach of his
duties hereunder (other than as set forth in (ii) above), unless such breach is
fully remedied before the end of such thirty (30) day period.
(iv) If Mr. Frank shall be both unavailable for a period of at least 90
days continuously or a total of 90 days within any 180 day period, and shall be
so mentally or physically incapacitated or disabled as to be unable to perform
his duties hereunder during such period and at the time of termination.
(b) Upon any termination of this Agreement under Section 5(a), the Company
shall not be obligated to pay any compensation or expenses or provide other
benefits other than those accrued to the date of termination. Mr. Frank shall be
deemed to have resigned as a director and shall also deliver to the Company all
property of the Company which may then be in Mr. Frank's possession.
(c) This Agreement may be terminated on thirty (30) days' notice by either
party, provided; however, that if the Company terminates this Agreement, Mr.
Frank shall retain any and all compensation in his possession and any
compensation earned and not yet received prior to the date of termination. In
addition, Mr. Frank will be entitled to the full bonus amount for the year of
termination.
6. Non-Disclosure of Confidential Information. Mr. Frank acknowledges that
it is the policy of the Company to maintain as secret and confidential all
information relating to its products, services and operations and the identity
of suppliers, franchisees and customers (the "Confidential Information"), and
Mr. Frank further acknowledges that the Confidential Information is of
substantial value to the Company. Accordingly, Mr. Frank agrees that he will
not, during or after the termination of this Agreement, disclose or use any
Confidential Information other than in connection with the business of the
Company.
7. Non-Solicitation. Mr. Frank agrees that for a period of two (2) years
after termination of this Agreement, for any reason, he will not (a) solicit a
business relationship with persons who are franchisees of the Company on the
date of termination which is directly competitive with the business relationship
of the Company with such persons.
8. No Other Restrictions. Except for the provisions of Sections 6 and 7,
Mr. Frank shall in no way be limited as to the types of business activities
which he may choose to engage in both during and after the term of this
Agreement.
9. Compliance with Law. Mr. Frank covenants and agrees to perform his
services in compliance with all applicable laws, rules and regulations of
governmental agencies of which he is aware or of which the Company makes him
aware and in a manner which does not intentionally violate the rights of any
third person, and to timely pay all taxes relating to all payments hereunder.
10. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed given when
delivered to a party or on the first attempted date of delivery after the same
is mailed to a party, certified mail, return receipt requested, to the addresses
set forth herein or such other address of which notice is given in accordance
herewith.
<PAGE>
11. Modification and Waiver. This Agreement may not be changed or
terminated orally but only in a writing signed by the parties hereto, and no
waiver of a breach of any provision hereof shall be effective unless in writing
signed by the party against whom enforcement is sought. No such waiver shall
operate or be construed as a waiver of any subsequent breach of such provisions.
12. Applicable Law. This Agreement shall be subject to and governed by the
laws of the State of New York.
13. Remedies. The Company, in addition to any other remedy or remedies to
which it may be entitled, shall be entitled to obtain injunctive relief against
any breach or threatened breach by Mr. Frank of the provisions of Sections 6 and
7 hereof In the event of a dispute hereunder, the party prevailing shall be
entitled to recover its reasonable expenses, including counsel fees, from the
party not prevailing.
14. Representation of Mr. Frank. Mr. Frank hereby represents and warrants
that he is not bound by any contract, agreement, court order or decision which
conflicts in any manner with the duties to be performed by him hereunder or
which would limit, in any respect, the right of his to use any of his knowledge
or experience in the performance of his duties hereunder.
15. Captions. The underlined captions set forth herein are descriptive
only, and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By --------------------------
Authorized Signature
/s/Shelly Frank
--------------------------
SHELLY FRANK, Individually
<PAGE>
EXHIBIT A
Performance Incentive Plan
Annual incentive based on 3 measures: The excess over target of New Stores
open, Sales and Pre-Tax Income (000s omitted).
<TABLE>
<CAPTION>
FY1 FY2 FY3 FY4 FY5
<S> <C> <C> <C> <C>
New Stores Open:
Target 1 2 3 6 9
Optimum 2 3 5 8 10
Revenue:
Target $2,000 $4,000 $6,000 $10,000 $25,000
Optimum 3,000 5,500 7,500 15,000 32,000
Pre-tax Income:
Target $ -0- $ 200 $ 400 $ 600 $ 1,500
Optimum 100 350 600 1,200 2,500
</TABLE>
Formula: For each store open in excess of Target but less than Optimum,
$7,500 would go into the Performance Incentive Pool. Stores open in excess of
Optimum would have $10,000 credited to the Pool. For Revenue in excess of Target
but less than Optimum 1% goes into pool, and Revenue in excess of Optimum 1.5%.
For Pre-tax Income between Target and Optimum, the bonus credit would be 2%, and
3% for Pre-tax Income in excess of Optimum. Pre-tax Income is calculated before
the bonus amount and thus is not the reported Pre-tax Income. Each category of
the bonus calculation stands on it's own and is not dependant on meeting the
Target level in another category for bonus to accrue. The amount in the bonus
pool can be distributed to management above the store operating level including
the Chairman, in whole or in part, at the sole discretion of the Chairman. The
Chairman will have total discretion over the amount of the bonus pool he takes
for himself as well as, if the bonus will be awarded in cash, stock or a
combination of both. A store level bonus plan will also be implemented. In
addition, the Board of Directors may provide a discretionary cash and/or stock
bonus to any/all senior manager as/when it deems appropriate, if and only if
approved by the Chairman.
<PAGE>
Exhibit B Form of Warrant
WARRANT
TO PURCHASE COMMON STOCK
OF
THE RATTLESNAKE HOLDING COMPANY, INC.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE STATUTES. SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH DISPOSITION OR
AN EXEMPTION THEREFROM UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE SECURITIES MAY BE SO
DISPOSED OF WITHOUT BEING REGISTERED.
Warrant to Purchase Certain Shares
of Common Stock
A. This is to Certify that, FOR VALUE RECEIVED, Kenneth Berry ("Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from THE
RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (the "Company")
certain fully paid, validly issued, and non-assessable shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock"), as set forth below
in this paragraph, at any time or from time to time during the period from
______________, 199__ until 5:00 p.m. New York City time on __________________,
200__ (the "Termination Date") at an exercise price of $0.20 per share. The
number of shares which may be purchased is equal to fifteen (15%) percent of the
Common Stock outstanding on the date hereof, and which would be outstanding if
all convertible securities outstanding on the date hereof were converted into
Common Stock on the date hereof The number of shares of Common Stock to be
received upon the exercise of this portion of this Warrant and the price to be
paid for each share of Common Stock underlying this portion of this Warrant may
be adjusted from time to time as hereinafter set forth. The above is referred to
as the "A Portion".
B. In addition, the Holder shall be entitled, during the term of this
Warrant, as set forth above, to purchase a number of shares of Common stock
equal to fifteen (15%) of the Common Stock or other securities which may be
purchased by persons other than the Holder and Shelly Frank under all options
and warrants issued by the Company which are in effect on the date hereof, to
the extent such shares are purchased during the term of this Warrant, as set
forth above. The exercise price shall be equal to the price per share paid by
the person exercising such option or warrant. The exercise may take place after
the exercise of such option or warrant and prior to termination of this Warrant.
The above is referred to as the "B Portion".
<PAGE>
The shares of Common Stock deliverable upon exercise of this Warrant, and
as adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." The right of exercise will vest immediately as to one-third of
the shares purchasable hereunder, and additional one third vesting shall take
place at each of the first and second anniversary of the date hereof, provided
the Holder is then employed by the Company.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
at any time or from time to time on or after issuance, as set forth above and
until the Termination Date; provided, however, that if such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day. This
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office, or, at the Company's option, at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrants, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Holder a certificate or certificate for
the Warrant Shares issuable upon such exercise, 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 rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
<PAGE>
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
system; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and lowest asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable and transferable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or, at the Company's
option, at the office of its stock transfer agent, if any, for other Warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
<PAGE>
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ADJUSTMENT. The Warrant Shares and Exercise Price of the A Portion
shall be subject to adjustment from time to time as follows (this provision
shall not apply to the B Portion, which shall reflect any adjustments in the
referenced options and warrants):
(1) If the Company shall (A) declare a dividend or make a distribution on
its Common Stock in shares of its Common Stock, (B) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (C)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Warrant Shares and Exercise Price in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of this Warrant exercised after such date shall be entitled
to receive the number of shares of Common Stock which he would have owned or
been entitled to receive had this Warrant been exercised immediately prior to
such date. Successive adjustments in the Warrant Shares and Exercise Price shall
be made whenever any event specified above shall occur.
(2) In case of any consolidation with or merger of the Company with or into
another corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Company as an entity or substantially as an
entity, this Warrant shall after the date of such consolidation, merger, sale,
lease or conveyance be exercisable for the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon exercise
of this Warrant would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant.
(3) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least two cents ($.02) in
such price; provided, however, that any adjustments which by reason of this
Subsection (3) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including the Warrants).
<PAGE>
(4) In the event that at any time, as a result of an adjustment made
pursuant to this Section (f), the Holder of this Warrant thereafter shall become
entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section (f).
(5) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon exercise of this Warrant, Warrant Certificates
theretofore or thereafter issued upon exchange, transfer, assignment, loss of
certificate or upon exercise in part may continue to express the same price and
number and kind of shares as were stated in the Warrant Certificates when the
same were originally issued.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with the stock transfer agent responsible for this Warrant, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to all of the holders
of Common Stock for subscription or purchase by them any share of any class or
any other rights or (iii) if any capital reorganization of the Company,
<PAGE>
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least ten days prior the date
specified in (A) or (B) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (A) a record is
to be taken for the purpose of such dividend, distribution or rights, or (B)
such reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up is to take place and the date,
if any is to be fixed, as of which the holders of Common Stock or other
securities shall receive cash or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up.
(i) REGISTRATION RIGHTS. The Holder and the Company are also parties to an
Investor Rights Agreement dated ___________________ 1998.
(j) AMENDMENT; WAIVER OF PROVISIONS. This Warrant may not be amended by or
compliance with any provision hereof waived without the written consent of
holders of the majority of the Warrants and/or Warrant Shares.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By:________________________
President
<PAGE>
RE: THE RATTLESNAKE HOLDING COMPANY, INC. WARRANT
PURCHASE FORM
Dated __________________________
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ______________________________________________________
shares of Common Stock and hereby makes and delivers payment of
____________________________________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _________________________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________________
Signature_________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________ hereby sells, assigns
and transfers unto
Name _________________________________________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the
extent of_______ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________________________ Attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Date __________________ Signature ___________________________________________
EMPLOYMENT AGREEMENT
AGREEMENT made as of the ______ day of October, 1998, by and between THE
RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (hereinafter referred
to as the "Company"), having a place of business at 439 East 82nd Street, New
York, New York 10028 and KENNETH BERRY, residing at
_________________________________ ___________________________________
(hereinafter referred to as the "Employee").
WITNESSETH:
In consideration of the mutual covenants herein contained, the parties
hereto agree as follows.
1. Employment. The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to accept such employment, subject to the terms and
conditions hereinafter set forth.
2. Term. The term of the Employee's employment hereunder, except if earlier
terminated pursuant to Section 6 hereof, shall be for a period of three (3)
years from the later of (i) September 15, 1998 and (ii) thirty (30) days after
the date on which the Company completes a private placement conducted for it by
Commonwealth Associates (the "CWA Financing") of non-performing convertible debt
or equity with proceeds to the Company, net of all fees, commissions and
expenses, of at least $4,100,000. The term shall then continue from year to year
thereafter unless either party gives notice to the contrary to the other party
not less than 90 days prior to the commencement of any such one year extension
period.
3. Duties.
(a) During the continuance of this Agreement, the Employee agrees to devote
his attention, full time and best efforts to the rendition of his services
hereunder, which shall include such executive responsibilities as may be
assigned to him from time to time by the Board of Directors of the Company, and,
during the term, shall act as President and/or Chief Executive Officer and a
member of the Board of Directors. Subject to the control of the Board of
Directors, the Employee shall perform such executive duties as are assigned by
the Chairman of the Board of Directors.
(b) The Employee shall be entitled to make personal investments, provided
that none of the same are directly or indirectly competitive with the business
of the Company and further provided that any such activities do not detract from
the services to be rendered by the Employee hereunder.
4. Compensation. In consideration of all of the services to be rendered by
the Employee hereunder, the Employee shall be paid, and he agrees to accept
compensation as follows:
<PAGE>
(a) Compensation at an annual rate of Ninety Five Thousand Dollars
($95,000.00), payable at least bi-weekly in arrears less applicable withholding
taxes, subject to such increases, if any, as may be approved by the Board of
Directors of the Company.
(b) A bonus of $30,000.00 (less applicable deductions) payable at the
commencement of the term.
(c) A performance bonus in accordance with the plan annexed hereto as
Exhibit A.
(d) A warrant, in the form of Exhibit B hereto, to purchase an amount of
Common Stock equal to ten (10%) percent of the outstanding Common Stock of the
Company after the CWA Financing at $0.25 per share, exercisable for a period of
five (5) years, and a right to purchase an amount of Common Stock equal to ten
(10%) of outstanding options and warrants (other than Exhibit B and a similar
warrant for Shelly Frank), which warrant will vest as to one third of the number
of shares covered thereby at the time of the CWA Financing and one-third (1/3)
at the end of each one year period thereafter during the term.
(e) Such other stock option grants as are determined by the Compensation
Committee of the Board of Directors.
(f) $250,000 of term life insurance (subject to the insurability of the
Employee).
5. Benefits.
(a) The Employee shall be entitled to such benefits as may be made
available by the Company to its executives, including vacations, sick leave,
medical and life insurance. At the Employee's request, the Company shall
reimburse the Employee for his COBRA costs in lieu of medical insurance for the
period that the COBRA benefits are in effect, and thereafter the Employee shall
be covered under the Company's medical insurance plan (or if there is none, by a
suitable separate family medical insurance policy).
(b) Except as hereinafter provided in Section 6 hereof, the Company shall
pay the Employee, for any period during which he is unable fully to perform his
duties because of physical or mental disability or incapacity, an amount equal
to the compensation due him for such period less the aggregate amount of all
income disability benefits which he may receive or to which he may be entitled
under or by reason of (i) any group health or accident insurance plan of the
Company; (ii) any applicable compulsory State disability law; (iii) the Federal
Social Security Act; and (iv) any applicable workmen's compensation law or
similar law.
(c) The employee shall be entitled to reimbursement for expenses reasonably
and necessarily incurred by him in the course of his duties, upon accounting
therefor.
(d) The Company will use its best efforts to obtain and retain $10 million
of officer/director liability insurance.
<PAGE>
6. Termination.
(a) The term of this Agreement may be ended prior to the date specified in
Section 2, under the following conditions:
(i) Upon the death of the Employee;
(ii) Upon notice to the Employee of any act of fraud, embezzlement,
misappropriation or gross failure to perform duties;
(iii) Thirty (30) days after notice to the Employee of his breach of his
duties hereunder (other than as set forth in (ii) above), unless such breach is
fully remedied before the end of such thirty (30) day period; and
(iv) If the Employee shall be both absent for a period of at least 90 days
continuously or a total of 90 days within any 180 day period, and shall be so
mentally or physically incapacitated or disabled as to be unable to perform his
duties hereunder during such period and at the time of termination.
(b) Upon any termination of this Agreement under Section 6(a), the Company
shall not be obligated to pay any compensation or expenses or provide other
benefits other than those accrued to the date of termination, and the Employee
shall cease to hold all positions in the Company, and such termination shall
constitute a voluntary resignation by the Employee of each office and
directorship then held by him, and the Employee shall, if requested and if able,
deliver to the Company confirmatory written resignations. The Employee shall
also deliver to the Company all property of the Company which may then be in the
Employee's possession.
7. Non-Disclosure of Confidential Information. The Employee acknowledges
that it is the policy of the Company to maintain as secret and confidential all
information relating to its products, services and operations and the identity
of suppliers, franchisees and customers (the "Confidential Information"), and
the Employee further acknowledges that the Confidential Information is of
substantial value to the Company. Accordingly, the Employee agrees that he will
not, during or after the termination of this Agreement, disclose or use any
Confidential Information other than in connection with the business of the
Company.
8. Non-Solicitation. The Employee agrees that for a period of two (2) years
after termination of this Agreement, for any reason, he will not
(a) solicit a business relationship with persons who are franchisees or
customers of the Company on the date of termination which is directly or
indirectly competitive with the business relationship of the Company with such
persons, and
(b) solicit the services of persons who are employees of the Company on the
date of termination, or who were employed by the Company at any time within the
period of one year prior to such termination.
<PAGE>
9. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed given when
delivered to a party or on the first attempted date of delivery after the same
is mailed to a party, certified mail, return receipt requested, to the addresses
set forth herein or such other address of which notice is given in accordance
herewith.
10. Modification and Waiver. This Agreement may not be changed or
terminated orally but only in a writing signed by the parties hereto, and no
waiver of a breach of any provision hereof shall be effective unless in writing
signed by the party against whom enforcement is sought. No such waiver shall
operate or be construed as a waiver of any subsequent breach of such provisions.
11. Applicable Law. This Agreement shall be subject to and governed by the
laws of the State of New York.
12. Remedies. The Company, in addition to any other remedy or remedies to
which it may be entitled, shall be entitled to obtain injunctive relief against
any breach or threatened breach by the Employee of the provisions of Sections 7,
8 and 9 hereof. In the event of a dispute hereunder, the party prevailing shall
be entitled to recover his or its reasonable expenses, including counsel fees,
from the party not prevailing.
13. Representation of Employee. The Employee hereby represents and warrants
that the Employee is not bound by any contract, agreement, court order or
decision which conflicts in any manner with the duties to be performed by the
Employee hereunder or which would limit, in any respect, the right of the
Employee to use any of the Employee's knowledge or experience in the performance
of the Employee's duties hereunder.
14. Captions. The underlined captions set forth herein are descriptive
only, and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By________________________________
Authorized Signature
/s/Kenneth Berry
-----------------------------------
KENNETH BERRY, Individually
<PAGE>
EXHIBIT A
Performance Incentive Plan
- -----------------------------------------------------------------------------
Annual incentive based on 3 measures: The excess over target of New Stores
open, Sales and Pre-Tax Income (000s omitted).
<TABLE>
<CAPTION>
FY1 FY2 FY3 FY4 FY5
<S> <C> <C> <C> <C> <C>
New Stores Open:
Target 1 2 3 6 9
Optimum 2 3 5 8 10
Revenue:
Target $2,000 $4,000 $6,000 $10,000 $25,000
Optimum 3,000 5,500 7,500 15,000 32,000
Pre-tax Income:
Target $ -0- $ 200 $ 400 $ 600 $ 1,500
Optimum 100 350 600 1,200 2,500
</TABLE>
Formula: For each store open in excess of Target but less than Optimum,
$7,500 would go into the Performance Incentive Pool. Stores open in excess of
Optimum would have $10,000 credited to the Pool. For Revenue in excess of Target
but less than Optimum 1% goes into pool, and Revenue in excess of Optimum 1.5%.
For Pre-tax Income between Target and Optimum, the bonus credit would be 2%, and
3% for Pre-tax Income in excess of Optimum. Pre-tax Income is calculated before
the bonus amount and thus is not the reported Pre-tax Income. Each category of
the bonus calculation stands on it's own and is not dependant on meeting the
Target level in another category for bonus to accrue. The amount in the bonus
pool can be distributed to management above the store operating level including
the Chairman, in whole or in part, at the sole discretion of the Chairman. The
Chairman will have total discretion over the amount of the bonus pool he takes
for himself as well as, if the bonus will be awarded in cash, stock or a
combination of both. A store level bonus plan will also be implemented. In
addition, the Board of Directors may provide a discretionary cash and/or stock
bonus to any/all senior manager as/when it deems appropriate, if and only if
approved by the Chairman.
<PAGE>
Exhibit B Form of Warrant
WARRANT
TO PURCHASE COMMON STOCK
OF
THE RATTLESNAKE HOLDING COMPANY, INC.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE STATUTES. SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH DISPOSITION OR
AN EXEMPTION THEREFROM UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE SECURITIES MAY BE SO
DISPOSED OF WITHOUT BEING REGISTERED.
Warrant to Purchase Certain Shares
of Common Stock
A. This is to Certify that, FOR VALUE RECEIVED, Kenneth Berry ("Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from THE
RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (the "Company")
certain fully paid, validly issued, and non-assessable shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock"), as set forth below
in this paragraph, at any time or from time to time during the period from
______________, 199__ until 5:00 p.m. New York City time on __________________,
200__ (the "Termination Date") at an exercise price of $0.25 per share. The
number of shares which may be purchased is equal to ten (10%) percent of the
Common Stock outstanding on the date hereof, and which would be outstanding if
all convertible securities outstanding on the date hereof were converted into
Common Stock on the date hereof The number of shares of Common Stock to be
received upon the exercise of this portion of this Warrant and the price to be
paid for each share of Common Stock underlying this portion of this Warrant may
be adjusted from time to time as hereinafter set forth. The above is referred to
as the "A Portion".
B. In addition, the Holder shall be entitled, during the term of this
Warrant, as set forth above, to purchase a number of shares of Common stock
equal to ten (10%) of the Common Stock or other securities which may be
purchased by persons other than the Holder and Shelly Frank under all options
and warrants issued by the Company which are in effect on the date hereof, to
the extent such shares are purchased during the term of this Warrant, as set
forth above. The exercise price shall be equal to the price per share paid by
the person exercising such option or warrant. The exercise may take place after
the exercise of such option or warrant and prior to termination of this Warrant.
The above is referred to as the "B Portion".
<PAGE>
The shares of Common Stock deliverable upon exercise of this Warrant, and
as adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." The right of exercise will vest immediately as to one-third of
the shares purchasable hereunder, and additional one third vesting shall take
place at each of the first and second anniversary of the date hereof, provided
the Holder is then employed by the Company.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
at any time or from time to time on or after issuance, as set forth above and
until the Termination Date; provided, however, that if such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day. This
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office, or, at the Company's option, at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrants, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Holder a certificate or certificate for
the Warrant Shares issuable upon such exercise, 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 rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
<PAGE>
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
system; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and lowest asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable and transferable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or, at the Company's
option, at the office of its stock transfer agent, if any, for other Warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
<PAGE>
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ADJUSTMENT. The Warrant Shares and Exercise Price of the A Portion
shall be subject to adjustment from time to time as follows (this provision
shall not apply to the B Portion, which shall reflect any adjustments in the
referenced options and warrants):
(1) If the Company shall (A) declare a dividend or make a distribution on
its Common Stock in shares of its Common Stock, (B) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (C)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Warrant Shares and Exercise Price in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of this Warrant exercised after such date shall be entitled
to receive the number of shares of Common Stock which he would have owned or
been entitled to receive had this Warrant been exercised immediately prior to
such date. Successive adjustments in the Warrant Shares and Exercise Price shall
be made whenever any event specified above shall occur.
(2) In case of any consolidation with or merger of the Company with or into
another corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Company as an entity or substantially as an
entity, this Warrant shall after the date of such consolidation, merger, sale,
lease or conveyance be exercisable for the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon exercise
of this Warrant would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant.
(3) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least two cents ($.02) in
such price; provided, however, that any adjustments which by reason of this
Subsection (3) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including the Warrants).
<PAGE>
(4) In the event that at any time, as a result of an adjustment made
pursuant to this Section (f), the Holder of this Warrant thereafter shall become
entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section (f).
(5) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon exercise of this Warrant, Warrant Certificates
theretofore or thereafter issued upon exchange, transfer, assignment, loss of
certificate or upon exercise in part may continue to express the same price and
number and kind of shares as were stated in the Warrant Certificates when the
same were originally issued.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with the stock transfer agent responsible for this Warrant, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to all of the holders
of Common Stock for subscription or purchase by them any share of any class or
any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
<PAGE>
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least ten days prior the date
specified in (A) or (B) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (A) a record is
to be taken for the purpose of such dividend, distribution or rights, or (B)
such reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up is to take place and the date,
if any is to be fixed, as of which the holders of Common Stock or other
securities shall receive cash or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up.
(i) REGISTRATION RIGHTS. The Holder and the Company are also parties to an
Investor Rights Agreement dated ___________________ 1998.
(j) AMENDMENT; WAIVER OF PROVISIONS. This Warrant may not be amended by or
compliance with any provision hereof waived without the written consent of
holders of the majority of the Warrants and/or Warrant Shares.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By:________________________
President
<PAGE>
RE: THE RATTLESNAKE HOLDING COMPANY, INC. WARRANT
PURCHASE FORM
Dated __________________________
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ______________________________________________________
shares of Common Stock and hereby makes and delivers payment of
____________________________________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _________________________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________________
Signature_________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________________ hereby sells, assigns
and transfers unto
Name _______________________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the
extent of_______ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________________________ Attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Date __________________ Signature ___________________________________________
CONSULTING AGREEMENT
AGREEMENT made this 20th day of July, 1998, by and between THE RATTLESNAKE
HOLDING COMPANY, INC., a Delaware corporation (the "Company"), having a place of
business at 439 East 82nd Street, New York, New York 10028, and SANDY RAPPAPORT
(the "Consultant") with a place of business at 11015 North Dale Mabry, Tampa,
Florida 33618.
RECITALS
The Consultant has extensive experience in the areas of restaurant design
and management.
The Company desires to retain the services of the Consultant, and the
Consultant desires to provide his services, on the terms set forth herein. In
addition, the Company desires the Consultant to protect certain proprietary
interests of the Company concerning non-disclosure and non-competition, and the
Consultant desire to do so, on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties herein, the parties hereto agree as follows:
1. Services of Consultant. The Consultant is hereby engaged as a consultant
to the Company on the following matters pertaining to the business of the
Company and its subsidiaries:
(a) Design of prototype store;
(b) Trade dress of store and components;
(c) Operating format, menus, operating procedures and manuals;
(d) Signage;
(e) Promotion, advertising and public relations;
(f) Construction techniques;
(g) Site evaluation and future site criteria; and
(h) Franchising advice.
The Consultants will provide such advice and consultation as the Company
may reasonably request, in each case consistent with the Consultant's experience
and expertise. The Consultant may consult in person or via telephone or written
report. The Consultant shall provide such time as is necessary for the
performance of his services, and shall make such trips to New York as shall be
reasonably required (at least one per quarter). The Consultant shall perform his
services under this Agreement solely as an independent contractor and not as an
<PAGE>
agent or employee of the Company or any subsidiary of the Company. The
Company shall not be responsible for the payment of any withholding taxes, FICA,
workers' compensation, insurance, disability benefits or any fringe benefits and
the Consultant is not entitled to any of the same. The only compensation and
benefits to which the Consultant shall be entitled hereunder are as set forth in
Paragraphs 3 and 4 hereof. The Company shall not be responsible for any injury,
loss or damage suffered by Consultant arising out of the performance of his
duties hereunder in a negligent or wrongful manner. In connection with its
services hereunder, the Consultant shall have no right to bind the Company or
any of its subsidiaries.
2. Term. The term (the "Term") for the services described in Paragraph 1
hereof, except if earlier terminated pursuant to Paragraph 5 hereof, shall be
for a period of three (3) years from the date hereof unless extended by the
parties.
3. Payment. The compensation to the Consultant for the services to be
rendered by the Consultant are as follows:
(a) The sum of $1,000.00 per month.
(b) Within sixty (60) days after the end of each year of this Agreement, a
performance bonus as determined in the good faith and sole judgment of the Board
of Directors.
(c) The issuance of a warrant to purchase common stock of the Company on
the form now used by the Company, providing as follows:
(i) Upon investing the $100,000.00 referred to in Paragraph 9(a), the
number of shares covered by the warrant shall be 300,000. Upon investing the
$50,000.00 referred to in Paragraph 9(b), the number of shares covered by the
warrant shall be increased, retroactively, to 400,000 shares.
(ii) The initial exercise price is $.48 per share.
(iii) One-third of the warrant may b exercised (cumulatively) for each one
year of the Term during which the Consultant renders services in compliance
herewith. Notwithstanding the foregoing, if (A) the Company is a party to a
merger in which it is not the surviving company, or (B) the Company sells as or
substantially all of its assets, the warrant shall then become fully
exercisable.
4. Expenses. The Consultant shall be entitled to reimbursement for expenses
reasonably incurred by it in the course of its duties hereunder including costs
of requested travel to New York upon his accounting therefor.
5. Termination of Services.
(a) The Term for the services in Paragraph 1 may be ended prior to the date
specified in Paragraph 2:
<PAGE>
(i) If there is a notice to the Consultant by the Company that the
Consultant is in material breach of his obligations hereunder which breach is
not cured within 30 days thereafter, or
(ii) If the Consultant, due to death, disability or otherwise, ceases to
render services herewith, or
(iii) If the Consultant becomes bankrupt or insolvent or ceases his
business.
(b) In the case of Paragraph (a)(ii) above, the Consultant's estate shall
be entitled to exercise the warrant presuming he rendered services to the end of
the calendar quarter in which the event referred to therein occurred.
(c) The Consultant shall deliver to the Company any property of the Company
which may then be in the Consultant's possession upon the end of the Term and
shall resign from any office then held by the Consultant.
6. Non-Disclosure of Confidential Information. The Consultant acknowledges
that it is the policy of the Company to maintain as secret and confidential all
information relating to the Company's products and services, its pricing,
practices, plans, programs, software and data, and the identity of its
customers, employees, consultants, agents and representatives (the "Confidential
Information"), and the Consultant further acknowledges that the Confidential
Information is of substantial value to the Company. Accordingly, the Consultant
agrees that he will not, during or after the Term, disclose or use any
Confidential Information other than in connection with the business of the
Company, and then only as authorized by the Company in order for the Consultant
to perform his services.
7. Non-Competition. For a period of three (3) years from the date hereof or
the Term of this Agreement, if longer, the Consultant shall not, directly or
indirectly, engage in any business actually competitive with the business of the
Company as conducted the date hereof or during the Term, in each geographic area
where the Company conducts such business. The parties agree that the duration
and scope of the non-competition provisions set forth in this Paragraph 7 are
reasonable. In the event that any court determines that the duration or the
scope, or both, are unreasonable and that such provisions are to that extent
unenforceable, the parties agree that these provisions shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render them unenforceable. The parties agree that damages are an
inadequate remedy for any breach of this Paragraph 7 and the provisions of
Paragraph 6 and that the Company shall, whether or not it is pursuing any
potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunction without bond or other security upon any
actual or threatened breach of such provisions, by the Consultant.
8. Indemnification. The Consultant covenants and agrees to perform his
services in compliance with all applicable laws, rules and regulations of
governmental agencies and in a manner which does not violate the rights of any
third person, and to timely pay all taxes relating to all compensation
hereunder. The Consultant shall indemnify and hold harmless the Company from and
against all costs and expenses which the Company may incur, including by way of
example and not limitation, reasonable counsel fees and disbursements, as a
result of the violation by the Consultant and/or Rattlesnake Holding Co., Inc.
or future assigns of their covenants and agreements set forth in this Agreement.
<PAGE>
9. Stock Purchase.
(a) The Consultant, within two days after the execution and delivery of
this Agreement, shall:
(i) Execute and deliver a stock purchase agreement in the form now used by
the Company for the purchase of $100,000.00 of common stock at $.1 per share;
(ii) Deliver a check payable to Hollenberg, Levin, Solomon, Ross, Belsky &
Daniels, LLP, as Attorneys for the amount of the purchase price; and
(iii) Deliver an offeree questionnaire indicating that the consultant is an
accredited investor (the definition of which is known to the Consultant).
(b) Not later than thirty days after the date on which a veteran food
industry executive is appointed by the Company to the Chief Executive Officer or
Chairman position, the Consultant shall invest an additional $50,000.00 on the
terms set forth in Paragraph 9(a) and take the other actions set forth therein
at $.15 per share.
(c) The provisions of Paragraphs 9(a) and 9(b) are intended to be binding
agreements of the Consultant.
10. General.
(a) Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed given when
delivered to a party or on the first attempted date of delivery after the same
is mailed to a party, certified mail, return receipt requested, to the address
set forth herein or such other address of which notice is given in accordance
herewith.
(b) Representation. The Consultant represents that he is not bound by
any agreement, court order or other obligation which may relate, directly or
indirectly, to its obligations hereunder.
(c) Modification and Waiver. This Agreement may not be changed or
terminated orally but only in a writing signed by the parties hereto, and no
waiver of a breach of any provision hereof shall be effective unless in writing
signed by the party against whom enforcement is sought. No such waiver shall
operate or be construed as a waiver of any subsequent breach of such provisions.
(d) Applicable Law. This Agreement shall be subject to and governed by the
laws of the State of New York.
<PAGE>
(e) Controversies. The parties agree that any legal proceedings hereunder
shall be brought only in the courts of the State of New York or the United
States of America, sitting in the City, County and State of New York.
(f) Captions. The underlined captions set forth herein are descriptive
only, and shall not be deemed to be a part of this Agreement.
(g) Director. At the request of the Company, the Consultant shall serve as
a director of the Company. (h) Counterparts. This Agreement may be executed in
counterparts, all of which shall form one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By:/s/Nicolo Ottomanelli
---------------------------
Nicolo Ottomanelli, President
/s/Sandy Rappaport
----------------------------
SANDY RAPPAPORT, Individually
EMPLOYMENT AGREEMENT
AGREEMENT made as of the ______ day of September, 1998, by and
between THE RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation
(hereinafter referred to as the "Company"), having a place of business at 439
East 82nd Street, New York, New York 10028 and FRANK T. FERRO, residing at
_____________________ _____________________________________________ (hereinafter
referred to as the "Employee").
WITNESSETH:
In consideration of the mutual covenants herein contained, the
parties hereto agree as follows.
1. Employment.
The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to accept such employment, subject to the terms and
conditions hereinafter set forth.
2. Term.
The term of the Employee's employment hereunder, except if earlier
terminated pursuant to Section 6 hereof, shall be for a period of three (3)
years from the later of (i) September 15, 1998 and (ii) the date on which the
Company completes a private placement conducted for it by Commonwealth
Associates (the "CWA Financing") of non-performing convertible debt or equity
with, provided the Company shall give at least 2 week's prior notice. The term
shall then continue from year to year thereafter unless either party gives
notice to the contrary to the other party not less than 90 days prior to the
commencement of any such one year extension period.
3. Duties.
(a) During the continuance of this Agreement, the Employee agrees to devote
his attention, full time and best efforts to the rendition of his services
hereunder, which shall include such executive responsibilities as may be
assigned to him from time to time by the Board of Directors of the Company, and,
during the term, shall act as Treasurer, Chief Financial Office and a Vice
President. Subject to the control of the Board of Directors, the Employee shall
perform such executive duties as are assigned by the President.
(b) The Employee shall be entitled to make personal investments, provided
that none of the same are directly or indirectly competitive with the business
of the Company and further provided that any such activities do not detract from
the services to be rendered by the Employee hereunder. In addition, during the
first year of the term, the Employee shall be entitled to complete pending
projects for Deloitte & Touche, provided that such efforts do not materially
interfere with his services to the Company, consume not more than 20% of his
time in any week and not more than 10% of his time during the first year of the
term
<PAGE>
4. Compensation.
In consideration of all of the services to be rendered by the Employee
hereunder, the Employee shall be paid, and he agrees to accept compensation as
follows:
(a) Compensation during the first year of the term at an annual rate of
Fifty Two Thousand Dollars ($52,000.00) including the value of the benefits set
forth in Section 5, payable at least bi-weekly in arrears less applicable
withholding taxes, subject to such increases, if any, as may be approved by the
Board of Directors of the Company.
(b) Compensation for the second and following years of the term at a rate
equal to that being paid chief financial officers of New York metropolitan area
based restaurant companies of a size similar to the Company. If the parties
cannot agree on compensation for the second year of the term or any following
year, at least 60 days before commencement of the same, either party can submit
the issue to binding arbitration in New York City before one arbitrator under
the rules of the American Arbitration Association, provided each party shall
submit a salary figure to the arbitrator and the arbitrator shall be limited to
determining which figure is closer to the standard set in the first sentence of
this paragraph (b). Each party shall bear its own expenses in the arbitration.
Pending the outcome of the arbitration, the salary amount there in effect shall
remain in effect, subject to retroactive adjustment.
(c) A performance bonus in accordance with the plan annexed hereto as
Exhibit A.
(d) An option, to be set forth in a separate agreement with customary
terms, to purchase up to 300,000 shares of Common Stock of the Company at $0.75
per share, exercisable for a period of five (5) years, which option will vest as
to one-third (1/3) of the number of shares covered thereby at the end of each
one year period during the term.
5. Benefits.
(a) The Employee shall be entitled to such benefits as may be made
available by the Company to its executives, including vacations, sick leave,
medical and life insurance.
(b) Except as hereinafter provided in Section 6 hereof, the Company shall
pay the Employee, for any period during which he is unable fully to perform his
duties because of physical or mental disability or incapacity, an amount equal
to the compensation due him for such period less the aggregate amount of all
income disability benefits which he may receive or to which he may be entitled
under or by reason of (i) any group health or accident insurance plan of the
Company; (ii) any applicable compulsory State disability law; (iii) the Federal
Social Security Act; and (iv) any applicable workmen's compensation law or
similar law.
(c) The employee shall be entitled to reimbursement for expenses reasonably
and necessarily incurred by him in the course of his duties, upon accounting
therefor.
<PAGE>
6. Termination.
(a) The term of this Agreement may be ended prior to the date specified in
Section 2, under the following conditions:
(i) Upon the death of the Employee;
(ii) Upon notice to the Employee of any act of fraud, embezzlement,
misappropriation or gross failure to perform duties;
(iii) Thirty (30) days after notice to the Employee of his breach of his
duties hereunder (other than as set forth in (ii) above), unless such breach is
fully remedied before the end of such thirty (30) day period; and
(iv) If the Employee shall be both absent for a period of at least 90 days
continuously or a total of 60 days within any 120 day period, and shall be so
mentally or physically incapacitated or disabled as to be unable to perform his
duties hereunder during such period and at the time of termination.
(b) Upon any termination of this Agreement under Section 6(a), the Company
shall not be obligated to pay any compensation or expenses or provide other
benefits other than those accrued to the date of termination, and the Employee
shall cease to hold all positions in the Company, and such termination shall
constitute a voluntary resignation by the Employee of each office and
directorship then held by him, and the Employee shall, if requested and if able,
deliver to the Company confirmatory written resignations. The Employee shall
also deliver to the Company all property of the Company which may then be in the
Employee's possession.
7. Non-Disclosure of Confidential Information. The Employee acknowledges
that it is the policy of the Company to maintain as secret and confidential all
information relating to its products, services and operations and the identity
of suppliers, franchisees and customers (the "Confidential Information"), and
the Employee further acknowledges that the Confidential Information is of
substantial value to the Company. Accordingly, the Employee agrees that he will
not, during or after the termination of this Agreement, disclose or use any
Confidential Information other than in connection with the business of the
Company.
8. Non-Solicitation. The Employee agrees that for a period of two (2) years
after termination of this Agreement, for any reason, he will not (a) solicit a
business relationship with persons who are franchisees or customers of the
Company on the date of termination which is directly or indirectly competitive
with the business relationship of the Company with such persons, and (b) solicit
the services of persons who are employees of the Company on the date of
termination, or who were employed by the Company at any time within the period
of one year prior to such termination.
9. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed given when
delivered to a party or on the first attempted date of delivery after the same
is mailed to a party, certified mail, return receipt requested, to the addresses
set forth herein or such other address of which notice is given in accordance
herewith.
<PAGE>
10. Modification and Waiver. This Agreement may not be changed or
terminated orally but only in a writing signed by the parties hereto, and no
waiver of a breach of any provision hereof shall be effective unless in writing
signed by the party against whom enforcement is sought. No such waiver shall
operate or be construed as a waiver of any subsequent breach of such provisions.
11. Applicable Law. This Agreement shall be subject to and governed by the
laws of the State of New York.
12. Remedies. The Company, in addition to any other remedy or remedies to
which it may be entitled, shall be entitled to obtain injunctive relief against
any breach or threatened breach by the Employee of the provisions of Sections 7,
8 and 9 hereof. In the event of a dispute hereunder, the party prevailing shall
be entitled to recover his or its reasonable expenses, including counsel fees,
from the party no prevailing.
13. Representation of Employee. The Employee hereby represents and warrants
that the Employee is not bound by any contract, agreement, court order or
decision which conflicts in any manner with the duties to be performed by the
Employee hereunder or which would limit, in any respect, the right of the
Employee to use any of the Employee's knowledge or experience in the performance
of the Employee's duties hereunder.
14. Board of Directors. This Agreement is subject to the approval of the
Board of Directors, which must be given, if at all, within 10 days after the
date this Agreement is signed and delivered by the Company.
15. Captions. The underlined captions set forth herein are descriptive
only, and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By _____________________________
Authorized Signature
By /s/Frank T. Ferro
------------------------------
FRANK T. FERRO, Individually
CONSULTING AGREEMENT
AGREEMENT made this 1st day of May, 1998, by and between THE RATTLESNAKE
HOLDING COMPANY., INC., a Delaware corporation (the "Company"), having a place
of business at 439 East 82nd Street, New York, New York 10028, SAS VENTURES,
INC, a New York corporation (the "Consultant") with a place of business at 60
Foxwood Drive, Jericho, New York 11753, and STEPHAN A. STEIN ("Stein"), residing
at 60 Foxwood Drive, Jericho, New York 11753.
RECITALS
The Consultant has extensive experience in the areas of restaurant
management and finance. Stein is the principal employee, executive officer and
shareholder of the Consultant.
The Company desires to retain the services of the Consultant, and the
Consultant desires to provide its services, on the terms set forth herein. In
addition, the Company desires the Consultant and Stein to protect certain
proprietary interests of the Company concerning non-disclosure and
non-competition, and the Consultant and Stein desire to do so, on the terms set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties herein, the parties hereto agree as follows:
1. Services of Consultant. The Consultant is hereby engaged as general advisor
and consultant to the Company on the following matters pertaining to the
business of the Company and its subsidiaries; finance, acquisitions, public
relations, strategic planning, SEC reporting and financial statements; and will
provide such advice and consultation as the Company may reasonably request, in
each case consistent with the Consultant's experience and expertise. The
Consultant's employees shall not be required to travel more than 100 miles
without its consent and may consult in person or via telephone or written
report. The Consultant shall provide such time as is necessary for the
performance of its services. The Consultant shall provide Stein's services to
satisfy performance by the Consultant hereunder. The Consultant shall perform
its services under this Agreement solely as an independent contractor and not as
an agent or employee of the Company or any subsidiary of the Company. The
Company shall not be responsible for the payment of any withholding taxes, FICA,
workers' compensation, insurance, disability benefits or any fringe benefits and
the Consultant is not entitled to any of the same. The only compensation and
benefits to which the Consultant shall be entitled hereunder are as set forth in
Paragraphs 3 and 4 hereof. The Company shall not be responsible for any injury,
loss or damage suffered by Consultant arising out of the performance of its
duties hereunder in a negligent or wrongful manner. In connection with its
services hereunder, the Consultant shall have no right to bind the Company or
any of its subsidiaries.
<PAGE>
2. Term. The term (the "Term") for the services described in Paragraph 1
hereof, except if earlier terminated pursuant to Paragraph 5 hereof, shall be
for a period of three (3) years from the date hereof unless extended by the
parties.
3. Payment. The compensation to the Consultant for the services to be
rendered by the Consultant are as follows:
(a) Monthly payments of $7,000.00 on or about the 1st day of each month;
(b) The issuance of 500,000 of common stock of the Company (the fair value
of these shown shall be reported as income of the Consultant and the Consultant
shall be responsible for all taxes payable thereon):
(i) With respect to 250,000 of such shares (the "Protected Shares"), the
following shall apply. The Company combines its common stock then, on the first
such occasion, the Company will issue shares of post-combination common stock to
the Consultant such that the Protected Shares and such post-combination common
stock will total 250,000 shares of post-combination common stock.
(ii) With respect to the other 250,000 of such shares (the "Accrual
Shares"), the following shall apply. In the event that this Agreement is
terminated by the Company under Paragraph 5 hereof on or before September 1999,
then a portion of the Accrual Shares shall be transferred to the Company equal
to 13,888 shares for each month (including the month of termination) from the
termination to September 1999. The above number of shares shall be appropriately
adjusted for stock splits, combinations, recapitalizations and reorganizations.
(c) A payment of $30,000.00 on or before April 15, 1999 related to the
taxes payable by Consultant on account of the income referred to in Paragraph
3(b) hereof.
(d) The issuance of a warrant to purchase common stock of the Company which
may be exercised as follows:
(i) 250,000 shares at $15 per share exercisable immediately, for a period
ending April 30, 2003; and
(ii) 41,667 shares at $.15 per share exercisable from each of the following
dates, (a total of 250,000 shares) provided this Agreement has not theretofore
been terminated under Paragraph 5 hereof: October 1, 1998, January 1, 1999,
April 1, 1999, July 1, 1999, October 1, 1999 and January 1, 2000, for a period
ending April 30, 2003.
4. Expenses. The Consultant shall be entitled to reimbursement for expenses
reasonably incurred by it in the course of its duties hereunder including
cellular phone charges, upon its accounting therefor.
<PAGE>
5. Termination of Services.
(a) The Term for the services in Paragraph 1 may be ended prior to the date
specified in Paragraph 2:
(i) If there is a notice to the Consultant by the Company that the
Consultant is in material breach of its obligations hereunder which breach is
not cured within 30 days thereafter, or
(ii) If Stein, due to death, disability or otherwise, fails to render
services on behalf of Consultant, or
(iii) If the Consultant becomes bankrupt or insolvent or ceases its
business.
(b) The Consultant shall deliver to the Company any property of the Company
which may then be in the Consultant's possession upon the end of the Term.
6. Non-Disclosure of Confidential Information. The Consultant and Stein
acknowledge that it is the policy of the Company to maintain as secret and
confidential all information relating to the Company's products and services,
its pricing, practices, plans, programs, software and data, and the identity of
its customers, employees, consultants, agents and representatives (the
"Confidential Information"), and the Consultant and Stein further acknowledge
that the Confidential Information is of substantial value to the Company.
Accordingly, the Consultant and Stein agree that they will not, during or after
the Term, disclose or use any Confidential Information other than in connection
with the business of the Company, and then only as authorized by the Company in
order for the Consultant to perform its services.
7. Non-Competition. For a period of three (3) years from the date hereof or
the Term of this Agreement, if longer, the Consultant and Stein shall not,
directly or indirectly, engage in any business actually competitive with the
business of the Company as conducted the date hereof or during the Term, in each
geographic area where the Company conducts such business. The parties agree that
the duration and scope of the non-competition provisions set forth in this
Paragraph 7 are reasonable. In the event that any court determines that the
duration or the scope, or both, are unreasonable and that such provisions are to
that extent unenforceable, the parties agree that these provisions shall remain
in full force and effect for the greatest time period and in the greatest area
that would not render them unenforceable. The parties agree that damages are an
inadequate remedy for any breach of this provision and the provisions of
Paragraph 6 and that the Company shall, whether or not it is pursuing any
potential remedies at law, be entitled to equitable relief in the form of
preliminary and permanent injunction without bond or other security upon any
actual or threatened breach of such provisions, by the Consultant or Stein.
8. Indemnification. The Consultant covenants and agrees to perform its
services in compliance with all applicable laws, rules and regulations of
governmental agencies and in a manner which does not violate the rights of any
third person, and to timely pay all taxes relating to all compensation
hereunder. The Consultant and Stein shall indemnify and hold harmless the
Company from and against all costs and expenses which the Company may incur,
including by way of example and not limitation, reasonable counsel fees and
disbursements, as a result of the violation by the Consultant and/or Stein of
their covenants and agreements set forth in this Agreement.
<PAGE>
(a) Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and shall be deemed given when
delivered to a party or on the first attempted date of delivery after the same
is mailed to a party, certified mail, return receipt requested, to the address
set forth herein or such other address of which notice is given in accordance
herewith.
(b) Representation. The Consultant represents that it is not bound by any
agreement, court order or other obligation which may relate, directly or
indirectly, to its obligations hereunder.
(c) Modification and Waiver. This Agreement may not be changed or
terminated orally but only in a writing signed by the parties hereto, and no
waiver of a breach of any provision hereof shall be effective unless in writing
signed by the party against whom enforcement is sought. No such waiver shall
operate or be construed as a waiver of any subsequent breach of such provisions.
(d) Applicable Law. This Agreement shall be subject to and governed by the
laws of the State of New York.
(e) Controversies. The parties agree that any legal proceedings hereunder
shall be brought only in the courts of the State of New York or the United
States of America, sitting in the City, County and State of New York.
(f) Captions. The underlined captions set forth herein are descriptive
only, and shall not be deemed to be a part of this Agreement.
(g) Counterparts. This Agreement may be executed in counterparts, all of
which shall form one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By:/s/Nicolo Ottomanelli
--------------------------
Nicolo Ottomanelli, President
SAS VENTURES, INC.
By:/s/Stephan A. Stein
--------------------------
Stephan A. Stein, President
/s/Stephan A. Stein
---------------------------
STEPHAN A. STEIN, Individually
RATTLESNAKE HOLDING COMPANY
3 STAMFORD LANDING
STAMFORD, CONNECTICUT 06902
March 15, 1997
Dear Stephan:
This letter shall serve to amend your current employment contract with
Rattlesnake Holding Company.
Under your current contract you serve in the positions of Vice Chairman and
Chief Administrative Officer.
Your current contract provides for an annual salary of $125,000 plus
benefits, on a full time basis (as defined therein), prorated to $91,000 for
less than "full time". In addition you are entitled to annual increases of 10%.
To day you have not taken the increases in your base rate. Your current
agreement runs through December 1998.
Based on discussions with the compensation committee you are agreeable to
amending your current contract as follows:
1. You will resign your position as Vice Chairman and Chief Administrative
Officer effective March 1, 1997.
2. Subject to board approval, you will accept the position of Acting Chief
Executive Officer of Rattlesnake Holding Company.
3. You will serve on the committee to search for a permanent CEO. This
committee should be formally constituted within the next thirty (30) days. If
asked to do so, you will serve as head of this committee.
4. In consideration for your agreement to waive any base rate or annual
rate increases otherwise due you, and your agreement increases otherwise due
you, and your agreement to paragraph 1, your employment agreement is hereby
modified (or will be replaced if necessary) to run from March 1, 1997 through
February 28, 1999, and shall provide for partial-time, as needed, New Business
Development Services on a consulting basis. This contract will be extended for a
period of one year, if terms acceptable to you are arrived at after negotiation.
<PAGE>
5. Your compensation for the period March 1, 1997 through February 28, 1999
will be $75,000 plus benefits annually, payable as an independent contractor.
6. As compensation for your having served in a crisis management capacity
at the request of the board and company over the previous five (5) months you
are hereby granted an option to purchase 125,000 shares of Rattlesnake Holding
Company stock at the closing price of the stock on March 1, 1997.
This option grant is fully vested as of March 1, 1997 and is exercisable
from March 1, 1997 for a period not to exceed that allowable under the
Rattlesnake Holding Company Employee stock option plan.
7. In the event the stock options previously granted under the current
Rattlesnake stock option plans are repriced for any employee, your existing
stock option grants (excluding the above grant) will be repriced at the same
time as any repricing and under the same terms and conditions.
If you are in agreement with these changes to your current agreement,
paragraph 6 being separate therefrom, please sign and return one copy of this
letter to Roger Rankin, Chairman of the Compensation Committee.
Sincerely,
/S/Louis R. Malikow
------------------------
Louis R. Malikow
Agreed to: ________________________
Date: March 15, 1997
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 26th day of February, 1998, by and between Nicolo
Ottomanelli, residing at 136 Old Tappan Road, Old Tappan, New Jersey 07675.
(hereinafter referred to as the "Employee") and The Rattlesnake Holding Company,
Inc., a Delaware corporation with principal offices located at 439 East 82nd
Street, New York, New York 10028 (hereinafter referred to as the "Company").
WITNESSETH:
WHEREAS, the Company and its subsidiaries are engaged in the business of
developing and operating a chain of casual dining restaurants; and
WHEREAS, the Company has agreed, pursuant to the terms of a Reorganization
and Stock Exchange Agreement, dated August 21, 1998, as modified by a
Modification Agreement of even date herewith ("Reorganization Agreement"), among
the Company, the Employee and certain other parties, to acquire the Ottomanelli
Corporations (as defined therein);
WHEREAS, it is a condition to the Reorganization Agreement that the
Employee and the Company enter into this Employment Agreement.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
SECTION 1
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the Company
hereby agrees to employ the Employee, and the Employee hereby accepts such
employment as President and Chief Executive Officer of the Company and each of
its subsidiaries.
SECTION 2
DUTIES
2.1 The Employee shall, during the term of his employment with the Company,
and subject to the direction and control of the Company's Board of Directors,
perform such duties and functions as is customary for the Chief Executive
Officer of the Company.
2.2 The Employee agrees to devote full business time and reasonable efforts
in the performance of his duties for the Company and any subsidiary corporation
of the Company.
2.3 The Employee shall perform the following services and duties for the
Company and its subsidiary corporations:
(i) Those duties attendant to the position with the Company for which he is
hired;
(ii) Guide and direct management in the development, production, promotion
and sale of the Company's products and services.
<PAGE>
(iii) Establish operating policies consistent with the broad policies of
the Board of Directors and objectives and ensure their execution.
2.4 In the event that the Company achieves at least $1,000,000 EBITA for
the first full fiscal year after the date hereof, then the Employee shall be
elected by the Board of Directors to the position of Chairman in addition to his
other positions.
2.5 Employee shall be based in the New York metropolitan area, and shall
undertake such occasional travel, within or without the United States as is or
may be reasonably necessary in the interest of the Company.
SECTION 3
COMPENSATION
3.1 Commencing the date hereof and during the term hereof, Employee shall
be compensated at the rate of $150,000.00 per annum (the "Base Salary"), which
shall be paid to Employee in accordance with the Company's regular payroll
periods and which shall increase from time to time as the Board of Directors may
determine from time to time. During the term hereof the Employee shall be
entitled to annual base salary increases of at least 10% per annum of the prior
year's Base Salary.
3.2 Employee shall be entitled to receive bonuses from time to time as may
be determined by the Board of Directors.
3.3 Employee may receive such other additional compensation, including
incentive stock options, as may be determined from time to time by the Board of
Directors. Nothing herein shall be deemed or construed to require the board to
award any bonus or additional compensation.
3.4 The Company shall deduct from Employee's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
SECTION 4
BENEFITS
4.1 During the term hereof, the Company shall (i) provide Employee with
group health care and insurance benefits as generally made available to the
Company's senior management; (ii) provide such other insurance benefits obtained
by the Company, and made generally available to the Company's senior management;
(iii) reimburse the Employee, upon presentation of appropriate vouchers, for all
reasonable business expenses incurred by the Employee on behalf of the Company
upon presentation of suitable documentation.
4.2 In the event the Company wishes to obtain Key Man life insurance on the
life of Employee, Employee agrees to cooperate with the Company in completing
any applications necessary to obtain such insurance and promptly submit to such
physical examinations and furnish such information as any proposed insurance
carrier any request.
4.3 For each year of the term hereof, Employee shall be entitled to four
weeks of paid vacation.
<PAGE>
SECTION 5
NON-DISCLOSURE
The Employee shall not, at any time during or for one year after the
termination of his employment hereunder except when acting on behalf of and with
the authorization of the Company, make use of or disclose to any person,
corporation, or other entity, for any purpose whatsoever, any trade secret or
other confidential information concerning the Company's business, finances,
marketing, restaurant operations and future expansion and business plans of the
Company and its subsidiaries, or any other nonpublic business information of the
Company and/or its subsidiaries learned as a consequence of Employee's
employment with the Company (collectively referred to as the "Proprietary
Information"). For the purposes of this Agreement, trade secrets and
confidential information shall mean information disclosed to the Employee or
known by him as a consequence of his employment by the Company, whether or not
pursuant to this Agreement, and not generally known in the industry. The
Employee acknowledges that trade secrets and other items of confidential
information, as they may exist from time to time, are valuable and unique assets
of the Company, and that disclosure of any such information would cause
substantial injury to the Company.
SECTION 6
TERM
This Agreement shall be for a term commencing on the date first set forth
above and terminating February 25, 2002, unless sooner terminated pursuant to
the terms hereof, and renewable as provided for herein, for one additional
period of one year. The Company agrees to notify Employee in writing of its
intent to negotiate an extension of this Agreement three months prior to the
expiration of the original term hereof. If the Company fails to so notify
Employee, or after having timely notified Employee of its intention to extend,
fails to reach agreement with Employee on the terms of such extension, this
Agreement shall be renewable, at the option of the Employee, for an additional
period of one year from the expiration of the original term, except that the
Employee's base salary shall be increased 10% above the prior year.
SECTION 7
DISABILITY DURING TERM
In the event Employee becomes totally disabled so that he is unable or
prevented from performing a material portion of his usual duties hereunder for a
period of four (4) months out of any six month period, and the Company elects to
terminate this Agreement in accordance with Section 8.2 hereof, then, and in
that event, Employee shall receive his Base Salary as provided under Section 3
of this Agreement for a period of twelve (12) months commencing from the date of
such total disability. The obligation of the Company to make the aforesaid
payments shall be modified and reduced and the Company shall receive a credit
for all disability insurance payments which Employee may receive from insurance
policies provided by the Company.
<PAGE>
SECTION 8
TERMINATION
8.1 The Company may terminate this Agreement:
(i) Upon the death of Employee during the term hereof, except that the
Employee's legal representatives, successors, assigns and heirs shall have those
rights and interests as otherwise provided in this Agreement, including the
right to receive accrued but unpaid incentive compensation and any special bonus
compensation awarded by the Board of Directors in its discretion.
(ii) Subject to the terms of Section 7, herein, upon written notice from
the Company to Employee, if Employee becomes totally disabled and as a result of
such total disability, has been prevented from and unable to perform a material
portion of his duties hereunder for a consecutive period of four (4) months out
of any six month period.
(iii) Upon written notice from the Company to Employee, if Employee has
committed gross misconduct in the performance of this duties and/or a material
breach of the terms of this Agreement, and Employee has failed to cure such
breach within 45 days from date notification setting forth such misconduct
and/or breach in reasonable detail is given to Employee by the Company.
In the event of the termination of this Agreement and the discharge of
Employee by the Company in breach and violation of this Agreement, Employee
shall not be obligated to mitigate damages by seeking or obtaining alternate
employment. In order to protect the rights of Employee under this Agreement, and
to prevent the Company from terminating Employee's employment without a valid
purpose as provided herein, the Company hereby grants to Employee the right and
option to purchase from the Company, for the sum of $10.00, the Company's
license to use the trademark "Ottomanelli's Cafe".
8.2 Employee may terminate the term of his employment:
(i) Upon the breach of this Agreement by the Company which breach is not
cured within 30 days of written notice or such breach; or
(ii) In the event Employee is not elected to, or following election is
terminated from, the Board of Directors and its Executive Committee.
SECTION 9
MISCELLANEOUS
9.1 This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Employee's right to all accrued compensation prior to the
effective date of this Agreement.
9.2 If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
9.3 All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addresses in person, with written acknowledgment received, or
mailed by certified mail, return receipt requested, to the address of the
parties set forth herein or to any such other address as the party to receive
the notice shall advise by due notice given in accordance with this paragraph.
Notice shall be effective three (3) days after delivery or mailing.
<PAGE>
9.4 This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of the Employee.
9.5 The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
9.6 This Agreement has been negotiated and executed in the State of New
York, and New York law shall govern its construction and validity. Each of the
parties submits to the jurisdiction of any sate or federal court sitting in New
York, New York, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court. Each of the parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other party with respect thereto. Each party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity. In the
event of suit under this Agreement, the prevailing party will be entitled to
costs, and reasonable attorneys' fees.
9.7 This Agreement contains the entire agreement between the parties
hereto. No change, addition or amendment shall be made hereto, except by written
agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By: /s/ Louis Malikow
-------------------------------
Louis Malikow, President
/s/ Nicolo Ottomanelli
-------------------------------
NICOLO OTTOMANELLI, Individually
AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT dated October __ 1998 to Employment Agreement made as of the 26th
day of February, 1998, by and between Nicolo Ottomanelli, residing at 136 Old
Tappan Road, Old Tappan, New Jersey 07675. (hereinafter referred to as the
"Employee") and The Rattlesnake Holding Company, Inc., a Delaware corporation
with principal offices located at 439 East 82nd Street, New York, New York 10028
(hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the parties entered into an Employment Agreement dated February
26, 1998; and
WHEREAS, the parties desire to amend the Employment Agreement
NOW, THEREFORE, it is mutually agreed by and between the parties hereto as
follows:
1. Employment. Section 1 of the Employment Agreement is hereby amended to
provide that the Employee will act as Vice-President of the Company and serve on
the Board of Directors.
2. Duties. Section 2.1 of the Employment Agreement is hereby amended to
read as follows: "The Employee shall, during the term of his employment with the
Company, report to the Chairman of the Board of Directors, and subject to the
direction of the Chairman of the Board of Directors, perform such duties and
functions as are customary for a Vice President of the Company."
3. Chairmanship of Board. Section 2.4 of the Employment Agreement is
deleted.
4. Fixed Compensation. Section 3.1 of the Employment Agreement is modified
to define "Base Salary" as $85,000.00 per year, not inclusive of the value of
benefits provided elsewhere in the Employment Agreement.
5. Cash Bonus. Section 3 of the Employment Agreement is amended by adding a
new Section 3.5 to read as follows:
"3.5 The Employee shall be entitled to bonus of $25,000.00 (less applicable
deductions) payable at the closing of a financing being commenced by
Commonwealth Associates".
<PAGE>
6. Bonus Plan. Section 3 of the Employment Agreement is amended by adding a
new Section 3.6 to read as follows:
"3.6 The Employee shall be entitled to a performance bonus in accordance
with the plan annexed hereto as Exhibit A."
7. Termination. Section 8.2(u) of the Employment Agreement amended to read
as follows: "In the event Employee is not elected to, or following election is
terminated from, the Board of Directors."
8. Other Activities. Any other agreement with the Company to the contrary,
the Employee shall be entitled to develop and otherwise be associated with
restaurants with, among others, a steakhouse theme, provided that none of the
same is located in such proximity to a Company operated or franchised restaurant
then in existence or being developed, such that the same would result in a
substantial diversion of customer traffic from the Company owned or franchised
restaurant, and provided that proprietary Company information is not used in
connection therewith. If such activities are undertaken during the period that
the Employee is employed hereunder, they will not detract from the full time
services required of the Employee hereunder.
[Balance of Page Intentionally Left Blank]
<PAGE>
9. Full Force and Effect. Except as set forth above, the Employment
Agreement is in full force and effect in accordance with its terms,.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
affixed their hands and seals the day and year first above written,
THE RATTLESNAKE HOLDING
COMPANY, CO.
By:________________________________
Authorized Signature
/s/Nicolo Ottomanelli
--------------------------------
NICOLO OTTOMANELLI, Individually
WARRANT
TO PURCHASE COMMON STOCK
OF
THE RATTLESNAKE HOLDING COMPANY, INC.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE STATUTES. SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH DISPOSITION OR
AN EXEMPTION THEREFROM UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE SECURITIES MAY BE SO
DISPOSED OF WITHOUT BEING REGISTERED.
Warrant to Purchase Certain Shares
of Common Stock
A. This is to Certify that, FOR VALUE RECEIVED, Kenneth Berry ("Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from THE
RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (the "Company")
certain fully paid, validly issued, and non-assessable shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock"), as set forth below
in this paragraph, at any time or from time to time during the period from
______________, 199__ until 5:00 p.m. New York City time on __________________,
200__ (the "Termination Date") at an exercise price of $0.25 per share. The
number of shares which may be purchased is equal to ten (10%) percent of the
Common Stock outstanding on the date hereof, and which would be outstanding if
all convertible securities outstanding on the date hereof were converted into
Common Stock on the date hereof The number of shares of Common Stock to be
received upon the exercise of this portion of this Warrant and the price to be
paid for each share of Common Stock underlying this portion of this Warrant may
be adjusted from time to time as hereinafter set forth. The above is referred to
as the "A Portion".
B. In addition, the Holder shall be entitled, during the term of this
Warrant, as set forth above, to purchase a number of shares of Common stock
equal to ten (10%) of the Common Stock or other securities which may be
purchased by persons other than the Holder and Shelly Frank under all options
and warrants issued by the Company which are in effect on the date hereof, to
the extent such shares are purchased during the term of this Warrant, as set
forth above. The exercise price shall be equal to the price per share paid by
the person exercising such option or warrant. The exercise may take place after
the exercise of such option or warrant and prior to termination of this Warrant.
The above is referred to as the "B Portion".
<PAGE>
The shares of Common Stock deliverable upon exercise of this Warrant, and
as adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." The right of exercise will vest immediately as to one-third of
the shares purchasable hereunder, and additional one third vesting shall take
place at each of the first and second anniversary of the date hereof, provided
the Holder is then employed by the Company.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
at any time or from time to time on or after issuance, as set forth above and
until the Termination Date; provided, however, that if such day is a day on
which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day. This
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office, or, at the Company's option, at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrants, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Holder a certificate or certificate for
the Warrant Shares issuable upon such exercise, 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 rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the Warrant Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shall not then be
physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
system; or
<PAGE>
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and lowest asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable and transferable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or, at the Company's
option, at the office of its stock transfer agent, if any, for other Warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
<PAGE>
(f) ADJUSTMENT. The Warrant Shares and Exercise Price of the A Portion
shall be subject to adjustment from time to time as follows (this provision
shall not apply to the B Portion, which shall reflect any adjustments in the
referenced options and warrants):
(1) If the Company shall (A) declare a dividend or make a distribution on
its Common Stock in shares of its Common Stock, (B) subdivide or reclassify the
outstanding shares of Common Stock into a greater number of shares, or (C)
combine or reclassify the outstanding Common Stock into a smaller number of
shares, the Warrant Shares and Exercise Price in effect at the time of the
record date for such dividend or distribution or the effective date of such
subdivision, combination, or reclassification shall be proportionately adjusted
so that the holder of this Warrant exercised after such date shall be entitled
to receive the number of shares of Common Stock which he would have owned or
been entitled to receive had this Warrant been exercised immediately prior to
such date. Successive adjustments in the Warrant Shares and Exercise Price shall
be made whenever any event specified above shall occur.
(2) In case of any consolidation with or merger of the Company with or into
another corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Company as an entity or substantially as an
entity, this Warrant shall after the date of such consolidation, merger, sale,
lease or conveyance be exercisable for the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon exercise
of this Warrant would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant.
(3) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least two cents ($.02) in
such price; provided, however, that any adjustments which by reason of this
Subsection (3) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including the Warrants).
<PAGE>
(4) In the event that at any time, as a result of an adjustment made
pursuant to this Section (f), the Holder of this Warrant thereafter shall become
entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section (f).
(5) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon exercise of this Warrant, Warrant Certificates
theretofore or thereafter issued upon exchange, transfer, assignment, loss of
certificate or upon exercise in part may continue to express the same price and
number and kind of shares as were stated in the Warrant Certificates when the
same were originally issued.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with the stock transfer agent responsible for this Warrant, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to all of the holders
of Common Stock for subscription or purchase by them any share of any class or
any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least ten days prior the date
specified in (A) or (B) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (A) a record is
to be taken for the purpose of such dividend, distribution or rights, or (B)
such reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up is to take place and the date,
if any is to be fixed, as of which the holders of Common Stock or other
securities shall receive cash or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up.
<PAGE>
(i) REGISTRATION RIGHTS. The Holder and the Company are also parties to an
Investor Rights Agreement dated ___________________ 1998.
(j) AMENDMENT; WAIVER OF PROVISIONS. This Warrant may not be amended by or
compliance with any provision hereof waived without the written consent of
holders of the majority of the Warrants and/or Warrant Shares.
THE RATTLESNAKE HOLDING
COMPANY, INC.
By:________________________
President
Investor Rights Agreement
This Investor Rights Agreement (this "Agreement") is made and entered into
as of _________, 199_ by and among THE RATTLESNAKE HOLDING COMPANY, INC., a
Delaware corporation (the "Company"), and the stockholders who execute a copy of
this Agreement (individually, an "Investor, and collectively, the "Investors").
R E C I T A L S
A. The Investors have agreed to purchase from the Company, and the Company
has agreed to sell to the Investors, Units (the "Units) consisting of shares of
Series B Preferred Stock per value $.01, of the Company ("Series B Preferred
Stock") which are convertible into (the "Conversion Shares") Common Stock, per
value $.001 of the Company and warrants (the "Warrants") exercisable for the
purchase of Common Stock of the Company (the "Warrant Shares") on the terms and
conditions set forth in that certain Confidential Private Placement Memorandum,
dated October 27, 1998 (the "Memorandum");
B. Commonwealth Associates ("Commonwealth") named herein as an "Investor"
has received compensation in connection with the offering contemplated by the
Memorandum, including but not limited to, Units, Common Stock and Warrants to
purchase Common Stock of the Company and is entitled to participate in the
rights provided hereby. (The Common Stock issued to Commonwealth, and issuable
upon conversion of its Preferred Shares and exercise of Warrants held by it, are
referred to collectively as the "Commonwealth Shares").
C. The Conversion Shares, the Warrant Shares and the Commonwealth Shares
are referred to herein collectively as the "Registrable Securities".
D. The Memorandum provides that the Investors shall be granted certain
information registration rights as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Section 1:
(a) Registration. The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such registration statement.
<PAGE>
(b) Registrable Securities. The term "Registrable Securities" shall have
the meaning set forth in recital clause C hereof. Notwithstanding the foregoing,
"Registrable Securities" shall exclude any Registrable Securities sold by a
person in a transaction in which rights under this Section 1 are not assigned in
accordance with this Agreement or any Registrable Securities sold in a public
offering, whether sold pursuant to Rule 144 promulgated under the Securities
Act, or in a registered offering, or otherwise.
(c) Registrable Securities Then Outstanding. The number of shares of
"Registrable Securities then outstanding" shall mean the number of shares of
Common Stock of the Company that are Registrable Securities and are then issued
and outstanding.
(d) Holder. For purposes of this Section 1, the term "Holder" means: (1)
any person owning of record Registrable Securities that have not been sold to
the public or pursuant to Rule 144 promulgated under the Securities Act, or (2)
any permitted assignee of record of such Registrable Securities to whom rights
under this Section 1 have been duly assigned in accordance with this Agreement.
(e) SEC. The term "SEC" or "Commission" means the U.S. Securities and
Exchange Commission.
1.2 Mandatory Registration.
(a) Filing. The Company shall file a registration statement under the
Securities Act covering the registration of Registrable Securities within six
(6) months from the initial closing of the sale of the Units, and use its best
efforts to effect the registration within nine (9) months after the Original
Issue Date, under the Securities Act, of all Registrable Securities subject only
to the limitations of this Section 1.2.
(b) Underwriting. If the Holders of a majority of the Registrable
Securities ("Initiating Holders") intend to distribute the Registrable
Securities by means of an underwriting, then they shall so advise the Company.
In such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall enter
into an underwriting agreement in customary form with the managing underwriter
or underwriters selected for such underwriting by the Holders of a majority of
the Registrable Securities being registered and reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 1.2, if the
underwriter(s) advise(s) the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be reduced as required
by the underwriter(s) and allocated among the Holders of Registrable Securities
on a pro rata basis according to the number of Registrable Securities then
outstanding held by each Holder requesting registration (including the
initiating Holders); provided, however, that the number of shares of Registrable
Securities to be included in such underwriting and registration shall not be
reduced unless all other securities of the Company other than Registrable
Securities are first entirely excluded from the underwriting and registration.
Any Registrable Securities excluded and withdrawn from such underwriting shall
be withdrawn from the registration.
<PAGE>
(c) One Mandatory Registration. The Company shall be obligated to effect
only one (1) such registration pursuant to this Section 1.2.
(d) Expenses. All expenses incurred in connection with any registration
pursuant to this Section 1.2, including without limitation all federal and "blue
sky" registration, filing and qualification fees, printer's and accounting fees,
and fees and disbursements of counsel for the Company (but excluding
underwriters' discounts and commissions relating to shares sold by the Holders
and legal fees of counsel for the Holders), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 1.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriter(s) or brokers, and the
Holders' legal fees, in connection with such offering by the Holders.
Notwithstanding the foregoing, the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to this Section 1.2 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered, unless the Holders
of a majority of the Registrable Securities then outstanding agree that such
registration constitutes the use by the Holders of the one (1) demand
registration pursuant to this Section 1.2 (in which case such registration shall
also constitute the use by all Holders of Registrable Securities of the one (l)
such demand registration); provided, further, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
such registration shall not constitute the use of the one (1) demand
registration pursuant to this Section 1.2.
1.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any registration
under Section 1.2 of this Agreement or to any employee benefit plan, acquisition
or a corporate reorganization) and will afford each such Holder an opportunity
to include in such registration statement all or any part of the Registrable
Securities then held by such Holder that are not currently included in another
registration statement. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
<PAGE>
(a) Underwriting. If a registration statement under which the Company gives
notice under this Section 1.3 is for an underwritten offering, then the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder's Registrable Securities to be included in a registration
pursuant to this Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 180 days if required by such
underwriter or underwriters). Notwithstanding any other provision of this
Agreement, if the managing underwriter(s) determine(s) in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter(s), delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a partnership, the Holder and the partners
and retired partners of such Holder, or the estates and family members of any
such partners and retired partners and any trusts for the benefit of any of the
foregoing persons, and for any Holder that is a corporation, the Holder and all
corporations that are affiliates of such Holder, shall be deemed to be a single
"Holder," and any pro rata reduction with respect to such "Holder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "Holder," as defined in this
sentence.
(b) Expenses. All expenses incurred in connection with a registration
pursuant to this Section 1.3 (excluding underwriters' and brokers' discounts and
commissions relating to shares sold by the Holders and legal fees of counsel for
the Holders), including, without limitation all federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel for the Company, shall be borne by the
Company.
<PAGE>
(c) Not Mandatory Registration. Registration pursuant to this Section 1.3
shall not be deemed to be a mandatory registration as described in Section 1.2
above. Except as otherwise provided herein, there shall be no limit on the
number of times the Holders may request registration of Registrable Securities
under this Section 1.3.
1.4 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement the Company
shall, as expeditiously as reasonably possible:
(a) Registration Statement. Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, provided, however,
that the Company shall not be required to keep any such registration statement
effective for more than ninety (90) days.
(b) Amendments and Supplements. Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement.
(c) Prospectuses. Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Blue Sky. Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business.
(e) Underwriting. In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notification. Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 1.2, 1.3 or
1.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the Registration of their Registrable Securities, by way of a written
questionnaire fully completed and signed by or on behalf of the selling Holders.
<PAGE>
1.6 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 1.2, 1.3 or 1.4:
(a) By the Company. To the extent permitted by law; the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as determined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any federal or
state securities law in connection with the offering covered by such
registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 1.7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf of such
Holder, partner, officer, director, underwriter or controlling person of such
Holder.
(b) By Selling Holders. To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities under such registration statement or any
of such other Holder's partners, directors or officers or any person who
controls such Holder within the meaning of the Securities Act or the 1934 Act,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, partner or director, officer or controlling person of such
other Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by or on
behalf of such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, partner, officer, director or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action: provided, however, that the indemnity
agreement contained in this Section 1.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided, further, that the total amounts
payable in indemnity by a Holder under this Section 1.7(b) in respect of any
Violation shall not exceed the gross proceeds received by such Holder in the
registered offering out of which such Violation arises.
<PAGE>
(c) Notice. Promptly after receipt by an indemnified party under this
Section 1.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or likely conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall relieve such indemnifying party of
liability to the indemnified party under this Section 1.7 to the extent the
indemnifying party is prejudiced as a result thereof, but the omission so to
deliver written notice to the indemnified party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 1.7.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus
filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was timely furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable contribution
to joint liability under the Securities Act in any case in which either (i) any
Holder exercising rights under this Agreement, or any controlling person of any
such Holder, makes a claim for indemnification pursuant to this Section 1.7 but
it is judicially determined (by the 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 this Section 1.7 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this
Section 1.7; then, and in each such case, the Company and such Holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that such
Holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Securities offered by and sold under
the registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case: (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
<PAGE>
(f) Survival. The obligations of the Company and Holders under this Section
1.7 shall survive until the third anniversary of the completion of any offering
of Registrable Securities in a registration statement, regardless of the
expiration of any statutes of limitation or extensions of such statutes.
1.7. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC that may at any time permit the sale of
shares of Common Stock to the public without registration, after such time as a
public market exists for the Common Stock of the Company, the Company agrees to:
(a) Use its best efforts to facilitate the sale of shares of Common Stock
to the public, without registration under the Securities Act, pursuant to
Rule 144 under the Securities Act, provided that this shall not require the
Company to file reports under the Securities Act or the 1934 Act at any time
prior to the Company's being otherwise required to file such reports;
(b) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act at all times after
ninety (90) days after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(c) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act (at
any time after it has become subject to such reporting requirements);
(d) During any period in which the Company is not subject to Section 13 or
15(d) of the 1934 Act, make available the information required to be provided by
Rule 144A(d)(4);
(e) So long as a Holder owns any shares of Common Stock which constitute
restricted securities under Rule 144, furnish to the Holder forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 and of the Securities Act and the 1934
Act, a copy of the most recent annual or quarterly report of the Company, and
such other reports and documents so filed by the Company as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.
1.8 Termination of the Company's Obligations. The Company shall have no
obligations pursuant to Section 1 with respect to any Registrable Securities
proposed to be sold by a Holder in a registration pursuant to Section 1.2, 1.3
or 1.4 more than five (5) years after the date of this Agreement, or, if, in the
opinion of counsel to the Company, such Registrable Securities proposed to be
sold by a Holder may then be sold under Rule 144 in one transaction without
exceeding the volume limitations thereunder.
2. RESTRICTIONS ON TRANSFER.
2.1 Restrictions on Transferability. For purposes of this Section 2, the
term "Transfer" shall mean a sale, assignment, encumbrance, gift, pledge,
hypothecation or other disposition of the Shares or other any interest therein
and the term "Affiliate" shall mean, with respect to any person or entity,
another person or entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with
such person or entity. The Series B Preferred Stock or Conversion Shares and
Registrable Securities shall not be Transferred except upon compliance with the
provisions of the Securities Act, the Certificate of Incorporation of the
Company (the "Certificate") and this Agreement, and any attempted Transfer of
any of the same other than in accordance with the terms hereof and the
Certificate is void ab initio and transfers no right, title or interest in or to
such Securities, whether now owned or hereafter acquired, to the purported
transferee, buyer, donee, assignee or encumbrance holder. Each party to this
Agreement will cause any proposed transferee (other than a transferee of
securities sold pursuant to a registration or pursuant to Rule 144 under the
Securities Act) of such securities to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Agreement
and in the Certificate.
<PAGE>
2.2 Restrictive Legends. Each certificate representing (i) the Preferred
Shares or (ii) any Registrable Securities, that is held by a party hereto shall
be stamped or otherwise imprinted with legends substantially in the following
form (in addition to any legend required under applicable state securities
laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT IN CONJUNCTION WITH AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE ACT, OR IN
COMPLIANCE WITH RULE 144 OR PURSUANT TO ANOTHER EXEMPTION THEREFROM. THE
SECURITIES ARE ALSO SUBJECT TO PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AND AN INVESTOR RIGHTS AGREEMENT, WHICH CONTAIN RESTRICTIONS ON TRANSFER AND
CERTAIN VOTING AGREEMENTS. COPIES OF THE CERTIFICATE AND THE STOCKHOLDERS
AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY.
2.3 Notice of Proposed Transfers; Securities Law Compliance. Prior to any
proposed Transfer of any Preferred Shares or Registrable Securities, unless
there is in effect a registration statement under the Securities Act covering
the proposed Transfer, the Holder thereof shall give written notice to the
Company of such Holder's intention to effect such Transfer. Each such notice
shall describe the manner and circumstances of the proposed Transfer in
sufficient detail, and shall be accompanied by either (i)a written opinion of
legal counsel who shall be reasonably satisfactory to the Company addressed to
the Company and reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed Transfer of such securities may be
effected without registration under the Securities Act, (ii) a "no action"
letter from the staff of the SEC to the effect that the distribution of such
securities without registration will not result in recommendation by the staff
of the SEC that action be taken with respect thereto, or (iii) such other
showing that may be reasonably satisfactory to legal counsel to the Company,
whereupon the Holder of such securities shall be entitled to Transfer such
securities in accordance with the terms of the notice delivered by the Holder to
the Company. Notwithstanding the foregoing, the requirements of clauses (i),
(ii), or (iii) above need not be satisfied with respect to the following
transactions: (A) transactions in compliance with Rule 144 so long as the
Company is furnished with satisfactory evidence of compliance with such Rule;
(B) Transfers by a Holder which is a partnership to a general partner, limited
partner, employee or affiliate of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner; (C) Transfers by a Holder which is a corporation to
any wholly-owned subsidiary or parent of such corporation, or to any
corporation, entity or other person which is an Affiliate of any such Holder.
3. ASSIGNMENT AND AMENDMENT.
3.1 Assignment. Notwithstanding anything herein to the contrary, the
registration rights of the Investor under Section 1 hereof may be assigned to
any Holder; provided, however, that no party may be assigned any of the
foregoing rights unless the Company is given written notice by the assigning
party at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the rights in
question are being assigned; and provided further that any such assignee shall
receive such assigned rights subject to all the terms and conditions of this
Agreement, including without limitation the provisions of this Section 3.
<PAGE>
3.2 Amendment of Rights. Any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of majority of the Registrable Securities
then outstanding. Any amendment or waiver effected in accordance with this
Section 3.2 shall be binding upon the Investor, each Holder, each permitted
successor or assignee of such Investor or Holder and the Company.
4. GENERAL PROVISIONS.
4.1. Notices. Except as may be otherwise provided herein, all notices,
requests, waivers and other communications made pursuant to this Agreement shall
be in writing and shall be conclusively deemed to have been duly given (a) when
hand delivered to the other party; (b) when received when sent by facsimile at
the address and number set forth on Exhibit A hereto; (c) three business days
after deposit in the U.S. mail with first class or certified mail receipt
requested postage prepaid and addressed to the relevant party as set forth on
the signature page hereto; or (d) the next business day after deposit with a
national overnight delivery service, postage prepaid, addressed to the parties
as set forth below with next-business-day delivery guaranteed, provided that the
sending party receives a confirmation of delivery from the delivery service
provider.
Each person making a communication hereunder by facsimile shall promptly
confirm by telephone to the person to whom such communication was addressed each
communication made by it by facsimile pursuant hereto but the absence of such
confirmation shall not affect the validity of any such communication. A party
may change or supplement the addresses given above, or designate additional
addresses, for purposes of this Section 4.1 by giving the other party written
notice of the new address in the manner set forth above.
4.2 Entire Agreement. This Agreement, together with all the Exhibits
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
4.3 Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of New York,
excluding that body of law relating to conflict of laws and choice of law except
as to corporate matters governed by the laws of the State of Delaware.
4.4 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, then such provision(s) shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision(s) were so excluded and shall be enforceable in accordance with
its terms.
<PAGE>
4.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
permitted successors and assigns, any rights or remedies under or by reason of
this Agreement.
4.6 Successors and Assigns. Subject to the provisions of Section 3, the
provisions of this Agreement shall inure to the benefit of, and shall be binding
upon, the successors and permitted assigns of the parties hereto.
4.7 Captions. The captions to sections of this Agreement have been inserted
for identification and reference purposes only and shall not be used to construe
or interpret this Agreement.
4.8 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4.9 Adjustments for Stock Splits, Etc. Wherever in this Agreement there is
a reference to a specific number of Preferred Shares or Common Stock of the
Company, then, upon the occurrence of any subdivision, combination or stock
dividend of Preferred Shares or Common Stock, the specific number of shares so
referenced in this Agreement shall automatically be proportionally adjusted to
reflect the affect on the outstanding shares of such class or series of stock by
such subdivision, combination or stock dividend.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written
INVESTOR THE RATTLESNAKE HOLDING CO. INC.
- ----------------------- ---------------------------
By: By:
Name: Name:
Title:
Address: 439 East 82nd Street
New York, NY 10028 Address: _______________________
WARRANT
TO PURCHASE COMMON STOCK
OF
THE RATTLESNAKE HOLDING COMPANY, INC.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY APPLICABLE STATE STATUTES. SUCH SECURITIES MAY
NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH DISPOSITION OR
AN EXEMPTION THEREFROM UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE SECURITIES MAY BE SO
DISPOSED OF WITHOUT BEING REGISTERED.
Warrant to Purchase 50,000 Shares
of Common Stock
This is to Certify that, FOR VALUE RECEIVED, COMMONWEALTH ASSOCIATES, or
assigns ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from THE RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (the
"Company") 50,000 fully paid, validly issued, and non-assessable shares of
Common Stock, par value $.001 per share, of the Company ("Common Stock") at any
time or from time to time during the period from May 21, 1999 until 5:00 p.m.
New York City time on May 21, 2004 (the "Termination Date") at an exercise price
of $0.05 per share. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for each share of Common Stock
underlying this Warrant may be adjusted from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon exercise of this Warrant, and
as adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of a share of Common Stock in effect at any time
and as adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price."
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
at any time or from time to time on or after issuance and until the Termination
Date; provided, however, that if such day is a day on which banking institutions
in the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or, at
the Company's option, at the office of its stock transfer agent, if any, with
the Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such exercise of the Warrants, but not later than
seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, 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 rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable hereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the Warrant Shares issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be physically
delivered to the Holder.
<PAGE>
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
system; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and lowest asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable and transferable, without expense, at the option of the Holder,
upon presentation and surrender hereof to the Company or, at the Company's
option, at the office of its stock transfer agent, if any, for other Warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
<PAGE>
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and
the number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(1) In case the Company shall (i) declare a dividend or make a distribution
on its outstanding shares of Common Stock in shares of Common Stock, (ii)
subdivide or reclassify its outstanding shares of Common Stock into a greater
number of shares, or (iii) combine or reclassify its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price of the Warrants
in effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of this Warrant exercised after such
date, shall be entitled to receive the aggregate number and kind of shares
which, if this Warrant had been exercised by such Holder immediately prior to
such date, the Holder would have owned upon such exercise and been entitled to
receive upon such dividend, distribution, subdivision, combination or
reclassification.
(2) In case the Company shall hereafter distribute to the holders of its
Common Stock evidences of its indebtedness or assets (excluding cash dividends
or distributions and dividends or distributions referred to in Subsection (1)
above) or subscription rights or warrants, then in each such case the Exercise
Price in effect thereafter shall be determined by multiplying the Exercise Price
in effect immediately prior thereto by a fraction, the numerator of which shall
be the total number of shares of Common Stock outstanding multiplied by the
current market price per share of Common Stock (as defined in Subsection (5)
below), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
distribution.
(3) In case of any consolidation with or merger of the Company with or into
another corporation, or in case of any sale, lease or conveyance to another
corporation of the assets of the Company as an entity or substantially as an
entity, this Warrant shall after the date of such consolidation, merger, sale,
lease or conveyance be exercisable for the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable (at
the time of such consolidation, merger, sale, lease or conveyance) upon exercise
of this Warrant would have been entitled upon such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the holders
of the Warrants shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant.
<PAGE>
(4) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subsections (1) and/or (2) above, the number of Warrant
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date hereof and
dividing the product so obtained by the Exercise Price, as adjusted.
(5) For the purpose of any computation under Subsection (2) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 20 consecutive business days before
such date. The closing price for each day shall be the last sale price or, in
case no such reported sale takes place on such day, the average of the last
reported bid and asked prices, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed,
or if not listed or admitted to trading on such exchange, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
(6) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least two cents ($.02) in
such price; provided, however, that any adjustments which by reason of this
Subsection (6) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including the Warrants).
(7) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (1) to (6), inclusive above.
(8) Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon exercise of this Warrant, Warrant Certificates
theretofore or thereafter issued upon exchange, transfer, assignment, loss of
certificate or upon exercise in part may continue to express the same price and
number and kind of shares as were stated in the Warrant Certificates when the
same were originally issued.
<PAGE>
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with the stock transfer agent responsible for this Warrant, if any,
an officer's certificate showing the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to all of the holders
of Common Stock for subscription or purchase by them any share of any class or
any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least ten days prior the date
specified in (A) or (B) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (A) a record is
to be taken for the purpose of such dividend, distribution or rights, or (B)
such reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up is to take place and the date,
if any is to be fixed, as of which the holders of Common Stock or other
securities shall receive cash or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease or
transfer, dissolution, liquidation or winding up.
(i) AMENDMENT; WAIVER OF PROVISIONS. This Warrant may not be amended by or
compliance with any provision hereof waived without the written consent of
holders of the majority of the Warrants and/or Warrant Shares.
THE RATTLESNAKE HOLDING COMPANY, INC.
By:___________________________________
<PAGE>
RE: THE RATTLESNAKE HOLDING COMPANY, INC. WARRANT
PURCHASE FORM
Dated __________________________
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing
________________________________________________________ shares of Common Stock
and hereby makes and delivers payment of __________________________________ in
payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name________________________________________________________________________
(Please typewrite or print in block letters)
Address ____________________________________________________________________
Signature __________________________________________________
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________ hereby sells,
assigns and transfers unto
Name_________________________________________________________________________
(Please typewrite or print in block letters)
Address_______________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the
extent of ____________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint
___________________________________________________ Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date _______________, Signature ___________________________
This Warrant has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"). The Warrant has been acquired for investment purposes
only and not with a view to distribution or resale, and may not be sold,
transferred, made subject to a security interest, pledged, hypothecated or
otherwise disposed of unless and until registered under the 1933 Act, or an
opinion of counsel for the company is received that registration is not required
under such 1933 Act.
No.BW-1
COMMON STOCK PURCHASE WARRANT
THE RATTLESNAKE HOLDING COMPANY, INC.
(A Delaware Corporation)
As of June 28, 1998
This certifies that, for value received,
Commonwealth Associates, Inc.
830 Third Avenue
New York, NY 10022
(the "Warrantholder") is entitled to purchase the Shares (as defined below)
from THE RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (the
"Company"), at any time after 9:00 A.M., New York time, on June 1, 1998 and
ending on May 31, 2003 (the "Exercise Period"). The Warrantholder is entitled
to purchase that number of whole shares ("Shares") of authorized but unissued
common stock of the Company, par value $.001 per share ("Common Stock") which is
computed by dividing the Warrant Amount by the Warrant Price (as such terms are
defined in Section 6). The Warrant Price is subject to adjustment from time to
time as set in Section 7.
This Warrant does not entitle the Warrantholder, as such, to any of the
rights of a stockholder of the Company.
SECTION 1. Transferability of Warrant.
1.1 Registration. This Warrant shall be numbered and shall be registered
on the books of the Company when issued.
1.2 Transfer. This Warrant shall be transferable only on the books of the
Company maintained at its principal office, upon surrender to the Company, at
its principal office of this Warrant, together with the transfer form annexed
hereto duly filled in and signed. Upon registration of transfer, the Company
shall issue a new Warrant of like tenor to the named transferee.
1.3 Limitations on Transfer of Warrant. This Warrant shall be transferred
only in compliance with applicable securities laws as applied by counsel to the
Company
1.4 Legend on Securities. Each certificate for securities issued upon
exercise of this Warrant shall bear appropriate restrictive legends thereon.
1.5 Registration. The Company covenants and agrees as follows. In the event
the Company shall at any time during the period of four (4) years from the date
hereof, seek to register any of its securities (on its behalf or on behalf of a
selling stockholder), under the Securities Act of 1933, as amended (the "Act"),
on each such occasion, it shall furnish each Holder of Warrants or person owning
Shares which are restricted securities with at least thirty (30) days' written
notice thereof and each Holder and person shall have the right, without cost or
expense, to include such Shares in such registration statement. The Holders
shall exercise the "piggy-back rights" by giving written notice to the Company
within twenty (20) days of receipt of the written notice from the Company. The
above is subject to the reasonable approval of any underwriter for the Company
involved with such registration statement.
<PAGE>
SECTION 2. Exercise of Warrants.
2.1 Payment. Subject to the terms of this Warrant, the Warrantholder shall
have the right, at any time during the Exercise Period, to purchase from the
Company up to the number of whole Shares which the Warrantholder may at the time
be entitled to purchase pursuant to this Warrant, upon surrender to the Company,
at its principal office, of this Warrant, together with the exercise form
annexed hereto duly filled in and signed, and upon payment to the Company of the
Warrant Price (as defined in and determined in accordance with the provisions of
Sections 6 and 7 hereof), for the number of Shares in respect of which such
Warrant is then exercised. Payment of the aggregate Warrant Price shall be made
in cash or by certified or cashiers check payable to the Company.
2.2 Partial Exercise. If the Warrantholder does not fully exercise this
Warrant, then a Warrant of like tenor to this Warrant shall be issued to the
Warrantholder, except that the Warrant Amount set forth in the new Warrant shall
be reduced by the amount of the aggregate Warrant Price paid upon such partial
exercise.
2.3 Issuance of Shares. Upon such surrender of the Warrant and payment of
such Warrant Price as aforesaid, the Company shall issue and cause to be
delivered to the Warrantholder, within 10 days thereafter, a certificate or
certificates for the number of full Shares so purchased upon the exercise of the
Warrant issued in the name of the Warrantholder, together with cash in respect
of any fractional Shares as set forth herein. Such certificate or certificates
shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to have become a holder of record of such Shares as of
the date of the surrender of the Warrant and payment of the Warrant Price, as
aforesaid, notwithstanding that the certificates representing the Shares shall
not actually have been delivered or that the stock transfer books of the Company
shall then be closed.
2.4 Fractional Share. If upon the conversion of all of the Warrant Amount,
the computation results in a fraction of a Share, such Fractional Share shall
not be issued, but the Company shall instead pay a sum in cash to the
Warrantholder equal to such fraction multiplied by the Current Market Price as
defined in Section 7.2.
SECTION 3. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance of the Shares, provided, however,
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer of this Warrant or the Shares.
SECTION 4. Mutilated or Missing Warrant. In case this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Warrantholder, issue in exchange and substitution for, and upon cancellation of
the mutilated Warrant, or in lieu of and in substitution for the lost, stolen,
or destroyed Warrant, a new Warrant of like tenor, but only upon receipt of
evidence satisfactory to the Company of such loss, theft or destruction of such
Warrant and receipt of an indemnity agreement satisfactory in form and amount at
the Warrantholder's cost. Such Warrantholder shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Company may
prescribe.
SECTION 5. Reservation of Common Stock. There has been reserved, and the
Company shall at all times keep reserved so long as any of the Warrants remain
outstanding, out of its authorized Common Stock, such number of shares of Common
Stock as shall be subject to purchase under the Warrants. Every transfer agent
for the Common Stock and other securities of the Company issuable upon the
exercise of the Warrants will be irrevocable authorized and directed at all
times to reserve such number of authorized shares and other securities as shall
be requisite for such purpose.
<PAGE>
SECTION 6. Warrant Amount; Warrant Price.
(a) The term "Warrant Amount" shall mean $37,500
(b) The term "Warrant Price" shall mean five cents ($.05).
SECTION 7. Adjustment of Warrant Price.
7.1 Adjustment. The Warrant Price shall be subject to adjustment from time
to time as follows:
(i) If the Company shall at any time or from time to time after the date
hereof, issue any shares of Common Stock other than Excluded Stock (as
hereinafter defined) without consideration or for a consideration per share less
than the Warrant Price in effect immediately prior to the issuance of such
Common Stock ("Subject Issuance"), the Warrant Price in effect immediately prior
to each such issuance shall forthwith (except as provided in this clause (i)) be
adjusted to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(x) the total number of shares of Common Stock outstanding (including any
shares of Common Stock deemed to have been issued pursuant to subdivision (3) of
this clause (i) and to clause (ii) below) multiplied by the Warrant Price in
effect immediately prior to such issuance, plus
(y) the consideration received by the Company upon the Subject Issuance,
by
(B) the total number of shares of Common Stock outstanding (including any
shares of Common Stock deemed to have been issued pursuant to subdivision (3) of
this clause (i) and to clause (ii) below) immediately after such issuance.
For the purposes of any adjustment of the Warrant Price pursuant to this
clause (i), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash, the consideration
shall be deemed to be the amount of cash paid therefor after deducting therefrom
any discounts, commissions or other expenses allowed, paid or incurred by the
Company for any underwriting or otherwise in connection with the issuance of
sale thereof.
(2) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair market value thereof as determined in good faith by the
Board of Directors, irrespective of any accounting treatment.
(3) In the case of the issuance of (x) options to purchase or rights to
subscribe for Common Stock, (y) securities by their terms convertible into or
exchangeable for Common Stock or (z) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(A) the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in subdivisions (1) and (2) above), if any, received by the
Company upon the issuance of such options or rights plus the minimum purchase
price provided in such options or rights for the Common Stock covered thereby;
<PAGE>
(B) the aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange for any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in subdivisions (1) and (2) above);
(C) on any change in the number of shares of Common Stock deliverable upon
exercise of any such options or rights or conversions of or exchange for such
convertible or exchangeable securities, other than a change resulting from the
antidilution provisions thereof, the Warrant Price shall forthwith be readjusted
to such Warrant Price as would have obtained had the adjustment made upon the
issuance of such options, rights or securities not converted prior to such
change or options or rights related to such securities not converted prior to
such change been made upon the basis of such change; and
(D) on the expiration of any such options or rights, the termination of any
such rights to convert or exchange or the expiration of any options or rights
related to such convertible or exchangeable securities, the Warrant Price shall
forthwith be readjusted to such Warrant Price as would have obtained had the
adjustment made upon the issuance of such options, rights, securities or options
or rights related to such securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities and subsequent
conversion or exchange thereof.
(ii) "Excluded Stock" shall mean shares of Common Stock (1) issued as a
stock dividend payable in shares of Common Stock or upon any subdivision or
split-up of the outstanding shares of Common Stock; (2) issued upon exercise of
the Warrants; (3) issued upon exercise of stock options granted under the
Company's stock option plans, (4) issued in connection with the Ottomanelli
merger transaction and the conversion of certain outstanding securities; (5)
issued upon exercise of all outstanding warrants and the conversion of all
outstanding convertible securities; (6) issued in connection with the Proposed
Private Placement and (7) which are issuable in connection with other employee
stock options or employee stock purchase rights approved by the Board of
Directors of the Company granted or issued by the Company subsequent to the date
hereof.
(iii) If, at any time after the date hereof, the number of shares of Common
Stock outstanding is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, following
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up, the Warrant Price shall
be decreased by a percentage equal to the percentage increase in outstanding
shares of Common Stock.
(iv) If, at any time after the date hereof, the number of shares of Common
Stock outstanding is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date for such combination, the Warrant
Price shall be increased by a percentage equal to the percentage decrease in
outstanding shares of Common Stock.
(v) If, at any time after the date hereof, the Company shall declare a cash
dividend upon its Common Stock payable otherwise than out of earnings or shall
distribute to holders of its Common Stock shares of its capital stock (other
than Common Stock), stock or other securities of other persons, evidences of
indebtedness issued by the Company or other persons, other assets or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the Company convertible into or exchangeable for Common
Stock), then, in each such case, immediately following the record date fixed for
the determination of the holders of Common Stock entitled to receive such
dividend or distribution, the Warrant Price in effect thereafter shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date by a fraction of which the numerator shall be an amount equal to the
remainder of (x) the Current Market Price of one share of Common Stock less (y)
the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the stock, securities, evidences of
indebtedness, assets, options or rights so distributed in respect of one share
of Common Stock, and of which the denominator shall be such Current Market
Price. Such adjustment shall be made on the date such dividend or distribution
is made, and shall become effective at the opening of business on the next
business day following the record date for the determination of stockholders
entitled to such dividend or distribution.
<PAGE>
(vi) If, at any time after the date hereof, there is any capital
reorganization, or any reclassification of the stock of the Company (other than
a change in par value or from par value to no par value or from no par value to
par value or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the Company with or
into another person (other than a consolidation or merger in which the Company
is the continuing Company and which does not result in any change in the terms
of the Common Stock) or of the sale or other disposition of all or substantially
all the properties and assets of the Company as an entirety to any other person,
then after such reorganization, reclassification, consolidation, merger, sale or
other disposition, this Warrant shall be exercisable for the kind and number of
shares of stock or other securities or property of the Company or of the Company
resulting from such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed, to which the
holder of the number of shares of Common Stock deliverable (immediately prior to
the time of such reorganization, reclassification, consolidation, merger, sale
or other disposition) upon such exercise would have been entitled upon such
reorganization, reclassification, consolidation, merger, sale or other
disposition. The provisions of this Section 7.1 (vi) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(vii) All calculations under this Section 7.1 shall be made to the nearest
one tenth (1/10) of a cent or to the nearest one tenth (1/10) of a share, as the
case may be.
7.2 Current Market Price. For the purpose of any computation pursuant to
this Section 7, the Current Market Price at any date of one share of Common
Stock shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days ending no more than 15 days before the day in question
(as adjusted for any stock dividend, split-up, combination or reclassification
that took effect during such 30 trading day period). The closing price for each
day shall be the last reported sale price regular way or, in case no such
reported sale took place on such day, the average of the last reported bid and
asked prices regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading (or if the
Common Stock is not at the time listed or admitted for trading on any such
exchange, then such price as shall be equal to the average of the last reported
bid and asked prices, as reported by the National Association of Securities
Dealers Automated Quotations System ("NASDAQ") on such day, or if, on any day in
question, the Common Stock shall not be quoted on the NASDAQ, then such price
shall be equal to the last reported bid and asked prices on such day as reported
by the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to in this Section 7.2 are available for the
period required hereunder, the Current Market Price shall be determined in good
faith by the Board of Directors of the Company, or if such determination cannot
be made, by a nationally recognized independent investment banking firm selected
by the Board of Directors.
7.3 Occurrence of Event. In any case in which the provisions of this
Section 7 shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the occurrence of
such event (a) issuing to the Warrantholder who has exercised this Warrant after
such record date and before the occurrence of such event the additional shares
of capital stock issuable upon such conversion or exercise by reason of the
adjustment required by such event over and above the shares of capital stock
issuable upon such exercise before giving effect to such adjustment and (b)
paying to such holder any amount in cash in lieu of a fractional share of
capital stock provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.
<PAGE>
7.4 Filing of Statement re Adjustment. Whenever the Warrant Price shall be
adjusted as provided in this Section 7, the Company shall forthwith file, at the
office of the transfer agent for the Common Stock or at such other place as may
be designated by the Company, a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such adjustment and
the Warrant Price that shall be in effect after such adjustment. The Company
shall also cause a copy of such statement to be sent by first-class certified
mail, return receipt requested, postage prepaid, to the Warrantholder at its or
his address appearing on the Company's records. Where appropriate, such copy
may be given in advance and may be included as part of a notice required to be
mailed under the provisions of Section 7.5.
7.5 Notice. In the event the Company shall propose to take any action of
the types described in clauses (i), (iii), (iv), (v) or (vi) of Section 7.1, the
Company shall give notice to the Warrantholder, which notice shall specify the
record date, if any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Warrant Price and the number, kind or class of shares of other securities or
property which shall be purchasable upon the occurrence of such action or
deliverable upon exercise of this Warrant. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
20 days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 30 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
7.6 Fully Paid. All Shares which may be issued in connection with the
exercise of this Warrant will, up on issuance by the Company in accordance with
the terms of this Warrant, be validly issued, fully paid and nonassessable with
no personal liability attaching to the ownership thereof and free from all
taxes, liens or charges with respect thereto.
SECTION 8. Entire Agreement. This Warrant and the Purchase Agreement
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangement or
understanding with respect thereto.
SECTION 9. Headings. The headings of the various sections of this Warrant
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Warrant.
SECTION 10. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 11. Governing Law. This Warrant shall be governed by and construed
in accordance with, (a) the laws of the State of New York applicable to
contracts made and to be performed wholly therein, and (b) the laws of the State
of Delaware applicable to corporations organized under the laws of such State.
IN WITNESS WHEREOF, the Company has duly executed this Agreement as of the
date first written above.
THE RATTLESNAKE HOLDING COMPANY, INC.
By_______________________________________
Authorized Signature
<PAGE>
EXERCISE FORM
(to be signed only upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder, _____________
shares of Common Stock (the "Purchased Shares"); and, if the Purchased Shares
shall not be all the Shares purchasable hereunder, then a new Warrant
certificate for the balance of the Warrant Amount shall be issued in the name of
the undersigned Warrantholder and delivered to the address stated below. This
Exercise Form is accompanied by cash or a certified or cashier's check payable
to The Rattlesnake Holding Company, Inc. in the amount of $___________________,
representing the aggregate Warrant Price of this exercise.
Dated: ______________________, 19___
Name of Warrantholder: ________________________________
(Please Print)
Address:_________________________________________________________
_________________________________________________________
Signature: ___________________________
Note: The above signature must correspond with the name as written upon the
face of this Warrant in every particular, without alteration or enlargement or
any change whatever and the signature must be guaranteed by a commercial bank or
securities broker having its principal place of business in the City, County and
State of New York.
<PAGE>
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________________
_________________________________________________________________________
(Name and Address of Assignee must be printed or typewritten) the within
Warrant, hereby irrevocably constituting and appointing
_________________________________________________________________________
attorney to transfer said Warrant on the books of The Rattlesnake Holding
Company, Inc., with full power of substitution in the premises.
Dated:
______________________________
Signature of Warrantholder
_______________________________
Signature Guaranteed
Note: The above signature must correspond with the name as written upon the
face of this Warrant in every particular, without alteration or enlargement or
any change whatever and the signature must be guaranteed by a commercial bank or
securities broker having its principal place of business in the City, County and
State of New York.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000935499
<NAME> THE RATTLESNAKE HOLDING COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-28-1998
<PERIOD-START> JUN-30-1997
<PERIOD-END> JUN-28-1998
<CASH> 311,000
<SECURITIES> 0
<RECEIVABLES> 17,000
<ALLOWANCES> 0
<INVENTORY> 29,000
<CURRENT-ASSETS> 369,000
<PP&E> 242,000
<DEPRECIATION> 161,000
<TOTAL-ASSETS> 785,000
<CURRENT-LIABILITIES> 3,322,000
<BONDS> 0
0
6,000
<COMMON> 11,000
<OTHER-SE> 12,555,000
<TOTAL-LIABILITY-AND-EQUITY> 785,000
<SALES> 3,889,000
<TOTAL-REVENUES> 3,761,000
<CGS> 3,935,000
<TOTAL-COSTS> 6,997,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 261,000
<INCOME-PRETAX> (3,236,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,236,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 104,000
<NET-INCOME> (3,340,000)
<EPS-BASIC> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
